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The Shape of Oil to Come
Rembrandt, The Oil Drum: Europe
This article is about the way in which oil production is going evolve. Will there be a sharp peak, or a long lasting plateau?
Our future is highly dependent on the way in which worldwide crude oil production is going to decline. If it goes rapidly, declining with a few percent each year or more, than it will be very difficult to complete the energy transition without severe economical consequences. If production stabilizes and plateaus for a decade or longer, after which the period of long decline begins, it would provide much greater means to sustain the present economy. Stability is needed to scale up alternative sources of energy sufficiently to replace crude oil during a transition period of decades.
…Conclusions
- If the global decline rate of existing production of 4.5% continues, oil production is likely to plateau at a level of 90 million barrels per day around 2010 until the end of the next decade, after which a moderate to sharp decline sets in.
- If the global decline rate of existing production of 4.5% slows down to 2%, thanks to the addition of 500 billion barrels due to reserve growth, production will likely increase with some bumps towards 95 million barrels per day at the end of the next decade, after which a slow to moderate decline sets in.
- If the global decline rate of existing production of 4.5% increases to 8%, due to the effect that the end of the era of giant oil fields and declining deepwater production has, production will likely peak around 2010 at 88 million barrels per day, declining slightly to 80 million barrels per day at the end of the next decade, after which a sharp decline sets in.
Discussion
The discussion on peak oil has progressed significantly since the article on the end of cheap oil was published in Scientific American (Campbell & Lahérrere, 1998). Presently there is a converging agreement that we are going to enter a period in which supply can no longer meet demand, giving way to sustained high oil prices. Either because of the expectation of a long production plateau for one to several decades, or a peak after which a sharp decline sets in. My scenario exercise supports mainly the view of a peak with a sharp decline. The conditions in which a plateau can occur for more than a decade are an unlikely amount of reserve growth, significantly above 500 billion barrels, and/or much higher unconventional production increases.
As to what is the most likely scenario, I expect that the increase towards a higher decline rate, as shown in figure 8, is going to occur. The reasoning behind this is a combination of developments,
- The end of the era of giant oil fields, where there was a sustained base of production of 40 million b/d, which is going to fall away,
- The end of a sharp increase in production thanks to deepwater, which is going to go away with an equally sharp decrease,
- The fact that the world has produced more reserves in the past three years than have been added from discoveries and reserve growth (Robelius, 2007; J.S. Herold, 2007),
- The effect of above ground factors on production, which will lead to higher declines, because from 2009/2010 onwards there will be a significant gap between personnel supply and demand (CERA, 2007), there is a problem to scale up sufficient oil rigs for exploration and production (Simmons 2006), unrest and geopolitics are delaying new oil fields developments, and keeping production down in several countries such as Iraq, Venezuela and Nigeria, which is not likely to change for the better in the future.
(12 October 2007)
Thanks to Rembrandt for making the essay understandable to non-technical people:
- The introduction tells us what the subject is and why it’s important
- The Discussion gives a take-away message, together with its larger implications.
- Excellent use of graphs and color to communicate the message.
Altogether an excellent model for a technical article. -BA
Jerry McManus agrees and says:
I would also add that I’m very pleased to see the discussion presented as a range of possible scenarios. I personally feel that far too much of the peak-oil debate is preoccupied with making specific predictions which to my mind is generally not all that useful.
It’s far too easy to dismiss a specific prediction as being either too optimistic or pessimistic, whereas a range of possible scenarios is more likely to lead to a much more useful discussion about WHY some scenarios are more likely than others, such as the excellent discussion we now see here.
Strong correlation between crude prices and those of other commodities – especially ferilisers
Original head: Risk management in commodity price volatility
Jaideep Mishra, TNN via India Times
A recent policy research working paper at the World Bank examines the effect of crude oil prices on the prices of as many as 35 internationally-traded primary commodities over the long term.
The study finds strong correlation between crude prices and those of other commodities. What is implied is that should crude prices remain buoyant – as most analysts expect – the ongoing hardening trend in commodity prices ought to last “much longer than earlier booms”.
Now, crude remains, by far, the most heavily-traded commodity internationally. But it is notable that higher oil prices are increasingly seeping into those for other commodities such as fertilisers, agricultural produce and metals. The paper finds that the passthrough of crude price changes to the overall non-energy commodity index is 0.16, implying that a 10% increase in the price of crude would induce a 1.6% rise in the non-fuel commodity price index in the long run.
Disaggregated analysis shows that the fertiliser index has the highest passthrough at 0.33, followed by agriculture at 0.17 and with that for metals shown as 0.11. Also notable is that the prices of precious metals seem to exhibit “a strong response” to oil prices. There are several reasons why the scarcity value of crude is increasingly reflected in non-energy commodities.
Oil prices do tend to affect the prices of other traded goods in a myriad ways. On the supply side, crude does enter the “aggregate production function” of most primary commodities via the use of various energy-intensive inputs, such as fertiliser and fuel.
Further, transportation and distribution over long distances can be energy-intensive as well. Additionally, some commodities like aluminium go through an energy-demanding primary processing stage. In some cases, the main input may be a close substitute of crude: nitrogenous fertiliser often has natural gas as feedstock
(12 October 2007)
Recommended by Bob Shaw at The Oil Drum.
From whale oil and beyond
Eric Jay Dolin, Boston Globe
FOR THOSE concerned about improving international security, fighting global warming, and reducing pollution, the petroleum era cannot end too soon. But that end will not come until other energy sources beat oil at its own game. While this may seem to be an impossible dream, a look back at the whale oil industry provides a measure of perspective and encouragement.
From the early-1600s through the mid-1800s, whale oil lit America and much of the Western world, and few thought it would lose its lofty position in the marketplace. The whale oil industry was, indeed, much like the petroleum industry of today. Eventually, however, the whale oil industry foundered in the face of competition, and petroleum will face the same fate.
By the 1840s, whale oil’s dominance in lighting was under sustained attack. Lard oil, boiled from the fat of hogs, or “prairie whales” as they were called, had become an increasingly attractive lighting source, and camphene, a distillate of turpentine mixed with alcohol, also began taking market share.
This led many to proclaim that the whale oil industry’s days were numbered.
… many whale oil merchants argued that they would not be eclipsed by the competition. Then, in 1859, “Colonel” Edwin L. Drake struck oil in the small town of Titusville, Pa. This black gold gushing from the ground provided a new and much more plentiful raw material for the production of kerosene, which surged throughout the country and doomed the whale oil industry.
It is likely to be many years before economically and environmentally acceptable energy sources allow us to beat our addiction to oil. But, there is no doubt that such a day will come, and the sooner the better. If you need proof, just look to the whales.
Eric Jay Dolin is author of “Leviathan: The History of Whaling in America.” He lives in Marblehead.
(11 October 2007)
Ugo Bardi of ASPO-Italia looked at the whaling industry and came to very different conclusions: How to push the oil levers in the wrong direction (EB).
Waking up to the truths of oil’s past, present and future
Neville Smith, Lloyd’s List
THE makers of A Crude Awakening mince their words only slightly, describing their investigation of the peak oil phenomenon as “a naïve quest to examine the world’s dependency on fossil fuels” and the results as “a bit of a downer”.
But Basil Gelpke and Ray McCormack have the look of film makers who have heard all the questions before – and answered most of them – in the three years since they completed the film. But installed in a modish glass room in a London advertising agency they give every impression of being as enthusiastic about their project now as they were then.
Completed on and off as time and money allowed, the film has graduated from festival competition and critical acclaim to mainstream media interest. In the last few days they have had “everyone from The Sun and the Financial Times, to Power Engineer and the Mail on Sunday” in front of them.
Still clearly enthused about their subject, they talk over the themes of the film and the topics they only touch on: what happens next for the world and hydrocarbon man?
They also make it clear that their film contains no hard answers, merely that they have made a film that is the result of research rather than their own preconceptions, which is about as evasive as you can get while remaining engaged with the subject.
“The aim was to get people talking about the issue,” says Gelpke. “Of course if we had known when we started this three years ago that oil prices would triple, we would have put the money we spent making the film into buying oil futures.” It’s a reflection, he says, that documentary makers don’t do it for money, but for glory.
Most professionals in energy shipping will be aware of the concept of peak oil and the flurry of books forecasting the twilight of civilisation that will follow the end of the era of hydrocarbons.
(12 October 2007)
Glad to see this review by Lloyd’s List, “The Leading Maritime and Transport News Portal” – it shows that the idea of peak oil is trickling out into industry.
Peak Oil Calls for Societal Change – US Expert [Richard Heinberg]
Sarah Matheson, The Epoch Times (New Zealand)
Peak oil and climate change, are very real threats to human society and not something we can pass off to the next generation, says one of the world’s foremost peak oil experts.
Peak oil educator and Research Fellow of the Carbon Institute of Post Carbon Institute Richard Heinberg was speaking to at a lecture hosted by The Engineers for Social Responsibility, Greens on Campus and the Green Party at Auckland University on Wednesday night.
… Head of Engineering at AUT Thomas Neitzert said New Zealand could look in to many renewable energy options, particularly tidal, wind, and solar energy.
Green Party co leader Jeanette Fitzsimmons said the Green Party continues to raise the peak oil issue at Parliament, but has not had a very good response.
“We have to base our economy on a different value system,” she said.
(11 October 2007)
More coverage of Richard Heinberg’s sojourn in New Zealand. The article conveys many of the peak oil ideas. -BA
Peak Oil Passnotes: $100 Oil?
Edward Tapamor, Resource Investor
When this column turns away from baiting peak oil nihilists – and it is not hard – we often like to take a look at the market for crude oil. As you know we like to throw in a prediction now and again, our current one being that the WTI price at Cushing in the U.S. will fall to $66.60 at Christmas.
We based that thought on the general motivator behind market economics, the greed and the centralisation of power of trading institutions and the people who make them up. The idea being that, in order to get huge bonuses and the ability to buy your house off you when you lose your shirt, the crude oil market will get shorted to pieces. Volatility brings profits. Profits bring bonuses. Bonuses get your house off you and stick you in the gutter. That is free markets. “The freedom to starve,” as Alfred Sherman founder of the Centre for Policy Study put it.
Of course we based these thoughts on the general idea that nothing very spectacular was going to happen in the crude oil markets between now and Christmas. No attack on Iran. No major hurricanes. No more shut-ins in Nigeria and so on. This idea appears to be coming true.
The closer we get to Christmas the less time there is to fabricate an assault on the Iranian theocracy and their huge oil and gas reserves, sorry, we mean “nuclear weapons programme.” There is more output coming from Nigeria with some Forcados output back on stream and the hurricane season appears to be drawing to a close with only poor Mexican people on the receiving end. And who in the market place cares about them?
So then why is crude oil touching its record highs?
(12 October 2007)
Houston Peak Oil Conference One Week Away
Greg Geyer, ASPO-USA
This is a friendly reminder that our registration fees for next week’s conference will increase to on site rates on October 16, 2007. If you plan to attend and have not registered please do so as soon as possible to avoid late fees. We hope to see you in Houston next week!
* Please Review our Final Agenda
* Select here to learn more: www.aspo-usa.com/aspousa3/
2007 Houston World Oil Conference
Houston: The Energy Capital of the World
Energy: The 1st Challenge of the 21st Century
(11 October 2007)
