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Peak Oil – It’s Just a Rumour

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Whenever I present a course, someone will inevitably ask: “When, exactly, do you think we will run out of oil?” “Never!” is always my response. The world will never run out of oil.

“But”, they protest, “I saw a report about it on TV”. “I saw a YouTube video about it”. “My science teacher showed us a graph”……

When Professor Marion King Hubbert made his predictions almost sixty years ago that US oil production would peak in the mid 1970s and decline thereafter (and so also by the same reasoning would World oil production), little did he realise what consternation he would create!

The truth of the matter is that his analysis and predictions were based on proven reserves from conventional oil fields. And it is true, production from these types of fields did indeed start to decline in the 70s much as he predicted. However, overall oil production actually increased, and continues to increase, as companies move into deeper water, chase new plays such as sub-salt, and produce from unconventional resources such as shale oil and tar sands.

Moreover, it is physically impossible to recover all of the oil from a field and, for all but a few exceptionally high quality oil fields, we currently leave more than half of the oil they contain in the ground. The current world average recovery factor for oil fields is in the range 30-35%. In many of the Middle East fields, around 75% of the discovered oil is currently still in the ground, with primary Recovery Factors typically less than 20%. That is, only about 20% of the oil will flow out of the reservoir by itself once a well is drilled into it (this is called the field’s primary drive). To get the rest of the oil out requires much more effort (and cost) – such as the injection of water or gas into the reservoir to maintain pressure and help push the oil out (referred to as secondary recovery), or the use of steam, chemicals or even heat from a fire to change the properties of the oil so that it will flow more easily (referred to as tertiary or enhanced recovery). But at the end of the day, we still will not be able to get every last drop of oil out of a reservoir, no matter how hard we try!

Often, it is cheaper simply to drill a new primary production well somewhere else, or even to find a completely new oil field and start again! Some companies even choose to look for alternative sources of oil and gas, such as shale oil and coal seam gas.

However, if/when the price of oil rises to $200 per barrel, you can be sure that a much greater effort will be made to extract more of that oil which has already been discovered and has just been left behind in the ground. When the oil price reaches $500 per barrel it will be an extremely attractive proposition to return to abandoned oil fields and prise yet more of the stubborn oil out of the ground, and when it reaches $1000 per barrel, we will tunnel down there to dig it out if we have to! The problem is, when oil costs $1000 per barrel to produce, the petrol to run your car will probably cost more than the car itself!

So the peak in oil production that we reached, and that is displayed on Professor Hubbert’s graphs, is the peak in production of cheap oil from conventional, already discovered fields only and is largely irrelevant to today’s highly diversified industry.



30 Comments on "Peak Oil – It’s Just a Rumour"

  1. J-Gav on Tue, 24th Jun 2014 6:13 am 

    “When the price of oil reaches $500 per barrel, it will be an extremely attractive proposition to return to abandoned oil fields…”

    It’s pretty obvious that this bird don’t know chicken shit from chicken salad since, at that price, the only people who could still afford to buy oil would be the military … In other words, it’s mathematically impossible to run a growth-based economic system on $500 oil!

  2. Kevin Cobley on Tue, 24th Jun 2014 7:36 am 

    He also doesn’t appear to grasp the concept the total supply of petroleum is fixed.

  3. Juan Pueblo on Tue, 24th Jun 2014 8:51 am 

    Pure unrefined BS. Move on!

  4. rockman on Tue, 24th Jun 2014 8:53 am 

    Nor did he bother to read Hubbert’s report. If he had he would know that Hubbert was predicting the future production of just the fields that his analysis was built upon. He also pointed out that his analysis did not include any new potential trends yet to be developed. And Hubbert’s projection of the trends he analyzed remains amazingly accurate today.

  5. ronpatterson on Tue, 24th Jun 2014 9:05 am 

    He seems to confuse peak oil with “running out of oil”. Oil just might hit $500 a barrel one day. But if that day ever arrives you can be sure we will be way, way past peak oil.

  6. Andrew Aigner on Tue, 24th Jun 2014 9:16 am 

    Perhaps, more appropriately, we should state, as a fact, that we are ” running out of affordable oil”, which is Highly Relevant to today’s economies.

  7. GregT on Tue, 24th Jun 2014 9:44 am 

    “Whenever I present a course…….”

    Must be an economist. He clearly has no understanding of physics, biology, or mathematics.

  8. louis wu on Tue, 24th Jun 2014 10:34 am 

    Who will be buying the $200/barrel or higher oil?And as far as the Hubbert references oil extraction rates for the U.S. did in fact peak in the early 70’s and has never even gotten back to that peak even counting all of the other stuff lumped in now that is not actually oil.When things start to fall apart these are the folks that need to be put on public display to explain their positions after the fact.

  9. Davy, Hermann, MO on Tue, 24th Jun 2014 11:03 am 

    Greg, I am thinking society should put a parasite tax (similar to a carbon tax) on lobbyist, attorneys, and economists. This would be a great top down strategy except unfortunately that is all the top consists of anymore so they would never tax themselves. The bottom up strategy will be a bounty I am sure post collapse.

  10. Jerry McManus on Tue, 24th Jun 2014 11:09 am 

    As loathe as we may be to admit it, the guy is actually right. It is the simple truth that recovery factors will never be 100%. We will leave trillions of barrels of “oil” (or its many derivatives) in the Earth’s crust because it is either to expensive or to difficult to extract. Or both.

    The peak oil crowd would have done well to embrace this concept early on in the debate, it would have gone a long way towards disarming the cornucopians and their so-called “resource pyramid” arguments.

    It also would have been enormously helpful in steering the debate away from all the pointless bean counting and prognosticating about exact numbers of barrels and precise dates of peak oil.

    The author, to his credit, gets to the heart of the problem with his comment at the end of the article that eventually the oil will be so difficult and expensive to extract that it will “cost more than the car itself”.

    Exactly right. That is the real problem that the eggheads at the Oil Drum and other peak oil bean counters never seemed to understand.

    At what point do the environmental, economic, and net energy costs of fossil fuels overwhelm a societies ability to cope?

    I think we will soon find out.

  11. J-Gav on Tue, 24th Jun 2014 11:10 am 

    Davy – You could add the food distribution parasites, the advertising parasites and more – that would up the take from your ‘parasite tax’ even more.
    Of course the proceeds would probably end up mostly stolen by the bureaucratic and political parasites but that’s another matter …

  12. Davy, Hermann, MO on Tue, 24th Jun 2014 11:30 am 

    Yea, Gav, bastards got us by the short and curlies anyway you look at it.

  13. Kenz300 on Tue, 24th Jun 2014 12:12 pm 

    As the price of oil continues to rise all alternatives begin to look better and cheaper……… Fossils fuels continue to rise in price while alternatives get cheaper.

    Biofuels can now be made from waste or trash will little cost for the inputs because they are already being collected.

    Landfills can now be converted to produce energy, biofuels and recycled raw materials for new products.

    This can produce local energy and local jobs. The fossil fuel companies hate this. They are stuck on their old centralized model of energy production. Decentralized energy production in local communities is the future.

    Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste can all be produced locally and provide much needed local jobs for a community.

  14. Northwest Resident on Tue, 24th Jun 2014 12:25 pm 

    Jerry McManus — I think we are actually in the process of finding out right now, and have been for a while. It is currently a slow motion downhill slide we find ourselves in, but will be picking up speed — and a lot of it — soon enough.

  15. shortonoil on Tue, 24th Jun 2014 12:43 pm 

    “He seems to confuse peak oil with “running out of oil”. Oil just might hit $500 a barrel one day. But if that day ever arrives you can be sure we will be way, way past peak oil.”

    It is impossible to run oil above about $430/b. Beyond that it becomes an energy sink, and there simply will not be anyone left to produce it. Hope you get around to reading the report.

  16. baptised on Tue, 24th Jun 2014 12:57 pm 

    That last paragraph destroys everything he said earlier. Must be an economist. You know the one’s that their parents made them go to college, to get ahead. But just don’t have the IQ, to get it done, so they become economist.

  17. Tedman on Tue, 24th Jun 2014 1:48 pm 

    Kenz how are you going to get food from point A to B? We can’t do it with wind or solar…we need oil! And we need it to be cheap!! There are too many people on the planet to transition to cheap oil…don’t want to say that too loud…it might give the PTB an idea to limit population…

  18. rockman on Tue, 24th Jun 2014 3:28 pm 

    Andrew – “…that we are running out of affordable oil”. I do get the point you’re trying to make. But we have never had “affordable oil” IMHO. Of course, that depends on who “we” is. In 1986 when oil fell to almost $10/bbl oil was less affordable to a great many folks on the planet…just as it is today. At that price “we” could only afford to by 60 million bopd. Today, at a price about 10X as great, “we” are buying 50% more then “we” were in 1986.

    Which again highlights IMHO the mistake some in the PO community have made focusing on dates and production rates. The real damage that the PO dynamics fosters isn’t a function on either. It’s the cost inflicted on the world’s economies and the pain it brings. In general much of the world is hurting to some degree today. But so was a large portion 3 decades ago…during the days of “cheap oil” and long before the discussion of PO dates began.

    If the “we” are the Chinese people one could argue that “we” have very affordable oil today. So affordable that “we” have a booming economy even with the current cost of energy. And if “we” is a Greek or Spaniard? Not so affordable.

  19. JB on Tue, 24th Jun 2014 5:10 pm 

    Rock “we have never had ‘affordable oil.’ Of course, that depends on who “we” [includes].”

    I would imagine when people of average incomes find it necessary to share rides to work, it will be the end of affordable oil.

  20. rockman on Tue, 24th Jun 2014 6:13 pm 

    Average income? Of a Brit? Of a German? Of a Mexican? Of a resident of Beverly Hills? Kinda like all people are equal…just some more equal then others. Kinda like all oil is affordable…just some more affordable then other oil.

    That’s my point: “affordable oil” is a meaningless term IMHO unless it’s indexed to a particular group of consumers.

  21. alokin on Tue, 24th Jun 2014 6:44 pm 

    The more desperate the situation is the more cheery the propaganda becomes. At least my impression, the more stories about an oil crunch I read here the more cornucopian stories turn up elsewhere.

  22. Harquebus on Tue, 24th Jun 2014 7:50 pm 

    The world’s economies are struggling with $100/bl.
    You can’t polish a turd but, you can roll it in glitter.

  23. Newfie on Tue, 24th Jun 2014 8:22 pm 

    Oil is “only” $100 a barrel and the economy is in distress. Half a dozen countries are in permanent recession (the PIIGS). The USA is more or less bankrupt, with a debt of $15 trillion increasing by $1 trillion a year. $200 oil is a fantasy. Demand for oil will collapse well before that threshold is reached. It looks like Petroleum Civilization is already in decline.

  24. Makati1 on Wed, 25th Jun 2014 6:13 am 

    Oil in the US may someday be $1,000,000 per bbl. When the Zimbabwean inflation takes off. But then bread will be $ 20,000+ per loaf and going up…

  25. Davy, Hermann, MO on Wed, 25th Jun 2014 6:30 am 

    At least we will have bread Mak, what will you have in the P’s some unaffordable coconuts?

  26. Perk Earl on Wed, 25th Jun 2014 9:29 am 

    “However, if/when the price of oil rises to $200 per barrel, you can be sure that a much greater effort will be made to extract more of that oil which has already been discovered and has just been left behind in the ground.”

    $200, 500 a 1000 a barrel? Hmm, didn’t we already hit a wall in 08 at 147? I remember these discussions way back in the heyday of TOD, in which many posters thought the price could reach such levels and still have BAU, only to find out in 08 there is a price ceiling initiating recessionary feedbacks because the economy serves all, not just the super wealthy. And when the overall economy no longer supports BAU we are all in trouble.

    I would argue the ceiling price of oil in which recession initiates is lower than the price hit in 08. Possibly as low as $125-135, because the printing money press desperate fiscal measures is closing up shop via taper. Now down to 35b a month and already Qtr. 1 was -1%! It will be fascinating to see what qtr. 2 comes in at and the consternation by TPTB if it is also in negative territory, because that will by definition (2 successive qtrs. in negative range) be a recession. God forbid after all the stimulus injected into the economy it will do that just as soon as the stimulus is removed.

  27. clueless on Wed, 25th Jun 2014 10:40 am 

    Davey, What makes you think you’re better off in the US than anynone outside your shameless nation? You’ll have GMO bread supplied @ FEMA camp where everyone of you will be at come SHTF. America’s acquifers are either drained or contaminated by fracking, so you’ll be drinking you’re own saliva sooner or later. Remember the water is the most important resource of all, not OIL, which your country is addicted to. No one lives without water, because water is life…America has none anymore. Better migrate to 3rd world Mexico now as long as you still have time. TIC TOC TIC TOC. LOL.

  28. clueless on Wed, 25th Jun 2014 10:51 am 

    BTW. I had the grandest time watching “JUST FOR LAUGHS'(Montreal) over YOUTUBE. The topic is “the decline of the american empire”. Watch it now, you’ll have a blast listening to comedians (even american comedians) bash the idiot nation that went pfffffttttt.

  29. Davy, Hermann, MO on Wed, 25th Jun 2014 11:47 am 

    Clueless, I plan on drinking my urine for water so I will never have to worry about water again.

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