Peak Oil is You

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Is peak oil a non-event?

Is peak oil a non-event? thumbnail

Ken Parish at Club Troppo draws attention to a remarkable new report that confounds the conventional wisdom on peak oil and has important implications for cities.

It’s published by Harvard University’s Belfer Centre for Science and International Affairs. It concludes that oil supply capacity is growing worldwide at such an unprecedented level, it might outpace consumption, potentially leading to a glut of overproduction and a steep dip in oil prices.

Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.

It’s estimated known projects could theoretically produce an additional 49 mbd by 2020, equivalent to about half existing world production. Taking into account various risk factors and depletion rates of existing fields, this could increase capacity by a net 17.6 mbd (see exhibit). If so, it would constitute the largest increase in any decade since the 1980s.

A key assumption underlying the analysis is oil remains above $70 a barrel out to 2020. Oil prices plunged this year but are still well above this level. Crude oil for September delivery is now $88.14 a barrel and Brent oil is $103.30.

The author of the report, former oil industry executive Leonardo Maugheri, told Reuters production capacity is expected to grow the most in Iraq, the United States, Canada, Brazil and Venezuela. It could decline in Norway, the United Kingdom, Mexico and Iran. He said much of the surge in U.S. capacity is due to the boom in shale oil.

It might be tempting to imagine this is some sort of dastardly con perpetrated by vested interests. But Guardian columnist and environmental activist George Monbiot has read the report and concludes – regretfully – that it provides compelling evidence a new oil boom has begun.

Peak oil hasn’t happened, and it’s unlikely to happen for a very long time.…The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that….There is enough oil in the ground to deep-fry the lot of us, and no obvious means to prevail upon governments and industry to leave it in the ground.

The receding of peak oil really shouldn’t be a surprise. Higher prices encourage consumers to reduce demand and switch to substitutes like renewables and shale oil. They also encourage further exploration and make previously marginal reserves viable.

The era of really “cheap oil” that prevailed in the post-war period up to around 2000 is probably behind us, according to the report. But “it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.”

The reason George Monbiot is regretful is lower-than-feared oil supply could mean we’ll continue our profligate ways and set back progress on addressing climate change. As Ken Parish says, we can no longer expect that peak oil will “soon intervene and compel drastic reductions in human CO2 emissions through huge price increases driven by increasing resource shortage.”

That possibility is troubling given this new research by James Hansen and colleagues. It warns of the emergence of extreme weather events with temperatures more than three standard deviations above historical norms.

So far as cities are concerned, transport is a key area where peak oil was expected by many to have a dramatic effect, especially on petrol/diesel availability and fuel prices. I’ve long  taken the view that, like it or not, cars will be with us for a long time yet.

If it’s right, the Harvard report reinforces that probability. The price of petrol might very well rise further in real terms but it now appears it probably won’t go permanently stratospheric. In the absence of an exogenous driver like peak oil, reducing transport-related emissions will require deliberate policy intervention.

Perhaps not surprisingly, there are some who disagree with the report. There are also factors that could complicate and undermine the report’s projections. I’ve put a list of key points taken from the report under the fold:

  • Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.
  • Other things equal, any significant setback to additional production in Iraq, the United States, and Canada would have a strong impact on the global oil market, considering the contribution of these countries to the future growth of oil supply.
  • The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped. What’s more, the application of shale extraction key-technologies (horizontal drilling and hydraulic fracturing) to conventional oilfield could dramatically increase world’s oil production.
  • In the aggregate, conventional oil production is also growing throughout the world at an unexpected rate, although some areas of the world (Canada, the United States, the North Sea) are witnessing an apparently irreversible decline of the conventional production.
  • The age of “cheap oil is probably behind us, but it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.
  • The oil market will remain highly volatile until 2015 and prone to extreme movements in opposite directions, thus representing a major challenge for investors, in spite of its short and long term opportunities. After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade.
  • A revolution in environmental and emission-curbing technologies is required to sustain the development of most unconventional oils – along with strong enforcement of existing rules. Without such a revolution, a continuous clash between the industry and environmental groups will force the governments to delay or constrain the development of new projects.
  • Some of the major geopolitical consequences of the oil revolution include Asia becoming the reference market for the bulk of the Middle East oil, and China becoming a new protagonist in the political affairs of the whole region.
  • At the same time, the Western Hemisphere could return to a pre-World War II status of theoretical oil self-sufficiency, and the United States could dramatically reduce its oil import needs.
  • However, quasi oil self-sufficiency will neither insulate the United States from the rest of the global oil market (and world oil prices), nor diminish the critical importance of the Middle East to its foreign policy. At the same time, countries such as Canada, Venezuela and Brazil may decide to export their oil and gas production to markets other than the U.S. for purely commercial reasons, making the notion of Western Hemisphere self-sufficiency irrelevant.
  • It’s also true, however, that over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.

18 Comments on "Is peak oil a non-event?"

  1. Arthur on Tue, 24th Jul 2012 6:43 pm 

    For the writer it does not seem to matter if a barrel of oil is parked in Times Square or Tranquility Base. The most essential consideration is missing in the text: EROI.

  2. mike on Tue, 24th Jul 2012 8:40 pm 

    This is peak oil, it’s happening right now.

    – Bankrupt nations
    – Economies collapsing due to public and private financial overstretch
    – Rising food prices
    – Civil unrest
    – Criminals getting away with daylight robbery (bankers)
    – Infrastructure collapse
    – Infrastructure scavenging
    – Energy prices rocketing
    – Wars on the horizon pretty much everywhere

    do i need to go on?

    What a fricking loony toon. All you can do is laugh as we ride the train all the way down to the bottom with these people. They are busy looking at where we have come from whilst we move in the opposite direction and all they can see is a steep curve of prosperity stretching out in front of them. Time to turn around dipshit.

  3. Beery on Tue, 24th Jul 2012 9:06 pm 

    “Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed…”

    Oh thank God! I thought we were in real trouble for a while there. Now I know there is lots of oil in the ground, I can relax and buy that Hummer I’ve had my eye on.

  4. DC on Tue, 24th Jul 2012 11:25 pm 

    Read the article again. The line about where the world could increase production by up to 49mbpd. Where did that number come from? That Italian dude,Leonardo Maugeri that pulled that # literally out of thin air, the 49mil has zero basis in fact, and is not supported by any actual data, just wishful thinking and extrapolation. That guy dropped his discredited report and #s only a few days ago, and see how fast it spread?

  5. SOS on Wed, 25th Jul 2012 1:14 am 

    The Author is correct is what he says. In a very short period of time North Dakota is going to add over 600,000 barrels/day. They will be adding 600,000 barrels/day or more every 6 monthis or so for the foreseeable future. Probably 30 yrs or more.

    Its happening in a lot of places. By 2020 oil will be flooding down the Alaska pipeline from the Russian Artic fields.

    Extraction costs are extremely low with well production costs running less than 10 million in North Dakota. Average well ouput is about 1,800 barrels/day. The crude is some of the finest in the world. Perfect for gasoline and refining.

    As the author correctly states, politics is the enemy of oil production and friend of high prices. Peak Politics causes peak oil. Peak oil causes high prices.

    As supply increases realative to demand we are seeing prices drop. Thats good for all of us.

  6. BillT on Wed, 25th Jul 2012 1:20 am 

    I bet I know where this auther gets his pay check from…and it isn’t Harvard.

    As we get deeper and deeper into the oil slide, these Bullshit articles will be popping up like weeds in your yard.

    Yes, it seems like there is more oil because demand is down, but…there will never be abundant ‘CHEAP’ oil because of EROEI. The cost of steel to make the rigs and piping is more and more expensive every day. All other costs are going up also. When oil prices drop, sources get shut down until demand raises the price.

    As I said before, we will not run out of oil. We will run out of oil we can afford.

  7. SOS on Wed, 25th Jul 2012 1:27 am 

    Peak oil isnt causing the problems that Mike alluded to, those are all symptoms of problems that are all about peak politics. Thats the society you get with the rules we have in place.

    We have over generous and unsustainable social benefits.

    Our president and many that support him favor dependency over acheivement.

    We have a breakdown in the family structure primarly among those dependent on government programs and following government rules and regulations.

    We have more people going on socicial security disability every month than actually getting hired into new jobs.

    Irresponsible, debt burdened governments refuse to change. Why? Because of politics.

    It has nothing to do with oil. There is plenty of that as explained by the author. As he aslo stated oil production has more to do with politics than anything underground.

    Peak politics causes peak oil. Peak oil causes high prices.

  8. Ham on Wed, 25th Jul 2012 1:27 am 

    ‘Technology may turn today’s expensive oil into tomorrow’s cheap oil.’
    And pigs may fly, and we can all get into our flying cars and watch them in the sky.
    Turning unconventional oil such as shale, which has depletion rates of up to 80% in the first five years will never, ever result in lower prices. The idea that shale oil or oil shale can sustain the way Industrial Civilization operates is a complete fantasy rooted in cognitive dissonance. Such people have an inability to see what is in front of their noses.

  9. SOS on Wed, 25th Jul 2012 1:30 am 

    The depletion rates are nowhere near 80%. Im not sure if the wells in North Dakota are falling off at all. Records go back 10 years since the first horizontal/fracked wells came on line. Production is increasing on an increasing upward curve, steadily for 10 years with no end in sight.

    Back before fracking 80% decline rate in 2-5 yrs was the norm. Even worse. Then they figured it out.

  10. SOS on Wed, 25th Jul 2012 1:35 am 

    One thing about the cost of steel and piping for the oil fields is the ramp-up of American manufacturing to fill the needs. Most of the rolled steel is now american made in specialty mills. Most, if not all the mills are new and using natural gas from the huge gas/shale boom. Those are enormous reserves too.

  11. Alan Cecil on Wed, 25th Jul 2012 3:55 am 

    SOS said that “Extraction costs are extremely low with well production costs running less than 10 million in North Dakota. Average well ouput is about 1,800 barrels/day. The crude is some of the finest in the world. Perfect for gasoline and refining.”
    What is he smoking? The EROEI on this shale crap is ridiculous. As far as your 600,000 barrels a day, that’s great. Now all we have to do is find about 30 more Bakken-sized fields since the USA uses over 18 million barrels per day.

  12. Ham on Wed, 25th Jul 2012 4:03 am 

    The North Dakota bounty is an illusion, US is still importing the majority of oil and always will do. The main problem is what happens elsewhere; Ghawar is dying, Cantarell etc 60% of oil the World uses comes from fields 40 years old.
    Your dreams are like a falling star and they will elude your out stretching arms like a missed catch in cricket.

    As for limitations of technological solution, this has been well elucidated here….

  13. BillT on Wed, 25th Jul 2012 10:23 am 

    SOS is obviously a pimp for shale oil and probably is paid by them to try to make you believe their lies. If they don’t find a continuous stream of suckers, their game will fall apart before they can escape with their own money. The adventure is doomed to fail.

  14. SOS on Wed, 25th Jul 2012 6:26 pm 

    All you fellas that know so much about oil wells should take a look at Foreman 5-2/1H, 2-150-95, McKenzie County, North Dakota.

    Recently completed, this is a successful well that reported over 1,800 Bbls/day, lots of gas and some water. I know the costs of this well first hand. Its right in line with my earlier range of $10-$15 million fully developed. This well is about average. Lots of wells are producing more.

    The facts are brutal. There are flat-earthers that wont see them, of course, but its important the facts are out there and interpreted correctly. It will benefit everyone to support development of Americas vast energy reserves if you want a pleantiful life, a balanced budget, stable fair-minded banks and no national debt.

    Peak politics causes peak oil and high prices. Technology can and does solve major enviromental and economic problems. The limits are defined by cost/benefit. People dont unquestionably accept technology. All technology has a life style well document in marketing science starting with invention through acceptance to maturity and finally obsoleteness. The man is correct about evolution. Although he has insight he is not expansive.

    Check this out lots of facts supporting a future of ample energy and greater personal wealth for everyone, based on production not government disbursements:

  15. Rick on Wed, 25th Jul 2012 7:37 pm 

    Yes, I agree with BillT, about the increase in articles like these.

  16. SOS on Wed, 25th Jul 2012 11:41 pm 


  17. Ham on Thu, 26th Jul 2012 3:34 am 

    Garbled nonsense and confused thinking. Anyone who thinks we can continue to pollute on such a scale is really missing the point. The Alberta toxic landscape can be cleaned up tomorrow?
    Technology will save us due to improved extraction methods.
    Plenty cheap oil leads to a fulfilled life. Lol.
    SOS smokin’ some serious gear.

  18. SOS on Thu, 26th Jul 2012 9:02 pm 

    Generalities as dictate just doesnt make any sense. Our environment is uinder constent threat. To politicize those threats is misguided. Changes in tempreture, especially if its hot, are talked about in poltical terms. Once there are people on board buying into that politicization, right or left, they have lost their future to a leadership thankful to have a boatload of useful idiots on board.

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