11 September 2010

Understanding the Belief in Peak Oil: Is The End Near?

Until we explore the entire planet as carefully as we did Oklahoma and Texas, our assessment of global oil reserves will have plenty of room for surprises. _Vaclav Smil

Repent, Sinners, The End is Near!

Deeply held beliefs go beyond evidence and logic. Thus they tend to be unfalsifiable, invulnerable to demonstrable facts or reason.

Take belief in Peak Oil Doom. There are several blurred and shifting definitions of "Peak Oil", but none of them stand up to sustained examination. With any belief -- such as belief in a deity -- as long as one is not pressed for a rigorous definition of exactly what it is one believes in, there is little point to the argument. So what, exactly is this "Peak Oil" that so many people either do or do not "believe in?" Is it:
  1. The point at which half the world's oil supply has been extracted and consumed?
  2. The point at which oil production is at its historically highest point?
  3. The point at which the cost of oil production can only go up?
  4. The point where it costs as much to produce the oil as the oil is worth?
  5. The point where oil consumption outruns oil production?
  6. The point at which old oil fields are depleted faster than new oil field can be found to replace them?
  7. The point at which all the cheap oil has been used and only expensive oil is left?
  8. None of the above
  9. All of the above (including none of the above)
You might point out to the peak oil religionist that "authorities" have been declaring "Peak Oil" since the 1800s or before. Geologists, oil executives, government leaders, spy agencies, military organisations -- a wide array of authorities -- have declared peak oil every few years over the past 140 years or so. There is nothing new about this belief. But every new generation of believers is certain that it is living in "the last days of oil." Their belief is strong -- and unfalsifiable.

You can never really know whether what you have is "true peak oil" or "fool's peak oil" except perhaps in hindsight, and even then you may not live long enough to ever know the truth. Price controls on gasoline, for example, might artificially create supply shortages that last as long as the price controls, but clearly that is only one variety of "political peak oil." It goes away when the price controls are revoked.

Peak Oil believers -- like all religious believers -- rely upon "revealed truth", or argument from authority. Whether a retired geologist, an investment banker, an energy economist, a sleazy con artist, or whatnot -- a believer must have someone in whom he can place his trust. Once a belief is established, it extends tentacles deep beyond ordinary logic into the territory of faith -- which is not subject to reason.

What is the finding and development cost per barrel of oil these days? The figure has varied over the years, going up and down. From 2001:
Thanks to new exploration, drilling, and recovery technology, the worldwide finding and development cost per barrel of oil equivalent (boe) has dramatically declined over the last 20 years, from an average of about $21 in 1979–81 to under $6 in 1997–99 (in 2001 dollars) (9). _EnergyBulletin

A recent Citigroup source says that the finding and development cost has gone up to $18 in 2010, from 2004 when it was but $14. So you see that these costs can fluctuate over time, according to technology and politics. Keep in mind that the Obama dollar is worth less now than it was 30 seconds ago, so all costs in dollars should be standardised.

Another interesting question is the amount of oil that is left in the ground when a well is depleted. As technology improves, we are recovering a higher percentage of the oil -- meaning that we can now often go back to old and "depleted" wells and reap another rich harvest of oil.
At the same time, the recovery rate from world oil fields has increased from about 22% in 1980 to 35% to-day. _Energy Bulletin
By 2030 more than 50 percent of the known oil will be recoverable. Also, by that time the amount of known oil will have grown significantly, and a larger portion of unconventional oils will be commonly produced, bringing the total amount of recoverable reserves to something between 4,500 billion to 5,000 billion barrels of oil. What’s more, a significant part of “new reserves” will not come from new discoveries, but from a new ability to better exploit what we already have. _SciAm

What is the "life index of world reserves?" It is the ratio between proven oil reserves and current production. In other words, about how long can we expect reserves to last? Funny thing about that, the life index of world reserves has been improving -- the opposite of what one might expect in the face of "Peak Oil."
All these factors partly ex-plain why the life-index of world reserves...has constantly improved, passing from 20 years in 1948 to 35 years in 1972 and reaching about 40 years in 2003.

Today, all major sources estimate that proven world oil reserves exceed 1 trillion (10 12 ) barrels, while yearly consumption is about 28 billion barrels (10–13).

Overall, the world retains more than 3 tril-lion barrels of recoverable oil resources (14). _EnergyBulletin

North America has seen about a million exploratory oil wells, whereas the oil rich regions of the Persian Gulf have seen only a thousand or two. [S] The planet has barely been explored or surveyed for hydrocarbons in any significant terms.

What we are looking for here are demonstrable or refutable facts, observations, data. We are not looking for authority figures to put our faith in. That is for religious believers and disciples. The religious faithful argue from revealed authority. The rest of us choose to look at what we can see, touch, and reason with.

For example, the mundane reality that motivates modern oil production has a lot more to do with the development policies of oil dictatorships -- which shut out modern internation oil concerns -- than with how much or how little oil is in the ground.
Critics could note that new oil discov-eries are only replacing one-fourth of what the world consumes every year (fol-lowing a declining trend that began in the mid- 960s), and that increases in re-serves largely derive from upward revi-sions of existing stock. However, the real issue is that neither major producing countries nor publicly traded oil compa-nies are keen to invest money in substan-tial exploration campaigns. The countries richest in oil have minimized their oil in- estments during the last 20 years, main-ly for fear of creating a permanent excess capacity such as that which provoked the crisis in 1986 (when oil prices plummet-ed to below $10/bbl). In fact, countries such as Saudi Arabia or Iraq (which to-gether hold about 35% of the world’s proven reserves of oil) produce petroleum only from a few old fields, although they have discovered but not developed more than 50 new fields each. Moreover, in countries closed to foreign investments, the technologies and techniques used are, in most cases, obsolete.

Nevertheless, international public oil companies have faced two sets of limits to their expan-sion in the last 20 years. The first is inaccessibility to foreign in- estment in the largest and cheap-est reserves—those in the Persian Gulf. Second are the demands of financial markets, which for years have insisted that compa-nies provide unrealistic, short-term financial returns that are in-consistent with the long-term na-ture of oil investments. This has compelled private operators to reject op-portunities that would normally be deemed economically worthwhile. _EnergyBulletin

We would better understand the political undercurrents behind production fluctuations, if we were more aware of them and took them as seriously as they deserve to be taken. If a country lacks the technical expertise to develop an oil field -- or to retrieve as much oil as possible from that field -- production numbers are artificially depressed for political and bureaucratic reasons. The oil is still there, but you would never know this merely by looking at production figures.

Peak oil disciples and believers reap much secondary gain from their faith. An important bonus is the pride of knowing something that other people don't know -- the end is near. It takes something much more potent than mere logic and data to overcome such an advantage.

Taken from an earlier article at Al Fin Energy

Also see: Peak Oil Bites the Dust, which has an interesting discussion in comments after the article.


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Blogger Dennis Mangan said...

Great post. However, I do notice that all the links were written by Leonardo Maugeri, whom I've read many times before. Not that I distrust him in the least - on the contrary, he's convincing - I wonder which other authorities in the oil patch agree with him. It would be nice for the layman to see a few others.

Sunday, 12 September, 2010  
Blogger al fin said...

Michael Lynch and Vaclav Smil have generated a lot of material to counter the doomer aspect of peak oil. Robert Rapier has also come out against the catastrophist viewpoint of the peak oil doomers.

Here are some fairly short reads:





Peak Oil and the Lunatic Fringe

Maugeri's book "The Age of Oil" is a priceless resource of thought and information on the topic.

Sunday, 12 September, 2010  
Blogger Unknown said...

Hmmph. I had read Hubbert's Peak back around the turn of the century. It was based on some reasonable figures from M. King Hubbert, including his prediction made in the 1950's that US oil production would peak (meaning daily production would hit a high point and go into decline thereafter) between 1970 and 1974. 1970 or 71 was the year of US peak production, and we have declined since then, excepting a boost in the 1980s after Reagan repealed the Windfall Profits tax.

The book applied Hubbert's methodology to the entire planet to predict a peak in global oil production in the decade just passed. Last time I checked, there was a date in 2005 or 2006 that saw more oil production than any before, or any since. (This table shows a 2005 peak globally: http://www.eia.doe.gov/aer/txt/ptb1105.html )

Now, much of what you write is correct: we can extend the lives of old fields substantially, so that the "downside" of the peak is not a sharp dropoff. The problem is that we cannot increase global daily production much above 85MMbpd, and have held near this level for several years now. This has caused any number of problems in the economy, as the superabundance of energy obtainable from cheaply obtained oil is being withdrawn: we will need to find a new source of high-return-on-energy-invested energy to continue growth. I think we will, but if we don't... Western Civilization was able to escape the Malthusian trap by exploiting easily-exploitable energy to make up for lack of arable land. That stuff is all gone. If we blow it now and technological society collapses, humanity cannot again rise to this level of affluence and population.

Sunday, 12 September, 2010  
Blogger al fin said...

Yes. Humans are very much in need of vast quantities of relatively cheap energy. The blog, Al Fin Energy, is devoted to that theme.

A lot of people besides yourself were impressed by Hubbert's apparently uncanny predictive abilities. But he predicted world peak sometime in the 1990s, I think.

Most people don't understand how much Hubbert's US peak prediction depended upon the 1969 Santa Barbara offshore spill and the subsequent avalanche of new and restrictive regulations.

It is unlikely that the global peak production will be anywhere near 2005 as most peakers claim. Robert Rapier -- a peak oiler in his own right -- has discussed how production in 2009 surpassed the 2005 peak, with significant production reserves remaining.

Peak Oil has become very much a "just so" story, where all the pieces somehow come together to fit the theme of catastrophic decline.

It is so much like a religion that it could be arrested for impersonating a religion. Peak Oil Doom -- just like Carbon Catastrophe Doom -- appeals to the apocalyptic in all of us. But it really does make a difference which apocalypse takes place, and when.

Sunday, 12 September, 2010  
Blogger Kinuachdrach said...

Yes, the bicycle-hugging children-rejecting grow-government kind of Peak Oiler is hard to take seriously.

But there is the other kind. Charles Darwin (grandson of the famous one) wrote a book in the 1950s about the long-term future of the human race, "The Next Million Years". He pointed out that fossil fuels are finite. In the context of the next million years, it matters little whether fossil fuels last a hundred years or a thousand years -- for more than 99% of the next million years, human beings will have to get along without fossil fuels. As a physicist, the younger Darwin seemed quite sure we would find a way.

There is no doubt that we are digging deeper into the oil barrel than we did a few decades ago -- poorer quality reservoirs (e.g. shales) and more difficult locations (e.g. offshore Brazil). But that is not a cause for alarm. We already have nuclear technology which can power the entire world for millenia.

Some time ago, I got into an e-mail discussion with Michael Lynch about peak oil. He saw it happening about 80 years in the future, whereas the PeakMongers see it happening about now. It reminded me of that old joke about the guy who gets a woman to agree to sleep with him for $1 Million, and then asks if she will take $20 instead. You have already told me what you are, we are just negotiating over price.

The rational response to concerns about Peak Oil is to stop politicians choosing politically correct "winners" in alternative energy; eliminate governmental regulations which are barriers to innovation; and encourage cost-competitive innovation through things modelled after the space X-Prize.

But that would not fit the real agenda of the PeakMongers. They want to control other people, even if it sends humanity back to the Dark Ages.

Sunday, 12 September, 2010  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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