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Peak Oil is still the reality of the future

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In a reply to my previous contribution, “The falling oil price may presage a future recession”, Civil Economist Magnus Grill (19 October in Swedish) says that I assert, “that Peak Oil does not mean that oil will run out rather than that demand for oil will disappear. Thus it is no longer a question of Peak Oil from a production standpoint rather than now it is from a demand standpoint. This means that Aleklett has completely altered his early reasoning.” I must disappoint Magnus Grill. Peak Oil is still related to production of oil from oilfields.

When we discuss Peak Oil we do this based on the fact that oil production in an area or group of areas reaches a maximum and then declines. There are several factors that determine the production profile when production begins within an area but ultimately it is geological parameters that are decisive for determining when production will fall. We have discussed this in several scientific papers.
If we examine the oil production from the North Sea we see that it reached a maximum in 2001 of 6.3 million barrels per day. Since then the oil price has risen five-fold and that should, according to economic theories, have stimulated production. The reality is that production since then has fallen to below half of the 2001 peak. The reality is that it is field distribution, flow equations and other natural parameters that limit production. Peak Oil for the North Sea occurred in 2001.

According to Magnus Grill, it is reduced demand that ultimately will cause a peak in oil production. Oil will become so expensive that fewer will have the means to pay for it. The dynamic that Grill refers to is simply the other side of the same coin. The question that is interesting to address in this situation is why the price of oil [of more recent years] increased so dramatically compared with previous long term trends and how the price will trend in the future. Of course, the price of oil is very significant for determining production, especially for production of the last half of global oil reserves. Early on in our research we often discussed the oil that is technically possible to produce without discussing price in detail. In such a discussion Peak Oil becomes a matter of the maximal production that is technically possible.

If price affects production such that all the technically producible oil is not exploited then this means that the oil peak referred to by Magnus Grill (i.e. determined by demand) will be lower than the technical limit. More recently we have included economic parameters in our models and we have even been able to show how operators can close down production in a region due to their optimization of the economic value of the remaining oil in a particular field. We see that the price of oil affects the level of total oil production but that the shape of the production profile is the same as for projections based on technical feasibility. In all cases, production ceases when a significant proportion, more than half, of the total technically producible resource remains in the ground.

Another example is Canada’s oil sands that, in 2006, were held up as the future saviour of the world from global Peak Oil. In 2007 we published an article in which we studied production from the oil sands under a so-called “crash management scenario”. Our results showed a maximal technically possible production rate of 5.5 million barrels per day in around 2035. Production estimates incorporating realities such as costs and profitability gave much lower prognoses according to IEA, International Energy Agency.

When we coined the phrase “Peak Oil” in 2001 it was primarily conventional oil production that was considered. Published articles asserted that this aspect of oil production would reach a peak during the period 2004 to 2010. The International Energy Agency (IEA) now gives the peak of conventional oil production as having occurred in 2008 and, since then, we have seen a decline in conventional oil production. In a scientific article in 2009 we showed that the rate of decline in production of conventional oil from the oilfields in production a specific year was 6% per year. In November last year the IEA confirmed that this is the true decline rate.
When the Financial Times discusses that we will reach “Peak Oil demand” they have, in reality, admitted that they do not believe that the technically feasible production maximum, “Peak Oil” will be reached because it would require too high an oil price. The decline that we now see in conventional oil production is compensated, for the moment, by shale oil production in the USA and that means that total global oil production can continue at the current level for a few years. All the new marginal production is very price-sensitive so we cannot expect large quantities of cheap oil in the future.
Ten years ago when we began intensive research on future oil production the IEA considered that continued global economic growth (demand) would require a production level of 123 million barrels per day by 2030. Today reality looks completely different. Why do economists and other not criticize the IEA for being so mistaken?


Aleklett’s Energy Mix

34 Comments on "Peak Oil is still the reality of the future"

  1. paulo1 on Fri, 24th Oct 2014 9:29 am 

    re: Why do economists and other not criticize the IEA for being so mistaken?

    Economists are not prone to question much of anything as far as I can see, plus they have too much invested (excuse the pun)in the staus quo.

    They are all trying to stay in the same club and relish their role as ‘omniscient shamans’.

    Studying economics is a degree and indoctrination about money. They jazz it up to make it a pseudo-science and after awhile believe it is thus.


  2. Davy on Fri, 24th Oct 2014 9:44 am 

    It is strange that economist are willing to argue a pseudo economic PO when it is related to supply/demand but vehemently argue against production/geology PO. Could this be because geology does not fit into the abstract nonphysical world of economics? In this abstract world or economist substitution and innovation through knowledge and the markets will transcend finitude? If economist acknowledge a peak oil from demand they are still safely within the envelope of economic equilibrium. Supply and demand are in balance all is well. What is the problem? Or so it goes.

  3. GregT on Fri, 24th Oct 2014 10:14 am 

    Why do economists and other not criticize the IEA for being so mistaken?

    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
    ― Upton Sinclair

  4. JuanP on Fri, 24th Oct 2014 10:14 am 

    Kjell rules. I hadn’t read anything by him lately. He is one of the people I’ve learnt more from in the PO world.
    Keep up the good work, professor!

  5. Plantagenet on Fri, 24th Oct 2014 10:33 am 

    Conventional oil peaked in 2008. If unconventional fracked oil peaks in a few more years we will hit peak oil sensu stricto sometime before 2020.

  6. Davy on Fri, 24th Oct 2014 10:41 am 

    Damn planter your making me look up stuff

  7. Plantagenet on Fri, 24th Oct 2014 10:58 am 

    Roger that Daver

  8. Northwest Resident on Fri, 24th Oct 2014 10:58 am 

    Minor point, but I thought conventional oil peaked in 2005. Conventional oil output certainly hasn’t increased since 2005 — or so I read. Which is it?

  9. Perk Earl on Fri, 24th Oct 2014 11:02 am 

    I hope Ghung doesn’t mind my pasting a post of his from a sideline article, but I wanted to do so to point out that the Fed keeps putting off selling the QE bonds accumulated via QE1-3.

    This planned sell off of QE presto magic created bonds is something stock and commodity traders are watching for the timing of very closely, because once that bad apple gets bitten into, my understanding is interest rates will rise and foreclosures will follow. That probably will herald in another deep recession, with stock and oil prices falling sharply.

    So I guess it’s alright to conjure up money and use it as stimulus, but to pay the piper is another matter all together. … of-qe.html

    Quantitative easing may turn out to be a gift that keeps on giving for the U.S. economy.

    As the Federal Reserve prepares to end its third round of bond buying next week, the central bank plans to hang on to the record $4.48 trillion balance sheet it has accumulated since announcing the first round of purchases in November 2008.

    That will continue to keep a lid on borrowing costs, helping the Fed lift inflation closer to its target and providing support to a five-year expansion facing headwinds abroad, from war in the Mideast to slowing growth in Europe and China…

  10. MonteQuest on Fri, 24th Oct 2014 11:19 am 

    Northwest Resident. If oil sands are excluded then crude oil and lease condensate production did peak in 2005 at 72.75 mbd.

  11. JuanP on Fri, 24th Oct 2014 11:37 am 

    NR, It is all about what is included in that oil definition used. I don’t remember the details. Help!

  12. Northwest Resident on Fri, 24th Oct 2014 11:48 am 

    Perk Earl — You and I seem to be zeroing in on the same ticking time bomb. Yes, it is true, as bad as things are for our global economy, and as duct-taped together as the whole charade is, beneath that thin layer of cheap spray paint there are even more serious dangers hiding. Honestly, it seems like a miracle to me that they’ve been able to keep it all together as long as they have. Not a miracle, but a technological and financial wizardry feat of pure genius. Just like some of the software products I’ve worked on — so many bugs and so many intertwined complexities that its a wonder anybody can get work done with it, but they do, compliments of armies of programmers frantically working behind the scenes. I’ve been reading that the specter of deflation is the real terror that TPTB are secretly terrified of. QE1 through QE3 were valiant attempts to spur inflation and some semblance of a growing economy, but it looks like those efforts have failed miserably, and in so doing left a “little” toxic waste behind (those QE bonds) that just like nuclear waste they have no idea what to do with. The pressure is building…

  13. Northwest Resident on Fri, 24th Oct 2014 11:55 am 

    MonteQuest — Yeah, that’s what I recall reading from several sources that I felt were reliable. JuanP — I *think* I know what conventional oil definition is, but I don’t dare to put it in writing because there seem to be several different interpretations and competing definitions. But, in general, it’s that black gold that came bubbling up out of the ground when Jed Clampett took a shot at a rabbit and missed, poking a hole in the ground — that’s my “scientific” definition!

  14. JuanP on Fri, 24th Oct 2014 12:07 pm 

    NR, I love the Beverly Hillbillies!
    I usually don’t know what oil definition people are using, and no longer care as I used to. And the exact peak date is not important, IMO. What is important, as Rock says, is the POD. The Undulating Plateau is what matters, whether 2005 or 2008 is slightly higher makes no difference. Many people have used 2005 as the peak year and that is the date most agreed on in the PO community, I think.
    I would never dispute Professor Kjell Aleklett’s Peak Oil knowledge. The guy has crunched his numbers and his knowledge of PO is many times bigger than mine. He is one of the original “Peak Oil” dudes. Maybe some of the specialists here know better, I don’t.

  15. rockman on Fri, 24th Oct 2014 12:13 pm 

    “…that the technically feasible production maximum…”. Which IMHO has never been the definition of PO. PO is a simple statistic best seen in the review mirror. PO never was and never will be determined solely by just one factor be it geology, pricing, geopolitics, etc. IMHO.

    Oil classification: As Monte highlights some consider the oil sands as unconventional and some don’t. Same with other sources. The oil patch has never used convention/unconventional to classify oil. We have conventional and unconventional RESERVOIRS which have very well known definitions. The oil classification has just been a handy simplification. IOW there are oils with very similar compositions coming from both conventional and unconventional reservoirs. For instance there are conventional reservoirs producing such crappy high sulfur oil they make the oil sands production look like good.

    And as others have pointed out using such classifications for the oil itself isn’t as important as the various yields from the different oil. Also the variation between how different refineries can handle the different oil types is more important then the classification.

  16. Plantagenet on Fri, 24th Oct 2014 12:24 pm 

    In his article above Prof. Alekett says: “we coined the phrase “Peak Oil” in 2001 it was primarily conventional oil production that was considered. Published articles asserted that this aspect of oil production would reach a peak during the period 2004 to 2010. The International Energy Agency (IEA) now gives the peak of conventional oil production as having occurred in 2008 and, since then, we have seen a decline in conventional oil production.”

    If Prof. Alekett AND the EIA believe the peak in conventional oil was in 2008, then that date has some serious credibility.

  17. JuanP on Fri, 24th Oct 2014 12:25 pm 

    Rock, I agree. It was never about what was technically feasible. Peak Oil is about oil production and all the factors that affect it. Good observation!

  18. JuanP on Fri, 24th Oct 2014 12:27 pm 

    Plant just got the IEA and EIA mixed up! 😉

  19. JuanP on Fri, 24th Oct 2014 12:27 pm 

    Your point was good, though, Plant.

  20. Northwest Resident on Fri, 24th Oct 2014 12:33 pm 

    2008 it is then! Like I said, minor point. rock’s POD is what we need to keep an eye on.

  21. rockman on Fri, 24th Oct 2014 12:43 pm 

    Juan – Believe it or not I drilled in a field several years that actually produced Clampett oil: long ago they dug shallow trenches and soaked the oil up with gunny sacks. Didn’t even need to shoot holes in the ground. LOL.

    I don’t have a problem with folks referring to oil as unconventional etc. The problem is that there are a variety of definitions around. So when you see someone toss out X million bbls of “oil” do we know what they are counting? Is oil from a horizontally drilled and frac’d conventional reservoir “unconventional oil”? Is 30 API oil produced from a vertical unfrac’d well completed in a fractured limestone reservoir “conventional oil”? Is oil that is washed out of dug up sand from a conventional reservoir “unconventional” or “conventional” oil? Is oil that doesn’t even flow out of the ground, such as biosourced, even “oil”?

    And that doesn’t even delve into the question of NGL’s that are, in fact liquid hydrocarbons: are they even oil? If so conventional or unconventional? And if they are produced from a unconventional reservoirs using conventional completion methods? And if they are produced from a conventional reservoir using an unconventional completion method.

    None of these examples are theoretical: they exist somewhere. There you go… clear as mud. LOL.

  22. Apneaman on Fri, 24th Oct 2014 12:48 pm 

    Main stream Economists are the high priests of the modern capitalists world.They are the legitimizes of the elite and the system that keeps them in power. Like any priestly class in history they come from the lower ranks (not the elite) and thus improve their status and wealth to a degree not otherwise possible or likely. They are well paid brown nosers and yes men and I’m sure many of them are true believers. It does not matter whether the ideology is secular or supernatural, most people are sheep and need to believe. That’s not necessarily a judgement of people, but rather an observation of our nature as social monkeys. Capitalism will fall and a different belief system will emerge and most people will think it’s the best and most righteous system ever and many will defend it to the death until it to runs it’s course…….rinse and repeat.

  23. Perk Earl on Fri, 24th Oct 2014 1:48 pm 

    “I’ve been reading that the specter of deflation is the real terror that TPTB are secretly terrified of. QE1 through QE3 were valiant attempts to spur inflation and some semblance of a growing economy, but it looks like those efforts have failed miserably, and in so doing left a “little” toxic waste behind (those QE bonds) that just like nuclear waste they have no idea what to do with.”

    Yeah NWR, so toxic they keep telling Wallstreet they have no immediate plans to sell them so the party goes on a little while longer. The fragility of the system is palpable if they cannot even set a date to start selling them.

  24. Perk Earl on Fri, 24th Oct 2014 2:01 pm

    WTI –1.35 to 80.74
    Brent –.95 to 85.88

    Oil prices had bottomed out close to the above prices, then started to go back up a little, but are now back down again. Yet at the same time the stock market, which recently lost about a 900 points on the Dow over a short period of time has been gaining back that lost ground and today is up

    +110 to 16,788 pts.

    If it goes up another 222 pts. it will have completely rebounded. I would have thought with oil dropping as much as it did, stocks would to some degree follow suit. But apparently not. Any ideas what is going on here?

  25. Northwest Resident on Fri, 24th Oct 2014 2:06 pm 

    Perk — The whacky crew of commenters over on Zero Hedge seem to have the majority consensus that it doesn’t matter what happens — the Fed and their cohorts operating behind the scenes will always be able to “fix” things, will always be able to print more money or take more money as needed. And to a certain extent I agree with that majority consensus — EXCEPT, the one critical component that is often lacking in that line of thought is the physical limitations we are running into — oil, metals, land, food, etc… To keep the global financial system fully inflated takes a LOT of physical resources, just exactly what we’re running out of, at least, those that can be extracted and/or used at a price that doesn’t cause a train wreck. If it wasn’t for the physical limits combined with the fact we’re destroying our biosphere ever more on a daily basis (and THAT has consequences as well), I would guess that TPTB could keep this crazy global economy going indefinitely. But those damn physical limits cannot be manipulated or papered over. Something has got to give!

  26. Northwest Resident on Fri, 24th Oct 2014 2:07 pm 

    “Any ideas what is going on here?” — Total, blatant, unrestrained manipulation. That’s my guess.

  27. Perk Earl on Fri, 24th Oct 2014 2:15 pm 

    It’s difficult to know how accurate the following articles are but anyway…

    Blatant & Obscene Stock Market Manipulation!

    What is happening is that as the masses (read public) dump their millions of shares, someone, presumably the “POWERS WHO BE” is propping the market up. The depth of the ticks are showing that the price is being dumped, but someone is buying them back as fast and even faster than they are being dumped. To elevate the price to create the illusion that the share is not falling, but in fact going up. They must buy at a faster rate than they are being sold at. Someone dumps a large parcel and the price falls, then the “RAMPERS” RAMP the price back up. This is occurring for periods of up to 1/2 hour.

    Market Manipulations Become More Extreme, More Desperate

    In reference to a chart that is in the article, is the following:
    As you can see from the graphs, gold was forced lower while the stock market futures were forced higher. There was no apparent news or market events that would have triggered this type of reaction in either the gold or stock market.

  28. Davy on Fri, 24th Oct 2014 2:39 pm 

    NR/Perk, remember the black swans circling. I would also consider the earlier post by Short showing the descent in oil demand from POD. The repression manipulation can only control attitude. It cannot control physics, geolgy, circumstance. IOW it can manipulate the investor but only react to the world. In fact it’s reaction to the world is surreal and irrational so do I need to say much more. How many species or civilizations made it very far discounting reality?

  29. Apneaman on Fri, 24th Oct 2014 3:23 pm 

    What has been the fate of societies that have debased their currency in the past? Any rousing historical success? Nate Hagens had a good point when he said money is nothing but a future claim on resources. There are more claims then resources, way more. Someone is going to come out empty handed.

  30. Northwest Resident on Fri, 24th Oct 2014 3:35 pm 

    “Someone is going to come out empty handed.”

    Someone, like “the fish”?

  31. Davy on Fri, 24th Oct 2014 4:23 pm 

    Apnea/NR, good point that twerked my mind. Imagine a collapsed world. How many billionaires or multi-millionaires would actually have a claim to much of their fortune? First fact is the majority of that wealth is paper and will disperse like a popcorn fart in a market collapse. It will come down to physical control and generally local control at that. Sure some of these folks may have small armies of security folks and administrators but would they have the boots on the ground across the expanse of the physical locations this wealth resides in to have actual control. We know of course much will depend on the rule of law and extent of governmental administration but this lost control phenomenon will be true of centralized governments also. My point is in a smaller world much of these globalists high net worth individuals will deflate into something smaller. Some will be swallowed up completely by the circumstances of collapse. Remember what Gaddafi look like in the end when his wasted body was drug out of a drain pipe to be badgered and humiliated before the fatal shot to his head. When you see these wonderfully rich people you need to realize many of them are just fish to be filleted when TSHTF.

  32. Northwest Resident on Fri, 24th Oct 2014 5:02 pm 

    Davy — I imagine there are plenty of dumb and/or clueless rich people out there who haven’t adequately prepared their getaway plans. Many of them might end up like Gaddafi, though I wouldn’t wish that on anybody. And even the best laid getaway plans don’t work sometimes — flat tire, lost the keys, road blocked by a mob — that sort of thing. But a lot of those wealthy people I’m sure are busy converting their hard-earned cash into physical wealth and long term preps — a lot of the same things you and I and others are doing, only on a grander scale.

    Digital wealth, which constitutes a significant portion of total “wealth” today, will most definitely disappear like a popcorn fart in a strong wind in the worst-case collapse scenario we sometimes envision and speculate about. Heck, most of that wealth would disappear with just a typical run-of-the-mill stock market crash. Before that happens, I imagine the big players described in the linked article above will first reel in their haul of fish, skin them, gut them and deep fry them for one last scrumptious gluttonous feast before the really big hit comes crashing down to wipe out the remaining “wealth”.

    But I got some great news this afternoon. As you know, I work in a financial software development company. One of our financial analysts, the guy who actually knows all about stocks and bonds and shorts and derivatives and all that, started talking to me about some tv show he watched called “Preppers” — something like that. We had a nice discussion. I told him that the one thing I was concerned about was an economic collapse. This financial analyst assured me that would “NEVER” happen. According to him, the global economy is too big to fail — he argues that the immensity and complexity of the global economy is the very thing that will keep it from collapsing. He seems to think that since we are all collectively tied into the global economy, that we will collectively somehow work together to keep it going.

    So, there you have it, the exact opposite of what I’ve come to believe is true. I mentioned oil and was going to get the peak oil concept into the conversation, but his phone rang and he had to go back to work.

    The majority of people out there are clueless. They are fish. And that’s just the way it is.

  33. Perk Earl on Fri, 24th Oct 2014 11:31 pm 

    “This financial analyst assured me that would “NEVER” happen. According to him, the global economy is too big to fail — he argues that the immensity and complexity of the global economy is the very thing that will keep it from collapsing.”

    That is good news. Phew, for a while there I thought we were in trouble. LOL!

    It’s amazing how blind most people are to what is really going on, secure with TPTB to hold things together. I have faith they will try any kind of desperate measure conceivable until the wheels fall off, but when they do there sure will be a lot of people vexed by the sudden change. “But, but, I thought we were fracking our way to energy independence! I thought the Fed had it all under control! I’m feeling insecure now, so where’s my phone? If I can use an app I’m sure everything’s going to be alright.”

  34. Kenz300 on Sat, 25th Oct 2014 11:14 am 

    Peak oil is still the future……..

    Diversify…..diversify….diversify away from fossil fuels……

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