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Page added on February 27, 2014

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Peak Oil: Reasoned Exuberance

Consumption

The key take-away from the US EIA’s Annual Energy Outlook released [in December] jumps out in the graph below: US crude oil production should peak in 2016 at a level 26% higher than that projected just one year ago. That’s an additional 2 million barrels a day (mb/d), pushing the US total to 9.6 mb/d within three years—the same total that the US produced during its first peak in 1970, as an acquaintance at the EIA pointed out last week. That’s three more break-through years like the last two. Then flat. Finito. As some wag asked last week, is that really a recipe for a continuing oil revolution or an oil retirement party? [1]

Data: EIA’s Early Release Annual Energy Outlook, 2014.  From Ron Patterson.

[A] full appraisal of the challenge posed by oil depletion must extend beyond geological assessments of resource size to include the potential of different extraction technologies, the cost of production of different resources, the operation of global fuel markets, the geopolitics of oil security, and the technical and economic potential for both efficiency improvements and resource substitution in multiple end-use sectors. [2]

GOOD NEWS … UP TO A POINT

The increase in oil production we’ve witnessed in the last couple of years has been an impressive—and welcome—energy development. If we could begin and end the discussion there, we could move on to other national and international concerns without ever having to trouble ourselves again with concerns about powering our future. If only….

As Steve Andrews noted above, however, what’s good news for us today is not a permanent trend. Those annoying facts which constantly interrupt the flow of feel-good, Happy Talk news from industry officials and their anointed mouthpieces suggest that the problems (which we peak oil doom-and-gloomers have been urging greater awareness of) aren’t going away. Unfortunately for the good-news-only cheerleading squad, other considerations such as those nicely summarized by Richard Miller and Steven Sorrell above must also be taken into account.

REALITY INTRUDES

The reality is that conventional crude oil resources are being drawn down each and every day. That’s a problem when the resource base is finite. And given the high costs, rapid depletion rates, and assorted other impediments affecting the free and easy acquisition and flow of the next-best-thing resources (not to mention increasing demand, geopolitical intrusions, etc., etc.), the realities suggest that we should not be getting too comfortable with this recent spate of good news.

The ongoing failure on the part of our leaders and industry officials who should (and undoubtedly do) know better to properly inform the rest of us about these issues is all but guaranteed to accomplish one thing: Create more problems for all of us in the not-too-distant future. Planning and adaptation to a world where our revered primary energy supply is not producing what it’s been providing us for more than a century is a bit overwhelming on its best days. How much worse will it be for all of us if we aren’t even having meaningful discussions today?

The core issue for future supply is the extent and the rate of depletion of conventional oil, since this currently provides around 95% of global all-liquids supply. Options for mitigating this depletion include:
— substituting conventional oil with non-conventional oil;
— substituting all-oil with other non-conventional liquids (gas-to-liquids, coal-to-liquids and biofuels); and
— reducing demand for all-liquids (e.g. through improving end-use efficiency, substituting non-liquid energy carriers such as gas or electricity or reducing demand for the relevant energy services). [3]

There are no easy fixes; none inexpensive, and none of them quickly implemented. Wise leaders  would keep that in mind amid the whirlwind of production increase assessments. As painful as planning and transitioning will surely be, think of how much worse it will be for all of us if we’re only beginning that complex process when we’re in a legitimate crisis mode.

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14 Comments on "Peak Oil: Reasoned Exuberance"

  1. rockman on Thu, 27th Feb 2014 2:57 pm 

    “The increase in oil production we’ve witnessed in the last couple of years has been an impressive—and welcome—energy development.” Again, unless you’re in the oil patch like the Rockman, this is absolute bullsh*t. Let me say the same thing but from a different perspective: ““The increase in oil costs of $400 billion/year we’ve witnessed in the last 10 years has been an impressive—and unwelcomed—energy development.”

    No consumer in the US gives sh*t about how much oil we’re producing in this country. All that matters to them is how much they have to pay for energy…period. The same factors that led to the increase in US production also led to those higher prices. The American consumer was doing much better financially 10 years when we were producing less oil domestically and importing more bbls of oil. We’re sending more US $’s overseas today for the lower volume of oil imports than when we were importing more bbls 10 years ago. These are not opinions: they are cold hard facts in black and white anyone can pull from a web search.

  2. J-Gav on Thu, 27th Feb 2014 3:04 pm 

    Trouble is, these days even the partly ‘good’ news has the potential to become bad news. A case in point: new economically viable finds (rare), ramping up non-conventionals and improved extraction technology may allow us to drag out the day of reckoning for a few more years … but at the cost of bringing catastrophic climate change that much closer. As Turcotte says: “There are no easy fixes.”

  3. george on Thu, 27th Feb 2014 3:14 pm 

    Are those numbers on barrels based on the 55 gallon drum or the 42 gallon drum ?

    The history surrounding these measures is confusing at best.

  4. GregT on Thu, 27th Feb 2014 3:19 pm 

    Who are we trying to kid? Peak oil was about conventional oil. All of the rest are alternatives to the source of energy that we have come to rely on to fuel modern industrial society for the last hundred years. The the age of diminishing returns is upon us, and it’s all downhill from here.

  5. Kenz300 on Thu, 27th Feb 2014 3:43 pm 

    Conventional oil sources are decreasing………..

    Non conventional oil sources are increasing…….

  6. GregT on Thu, 27th Feb 2014 5:56 pm 

    Return on investment
    is decreasing…………

    Debt
    is increasing…………

  7. rockman on Thu, 27th Feb 2014 8:00 pm 

    George – 42 bbls.

    Speaking of going after what’s left I just reviewed a drilling deal in S. La. First, shoot a small 3d seismic program for $15 million to tie down the geology. If the picture holds together drill a 28,000’ hole at a cost of $100 million. If it works spend another $80 million to complete it. And if it does work you might make 3X your money. And that if it isn’t a $115 million failure. Which, from my owner’s perspective, is barely worth considering. He likes to stick with 5X or better.

    And you can why so many pubcos go after the shales.

  8. MSN on Thu, 27th Feb 2014 10:23 pm 

    Who are we trying to kid? Peak oil was about conventional oil. All of the rest are alternatives to the source of energy that we have come to rely on to fuel modern industrial society for the last hundred years. The the age of diminishing returns is upon us, and it’s all downhill from here….

    FFS…. WE ARE NOT THERE YET, EVEN IF WERE 1CM FROM THE FINISH LINE WE STILL HAVENT PASSED IT……

    WHY DO YOU CONTINUE TO STATE THIS. THEN TELL ME IM WRONG…

    TELL ME ABOUT HOW THE GRADE AND DECLINING EROEI ARE ISSUES WITH INCREASEING COSTS OF PRODUCTIION AND DEBT I KNOW.

    BUT WE ARE STILL ON A UNDULATING PLATEAU……

    WHEN WE START CRASHING ILL AGREE, HOWEVER I GUESS YOU WONT KNOW AS I DONT PLAN TO WASTE TIME ON MY LAPTOP.

  9. MSN on Thu, 27th Feb 2014 10:23 pm 

    LOL

  10. GregT on Fri, 28th Feb 2014 1:32 am 

    “Peak oil was about CONVENTIONAL oil.”

    Which we passed circa 2005-2008

    The resulting worldwide financial, economic, and societal fallout SHOULD be crystal clear.

    LOL

  11. Nony on Fri, 28th Feb 2014 1:37 am 

    It’s not complete bullshit. Tight oil rise is responsible for $20/bbl price relief. 100/bbl sucks less than 120/bbl. Also there are the jobs, service jobs associated with the work.

    Other than that, I agree a measured approach is needed. But the doomers were at least thrown a minor wrench. And gas is in a long term glut.

    And the “all about conventional oil” is a load of BS. That Bakken crude is almost identical to LLS. And according to Rock, the geology and technology was all ovbvious*..so you should have included it in your models.

    *Although if so, how come EOG kicked everyone’s ass in Eagle Ford as recently as 2010?

  12. GregT on Fri, 28th Feb 2014 4:55 am 

    Nony,

    $20bbl price relief cannot all be attributed to tight oil, much of it is because of unemployment, underemployment, crashed and crashing economies, war, and debt. Natural gas is not relevant to peak oil. It does not replace what oil does for us in our economies.

    ~$25bbl oil is what we have grown our economic systems around, without cheap oil our economies will fall apart and will eventually collapse. We are well on our way down the peak oil slope, and it isn’t going to get any better going forward. It is going to get one hell of a lot worse.

    You can pretend that what’s going on all around you isn’t real, but IMHO, you would be much better served if you started making plans. Most people have no idea what is going on, and you have an opportunity to get a head start. It’s your choice obviously, and nobody can make the decision for you. I doubt very much that any of us will be hanging around though, long enough to say ‘we told you so’.

  13. Nony on Fri, 28th Feb 2014 6:21 am 

    They both have an impact, Greg. An extra 3 million bpd (versus the alternative, having 3 less) is significant supply. Lessened demand from recession is huge too, I would say huger. But they’re additive, not competing. Price would be REALLY HIGH with no recession and no LTO.

    I don’t want to prepare. Some of that stuff seems really survivalist type stuff. I mean if you like it as a hobby than it’s fun regardless: work on your house, grow veggies, recycle your ammunition. 😉 But I’m an urbanite.

  14. GregT on Fri, 28th Feb 2014 6:51 am 

    You are not comparing apples to apples Nony. Supply may be up, but so is the cost of that supply. If price didn’t matter everything would be humming along quite nicely, but it does, and it is not. Four times the historical average IS really high. High enough to cause irreparable damage. Precisely what it is doing.

    There is an amazingly wonderful world out there Nony, beyond the urban concrete jungle. Survival for us as a species is normal, living in cages is not. I guess, each to his or her own. It does make me feel sad though, when I spend time in the cities. I meet so many people that really have no idea what they’re missing. Oh well.

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