The Energy Challenge
Has Oil Production Peaked?
Bassam Fattouh
|
|
|
|
OXFORD – Throughout the history of the oil industry, fear and concern about the imminent exhaustion of oil reserves has been a recurring theme. Such sentiments often spread and capture the public imagination at times of rapidly rising oil demand, sharp spikes in energy prices, and geo-political uncertainty. So today’s talk of oil scarcity, which began at the turn of the last century, should come as no surprise.
Believers in oil scarcity point to the sustained annual average increase of oil prices from 2002 to 2008, declining output in many areas of the world, and the absence (until recently off the coast of Brazil) of large-scale oil discoveries in the last few decades. All these factors lend credence to the view that oil production has peaked. In the face of relentless demand-side pressure, driven mainly by high-growth countries like China and India, some predict stratospheric energy prices, supply shortages, economic and social hardship, and even resource wars.
Given that oil is a non-renewable resource, in a sense the world is always running out of it. Unless global demand collapses, at some point in the future oil production will peak and eventually be exhausted. But this prediction is close to a tautology. For it to be useful, believers in scarce oil must be able to predict such things as the timing of the oil peak, the state of demand when oil production reaches it, and the pattern of decline.
But the track record of “peak oil” theorists on such matters has not been impressive: their predictions have steadily moved forward the date that global oil production will peak. Worse still, they have made no serious attempt to identify why their earlier predictions have had to be revised.
A major problem is that such predictions often confuse resources with reserves. Resources are the available volumes of hydrocarbon without reference to constraints as to their accessibility and/or cost. Resources impose an upper bound on what ultimately can be produced; thus, it is the relevant concept for determining the likely dates of peak production and ultimate exhaustion.
If the volume of oil resources were known with certainty, and if we could accurately predict the growth of oil consumption, calculating the imminence of exhaustion would be simple. But these are big “ifs” – especially given the high level of uncertainty regarding the ultimate volume of oil resources.
While peak oil theorists have strong views about that, they do not allow for all the current and future technological possibilities that might increase resources. Indeed, given the difficulty in estimating the total size of resources, many consider peak oil theories irrelevant.
Fortunately, the focus of the debate is on reserves and not resources. Reserves are defined as the quantities of petroleum that are expected to be commercially recoverable from known fields. The concept of reserves is technical and economic, not geological.
It is also a non-static concept, as estimates of reserves will generally be revised upwards or downwards as additional geologic or engineering data become available, as technology improves, and/or as economic conditions (such as oil prices and production costs) change. In fact, the bulk of recent growth in world reserves is due not to new discoveries, but mainly to reserve growth and improved recovery rates.
Moreover, despite what many believe, crude oil is far from being a homogenous product. There is a fossil carbon continuum ranging from easy, conventional oil, to deep and ultra-deep offshore oil, to extra-heavy crude oil. With technological progress and rising oil prices, most of these reserves will become conventional, helping to push back peak oil for years.
The failure to distinguish clearly between resources and reserves – and to recognize the importance of prices, costs, and technology in transforming resources into reserves – results in bad predictions about an imminent peak in oil production and misinformation that has had a negative impact on policymaking. Rather than focusing on the major short- and long-term challenges facing the oil industry, the debate about peak oil diverts attention to the wrong problems.
In the short term, there are concerns that oil production will peak soon, owing not to the unavailability of reserves, but to obstacles to investment – for example, access to reserves, sanctions, and policy uncertainty. Some who believe in the imminence of peak oil consider these barriers essentially irrelevant, arguing that their removal would merely delay the peak for a few years. But, in the long term, the challenge is how to make the transition to a new and sustainable energy path, and to evaluate the political, economic, social and climate costs associated with this transition. Unfortunately, that debate has not yet started.
The current tone surrounding the peak oil debate is reminiscent of that surrounding the global war on terror, with the phrase “you’re either with us or against us” recycled to polarize observers and analysts. But as in any other debate, once extreme positions dominate, the real problems are trivialized and marginalized.
Bassam Fattouh is Senior Research Fellow and Director of the Oil and Middle East Program at the Oxford Institute for Energy Studies. This article is part of a special series made possible by the generous support of Shell.
Copyright: Project Syndicate, 2009.
www.project-syndicate.org
You might also like to read more from Bassam Fattouh or return to our home page.
|
|
Zandvliet 04:56 02 Jun 10
Back in 1976, Hubbert did not exactly predict peak-oil to be around 2005, rather “a bit later than 1995” (he does not give an exact year). So it seems that peak oil predictions “have steadily moved forward” indeed.
But Hubbert could not have foreseen by then the economic crises we now know have occurred. Back in the 1980s when I started my working life, the Asian crisis of the late 1990s and of course the latest one we’re in right now. The economic shock therapies applied in the former East-Block countries in the 1990s have had a devastating impact on their economies. The US Carbon Dioxide Information Analysis Center (http://cdiac.ornl.gov/) clearly shows the collapse of their fossil carbon emission data: between 1988 an 1999 fossil carbon emissions in the East-Block countries dropped by an incredible 46%. In 2006 fossil carbon emissions were still 40% below 1988 levels. (That is, by the way, why Russia still has so many emission rights to sell, which it regards and defends as their rightful compensation for the damage imposed on them by Disaster Capitalism.)
So all of those crises that Hubbert could not foresee, together with improved energy efficiency, nuclear energy (80% of France’s electricity) and renewable sources, have delayed fossil fuel consumption. That explains why Hubbert was somewhat off the mark.
And why did the oil prices spike to $150/ barrel just before the 2008 economic crisis hit? Why is the oil price still at around $75/barrel in spite of the economic crisis, while until the 2000 it generally used to be below $30/barrel? And why is the oil industry recently exploiting such difficult and expensive places like deep-sea drilling, tar sands and oil shales? Because they know that if they didn’t, they would not be able to keep up with demand within soon. And as soon as they won’t (probably by the time the world economy recovers and starts to grow again: 2011-2012), oil prices will spike again, for good.
It doesn’t take an economist specialized oil prices anymore to lull us to sleep. It only takes a child to laugh and shout: "Yhe king is without clothes!"
Andressm 07:31 27 Aug 10
"This article is part of a special series made possible by the generous support of Shell."
Venezuelan Hugo Chaves would said: "..mmm this smells sulfur..."
Failure to distinguish clearly between resources and reserves? Come on, you really made a research of the "peak oil theory"? By the way, is not a theory, just an observation of facts.
I recomend Jeff Rubin book, former Chief Economist at CIBC World Markets: "Why your world is about to get a whole lot smaller".
Also trough Mathew Simmons, who recently passed away, you have an intresting research to look for.
The Emperor Wears No Clothes, I see him naked too!
HansZandvliet 08:53 27 Aug 10
@ Andressm: Very well said, but where/how did you discover it has been "made possible by the generous support of Shell."? It would be nice to be able to have this proof.
By the way, a correction (and addition) to my former comment. King Hubbert predicted already in 1956 that global peak-oil would occur around 2000. You can read it in his original paper to the American Petroleum Institute in Texas:
http://www.hubbertpeak.com/hubbert/1956/1956.pdf
Hubbert could not know how oil consumption would be curtailed in the western countries by two oil crises (1973 and 1979) and by the economic crisis of the Warsaw Pact countries after the downfall of the Berlin Wall. These crises have delayed peak oil by 10-15 years. Still, having predicted world peak oil half a century in advance, Hubbert hit it quite close to the mark.
HansZandvliet 09:09 27 Aug 10
By the way, if you download this paper of M. King Hubbert (see my former comment) you can see it is a fotocopy of a document made on an old typewriter. And surely Hubbert could not have used a pocket calculator, because the first ones just apeared in the 1970s.
Marion King Hubbert was a good ol' solid scientist, hacking away on a mechanical typewriter and doing his long divisions with a pencil on a scrap of paper. Still: spot on with American peak oil in 1970 and very close to the mark with world peak oil in 2000.
This man deserves a statue.
thump 06:14 04 Dec 10
This strikes me as bit of a straw man. The point about peak oil is not so much the maximum production in million barrels per day as about the increase in production cost when easily recoverable oil is used up. Economists tend to say this will simply spur investment in and production of less favorable sites and new liquid fuels. But this overlooks the physical problems of (1) people being able to produce such liquid fuels with anything like the energy density of sweet light crude at anything like its cost in (2) anywhere close to fast enough to scale up production and distribution to the level of current oil use.
dorios2001 08:45 21 Jul 11
poor article to say the least. The oil peak/plateau is not only about oil production but also about the continuous increased cost in the price of marginal bbl of oil (currently provided by oil sands in Canada). Most pertinent analyses (bp, douglas westwood, total) are reluctant to place 2030 oil production beyond 100 mbbl/d. The annual growth in oil demand in 2010 was 3.1%, faster than IMF predicted at the beginning of 2010 and was partially generated by larger than expected demand in the US and Japan and faster than expected economic growth in the emerging market economies. Oil supply responded with an increase of 2.2% with OPEC accounting for 41.5% of the total 2010 output. However the oil plateau seems to be in effect since 2005 (at +/- 2.2%) . The reserves are revised upwards?? look at the history: 1990 proven oil reserrves were 1003.2 bil bbls, 2009=1376 bil bbls.
joewp 04:26 17 Nov 09
"But the track record of “peak oil” theorists on such matters has not been impressive: their predictions have steadily moved forward the date that global oil production will peak."
You might be uninformed, so I won't say this is a lie. M. King Hubbert put the peak of world oil production at around 2005 back in 1976. You can see him say it right here http://www.youtube.com/watch?v=ImV1voi41YY&feature=player_embedded
And most people who are aware of the problem of peak oil know full well about the differences between types of oil. The point of the peak is that the easy, cheap oil is declining in production. extra heavy and deep offshore oil cannot be extracted at the same high rates as easy onshore light sweet crude, and they're much more expensive to extract and refine.
And even if oil hasn't already peaked, how long do you expect it to increase until it does peak and start to decline? Watch the video I linked and look at the last graph Hubbert displays. "It's a very brief epoch".