Peak Oil: Christian Science Monitor calls it

We need to be preparing…..


After BP oil spill, ‘peak’ oil seems nearer than ever

Without alternative supplies of energy to offset it, a decline in oil production would send shock waves through the world, rattling economies and politics alike.

Temp Headline Image
The BP oil spill is pushing up the date at which the world’s conventional oil production peaks. BP Wellsite Leader Mickey Fruge stands on the deck of the Development Driller II, which is drilling a relief well at the site of the Deepwater Horizon oil spill in the Gulf of Mexico off the coast of Louisiana Saturday, June 19.
(Charlie Neibergall/Pool/AP Photo)

By David R. Francis
posted June 21, 2010 at 12:23 pm EDT

The oil that’s flooded into the Gulf of Mexico has created big concerns about the environmental and economic damage. Another serious outcome has gotten far less attention: peak oil.

By prompting President Obama to suspend deep-water drilling in US offshore waters, the Gulf oil spill is pushing up the date at which the world’s conventional oil production peaks.

By itself, the United States suspension would bring forward that date only a little. But if other nations with offshore oil output or potential also stop risky offshore exploration and drilling, it could speed the arrival of peak oil at a more alarming rate.

Without alternative supplies of energy to offset it, a decline in oil production would send shock waves through the world, rattling economies and politics alike. Competition for resources could be fierce.

In a geological sense, the world is still awash in oil. The US Geological Survey estimates 3,000 billion barrels of conventional crude are buried in the world, about a 46-year supply if no more oil is found, according to the National Center for Policy Analysis, a public-policy research firm in Dallas.

The problem is getting oil out of the ground. Much oil is inaccessible – or so expensive to drill that it’s not feasible even if oil prices surged. Sometimes the environmental risks (think BP’s Deepwater Horizon fiasco) may be too high.

Estimates vary on when oil production will climax. Take your pick. Peak oil:

•Happened five years ago, holds Matthew Simmons, chairman emeritus of Simmons & Co. International, a Houston investment-banking firm for the energy industry.

•Will be reached within five years – or “we may have already reached it,” says Richard Miller, a London consulting geologist who up until 2008 worked for BP preparing private reports on prospects for peak oil.

•Will happen around 2025, according to Leo Drollas, chief economist of the Centre for Global Energy Studies in Lon­don. He figures the world has 6 million barrels per day (b.p.d.) of unused conventional oil output capacity, about 4 million of that in Saudi Arabia. In addition, Canada has about 170 billion barrels in its oil sands, and Vene­zuela has some 400 billion barrels of heavy oils, more than Saudi Arabia’s conventional oil reserves.

A lot more oil could be discovered on land if, say, Saudi Arabia, Kuwait, Iran, and Venezuela offered reasonable financial terms for international oil companies to come in, Dr. Drollas maintains.

Considering the nationalism prevalent in such countries, an open-door policy for foreign oil companies “isn’t going to happen,” says Dr. Miller.

Furthermore, he notes that output from existing oil fields is declining at a rate of 2 million to 3 million b.p.d. a year. Usually production starts to fall after about a third of the oil has been extracted.

In the Gulf of Mexico, the decline can be fast. Another major BP platform, Thunder Horse, was brought into production 18 months ago at 250,000 b.p.d. It was already down to 80,000 b.p.d. before being recently shut down for maintenance, says Mr. Simmons. More than 700 other platforms in the Gulf produce an average of only 40 b.p.d. (The costs of disposing of a platform are large.)

Typically, production losses are offset by new finds. The International Energy Agency has calculated that it would take the discovery of six new fields the size of those in Saudi Arabia to maintain current world oil output through 2030, Miller says.

“I don’t know where they [the fields] are hiding,” he adds.

•David R. Francis writes a weekly column.

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1 Comment

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One response to “Peak Oil: Christian Science Monitor calls it

  1. negconvexity

    Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
    – China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
    – Transition takes 30 years
    – No peak in global production

    In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
    – Oil demand elasticity of -0.3
    – Current production 84 million BOPD, current price US$ 80
    – Peak production 100 million BOPD
    – Post peak decline rate of 3-4%

    If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

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