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Former BP geologist: peak oil is here and it will ‘break economies’

Former BP geologist: peak oil is here and it will ‘break economies’ thumbnail

Industry expert warns of grim future of ‘recession’ driven ‘resource wars’ at University College London lecture

A former British Petroleum (BP) geologist has warned that the age of cheap oil is long gone, bringing with it the danger of “continuous recession” and increased risk of conflict and hunger.

At a lecture on ‘Geohazards’ earlier this month as part of the postgraduate Natural Hazards for Insurers course at University College London (UCL), Dr. Richard G. Miller, who worked for BP from 1985 before retiring in 2008, said that official data from the International Energy Agency (IEA), US Energy Information Administration (EIA), International Monetary Fund (IMF), among other sources, showed that conventional oil had most likely peaked around 2008.

Dr. Miller critiqued the official industry line that global reserves will last 53 years at current rates of consumption, pointing out that “peaking is the result of declining production rates, not declining reserves.” Despite new discoveries and increasing reliance on unconventional oil and gas, 37 countries are already post-peak, and global oil production is declining at about 4.1% per year, or 3.5 million barrels a day (b/d) per year:

“We need new production equal to a new Saudi Arabia every 3 to 4 years to maintain and grow supply… New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover – but production is still falling at 4.1% p.a. [per annum].”

Dr. Miller, who prepared annual in-house projections of future oil supply for BP from 2000 to 2007, refers to this as the “ATM problem” – “more money, but still limited daily withdrawals.” As a consequence: “Production of conventional liquid oil has been flat since 2008. Growth in liquid supply since then has been largely of natural gas liquids [NGL]- ethane, propane, butane, pentane – and oil-sand bitumen.”

Dr. Miller is co-editor of a special edition of the prestigious journal, Philosophical Transactions of the Royal Society A, published this month on the future of oil supply. In an introductory paper co-authored with Dr. Steve R. Sorrel, co-director of the Sussex Energy Group at the University of Sussex in Brighton, they argue that among oil industry experts “there is a growing consensus that the era of cheap oil has passed and that we are entering a new and very different phase.” They endorse the conservative conclusions of an extensive earlier study by the government-funded UK Energy Research Centre (UKERC):

“… a sustained decline in global conventional production appears probable before 2030 and there is significant risk of this beginning before 2020… on current evidence the inclusion of tight oil [shale oil] resources appears unlikely to significantly affect this conclusion, partly because the resource base appears relatively modest.”

In fact, increasing dependence on shale could worsen decline rates in the long run:

“Greater reliance upon tight oil resources produced using hydraulic fracturing will exacerbate any rising trend in global average decline rates, since these wells have no plateau and decline extremely fast – for example, by 90% or more in the first 5 years.”

Tar sands will fare similarly, they conclude, noting that “the Canadian oil sands will deliver only 5 mb per day by 2030, which represents less than 6% of the IEA projection of all-liquids production by that date.”

Despite the cautious projection of global peak oil “before 2020”, they also point out that:

“Crude oil production grew at approximately 1.5% per year between 1995 and 2005, but then plateaued with more recent increases in liquids supply largely deriving from NGLs, oil sands and tight oil. These trends are expected to continue… Crude oil production is heavily concentrated in a small number of countries and a small number of giant fields, with approximately 100 fields producing one half of global supply, 25 producing one quarter and a single field (Ghawar in Saudi Arabia) producing approximately 7%. Most of these giant fields are relatively old, many are well past their peak of production, most of the rest seem likely to enter decline within the next decade or so and few new giant fields are expected to be found.”

“The final peak is going to be decided by the price – how much can we afford to pay?”, Dr. Miller told me in an interview about his work. “If we can afford to pay $150 per barrel, we could certainly produce more given a few years of lead time for new developments, but it would break economies again.”

Miller argues that for all intents and purposes, peak oil has arrived as conditions are such that despite volatility, prices can never return to pre-2004 levels:

“The oil price has risen almost continuously since 2004 to date, starting at $30. There was a great spike to $150 and then a collapse in 2008/2009, but it has since climbed to $110 and held there. The price rise brought a lot of new exploration and development, but these new fields have not actually increased production by very much, due to the decline of older fields. This is compatible with the idea that we are pretty much at peak today. This recession is what peak feels like.”

Although he is dismissive of shale oil and gas’ capacity to prevent a peak and subsequent long decline in global oil production, Miller recognises that there is still some leeway that could bring significant, if temporary dividends for US economic growth – though only as “a relatively short-lived phenomenon”:

“We’re like a cage of lab rats that have eaten all the cornflakes and discovered that you can eat the cardboard packets too. Yes, we can, but… Tight oil may reach 5 or even 6 million b/d in the US, which will hugely help the US economy, along with shale gas. Shale resources, though, are inappropriate for more densely populated countries like the UK, because the industrialisation of the countryside affects far more people (with far less access to alternative natural space), and the economic benefits are spread more thinly across more people. Tight oil production in the US is likely to peak before 2020. There absolutely will not be enough tight oil production to replace the US’ current 9 million b/d of imports.”

In turn, by prolonging global economic recession, high oil prices may reduce demand. Peak demand in turn may maintain a longer undulating oil production plateau:

“We are probably in peak oil today, or at least in the foot-hills. Production could rise a little for a few years yet, but not sufficiently to bring the price down; alternatively, continuous recession in much of the world may keep demand essentially flat for years at the $110/bbl price we have today. But we can’t grow the supply at average past rates of about 1.5% per year at today’s prices.”

The fundamental dependence of global economic growth on cheap oil supplies suggests that as we continue into the age of expensive oil and gas, without appropriate efforts to mitigate the impacts and transition to a new energy system, the world faces a future of economic and geopolitical turbulence:

“In the US, high oil prices correlate with recessions, although not all recessions correlate with high oil prices. It does not prove causation, but it is highly likely that when the US pays more than 4% of its GDP for oil, or more than 10% of GDP for primary energy, the economy declines as money is sucked into buying fuel instead of other goods and services… A shortage of oil will affect everything in the economy. I expect more famine, more drought, more resource wars and a steady inflation in the energy cost of all commodities.”

According to another study in the Royal Society journal special edition by professor David J. Murphy of Northern Illinois University, an expert in the role of energy in economic growth, the energy return on investment (EROI) for global oil and gas production – the amount of energy produced compared to the amount of energy invested to get, deliver and use that energy – is roughly 15 and declining. For the US, EROI of oil and gas production is 11 and declining; and for unconventional oil and biofuels is largely less than 10. The problem is that as EROI decreases, energy prices increase. Thus, Murphy concludes:

“… the minimum oil price needed to increase the oil supply in the near term is at levels consistent with levels that have induced past economic recessions. From these points, I conclude that, as the EROI of the average barrel of oil declines, long-term economic growth will become harder to achieve and come at an increasingly higher financial, energetic and environmental cost.”

Current EROI in the US, Miller said, is simply “not enough to support the US infrastructure, even if America was self-sufficient, without raising production even further than current consumption.”

In their introduction to their collection of papers in the Royal Society journal, Miller and Sorrell point out that “most authors” in the special edition “accept that conventional oil resources are at an advanced stage of depletion and that liquid fuels will become more expensive and increasingly scarce.” The shale revolution can provide only “short-term relief”, but is otherwise “unlikely to make a significant difference in the longer term.”

They call for a “coordinated response” to this challenge to mitigate the impact, including “far-reaching changes in global transport systems.” While “climate-friendly solutions to ‘peak oil’ are available” they caution, these will be neither “easy” nor “quick”, and imply a model of economic development that accepts lower levels of consumption and mobility.

In his interview with me, Richard Miller was particularly critical of the UK government’s policies, including abandoning large-scale wind farm projects, the reduction of feed-in tariffs for renewable energy, and support for shale gas. “The government will do anything for the short-term economic bounce,” he said, “but the consequence will be that the UK is tied more tightly to an oil-based future, and we will pay dearly for it.”

The Guardian



19 Comments on "Former BP geologist: peak oil is here and it will ‘break economies’"

  1. J-Gav on Mon, 23rd Dec 2013 1:23 pm 

    Nice to see some reality-based discussion in a mainstream newspaper.

  2. mo on Mon, 23rd Dec 2013 1:26 pm 

    More and more geologists coming out and speaking their mind

  3. Bob Inget on Mon, 23rd Dec 2013 1:35 pm 

    After reading this excellent article we
    understand why Dr Miller is a FORMER geologist for BP.

    Not belabor Dr Miller’s point further, OK I will. Tight oil and gas for North America is giving this economy a huge boost. If we fail to take advantage of the opportunity by exporting away this temporary but powerful benefit, we lose greed wins.

  4. rollin on Mon, 23rd Dec 2013 1:37 pm 

    One more voice added to the choir. Are you listening?

  5. eugene on Mon, 23rd Dec 2013 2:19 pm 

    I think people are listening but not comprehending. They are hearing the words but not thinking of the consequences of the meaning of the words. Americans have a severe case of over optimism. We invaded a resource rich continent, stole the resources from the inhabitants, made a lot of money and made the mistake of believing it was due incredible superiority. It is a long fall from the tower of arrogance to the hard ground of reality.

  6. DC on Mon, 23rd Dec 2013 2:27 pm 

    Of course there be continuous recessions when the price of oil gets too high. How could it be otherwise? Oil based economies need not just oil, but cheap oil to keep infinite growth a viable concern. Now, one would think that being the case, it would have occurred to a few people that the only way to avoid permanent constrained-oil recessions is to start moving the economy towards one that isnt 100% dependent on oil for its continued operation and well-being.

    But, no. With us, its an oil-based economy or no economy at all. This is why I feel collapse is inevitable no matter what tech-no-rabbits we try to pull out of our backsides. Its the unquestionable idea that everything has to be run on oil, or if absolutely forced into it, an oil-like substance that has nearly all the attributes of oil. If we cant have that, then the only ‘alternative’ is collapse. Not wind, or solar, or bio-fools, just collapse.

  7. Terry Mcnamie on Mon, 23rd Dec 2013 2:30 pm 

    More geologists need to come out of the closet. The people listen to men with letters after their name (the priestly class of scientists as it were) more than people with common sense like ourselves. Not that it’s going to do much mind, in fact it might be better at this point to keep the masses as much in the dark as possible and consolidate your local groups and plans.

  8. Kenz300 on Mon, 23rd Dec 2013 2:32 pm 

    Quote — ” Richard Miller was particularly critical of the UK government’s policies, including abandoning large-scale wind farm projects, the reduction of feed-in tariffs for renewable energy, and support for shale gas. “The government will do anything for the short-term economic bounce,” he said, “but the consequence will be that the UK is tied more tightly to an oil-based future, and we will pay dearly for it.”
    ————————–

    The price of oil, coal and nuclear keeps rising and causing environmental damage.

    The price of wind and solar keeps dropping and its safe, clean and has no monthly fuels bills that can increase over time.

    It is time to speed up the transition to more sustainable alternative fuels.

  9. Arthur on Mon, 23rd Dec 2013 3:12 pm 

    http://fingfx.thomsonreuters.com/2011/10/20/095627ce1a.htm

    The Greeks, who suffered a decrease in income of 40% since the beginning of the crisis, are now abandoning their cars in massive numbers.

    What is happening to Greece now, could happen to all of us after a cold turkey reset of the global financial system. I can very well imagine a situation where demand destruction for oil is so huge, that nobody will talk about ‘peak oil’ for a long time.

  10. shortonoil on Mon, 23rd Dec 2013 4:03 pm 

    Arthur said:

    “I can very well imagine a situation where demand destruction for oil is so huge, that nobody will talk about ‘peak oil’ for a long time.”

    Our study, “Depletion: A determination for the world petroleum reserve” says that just such an event will occur sometime between 2030 and 2035. Dr. Miller is correct; conventional crude reserves as of 2012 were 73% depleted.

    Our site will be up sometime this week at “TheHillsGroup.org”. We will start distribution of the full study by February 1. Now I must get back to it, and see if I can get the little elves with calloused fingers tips back to work.

  11. eastbay on Mon, 23rd Dec 2013 6:40 pm 

    Like we’ve been saying’ for the past ten years.

  12. tahoe1780 on Mon, 23rd Dec 2013 6:41 pm 

    “(If the EROI of)this oil was 1.1:1 then one could pump the oil out of the ground and look at it … and that’s it. It would be an energy loss to do anything else with it. If it were 1.2:1 you could refine it into diesel fuel, and at 1.3:1 you could distribute it to where you want to use it. If you actually want to run a truck with it, you must have an EROI ratio of at least 3:1 (at the wellhead) to build and maintain the truck, as well as the necessary roads and bridges (including depreciation). Ifadditionally you wanted to put something in the truck and deliver it, that would require an EROI of, say, 5:1.3 Now say you wanted to include depreciation on the oil field worker, the refinery worker, the truck driver, and the farmer; you would need an EROI of7:1 or 8:1. Iftheir children were to be educated you would need perhaps 9:1 or 10:1, to have health care 12:1, to have arts in their lives maybe 14:1, and so on.”
    http://www.scribd.com/doc/139829237/Energy-Return-on-Investment-%E2%80%93-Charles-A-S-Hall

  13. David Thompson on Tue, 24th Dec 2013 3:11 am 

    + or – energy inputs = economy, economy = energy inputs + or – This is my scientific theory of the economy. No need to put money in the equation. It all boils down to energy inputs and how they are utilized.

  14. shortonoil on Tue, 24th Dec 2013 3:31 am 

    The Second Law tells us that any system undergoing a process must give up a portion its energy as waste heat for the process to go forward. That is, you can’t build a perpetual motion machine. The combustion of 35.7 API crude must give up a minimum of 29% of its heat during the combustion process. This can be calculated from the combustion equation of the fraction in question. The lowest possible ERoEI for crude oil (and most of its products) is 1.43:1. 40,600 BTU of every gallon of crude must go up the stack. At the well head, the average barrel of conventional crude (API 30-45) now has an ERoEI of 9.6:1.

  15. Kenz300 on Tue, 24th Dec 2013 4:26 pm 

    It is time to end the oil monopoly on transportation fuel……..

    Bring on the electric, flex-fuel, biofuel, hybrid, CNG and hydrogen fueled vehicles.

    As the price of oil continues to rise all the alternatives will look better.

  16. Kenz300 on Wed, 25th Dec 2013 4:18 pm 

    “Industry expert warns of grim future of ‘recession’ driven ‘resource wars’ at University College London lecture”

    ———————–

    Too many people and too few resources….. yet the worlds population keeps growing……

    Around the world you can find a food crisis, water crisis, declining fish stocks crisis, a Climate Change Crisis, a financial crisis, and an OVER POPULATION crisis.

    Every problem is made harder to solve with the worlds ever growing population increasing consumption of resources.

    Access to family planning services needs to be available to all that want.

  17. Frank Kling on Thu, 26th Dec 2013 1:24 am 

    Well said Eugene!!!!!

  18. PaulS on Sun, 29th Dec 2013 5:42 pm 

    Governments have a dilemma:
    Either they continue to rely on fossil fuels for as long as possible, thus saving themselves the investment and the re-education of the public, keeping our energy bills low and consumption high – and a reasonable prospect of re-election.
    Or they invest in renewables, thus increase cost of energy, open themselves to criticism by opposition and quite likely be kicked out of office at the next merry go round farce.
    Long term considerations are almost irrelevant.
    We need a really deep crisis, technocratic government of scientists and a long term plan. Then in 20 years time we might allow ourselves again the luxury of democracy.

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