Piqued by peak oil
In a recent commentary in UBC Reports (A Peek Past Peak Oil, April 6, 2006, Professor Dowlatabati stated that peaking of conventional oil production (Peak Oil) will simply mark another energy crossroads that will be characterized by a seamless transition to non-conventional oil sources. A supply glut will develop and prices will fall back towards the marginal cost of production from oil sands and coal, said to be in the range of $20 to $40 per barrel.
In my view, this prediction can be readily refuted by simple “back-of-the-envelope” analyses, and that the future reality will be much different. More likely, we will be facing a substantial shortfall in oil supply within a decade.
“The peaking of world oil production presents the US and the world with an unprecedented risk management problem”.
“Peaking will create a severe liquid fuels problem for the transportation sector”.
“Mitigation will require an intense effort over decades.”
These are just a few of the conclusions contained in a report to the US Department of Energy in 2005 entitled Peaking of World Oil Production: Impacts, Mitigation, and Risk Management by Robert L. Hirsch . The Hirsch Report did not explicitly address the timing of the peak, but concluded that a mitigation crash program initiated 20 years before peaking would “offer the possibility of avoiding a world liquid fuels shortfall”. Rather strong conclusions that require serious consideration.
Unfortunately, no industrialized nation (except perhaps Sweden) has yet initiated a serious mitigation program, nor does it appear that we have anything like 20 years left to prepare for the peak of oil production. In March 1998, Colin Campbell and Jean Laherrère published their benchmark article The End of Cheap Oil  and concluded that “global production of conventional oil will begin to decline sooner than most people think, probably with 10 years”. Their forecast seems right on the money. Today, benchmark crude oil prices are nudging $75 dollars per barrel, close to their historic, inflation-corrected high of about $80 in 1980. Global demand is outstripping supply.
As part of the effort to develop my own conclusions about the validity of Peak Oil, I have, like others, analyzed global oil production data using the “logistic curve model” developed by geologist, Dr. M. King Hubbert, of Hubbert’s Peak fame, who correctly forecast in 1956 peaking of the US lower-48 oil production by about 1970. Applied to global production, Hubbert’s model indicates a theoretical peak year of 2008, give of take a few years either side. According to this analysis, we have already arrived at Hubbert’s Peak.
Based on Hubbert’s model, current total oil supply of about 85 million barrels per day is projected to remain more-or-less flat out to about 2012, and then decline at a rate of about 2% per year thereafter. Meanwhile, globally demand for oil is growing annually at a rate of about 2%. And there’s the rub. While conventional oil supply growth appears flat and may soon begin to decline, demand for liquid fuels continues to grow.
This means that by 2015, we could be facing a global shortfall of some 22 million barrels per day, representing the gap between global demand and conventional oil supply. To put this in perspective, a deficit of 22 million barrels per day would be greater than the current US consumption of oil.
The question is: can production from non-conventional sources such as the Alberta tar sands or synthetic fuels using coal-to-liquids (CTL) technology be ramped up to anything even approaching a supply deficit of 22 million barrels per day by 2015?
The answer appears to be a clear no.
Not by a long shot.
The forecast increase in Alberta oil sands production in the decade out to 2015 is for an additional 1.7 million barrels per day . While this is a sizeable number (and a big deal for Alberta), it represents only about 8% of the projected shortfall. The possible contribution from CTL is more difficult to determine because currently there are so few projects worldwide.
The South African petrochemical company Sasol currently operates the only commercial-scale CTL plants in the world and produces 150 thousand barrels per day of synthetic fuel. With vast coal reserves, China is aggressively pursuing CTL projects in partnership with western companies including Sasol. Even so, total CTL production in China is projected to grow to only 100 thousand barrels per day by 2010 and then to 600 thousand barrels per day by 2020 .
In the US, one small 5,000 barrels per day coal-to-diesel project was recently announced , the first for North America. Thus, based on projects that are currently on the books, at best, Alberta oil sands and CTL might yield perhaps 3 million barrels per day by 2015, leaving us short by some 19 million barrels per day.
Hirsch  considered gas-to-liquids and enhanced oil recovery, as well as non-conventional supply, and concluded that under a concerted crash program, perhaps 12 million barrels per day of new supply could be developed within 10 years. This still represents only slightly more than half of the projected deficit.
So where does that leave us? There is still widespread disbelief or downplaying of the real significance of Peak Oil. I am left with the unavoidable conclusion that should total global oil supply peak sometime between now and about 2010 or so, no combination of non-conventional sources will be sufficient to offset future decline let alone continue to grow supply.
Obviously, the projected demand growth will not be realized, and demand will be brought back into balance with supply primarily through higher prices.
How high will prices go? Because price is now determined by market forces and the dynamics of supply and demand, not marginal production costs, we no longer have the tools to forecast price. I am betting though that we will probably see $100 per barrel oil well before 2015, and could well see that price at anytime given even modest geopolitical disruption to supply.
“Peak Oilers” are typically characterized as a pessimistic bunch or “prophets of doom”. While there may be some truth to this, I believe that there is much opportunity and reason for optimism.
Rather than focusing only on what I see as futile and costly attempts to continue to grow the supply of liquid fuels, efforts must be redirected to the demand side:
- efficiency (doing more with less); conservation (just doing less);
- designing compact, walkable urban communities;
- emphasizing public transit including electric light rail;
- switching to biofuels and other renewable energy sources;
- relocalising organic food production, and so on.
These are all very desirable actions that will be necessary not only to mitigate the effects of Peak Oil, but also to reduce green-house gas emissions and to shrink our ecological footprint, while developing a more livable and sustainable society.
It is heartening to see just such efforts being made here at UBC as outlined in the recent “Sustainability Issue” of UBC Reports. In fact, if Peak Oil helps us to accelerate these efforts, then it could turn out to be just about the best thing that ever happened to us.
Dr. Rob Millar
The Department of Civil Engineering
2 Scientific American, March 1998, p. 78-83
3 Canadian Crude Oil Production and Supply Forecast 2005-2015. Canadian Association of Petroleum Producers, July 2005. www.capp.ca/default.asp?V_DOC_ID=689
4 Energy Information Administration, International Energy Outlook, 2005. Report #:DOE/EIA-0484 (2005). www.eia.doe.gov/oiaf/ieo/coal.html
5 “Pumping Coal”; Scientific American, March 2006, p. 20-22
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