[Graeme]

Oliver L Campbell : Is peak oil imminent?

I have just read an article by Brendan Coffey with the title "Has peak oil arrived?" The short answer is "no" since OPEC has ordered its members to shut in production in order to keep up prices. Until the world economy picks up, there will still be a surplus of oil available.

Peak oil has not so much to do with recoverable oil in the ground, as Mr Coffey says, but rather that, as demand increases, a point is reached where production can no longer meet demand. Oil reserves can exist but if they are not produced in a timely fashion--development projects are delayed or not carried out for one reason or another--then peak oil can be reached.


The statement, "OPEC members like Venezuela and Iran are estimated to need over $95 to break even on their costs" is patently untrue. If that were so, they would all be losing money as the WTI average for 2010 to date has not reached $80 a barrel. In 2007, Venezuela realised $65 a barrel from its export sales, and this produced a government take of some $45 billion. Venezuela's crude oil exports are currently realising around $68 a barrel and, if not as high as the country would like, the aspiration is for $80 a barrel, it still produces a reasonable income.

The fact is oil will still be the kingpin for many years to come and substitutes and renewables will only gradually have an impact on oil production. Predicting peak oil is a mug's game because there are so many variables but, on balance, I do not believe it is imminent. If you want me to stick my neck out, I should not expect it to occur before the 2030s.

petroleumworld

[Carlhole]

A Post-Oil Man

Doomerism is so dead. This YouTube animation is even funnier now than in 2006. I think it must have been a slam of Matt Savinar personally. That's who the little post-oil man really is, I think.

What ever happened to Matt? Does he still contribute over at his own site? I never go there. How come he never posts here anymore? Isn't he adding anything new to the oil debate any longer?

It appears to me that he dropped off the radar right after the oil bubble of 2008 popped.

[Pops]

Oliver L Campbell : Is peak oil imminent?

I have just read an article by Brendan Coffey with the title "Has peak oil arrived?" The short answer is "no" since OPEC has ordered its members to shut in production in order to keep up prices.

I had a hard time remembering where this was, I didn't get a chance to put it in the news this morning, anyway:

In a recent interview on the Keiser Report I found myself casually mentioning that Russia had now surpassed Saudi Arabia to become the number one oil producer in the world. This is not an event that happened last month, either. The leap forward emerged as far back as 18 months ago, in October of 2008. It seems in Russia, big things often unfold in October.

Russia:



I think KSA is still the only one with much spare capacity that actually flows...


Read the rest of GMs analysis

So that sideways movement on the Russian production charts looks kind of ominous - but we can hope they are just going slow to match the market for now and not maxing out themselves...

[Pops]

Another insightful analysis carl, glad you could drop by to enlighten us. By the way you forgot to add some smilie faces to enrich your already fine-witted commentary, here let me help,

....

There, that's better.

[lper100km]

Economists are not necessarily tooled to predict or even discuss peak oil. Peak oil is a geologic event, not an economic event. The price of oil at any given time is the result of the balance between supply and demand, give or take futures trading. Low economic activity will reduce the price of oil even as the reserves are being further depleted. Shut in production is only an indicator that the demand is slowing and to that extent could delay the peak, if we have not already passed it, or arrest the decline somewhat if we have, but not by much. Oil price per se is no indicator of Peak Oil or where we might be on the decline curve. It is merely the response to the current conditions. In fact, as I suspect, the physical reality of PO is being masked by the poor economy. But, if we have already passed PO, the moment the demand curve rises above the declining production ability, the price rise and shortages will make your head spin.

[Graeme]

If we take Colin Cambell's maximum future global oil production to be 828 billion barrels and a constant consumption of 85 mb/d, then this is enough to last 26 years. Non-conventional sources, including oil from deepwater wells, polar regions and natural gas liquids are excluded. This time should be enough for a global energy transition.

[lper100km]

Doing some very rough calculations from the curves found in http://tinyurl.com/32ef5ud, I estimate that the world oil consumption to 2010 is approx 1,200Gb. Colin Campbell’s estimate of 850Gb remaining recoverable lends credence to the idea that we are already well beyond the peak. That is hardly cause for complacency. Curiously, or is it merely coincidence, the quoted official estimates remaining are 1,330Gb, which places us at or very close to peak. These curves seem to suggest that the future oil remaining is in the order of 650Gb - even less optimistic than Campbell, and do seem to confirm that peak has already occurred, with deep sea drilling making little impact. It's dated from 2004, so there may have been some changes since then though I doubt that the big picture has changed very much.

It’s also highly unlikely that bau will continue smoothly until the last drop is consumed. There’s much more likelihood of economic and social turmoil well before that and it would not surprise me to see that a good part of the remainder is actually left in the ground as the resources to extract it are weakened or circumstances simply make it impossible to do so.

So a theoretical 26 years may sound comforting to some, but I suspect that can be cut in half or more before things start to go south. In any event, 26 years is nothing in the grand scheme of things, so it hardly matters.

Does anyone really know what reserves are there, or know what past consumption has been, with any accuracy?

[Carlhole]

Another insightful analysis carl, glad you could drop by to enlighten us. By the way you forgot to add some smilie faces to enrich your already fine-witted commentary, here let me help,

....

There, that's better.

What the hell are you talking about?

[americandream]

Surely someone with your evident high IQ must know.

Another insightful analysis carl, glad you could drop by to enlighten us. By the way you forgot to add some smilie faces to enrich your already fine-witted commentary, here let me help,

....

There, that's better.

What the hell are you talking about?

[Carlhole]

Surely someone with your evident high IQ must know.

Nope. No idea. Or I wouldn't have asked.

I didn't provide any analysis. I read the article in Petroleumworld which said that oil would be our energy kingpin for decades, probably peaking in the 2030's. By that time, there will have been all kinds of progress in renewable energies. Peak Oil doom is just NOT going to happen. There may be an energy crisis but it will only spur innovation.

I just asked about Matt Savinar. He's Mr. Imminent Doom. Whatever happened to him?

Also, I rarely ever post smiley faces - and only ever to clarify that I might be joking. So I don't know what the hell Pops is talking about.

[americandream]

Thou dost protest a bid too loudly methinks.

That aside, as the energy demands of the 6 billion rise along with the dwindling surpluses of capitalist wealth that only the EROEI in easily accessible oil can provide, I suspect that the true implications of peak oil will become more evident. That is essentially why the discount deficit from more expensive energy will be of a magnitude that will truly be earth shaking. As things stand, that risk is not yet on the horizon and peak oil is somewhat academic, which is why China and India are going full bore with emulating us.

Surely someone with your evident high IQ must know.

Nope. No idea. Or I wouldn't have asked.

I didn't provide any analysis. I read the article in Petroleumworld which said that oil would be our energy kingpin for decades, probably peaking in the 2030's. By that time, there will have been all kinds of progress in renewable energies. Peak Oil doom is just NOT going to happen. There may be an energy crisis but it will only spur innovation.

I just asked about Matt Savinar. He's Mr. Imminent Doom. Whatever happened to him?

Also, I rarely ever post smiley faces - and only ever to clarify that I might be joking. So I don't know what the hell Pops is talking about.

[Pops]

Since the OP was a response to another article, how about we look at it:

n July 4, Saudi Arabia's King Abdullah attended a cabinet meeting and then responded to a Zawya Dow Jones Newswires reporter's question about what transpired: "I told them that I have ordered a halt to all oil explorations so part of this wealth is left for our sons and successors, God willing."
...
The cartel wants strong oil prices, obviously, but not too strong lest high prices encourage consuming nations to pursue alternative energies, as they did during the oil shocks of the 1970s. It also wants to assure consuming nations that there is no need to worry about the supply of oil for the foreseeable future, since the fear of running out of cheap oil could force people to turn to alternatives before the cartel are able to sell all the oil they can at a good price.

To my mind, hinting at any other condition, as King Abdullah's order does, strikes me as a significant departure from the narrative of reasonably priced, easily available, limitless oil the Saudis have used to make themselves very, very rich. The departure from the successful script OPEC has followed is a remarkable signal of change to me, one that to my mind indicates peak oil is here - there is only so much oil left, and the Saudis want to sell it when the oil crunch becomes apparent again.

This makes lots of sense to me, I posted something similar when the pronouncement was first made. I know we are always trying to read meaning into what the Saudis say but what they are saying here is different from what they have always said before.

Consider this: About 10 years ago, OPEC sources indicated Saudi Arabia needed to sell a barrel of oil at $18 to break even. Two years ago, data from ratings agency Fitch (which cares because it evaluates sovereign debt) estimated Saudi Arabia's breakeven had risen to $26. In January, Fitch pegged breakeven for the country at $68 a barrel. If it costs more to produce oil, it clearly is harder to get. And Saudi Arabia is the primary low-cost oil producer on the planet.

http://www.petroleumworld.com/sati10072401.htm

Campbell argued that Fitch is lying or at least being overly conservative - I don't recall that being the beef with ratings agencies lately. But he says Venezuela's costs couldn't possibly be as high as Fitch says or they would be losing money - how silly is that? He acts like Chaves is running a tacoria! The country just nationalized 4 oil companies in '07! Fitch has downgraded Venezuela from AA to BBB in the last couple of years - I'd guess that downgrading and the cost to produce are related since 90-something percent of Venezuela's income is from oil.

I'll agree with Campbell on one thing though, predicting geographic oil peak accurately is a "mugs" game exactly because there are so many conflicting interests, variables, unknowns and possible responses. Which is exactly why I wonder at his conviction that it isn't imminent.

[ian807]

... 828 billion barrels and a constant consumption of 85 mb/d, then this is enough to last 26 years.... This time should be enough for a global energy transition.

I'm not sure where to start with *that* assumption. If you define transition as a move from jets to donkey carts, then yes, I'd agree. Donkeys - very energy efficient.

Yes, there's probably even more oil than that out there, however, it's going to cost a lot and useful EROEI is going to be gone quite a bit before the oil is. That's the "Known Unknown" to watch. We can estimate reservoir size, and estimate pay zones, but as recent gulf oil wells (not just the leaky one), these estimates can be wildly off.

Complex societies need energy to make and distribute energy. Below a certain level of availability, fuel use will fall to a trickle. I wouldn't expect that transition to be gradual though I hope it is.

[lper100km]

I’m expanding on the ideas in my earlier post – which I’m repeating here because I think it’s important and shouldn’t be lost in the middle of the CH + AD spat.

Doing some very rough calculations from the curves found in http://tinyurl.com/32ef5ud, I estimate that the world oil consumption to 2010 is approx 1,200Gb. Colin Campbell’s estimate of 850Gb remaining recoverable lends credence to the idea that we are already well beyond the peak. That is hardly cause for complacency. Curiously, or is it merely coincidence, the quoted official estimates remaining are 1,330Gb, which places us at or very close to peak. These curves seem to suggest that the future oil remaining is in the order of 650Gb - even less optimistic than Campbell, and do seem to confirm that peak has already occurred, with deep sea drilling making little impact. It's dated from 2004, so there may have been some changes since then though I doubt that the big picture has changed very much.

It’s also highly unlikely that bau will continue smoothly until the last drop is consumed. There’s much more likelihood of economic and social turmoil well before that and it would not surprise me to see that a good part of the remainder is actually left in the ground as the resources to extract it are weakened or circumstances simply make it impossible to do so.

So a theoretical 26 years may sound comforting to some, but I suspect that can be cut in half or more before things start to go south. In any event, 26 years is nothing in the grand scheme of things, so it hardly matters.

Does anyone really know what reserves are there, or know what past consumption has been, with any accuracy?

If these numbers are in the ballpark, then retrofitting them indicates that Peak Oil occurred sometime in 2005 - 2006.

Now the recession did not kick in until 2008, so how come there seemed to be no consequence to the arrival of PO for the two years intervening?

PO is the 50% mark of oil reserves remaining against oil consumed. It says nothing about rate of production. That is a technical issue. So it is more than conceivable that the production capacity was adequate to satisfy the increasing demand of that period, though with some difficulty as the price rose steeply for a short period. In the process though, that had the effect of depleting reserves more rapidly. Now, in recession with oil demand reduced, the reduced reserves, the increased difficulty of obtaining new supply and the questionable ability to sustain production at pre-recession levels, are all being masked.

Peak Oil and peak production do not have to coincide. Peak production to date, in my opinion, has occurred in 2008, up to two years after PO. It is possible I suppose that even that number could be surpassed in future, but with dire effects on remaining reserves and time to exhaustion.

If and when the economy starts growing again, it will be seen whether these ideas have any value.

[Graeme]

I made that simple rough calculation to illustrate that Oliver may well be right. He is the one who is sticking his neck out, right? As a casual observer, I have to quote other authorative sources too. Can I start with the Gregor Macdonald report? I also agree with one of the comments:

This is a chart of an oil producer doing its best, within technical and geological limits, to maximize its profit.

The data on the chart comes from the EIA. If I quickly look at what they say about oil production is the medium term, here it is:

Liquids remain the world’s largest energy source throughout the IEO2010 Reference case projection, given their importance in the transportation and industrial end-use sectors. World use of liquids and other petroleum3 grows from 86.1 million barrels per day in 2007 to 92.1 million barrels per day in 2020, 103.9 million barrels per day in 2030, and 110.6 million barrels per day in 2035. On a global basis, liquids consumption remains flat in the buildings sector, increases modestly in the industrial sector, but declines in the electric power sector as electricity generators react to rising world oil prices by switching to alternative fuels whenever possible. In the transportation sector, despite rising prices, use of liquid fuels increases by an average of 1.3 percent per year, or 45 percent overall from 2007 to 2035.

To meet the increase in world demand in the Reference case, liquids production (including both conventional and unconventional liquid supplies) increases by a total of 25.8 million barrels per day from 2007 to 2035. The Reference case assumes that OPEC countries will invest in incremental production capacity in order to maintain a share of approximately 40 percent of total world liquids production through 2035, consistent with their share over the past 15 years. Increasing volumes of conventional liquids (crude oil and lease condensate, natural gas plant liquids, and refinery gain) from OPEC producers contribute 11.5 million barrels per day to the total increase in world liquids production, and conventional supplies from non-OPEC countries add another 4.8 million barrels per day (Figure 3).

The EIA are relying on OPEC to increase production. Who are the major OPEC producers? I'll refer you to an IEA report. They are Iraq, KSA, Angola, UAE and Libya. OPEC supply is expected to increase to 2015. The IEA also discuss Non-OPEC (including biofuels & NGL's!) growth too. So it appears in the short term that we can expect an increase in global oil supply even if Non=OPEC crude production is declining.

[americandream]

Arguing that oil output is anticipated to increase within a widening global energy demand context and with oil being the only asset with the capacity to translate EROEI into adequate profits is like pointing it to a wage increase next month when your employment terminates in 2 years. Why you people discount the economies of oil and profit is beside me.

[ian807]

Imminent is hard to predict. I think I can safely predict, however, that effects of oil depletion will be felt very suddenly.

The effects will not be a nice linear decline matched by a nice linear increase in price. We will not be seeing many gradual sloping graphs here.

Here's why. Complexity, system integration, feedback effects and adaptation speed.

Technological culture on our planet depends on numerous, interlocking systems, many of which, if not all, depend on cheap transportation fuel. Other systems, like our electrical system and food systems depend on oil as feedstock, as well as transportation.

So, once oil starts getting scarcer, and more expensive, we have 2 things start to happen:

1) Oil price feedback. High oil prices make it costlier to find oil, which makes oil more expensive, which makes it costlier to find oil, which makes oil more expensive, which makes.... (You get the picture).

2) Feedstock for plastics and fertilizer suddenly get more expensive to both make and transport.

What will soften this curve somewhat will be the resulting economic downturn. We'll hate it, but it'll be a good thing, slowing down depletion somewhat. Unfortunately, you can count on some pretty severe oscillation as the economy slows, oil prices go down, the economy picks up again, oil prices pick up again, depressing the economy, and so on.

We use oil to transport coal, and food. Both will get more expensive, and then cheaper, and then more expensive again in lockstep with the greater economic oscillation guaranteed by oil shortages.

Some of this can be softened by a switch to natural gas, but here's the rub. If we're already in an economic depression, changing infrastructure is not as likely to happen. Worse, gas fields deplete far more quickly than oil fields do. By the time, we really know we're in trouble, it's going to be too late to do much effectively.

Shortages in plastic will effect almost everything. Electronics will no longer be cheap. You will stop thinking of phones as disposable. Parts in power plants will not get replaced. Without spare parts and easy transportation, the grid will start deteriorating from rural areas inward, until reliable power becomes a very localized affair. Every breaking part of the system feeds into every other breaking part, until the technically advanced countries fall to the same level as less advanced ones.

Shortages of fertilizer, pesticides and truck transport, I think are obvious.

It'll start slow, but like other nonlinear feedback functions, it will accelerate with astonishing speed. We'll get some warning. Not much. Probably not enough.