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Peak Oil, Abiotic Oil & EROEI: Real(ish)


Guest Seinfeld routine by David Middleton

The plots of the Seinfeld TV show often revolved around trivializing important things and blowing trivial things out of proportion. While not a Seinfeld fanatic (I’m more of a Frasier fanatic), I thought the comedy routines were generally brilliant and quite effective.

Peak Oil, abiotic oil and EROEI (energy returned on energy invested) are largely academic concepts. They are the subject of books, academic publications and Internet “debates” The “debates” about Peak Oil, abiotic oil and EROEI are a lot like the Seinfeld show. They magnify the trivial and trivialize things that actually matter. The “debates” often divide into two camps:

  1. It’s the end of the world (Peak Oil, EROEI).
  2. It’s our salvation from the end of the world (Abiotic oil).

While all three of these energy-related topics are, at least to some extent, real, none of them have the slightest relevance to energy production… except for Peak Oil… But the relevance is generally missed by both sides in Internet “debates.”

I had originally intended on combining Peak Oil, abiotic oil and EROEI into one post; but realized that it would have been longer than Tolstoy’s War and Peace. So, this post will be limited to Peak Oil. Part Deux will deal briefly with abiotic oil and Part Trois will deal more extensively with EROEI.

Peak Oil: A Real Thing That Doesn’t Matter

What is Peak Oil?

In its simplest form, “Peak Oil” is the point at which petroleum production reaches its maximum rate. It is based on the work of Shell geologist M. King Hubbert (Hubbert, 1956). It’s simply a mathematical approximation of how the production rate of oil, gas or any other depleting resource will change as the resource is recovered. Hubbert’s logistic function yields a maximum production rate at the time half of the resource has been produced. Reality is messier than this; but Hubbert’s logistic function is a decent approximation, particularly for regional analyses. In its most common form, “Peak Oil” is applied to oil producing regions, nations and the world.

This was Hubbert’s 1956 “forecast” for Peak Oil in the US:

Figure 1. Hubbert’s 1956 Peak Oil forecast for the US. (Hubbert 1956).

Peak Oil is highly dependent on the total volume of a resource that will be recovered. Note how the “peak” moves forward in time as the total volume of recoverable oil is increased. Hubbert’s forecast wasn’t looking too bad as recently as recently as 2008. However, the recoverable resource was much larger than 150 or 200 billion bbl.

Figure 2. Hubbert 1956 with US oil production through 2017.

Through 2017, cumulative production totaled over 222 billion bbl and proved reserves stood at just under 40 billion bbl.

Figure 3. Figure 2 with US proved oil reserves.

In order to estimate when US Peak Oil will occur (or has occurred), we would need to know how much of the oil resources, not classified as proved oil reserves, will be recovered. At best, this is a SWAG. The Bureau of Ocean Energy Management (BOEM) estimates that there are about 90 billion bbl of technically recoverable oil remaining on the US Outer Continental Shelf (OCS). Until proved reserves and the estimated undiscovered resource begin to decline, it will be impossible to forecast Peak Oil.

How do we know that Peak Oil is real?

Let’s start out with a simple, generalized depiction of an oil reservoir.

Figure 4. Generalized oil & gas reservoir. (Petropedia)

Every oil well, every reservoir and every oilfield has or will reach a peak oil production rate, followed by a steady decline. The rate of decline and recovery rate are generally functions of the reservoir drive mechanism.

The reservoir drive mechanism supplies the energy that moves the hydrocarbon located in a reservoir container toward the wellbore as fluid is removed near the wellbore. There are five common drive mechanisms:

Water drive

Gas expansion

Solution gas

Rock or compaction drive

Gravity drainage

One type usually dominates, but drive types can occur in combination. Depending on the drive mechanism, characteristic recovery efficiencies can be expected for a given reservoir.


When an oil and/or gas well is completed, the production casing is perforated at the level of the reservoir. The virgin reservoir pressure is considerably higher than the pressure in the wellbore. This causes the oil and/or gas to flow into the wellbore and to the surface. As the oil and/or gas are removed (voided) from the reservoir a combination of two things generally occurs.

  1. The reservoir pressure begins to decline.
  2. Formation water begins to move up-dip.

Water drive and gas expansion (pressure depletion) drives are the most common drive mechanisms.  One feature shared by all drive mechanisms is that the maximum production rate occurs early in a well completion’s life cycle.

Figure 5. Oil reservoir drive mechanisms. (AAPG Wiki)

A water drive reservoir will exhibit increasing water production as oil production declines. The oil is “swept” up-dip as the water table rises to accommodate voidage of the oil. Strong water drives are the best oil reservoirs; but not very good gas reservoirs.

Figure 6. Water drive reservoir. (AAPG Wiki)

Gas solution (pressure depletion) drive reservoirs will exhibit a drop in reservoir pressure and an increase in the gas:oil ratio (GOR) as the oil production rate declines. These are poor-performing oil reservoirs; but the best performing gas reservoirs.

Figure 7. Solution gas drive reservoir. (Schlumberger)

The drive mechanism determines how much of the original oil in place (OOIP) can be recovered:

Energy Source Recovery (% OOIP)
Solution gas
Evolved solution gas expansion 5–30
Gas cap drive Gas cap and evolved solution gas
Water drive Aquifer expansion 35–75
Gravity 5–30 (incremental)

Table 1. AAPG Wiki

These percentages can be increased through secondary (water flood) and tertiary (carbon dioxide injection) methods. Future technological advances will probably lead to improved recovery rates. However, 100% recovery rates are highly improbable.

Oifields are groups of well completions in reservoirs. They behave much like the individual reservoirs do. All oifields eventually peak, as will global oil production. When will this happen? I have no idea.

Eugene Island 330 was once the largest field in the US Gulf of Mexico in total oil & gas production (BOE). Although it has been surpassed by Shell’s deepwater Mars field, it is still one of the biggest oilfields in the Gulf and the largest (BOE) field on the shelf (<1,000′ water depth).

Figure 8. Eugene Island 330 Field, oil production rate vs cumulative oil production (David Middleton, data from BOEM).

Eugene Island 330 field has produced almost 500 million bbl of oil and 1.9 TCF (trillion cubic feet) of gas from September 1972 through January 2019. The field averaged 8,200 bbl/d in 2018. Note how the production ramped up quickly, peaked and then tailed off slowly.

When we look at the aggregate oil production from US Gulf of Mexico shelf, we can see a Hubbert-like pattern:

Figure 9. US Gulf of Mexico shelf (water depth <1,000′)
oil production rate vs cumulative oil production (David Middleton, data from BOEM).

The US Gulf of Mexico shelf has passed “Peak Oil.” An opening of the Eastern Gulf of Mexico to E&P operations would probably yield a short resurgence in oil production; but in terms of oil production, the shelf is in permanent decline. There is still a lot of potential for gas on the shelf; but much of this is uneconomic at today’s natural gas prices. Fortunately, the Gulf of Mexico doesn’t stop at a water depth of 1,000′.

Figure 10. US Gulf of Mexico oil production, including deepwater. (David Middleton, data from BOEM)

The thing about “Peak Oil” is that there are many different types of peaks.

Ingenuity/economic peaks

Peak Oil in the Williston Basin of North Dakota appears to have occurred in 1985:

Figure 11. “Total annual oil production in North Dakota” millions of barrels per year. North Dakota Geological Survey.

Then the oil industry, largely led by Continental Resources, figured out how to economically produce oil from one of the basin’s most prolific source rocks, the Bakken formation.

Figure 12. Figure 9. merged with North Dakota crude oil production. EIA

The Bakken was a key factor in the “shale revolution.” Hubbert’s 1956 Peak Oil forecast for the US looked pretty good before the “shale revolution.”

Political peaks

Figure 13. North Slope exploitation scenario if all areas were open to E&P (exploration and production). (Thomas et al., 2009)

Oil production from the North Slope of Alaska peaked in 1990, due to the fact that ANWR Area 1002 and the Beaufort & Chukchi Sea OCS (outer continental shelf) areas have been generally inaccessible for political reasons.

How do we know that Peak Oil doesn’t matter?

Oilfields, like individual reservoirs, generally exhibit exponential decline curves. The decline curve flattens out over time. The average decline rate for mature oilfields is about 5%. Giant oilfields average about 3% decline rates.

Figure 14. Average decline rates of giant oilfields. (Höök et al., 2009)

However, this is not the only reason for the slow tail off. Most of the capital expenditures occur early in the life of an oil discovery. Once the field is online, the cash flow from the oil & gas production only needs to cover the costs of operating the field. Furthermore, the cost to plug and abandon (P&A) a field can be quite expensive, particularly for offshore fields. Continuing to operate a cash flow-negative oilfield is economically preferable to incurring the P&A costs.

The North Slope of Alaska is an example of this. Production from the giant Prudhoe Bay oilfield ramped up very quickly, peaked in 1990 and tailed off.

Figure 15. North Slope oil production, historical through 2007, forecast 2008-2050 (Thomas et al., 2009), updated with historical production through 2017.

The Trans-Alaska Pipeline System (TAPS) can’t function below a rate of 200,000 bbl/d. Operators of North Slope oilfields have a very powerful incentive to maintain production rates well-above 200,000 bbl/d.

When global Peak Oil actually occurs, it will probably be driven by demand, rather than supply. The supply is ample and diverse. Note the impact that the decline of the largest oilfield in the world, Saudi Arabia’s Ghawar, and the collapse of Venezuela’s oil production have had on global oil production:

Figure 16. Petroleum liquids production (includes crude, condensate, oil shale, oil sands and NGL). USA in red, Venezuela in yellow.

Dean Wormer would describe the impact as…

Figure 17. “Zero-point-zero!”

Inflation-adjusted oil prices have exhibited no statistically significant trend over the past 50 years.

Figure 18. Annual average imported crude oil price. EIA Short-Term Energy Outlook, April 2019.

The “shale revolution” coincided with the 2006-2014 period of generally high oil prices. It’s often said that $100/bbl oil was a bigger factor than horizontal drilling and frac’ing. This is true to a point. However, the collapse in oil prices since 2014 forced the shale players and the rest of the oil industry to reduce costs… And the industry did this “with a vengeance.”

Figure 19. Shale play breakeven prices. (World Oil)

Continental Resources, the leading Bakken player, has generated positive operating cash flow every year since 2014 and three straight years of positive free cash flow 2016-2018.

EOG Resources, the leading shale player nationwide, has generated positive operating cash flow every year since 2014 and positive free cash flow in 2014 and 2017-2018.

Chevron, the top US oil producer and major Permian Basin player has generated positive operating cash flow every year since 2014 and positive free cash flow 2017-2018.

It was actually more difficult for shale players to generate free cash flow with $100+ oil prices than it has been at $50-60/bbl. $100+ oil made it almost impossible to control spending. The drop from $100-$30/bbl made it worse. However, the drop in prices created leverage to reduce costs, particularly rig rates and service company expenses. Everyone, conventional and unconventional players alike, ratcheted down spending from 2015-2017. Breakeven prices for the shale plays plummeted over this period.

Note: Unconventional oil is often no different than conventional oil. The Bakken shale was the source rock for many conventional migrated oil accumulations trapped in porous and permeable sandstone and carbonate reservoirs in the Williston Basin. The “unconventional” aspect is in the use of horizontal wells and massive frac jobs to enable oil production directly from the low permeability source rock.

When oil prices go up, costs go up. Everything from rig day rates, to frac fluids & sand, to offshore workboats, to motel rooms in the Permian Basin. $100 oil kicked off the “shale revolution”… But wasn’t necessary to sustain it.

Over the last couple of years, E&P companies have become more efficient, forced to create investor returns at $40 – $50/barrel oil. Well productivity has improved as companies drilled longer laterals and used less proppant. After the crash in oil prices, oilfield services companies lowered their prices to compete for limited work. As oil prices recovered, the price of oilfield services was slow to catch up. Additionally, companies have more capital discipline than they ever did at $100/barrel oil prices.

Even as oil prices have started to recover, companies are showing lower breakeven costs than ever before. As shown in the chart below, breakeven prices in the Midland Basin fell by 50% from $87 in January 2014 to $44 in September 2018.

Mercer Capital

The cost-cutting was industry-wide:

Figure 20. Breakeven prices for major oil companies and shale players. (Oil Price)

Breakeven prices have been reduced onshore and offshore, conventional and unconventional.

Figure 21. Breakeven prices have been reduced in a broad range of plays. (FT)

Industry has no control over prices; but can always reduce costs by doing things more efficiently. This is why deepwater Gulf of Mexico E&P is booming at $50-60/bbl oil prices:

Figure 22. US GOM deepwater breakeven costs for greenfield (new discoveries) projects. (Offshore)

Most oil companies make final investment decisions (FID) based on the current price of oil, adjusted for the expected inflation rate over the anticipated project duration. High oil prices drew the industry to shale plays like the Bakken and Eagle Ford and out into deepwater. The industry’s “learning curve” made those plays even more economically viable at $60/bbl than they were at $100+/bbl. Peak Oil, as real as it is, simply doesn’t matter.

As long as oil prices continue to climb at least as fast as the inflation rate, the industry will be able to meet the demand for refinery and petrochemical feedstocks for a long time to come… And North America is well-positioned to dominate the 21st Century.

Figure 23. Global petroleum cumulative production, proved reserves and resource potential. (Jude Clemente).

Bear in mind that I did not factor in natural gas and most of the production data I used did not include natural gas liquids (NGL). Natural gas resources are even more abundant than crude oil and can, to some extent, serve as a replacement… Rendering Peak Oil even more irrelevant.

To Be Continued

Part Deux will address the real(ish) nature of abiotic oil and its irrelevance.

Part Trois will address the real(ish) nature of EROEI and its Seinfeldian position among irrelevant things.

16 Comments on "Peak Oil, Abiotic Oil & EROEI: Real(ish)"

  1. WTFisUpWitDat on Tue, 23rd Apr 2019 7:29 am 

    Climate change denialist blog – nuh said. Even if there are shards of truth in this article I’m inclined towards discounting it based on the source.

  2. Sissyfuss on Tue, 23rd Apr 2019 8:53 am 

    Shouldn’t one of the factors in quantifying peak oil be population growth and its accompanying activities such as increase in auto owners, miles driven, and all the other human endeavors that require oil as a foundational building block? The date of peak oil is certainly sped up with 9 billion biped hominids as opposed to the current 7.7 billion.

  3. Gaia on Tue, 23rd Apr 2019 5:17 pm 

    Fuck Capitalism. It is a scam that only benefits the ungrateful rich bastards/bitches.

  4. humvee on Wed, 24th Apr 2019 7:06 am 

    Humanity went down a dead end road when it decided to slurp on that cheap energy source it had discovered. Probably any life form would have but it is a trap.

  5. Darrell Cloud on Wed, 24th Apr 2019 8:18 am 

    It’s jagged, but it seems that a bell curve is present once the extraction begins.

  6. Gaia on Wed, 24th Apr 2019 1:09 pm 

    The banksters caused the Great Recession (2007-present), not the immigrants and refugees coming to the West for a better life.

  7. Truth Buster on Wed, 24th Apr 2019 1:15 pm 

    Gaia is an idiot

  8. Sunspot on Wed, 24th Apr 2019 5:46 pm 

    I have understood since about 2004 that it would be a contest between Global Warming and Fossil Fuel depletion to see which would destroy the human race first. In 2004 I put my bet on depletion. Turns out Global Warming is going to win because we postponed depletion. We will go out with a “bang”, not a whimper… Arctic methane…

  9. Kevin Cobley on Wed, 24th Apr 2019 6:15 pm 

    Is this idiot really suggesting the US has enough fracking capacity to supply the entire world with oil for the next 50 years, that’s what he’s saying in the last chart?
    He’s as believable as Alex Jones.

  10. makati1 on Wed, 24th Apr 2019 7:03 pm 

    Truth, it’s obvious YOU can not handle the truth. lol

  11. makati1 on Wed, 24th Apr 2019 7:07 pm 

    Kevin, that is why I don’t pay attention to any oily prognosticators. All are selling something. There has been no truth in any oily numbers for decades, if ever. It’s all a scam to keep the suckers on board the sinking ship Petroleum until the elite have sucked all the blood ($$$) out of them.

  12. Davy on Wed, 24th Apr 2019 7:27 pm 

    More signs that makato’s asia is in the shitter:

    “Canary Meet Coalmine: South Korean Economy Unexpectedly Plunges Most In A Decade” zero hedge

    “One of the most-followed belwethers for global growth just flashed another death-knell warning for the green-shoot-ers. South Korea’s gross domestic product unexpectedly shrank in Q1, dropping 0.3% QoQ (against expectations of a 0.3% rise). This is the biggest contraction in a decade as declining investment and exports take a toll on Asia’s fourth-largest economy. South Korea is highly exposed to slowing in global growth and the technology sector, which have combined to crimp the nation’s GDP in recent quarters, and Band of Korea Governor Lee Ju-yeol blamed weakening exports, particularly of semiconductors, and slowing business investment for the growth downgrade.”

  13. Gaia on Wed, 24th Apr 2019 7:37 pm 

    Asia should keep growing economically and invest more money in building infrastructure in Africa, Latin America and Oceania (Pacific Island nations).

  14. makati1 on Wed, 24th Apr 2019 7:58 pm 

    Davy, grasping at straws these days? See short list of the US’ troubles:

    “5 Signs of a U.S. Economic Collapse in 2019”
    “The U.S. Economy Is Collapsing – Americans Are Out Of Money”
    “Do You Remember The Oil Crisis And “Stagflation” Of The 1970s? In Many Ways, 2019 Is Starting To Look A Lot Like 1973…”
    “List Of 24 Points Pressing Hard Toward Recession” (US)
    “It’s Only April, And U.S. Retailers Have Shuttered More Stores Than They Did All Of Last Year”
    “The Next Financial Crisis’ Catalyst: Mountain Of Corporate Debt”
    “America’s Debt Crisis: Consumer Credit Card Debt Continues To Rise”
    “Why Are American Communities Dying?”
    “Retail Layoffs Are 92 Percent Higher In 2019 – And Now Even Walmart Is “Quietly Closing Stores””
    “The Federal Reserve’s Controlled Demolition Of The Economy Is Almost Complete”

    BTW: South Korea: Population: 51.5 million vs Asia population of 3+ Billion.

    GDP (PPP): $2.0 trillion vs Asia GDP of $60+ trillion WIKI
    3.1% growth
    3.0% 5-year compound annual growth
    $39,434 per capita
    Unemployment: 3.7%
    Inflation (CPI): 1.9%

    Like comparing Missouri ($305B) to California ($2,750B) LMAO

  15. Gaia on Wed, 24th Apr 2019 8:08 pm 

    The 21st Century will be a multi-polar world.

  16. Davy on Thu, 25th Apr 2019 4:31 am 

    “Davy, grasping at straws these days? See short list of the US’ troubles:
    BTW: South Korea: Population: 51.5 million vs Asia population of 3+ Billion.
    Like comparing Missouri ($305B) to California ($2,750B) LMAO”

    Makato, that was a long comment to only show you know how to copy and paste and give three lines of irrelevant info BTW with multiple empty references. South Korea is a bellwether for Asia but you missed that.

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