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Forecasting the availability and diversity of global conventional oil supply (Summary)

[ John Hallock is the primary author of a study Forecasting the availability and diversity of global conventional oil supply published in the journal Energy in September 2004 by Elsevier. He offers the following summary of the report for EnergyBulletin.net readers. A link to the full report follows: ]

Introduction:

There is a lot of talk about oil and gasoline these days - and of fear premiums and even the ability of supply to match the pace at which demand is rising. To many I’m sure this may seem a fleeting moment brought on by “excessive” growth in demand. As before, Chicken Little’s cries will fade as investments are made to upgrade and expand pumping infrastructure on known fields and find new ones, just as in the early 1970's. Oil-dependent nations resolved the issue then by finding and developing oil supplies in the North Sea, Gulf of Mexico, and Alaska. The most recent assessment of world petroleum resources by the United States Geological Survey (USGS) provided support for the idea that we can develop current prices away (via its mean estimate of the three trillion barrels of oil for the world’s volume of extractable oil originally present) (Ahlbrandt 2000). Based upon these numbers, the US Energy Information Administration (EIA) projected that worldwide crude oil production wouldn't peak until between 2020 and 2030 (Wood and Long 2002). Others believe that when conventional oil does actually become harder to find that the market will ensure a transition to alternative fuels - liquified petroleum gas (LPG), tar sands, deep-water oil, etc. (Adelman and Lynch 1997).

A growing cadre of researchers, oil industry professionals and even economists are not so sanguine. They believe that the potential to find more oil and produce oil at ever increasing rates is more limited and doubt that either the oil or alternatives will be found in time to avert near- term supply disruptions (Duncan 2003, Bentley 2002, Deffeyes 2001, Campbell 1997). Each side insists they are right, in spite of the fact that neither can provide definitive evidence to support their case until after the fact - after the oil is found or not, after tar sands can or cannot ensure adequate supply at today’s prices, after it’s feasible for hydrogen to take over from oil or not.

The good news is that rising oil prices are promoting discussions of oil-supplies, and even occasionally "peak-oil" among the public and policy-makers . The bad news is that both the discussion and the information on which decisions can be made is incomplete, and decision- makers are stuck in the middle between the two camps of “experts” who may seem equally qualified to the layperson. Given that oil accounted for 40% of global energy use in 2000, and supplies essential raw materials for products from plastics to fertilizers, we are dealing with a resource on which billions depend mightily. Choosing the contention we like the best is not the best means to decide policy when economies, livelihoods and more may be in the balance.

On a matter as important as energy supply, it is crucial that policy-makers are paying attention when there is a potential for concern, and that they are asking the right questions. The most important question to ask now is, “how much longer can oil production increase and how quickly”. What is the range of possibilities? Once we identify this range we can grapple with the equally challenging, “what alternatives are there or could there be to oil, and how much can we realistically expect them to contribute and how soon?” The first question is the most pressing, for its answer indicates the urgency of the second set of questions. The most immediate option for answering the first question is to assemble from the recent literature the range of estimated dates at which world oil production may peak. This gives a range from 2004 to approximately 2100 or so (some estimates based on more likely resource estimates than others). This approach is not ideal, in that these estimates were generated using a wide range of methods and assumptions and are thus of questionable comparability.

To address this, colleagues and I recently created a range of forecasts for the date of the peak/decline point for world conventional oil production using a consistent method, the best publically available data, and a range of estimates for the factors expected to affect the results.

Methods:

Rationale:

How will oil production increase, what will cause it to peak and how will it decline? These questions determined our choice of methods. The history of oil production and demand shows that they match each other very closely. It seemed reasonable to assume that oil production would increase with demand if possible, else prices would increase to the point of stifling demand (as in the case of the recession of the early 1980's), and decreasing oil revenues. Data from many individual oil fields and nations shows that production tends to peak when approximately half of the original oil resource present has been extracted (unless extraction is aided by gas or water injection). Given these basic drivers, our methods increased oil production in individual countries until they had extracted roughly 50% of their oil before decreasing production. We adjusted the potential range of outcomes by varying, 1) the total oil resource present prior to extraction (often termed extractable ultimate resource, or EUR), 2) the rate of demand increase, 3) the maximum rate of increase in annual production, and 4) the percentage of original oil resource extracted at which peak/decline point occurs.

Model summary:

- We modeled production for 47 major oil producing nations whose 2000 production accounted for 99% of total world production (Radler 2001). World production in any year was simply the total of the production rates of the individual nations. Forecasts were made using depletion extrapolation techniques modified from Campbell (1996)(see also Bentley 2002) .

- The forecasting scenarios were based on three sets of country-specific estimates of EUR that sum to a global total of 1.9, 2.9 and 4.0 trillion barrels of recoverable oil, respectively. These estimates represent the range found in the recent literature, from the most conservative to USGS's 5% confidence value.

- These EUR’s were combined with two scenarios of demand growth (the low and high estimates of from EIA) to yield six separate principal forecasts. Production was increased annually in each pre-peak country to meet internal demand and some portion of the world import demand. The country-specific demand increases caused an aggregate annual world demand increase of approximately 1.5% in the low growth scenarios, and 3% in the high growth scenarios.

- We re-evaluated these six combinations three times by capping the annual rate of increase in oil production at 5.0%, 7.5%, or 15%, depending on the scenario. This was done to vary future limitations on the ability to increase production, whatever the cause (exploration failures, or geologic, investment, or socio-political reasons).

- Because production in some fields and nations may not peak when exactly 50% of EUR has been extracted, we assessed the above 18 scenarios two more times - assuming peak occurs at 50% EUR extracted, and at 60% EUR extracted.

- In six additional scenarios, we assumed no growth in oil demand.

- After cumulative production in a country reached the decline point, annual production was reduced annually by the decline rate (the proportion of remaining oil that is produced in a year).

- In order for world demand to be satisfied, each remaining pre-peak country increased oil production to match declines in post-peak countries. At some point, due to a combination of a reduction in the numbers of pre-peak countries and the rates at which they can increase production, world demand increases can not be met.

- As domestic oil consumption exceeds production, each exporting nation becomes a net-consumer.

Data sources:

We required the following for each country: (1) 2001 domestic oil consumption, (2) projected growth rates of oil consumption, (3) volume of oil originally present before any extraction (EUR), (4) annual production for 2001, (5) the cumulative production to date (end of 2001), and (6) estimates of oil remaining in 2001 (which is 3 minus 5 above). Historical oil consumption, production and projected annual increase rates for oil demand were obtained for each country or region from the United States Department of Energy, Energy Information Administration (EIA). EUR data were obtained from USGS (Ahlbrandt 2000) and ASPO (Aleklett and Campbell 2002).

Caveats:

Our analysis pertains only to conventional oil. Conventional oil refers to all oil produced from reservoirs through a well bore using any primary, secondary, or improved methods, and is generally not considered to include heavy oil, oil shale, tar sands, or natural gas liquids, the production of which typically involves mining or additional processing of the oil in place. It is this conventional oil that is ‘‘cheap’’ to extract and use, and that has contributed to the historical importance of petroleum on a global scale.

I should comment on our use of EUR, as opposed to other types of reserves. EUR equals the total of known and probable reserves. ‘‘Proved’’ reserves have a very high probability of being extracted, and are typically much smaller than what is eventually recovered from a field. ‘‘Known’’ reserves include proved reserves plus oil already extracted (i.e. cumulative production). ‘‘Probable’’ reserves include estimates of undiscovered oil that are likely to be found. By using EUR, we assume that all categories of reserves will become proved and economically recoverable at some point.

Results:

The result of this was a set of 42 forecasts, each a progression of future conventional oil production for each country and the world from 2002 to 2060, providing a range of possibilities defined by our variation in inputs.

If future oil demand increases and oil resource volumes actually realized are within our most- probable range of estimates, then global production of conventional oil will most likely peak between 2004 and 2037, at 24 to 42 billion barrels per year. EURs approaching those of USGS’s 5% estimates (~4 trillion barrels) result in a decline-point as late as 2053 at 54 billion barrels per year. Coinciding with the approaching decline-point will be a reduced number of exporters concentrated mainly in the Middle East and Russia. The number of net-exporting countries will decrease from about 35 today to between 12 and 28 in 2030. Increases in internal demand will reduce the export potential of many nations. If reality shows that oil resource volumes are closer to our lower estimates, there will be between 0 and 7 conventional oil exporters by 2050.

Discussion:

Effect of input variation:

- Changes in EUR had the greatest effects, with higher EURs causing later and higher peaks in conventional oil production. An increase in EUR from 1.9 to 3 trillion barrels extends the date of peak production by 12-40 years, depending on the scenario.

- Changing demand growth from high to low delayed the decline-point by 10 years at most.

- Lower limits for the annual growth in production delayed the decline-point by up to nine years.

- Changing the percentage of EUR extracted at which decline-point occurs from 50-60% also delayed the peak by up to nine years, but also resulted in steeper declines after the peak.

The specific times at which various countries will cease as exporters, and the timing of the decline-point, will be influenced by a variety of uncertainties relating to geologic, economic, and socio-political factors. Our scenarios are “pessimistic” in not including unconventional oil, and “optimistic” in assuming all current and future “probable” reserves will become proven, ignoring possibilities of failures or delays in discovery. Some consider this too optimistic. We also assume for our middle and high EUR scenarios that the reserve growth contained with those estimates will occur. Thus, for any given set of country-specific oil resource estimates, our results can be considered the best-case scenario, for our methods assume that the oil will be discovered and developed in time to satisfy rising world demand until the decline-point. The reliability of public reserves data is certainly an issue. If the resources of any given nation are less than a given scenario assumes, then the nation and thus world can be expected to peak at an earlier date.

Role of Markets:

Some, perhaps many, will maintain that a decline in global conventional oil production will not mean much to the global economy, because societies will change to alternative energy sources as price increases make it profitable to do so. The market can be powerful thing, but they must be efficient enough to spur development of these alternatives and end-use technologies in time to offset falling conventional production. Given that the oil prices needed to spur this development at the necessary scale isn't likely until the time of peak, assuming that markets can ensure timely transitions seems unwise. Recent reports contracted by DOE (and summarized in an earlier posting) document this well.

The Way Forward:

The answer to the question, “how much longer can we increase oil production?”, seems to be probably not much more than 30 years, and perhaps less than five. The problem is it is impossible to say whether our early or later forecasts of conventional oil decline-point will be more accurate. 2004? 2037? The prudence of the precautionary principle seems self-evident here - especially so because most of the oil necessary for the peak to occur in 2037 has not yet been discovered. No one wants to be “Chicken Little”. No one wants to be the proverbial ostrich, either. Until information to the contrary becomes available, the only logical conclusion seems to be that it is only a matter of time before alternative energy sources, and perhaps changes in behavior and commerce systems are needed. It is highly doubtful that energy policies dependant on conventional oil supply, no matter the source, will be effective.

This begs the second set of questions - what ARE the alternatives we can reasonably expect to be viable, how much can they contribute, and what strategies can we choose among to develop them? Additional questions may be equally important. Is it realistic to rely on market forces to generate solutions? Should our current concept of markets and economics be revised based on the situation in which we find ourselves? What is the energy return on energy invested (EROI) for the remaining sources of petroleum, by region. What is EROI for potential alternatives, and how might this change in the future? Should we rely on fossil fuels as long as possible given the coalescing science of global climate change? A recent DOE-contracted report addressed the first of these questions and concluded that the task of developing alternatives, infrastructure, etc. at a scale sufficient to avoid a liquid fuels shortfall in the advent of peak oil would require massive investment and 10-20 years. A summary of this study was posted previously on the EnergyBulletin site. Given this sobering assessment, and that we really may not have more than 10 or 15 years, if that, serious consideration must be given to these issues now.

While the advent of a peak in world oil production may, as some say, force reassessments of some of our regulatory requirements, rushing to discard laws heretofore beneficial to public health, welfare and quality of life may be as questionable as hitching economies to pyramid schemes fueled by finite resources. If nothing else, a peak in oil production will underline the finite nature of the resources on which humans depend. After whatever changes (if any, of course) are deemed necessary, societies will continue to depend on sustainable resources of soils, forests and water. Our children, and many of us, will still be around after any transitions we have to go through - so another task will be to minimize the environmental impacts of any proposed transition strategies.

These are challenging questions which should be demanding the full attention of everyone, but especially our best engineers, scientists and economists. Right now these issues have the attention of precious few. You can't read about these issues on the USDOE's website, or hear about them in the State of the Union. One or two members of the US Congress are starting to become informed. The time to be content preaching to the choir in peak oil chat rooms is over. It is time to make noise, write to elected officials, engage fellow citizens, write to local newspapers - force more than just high gas prices to the front page. If for some reason the growing number of experienced oil industry professionals, geologists, and academics have made the wrong interpretation, and there really is nothing worth concern here, they will be the first to breath sighs of relief. We can afford to have them be wrong. What we can not afford is to have the optimists be wrong.

References:

Adelman M., Lynch M. 1997. Fixed view of resources creates undue pessimism. Oil and Gas Journal. Vol. 95(14): 56-60.

Ahlbrandt T. 2000. United States Geological Survey (USGS) World Energy Assessment Team. World Petroleum Assessment 2000. USGS Digital Data Series 60, version 2.1. Distributed on CDROM, Tel: 301-202-4200. See also: pubs.usgs.gov/dds/dds-060/

Aleklett K., Campbell C., editors. 2002. Association for the study of peak oil (ASPO) statistical review of world oil and gas. In: Aleklett K., Campbell C., editors. Proceedings of the First International Workshop on Oil Depletion, Uppsala, Sweden 23 25 May 2002. ASPO 2002. Available from: www.peakoil.net/ASPOstatrew/ASPO-Stat-Rev.html

Bentley R. 2002. Global oil and gas depletion: an overview. Energy Policy. Vol. 30(3): 189- 205.

Campbell C. 1996. The twenty first century. The world's endowment of conventional oil and its depletion. Available from: www.oilcrisis.com/campbell/cen21.htm

Campbell C. 1997. Depletion patterns show change due for production of conventional oil. Oil and Gas Journal. Vol. 95(52): 33-37.

Deffeyes K. 2001. Hubbert’s Peak. Princeton University Press. 2001. Princeton. Duncan R. 2003. Three world oil forecasts predict peak oil production. Oil and Gas Journal. Vol. 101(14): 18-21.

Radler, M. 2001. World crude, gas reserves expand as production shrinks. Oil and Gas Journal. Vol. 99(52):125 57. United States Department of Energy, Energy Information Administration (EIA). 2002. International Energy Annual 2002, table 1.2 (demand), table G2 (production), See also: www.eia.doe.gov/emeu/iea/contents.html International Energy Outlook 2002. Tables B4 and C4 (demand forecasts). See also: www.eia.doe.gov/emeu/international/petroleu.html, Tel: +202-586-8800.

Wood J., Long G. United States Department of Energy, Energy Information Administration (EIA). 2002. LongTerm World Oil Supply: a Resource Base/Production Path Analysis). Available at : www.eia.doe.gov/pub/oil_gas/petroleum/presentations/2000/long_term_supply/index.htm

The full report Forecasting the availability and diversity of global conventional oil supply is available in PDF format here:
www.geocities.com/jhallock68/oilrelated/ForecastingTheLimits.pdf
(PDF - 1.4MB)

Mr. Hallock is an aquatic scientist who became concerned about this issue while educating himself about Arctic oil resources during breaks from pursuing his Masters degree. He currently lives in Indiana, USA.

Editorial Notes: John Hallock has also co-authored a paper for Nature magazine:

Hydrocarbons and the evolution of human culture

By Charles Hall, Pradeep Tharakan, John Hallock, Cutler Cleveland and Michael Jefferson Most of the progress in human culture has required the exploitation of energy resources. About 100 years ago, the major source of energy shifted from recent solar to fossil hydrocarbons, including liquid and gaseous the major source of energy shifted from recent solar to fossil hydrocarbons, including liquid and gaseous making civilization vulnerable to decreases in supply. At this time our knowledge is not sufficient for us to choose between the different estimates of, for example, resources of conventional oil. Full article: www.oilcrisis.com/cleveland/OilAndCulture.pdf -AF

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