| Recently I was exposed to the concept of peak oil. | | | | U.K. (All Production) -------- 2000 (2.9 million) ---------- |
| This is the concept that at a certain point in time oil | | | | 2005 (1.7 million) |
| production reaches a plateau and then steadily | | | | USA (All Production) -------- 2005 (5 million) ---------- |
| declines. This concept can be applied to a single oil | | | | 2010 (3.5 million) |
| field, a country, or global world production. Every oil field | | | | When you look these numbers you can understand |
| follows a similar bell curve. As production begins, the | | | | why the annual production decline is at least 2%. Once |
| bell curve steadily increases, eventually reaching an | | | | we get to 2010, the annual decline will be even higher. |
| apex. This apex is called peak oil, and it does not last | | | | The reason for this is because we stopped finding |
| very long. Inevitably, production begins to decline, | | | | giant fields after the 1970s. Most of the large producing |
| thereby creating the downward bell curve. | | | | fields today are old and mature and declining. |
| In the United States, peak oil occurred in 1970. That | | | | Estimated Production Increases (Next 3 years): |
| year, we produced 10 million barrels per day. The apex | | | | Currently there are only a limited number of new |
| only lasted a few months and then production began | | | | projects around the world scheduled to begin |
| to decline. Today we produce less than 5 million barrels | | | | production in 2006-2008. If these projects cannot |
| per day and the decline continues unabated. | | | | reach 11 million barrels per day, then will have likely |
| I knew that oil was a limited finite resource and that | | | | reached peak oil and demand will not be met. |
| sometime in the future oil production would not meet | | | | Location ------------------ Potential New Production in |
| world demand. I knew that day was approaching, but I | | | | barrels per day |
| always assumed it would not occur until at least 2015 | | | | Deep Water --------------- 2-4 million. |
| and possibly 2025, and that by that time we would | | | | (Brazil, Gulf of Mexico, |
| have a substitute. I was too optimistic. | | | | Angola and Nigeria) |
| I've read five books on the subject and countless | | | | Saudi Arabia --------------- 1-2 million. |
| internet articles. Trust me, I did my homework. My | | | | Azerbaijan --------------- 400-800 thousand. |
| research led to three conclusions: | | | | Canada --------------- 250-300 thousand. |
| 1. Within 3-5 years we will reach global peak | | | | Kazakhstan --------------- 200-500 thousand. |
| production. | | | | Iran --------------- 200-400 thousand. |
| 2. Within 3 years high oil prices will have begun creating | | | | Libya --------------- 100-500 thousand. |
| economic havoc. | | | | Russia --------------- 100-500 thousand. |
| 3. High oil prices will eventually collapse the economy. | | | | Abu Dhabi --------------- 100-300 thousand. |
| The focus of my research tried to answer one | | | | Iraq --------------- 100-300 thousand. |
| question: When will we reach global peak production? | | | | Venezuela --------------- 100-200 thousand. |
| The answer is soon (by my estimate within 3 years). | | | | Australia --------------- 50-150 thousand. |
| Yes, new production is coming online, but there are a | | | | Indonesia --------------- 50-150 thousand. |
| limited number of projects that will begin production in | | | | Congo --------------- 50-100 thousand. |
| the next three years. These projects must offset | | | | Vietnam --------------- 50-100 thousand. |
| annual production decreases at existing fields of at | | | | When you compare these new projects (5 to 10 million |
| least 2%, and a projected annual demand increase of | | | | barrels of potential production) in tandem with global |
| 2%. | | | | demand and production decreases over the next |
| To meet the expected 2% annual demand increase | | | | three years (11 million barrels), we are headed for peak |
| for the next three years (2006-2008), production must | | | | oil production. I think production could reach 87 million |
| reach 90 million barrels per day. This will require an | | | | barrels per day, but 90 million is unlikely. Every project |
| increase of 11 million barrels per day of new production | | | | would have to go perfectly, or else Saudi Arabia |
| (5.5 million barrels a day to meet new demand and 5.5 | | | | would have to make up the difference. |
| million barrels per day offset declining production at | | | | It is difficult to find information about projected |
| existing fields). | | | | production for future projects. One source I found, Jeff |
| Can global oil production increase 11 million barrels per | | | | Rubin, the Chief Economist at CIBC Word Markets, |
| day over the next three years? Unlikely. What is much | | | | predicts new oil production to be 3.5 million barrels per |
| more likely is that peak oil production will never reach | | | | day in 2006, 3 in 2007, and 3 in 2008. If you add these |
| 90 million barrels per day, but something closer to 87. If | | | | up, he is expecting 9.5 million barrels of increased |
| you want an estimated time for peak production, my | | | | production over the next three years. If his numbers |
| bet is 2007. This will also likely be the year when oil | | | | are right, the key for reaching peak oil before 2009 will |
| reaches $100 a barrel. We are literally on the precipice | | | | be the net depletion rate. If this rate stays close to 2% |
| of $100 a barrel oil. | | | | then peak oil will not occur until after 2008. |
| Let's look at the data: | | | | Another source I found was Oilcast #28 on This audio |
| Global demand was 77 million barrels per day in 2002. | | | | file includes an interview with a PEMEX engineer. He |
| At the end of 2005, demand had risen to 83.5 million | | | | has a few insightful comments. 1) Peak oil will be |
| barrels per day. Thus, daily demand has increased on | | | | somewhere between 85 and 90 million barrels per day. |
| an annual basis of more than 1.5 million barrels per day | | | | 2) The Saudi's are already producing at maximum |
| since 2002. Furthermore, we can expect demand to | | | | capacity. 3) It is unlikely the Saudi's will produce much |
| increase 2% annually for the next three years. The | | | | more than what they are currently producing. |
| result will be demand reaching 90 million barrels a day | | | | If new projects do not meet demand, that leaves |
| by the end of 2008. | | | | Saudi Arabia to fill the void. The producer of last resort. |
| Here are the calculations: | | | | They claim that they will be able to increase production |
| 2006: 83.50 + 2% = 83.50 + 1.67 = 85.71 | | | | 2 million barrels per day over the next three years. I |
| 2007: 85.71 + 2% = 85.71 + 1.71 = 87.42 | | | | have my doubts. |
| 2008: 87.42 + 2% = 87.42 + 1.75 = 89.71 | | | | In 1978 (the last year Aramco was ran by International |
| The problem we face is that to meet demand for the | | | | Oil companies such as BP), Aramco publicly released |
| next three years we will have to annually produce an | | | | reserves on a field by field basis that totaled 110 billion |
| additional 3.4 million barrels per day to meet demand | | | | barrels in proven reserves. In 1979, Aramco changed |
| (1.7 million barrels per day for increased demand and | | | | from foreign stewardship to Saudi Aramco (The Saudi |
| 1.7 million barrels per day to offset production declines | | | | Royal Family). In 1982, after the formation of OPEC, |
| at existing fields. There are enough projects to meet | | | | the Saudis increased their reserves to 150 billion |
| demand in 2006, but 2007 becomes problematic, and | | | | barrels, although they had not discovered any new |
| 2008 becomes very unlikely. | | | | fields. Today, they claim 260 billion barrels in proven |
| Why is this happening? We stopped finding oil. Peak | | | | reserves, yet have never provided any documentation |
| discovery was in 1965. Since then, discovery has | | | | to substantiate their claims. |
| steadily decreased. Buy 2010 discoveries will be paltry, | | | | What we do know about Saudi reserves is that no oil |
| likely only 3-4 billion barrels. | | | | has been found in any significant quantities since 1978 |
| In 2004, 29.9 billion barrels of oil were consumed | | | | (90% of their production is coming from old fields). In |
| worldwide, while only 7.6 billion barrels of new oil | | | | addition, we know that they have produced more than |
| reserves were discovered. Thus, we consumed 4 | | | | 75 billion barrels since 1978. So, if we are to believe |
| barrels for every barrel found. | | | | their numbers, Aramco should have stated their |
| In 2005, 30.4 billion barrels of oil were consumed | | | | reserves at 335 billion barrels (260 + 75) in 1978! This |
| worldwide, while only five billion barrels of new oil | | | | number is so inflated as to be ridiculous. The correct |
| reserves were discovered. Thus, we consumed 6 | | | | number is closer to 125. |
| barrels for every barrel found. | | | | When you put this smaller reserve number in |
| Perhaps the most significant evidence of peak oil is the | | | | perspective, you realize that Saudi Arabia is not the |
| decline of oil discoveries since 2000. For, without | | | | producer of last resort. In fact, it's possible that they |
| discoveries there will be no new production. | | | | have already passed peak production, which for them |
| Year ------- Major Discoveries ---- Barrels Discovered | | | | was 10.5 million barrels per day in 1980. |
| 2000 ------- 13 ------------------ 17.9 (billion) | | | | All OPEC countries have lied about their reserves in |
| 2001 ------- 6 ------------------- 10.4 | | | | order to have larger quotas. It is considered normal |
| 2002 ------- 2 ------------------- 10.9 | | | | business practices for OPEC members. Proof of this |
| 2003 ------- 1 ------------------- 7.7 | | | | transgression was recently found in Kuwait. Petroleum |
| 2004 ------- 0 ------------------- 7.6 | | | | Intelligence Weekly recently reported that Kuwait has |
| 2005 ------- 1 ------------------- 5.0 | | | | 48 billion barrels of reserves, and not the 99 billion that |
| With so little oil being found, there is not going be | | | | they have claimed publicly. I would bet this is the same |
| enough new projects to meet future demand. | | | | for all OPEC countries. This begs the question, how far |
| Approximately 95% of all oil has been found. Thus, | | | | off are the OPEC claimed? |
| only about 100 billion barrels of conventional oil are left | | | | Some people point to the huge unconventional |
| to be discovered (3 years supply). Of this 100 billion, | | | | reserves in Canadian Tar Sands as a producer or last |
| there is likely only one or two major fields that will | | | | resort for the global market. Current Tar Sand |
| produce more than 100 thousand barrels per day. | | | | production in Canada is about 800 thousand barrels |
| World demand has become so huge that this is a drop | | | | day and is increasing about 10 percent per year. They |
| in the bucket. | | | | expect to produce about 2.5 million barrels a day by |
| There are approximately 1.3 trillion barrels of oil | | | | 2015. |
| reserves claimed by oil companies (this does not | | | | There is a large quantity of Tar Sands in Canada. |
| include the Tar Sands in Canada or the extra heavy oil | | | | Current proven reserves are estimated to be 350 |
| in Venezuela, which are considered unconventional). | | | | billion barrels. Potential reserves are projected to be as |
| This number is inflated because OPEC countries | | | | much as 2 trillion barrels. The problem is that it takes a |
| over-estimate their total in order to get larger | | | | long time to increase production of unconventional oil. |
| production quotas. It is projected that it will take 35 | | | | Also, as more oil production comes online after 2015, |
| years to consume all of the remaining reserves. | | | | production declines elsewhere will be intensifying. Even |
| However, most likely, we only have 20 years of | | | | if Canadian Tar Sands production increases to 5 million |
| plentiful supply (oil available for sale on the global | | | | barrels per day by 2025, this won't have much impact |
| market). Once we get towards the end, there is going | | | | on global supplies. |
| to be very little exporting. | | | | Another producer with large potential production is |
| Plentiful supply does not mean that demand is being | | | | Venezuela. They have potentially 1 trillion barrels of |
| met. For, demand will exceed supply long before we | | | | reserves in extra heavy unconventional oil. Their heavy |
| run out of plentiful oil, thereby disrupting the supply chain | | | | oil production should increase dramatically. As oil prices |
| and causing economic havoc. This will likely occur this | | | | increase, there is going to be a lot of investment in |
| decade, although reaching peak oil does not | | | | Venezuela. We should see 1-2 million barrels per day |
| necessarily mean there will be shortages. As we | | | | of heavy oil production sometime in the next decade. |
| reach peak oil, the price will soar thereby depressing | | | | Like the Canadian Tar Sands, it will be a slow process |
| demand. This will allow supply and demand to find an | | | | to expand production. |
| equilibrium thereby reducing or possibly preventing | | | | Peak oil could be delayed until 2010, with small |
| shortages. This kind of market mechanics is the | | | | increases in 2008 and 2009. If this happens then we |
| reason many economists dismiss peak oil in the near | | | | could see something like the following: |
| term. They expect the high price of oil to reduce | | | | 2007: 87 million barrels per day |
| demand and allow other energy sources¯that | | | | 2008: 88 million barrels per day |
| are currently not economical¯to provide our | | | | 2009: 89 million barrels per day |
| energy needs. | | | | However, demand will not be met in 2008 and 2009 |
| Peak production is also evident by the fact that | | | | and prices will be high, somewhere between $80 and |
| production is either declining or on the precipice of | | | | $100. This is the best case scenario, with peak oil |
| decline in every country except Canada, Venezuela, | | | | reaching around 90 million barrels per day in 2009 or |
| and the Middle East (where the majority of reserves | | | | 2010. On a positive note, if we don't have war in the |
| remain). Soon the Middle East (Canada and | | | | Middle East, oil production could remain in the 80-88 |
| Venezuela's increases are minimal on an annual basis) | | | | million barrels a day range until around 2015, when |
| will have to increase production dramatically on an | | | | there will begin a large drop off in production. |
| annual basis to meet world demand. At a certain point | | | | One factor that could delay peak oil beyond 2007 is |
| this will not be possible and global peak production will | | | | curtailed demand from high prices. It looks like demand |
| be reached. | | | | is going to increase less than the forecasted 2% in |
| U.S. Government economic planners currently project | | | | 2006. This could conceivably extend the peak to 2009. |
| global peak production to be around 2015. This seems | | | | However, depletion could easily increase more than |
| way too optimistic to me. The current excess | | | | 2% annually, making any demand increase difficult to |
| worldwide production capacity is estimated to be only | | | | reach and thereby inducing peak oil. |
| 1.5 million barrels per day. In fact, only one country, | | | | Anyway you look at, peak oil is imminent. Demand is |
| Saudi Arabia, claims any excess production capacity. | | | | going to increase about 1 million barrels per day |
| With future demand requiring at least 3.4 millions | | | | annually the rest of this decade and depletion is going |
| barrels per day of new production each year, this | | | | to fall about 2 million barrels per day. Sometime soon |
| leaves new projects to meet demand. | | | | it's not going to be possible to produce 3 million barrels |
| Most researchers agree that peak oil is imminent. Here | | | | of new oil in a calendar year. Let me make it easy to |
| is a list of forecasts: | | | | understand. This year we will produce about 3 million |
| 2005 ---------- Ken Deffeyes (Oil Geologist/Author | | | | new barrels worldwide. Last year we only found 5 |
| "Beyond Oil") | | | | billion barrels, the least amount in decades. If we |
| 2006 ---------- T. Boone Pickens (Oil Executive) | | | | developed all of these 5 billion barrel reserves and they |
| 2006-2007 ----- A. M. S. Bakhitari (Iranian Oil Executive) | | | | came online in the normal 3-7 year period, they would |
| 2006-2007 ----- Matthew Simmons (Banker/Author | | | | not produce 3 million barrels of new oil, but around half |
| "Twilight in the Desert") | | | | that much. |
| 2007 ---------- Colin Campbell ((Oil Geologist/Author | | | | One thing I have learned from researching peak oil is |
| "The Coming Oil Crisis") | | | | that oil shortages are not inevitable in the short term. |
| 2007 ---------- Anonymous Pemex Oil Geologist | | | | Oil companies could meet global demand for the rest |
| (Oilcast #28) | | | | of this decade and beyond. This possibility could occur |
| 2008 ---------- C. Skrebowski (Petroleum Economist) | | | | if prices are high enough to significantly decrease |
| Before 2010 --- David Goodstein (Cal Tech Professor | | | | demand. Once gasoline hits $5 to $7 per gallon, less |
| Author "Out of Gas") | | | | people will be driving and demand will go down. This |
| After 2010 ---- World Energy Council | | | | could prevent shortages. However, once peak oil is |
| 2016 ---------- EIA (US Government Energy Information | | | | reached, there is nothing that will prevent high prices. |
| Administration) | | | | If prices are going to increase dramatically once we |
| After 2020 ---- CERA (Cambridge Energy Research | | | | reach peak oil, at what point do these high prices |
| Associates) | | | | collapse the economy? What can the economy |
| In Saudi Arabia, which claims to hold a quarter of all | | | | absorb? $100 a barrel? $200? All of my research |
| global reserves (conventional oil), six giant fields | | | | leads to one conclusion: we're screwed. We have |
| produce 90 percent of their oil. All of these giants are | | | | become utterly dependent on cheap oil and it's about |
| old and likely past their peak production. In 1982, OPEC | | | | to get expensive. Initially, inflation is going to skyrocket |
| countries stopped releasing production and reserve | | | | as businesses increase their prices to pay their |
| numbers on a field by field basis. In effect, they | | | | shipping/delivery bills. Consider how many delivery |
| became secretive and have remained secretive. For | | | | trucks are needed to move goods in this country. |
| this reason, we can only estimate (guess) when each | | | | Consider global transportation costs for imported |
| field will reach peak. What we do know is that they | | | | goods. I don't see how we can get through this without |
| have had ongoing technical problems with each of their | | | | economic havoc. |
| maturing giants. They have depended on water | | | | The magnitude of the approaching oil crisis is beyond |
| injection for decades and are now experiencing | | | | the average person's comprehension. It is such a huge |
| recurring high water cuts. In essence, they are pumping | | | | problem that it is difficult to conceptualize the |
| too much water out of the ground instead of oil. | | | | ramifications. For instance, how do we commute to |
| From what I read in "Twilight in the Desert" by | | | | work when it costs too much to drive? How do we |
| Matthew Simmons, the Saudis are struggling just to | | | | pay for our food, gas, and electric bills when they |
| maintain production, let alone have the ability to | | | | double and triple from increased energy costs? It's |
| increase it. According to Simmon's analysis, he thinks it | | | | mind boggling. All I know is that the world is about to |
| is likely that one of their giants is on the precipice of | | | | change dramatically and know one seems prepared. |
| decline. If they lose one giant, they will likely go into | | | | If you think there is a substitute for oil, there isn't, at |
| production decline as a country. Whereas, U.S. | | | | least not one that can maintain our way of life. |
| Government planners are expecting Saudi Arabia to | | | | Substitutes are so lacking that the situation is dire. |
| increase their production to meet worldwide demand, | | | | Ethanol and other biofuels are promising, but the |
| even the Saudis have claimed that the best they can | | | | volumes of production are unlikely to meet demand. |
| do by 2009, is 12.5 million barrels per day. | | | | Solar and wind are good choices, but they will take |
| Production Decreases: | | | | years of investment to have an impact. Hydrogen |
| Currently 116 large fields produce nearly 50 percent of | | | | must be converted into an energy source, which |
| production. Most of these fields are old and in depletion. | | | | requires energy. |
| The fields below show the common theme of | | | | It will be decades until an efficient conversion process |
| production declines at the world's giant fields. (numbers | | | | is found. Nuclear is unlikely because of the huge cost |
| are production in barrels per day) | | | | and time required to build plants. Liquefied coal is also a |
| Oseberg (Norway) -------- 1994 (800 thousand) ---------- | | | | long term possibility, but it will require new plants and |
| 2002 (200 thousand) | | | | billions of dollars of investment. |
| Brent (North Sea) -------- 1984 (450 thousand) ---------- | | | | In the United States, our economy is incredibly |
| 2001 (80 thousand) | | | | dependent on oil. Approximately 95% of transportation |
| Prudhoe (Alaska) -------- 1981 (1.6 million) ---------- 2000 | | | | fuel comes from oil, and currently there is no suitable |
| (500 thousand) | | | | replacement. We will eventually find one, but it does |
| Romashkino (Russia) -------- 1970 (1.6 million) ---------- | | | | not exist today. We have become dependent on |
| 1998 (250 thousand) | | | | cheap oil and it is about to become expensive and in |
| Forties (North Sea) -------- 1977 (500 thousand) ---------- | | | | short supply. We've been making plans for a world |
| 2000 (50 thousand) | | | | that is no longer going to exist in its current form. |
| Samotlor (Russia) -------- 1978 (3 million) ---------- 2001 | | | | The way I see it, our only option is to start over. We |
| (300 thousand) | | | | have to create a new world based on less energy |
| Daqing (China) -------- 2000 (1 million) ---------- 2006 (600 | | | | requirements. Although I am not excited about the |
| thousand) | | | | prospect, I do see an opportunity to build a sustainable |
| Canterell (Mexico) -------- 2003 (2 million) ---------- 2009 | | | | civilization. The shift towards this new way of life is not |
| (600 thousand) | | | | a decade away, but years. We are helplessly in the |
| Norway (All Production) -------- 2000 (3.1 million) ---------- | | | | final months of cheap abundant oil. |
| 2005 (2.5 million) | | | | |