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Page added on May 11, 2018

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What is peak oil? And what will happen to the industry if we reach it?

Consumption

For much of the last century, observers of the oil industry have debated when or if we might reach so-called peak oil — the point when the maximum rate of petroleum extraction is achieved.

Reasons for this peak have changed over the years, from production driven by supply, to production driven by demand. Most recently, BP has predicted that oil demand will peak by the late 2030s.

What is peak oil?

M King Hubbert, the geologist who first formalised the theory of peak oil in 1956, thought that oil production by the US would reach its pinnacle around 1970. For Hubbert, peak oil was predominately a supply issue, and he thought that given that the amount of oil under the ground in any region was finite, and that the discovery of new sources of oil must decrease over time, so too must possible extraction.

US oil production did reach a high point between 1965 and 1970, but the inevitable decline that Hubbert predicted failed to happen. Improvements in extraction technology and discoveries of previously unknown sources of oil have allowed production to remain high. Earlier this year, US oil production topped ten million barrels a day, the highest level seen since 1970.

Will we reach peak oil supply?

These days, it is generally believed that supply issues will not cause oil production to reach a peak. Anna Belova is a senior oil and gas analyst for GlobalData. She says:

While the supply of oil is indeed finite, I do not believe we would come close to approaching the supply limits in the next century.

The industry stills sees significant discoveries of conventional oil and even the opening of new oil producing regions, like pre-salt Brazil, offshore Guyana, and Arctic Russia.

Deepwater and ultra-deepwater costs have been reduced significantly from their peaks and such resources will drive a higher fraction of new production globally.

Furthermore, the technological innovations for oil extraction from very low permeability rocks and from narrow zones, which propelled the US to set record production levels over the past decade, are yet to be widely implemented on the global scale.

This view is shared by Spencer Welch, a director on the oil markets and downstream team at IHS Markit. He says:

The world will stop using oil long before it runs out. There is a famous saying that the stone age did not end because of a lack of stones, the same will be true of the oil age.

Will we reach peak oil demand?

A lack of constraints on the supply side does not mean that oil production will not peak overall. Instead, this peak will be dictated by demand.

3 Things That Will Change the World Today

Belova says:

The future of oil [is now] centred around the externalities of oil production and consumption, as well as the price that the market is willing to bear. Just as higher oil prices enable new oil extraction technologies, they also make alternative energy sources more competitive, reducing the demand for oil: the peak oil is likely to be determined by the demand curve.

Global oil demand is dependant on energy demand as a whole, oil prices, the cost and viability of other energy sources, as well as political and cultural shifts away from fossil fuel use.

Belova notes:

Present day growth in oil demand is driven by two factors: improvements in economic situation for large segments of global population, which drives per capita primary energy consumption and product demand, and continuing growth in world’s population.

As economies develop, their demand for primary energy sources stabilise (a person can only drive one car at a time, however gas-guzzling).

Furthermore, as economies develop, their populations also stabilise, thus ensuring a ceiling on the demand for all sources of energy.

Additionally, increases in oil prices, environmental regulations and concerns about energy efficiency typically lead developed economies to look to alternative sources.

For a long period, many analysts believed that demand for oil in emerging economies would balance out decreased demand in developed ones, with new economies emerging all the time. However, it no longer seems that all economies follow the same path.

Edward Morse is an American economist, and the global head of commodity research at Citi Group. He says:

There is empirical evidence that the increase in energy efficiency and the decrease in the energy intensity of GDP growth is following an identical path today in both emerging markets and advanced economies.

Energy intensity around the world is falling at a similar rate, and that means that oil demand per capita in places like China, India or Brazil will never reach the heights reached in today’s OECD.

Morse believes that the two key drivers of change to oil demand are government policy and costs. Both factors are in play globally. He notes that despite the US’s recent retreat from active government intervention in the area, global changes to oil demand are being forced through by shifting public attitudes.

This is coupled with what Morse calls “the phenomenal drop in the infrastructure costs of renewables”. Bolova agrees, saying that the main causes of reduced oil demand are increased accessibility of renewable energy sources and higher oil costs caused by tightened supply such as the recent actions of Saudi Arabia via Opec.

However, Morse notes that the most significant shift towards renewable energy has not yet been reached. He says:

What’s missing still is a breakthrough in battery power, which is required to transform interruptible sun and wind into a reliable and available 24-hour-a-day source of energy.

What does the future hold?

Over the next two decades, technological developments will further influence oil demand. Welch predicts that in the 2020s, efficiency improvements will have the biggest impact. While in the 2030s, fuel substitution such as electric vehicles will generate the most change (electric vehicles currently only account for around 2% of total car sales).

Welch believes that these changes will lead to a peak in oil demand around the late 2030s, in line with the prediction made by BP. This raises the question of what will happen afterwards, particularly to the oil industry.

Welch does not expect the subsequent decline in demand to be rapid, saying:

Although we expect oil demand to peak in the late 2030s, we expect the decline rate to be very slow. This is because, even at that point, world population will still be growing, car population increasing and oil will still be a vital source of energy right through this century.

This suggests that peak oil does not necessarily spell doom for the oil industry. As well as continuing production, albeit at a decreasing rate, the traditional oil industry may also adapt to meet new energy needs.

Belova says:

I foresee a pretty large role for the traditional oil industry in the new energy economy.

Large multinational oil companies participate in every stage of the supply process, from extraction to processing to retail delivery.

Even if oil extraction becomes less important, their expertise with processing of raw materials into lubricants, plastics, and chemical feedstock, in addition to automotive and jet fuels, will ensure that oil companies are here to stay.

Morse agrees, believing that oil companies that can adapt to new circumstances after peak demand is reached in order to survive.

He says:

The economic history of the world is filled with episodes of stranded resources and the industrial survival of the fittest, just as it is filled with the rise and decline of governing bodies.

Energy companies will have to adapt. Look at film companies or copier companies: some died out and others adapted.

The lucky ones, and those that plan a future “beyond oil” will be better off than the others.

Verdict



41 Comments on "What is peak oil? And what will happen to the industry if we reach it?"

  1. MASTERMIND on Fri, 11th May 2018 12:17 pm 

    The industry stills sees significant discoveries of conventional oil and even the opening of new oil producing regions, like pre-salt Brazil, offshore Guyana, and Arctic Russia.

    Here is the truth

    Oil discoveries in 2017 hit all-time low –Houston Chronicle
    https://www.chron.com/business/energy/article/Oil-discoveries-in-2017-hit-all-time-low-12447212.php

    We are using ten times as much oil as we are currently discovering..There are no significant discoveries of conventional.
    https://imgur.com/a/pYxKa

  2. Dredd on Fri, 11th May 2018 12:20 pm 

    What is peak oil?

    Inevitable.

  3. MASTERMIND on Fri, 11th May 2018 12:32 pm 

    What is peak oil?

    As M. King Hubbert (1956) shows, peak oil is about discovering less oil, and eventually producing less oil due to lack of discovery.

    https://imgur.com/a/rBtIrfg

  4. Outcast_Searcher on Fri, 11th May 2018 2:43 pm 

    Of course, Minimind fails to grasp (or more likely refuses to admit, in the interest of constantly cheerleading for doom) that low prices for the past several years have led to diminished exploration. Oh, and this thing called a big GLUT of supply.

    Let’s pretend that when the price gets back to, say, $100ish, as it certainly appears to be trying to do, that there will be NO additional economic incentive to look for oil, even more expensive oil to produce.

    Let’s also pretend that if global oil demand continues to increase over time (as it persistently has for decades if the global economy is growing) that it won’t escalate oil prices substantially, IF there is insufficient supply to meet demand.

    Yessirree. If Miniind wants to magically repeal the laws of economics, we can count on that, just as we can count on all the other nonsense he spews.

  5. MASTERMIND on Fri, 11th May 2018 3:35 pm 

    Outcast

    What low prices? The average price for a barrel of oil post WW2-2000 was 19 dollars a barrel (inflation adjusted).

    https://imgur.com/a/6D7El5P

    And even when oil was over 100 dollars a barrel they didn’t even discover enough to cover the worlds annual consumption.
    https://imgur.com/a/6dEDt

    New oil discoveries peaked in the 1960’s and have declined every decade since. No matter what the price of oil was. The problem is geological, not economical.

  6. MASTERMIND on Fri, 11th May 2018 3:37 pm 

    Outcast

    As M. King Hubbert (1956) shows, peak oil is about discovering less oil, and eventually producing less oil due to lack of discovery.
    https://imgur.com/a/6dEDt

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO sees oil shortage coming as investments, oil discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Peak Oil Vindicated by the IEA and Saudi Arabia

  7. MASTERMIND on Fri, 11th May 2018 3:38 pm 

    Outcast

    The End of the Oil Age is Imminent!

    Recently, the HSBC oil report stated that 80% of conventional oil fields were declining at a rate of 5-7% per year. This means that there will be an oil shortage of ~30 million barrels per day by 2030 and ~40 million barrels per day by 2040.
    http://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017

    What is mentioned far less often is that annual oil discoveries have lagged annual production since the 1980s.
    https://imgur.com/a/6dEDt

    Now, this problem has nothing to do with the recent decline in the oil price, which started in 2014. This has been an on-going problem for the past 30 years. Now, the IEA is predicting oil shortages by ~2020 due to declining exploration.
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Here, the IEA blames this problem on the low oil price. But, this problem started in the 1980s. The problem is geological: we are running out of conventional cheap oil. Shale and tar sands are not the answer, either.
    Those resources are far too expensive, compared to conventional oil, because the global economy is based on cheap conventional oil. Expensive oil is not a replacement for cheap oil.

    Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil. This will cause a global economic collapse.

  8. Dredd on Fri, 11th May 2018 4:30 pm 

    Be a burg and leave it in the ground (The “It’s In Your Genes” Myth – 3).

  9. MASTERMIND on Fri, 11th May 2018 4:38 pm 

    Dred

    We are not going to leave fossil fuels in the ground. They are what give us heat, light, and motion. without those things we go back to the dark ages..Do you really think people would give up their lifestyles to live like that? We have no choice but to keep going until we run short on resources and collapse. which is coming shortly.

  10. MASTERMIND on Fri, 11th May 2018 4:42 pm 

    I love shutting the peak oil deniers the fuck up. I mean I just fucking hammer then with sources that are irrefutable.

    I will fight them in the streets, I’ll fight them on the beach…I will never surrender!

  11. deadly on Fri, 11th May 2018 5:07 pm 

    The numbers say not any time soon, so don’t worry.

    I can guess that the end is somewhere in the future about 50 years away, for now, it is business as usual, so go fill up the tank in your car and drive a thousand miles just for the fun of it.

    You gotta get it while you can.

    Besides, Iran has heavy oil that is tough to sell, but those buyers will buy other light tight oil and blend it. Fungible is the word of the day.

    Friday is for drinking. If it’s your birthday, well, then, Happy Birthday.

  12. Harquebus on Fri, 11th May 2018 5:45 pm 

    My understanding is that, Hubbert stated that the peak in oil production can either curve or plateau and then curve.

    While they can create currency from nothing and issue it as debt and that debt is accepted on good faith, much is possible but, it is only temporary.

    Peak conventional oil circa 2005 was peak oil to me. Since then, starting with the GFC, it has all been about overcoming this phenomenon rather than adapting to it. The shale industry, siphoning off the dregs, demonstrates our total dependence on this product and the desperate lengths that we will go to, to obtain it. Invasion if necessary.

    Any coincidence between Nixon’s removal of the gold standard and peak U.S. conventional oil. Nah! Now, the replacement backstop to the U.S. dollar, the petrodollar, is also threatened.

  13. MASTERMIND on Fri, 11th May 2018 6:02 pm 

    Harque

    Yup. Peak conventional happened back in 2005. Just as Hubbert predicted it would. Here is a science paper that proves it.

    Oil’s Tipping Point Has Passed (James Murray & Sir David King 2012)
    https://www.scribd.com/document/375500703/Climate-Policy-Oil-s-Tipping-Point-Has-Passed-Murray-King-2012

  14. Boat on Fri, 11th May 2018 6:44 pm 

    Mm

    Your fight with peak oil is akin to attacking castles in the medivile age, throwing dead animal/outdated links carcasses over the wall. Your link was pre glut. Lol Only collusion by third world countries brought prices up.

  15. MASTERMIND on Fri, 11th May 2018 7:08 pm 

    Boat

    The End of the Oil Age is Imminent!

    Recently, the HSBC oil report stated that 80% of conventional oil fields were declining at a rate of 5-7% per year. This means that there will be an oil shortage of ~30 million barrels per day by 2030 and ~40 million barrels per day by 2040.
    http://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017

    What is mentioned far less often is that annual oil discoveries have lagged annual production since the 1980s.
    https://imgur.com/a/6dEDt

    Now, this problem has nothing to do with the recent decline in the oil price, which started in 2014. This has been an on-going problem for the past 30 years. Now, the IEA is predicting oil shortages by ~2020 due to declining exploration.
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Here, the IEA blames this problem on the low oil price. But, this problem started in the 1980s. The problem is geological: we are running out of conventional cheap oil. Shale and tar sands are not the answer, either.
    Those resources are far too expensive, compared to conventional oil, because the global economy is based on cheap conventional oil. Expensive oil is not a replacement for cheap oil.

    Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil. This will cause a global economic collapse.

  16. MASTERMIND on Fri, 11th May 2018 7:12 pm 

    Boat

    A Regional Oil Extraction and Consumption Model. (Dittmar 2017)
    https://arxiv.org/pdf/1708.03150.pdf

    That is authored by a particle physicist at CERN.

    Projection of World Fossil Fuels by Country (Mohr, 2015)
    https://www.scribd.com/document/375110317/Projection-of-World-Fossil-Fuels-by-Country-Mohr-2015

    Forecasting OPEC crude oil production using a variant Multicyclic Hubbert Model (Ebrahimi 2015)
    https://www.sciencedirect.com/science/article/pii/S0920410515001539

    Forecasting OPEC crude oil production using a variant Multicyclic Hubbert Model (Ebrahimi 2015)
    https://www.sciencedirect.com/science/article/pii/S0920410515001539

  17. MASTERMIND on Fri, 11th May 2018 7:16 pm 

    Boat

    UC Davis Peer Reviewed Study: It Will Take 131 Years to Replace Oil with Alternatives
    (Malyshkina, 2010)
    http://pubs.acs.org/doi/abs/10.1021/es100730q

    University of Chicago Peer Reviewed Study: predicts world economy unlikely to stop relying on fossil fuels (Covert, 2016)
    https://www.aeaweb.org/articles?id=10.1257/jep.30.1.117

  18. Boat on Fri, 11th May 2018 7:16 pm 

    Mm

    You don’t read the eia, lol. It has current production data. Wait 5 years and have an outdated, largely wrong epefhiny.

  19. MASTERMIND on Fri, 11th May 2018 7:43 pm 

    Boat

    How do you know what I read? And the EIA has a horrible track record.

    MIT Study Suggests EIA Vastly Overstates Oil Output Forecasts

    https://www.bloomberg.com/news/articles/2017-12-01/mit-study-suggests-u-s-vastly-overstates-oil-output-forecasts

    You are a dumb shit Boat..I mean really as dumb as they come..You see the world through rose colored glasses…

  20. Glenn Morton on Fri, 11th May 2018 9:26 pm 

    Boat, if you are going to use big words, it would be best to spell them right. It isn’t spelled epefhiny. Lordy lordy, how bad education is today. I am a retired Exploration director of China, Geophysical manager of GOM and of North Sea. I have been around the world looking for oil. I can tell you we are living off the past discoveries. We are not finding enough to fuel the world. At some point Saudi Arabia’s production will begin to decline. They do NOT have an infinite supply of oil, nor is there an infinite supply of oil on earth. The earth is of finite volume and cannot contain an infinite volume of oil. When the oil is gone, price won’t be able to produce it at any price. Peak oil is coming. I don’t know when, but it is coming

  21. Dredd on Sat, 12th May 2018 7:25 am 

    “what will happen to the industry if we reach it?”

    What you mean “we” whut man?

  22. rockman on Sat, 12th May 2018 10:37 am 

    “what will happen to the industry if we reach it?” For the industry as a whole very little will change. Oil prices will surge at times as well as collapse…just as we’ve always witnissed. Some companies will be profitable and some will fail…just as we’ve always seen. Some consumers will be able to afford refinery projects and some won’t…just as we’ve always seen.

    Probably the most notable change to the industry will be further consolidation. Which is not unlike we’ve witnissed in every price bust. Just as the Rockman has witnissed through out his 4 decade long career. But unlike previous portions of the cycle fewer companies will develop when prices recover.

    When the world is capable of producing only half the current the remaining producers will be doing OK. Which will be true even if the promised (but yet delivered) ECONOMIC alternative for ICE’s arrives: the world economy requires oil for other products besides motor fuels.

  23. bronzetti on Sat, 12th May 2018 8:22 pm 

    All of you doomsayers can just keep predicting doom and gloom. You can jump around to each new and worse catastrophe that you can find in order to scare people and ultimately manipulate them. Peak oil has been being predicted for almost a hundred years (kind of like the end of the world has been prophesied for thousands of years). Yes, oil reserves are finite but humans are smart and we are already shifting away from oil even though CURRENT KNOWN reserves will keep up for the next 50 years let alone NEW DISCOVERIES.
    https://www.nasdaq.com/article/how-much-oil-is-left-in-the-earth-cm711409

  24. energy investor on Sat, 12th May 2018 8:58 pm 

    I want some of what Anna Belova is smoking.

    She seems mathematically challenged.

    100 years at 35 billion bbls per year is 3.5 trillion bbls to be produced at current rates of consumption (yet it is likely to be higher than that with continued increases in demand) .

    At a huge stretch some may possibly accept one third of that time at current rates of production if the cost is relatively unimportant in restricting demand and if the current battery technology improves only slowly.

    The IPCC idiot green movement is demanding that less resource is being put into everything to do with fossil fuels. Drilling is being resisted, pipelines are being resisted and pension funds won’t allow investment in oil cos that are seen to be mass murderers. Of course that is illogical but if they are allowed to continue that polemic for another year or so, we may be past “peak oil” now and back into USD150+ per bbl oil by mid 2019.

    Russia, China, India, (now)Japan, Brazil, Pakistan and now Donald Trump disagree with the IPCC dogma.

    The big countries’ view is seemingly based on what the solar scientists are telling them about the coming Grand Solar Minimum. But regardless of who is right on that score (and we will certainly know by 2025), the major financial institutions now find it almost impossible to get a mandate to invest in oil, gas and coal.

    When China’s imports have gone from less than 1 million bbls per day 20 years ago to 9.64 million bbls per day during April this year, and India is getting ready to emulate that over the next ten years or so, I wonder where the turkeys that write the drivel above get their dope. IHS I understand because they are influenced by the oil industry. But the others?

    IMHO peak oil will occur within the next couple of years and in one sense it already has.

  25. energy investor on Sat, 12th May 2018 9:05 pm 

    Bronzetti,

    Perhaps Nasdaq can explain to dissatisfied investors why they haven’t been able to get a return on their shale investments?

    That article is just another industry puff piece. They don’t get too many folk wanting to put their money up, even with the recent increase in oil prices.

    Big oil is doing OK. The others, patchy.

    A lack of reinvestment bedevils the industry.

  26. Sissyfuss on Sat, 12th May 2018 9:12 pm 

    Rocko, cam I get a witnEss?

  27. Cloggie on Sun, 13th May 2018 12:03 pm 

    EU 2010-2017

    12% growth
    4% less electricity

    http://renewableenergy.com/blog/2018/04/20/wind-energy-surges-reflected-in-new-energy-market-reports/#more-1930

    In 2017 16% electricity from wind in the EU.

  28. Cloggie on Sun, 13th May 2018 12:09 pm 

    In October 2017, 25% of EU electricity was from wind. Of that…

    Denmark 109%
    Germany 61%
    Portugal 44%

    http://renewableenergy.com/blog/2018/02/15/wind-power-gusts-away-competition-in-europe/

    It looks as if millimind will have to find a different territory for his rape and zombie plans.

  29. MASTERMIND on Sun, 13th May 2018 12:11 pm 

    Clogg

    WOW..That is amazing! too bad oil isn’t used for electricity you uneducated neckbeard! And when the oil starts to run out! your whole world is going to come crumbling down..

    Get ready for a phase change! putin can’t save you!

  30. Cloggie on Sun, 13th May 2018 12:14 pm 

    That is amazing! too bad oil isn’t used for electricity

    Tell me what you see, you knucklehead:

    https://www.youtube.com/watch?v=ysHpmrwsEsY

  31. MASTERMIND on Sun, 13th May 2018 12:40 pm 

    Clogg

    You are changing the subject. And cars don’t power globalism. Ships, planes, trucks, do. You dumbshit. And nobody wants an electric car because you can’t take them out of the city. And you don’t save any money on fuel because the batteries deprecate by 1000 dollars year. Electric cars have been around for over 100 years and there are good reason they have never caught on. they suck.

  32. MASTERMIND on Sun, 13th May 2018 1:49 pm 

    No, the U.S. Economy Isn’t Overheating

    https://www.bloomberg.com/news/articles/2018-05-11/no-the-u-s-economy-isn-t-overheating

  33. Cloggie on Sun, 13th May 2018 1:58 pm 

    “You are changing the subject. And cars don’t power globalism.”

    Who needs f* globalism? Americans don’t need BMW, they have Ford. We don’t need Amazon, we have our own platforms. I’m already looking forward to the coming trade war.lol

    The West that is so 1945.

  34. Cloggie on Sun, 13th May 2018 2:12 pm 

    “And you don’t save any money on fuel because the batteries deprecate by 1000 dollars year.“

    Who needs batteries:

    https://deepresource.wordpress.com/2018/05/08/e-road-e-vehicles-breakthrough-in-sweden/

  35. Cloggie on Sun, 13th May 2018 2:15 pm 

    OT – MH370 brought down on purpose:

    http://www.dailymail.co.uk/news/article-5722981/Expert-panel-reveals-hours-doomed-Malaysia-Airlines-flight-pilot-avoided-detection.html

    Multiculturalism latest.

    Pilot: Zaharie Amad Shah

  36. MASTERMIND on Sun, 13th May 2018 2:49 pm 

    Clogg

    The cars still have batteries you dumbshit. Even if the stupid road charged them.

  37. MASTERMIND on Sun, 13th May 2018 2:53 pm 

    Clogg

    The daily mail is a laughable source. You cherry pick all of your sources because you know they will support your moronic ideology. I cant wait till you starve to death or are beaten to a pulp. Its coming…..

  38. Cloggie on Sun, 13th May 2018 3:30 pm 

    “The cars still have batteries, Clogmeidter, sir. Even if the stupid road charged them.”

    Batteries ten times smaller, bumpkin, sir.

    “The daily mail is a laughable source.”

    Not nearly as much as you are.

  39. MASTERMIND on Sun, 13th May 2018 3:36 pm 

    Union: Harley-Davidson will ship work to Thailand from closing U.S. plant

    https://www.usatoday.com/story/money/cars/2018/05/11/union-harley-davidson-ship-work-thailand-closing-u-s-plant/601033002/

    I hope this CEO is around when BAU goes down….He deserves to suffer…

  40. MASTERMIND on Sun, 13th May 2018 3:39 pm 

    Clog

    Electric roads are not piratical. And globalism is powered by ships, planes, and trucks…And by posting from the daily mail you humiliate yourself.

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