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WSJ front page: Oil officials see limit

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.

The world certainly won't run out of oil any time soon. And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.

The current debate represents a significant twist on an older, often-derided notion known as the peak-oil theory. Traditional peak-oil theorists, many of whom are industry outsiders or retired geologists, have argued that global oil production will soon peak and enter an irreversible decline because nearly half the available oil in the world has been pumped. They've been proved wrong so often that their theory has become debased.

The new adherents -- who range from senior Western oil-company executives to current and former officials of the major world exporting countries -- don't believe the global oil tank is at the half-empty point. But they share the belief that a global production ceiling is coming for other reasons: restricted access to oil fields, spiraling costs and increasingly complex oil-field geology. This will create a global production plateau, not a peak, they contend, with oil output remaining relatively constant rather than rising or falling.

The emergence of a production ceiling would mark a monumental shift in the energy world.

...Oil companies have seen several years of bull-market prices, and thus of trying to produce more. This has given their executives a better sense of what is and isn't possible.

One limit: Many people think most of the world's giant fields already have been discovered.

...Compounding the problem: Most of the world's biggest fields are aging, and production at them is declining rapidly.

...Oil executives who believe a production ceiling is coming are making plans to stay relevant in a world where oil production is constrained. ...

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Comments

Bart Anderson of Energy Bulletin:
Probably the most complete and up-to-date verbalization of the oil company version of peak oil: "undulating plateau," "above-ground factors," "plenty of oil left." The news in the story is only a couple of months old, so it's better than much coverage in the mainstream media. Still if you want the latest, the peak oil media is the place to go.

Sadly the article is warped by its need to maintain the usual taboos. It sounds rather like the Politburo trying to adapt political orthodoxy to unavoidable new evidence. The majority of the sources mentioned are oil executives, though the most respectable of peak oil spokesmen are quoted (Randy Udall of ASPO-USA and Matthew Simmons).

The most egregious example is the statement that "[Peak oil theorists] been proved wrong so often that their theory has become debased." First, I think the authors mean "discredited" rather than "debased." More importantly, this statement is historically incorrect. As is well known, M. King Hubbert predicted peak oil for the United States:

Based on his theory, in a paper that he presented to the 1956 meeting of the American Petroleum Institute in San Antonio, Texas, Hubbert made the prediction that overall petroleum production would peak in the United States in the late 1960s to the early 1970s. He became famous when this prediction came true in 1970.

Subsequently, oil production has peaked within multiple countries. Global oil production hasn't budged much in the last few years, though it's probably too early to declare a world-wide peak. Earlier predictions about the end of oil were not informed by the peak oil theory, so harping on them is more of a talking point than analysis.

In terms of predicting current events, peak oil seems to be the winner hands down. All the phenomena described in WSJ article can be explained by peak oil: higher prices, conflict over oil, less investment in exploration by the majors, oil finds that are more difficult and expensive to exploit.

Presumably the business press will soon drop the ideological bias and examine peak oil on its own merits. To manage corporations and sway political events requires a good hold on reality. Delusion is unprofitable.

UPDATE (Nov 19)
Contributor Jeffrey J. Brown wrote to the authors of the article:

Kenneth Deffeyes predicted that world oil production (note that he used crude + condensate, not total liquids) would peak between 2004 and 2008, most likely in 2005. He observed that world crude oil production probably peaked in 2000, but he never backed off what his mathematical model showed.

The cumulative shortfall between what the world would have produced at the May, 2005 rate and what it has actually produced is over 700 mb (EIA, crude + condensate). So, the crude oil data suggest that we probably did peak in 2005.

However, the real problem is net export capacity. We are working on our final written report on the top five net oil exporters (about half of current world net oil exporters), but note that their total liquids net exports fell by -3.3%/year from 2005 to 2006, and the decline in net exports is almost certainly going to accelerate from 2006 to 2007. This is the fundamental reason for high oil prices--we are bidding against other importers for declining net oil exports.

You can final several articles that I did on the Net Exports issue by doing a Google Search for Net Oil Exports.

BTW, what puzzles me is that no one in the media ever confronts Yergin & Lynch about their erroneous predictions for lower oil prices. For years, they have both been predicting that higher crude oil production would drive oil prices down. For more info, do a Google Search for Daniel Yergin, and click on "Daniel Yergin Day."

Jeffrey Brown received a friendly reply from Russell Gold, one of the authors:

I did the google you suggested. I had never heard of that. Thanks for bringing that to my attention.

Thanks for your remarks. We greatly appreciate the feedback.

UPDATE (Nov 19)
Dave Cohen of ASPO-USA writes:

Although it seems that we "peakists" can all retire now that the WSJ has posited the idea of a hard limit on oil production by 2012, our work is not quite done yet. As a proponent of a "debased" theory which is "fringe", there is still work to do, to wit:

1) Show that even 90 million barrels/day is almost certainly unattainable, not the 100 million barrels quoted by oil company executives. Everyone can see the new projects (including EOR projects) coming on-stream in the next 5 years. Given a global decline rate of about 4%, it is not rocket science to do the the math and see what the future holds in the best case.

2) Work to discredit (debase?) bogus solutions like corn ethanol or Coal/Gas-to-Liquids or Oil Shale while promoting good alternatives e.g. an extensive rail system in the US, virtual commuting, more fuel efficient cars, wind and solar to augment the electric power grid to meet coming demand for plug-in hybrids (PHEVs) etc.

Finally, I find it sad that people I don't know have a need to insult all of us who have worked so hard and argued so specifically from mounting evidence for a near or medium term peak in global oil production. The WSJ's language about peak oil and "outsiders" or "retired" geologist demeans them, not us. Who do you trust? A peak oil analyst who works hard to make his case for hardly remuneration OR the CEO of a major oil company who must protect his self-interest? The choice is clear, I think.

UPDATE (Nov 19]:
Lisa Wright of Rep. Roscoe Bartlett's staff writes:

This page 1 Wall Street Journal article quotes multiple oil industry officials from around the world who acknowledge, rather than as in previous coverage dismiss the impact of below-ground risks, ie. peak oil, but in any event warn and worry that world oil production will be unable to meet projected growing world demand as early as 2012.

Below-ground comments and documentation are focused upon declining production from existing mature fields and the trend of declines in discoveries of affordable and easily producible large fields. Prominence of space and impact is placed upon multiple above-ground factors: principally underinvestment in new production capabilities, political limitations on access to reserves (resource nationalism), and limitations on both human resource and production materials. Disappointment about potential contributions to offset foreseen declines by technology for conventional production as well as unconventional (Canadian tar sands) are mentioned. World reliance upon and an insider’s question about Saudi expansion capability is the closer.

Editorial Notes: Moved comments to the text area (above) so they would be easier to read. The Oil Drum has comments in Drum Beat today, starting about here. Kevin Drum, ace bloggist at Washington Monthly writes
The Wall Street Journal reports that a lot of mainstream players in the energy industry are suddenly buying into peak oil theory. But with a twist... If you're interested in this stuff, read both pieces [the WSJ article and Stuart Staniford's latest. The field production data is sort of hardcore peak oil wonkery, while the Journal focuses on real-life issues like political instability and oil exploration investment that will cause problems whether or not peak oil theory is correct. Unfortunately, they both point in the same direction.
Keach Hagey who writes The Skinny for CBS News has an amusing post:
For the last couple decades, evangelists of the peak oil theory were often greeted at cocktail parties with the same patient smiles and barely suppressed eye rolls that confront the 9/11-was-an-inside-jobbers today. But the Wall Street Journal reports that perhaps those skeptical of the idea that the world will soon (if it hasn't already) use up more than half of its oil ought to wipe those smirks off their faces. Yes, it's true, the peak oil folks have been proven wrong again and again - every time the world sails past another date they've identified for petroleum production Armageddon [see refutation of this point in the above text -BA]. But these days, oil executives are embracing a view of the world's oil future that sounds awfully similar to the peak oil theory.
Reader Bill Becker points out: "Whoops! Matt Simmons quoted in today's WSJ saying climate change won't be a problem for 50 or 100 years!" -BA

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