Peak oil

From Silent Revolution

Topic: 'Peak Oil' hysteria is unjustified.

It seems that almost any conversation on the internet about the future of energy tends to invoke the spectre of imminent "Peak Oil" -- which, in common parliance, is the hypothetical situation in which dwindling oil reserves suddenly can't cope with increasing demand, prices skyrocket, and civilization as we know it collapses in its wake. While there are countless reasons to support a reduction in our petroleum consumption as a society, "Peak Oil" fear is based on a number of erroneous assumptions and bad data.

Before reading this section, it is advisable to read peaks in general.

Contents 1 Once Right, A Thousand Times Wrong 2 So, what's wrong with this picture? 3 Bad graphs, bad science, bad predictions 4 Athabasca water 5 Production cost upper bound 6 The "We Can't Keep Up" Argument 7 What kind of peaks are possible? 8 But what about (insert recent oil price spike here)? Surely this means peak oil is near! 9 So, is it all rosy? 10 See Also

[edit] Once Right, A Thousand Times Wrong

Frequently, discussions of peak oil begin with an appeal to authority -- namely, to M. King Hubbert, author of the Hubbert Peak Theory. In 1956, Hubbert proposed a model to predict output of a given resource -- in this case oil -- over time. The model is premised on readily exploitable resources in the ground being exploited exponentially to meet an insatiable demand, then running low, with production falling off exponentially:

This theory was credited with accurately predicting US oil output peaking in the 1970s in the middle of spiking demand, over a decade before it occurred:

However, prominent Peak Oil advocates have been giving one bad date after another for a global peak. It's not just a recent thing. In 1874, Pennsylvania's state geologist predicted there were only four years worth of oil in the US at current consumption rates. Before 1950, there were a number of "oil is running out" scares, generally with prominent predictions set just a few years away. In 1973, during the oil embargo, an article in Foreign Affairs heralded the arrival of peak oil, noting that geologists had cried wolf many times, but "finally, however, the wolves are with us." In 1989, one expert predicted (then) $50/barrel by 1994. In 1995, another predicted peak oil in 1996, with catastrophic effects by 1999. In 1998, "The End of Cheap Oil" was published in Scientific American, predicting a peak in 2002. [1]

Present day? Colin Campbell first predicted in 1989. He predicted 40 Mb/day in 1991. He predicted another peak in 1995. Then another in 2004. When he missed that target, he pushed his number back to 85Mb/day in 2010. Kenneth S. Deffeyes predicted November 25th, 2005. He then pushed it back a few weeks, and was still wrong. Boone Pickens predicted a peak of 82 Mb/day in 2004[2], 84 Mb/day in 2005[3], 84-85Mb/day later in 2005[4], 85Mb/day even later in 2005[5], and 86Mb/day in 2006; the 2007 average demand was 85.7Mb/d, 2008 is predicted at 87.8Mb/d by the IEA[6], and production at the end of 2007 was about 87Mb/d[7]. Energy Watch Group predicted 2006 with a decline of several percent annually. They, too, were wrong.

Interestingly, world estimates of oil reserves have been growing, not decreasing, as we've been extracting. In 1920, the world estimate was 60 billion barrels of reserves. In 1950, 600 billion barrels. From 1970 to 1990, estimates increased from 1,500 to 2,000 billion barrels. In 1994, the USGS estimated world reserves at 2,400 billion barrels. In 2000, the same estimate was raised to 3,000 barrels.[8] Note that these estimates are not limited to "proved reserves" and only cover conventional crude. In short, we've been finding conventional crude faster than we've been taking it out of the ground, and faster than we've been expecting to find it -- at least in the long term. While this trend certainly can't last forever, who knows how long we'll keep discovering new large fields. For example, global warming is currently opening up the Arctic to exploration, and deep sea exploration still has a lot of potential to discover new reserves. Just some of the supergiants found in the past decade include Jack 2 (3-15B[9]), Noxal (~10B[10]), Azadegan (~42B[11]), Ferdows/Mound/Zagheh (~38B[12]), Sugar Loaf (~25-40B[13]), Tupi(5-8B/30B[14]), Jupiter(5-8B), West Kamchatka (10.3B[15]), Tahe (29B[16]), Jidong Nanpu (7.5B; potentially 146 in all of Bohai Bay[17]) and Kashagan (9-13B[18]). A nice debunking of the "all the biggest fields are already found" concept can be found here.

Even Hubbert wasn't exactly right. The US peak was at his "high" model in the 1970s, and this was reasonably accurate at the time. However, US production has consistently outperformed his model's estimates since then. In 2000, US production from the lower 48 states was 1.7 times what Hubbert estimated. Hubbert's natural gas prediction, also, was grossly wrong. US production in 2004 was 2.4 times higher than what Hubbert predicted in 1956. The only peak that followed Hubbert's curve correctly is anthracite coal -- not because the supply was exhausted (even at it's peak production rate, there would be 190 years left just from known reserves at current coal prices and with current technology), but because people stopped heating their homes with coal.[19] One deposit of oceanic coal discovered in 2005 off Norway was found to contain more than three times the world's entire known coal reserves.[20] While likely too costly to mine directly, it could be partially burned via oxygen injection, producing town gas (H2 + CO), which can then be burned ("coal gassification", an efficient, relatively clean way to utilize coal) or turned into petroleum ("coal liquefaction").

A landmark study of more than 800 existing oilfields released in January of 2008 found that their average rate of decline is only 4.5%, half of what was previously believed, indicating that oil production will rise to approximately 100 million barrels per day by 2017.[21]

[edit] So, what's wrong with this picture?

Hubbert's theory is based entirely on a resource having a fixed cost for production and limited quantity of the resource at that cost. That is, picture a drinking glass with a straw in it: you can drink and drink from the glass and keep coming up with liquid. However, when it's gone, it's gone. Certainly, this applies in some circumstances. The US was one of the first nations to open wide the taps to its easy to extract oil reserves. As demand rose, the US expanded its industry to extract more and more of the easily accessible oil. However, by the 1970s, all of the "easy" oil was gone. Does this mean that the US was "nearly out of oil"? Far from it; it just means that it was no longer economical to extract. Apart from temporary, artificially induced spikes brought about by geopolitics, world oil prices remained low. How? Because the cheap, easy to get to oil in other countries began to be exploited in larger and larger volumes. There was no need to access the harder to get/refine oil in the United States.

Yet, this, too, brings about a false sense of a finite resource. Surely, it may seem, once we run out of this "easy to get and refine crude" -- say, light, sweet Saudi crude -- the end is near. However, just the opposite is true. For not only do rises in prices make more oil become economical to extract, but they make *exponentially more* oil economical to extract.

• At 2004 prices, Venezuela has larger recoverable oil reserves than Saudi Arabia thanks to 267 billion barrels of syncrude from its Oronoco Belt ultra-heavy reserves[22]. Production from the tar sands (bitumen) in Alberta, too, has become quite profitable, putting Canada as another rival to all of Saudi Arabia (1.7T total in Alberta alone, 10% of that recoverable with current (rapidly advancing) tech and at 2005 prices[23]).
• Deep sea reserves also add significantly, with aforementioned monsters like Carioca/Sugar Loaf, Ferdows/Mound/Zagheh, Azadegan, and so on leading the way into the very minimally explored territory of the world's oceans.
• The world has vast amounts of coal -- at our current consumption rate, 167 years of proven reserves alone[24] or 285 years of estimated reserves at current prices with current tech (4786 BBOE[25] / ~0.046 GBOD[26] / 365 days) -- with only minimal coal exploration due to a lack of need for any potentially more expensive supplies. At $5-15 per short ton delivered (907kg) of Powder River Basin coal[27] (a price roughly similar to that of dirt), ~30MJ/kg (8.333 kWh/kg), and 40% power plant efficiency, the cost of coal in generating electricity is only $0.0017-$0.0050/kWh (a small fraction of plant operating costs). Even pricey central Appalachian coal, at as much as $65 per short ton delivered[28], you're only spending $0.02/kWh for the energy. The price of even expensive Appalachian coal could rise by an order of magnitude and it would still be a functional feedstock for electricity. Coal liquefaction, by comparison, is about 65% efficient, so if you can afford up to a $60/barrel contribution from the feedstock price, given that a barrel of oil is ~6.1GJ, you could pay as much as $175 per short ton of coal (over an order of magnitude more expensive than Powder River coal). Yet, this is compared to coal *delivered*, which it need not be; for liquefaction, coal can be gassified in-situ, saving mining and delivery costs.
• Enhanced oil recovery with CO2 (which also does carbon sequestration) could add 89 to 430 billion barrels to US reserves alone.[29]
• Horizontal drilling in many cases can turn formerly inaccessible oil into a bonanza. Take for example, the case of the Bakken formation in North Dakota, Montana, and Canada. Estimates from database calculations average 413B barrels[30], while the most recent computer model runs say 300B[31]; however, traditional drilling would have yielded only 1-3% recovery. Horizontal drilling boosts this to 18-50%, such as in the extremely successful Elm Coulee field.
• Arctic reserves are starting to be tapped. Greenland alone likely holds vast amounts of oil yet has only ever had six offshore and one onshore well drilled[32][33][34], compared to about 5,400 offshore wells drilled worldwide in 2003 alone[35]. Reserves in the far south are also little explored, such as an expected 60B off the Falklands[36].
• Even some conventional locations, such as Iraq, are expected to have vastly more oil than has been found so far[37], as about 90% of the country remains unexplored for oil due to years of war and sanctions. Only about 2,000 wells have been drilled in Iraq, compared to about a million in Texas.[38] Furtheroffshore in oil producer Indonesia, too, suggests 107-320B barrels[39]
• Oil shale production (a staggering ~3 trillion barrels recoverable at current prices with current technology[40][41]). The price was $70-$95/barrel in the 1970s[42] but is expected to be $20-$40/barrel today given mass production[43][44][45][46]. Notice once again how much advancing technology changes what is "economically recoverable".

If oil prices were to rise further? Thermal depolymerization of any organic waste (~$60/barrel plus the price of the input waste (in this case, offal) in a first-generation plant[47]), algae farming, natural gas liquefaction (including nearly boundless potential natural gas supplies, such as methane hydrates/clathrates), and dozens of other technologies could become profitable, each adding exponentially more oil production capability to the planet. Absolute worst case, the world can make oil from merely water, carbon dioxide, and energy (Fisher-Tropsh or Sabatier synthesis). It's not cheap, but it's always an option unless the world were to hit "peak energy" -- and few find "peak energy" to be a credible concept.

Yet, it's not all about price rises. Combating price rises is the steady advance of technology. Only decades of research from pilot plants producing oil from bitumen made it as cheap is it is today. Coal liquefaction has advanced by leaps and bounds since Nazi Germany used it to keep their tanks and planes running during World War II, largely thanks to continued use of the process in South Africa. Furthermore, as we've seen in the past several years, price rises correspond with decreasing consumption. At first glance, it may seem strange that consumption remained flat just from the influence of $60-70/barrel oil without any noticeable change in habits. The key answer is the worldwide decline of the use of oil for non-transportation purposes. While oil-fired power generation and heating are rare in first-world nations, they're very common in third world nations. A fifth of world oil consumption goes to these two purposes. Most middle east power comes from oil generation (Iraq 98.47%, Yemen 100%, etc), most island nations ship in oil rather than currently cheaper fuels (Malta 100%, Cuba 95.34%, etc), almost half of Central American power comes from oil (Honduras 51.52%, Nicaragua 75.23%, Mexico 31.06%, etc), and so forth. Japan burns 434kpd, Saudi Arabia 359kpd, China 317kpd, Mexico 308kpd, Italy 203kpd, etc.[48]. With oil costing $10/MMbtu (more expensive than cleaner natural gas) and far more plentiful coal costing $2/MMbtu, the transition to cheaper fuels -- especially in China -- has begun freeing up this consumption. This process will continue for years at current (or even lower than current) prices.

[edit] Bad graphs, bad science, bad predictions

Supporters of "Peak Oil" will often point to graphs like this as evidence:

Despite the fact that it only has three data points on the downslope, hardly enough to establish a curve, it may appear convincing. So, what if I were to show you a curve like this for Canada?

Would you be convinced that this is a "Hubbert Peak"? Well, let's extend that curve into the future:

What you are seeing here is the process described above. Rising oil prices meet advancing technology to put vastly larger reserves into play than were ever possible before -- in this case, Alberta's bitumen. Canada's hardly unique -- it's happened in Venezuela, Russia, and a number of other countries. And even without natural gas, which currently powers the bitumen extraction, the EROEI is still greater than one, meaning it could power itself. And even if it couldn't, other energy sources (such as nuclear, coal, etc) could.

The future of oil is straightforward: nations with easy to extract resources will steadily run out of them and their productions will decline. Nations with harder to extract resources will take over as either technology or prices catch up.

[edit] Athabasca water

The latest meme that's been going around by those who realized that things like bitumen fundamentally make peak oil any time soon impossible goes like this: there's not enough water in the Athabasca river, so all bitumen production can't scale, so no syncrude can scale, so the world will soon encounter peak oil. This is, of course, silly on the face of it; the Athabasca tar sands are just one bitumen deposit, and bitumen is just one of many syncrude sources that can be tapped. Most oil companies are well below their water allotments as it stands.[49]

But let's say that they hit their allotments. That's the end, right? Hardly. Just look at a map of Canada. Northern Alberta and the Northwest territories are practically covered with water. This is an industry that builds heated pipelines thousands of miles long built to not spill a veritable environmental catastrophe (crude), and you think they can't ship in water of all things? The Athabasca deposits are only hundreds of miles away from the ninth largest lake in the world -- the Great Slave Lake (11th by volume). It has almost three times the water of Lake Erie. Think they could drain Lake Erie? Even closer is Lake Athabasca, which "only" has 55 trillion gallons of water. At a pessimistic water usage rate of five gallons per barrel of oil, you could produce Alberta's 1.7 trillion barrels and only use up 1/32nd of the water in the lake assuming there was absolutely no refilling of the lake in the process. On top of all that, there's a whole network of large rivers in the region. This is Alberta we're talking about here, not Libya.

This argument, if you'll pardon the pun, holds no water. A related argument is that one can't develop bitumen or other syncrude production or refining fast enough -- as though an industry which has churned out city-sized refineries all over the world and made thousands of skyscraper-sized deep sea drilling rigs, an industry which develops fields in the remotest, most inhospitable parts of the world in 5-10 years from inception, an industry with annual revenue over a hundred times that of NASA's annual budget, can't manage to mine Alberta of all places or modify refineries to accept heavy, sour crude. Does this concept even need to be dignified? The oil industry has spent its entire existence placing bets on what future oil demand will be, and then investing massive amounts of money in whatever infrastructure is needed to meet it. Bitumen is no exception to this long tradition. If there's profit to be made, investment capital is never in short supply.

[edit] Production cost upper bound

As mentioned earlier, oil can be made from the Fischer-Tropsch process, using syngas (a mixture of hydrogen and carbon monoxide formed by partial combustion of virtually anything organic), or the Sabatier process, which uses a mixture of hydrogen and carbon dioxide. Let's pick the absolute worst situation. Let's say biomass, coal, natural gas, shale, bitumen, and essentially everything else simply don't exist in this universe, and plants have to capture CO2 straight from the atmosphere. As per reference in this paper, a 50% efficient nuclear reactor can power the process with a total system thermal efficiency of 30% -- hence, the CO2 capture plus the hydrogen generation means that 60% of the electricity energy value ends up as oil energy value. A barrel of oil has 6.1GJ of energy, which is ~1694kWh. Adjusting for system efficiency, that means that you need to provide 2824kWh in per barrel of oil out. So, at, say, modern wind or solar thermal wholesale prices of $0.10/kWh, that's ~$282/barrel (plus amortized plant capital costs, which should be dwarfed by energy costs) maximum. This would be light sweet crude, needing little more than separation and blending, so refining costs would be minimal and the yield will be quite high. Let's say that refining plus capital costs raises this to $300/barrel, and you get 40 gallons to the barrel. That's $7.50/gal. The average industry profit margin is 8.5%, so that $8.13/gal. Americans average $0.46 in taxes per gallon, which raises this to $8.59 Thanks to very high taxes, at the time of writing, Norway pays $8.73 a gallon, and they get along just fine. Are these prices really the end of civilization?

Of course, even that upper bound for the price of oil is far higher than it needs to be. CO2 need not be captured from the atmosphere; it's much cheaper to capture CO2 from industrial processes of all stripes (even, say, brewing biofuels such as ethanol). Thermolysis hydrogen allows you to avoid Carnot losses, meaning that if your power plant runs on heat, instead of turning 25-50% of that heat energy into electricity and then losing even more energy through electrolysis, you simply get 40-50% of that heat energy directly as hydrogen. And, of course, this ignores that virtually anything organic can be turned into syngas, so you don't need to go through all this mess in the first place -- most such processes produce oil with costs in the range of $30-$70 a barrel, depending on what the organic source is. In short, that $282/barrel / $8.59/gal price cap would actually be far lower in reality. Some proposed processes include a reusable chemical process that costs $3.40-$4.60 per gallon, and a catalytic process that uses direct solar electrolysis in a semiconductor to split CO2 into carbon monoxide and oxygen, the former of which can then be used in the Fischer-Tropsch process.

Prices can, of course, fluctuate significantly based on the accuracy of market forecasts; see the "But what about (insert recent oil price spike here)?" section below.

[edit] The "We Can't Keep Up" Argument

Another line of attack by peak oil advocates is that, sure, there's enough resources out there, but there's no way we can produce them fast enough. This line of argument doesn't hold any water. If you accept that there is potential for supply, and you accept that there is demand for what could be produced at a certain unit price, then you must assume that either venture capitalists are idiotic and don't want to make money so they won't invest however much it takes to deliver product at that profitable price, or that something else is holding the world back. Steel? The US is covered in defunct steel mills shuttered due to international competition, and there's no reason to believe that there was some fundamental limit holding them back. Unskilled labor? The world is awash in it. Trained engineers? It takes four years to graduate a new class, and a large percentage of students pick their major by what is most profitable (which is determined by demand). Some countries, such as India, are awash in skilled but underemployed engineers. Really, what is perceived to be the holdup here? No, new facilities cannot be developed instantly, but if there's a clearly laid-out, low-risk profit to be made, there's virtually nothing on Earth that can hold up development in a 5-10 year timespan apart from government regulation. And government regulation would mean that governments are *choosing* high oil prices, so any "doom" would be their own fault.

For an idea reference on how fast resources can be extracted, let's look at coal. You'll randomly hear doomers talking about how the US can no longer keep up even with coal. An interesting notion, that; our coal is generally very easy to extract. Montana coal, for example, has relatively low overburden. We have a solid rail transportation infrastructure, steady demand, low domestic political instability, and so on; surely nobody can produce faster than us, right?

Nope. China is producing their reserves three times faster than us. If we mined our reserves as fast as China does, we'd be producing three times as much. This is China, a country that mines coal mostly through manual labor, and they are producing from their reserves three times as fast. And yet, there's not any indication that China can't keep up; quite to the contrary, China is rapidly expanding their coal production to keep up with their rapidly growing economy.

[edit] What kind of peaks are possible?

Two kinds:

• Temporary peaks, where bad market forecasts or unforseen events lead to temporary shortages
• Demand peaks, where the market moves on to other sources of transportation energy.

[edit] But what about (insert recent oil price spike here)? Surely this means peak oil is near!

One thing to keep in mind is that oil prices are always fluctuating. They fluctuate from year to year, month to month, and day to day. There are a number of reasons for this:

• Speculation: The oil markets are openly traded. Futures speculation based on the day's news can inflate or deflate prices overnight.
• Value of the dollar: Oil is traded in US dollars. As the dollar weakens relative to other currencies, oil prices rise. If the dollar were to strengthen, oil prices would fall.
• Instability: Oil can only be produced effectively in "stable" areas. Sabotage, kidnappings, theft, extortion, nationalization of assets, and especially warfare can play havoc on world markets.
• Political decisions: The US government, too, plays its share in oil price instability, outside of causing any geopolitical stability and instability. For example, filling the Strategic Reserves raises prices.
• Natural disasters: These, especially hurricanes, can cause severe interruptions in production, refining, and transportation of oil.
• Rapid demand changes: Some changes, such as China's rapid and steady growth, are predictable. Others, however, such as cold winters increasing demand for fuel oil, can be less predictable.
• Response time: All of the above wouldn't be so bad on their own except for the fact that it takes time for the industry to respond to an event. Companies must speculate many years in advance as to what the price of oil is going to be in the future. If they bet that it's going to be high and they make new facilities, and then the price is low, their bottom line would suffer. As a consequence, oil companies tend to make conservative bets as to what prices will be.

[edit] So, is it all rosy?

Hardly. We do need to face the fact that the end of the era of easy-to-access light sweet crude is pretty much at hand. While technology will continue to do its part in lowering prices, getting them back to the "good old days" of $1/gal gasoline is not something one should expect any time soon. Making matters worse is that many of the newly economical ways to produce oil are quite dirty, especially in terms of greenhouse gases. We may not run out of oil, but the environment is certainly going to pay for our insatiable consumption. Lastly, it is important to be able to predict many years in advance as to where levels of supply and demand will be in order to avert production shortfalls.

[edit] See Also

• Peak Oil Debunked -- A huge collection of well-referenced resources on the subject.
• Another Day in the Desert -- A response to Peak Oil advocate Matthew Simmons' "Twilight In The Desert"