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Page added on January 23, 2018

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Technology has pushed oil supply from decades to centuries

Production

Technological advances and innovation change every industry, and energy is no exception. In 2008, the Energy Information Administration (EIA) was estimating that crude oil production in 2020 would be 13.4 quadrillion British thermal units (quads) and would fall to 12.0 quads in 2030. In the most recent estimates (from EIA’s 2017 Annual Energy Outlook), 2020 production is expected to be 20.7 quads, with 22.0 quads in 2030 under baseline assumptions. The EIA also looks at other scenarios including one involving more growth from technology, which indicates that production could be even higher.

The EIA’s models and personnel are top quality, and believe me no one understands the challenges of forecasting more than I do. The fact that the EIA’s models failed to capture the dramatic rise in production enabled by fracking and other technological advances illustrates just how fundamentally those advances shifted the market.

Remember the “peak oil” argument? The idea was put forth in the 1950s by geologist M. King Hubbert, who had begun to talk about the idea even earlier. It was embraced by many market watchers, academicians and people in the industry. The peak oil theory essentially said that oil production would follow a bell-shaped curve with a peak when half of the world’s oil had been produced and a decline after that time as it became increasingly difficult (and expensive) to extract. Hubbert predicted the peak to be about 1969 in the United States. The year of highest U.S. production occurred in 1970, seemingly confirming the theory. However, while peak oil theory would have had production trending down in a smooth decline, new technologies have changed everything.

Some peak oil fans continue to hold to the theory. They point to a technicality: the fact that U.S. annual crude oil production did peak in 1970 and has never reached that point again despite price and technology changes. Don’t be fooled. Oil production in the United States did reach its all-time high in 1970 of 9.6 million barrels per day (on average through the year) and was generally declining for decades after that (with some bouncing around in response to market conditions and a blip when the Alaskan north slope came on line), but that’s not the end of the story. With fracking and other technology developments and prices high enough to make using them economically feasible, production jumped from its low in 2008 of less than 5.0 million barrels per day to 9.4 million barrels per day in 2015. Production declined when prices subsequently fell, but is starting back upward now.

I am not suggesting that there is an infinite supply of oil, because we all know that’s not true. The point is that with the right incentives, research and smart people putting their minds to it, we’ve been able to drastically increase what we can extract. Even now, I’ve seen estimates that only about 60 percent of oil in most reservoirs can be extracted with today’s technology regardless of oil prices, economics and how much is spent. I feel confident that we will see further advances which improve efficiency, effectiveness and economics of production (not to mention our ability to locate new deposits).

Another recent development is that the U.S. is now estimated to hold more oil reserves than any other nation. Estimates in 2016 by Rystad Energy indicate the U.S. tops Saudi Arabia and Russia. More than half of U.S. oil is in unconventional shales, which rely on fracking to produce. Although the cost to produce such oil can be higher than conventional wells, when the economics are right it will be tapped. Rystad Energy also estimated that total global recoverable oil reserves were about 2.1 trillion barrels, about 70 times the current production rate and far in excess of cumulative production up to 2015 of 1.3 trillion barrels.

Future oil production will depend on several things. One is the market and price levels, because using advanced recovery techniques costs money and prices must make the outlays worthwhile. Of course, costs can also be reduced as technology advances, which we have seen dramatically just in the past few years. Production will also in part depend on new advances and how they continue to evolve. The geology is obviously an additional factor, but what we know about in the ground is enough to last for a long time.

Only a few years ago, there was credible talk of the ongoing, inevitable decline in oil production. The models were projecting that would happen and intelligent people were on board. Even so, those projections were based on “ceteris paribus” (or “all else being equal”) which essentially means that the models were assuming things basically stayed the same as they had been. The models weren’t factoring in the shale oil plays, because producing them wasn’t feasible at the time. Now it is, and while oil supplies are finite, the decline has been pushed far out into the future. We can now talk in terms of centuries rather than decades.

History is replete with such phenomena. The best minds of the early 19th century were convinced that the population would outstrip the food supply and bring the end of civilization. Then, as now, human ingenuity and powerful market incentives to unleash it came to the rescue.

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20 Comments on "Technology has pushed oil supply from decades to centuries"

  1. Davy on Tue, 23rd Jan 2018 6:22 am 

    It’s the economy stupid. I did not read one word in this article on what a declining economy might do to US oil production. Let’s be honest US oil production is more economic related than any other country so it should be mentioned. It is not because that would be an inconvenient reality for the techno optimistic flag waving snake oil salesman. Shale oil is just a bubble like the rest of the global bubbles and they will all burst. They always do.

  2. pointer on Tue, 23rd Jan 2018 6:38 am 

    “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil” — attributed to Sheikh Ahmed Zaki Yamani

    “The Stone Age did not end because humans ran out of stones. It ended because it was time for a re-think about how we live.” — William McDonough, American architect

  3. Jef on Tue, 23rd Jan 2018 8:29 am 

    The Stone Age ended because several things came along that were 10 times or 100 times better at doing the job.

    I don’t see anything better at doing the job that FFs perform.

    Change NEVER happens just because we think it might be a good idea.

  4. Sissyfuss on Tue, 23rd Jan 2018 10:00 am 

    Powerful market incentives did not come to the rescue, they merely delayed when overshoot would crash into the bottleneck, or more accurately, the brick wall. The Green Revolution was like chemo applied to an aggressive cancer that was rendered benign only to have reappear later in a much more virulent and destructive form.

  5. rockman on Tue, 23rd Jan 2018 10:07 am 

    “With fracking and other technology developments and prices high enough to make using them economically feasible…” At least they did sneak in the real generator of increased US oil production: high oil prices. As has often been pointed out hz drilling and frac’ng are not “new technologies”. Oddly they also avoid mentioning the increase in oil production from offshore federal waters. Perhaps for the same reason: Deep Water development certainly isn’t new as it started over 30 years ago.

    And yes: increased oil prices will bring on more shale production. But centuries? Obviously they haven’t looked at the geologists’ map showing the relatively limited extent of the shale formations (compared to the size of the country) that are viable with current tech IF OIL PRICES ARE HIGH ENOUGH. But no matter how high those prices go they can’t create productive shale formations that don’t exist.

    And as we’ve seen shale development will cycle with the fluctuations of oil prices. The world economy could not sustain $146/bbl nor the $100/bbl market for an extended period. The global economy will continue to expand and contract for a combination of reasons with oil prices being only one.

    One has to imagine the global economic growth that would sustain the high oil prices that would result in CENTURIES of increasing (or at least flat) oil production. And even if one does have such a fertile imagination they will also have to imagine dozens of US shale trends that have yet to be discovered. And that was the same problem the industry faced in the 60’s and 70’s after most of the onshore conventional oil trends were discovered in the US. And that problem was not solved and led to developing the shallow water conventional offshore oil trends. Until there was little left to develop which led to the push into the Deep Water oil trends. Which, after 30+ years of development, are past their prime. And that, along with oil prices well above historic averages, has led to the shale trend development. And when they’ve been heavily exploited what’s next?

    Nothing: there are no hydrocarbon bearing rocks left in the US after the conventional onshore and offshore trends and the shale formations. As they say: you can’t get blood from a turnip. Especially if you don’t have any turnips. LOL.

  6. TommyWantsHisMommy on Tue, 23rd Jan 2018 11:00 am 

    I’m sure this new “Tech” oil will be dirt cheap…/sarc

  7. Boat on Tue, 23rd Jan 2018 11:39 am 

    Rock,

    In 2007 the permain averaged less than 60 bpd for all 12 months. In 2017 during the last 4 months the permain averaged over 600 bpd. Your had the same tech for decades pegs the full-o- shyt meter.

  8. Antius on Tue, 23rd Jan 2018 11:45 am 

    Energy is the capacity to do work on matter. Work on matter, is the basis of economic value. Since each unit of economic activity has a dollar value and requires a certain quantity of energy to carry out, it logically follows that there is a maximum price that can be paid for energy at which that economic activity will remain profitable.

    Since energy is the means by which human labour is leveraged to produce economic value, it stands to reason that money is a claim on energy. A dollar represents the energy and labour needed to manufacture the goods you are buying. This puts another limit on the intrinsic value of energy. You cannot expect to sell 1btu of energy at a price that exceeds the value of the physical goods made from it.

    This implies that not all oil in the ground can reasonably be considered a resource, because not all of it is useful given the energy intensity of the economy. This is how peak oil plays out and why there is now no price that satisfies both producer and consumer. The oil is costing almost as ch wealth as it releases when we consume it and margins are simply too tight for the oil to be useful as a resource. This is a convoluted way of saying that EROI is turning to crap.

  9. Boat on Tue, 23rd Jan 2018 12:03 pm 

    AntiUS

    There are hundreds of billions we could divert to ff production. Think entertainment and military spending. We could give up expensive foods like meat. Quit doing drugs and reverse safety measures on cars and buildings so people die faster. Health care for none. If we take these measures we will have plenty of money for fuel to drive around reguardless of EROI. It’s all about choices.

  10. Cloggie on Tue, 23rd Jan 2018 12:58 pm 

    I agree with the article that there is for centuries fossil fuel left. The entire planet can still be fracked and if that is exhausted the entire North Sea area with sub-sea coal can be gasified. For starters.

    https://deepresource.wordpress.com/2017/01/01/underground-coal-gasification/

    Like with shale the key factor is technology.

    I have long stopped worrying about peak fossil supply. In a couple of decades the world will have switched to renewables.

    I’m pleased that the EU-parliament has decided to speed up the energy transition to 35% renewable primary energy by 2030.

    https://www.europeanfiles.eu/energy/clean-electricity-key-element-eu-climate-strategy

  11. rockman on Tue, 23rd Jan 2018 1:48 pm 

    boat – “Your had the same tech for decades pegs the full-o- shyt meter.” Exactly my point you keep trying to avoid. The shales boomed when oil prices increased well above the historic average. As they are to day.

    But you still dodge the main point of my post: the hydrocarbon bearing shale trends of the Permian Basin were identified more then 4 decades ago. They are very far from being new news. And as oil prices rise and fall those shales will be drilled and then not. But in time they will be played out as has happened to every oil play ever discovered. So the question remains: after the shales are played out what’s next? Easy answer as I pointed out: there are no other oil bearing trends in the US to develop.

    BTW: a 540 bopd increase in the PB compared to a world (with its continuing depletion) consuming 95+ million bopd don’t mean shit. LOL.

  12. rockman on Tue, 23rd Jan 2018 1:55 pm 

    Cloggie – “The entire planet can still be fracked…” You mean the planet that saw virtually no meaning frac’ng trend developed during all those years of high oil prices? If not then are you expecting them to suddenly appear now that oil prices are much lower? Are do you predict the planet will be frac’d when oil prices hit and are sustained well above $100/bbl for many years?

    Just curious why you expect the planet will be frac’d in the future when it wasn’t being frac’d (except for the US) in the future.

  13. kervennic on Tue, 23rd Jan 2018 2:47 pm 

    Technology might also very well push longevity to 150 year old, but you’ll be dead before.

  14. Cloggie on Tue, 23rd Jan 2018 2:57 pm 

    “Just curious why you expect the planet will be frac’d in the future when it wasn’t being frac’d (except for the US) in the future.”

    I didn’t say that the planet will be fracked, but could.

    Not being Nostradamus, I still have my hopes high that the rise of renewable energy will somewhat offset fossil decline and we can leave a lot of shale in the ground, not to mention North Sea coal.

  15. Davy on Tue, 23rd Jan 2018 3:39 pm 

    Rock, neder is talking out his ass again.

  16. Boat on Tue, 23rd Jan 2018 4:29 pm 

    Rock,

    That modern day fracking is how those wells got to 600 bpd. Something your old tech could not do since 1920 in the permain.
    You say 60 bpd to 600 is nothing but it certainly took the market from a 6 year shortage to a glut that changed the world the last couple years. I would call that exceptional. Over the next decade watch fracking in Mexico, Argentina, Russia and China. You might be suprised.

  17. Davy on Tue, 23rd Jan 2018 4:45 pm 

    Over the next decade sure boat, those time frames are easy to sport. Got and immediate evidence?

  18. Dredd on Wed, 24th Jan 2018 7:16 am 

    Pushers gotta push.

  19. rockman on Wed, 24th Jan 2018 5:05 pm 

    Boat – “That modern day fracking is how those wells got to 600 bpd”. The identical hz drilling and frac technology was available before 2006 when the PB was doing 60 bopd as you’ve pointed out. What wasn’t around during that time was the high oil prices that led to the production surge.

  20. Boat on Wed, 24th Jan 2018 8:28 pm 

    Rock,

    Then why was it until 2014 that Permian wells took such a big leap in production. Thats when prices bottened out. Go look at drilling report from the eia. It has the number of wells drilled by month, completions per month, DUCT’s per month and production per month. Money was not the cause of increased production. Longer laterials, more explosives spaced together, huge amounts of added sand are what I read are the changes that happened to increase production. PS them oil boys call those changes new tech.

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