Peak Oil: Fact and Fiction
Educational Editorials© by William M Wright BBA, MBA
5/18/2008
Americans looking to blame some one for high oil prices and Politicians seeking votes all agree the problem is the big greedy oil companies. Everyone felt the same way back in the late 70’s when prices skyrocketed. But, no one felt sorry for the oil companies when prices collapsed in the 90’s to 20 year lows and they lost billions. And no one is blaming themselves for buying a big gas guzzling SUV. Politicians do not talk about how they have done nothing in 30 years to reduce American dependency on foreign oil. They have made little effort to reduce demand or increase supply. Jimmy Carter was the last American President to make a serious effort to lower our dependency on oil and increase alternative energy sources.
Deal With Reality Or Reality Deals
With You
The video's to the right of Jimmy Carter speaking to all Americans outline the problem and the solutions over 30years ago. They serve as a reminder at how complacent America became
with this problem just as soon as oil prices became low. It’s always easy to procrastinate
and avoid facing the long term trends of rising populations and declining oil production when prices are cheap. The problem is not a Democrate or Republican problem...it is an American problem which is now becoming a world problem.
This page and these videos addresses several common questions and facts about world oil production. All historical production numbers are from the American Oil and Gas Journal. The oil production figures do not include natural gas liquids. The videos alone represent thousands of hours or research in creating and hundreds of hours to conceive and compile into this instant educational video editorial.
Every American needs to face the facts. We need leaders who will make us face reality and stop wasting time on short term vote getting gimmicks and start proposing long range plans towards solutions. We need to deal with reality or reality will deal with us.
T Boone Pickens says:
T Boone Pickens, an 80 year old famous oil and gas tycoon (with over 50 years of experiance) says, "Over the last 30 years, American leaders have been more worried about getting elected then developing a long-term energy strategy." In a May 20th 2008 interview with CNBC, he goes on to say, "It's not so much that we are running out of oil in the world as it is America has done little to increase domestic oil production which peaked in the late 70's. And we've done little in developing natural gas, solar and wind alternatives." He does believe in the Peak Oil Theory but also feels more oil can be found with more resources allocated to finding it.
Americans refuse comprehend that world demand has been rising faster than supply. The economic boom outside of the USA is driving demand up while our National Debt and low interest rates drive the value of the dollar down. Yes, thanks to all the money we spend on oil going to the middle east and goods we buy from China and outsourced services to India the rest of the world is booming. Bottom line...get use to higher energy prices or hope for a world reccession.
General Concepts:
• Production and historical production are facts.
• Reserves are an opinion.
• Undiscovered resources numbers are not facts but rather a reasonable guess. And some people say they are a fantasy.
Fact: World oil production was at an all-time high in 2005.
• The world produced 72.36 million BOPD in 2005
• OPEC produced 29.66 million BOPD, down from a peak of 30.95 million BOPD in 1977.
• Non-OPEC production was at an all-time high of 42.7 million BOPD.
History of oil production peaks – most American’s are in denial:
• Oklahoma peaked in 1927 at about 700,000 BOPD; now it is 173,000 BOPD.
• The US peaked in 1970 at 9.66 million BOPD; in 2005 it was 5.18 million BOPD.
• Libya peaked in 1970 at 3.32 million BOPD; in 2005 it was 1.64 million BOPD.
• Kuwait peaked in 1972 at 3.28 million BOPD; in 2005 it was 2.13 million BOPD.
• Iran peaked in 1974 at 6.03 million BOPD; in 2005 it was 3.89 million BOPD.
• Saudi Arabia peaked in 1981 at 9.64 million BOPD; in 2005 it was 9.06 million BOPD.
• Russia peaked in 1983 at about 11.5 million BOPD; in 2005 it was 9.19 million BOPD.
• Alaska peaked in 1988 at 2.14 million BOPD; now it is 803,000 BOPD.
• Mexico peaked in 2004 at 3.38 million BOPD; in 2005 it produced 3.33 million BOPD
• Malaysia peaked in 2004 at 859,000 BOPD; in 2005 it produced 770,000 BOPD
The following countries' oil production was at an all-time high in 2005:
• China (3.63 million BOPD)
• United Arab Emirates (2.45 million BOPD)
• Nigeria (2.41 million BOPD)
• Angola (1.24 million BOPD)
• Qatar (798,000 BOPD)
• Canada (2.37 million BOPD in 2005) and Kazakhstan (994,000 BOPD in 2005) were slighly down from 2004, but are expected to increase in 2006.
Fact: Nearly all of the world's largest oilfields are in decline.
• Only one supergiant (>5 billion barrels recoverable) field has been found since 1980.
• That field (Kashagan) is located on a geologic structure that was identified prior to 1980, but was not drilled until 2000 because of sea ice conditions.
• The prospects for finding any more are limited, and mostly in the Arctic offshore.
Fiction: Remaining oil production will become concentrated in a few areas.
• By any statistical measure, the geographical concentration of oil production is decreasing.
• The proportion of world oil production coming from the Middle East peaked in 1974.
• World production growth has come from a growing number of smaller fields.
• Many new countries, such as Mauritania, Chad and Equatorial Guinea have become oil producers.
Fiction: Fertilizer is made from oil.
• Fertilizer is made from natural gas, phosphates and potash.
• Phosphate rock is the most costly ingredient.
• Natural gas is at an early stage of development in most of the world.
Fiction: Petrochemicals are made exclusively from oil.
• Ethane, the basic building block of petrochemicals, is a by-product of natural gas production.
• Ethane is also a by-product of refinery cracking processes, so it is sometimes made from oil.
The greatest danger from peak oil is that we will do something foolish in response to it.
The Bell Curve Forecast
Oil will not just "run out next week". Oil production like many things will probable follow a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole.
Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up.
In practical and considerably oversimplified terms, this means that if 2005 was the year of global Peak Oil, worldwide oil production in the year 2030 will be the same as it was in 1980. However, the world’s population in 2030 will be both much larger (approximately twice) and much more industrialized (oil-dependent) than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin. As a result, the price will skyrocket, oil dependant economies will crumble, and resource wars will explode.
The issue is not one of "running out soon" so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.
In a similar sense, an oil based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10 to 15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.
The effects of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.
Fortunately, those price shocks were only temporary.
The coming oil shocks won't be so short lived. They represent the onset of a new, permanent condition. Once the decline gets under way, production will drop (conservatively) by 3% per year, every year. War, terrorism, extreme weather and other "above ground" geopolitical factors will likely push the effective decline rate past 10% per year, thus cutting the total supply by 50% in 7 years. Source
These estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:
By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need n additional 50 million barrels per day.
Cheney's assessment is supported by the estimates of numerous non-political, retired, and now disinterested scientists, many of whom believe global oil production will peak and go into terminal decline within the next five years, if it hasn't already.
Many industry insiders think the decline rate will far higher than Cheney anticipated in 1999. Andrew Gould, CEO of the giant oil services firm Schlumberger, for instance, recently stated that "An accurate average decline rate of 8% is not an unreasonable assumption." Source Some industry analysts are anticipating decline rates as high as 13% per year. Source A 13% yearly decline rate would cause gobal production to drop by 75% in less than 11 years.
If a 5% drop in production caused prices to triple in the 1970s, what do you think a 50% or 75% drop is going to do?
Estimates coming out of the oil industry indicate that this drop in production has already begun. Source The consequences of this are almost unimaginable. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into something best described as a "post industrial stone age." This could be a worst case forecast but even a best case forecast would say rising demand is exceeding oil production growth.