Peak Oil Deferred
In 1956 Marion King Hubbert, The Chief Geology Consultant (some say it is more correct to refer to him as a research geophysicist) to Shell Oil, shocked the World by proclaiming that the production of U.S. crude oil would soon peak and then rapidly decline. His projections for U.S. oil production proved to be accurate and a legend was born. Associated with these projections were two assertions:
Production in a given geographical area would follow a particular pattern somewhat resembling a normal distribution but slightly skewed into the future presumably because certain applications for oil would support the higher prices required for production as the resource depleted.
The peak would occur roughly when half the recoverable resource had been extracted.
It is this second assertion that has always bothered me for two reasons:
The production from Canadian Oil Sands is a good example of this and even very heavy oils may not have been considered part of the recoverable oil resource by Hubbert. And then there is the wide variety of liquids that are recovered from natural gas extraction. In many cases these liquids (propane especially) are not oil refinery feed stocks, so are they oil?
Generally, Hubbert depended on estimates of existing proved oil reserves prepared by others and also estimates of remaining to be found oil. Today almost sixty years later the current estimates of proven reserves are very different than the 250 billion barrel estimate used by Hubbert. Here are two estimates[1]:
One of the major reasons that Peak Oil has been pushed out in time is the declining ratio of energy use required per unit of GDP growth. This has occurred for two reasons:
One has to get used to the reality that in the oil industry, definitions are a moving object. For my purposes, I tend to define conventional oil as oil that has fully allocated production costs of $30 a barrel or less and unconventional oil as oil that has fully allocated production costs in the range of $60 to $100 with wells in the middle being hard to categorize. With this in mind the better redefinition of Hubbert’s concept would be that we have entered the age of unconventional oil with conventional (mostly Middle East) oil enjoying Ricardian profits.
To say that Peak Oil has not yet happened and is not likely to happen within the next twenty years is not to say that Peak Oil will not eventually occur. It is inevitable. But the Hubbert explanation of depleting the resource is probably not going to be the reason that oil production will peak. I offer two other more likely scenarios.
The declining intensity of oil use per unit of GDP or alternatively the amount of GDP able to be generated per barrel of oil may decline to a point that consumption will peak. If consumption peaks, production will peak.
For a long time technology was winning the race with respect to maintaining the constant dollar costs of oil even as the difficulty of extracting a barrel of oil increased.
econintersect
