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Why Peak-Oil Predictions Haven’t Come True

Why Peak-Oil Predictions Haven’t Come True thumbnail

Have we beaten “peak oil”?

For decades, it has been a doomsday scenario looming large in the popular imagination: The world’s oil production tops out and then starts an inexorable decline—sending costs soaring and forcing nations to lay down strict rationing programs and battle for shrinking reserves.

U.S. oil production did peak in the 1970s and sank for decades after, exactly as the theory predicted. But then it did something the theory didn’t predict: It started rising again in 2009, and hasn’t stopped, thanks to a leap forward in oil-field technology.

To the peak-oil adherents, this is just a respite, and decline is inevitable. But a growing tide of oil-industry experts argue that peak oil looks at the situation in the wrong way. The real constraints we face are technological and economic, they say. We’re limited not by the amount of oil in the ground, but by how inventive we are about reaching new sources of fuel and how much we’re willing to pay to get at it.

“Technology moves so quickly today that any looming resource constraint will be nothing more than a blip,” says petroleum economist Phil Verleger. “We adjust.”

Whether peak oil exists is more than just a point of intellectual debate—although it certainly has proved to be a heated and divisive one for decades. The question—and how we think about it—also has a big potential impact for governments, oil producers and ordinary people across the globe, all of whom depend on the vagaries of oil production and would be threatened by soaring costs and shortages.

The peak-oil boosters argue that instead of plowing money into new ways to find oil, we should be conserving what we have and investing in alternative energy sources so that we’re prepared when supplies run low and costs soar. Most of the naysayers agree that we shouldn’t stick with oil forever. But they think it’s wiser to invest in technology to keep expanding the available supply, until it gets too expensive to do so. At that point, they’re confident, we’ll be able to come up with an economical alternative.

The History of an Idea

Peak oil was most widely popularized by M. King Hubbert, a brilliant—and egotistic, by some accounts—geologist who worked for years at Shell Oil. In a 1956 paper, he predicted that U.S. oil production would peak, probably in the early 1970s, and then decline. It would resemble a bell curve.

This came to be called Hubbert’s peak and later peak oil. The idea gained enormous popularity when U.S. oil output did in fact peak in the early 1970s. It took hold at a time when the nation was prepared to believe the worst: Drivers were waiting in long gas lines, and the nation felt it was groaning under the yoke of OPEC. Forecasters like Paul Ehrlich became celebrities with dire warnings of overpopulation and exhaustion of natural resources.

As the theory took hold, it helped justify increased investments in alternative energy, and informed some expert thinking about the future of energy. More recently, the theory saw a surge of interest a few years ago when oil prices were high and seemed stuck there.

“Welcome to the world beyond Hubbert’s peak,” wrote Kenneth Deffeyes, one of the adherents of peak oil, in 2008.

ENLARGE

Then the data took a detour from the bell curve. In 2008, the U.S. produced five million barrels a day. In 2009, U.S. oil production began to rise—at first slowly, then quickly. It is still rising today. Through the first half of 2014, it averaged 8.3 million barrels a day.

What changed? An innovation in oil-field technology, which peak-oil theory didn’t anticipate. Energy companies combined hydraulic fracturing and horizontal drilling to wring oil out of super-tight rock formations in North America. The industry figured out that pumping chemically slickened water and sand into shales could create thousands of fractures, each one a tiny path for energy molecules to travel into a well.

At first, drillers targeted natural gas because they thought oil molecules were too big to be extracted. But fracking worked to make oil wells, also. Innovations allowed the industry to locate its frack jobs better and increase density. Now other countries are starting to apply the same techniques and may see the same kinds of gains.

A Different Take

With the recent boom have come arguments that peak oil underestimates the power of innovation. Indeed, many oil experts say, the industry has a history of turning up new supplies just when prospects look bleak.

A century ago, the energy industry found giant new oil fields in Texas and California just as fears spread that oil output had peaked. As production in the U.S. began to decline, other regions picked up the slack: the North Sea, Nigeria and Saudi Arabia. Technical innovations such as using sound waves to locate oil fields through thousands of feet of water and rock spurred a boom in deep-water drilling.

More broadly, peak-oil naysayers argue, the theory looks at the problem in the wrong way—focusing on the physical supply instead of our ingenuity in being able to reach it. “There has to be a finite limit” of oil and gas in buried reserves, says George King, a global technology consultant for Apache Corp. But the constraint on how much oil can be produced isn’t geological, he believes: “We face technical and economic limits more than anything else.”

And Mr. King is an optimist about our ability to overcome technical limits. “This is an inventive industry,” he says.

One of his responsibilities at Apache, a Houston-based oil and gas company, is to stay abreast of new technologies that could boost output in years ahead. For example, he is paying attention to new ways of squeezing more oil out of tight reservoirs. When rocks are fracked, a large amount of oil remains left behind. Fracking tends to free the lighter, smaller gas and oil molecules but leaves behind heavier and stickier molecules.

One idea calls for using carbon dioxide to flood into the tight rocks and push oil out ahead of it. Another is to use nanochemistry to reduce surface tension and lift oil molecules off rock, much like a detergent lifts stains. “Some companies have really neat ideas” along these lines, he says.

What Next?

To be sure, the peak-oil naysayers don’t think we should wholly embrace oil for all time, just that we shouldn’t try to speed up any transition to alternatives in anticipation of short supplies. After all, misguided energy policy can have very bad outcomes. For instance, in the 1970s, the U.S. thought it was running out of natural gas, and Congress prohibited building any new power plants that used it. Instead, we built lots of coal plants—about half of the modern coal fleet—that burdened us with a legacy of dirty air in some cities. Not to mention that in the past few years, we have tapped an abundance of natural-gas supplies.

And naysayers agree that while they don’t believe supply limits loom, economic limits remain. When the oil industry overcomes an obstacle and boosts oil production, costs typically increase. That opens the door for a better and cheaper energy source that will eventually displace crude oil.

So at some point, the cost of getting more and more oil likely will get so high that buyers can’t—or won’t—pay.

This is an issue the late petroleum economist Morris Adelman wrestled with. “No mineral, including oil, will ever be exhausted. If and when the cost of finding and extraction goes above the price consumers are willing to pay, the industry will begin to disappear,” he wrote in “The Genie out of the Bottle: World Oil Since 1970,” a book published in 1995. Mr. Adelman, a professor emeritus of economics at the Massachusetts Institute of Technology, died earlier this year at 96.

Already, economics is bringing about some changes. Despite the abundance of oil that fracking has delivered, global oil prices remain high. This has kept the door wide open for alternative sources of energy and spending on energy efficiency. Natural gas has been grabbing market share from oil for years. A few decades ago, heating oil kept American homes snug; now it’s natural gas. And gas is making inroads in transportation—trucks and trains—as are electric cars.

What’s more, climate change has altered the calculus. More advocates are pushing for alternative, low-carbon fuels to slow the rising level of carbon dioxide in the atmosphere. They argue that the possibility of running out of oil isn’t the only reason to reduce its use; in fact, they worry that the expansion of supply is dangerous, hindering efforts to take action on the long-term threat of climate change.

“There will be peak oil, but it will be [because of] peak consumption,” says Michael Shellenberger, president of the Breakthrough Institute, an energy and climate think tank in Oakland, Calif. “What we all want is to move to better, cheaper and cleaner sources of energy.”

Mr. Shellenberger suspects that oil’s long dominance in transportation is weaker than most people suspect. When something better comes along, he says, oil’s days are numbered. “We will be leaving a lot of oil in the ground, in the same way we are leaving coal in the ground,” he says.

Hubbert’s Take

If M. King Hubbert were alive today—he died in 1989—would he admit defeat? Probably not, says Mason Inman, who has written a biography of Mr. Hubbert that will be released next year. He argues that the recent shale boom is just a temporary respite in a long march downward. U.S. oil production could be about to hit a second peak, and then return to its terminal decline.

The production boom “makes things better for a while, but it doesn’t change the long-term picture,” Mr. Inman says.

If Mr. Hubbert were around, he might be dumbstruck by what he sees, Mr. Inman says. Mr. Hubbert, he says, advocated turning to solar power and energy efficiency to break the dependency on oil.

As for the power of innovation to reach new oil reserves, Mr. Hubbert believed that technology would help extend the limits of oil production, but thought its impact was exaggerated, Mr. Inman says. He felt people would invoke technology as a kind of panacea—which it isn’t.

There will eventually be diminishing returns, Mr. Inman says, since oil is a finite resource, even though we don’t really know its limits. “He would probably say, ‘You guys are crazy to be drilling this so fast and using it up and pretending it’s a solution,’ ” says Mr. Inman.

WSJ



24 Comments on "Why Peak-Oil Predictions Haven’t Come True"

  1. WelshFarmer on Mon, 29th Sep 2014 4:41 am 

    The 90 mbd includes about 15mbd of stuff that Hubbard would not have recognized as oil. Peak crude was reached a few years ago, exactly as predicted by peak oilers. Peak crud still lies a couple of years in the future.

    Extraction of conventional crude at an EROIE of about 30:1 is a completely different ball-game from extraction from bitumen/shale/deep sea at about 3:1. I don’t see how they can be compared let alone simply added together as in the ecstatic curve depicted above.

  2. Dave Thompson on Mon, 29th Sep 2014 4:55 am 

    Another article for all you shale oil boom investors.

  3. Davy on Mon, 29th Sep 2014 6:15 am 

    The chatter and clatter we are hearing now from the cornies is a symptom of cognitive dissonance. I have been following this subject since 2000. It used to be a fringe subject ignored. PO is now mainstream and the natives are worried. We especially see the MSM butcher the PO dynamics with high school paper reporting. The sophisticated cornies counter the facts of PO dynamics with their pitch that all is well, markets, technology, and efficiency will save us. Bad news is bad news except in the case of the markets. Bad news can be good news for the markets because it may mean more market support from TPTB. Yet, PO can’t be spinned as anything but apocalyptic so it is discounted, ignored, and distorted. Time is on the doomer’s side. Predicaments of limits of growth and diminishing returns are a hurdle I would like to see them jump over. They have been pretty good so far but the bar keeps getting higher. We know humans have limits so do economies.

  4. westexas on Mon, 29th Sep 2014 7:08 am 

    My two comments on the WSJ website:

    In reality, it’s very likely that actual global crude oil production, generally defined as 45 or lower API gravity crude oil, stopped increasing in 2005.  

    Global liquids production, consisting of crude oil + condensate + natural gas liquids (NGL) + biofuels, has so far continued to increase.   Condensate (basically natural gasoline) and NGL are byproducts of natural gas production.  Actual global crude oil production probably effectively peaked in 2005, but global natural gas production and associated liquids–condensate and NGL–have so far continued to increase.

    Note that when we ask for the price of oil, we get the price of 45 or lower API gravity crude oil, but when we ask for the volume of oil, we get some combination of crude oil + condensate + NGL + biofuels.   Shouldn’t the price of an item directly relate to the volume of that item, not to the volume of the item plus partial substitutes?

    For more info, you can search for:  Did global crude oil production actually peak in 2005?

    What about net exports? 

    When we calculate Global Net Exports of oil (GNE), we have to deal with total petroleum liquids + other liquids (EIA data base).   I define GNE as the combined net exports from the top 33 net oil exporters in 2005.  The EIA shows that GNE have been below the 2005 rate of 46 mbpd (million barrels per day) for 8 straight years, with GNE in 2013 falling to 43 mbpd.

    While falling US liquids consumption (relative to 2005) and rising US oil production have lessened the demand for GNE (and had an effect on global crude oil prices), by definition, this had no impact on the supply of GNE, and the most recent EIA data show that the US is reliant on net crude oil imports for 44% of the crude oil processed daily in US refineries.

    And while we have recently some signs of softening demand in China, the volume of GNE available to importers other than China & India fell from 41 mbpd in 2005 to 34 mbpd in 2013.  

    For more info, you can search for:  Export Capacity Index. 

  5. Davy on Mon, 29th Sep 2014 8:00 am 

    WT, always good to have your GNE Inconvenient Truth mentioned. Europe and the US economic activity and increased efficiency have indeed dropped enough to offset declining GNE and rising Asian demand. The crud additions have likewise helped. These mitigating factors cannot continue indefinitely. The unfortunate truth is we see dropping GNE, energy quality, economic aggregate oil affordability, and economic oil exploration capex. Tell me folks how the hell can these problems be overcome? They are predicaments not problems actually and can’t be overcome. In summation these energy issues are a Mega Predicament. Along with food, water, and failing ecosystem they spell doom for confidence and eventually economic liquidity. There is always a lag between cause and effects. The effects are going to be a liquid fuel shortages that will ripple through the economy and food system creating panic and chaos. This is doomer theory of course but you have to admit to the possibilities. We should be making preparations and using risk management strategies. Instead we have a war on drugs and terror. Our system is to the point of being so brittle with so little time to adjust I fear it is just hopeless in a macro sense. You can still prep individually and in small groups.

  6. Jeffrey J. Brown (westexas) on Mon, 29th Sep 2014 8:17 am 

    (I seem to be having problems making comments on Peakoil.com this morning, they don’t show up.)

    In any case, it would appear that my second comment on the WSJ website, on net exports, was deleted by the WSJ.

  7. bobinget on Mon, 29th Sep 2014 9:24 am 

    Americans are driving more miles, buying more expensive fuels for higher milage cars.
    Hybrids around big cities make a huge difference for
    suburban comutes. Once called DOA, all electric, TDI turbo, (diesel), hybrids, non idling technology, PV solar helped to reclaim suburbia. Transportation fuels are second only to household mortgages as fixed expense.

  8. steve on Mon, 29th Sep 2014 9:47 am 

    Whoa! Normally when I come to this site which is about 4 times a week I just type in “peak oil news” in my google browser window…this time I could not find this site because of so much trash in the way!

    Davy all the good reporters were wiped out in the 2008 crash they went on to other careers or simple retired…each time we have an emergency it lowers the intelligence threshold in the United States—–I am thinking we will have another 9-11 moment again in the U.S and goodbye constitution…Where I live all the rich are buying huge amounts of land–as if they know something is up—-Although it is mountain land and not farm land, this area is the epitome of cheap energy and will fall first! And they are building huge houses 10,000 square feet with no wood stoves! I imagine I will be dismantling them in the near future… not much use for heated toilet seats and heated driveways, giant jacuzzi hot tubes in the future!! Living in a Northern climate scares me but so does being down south with a lot of people and guns…lets hope for a slow decline…that comes soon, the longer it is put off the worse it will be…

  9. Northwest Resident on Mon, 29th Sep 2014 9:51 am 

    bobinget — There’s no other way to spin it — in America, we’re going to drive until we drop.

  10. louis wu on Mon, 29th Sep 2014 10:01 am 

    “Technology moves so quickly today that any looming resource constraint will be nothing more than a blip,” says petroleum economist Phil Verleger. “We adjust.”
    I’d like to hear what a petroleum engineer(you know the person that has to actually do something) has to say about that.

    “What changed? An innovation in oil-field technology, which peak-oil theory didn’t anticipate. Energy companies combined hydraulic fracturing and horizontal drilling to wring oil out of super-tight rock formations in North America.”
    Or, considering that these actual techniques aren’t really new, the price per barrel of oil which has been uncomfortably high for some time now.

  11. shortonoil on Mon, 29th Sep 2014 10:34 am 

    “The real constraints we face are technological and economic, they say.”

    This is the lament that will be shouted from the rooftops as all liquid hydrocarbon production begins to come to its conclusion over the next few months. Every economist, every petroleum CEO, every State Representative from an oil state, will scream that without a doubt that all they need to return the economy to the good old days is more technology, more investment, greater access to the national treasure. Every talking head of the media, backed by regiments of paid performing pundits, will echo the message.

    In truth, depletion is taking us toward the end of the oil age. Petroleum’s ability to power our economy is declining, and will soon reach the point when it will no longer be able to drive the world’s transportation fleet. That is the unfortunate disposition of a depleting resource. Lack of oil is not the problem of the world’s economy; oil that can power it is. Pouring our wealth into a dying industry, fighting global wars to acquire the last remaining remnants of a resource that will soon have no value, will be a fools errand. It will merely suck the last vestige of wealth from the society into the pockets of a few. Whether or not the greater fool is still out, and about – will soon be tested.

    http://www.thehillsgroup.org/

  12. Plantagenet on Mon, 29th Sep 2014 10:48 am 

    M king Hubbert did not anticipate fracking, but his central idea remains valid. At some global oil production will peak and then decline

  13. forbin on Mon, 29th Sep 2014 11:07 am 

    I had to laff

    ” The real constraints we face are technological and economic, they say. We’re limited not by the amount of oil in the ground,”

    thats fantasy for a start – oil is finite like the planet is

    but then …

    ” but by how inventive we are about reaching new sources of fuel and how much we’re willing to pay to get at it.”

    how much we are willing to pay ….

    can pay , I’d posit .

    peak oil is a mathmatical point , discovering more or changeing the definition of oil merely moves the date – not the actualality

    a few days ago $5 billion to get 0.4mbd increase – $68 boe

    and thats a bottom limit to the cost right there

    still time will tell and mother nature will not be fooled – but share investors will

    Forbin

  14. Northwest Resident on Mon, 29th Sep 2014 11:14 am 

    shortonoil — You said: “Whether or not the greater fool is still out, and about – will soon be tested.”

    I’m trying to decipher your meaning with that sentence. Could you elaborate?

  15. Nony on Mon, 29th Sep 2014 11:47 am 

    Eagle Ford wells getting better year by year. Does not quite fit the meme of “using up the sweet spots”. Seems to fit “learning how to drill shale better”.

    http://www.eia.gov/todayinenergy/detail.cfm?id=18171

    🙂

  16. shortonoil on Mon, 29th Sep 2014 12:18 pm 

    “shortonoil — You said: “Whether or not the greater fool is still out, and about – will soon be tested.”
    I’m trying to decipher your meaning with that sentence. Could you elaborate?”

    Taking the national assets, and pouring them into an industry that is going one way, down, is not the epitome of financial prudence. If that idea can be sold to the general public it will require that the greater fool is still around to buy into it. It would be reminiscent of the idiots still buying houses at the market peak in 2008 because they believed that home prices could only go up.

  17. Keith_McClary on Mon, 29th Sep 2014 12:40 pm 

    Davy wrote:
    “The sophisticated cornies counter the facts of PO dynamics with their pitch …”

    pitch
    1.
    a sticky resinous black or dark brown substance that is semiliquid when hot, hard when cold. It is obtained by distilling tar or petroleum …
    synonyms: bitumen, asphalt, tar

  18. Davy on Mon, 29th Sep 2014 12:45 pm 

    Short
    @ “This is the lament that will be shouted from the rooftops as all liquid hydrocarbon production begins to come to its conclusion over the next few months”.

    Short, that is one hell of a profound statement and especially from someone specializing in the formulas and data that goes into such a statement. If it came from me the folks could laugh with you they need to cry. I think the central point of your above sentence is “BEGINS” & “next few months”. We are at that inflection point of a paradigm shift. Everything must shift with the shift in hydrocarbon production to constrained net energy to the economy. This is especially true of food production, food processing, and food distribution. Folks, food is the real weak link and without growing hydrocarbon support that growth will not happen even if alternative farming is embraced. Food insecurity equals social insecurity. I cannot stress enough the systematic risks that will build up as oil “BEGINS” to come to a conclusion. I mentioned in an earlier comment cause and effect. There will be a lag in the effect as the economy and the participants adjust. This will not be stable, rational, nor efficient. What usually happens is the standard “tank topping”. People and businesses are going to scramble to maintain what they have instead of all of us together practicing economic triage. We have to practice relative sacrifice with non-essential discretionary lifestyles and products. This will have to be a global effort. What good is sacrifice in North America if Asia is racing along sucking up what we don’t use? I am not optimistic for a smooth conclusion but who knows these thoughts of mine are abstract theory. The cornies would call it word salad.

  19. Northwest Resident on Mon, 29th Sep 2014 12:51 pm 

    shortonoil — Thanks for the clarification — yeah, I see what you mean.

    Davy — I caught that “next few months” phrase also. I didn’t say nothin’ about it because it is what I also expect and have been expecting. My expectation is that as we close out 2014 and roll into 2015, some of the rubber bands and duct that have been holding global BAU together are going to start snapping from the strain. We shall soon find out…

  20. Davy on Mon, 29th Sep 2014 1:13 pm 

    NR, you are a prime proponent of 2015/2016 collapse. It is hard to argue with that. The question is degree, duration, and point of reboot. That is the tough one. I am on the same page even if I would like for it to be 3-5yrs.

    Kieth, old news, I can’t write, spell, and break up a long paragraph but thanks for the spell check.

  21. JuanP on Mon, 29th Sep 2014 1:59 pm 

    Short “It would be reminiscent of the idiots still buying houses at the market peak in 2008 because they believed that home prices could only go up.”
    I was working part time as a realtor in Miami Beach in those years, something I hated, but did out of need. It was very easy money. I tried to stop poor and rich people from buying for two years before the crash and even convinced some people to sell at the top of the market. More than 99% of the people I explained the bubble to, said I was a crazy fool that had no idea what I was talking about, or that I was trying to prevent them from profiting, and what not. I had many fights over it. Only four people out of hundreds paid attention to the info I presented and changed their plans. All the others couldn’t handle the truth.

  22. Keith_McClary on Mon, 29th Sep 2014 4:47 pm 

    Davy – Not a spelling issue. Just a different meaning of “pitch” that seemed to fit.

  23. Davy on Mon, 29th Sep 2014 4:58 pm 

    Damn Keith, I am so self-conscious I can’t even see a play on words. Thanks for the update.

  24. Apneaman on Mon, 29th Sep 2014 5:11 pm 

    westexas

    They can only move the goal posts so far before they end up in the bleachers. Next week the will be getting Roughnecks with whiskey hangovers to piss into the mix. Anything liquid with a few extra BTU’s will do.

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