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Page added on June 1, 2014

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Has Technological Progress Made Peak Oil Theory Irrelevant?

Has Technological Progress Made Peak Oil Theory Irrelevant? thumbnail

In 1956, Marion King Hubbert, a prominent geologist for what is now Royal Dutch Shell (NYSE: RDS-A  ) , made a bold prediction. Based on an extensive analysis of reserves and production data, he concluded that U.S. crude oil production would peak at some point in the late 1960s or early 1970s, after which it would begin an inexorable decline.

For decades, his dire prediction looked startlingly accurate. In 1970, U.S. oil production reached 9.6 million barrels a day — a level that hasn’t been equaled since — and then began to decline. It fell steadily from 1970 to 1976, and then rose modestly until 1985, after which it once again slipped into a steady decline that lasted for more than two decades.

Hubbert’s prediction laid the path for what has since become known as peak oil theory, a highly influential theory that argues that global oil production is rapidly approaching, or has already reached, a peak. Some advocates of the theory even warn that once oil runs out, chaos will ensue, leading to “war, starvation, economic recession” and perhaps “even the extinction of homo sapiens.”

A line of cars at a gas station in Maryland in June 1979. Photo Credit: Wikimedia Commons.

But then something happened that almost no one had predicted. Starting in 2008, U.S. crude oil production began to grow, slowly at first and then much more rapidly after 2011. Last year, it averaged nearly 7.5 million barrels per day, the highest level since 1989, and recently reached 8.43 million barrels per day, a level not seen since October 1986. So what happened?

How technology changed the game
At the risk of oversimplifying, technology happened. Specifically, the widespread application of advanced drilling techniques, including horizontal drilling and hydraulic fracturing, allowed energy companies to tap vast deposits of oil and natural gas buried in shale formations thousands of feet below the ground.

Not only have technological improvements boosted U.S. crude oil production to levels not seen since the 1980s, but they’ve also helped boost crude oil reserves to their highest level since the 1970s. As of the beginning of 2013, U.S. proven crude oil reserves stood at 30.5 billion barrels. That represents an increase of 11.5 billion barrels, or 60%, from year-end 2008 levels, even as 8.4 billion barrels were produced over that time period.

Proven reserves are defined as those that can be economically extracted at current prices using existing technology with a reasonable degree of certainty, meaning a probability of at least 90%. The reason proven reserves have increased so sharply is a combination of new discoveries, more thorough appraisals of existing fields, and technological improvements that have improved recovery rates.

Shale resource potential continues to grow
Take North Dakota’s Bakken shale, for instance, one of the largest shale oil discoveries in North America. As operators have improved their drilling techniques in the Bakken over the past few years, they’ve opened up an entirely new play called the Three Forks formation — a deeper, separate formation that rests directly below the Bakken and extends much further out into parts of Montana and South Dakota.

An oil rig in North Dakota’s Bakken shale. Photo credit: Ole Jorgen Bratland / Statoil ASA.

As a result, total reserves for the Bakken/Three Forks are now estimated to be almost 900 billion barrels, up from roughly 570 billion barrels in 2010. While only about 3.5% of this oil is currently thought to be recoverable, technological advances could drive that percentage significantly higher. Already, improvements in drilling efficiency and smarter well completion methods have allowed several Bakken operators to coax much more oil and gas from their wells.

For instance, Continental Resources (NYSE: CLR  ) , the leading Bakken driller, has seen tremendous initial success from testing tighter spacing between its wells. The company recently drilled 14 horizontal wells spaced 1,320 feet apart in the in the southern part of its Three Forks acreage that produced 50% more oil and gas in their first three months of production than the company’s average Bakken well.

This technique of spacing wells closer together — known as downspacing — is also yielding encouraging results for Kodiak Oil & Gas (NYSE: KOG  ) , another Bakken driller that’s currently evaluating 800-foot spacing and 600- to 650-foot spacing between wellbores as part of its Polar Pilot projects. Initial results from these pilot programs suggest that the company will be able to unlock additional drilling locations through tighter-density drilling without interfering with existing wells.

Is peak oil theory still relevant?
As these examples highlight, continued improvements in drilling technology have allowed energy companies to tap previously unreachable shale formations, resulting in a sharp increase in production and reserves. In the years ahead, operators may turn to enhanced recovery methods such as carbon dioxide injections to boost recovery rates even further.

Still, I don’t think these developments render peak oil theory irrelevant. Even though technology has unlocked vast new reserves, fossil fuels are finite resources, after all, and will eventually run out. Technological improvements can merely extend the amount of time before that happens. Eventually, though, there’s no denying that we must wean ourselves off fossil fuels.

Fool.com



21 Comments on "Has Technological Progress Made Peak Oil Theory Irrelevant?"

  1. Dave Thompson on Sun, 1st Jun 2014 6:29 am 

    No mention of the depletion rates of the shale wells.

  2. Davy, Hermann, MO on Sun, 1st Jun 2014 6:58 am 

    “LOBBY OF PLENTY AND HUMAN EXCEPTIONALISM” wanting to save itself by the very method that got them into this mess.

  3. dave on Sun, 1st Jun 2014 7:14 am 

    It’s not a theory. It’s an observable fact of life for any well, field, country etc. Some day even the economists will get it.

  4. rockman on Sun, 1st Jun 2014 9:37 am 

    Just about everyone here knows what I do to earn a living. And I’ve rambled on the subject many times. So I’ll keep it short: there is no technology in the oil patch today that would have increased oil production anywhere close to where it is if oil prices had not boomed. If you disagree just challenge me with your facts and we’ll have a friendly debate. Otherwise life is too short to worry about the ignorance presented in the piece IMHO.

  5. Juan Pueblo on Sun, 1st Jun 2014 10:27 am 

    I skipped the article and came srtaight to the comments 😉

  6. SilentRunning on Sun, 1st Jun 2014 10:39 am 

    A truly bum analysis from Motley Fool. Even a freshman student of business should know that profits depend upon selling your product for more than the cost of production. Shale oil/gas has an extremely high cost of production – and given the rapid depletion of wells only a few wells are actually profitable. Going forward, the percentage of profitable wells will shrink and shrink.

    This bodes ill for investors – which is what the fool is supposed to be looking out for.

  7. Bob Owens on Sun, 1st Jun 2014 10:55 am 

    If there’s no denying that we must wean ourselves off fossil fuels, why delay? To say tech will always save our bacon doesn’t make any sense. Time to move on. Actually, way past time.

  8. shortonoil on Sun, 1st Jun 2014 11:18 am 

    What is so frequently ignored is that as the price of petroleum increases, so does its production cost. Technology adds to the cost of production, it does not reduce it. Which is cheaper to own an operate a bicycle, or a new high tech Volt? Since passing the half way point (in energy terms) production costs are now increasing faster than price. This situation will continue, and be aggravated by the use of more technology until we reach the end of the oil age.

    There will be the lament that “no one could have known”. For the mathematically illiterate that will be true!

    http://www.thehillsgroup.org

  9. rockman on Sun, 1st Jun 2014 11:20 am 

    Bob – And that’s the crime of all the media sources feeding this BS to the public. It feeds their natural desire to avoid confronting difficult issues. They don’t even have to believe this crap 100 % …just let it feed their self serving delusion machine.

  10. Juan Pueblo on Sun, 1st Jun 2014 11:31 am 

    Bob, what you say breaks my “Make Sense Rule” and will, therefore not happen.
    You see, the problem is that what you say makes sense. And that will not do!

  11. peakyeast on Sun, 1st Jun 2014 11:55 am 

    Perhaps im wrong, but in my opinion all that fracking and unconventional fossile resources (together with high prices) is deforming the hubberts curve to give us a steeper decline when it comes along – which it will eventually and possibly sooner than most people expect outside these blogs.

  12. bob on Sun, 1st Jun 2014 2:17 pm 

    Lord forgive us for what we have done…..I always knew this would come some day; I just always believed it would not be on my watch. Now it is hear at the door and I find my feet heavy and slow, I know not which way to move…

  13. charmcitysking on Sun, 1st Jun 2014 3:14 pm 

    Juan Pueblo – I also skipped the article and came straight to the comments 🙂

    Perhaps if the title didn’t use the word “Theory”, since Peak Oil is a measurable scientific fact, I would have read at least some of it. But, alas…

  14. meld on Sun, 1st Jun 2014 4:06 pm 

    Is the latest craze of jumping overcoming the laws of gravity? scientists are beginning to think so. Recent research found that technology recently developed allows test subjects to jump longer and higher. It’s only a matter of time before gravity is no longer an issue.

  15. Newfie on Sun, 1st Jun 2014 5:53 pm 

    Peak oil “theory” ? Laugh out loud.

  16. Makati1 on Sun, 1st Jun 2014 8:24 pm 

    Peak oil is the price at which the consumer starts cutting back on consumption because of price, not when there is half of the oil left.

    The end of the Petroleum Age will be when the consumer can no longer afford to consume any of it. There will still be billions of barrels of oil in the ground when the last well closes.

  17. MKohnen on Mon, 2nd Jun 2014 2:20 am 

    I have a theory. I call it the “Empty Glass Theory.” It goes like this:

    If you have a glass full of water, but no more water to put in the glass, and you keep drinking water out of the glass… it will run empty!

    Astounding, I know. But I’ve tested it, and it works. I know, I know. I don’t know how quickly someone will drink from the glass, or how much evaporation may condense back in due to the cooler sides of the glass. Now, to many cornucopians, this will render my “Empty Glass Theory” moot. Ergo, the glass will never go empty, so drink away merry partiers.

    If you can truly “debunk” the “Empty Glass Theory”, then maybe I’ll believe “Peak Oil Theory” has been debunked, too. Then I’ll stop worrying for my children’s and grandchildren’s future.

  18. meld on Mon, 2nd Jun 2014 7:09 am 

    How about if you piss back into the glass? surely that’s got to count for something MKohnen? seems like common sense to me 😉

  19. Davey on Mon, 2nd Jun 2014 7:18 am 

    Yea, Meld true example of resiliance and sustainability.

  20. MKohnen on Mon, 2nd Jun 2014 1:53 pm 

    meld,

    I guess that would be the equivalent of bitumen 🙂 Then, when you have a hard time producing any more pee, you could start fracking pee out of yourself. Unfortunately, it still doesn’t change the outcome of the Empty Glass Theory, it only changes timing and the amount of pain endured by the user.

  21. gates outcast on Tue, 3rd Jun 2014 5:52 am 

    Hey what about Kim’s wedding? Where is the deep discussions of her dress choice and venue?

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