Posted on 04/25/2005 8:14:08 AM PDT by cogitator
The one thing that international bankers don't want to hear is that the second Great Depression may be round the corner. But last week, a group of ultra-conservative Swiss financiers asked a retired English petroleum geologist living in Ireland to tell them about the beginning of the end of the oil age.
They called Colin Campbell, who helped to found the London-based Oil Depletion Analysis Centre because he is an industry man through and through, has no financial agenda and has spent most of a lifetime on the front line of oil exploration on three continents. He was chief geologist for Amoco, a vice-president of Fina, and has worked for BP, Texaco, Shell, ChevronTexaco and Exxon in a dozen different countries.
"Don't worry about oil running out; it won't for very many years," the Oxford PhD told the bankers in a message that he will repeat to businessmen, academics and investment analysts at a conference in Edinburgh next week. "The issue is the long downward slope that opens on the other side of peak production. Oil and gas dominate our lives, and their decline will change the world in radical and unpredictable ways," he says.
Campbell reckons global peak production of conventional oil - the kind associated with gushing oil wells - is approaching fast, perhaps even next year. His calculations are based on historical and present production data, published reserves and discoveries of companies and governments, estimates of reserves lodged with the US Securities and Exchange Commission, speeches by oil chiefs and a deep knowledge of how the industry works.
"About 944bn barrels of oil has so far been extracted, some 764bn remains extractable in known fields, or reserves, and a further 142bn of reserves are classed as 'yet-to-find', meaning what oil is expected to be discovered. If this is so, then the overall oil peak arrives next year," he says.
If he is correct, then global oil production can be expected to decline steadily at about 2-3% a year, the cost of everything from travel, heating, agriculture, trade, and anything made of plastic rises. And the scramble to control oil resources intensifies. As one US analyst said this week: "Just kiss your lifestyle goodbye."
But the Campbell analysis is way off the much more optimistic official figures. The US Geological Survey (USGS) states that reserves in 2000 (its latest figures) of recoverable oil were about three trillion barrels and that peak production will not come for about 30 years. The International Energy Agency (IEA) believes that oil will peak between "2013 and 2037" and Saudi Arabia, Kuwait, Iraq and Iran, four countries with much of the world's known reserves, report little if any depletion of reserves. Meanwhile, the oil companies - which do not make public estimates of their own "peak oil" - say there is no shortage of oil and gas for the long term. "The world holds enough proved reserves for 40 years of supply and at least 60 years of gas supply at current consumption rates," said BP this week.
Indeed, almost every year for 150 years, the oil industry has produced more than it did the year before, and predictions of oil running out or peaking have always been proved wrong. Today, the industry is producing about 83m barrels a day, with big new fields in Azerbaijan, Angola, Algeria, the deep waters of the Gulf of Mexico and elsewhere soon expected on stream.
But the business of estimating oil reserves is contentious and political. According to Campbell, companies seldom report their true findings for commercial reasons, and governments - which own 90% of the reserves - often lie. Most official figures, he says, are grossly unreliable: "Estimating reserves is a scientific business. There is a range of uncertainty but it is not impossible to get a good idea of what a field contains. Reporting [reserves], however, is a political act."
According to Campbell and other oil industry sources, the two most widely used estimates of world oil reserves, drawn up by the Oil and Gas Journal and the BP Statistical Review, both rely on reserve estimates provided to them by governments and industry and do not question their accuracy.
Companies, says Campbell, "under-report their new discoveries to comply with strict US stock exchange rules, but then revise them upwards over time", partly to boost their share prices with "good news" results. "I do not think that I ever told the truth about the size of a prospect. That was not the game we were in," he says. "As we were competing for funds with other subsidiaries around the world, we had to exaggerate."
Most serious of all, he and other oil depletion analysts and petroleum geologists, most of whom have been in the industry for years, accuse the US of using questionable statistical probability models to calculate global reserves and Opec countries of drastically revising upwards their reserves in the 1980s.
"The estimates for the Opec countries were systematically exaggerated in the late 1980s to win a greater slice of the allocation cake. Middle East official reserves jumped 43% in just three years despite no new major finds," he says.
The study of "peak oil" - the point at which half the total oil known to have existed in a field or a country has been consumed, beyond which extraction goes into irreversible decline - used to be back-of-the envelope guesswork. It was not taken seriously by business or governments, mainly because oil has always been cheap and plentiful.
In the wake of the Iraq war, the rapid economic rise of China, global warming and recent record oil prices, the debate has shifted from "if" there is a global peak to "when".
The US government knows that conventional oil is running out fast. According to a report on oil shales and unconventional oil supplies prepared by the US office of petroleum reserves last year, "world oil reserves are being depleted three times as fast as they are being discovered. Oil is being produced from past discoveries, but the reserves are not being fully replaced. Remaining oil reserves of individual oil companies must continue to shrink. The disparity between increasing production and declining discoveries can only have one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available."
It continues: "Although there is no agreement about the date that world oil production will peak, forecasts presented by USGS geologist Les Magoon, the Oil and Gas Journal, and others expect the peak will occur between 2003 and 2020. What is notable ... is that none extend beyond the year 2020, suggesting that the world may be facing shortfalls much sooner than expected."
According to Bill Powers, editor of the Canadian Energy Viewpoint investment journal, there is a growing belief among geologists who study world oil supply that production "is soon headed into an irreversible decline ... The US government does not want to admit the reality of the situation. Dr Campbell's thesis, and those of others like him, are becoming the mainstream."
In the absence of reliable official figures, geologists and analysts are turning to the grandfather of oil depletion analysis, M King Hubbert, a Shell geologist who in 1956 showed mathematically that exploitation of any oilfield follows a predictable "bell curve" trend, which is slow to take off, rises steeply, flattens and then descends again steeply. The biggest and easiest exploited oilfields were always found early in the history of exploration, while smaller ones were developed as production from the big fields declined. He accurately predicted that US domestic oil production would peak around 1970, 40 years after the period of peak discovery around 1930.
Many oil analysts now take the "Hubbert peak" model seriously, and the USGS, national and oil company figures with a large dose of salt. Similar patterns of peak discovery and production have been found throughout all the world's main oilfields. The first North Sea discovery was in 1969, discoveries peaked in 1973 and the UK passed its production peak in 1999. The British portion of the basin is now in serious decline and the Norwegian sector has levelled off.
Other analysts are also questioning afresh the oil companies' data. US Wall street energy group Herold last month compared the stated reserves of the world's leading oil companies with their quoted discoveries, and production levels. Herold predicts that the seven largest will all begin seeing production declines within four years. Deutsche Bank analysts report that global oil production will peak in 2014.
According to Chris Skrebowski, editor of Petroleum Review, a monthly magazine published by the Energy Institute in London, conventional oil reserves are now declining about 4-6% a year worldwide. He says 18 large oil-producing countries, including Britain, and 32 smaller ones, have declining production; and he expects Denmark, Malaysia, Brunei, China, Mexico and India all to reach their peak in the next few years.
"We should be worried. Time is short and we are not even at the point where we admit we have a problem," Skrebowski says. "Governments are always excessively optimistic. The problem is that the peak, which I think is 2008, is tomorrow in planning terms."
On the other hand, Equatorial Guinea, Sao Tome, Chad and Angola are are all expected to grow strongly.
What is agreed is that world oil demand is surging. The International Energy Agency, which collates national figures and predicts demand, says developing countries could push demand up 47% to 121m barrels a day by 2030, and that oil companies and oil-producing nations must spend about $100bn a year to develop new supplies to keep pace.
According to the IEA, demand rose faster in 2004 than in any year since 1976. China's oil consumption, which accounted for a third of extra global demand last year, grew 17% and is expected to double over 15 years to more than 10m barrels a day - half the US's present demand. India's consumption is expected to rise by nearly 30% in the next five years. If world demand continues to grow at 2% a year, then almost 160m barrels a day will need to be extracted in 2035, twice as much as today.
That, say most geologists is almost inconceivable. According to industry consultants IHS Energy, 90% of all known reserves are now in production, suggesting that few major discoveries remain to be made. Shell says its reserves fell last year because it only found enough oil to replace 15-25 % of what the company produced. BP told the US stock exchange that it replaced only 89% of its production in 2004.
Moreover, oil supply is increasingly limited to a few giant fields, with 10% of all production coming from just four fields and 80% from fields discovered before 1970. Even finding a field the size of Ghawar in Saudi Arabia, by far the world's largest and said to have another 125bn barrels, would only meet world demand for about 10 years.
"All the major discoveries were in the 1960s, since when they have been declining gradually over time, give or take the occasional spike and trough," says Campbell. "The whole world has now been seismically searched and picked over. Geological knowledge has improved enormously in the past 30 years and it is almost inconceivable now that major fields remain to be found."
He accepts there may be a big field or two left in Russia, and more in Africa, but these would have little bearing on world supplies. Unconventional deposits like tar sands and shale may only slow the production decline.
"The first half of the oil age now closes," says Campbell. "It lasted 150 years and saw the rapid expansion of industry, transport, trade, agriculture and financial capital, allowing the population to expand six-fold. The second half now dawns, and will be marked by the decline of oil and all that depends on it, including financial capital."
So did the Swiss bankers comprehend the seriousness of the situation when he talked to them? "There is no company on the stock exchange that doesn't make a tacit assumption about the availability of energy," says Campbell. "It is almost impossible for bankers to accept it. It is so out of their mindset."
Crude alternatives
"Unconventional" petroleum reserves, which are not included in some totals of reserves, include:
Heavy oils
These can be pumped just like conventional petroleum except that they are much thicker, more polluting, and require more extensive refining. They are found in more than 30 countries, but about 90% of estimated reserves are in the Orinoco "heavy oil belt" of Venezuela, which has an estimated 1.2 trillion barrels. About one third of the oil is potentially recoverable using current technology.
Tar sands
These are found in sedimentary rocks and must be dug out and crushed in giant opencast mines. But it takes five to 10 times the energy, area and water to mine, process and upgrade the tars that it does to process conventional oil. The Athabasca deposits in Alberta, Canada are the world's largest resource, with estimated reserves of 1.8 trillion barrels, of which about 280-300bn barrels may be recoverable. Production now accounts for about 20% of Canada's oil supply.
Oil shales
These are seen as the US government's energy stopgap. They exist in large quantities in ecologically sensitive parts of Colorado, Wyoming and Utah at varying depths, but the industrial process needed to extract the oil demands hot water, making it much more expensive and less energy-efficient than conventional oil. The mining operation is extremely damaging to the environment. Shell, Exxon, ChevronTexaco and other oil companies are investing billions of dollars in this expensive oil production method.
China sees it coming. They're going nuclear, big-time.
--no, it's not. The price is just going to go up--
Peak Oil. Blah, blah, blah. Been refuted over and over again.
If you look at any old books, we were supposed to run out of oil by 1980.
We will see.
Of course oil companies want us to think we're running out of oil, so they can jack up the prices. We've been hearing this same crap over the past 30 years.
One thing all of humanity can be certain of, everything on the planet that sustains human life is in finite supply.
One thing I keep wondering about is what all the crap we bury everyday as today's trash is going to turn into?
WHEN it runs out is the question. Next year, a thousand years from now, a vanishingly-distant moment in the future?
The price of oil is now high enough, and appears that it will remain high enough, to create market incentives to extract those alternative fuels and wean the U.S. away from imported oil.
Someone please tell me where the crisis is here.
In about 80-120 years, mining sites.
From the article: "The US government knows that conventional oil is running out fast. According to a report on oil shales and unconventional oil supplies prepared by the US office of petroleum reserves last year, "world oil reserves are being depleted three times as fast as they are being discovered. Oil is being produced from past discoveries, but the reserves are not being fully replaced. Remaining oil reserves of individual oil companies must continue to shrink. The disparity between increasing production and declining discoveries can only have one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available."
I'd be interested to see if anyone can provide evidence of a specific case in which the world "ran out of" any raw material or commodity.
nothing new under the sun alert.
Warmed-over baloney.
I echo dirtboy at #9. I predict that by 2050, a few landfills will have already become resource recovery and biomass conversion/biofuels generation sites, and more and more will be converted after that. The start of this trend is the thermal depolymerization process being used on ag waste to produce biofuels.
Coal? I can't fathom what millions of metric tons of used baby diapers and empty tuna cans will turn into. I would think something useful.
The below illustrates a different perspective about the long term availability of hydrocarbon fuels:
"The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy by Peter W. Huber, Mark P. Mills
I don't expect a crisis, but I do expect a crunch with periods of low supply that will stress economic sectors at times. As the article notes, the declining production curve will be a long slow one, and improved energy technologies (like more and more hybrid cars, more nuclear energy, etc.) will extend it.
Dodos, right?
Democratic talking points...
Nothing is infinite.
Precisely!!!
I actually agree with you here. Even France, the lefties' favorite country, relies heavily on nuclear. We should be starting to build our nuclear power infrastructure of the future now, but as soon as anyone tries to bring up a serious discussion, the usual suspects in America immediately start in with the Three Mile Island crap in an attempt to kill the debate.
No need to worry. Three- and four-dollar gasoline will finally give some "conservatives" reason to conserve. Till then, "mine's bigger'n yours!" and it's Dubya's fault.
What about coal as a US alternative. I thought I read that there are some new developments in the efficiency of coal-fired generation of electricity? That is, less coal produces more energy, meaning more energy at lower cost and with less pollution. Anybody?
Reality TV shows. ;)
What about coal as a US alternative. I thought I read that there are some new developments in the efficiency of coal-fired generation of electricity? That is, less coal produces more energy, meaning more energy at lower cost and with less pollution. Anybody?
The issue isn't "running out," as it is a supply and demand issue. The world isn't goona run out of oil, at least for a long, long, long time. But have we hit a time when we just cannot meet demand anymore. Can the world keep increading production to meet the growing demand across the globe? If demand keeps rising and production levels off or falls, prices will rise and rise alot. And, let's face it, we as a nation, are dependent on oil. As the cost of oil goes, so goes the cost of everything in this country.
Exactly.
For as long as I can remember, the Chicken Littles have been predicting we'd be out of oil "in 20 years."
Why has it always been 20 years?
So folks would forget how idiotic the predictions were by the time that date came around?
What about biomass conversion to crude?
They are already working on the oil shale in Fort Worth. I guess there is a large flood plain that runs through the city thats loaded with it.
Do you define a specific species of fish -- a "fishery" using the accepted term -- as a commodity?
Sperm whale oil, two centuries ago. They hunted them to near extinction, and the price of the oil to light lamps got way too expensive. Electricity came online about that same time, preventing a "catastrophe".
You said: Even France, the lefties' favorite country, relies heavily on nuclear. We should be starting to build our nuclear power infrastructure of the future now...
Funny, the same leftists that insist on how much better the Europeans do things seem to shut up pretty fast when nuclear power is mentioned. Hypocritical, two-faced dumb bas&ards.
My neighbor the true conspiracy nut thinks the oil companies have bought all the research for other fuel sources or killed people to acquire it and keeps them away from us until the right time to let the public have it.
The problems with the Hubbert Peak analysis:
1) The US was never had a large light crude resource base compared to other regions. And US oil reserves were being depleted aggressively before these other areas (Middle East, Venezula, North Sea, Alaska, SE Asia, Russia) came online. We were the fastest growing economy, with the most cars, the most oil heated homes, etc. Of course we peaked early.
2) The peak and downslide coincided with the availability of cheaper oil from overseas. Once that came online the US producers had to compete and the profitability of wells went down. Supply became diversified. Advances in technology have, however, pumped out a higher percentage of oil from the Texas/OK/LA region than has ever been acheived elsewhere.
The economics of oil are changing, but even at $50+ a barrel, the price trajectory is less than milk, soda, or beer over the same time. Moreover, oil is less important to our economy than in the past. Oil has never been important in electrical production, so gas, avgas, jet fuel and plastics are the areas where price increases are felt. China is much more dependent on oil for its economic growth than we are.
Rising prices will cause a contraction, maybe, but so what. Economic contraction will generate pressure to finally change our energy policies. Governments are never forward thinking about this kind of thing. Your job is to understand the economic effect and plan accordingly. There will be lots of money made as the world adjusts.
How important is gas to this whole equation? Consider that a shift in market share from SUVs/trucks to cars or station wagon like SUVs would like drop demand by about 5% in the US. This would likely drop prices by 20% or more. This will happen voluntarily if prices continue upward, and the price will stabilize. No need for the gov't to change CAFE standards. If you don't believe that, then you should review the history of gas prices, auto aggregate MPG figures, and buying behavior during the 70s and early 80s.
Chicken little remains unimpressed.
This is a REAL article of faith over on the DUmmies board, my alter ego has been taking shots at them over it. They actually celebrate it, they think it will quickly bring about the post-industrial society they so fervently desire.
They're too stupid to realize that the emerging economies that are now driving the price of oil up are the first ones that are not going to be able to afford hundred dollar a barrel oil, but the West will be able to adjust.
The hated West will continue on, while the poor get poorer, not the Mad Max scenario they are counting on!
There are some promising technologies. I already forgot the name of the process that converts agricultural biomass into a kind of biofuel, and I read about it in an article I posted here September or October of last year. It was being touted as an investment opportunity.
I have no problem with that outcome!
While I don't fully understand #1, I suspect that the process is still functioning. At what rate I'm not sure. Perhaps we do consume oil faster than new oil is being created (somewhere). Perhaps not! I don't know.
Ever since 1973 these predictions have been made every year and have been reliably wrong.
We will see.
I had a political science teacher in 1977 tell me that we would start to run of oil in 1984.
What about the supply of water? It may dry up in one area due to lack of precipitation and weather extremes that cause evaporation but it reappears somewhere else in the form of rainfall. Even raw sewage when filtered can be returned to it's original pristine state and re consumed.
Perhaps nothing is infinite in the full sense of the word but water comes as close to anything I can think of.
I think your comments are spot-on. The Left is amusing. Their vision of a "post-industrial society" is basically people living in caves, being eaten by mountain lions. Not that there's anything wrong with that ...
I hate the fact that that's dead on balls accurate.
I would mention "DODO'S" but we still have LIBERALS.
Methane. They're already recovering methane from the local landfill here.
TINFOIL HATS.....ON!
Water as well as oil are continually being slowly replentished deep within the earth.
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