The beginning of the end? (oil)

[J]

http://www.princeton.edu/hubbert/current-events.html

To summarize, world oil production hit a peak in May 2005 which has yet to be surpassed. Of interest is the following quote by the author:

From April 2005 onward, crude oil prices have been above $50 per barrel. For several months during 2006, oil prices rose above $70. At those price levels, virtually all producers pumped every possible barrel. With that kind of cash flow, any well operator who suspected one morning that his Blakenship #7 well did not produce its usual share last night will have Halliburton out there in the afternoon trying to fix it.

Now it might be a bit early to say for certain that oil production has hit its peak and is on the way down, on the other hand the peak wherever it may be won't be confirmed until we're past it and on the way down. Either way this isn't exactly good news.

[SCRawl]

I just watched "The End of Suburbia" a little over a week ago, and man, was I depressed. If we accept their initial position -- that peak oil is either here or not far off -- everything else they claim follows naturally. In other words, our way of life is circling the bowl. It's always cheerful, considering the ramifications of peak oil....

[Tahlan]

I'll admit upfront that this is "handwaving," but I remember recently reading an article about oil and that the Saudis had cut back production, even during the high prices of $70 a barrel. I forget their motivation for their actions, but assuming this is true, then I would argue that we are not on a bubble of peak production that is about to bust. (Sorry for the awkwardness of that sentence.) Also, there is the fact that Iraq's oil production is still way below previous levels during the Hussein era. With the Saudis cutting back production, and the Iraqi's falling short of potential production levels, it leaves lots of room for increased production. And I add this caveat: I recognize the fact that oil is a limited resource and at some point in humanity's future, we'll be producing less as reserves dry up. I just don't think it's happening now, and I don't think it will happen any time soon.

For what it's worth.

[une]

I just watched "The End of Suburbia" a little over a week ago, and man, was I depressed. If we accept their initial position -- that peak oil is either here or not far off -- everything else they claim follows naturally. In other words, our way of life is circling the bowl. It's always cheerful, considering the ramifications of peak oil....

I was just watching it today. It's on google video here

Very interesting movie. Further supports my decision to leave the USA asap.

[Wyrm]

I'll admit upfront that this is "handwaving," but I remember recently reading an article about oil and that the Saudis had cut back production, even during the high prices of $70 a barrel. I forget their motivation for their actions, but assuming this is true, then I would argue that we are not on a bubble of peak production that is about to bust. (Sorry for the awkwardness of that sentence.) Also, there is the fact that Iraq's oil production is still way below previous levels during the Hussein era. With the Saudis cutting back production, and the Iraqi's falling short of potential production levels, it leaves lots of room for increased production. And I add this caveat: I recognize the fact that oil is a limited resource and at some point in humanity's future, we'll be producing less as reserves dry up. I just don't think it's happening now, and I don't think it will happen any time soon.

For what it's worth.

You acknowledge that oil is a limited resource. Well, Hubbart peak theory (which is Peak Oil applied to a single field) is based on that rather mundane observation, and the theory goes on to elaborate that total cumulative production for that field follows a logistic curve (as infastructure and pumps get built, production ramps up at the beginning, remains constant for a time, then slows down as the field is depleated). The peak of this production comes when exactly half of the field has been depleated, and production is the derivative of this logistic curve. This observation is quite well-known in the petroleum world, and has been confirmed time and time again on the individual field level, and on the scale of nations (Hubbard peak theory correctly predicted the US's oil peak of 1970).

Peak Oil takes this theory and applies it to a worldwide scale. You can only exploit an oil field if you've discovered it, and worldwide oil discovery also follows a Hubbart curve (as you discover more and more fields, there are fewer places for undiscovered fields to hide). By taking this rate into account, coupled with a scaling bias (it's easy to show that most fields you discover will be small), you can apply Hubbart peak theory to worldwide production of oil, and the result is the infamous Peak Oil.

As J points out, we have likely already passed peak oil. This is supported by the observation that, when you take a look at the non-OPEC oil producing countries, most of their production (currently from conventional fields) has already peaked. PDF here, figure 7. (No direct link. Sorry.)

The important thing is that it doesn't matter if the oil is from shale or tar-sands or what-have-you. The fundamental assumption in Hubbart peak theory is that the resource in question is finite.

As for the Saudi's, there's an easy way to square away the observation that they are pumping as much as they can, yet their production is decreasing: their fields are in the depleation phase. Remember, it is a rather old, well-developed field.

[Tahlan]

OK, Wyrm. I just watched The End of Suburbia. Quite informative and thought provoking. However, there's a hodgepodge of predictions. While Hubbart predicted the US peak in 1970 correctly, his world-wide peak prediction was 1990, and that didn't happen. Another interviewee in the film predicted world peak production in 2007. Then another interviewee predicted world peak production within the next twenty years. That's three separate predictions in the same film on the same topic.

I understand the bell curve of oil and natural gas production and how it relates to the theory of peak production. That being said, and The End of Suburbia stated this as well, we won't know that peak production has occurred until years after the fact when we can look back and make comparisons. One reason for this is the uncertainty of the amount of reserves out there. Most certainly, we cannot believe Middle Eastern/Persian Gulf estimates of reserve amounts due to the fact that they can only sell a fraction of their reserves, so there was a self-serving incentive to claim more reserves than they actually possessed.

So the honest answer is that we do not know when world oil production will peak. Some think it's happening now. I personally think it's going to happen in the near future, meaning a few years. Therefore, whether you believe it's happening now, or like me that we have a few years before world production starts to drop off, it is incumbent upon all of us to take a serious look at our lifestyles and consider the effect of our consumption of oil upon our economy, environment, and way of life, and re-evaluate what the "American Dream" should be.

[Dennis Toy]

Therefore, whether you believe it's happening now, or like me that we have a few years before world production starts to drop off, it is incumbent upon all of us to take a serious look at our lifestyles and consider the effect of our consumption of oil upon our economy, environment, and way of life, and re-evaluate what the "American Dream" should be.

Try telling that to americans, they will say "PEAK OIL IS NONSENSE, WE HAVE 40...50...60... YEARS OF OIL LEFT" or "I am entitled to live in a big house in the suburbs if i please".

[K. A. Pital]

As you can imagine, predicting the world peak is a bit more complex than evaluating this peak for a single country.

But anyway, the way things are going now it looks like a dead-end. Too little attention to oil overconsumption, alternative energy sources and the effects of an energy cost upsurge on the modern energy-intensive economies.

[J]

I'll admit upfront that this is "handwaving," but I remember recently reading an article about oil and that the Saudis had cut back production, even during the high prices of $70 a barrel. I forget their motivation for their actions, but assuming this is true, then I would argue that we are not on a bubble of peak production that is about to bust. (Sorry for the awkwardness of that sentence.) Also, there is the fact that Iraq's oil production is still way below previous levels during the Hussein era. With the Saudis cutting back production, and the Iraqi's falling short of potential production levels, it leaves lots of room for increased production. And I add this caveat: I recognize the fact that oil is a limited resource and at some point in humanity's future, we'll be producing less as reserves dry up. I just don't think it's happening now, and I don't think it will happen any time soon.

For what it's worth.

With Saudi Arabia, the key question is if their production is falling because of voluntary cutbacks or if they simply can't pump oil out of the ground any faster. Given the recent reports of massive water cuts in their oil fields (wells are producing almost 50% water now) I'd lean towards the latter, as do many geologists.

Iraq at its peak produced about 3.5 million barrels a day, currently it's about 2 million. The world uses about 80 million a day, that's not exactly a vast safety margin. Back in the 70's we had a surplus capacity of over 25%, now it's something like 2-5%, depending on whether OPEC's production claims are believed.

[Wyrm]

OK, Wyrm. I just watched The End of Suburbia. Quite informative and thought provoking. However, there's a hodgepodge of predictions. While Hubbart predicted the US peak in 1970 correctly, his world-wide peak prediction was 1990, and that didn't happen.

Mostly because demand for oil didn't rise as sharply as predicted, due to OAPEC's stunt in 1973. The US and other oil consuming countries were forced to quickly develop alternate energy sources, and more efficient use of oil. Those measures, still in place today, helped control the exponential thirst for oil and gave us an extra decade or so of rising oil production.

Another interviewee in the film predicted world peak production in 2007. Then another interviewee predicted world peak production within the next twenty years. That's three separate predictions in the same film on the same topic.

Now you're appealing to authority. Look at the chart I referenced earlier. The production of every major non-OPEC oil producer has peaked, except the former Soviet Union. Sure, we can hope that there lies a major oil field, yet undiscovered, somewhere in the world, but you can't bank on hope. Russia has only the 8th largest proven oil reserve, not even as large as Venezuela.

we won't know that peak production has occurred until years after the fact when we can look back and make comparisons.

No, we won't know for sure that Peak Oil has occured, but we can make predictions. Consider: the last major oil field discovery in the world was Cantarell in Mexico... and that occured thirty years ago. It takes a long time to develop these fields up to large-scale production comparable to world oil consumption, on the order of a few decades.

Now, think about that. Decades to develop any oil field, decades since we've had a major discovery. Further, most countries' production is already started to decline, and these decline soon develop into exponential decays. Even with new major oil find, and they will get rarer as time goes on, overall production will still fall.

Even if Peak Oil is not immenent, decision analysis dictates that our action does not change: no matter what the situation, the sooner we kick our oil habit, the better off we will be.

Most certainly, we cannot believe Middle Eastern/Persian Gulf estimates of reserve amounts due to the fact that they can only sell a fraction of their reserves, so there was a self-serving incentive to claim more reserves than they actually possessed.

So if those countries are lying and they have fewer reserves than they actually possessed, how does this help your argument that we haven't experienced Peak Oil?

My attitude is to assume that, yes, things really are that bad, but we have the entire downward slope of Peak Oil to get our acts together. And the sooner we hop to it, the better.

[CaptHawkeye]

These ever decreasing fuel reserves pose a huge problem to the future of commercial aviation. Yet I haven't seen AOPA, the FAA, or any flight organization even hint it at meetings or news posts. Are they purposely ignoring it? Have I made a bad decision in choosing a career as a pilot? >_>

[K. A. Pital]

Are they purposely ignoring it?

Yes. Do you realize that profits and long-term operation of the transport system are not a joint goal - one can be achieved without the other due to the time dilation So why would any private company care for the future of their industry? They have their profits now and will have them for several years into the future. Car manufacturers are feeling some more heat over this from the public, but their "efforts" concerning transition from fossil fuels to other sources of energy are also laughable.

[Admiral Valdemar]

Peak Oil? Turkish Diesel is close to $300 a barrel.

[Master of Ossus]

You acknowledge that oil is a limited resource. Well, Hubbart peak theory (which is Peak Oil applied to a single field) is based on that rather mundane observation, and the theory goes on to elaborate that total cumulative production for that field follows a logistic curve (as infastructure and pumps get built, production ramps up at the beginning, remains constant for a time, then slows down as the field is depleated). The peak of this production comes when exactly half of the field has been depleated, and production is the derivative of this logistic curve. This observation is quite well-known in the petroleum world, and has been confirmed time and time again on the individual field level,

That is completely untrue. Most conventional fields rise much more rapidly than the logistic curve to a peak and then drop off much more slowly (Campbell 1988). Enhanced recovery fields tend to rise much more slowly, to a long plateau, before dropping asymptotically and showing no resemblance to a logistic curve at all.

and on the scale of nations (Hubbard peak theory correctly predicted the US's oil peak of 1970).

But it missed completely ever since then, predicting a much more rapid drop-off in domestic US production than has occurred.

Peak Oil takes this theory and applies it to a worldwide scale. You can only exploit an oil field if you've discovered it, and worldwide oil discovery also follows a Hubbart curve (as you discover more and more fields, there are fewer places for undiscovered fields to hide).

True, but only a very small fraction of the world has been thoroughly explored.

By taking this rate into account, coupled with a scaling bias (it's easy to show that most fields you discover will be small), you can apply Hubbart peak theory to worldwide production of oil, and the result is the infamous Peak Oil.

True.

As J points out, we have likely already passed peak oil. This is supported by the observation that, when you take a look at the non-OPEC oil producing countries, most of their production (currently from conventional fields) has already peaked. PDF here, figure 7. (No direct link. Sorry.)

This is true only under current economic and political conditions, which will change in the future in response to your Peak Oil Theory.

The important thing is that it doesn't matter if the oil is from shale or tar-sands or what-have-you. The fundamental assumption in Hubbart peak theory is that the resource in question is finite.

Wrong. The fundamental assumption is the logistic curve--there is no theoretical backing for this.

There is also the assumption that finite resources are exhausted with no other substitutes, when historically this was not true at all. Ironically, the resource which best fits the Hubbert theory (coal--production of which is nearly a perfect logistic curve in the West) completely disproves the idea that exhaustion of the resource is responsible for the shape of the curve, since more coal is known to exist in England right now than was developed as reserves throughout the entire industrial age. The Stone Age did not end because we ran out of rocks, and the Petroleum Age is unlikely to end because we run out of oil.

As for the Saudi's, there's an easy way to square away the observation that they are pumping as much as they can, yet their production is decreasing: their fields are in the depleation phase. Remember, it is a rather old, well-developed field.

Okay, there are two completely separate things going on here:

1. Flow rate of oil. This is the maximum worldwide quantity that can be produced in some discrete amount of time (usually barrels per day). This strongly influences the price of oil.
2. Total resources. This is the number of barrels left in the ground, in various forms requiring different technological and economic conditions to produce efficiently. This also affects the price of oil (Hirfschleiser, 1984), even though it is unmeasurable.

These two are not remotely similar. The flow rate is governed primarily by investment within the last five to twenty years. The total resources, though, are not correlated with this. You can even add a third level of abstraction by suggesting that we should keep "total reserves" in, but total reserves have an economic component which if Peak Oil Theory as you have presented it is accurate will necessarily change.

Yes. Do you realize that profits and long-term operation of the transport system are not a joint goal - one can be achieved without the other due to the time dilation So why would any private company care for the future of their industry? They have their profits now and will have them for several years into the future. Car manufacturers are feeling some more heat over this from the public, but their "efforts" concerning transition from fossil fuels to other sources of energy are also laughable.

The goal of a company is to maximize the present value of its profits. This is made blatantly clear by all kinds of behavior in capital and industrial markets.

No company will totally sacrifice their future for present profitability if that will damage their present value--they will have some discount rate, but this is not what you seem to claim. Moreover, I don't really feel impoverished by the countless past generations' alleged focus on present consumption and profitability over my well-being.

[Master of Ossus]

Mostly because demand for oil didn't rise as sharply as predicted, due to OAPEC's stunt in 1973. The US and other oil consuming countries were forced to quickly develop alternate energy sources, and more efficient use of oil. Those measures, still in place today, helped control the exponential thirst for oil and gave us an extra decade or so of rising oil production.

Any increase in the real cost of oil, though, will trigger marginal shifts away from the use of oil. That wasn't a unique, one-off thing that can never occur, again.

Another interviewee in the film predicted world peak production in 2007. Then another interviewee predicted world peak production within the next twenty years. That's three separate predictions in the same film on the same topic.

Now you're appealing to authority. Look at the chart I referenced earlier. The production of every major non-OPEC oil producer has peaked, except the former Soviet Union. Sure, we can hope that there lies a major oil field, yet undiscovered, somewhere in the world, but you can't bank on hope. Russia has only the 8th largest proven oil reserve, not even as large as Venezuela.

History, though, strongly suggests that he's correct. No other mineral resource displays a long-term trend towards higher real prices. This strongly suggests that technology and investment advance at least as quickly as consumption in the mineral world. Moreover, you must admit that the history books are littered with incorrect predictions about peak oil (the earliest recorded one is by the USGS in the nineteenth century) and other energy forms, many of which led to some retrospectively God-awful policy decisions (like the Carter Energy Policy).

No, we won't know for sure that Peak Oil has occured, but we can make predictions. Consider: the last major oil field discovery in the world was Cantarell in Mexico... and that occured thirty years ago. It takes a long time to develop these fields up to large-scale production comparable to world oil consumption, on the order of a few decades.

Nonsense. The Tengiz field has 35 billion barrels in proven reserves and wasn't discovered until the 1990's. You're also ignoring the fact that virtually all fields have ultimately produced much more oil than they were estimated to contain when they were discovered, since after greater exploration their borders and boundaries are expanded and better defined. The Kashagan field has an estimated 12 billion barrels and wasn't discovered until 2000.

Now, think about that. Decades to develop any oil field, decades since we've had a major discovery. Further, most countries' production is already started to decline, and these decline soon develop into exponential decays. Even with new major oil find, and they will get rarer as time goes on, overall production will still fall.

Except that it's bullshit that there haven't been major discoveries, since then. The four main Kazakh oil discoveries in the 1990's alone nearly DOUBLED world proven reserves.

Even if Peak Oil is not immenent, decision analysis dictates that our action does not change: no matter what the situation, the sooner we kick our oil habit, the better off we will be.

That's ridiculous. What if our only alternative were coal power, or something even worse? Would we still be better off ditching this petroleum stuff ASAP?

[Admiral Valdemar]

Peak oil doesn't mean we won't find new resources of oil or that we'll stop using oil. What it does mean is that overall output will not meet demand, which we're seeing is awfully close already. With most of the major fields now peaked or peaking, it's a very real issue and I don't buy the likes of the Saudi gov't who say there's no problem whilst panicking over how to extract more from the ever less fruitful fields they have.

In that case, peak oil is happening now and while there are alternatives, they require vastly more input in energy to extract, making the net energy gain smaller and smaller. Tar sands and far off oil fields in the middle of nowhere are not exactly cheap, and with the likes of Chins gulping down more and more to fuel expansion and industrialisation, you're seeing demand rise and supply get smaller and far more expensive. Those problems are visible today.

[K. A. Pital]

No company will totally sacrifice their future for present profitability if that will damage their present value--they will have some discount rate

Which is the key reason why capitalism behaves irreponsibly towards the environment and natural resource, be it fossil fuels, CO emissions, or water pollution, and the key reason why it needs to be regulated in such a fashion which would take all these issues into account.

Moreover, I don't really feel impoverished by the countless past generations' alleged focus on present consumption and profitability over my well-being.

This already has lead and is currently leading to negative consequences in several areas of the world and economy sectors, many phenomena are connected precisely with this short-sightedness. The fact that these negative consequences have not yet manifested on such as scale as to massively damage the development of human civilization does not mean they will not do so in the future - things like global ecological problems accumulate in large spans of time, and capitalism is a rather young system.

[Master of Ossus]

Peak oil doesn't mean we won't find new resources of oil or that we'll stop using oil. What it does mean is that overall output will not meet demand, which we're seeing is awfully close already. With most of the major fields now peaked or peaking, it's a very real issue and I don't buy the likes of the Saudi gov't who say there's no problem whilst panicking over how to extract more from the ever less fruitful fields they have.

But when this happens, people will turn to alternatives that had previously been uneconomical but under new conditions are okay. Furthermore, the changing economic conditions also dramatically alter the quantity of proven reserves in the world, since the definition of reserve relies on current technology and economic conditions. When either of those changes, more oil is developed.

In that case, peak oil is happening now and while there are alternatives, they require vastly more input in energy to extract, making the net energy gain smaller and smaller. Tar sands and far off oil fields in the middle of nowhere are not exactly cheap, and with the likes of Chins gulping down more and more to fuel expansion and industrialisation, you're seeing demand rise and supply get smaller and far more expensive. Those problems are visible today.

And they'll trigger lots of other development in the free-market, which already adjusted to similar crises in the 1970's embargoes far more effectively than government intervention did (Stockman 1978).

[K. A. Pital]

But when this happens, people will turn to alternatives that had previously been uneconomical but under new conditions are okay.

If those alternatives are uneconomical now, their use would mean an upsurge in energy costs. It will increase the costs a nation will have to suffer to maintain it's power intensity.

[Admiral Valdemar]

But when this happens, people will turn to alternatives that had previously been uneconomical but under new conditions are okay. Furthermore, the changing economic conditions also dramatically alter the quantity of proven reserves in the world, since the definition of reserve relies on current technology and economic conditions. When either of those changes, more oil is developed.

Which doesn't change the fact that your energy return on investment is now shrinking; the main problem with peak oil. It's also not like these alternatives are going to magically keep up with demand overnight. Maybe after a few decades, if you're lucky.

And they'll trigger lots of other development in the free-market, which already adjusted to similar crises in the 1970's embargoes far more effectively than government intervention did (Stockman 1978).

Those were temporary, barely even noticeable crises compared to the prospect of global oil supply peaking. It's not like those market forces had to deal with the idea of that crisis being the status quo for the future after that.

[Master of Ossus]

Which is the key reason why capitalism behaves irreponsibly towards the environment and natural resource, be it fossil fuels, CO emissions, or water pollution, and the key reason why it needs to be regulated in such a fashion which would take all these issues into account.

I admit that it's an interesting moral question as to whether or not we should include a discount rate in our consumption profiles, but I will point out that Frank Ramsey (an early Peak Oil advocate) argued for its inclusion. I agree with it because I don't feel impoverished by the past's focus on present consumption.

This already has lead and is currently leading to negative consequences in several areas of the world and economy sectors, many phenomena are connected precisely with this short-sightedness. The fact that these negative consequences have not yet manifested on such as scale as to massively damage the development of human civilization does not mean they will not do so in the future - things like global ecological problems accumulate in large spans of time, and capitalism is a rather young system.

Yes, technology in the past may not have been good enough to cheat us entirely, but that may change in the present or the future.

Capitalism may be young, but I can't honestly think of any economic system in the past that didn't focus on current consumption more than future gains, and hence did not have the same "problem" that you've charged capitalism with.

[K. A. Pital]

Capitalism may be young, but I can't honestly think of any economic system in the past that didn't focus on current consumption more than future gains

The issue is not the "focus on present gains" - the traditional mentality and the long-term fixed, immobile means of production in feudalism did not allow for such a rapid exploit of resources and total abandonment of long-term planning (all those castles and dynasties and kingdoms meant to last for ages were an evolutionary trait of those structures, developed to maintain the human populations into the future), and neither did technology of the age allow for it.

Today we have both an economic structure which can sustain and even increase this exploit and damage from human activity, and a technology which corresponds to it and gives it this ability.

[Master of Ossus]

If those alternatives are uneconomical now, their use would mean an upsurge in energy costs. It will increase the costs a nation will have to suffer to maintain it's power intensity.

True, but if you consider oil to be a finite resource then such shifts are inevitable. The investments that you propose in new technologies to alleviate the "coming crisis" also represent increased costs of energy, albeit ones that are designed to project into the future. I should point out that the Synthetic Fuels Corporation demonstrated to everyone's satisfaction that under only slightly different economic conditions from those that persist today, vast quantities of EOR petroleum could be entered into the market.

[Master of Ossus]

Which doesn't change the fact that your energy return on investment is now shrinking; the main problem with peak oil. It's also not like these alternatives are going to magically keep up with demand overnight. Maybe after a few decades, if you're lucky.

The Synthetic Fuels Corporation showed that even with existing technologies we can significantly increase production within a few years, and that was just inside the United States.

Those were temporary, barely even noticeable crises compared to the prospect of global oil supply peaking. It's not like those market forces had to deal with the idea of that crisis being the status quo for the future after that.

Actually, they did. No one knew, during the 1970's how long the crises were going to last, and many of the developments that were made during the 1970's continued. It should also be noted that the sorts of government intervention that I assume many in this thread would advocate for ended up being counter-productive and retrospectively foolish.

[K. A. Pital]

True, but if you consider oil to be a finite resource then such shifts are inevitable. The investments that you propose in new technologies to alleviate the "coming crisis" also represent increased costs of energy, albeit ones that are designed to project into the future.

Correct. By starting the shift earlier, you allow for a more smooth correction and also for the ability to downsize energy consumption itself (via political measures). When large costs are concentrated in a short period of time, on the other hand, a crisis indeed can happen. That's the main problem, the fact that energy costs will rise is inevitable.