MoveBeyondOil.org | News Analysis: Peak Oil

9/3/08 ‘Peak Oil’ is about the Straw, Not the Cup

—And Outlook is Bleak

By Peter Forman

Published: September 3, 2008
New York—Journalists often mistakenly report "Peak Oil" as the amount of oil remaining in the earth.
In reality, it is not about the size of the cup; it is about the size of the straw.

The Peak Oil formula (often called Hubbert's Peak for its discoverer, geologist Dr. M. King Hubbert) describes an observation made in thousands of oil fields. As shown on the accompanying chart, Peak Oil reflects the tendency of oil fields to ramp up to a peak level of production, sometimes hit a second peak, and then go into a permanent decline.

Ultimately, it does not matter how much oil is in the ground if one is limited in the rate of its extraction (how much can be pulled out in a period of time).

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According to Peak Oil expert Chris Nelder, the many downward pressures on the supply side make it unlikely that global peak production will ever exceed 90 mbpd (millions of barrels per day). In fact, he concludes that it might not increase more than 1-2 mbpd over existing levels of 86 mbpd.
Downward pressures on the supply include the aforementioned declining yield on existing wells, war, terrorism, nationalized inefficiencies, and geopolitical instabilities.
A link to his full report is here and includes the following additional conclusions and analysis:

According to Nelder, the oil industry is chasing long-term declining production and the reasons are fairly straight forward:

1) "Low-Hanging Fruit"

· Oil on shore, in large wells, in easy to access locations, and in purest forms have always been the "low-hanging fruit."

· Because of historical demand, most of the low-hanging fruit is already in production.

· Obviously, one pulls the easiest oil from the ground before the oil that is most difficult to extract.

· There may be other wells of similar quality and ease out there, but there are fewer and fewer of them.

2) New Production Problems

· New oil is coming from deep, offshore locations with lower quality crude. Offshore wells are typically, compared to on-shore locations, more expensive to produce, peak and fall more quickly, and not as large.

· Although there is some hope for the Alberta oil sands, the quality is extremely low, the costs of extraction are enormous (the tar-like sand must be steamed), may require nuclear power to power, will take about 15 years to maximize production, and then will yield, at best, only 3-5 mbpd (millions of barrels per day).

· Oil shale, from America's West, sometimes discussed as a will never be a source for oil in any volumes, if at all.

· Drilling in ANWR and offshore on the continental shelf is fraught with limits to yield and value.

· Improved extraction technologies will not have a material, long-term impact on the declines.

3) Demand

· New demand from Asia and other growing economies will stretch the demand side even further.

· The shape of the curve of oil production is bell-shaped. Which means, that if the world has achieved peak oil production (say now, for example), then the oil production in 30 years will equal the oil production of 30 years ago--but the world's population will have doubled.

· Oil is a global commodity and any increase in production here simply goes into the world's pool of oil, so that its value is diluted by consumption from outside the U.S.

4) Depletion

· New production and oil discoveries are inevitable--especially with the increased price of oil. But even as this new production comes on line, the decreases from existing wells will offset, if not exceed, the new production.

· Globally, oil production is either at peak or very close to it.

· U.S. oil production is well past its peak and is in long-term decline--it peaked in the 1960s.

· Depletion of existing oil wells is "relentless" and declines on average are in the 2% to 20% per annum range.

Experts' estimates of the world's oil reserves continue to shrink.

World oil production has either plateaued or is about to.

· The history of oil well yields has been established.

· On this side of the bell-curve, we face decreased long-terms supplies with rapidly expanding world demand.

· Although not covered in this News Analysis, this decreased supply will lead to significant, long-term price increases and social, economic, and geopolitical disruptions on a large scale.

The only way to avoid these significant consequences is for our country and the western world to move beyond oil.

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