SUMMARY

Contents:  Overview, The Calculations, Growing Awareness, Solutions, Further Information.

Overview

World Production of All Hydrocarbons

The above is Dr. Campbell’s forecast of the global production of oil and gas, from both conventional and non-conventional sources, out to 2050.

The production of conventional oil holds fairly steady at close to its maximum until about 2010, and then enters inexorable decline, driven by the limit of the world’s resource of this type of oil. The combined production of deepwater and polar oil also peaks around this date.

Production of extra heavy and tar sands oil expands, but is not sufficient to offset the declining output of conventional and related oils.

Conventional gas production is likely to reach a plateau around 2015, set mainly by resource constraints, which can hold till about 2040 before decline sets in. Production of non-conventional gas continues to increase.

The combination of the fall in production of conventional oil, and the plateau in conventional gas, leads to a production peak in all world hydrocarbons around 2015.

 

These coming hydrocarbon production peaks (firstly, of all non-OPEC oil; then of all oil; and finally of all hydrocarbons) will place massive strains on the economies of the world. Market signals alone will provide insufficient warning of the problems ahead. Mitigating the effects, and handling the political consequences, will require high levels of public comprehension, and international co-operation.

 

For more detail on the coming hydrocarbon production peaks, and the historical context, see The Oil & Gas Situation

 

The Calculations

 

The forecast of conventional oil production given above is based on a detailed appraisal of the amount of oil in the world by country, both discovered and yet-to-find, and on calculations of the rate that this oil can be produced. These calculations are unquestionably among the most detailed and precise currently published.

 

The calculations on the rate that non-conventional oil can increase are based on known projects, and on reasonable extrapolations into the future. Non-conventional oil faces a number of fundamental constraints (cost, investment requirements, energy requirement, energy payback times, other input requirements, and pollutant emissions, including elevated CO2 levels.) More work is needed to define the various limiting growth rates that non-conventional oils might achieve.

 

The production profile of conventional gas is less certain than that for conventional oil, but will be similar to that shown, and is resource-limited in the medium term.

 

For the future production of non-conventional gas, the same remarks apply as for non-conventional oil.

 

For definitions, and details of these calculations, see The Calculations. The outcome of the calculations is tabulated under ASPO Information>>Results.

 

For more general introductory and teaching material on global oil, its discovery and depletion, refer to the ASPO Tutorial.

 

Growing Awareness

 

This picture of the future of oil and gas is serious, but not yet widely understood. This is partly because the history of Humankind has been one of technical progress, and changing energy supplies, so warnings of approaching resource limits tend to get discounted.

 

But this ignorance of the current global oil situation is extraordinary. The method for calculating the date of the peak in conventional oil production has been known for over a century, and the key piece of information required, the estimate of the world’s original endowment of conventional oil, has remained essentially unchanged for 40 years.

 

As a result, almost any book on energy from the 1970’s correctly put the date of global conventional oil peak around the year 2000. The only significant change since then has been on the demand side: the oil shocks of the 70’s flattened anticipated demand and somewhat delayed the peak.1

 

In essence, the world has largely forgotten what it knew in the 1970’s. A few dedicated analysts kept the information alive, like monks in the Dark Ages,2 but as oil experts left the business most new entrants never learnt.

 

As a result, a complete oil mythology has recently arisen. This holds that:

–  Proved reserves guarantee oil supply for at least 40 years, and gas for 60 years.

–  The world is “running into oil”, not out.

–  Technology and price will always be able to push back the oil peak.

–  Past oil forecasts were wrong; forecasting oil’s future is impossible.

 

It is easy to counter these views (see The Oil & Gas Situation), but at present they are deeply entrenched, and are purveyed by most governments,3 and by many advisors to government.4

 

Fortunately, there is now a growing awareness of the oil and gas realities. A number of retired oil executives are on record on depletion,5 and also a member of the United States Geological Survey.6 Technical papers on the global oil endowment are widely available (e.g., that by BP’s Manager of Reserves and Resources,7 from the USGS, and elsewhere 8), and there are recent books on the topic.9 In addition, at least one one institution, the BGR in Germany, is addressing the issue on a technically sound basis.10

 

However misleading information is still offered to governments, and the latter are too poorly informed to detect the errors. Examples include the submission to the European Parliament by BP that contains serious errors;11  the recent response to the UK House of Lords, also by BP, quoting simply the ‘reserves-to-production’ (R/P ratio) reassurance of “40 years of oil and 60 years of gas”;12  submissions by Exxon to the UK’s PIU Energy Review and the EU’s DG-TREN, which likewise emphasise R/P figures, and fail to mention production peaking;13  and recent Shell’s reassurance to European leaders of “100 years’ of gas”.14

 

Despite such dis-information, institutional understanding of the depletion of the world’s conventional hydrocarbon resources is slowly increasing. But it is late in the day to take effective action.

 

Solutions

 

Possible responses to the situation are listed under Solutions. It will require courage, and high levels of international co-operation, to manage the hydrocarbon supply difficulties that lie ahead.

 

Further Information

 

For further information see the references below, starting perhaps with the Scientific American article,8  and then those of Bauquis 5 and Harper;7 the two academic articles from Reading,8 and the books by Campbell, and Deffeyes.9 Additional sources are listed under ASPO Information>> Publications.

 

Notes:

 

  1. See Past Forecasts.
  2. Word of mouth: Hubbert to Ivanhoe to Campbell; Hubbert to Deffeyes; Warman to Campbell.
  3. E.g.: The UK’s DTI, the US’ EIA.
  4. For example:

–  Mr. J.V. Mitchell, Royal Institute of International Affairs (RIIA), London; sometime consultant to the EU’s Directorate-General for Transport and Energy (DG-TREN).

–  Mr M. Keay, formerly UK Dept. of Trade & Industry, then RIIA, now Chief Executive, World Coal Institute; Specialist Adviser to the UK House of Lords Select Committee on the European Union, considering the EU’s Green Paper (Nov. 2000) ‘Towards a European Strategy for the Security of Energy Supply’. (Select Committee’s Report: Energy supply: How secure are we? Session 2001-02 14th Report, HL Paper 82, published 12th February, 2002.)

–  Professor P.R. Odell, Specialist Adviser to the UK House of Commons Trade and Industry Committee examining ‘UK Security of Energy Supply’, (Second Report of Session 2001-02, HC 364-I, published 7th February, 2002).

–  Dr. W. Schollnberger, Panel member to EU DG-TREN Conference on ‘Energy Safety & Security in Europe’, Barcelona, 18th-19th October 2001.

In understanding this provision of advice, it is believed that Mitchell, Keay, and Odell have no geological background, no access to industry oil reserves data, and little expertise to carry out calculations on the global recoverable resource, or to make informed technical comment on the analyses of others. To put it bluntly, much of the current oil debate is between scientists who have good data, and an understanding of the geological constraints, and non-scientists who do not. The ear of government is still mostly with the latter, despite the strenuous efforts of the former over more than the last decade to bring the facts to government attention.

Dr. Schollnberger is a special case. Potentially he has access to adequate data, but he is not part of BP’s resources evaluation team; and makes his own assessment of global recoverable oil that is out of line with virtually all other estimates. His high case, under industry central assumptions, corresponds to a global recovery factor over 100%.

  1. Examples include:

–  J.F. Bookout (CEO of Shell Oil Co. from 1976 to 1988): Two Centuries of Fossil Fuel Energy, Episodes, 12/4, pp 257-262, 1989

–  Bowlin; also Robert Anderson, senior executives of Atlantic Richfield (ARCO). (Bowlin article was at: www.arco.com/corporate/news/p020999.htm).

–  L.F. Ivanhoe (former Chief Earth Scientist, Occidental Petroleum): Updated Hubbert Curves Analyze World Oil Supply. World Oil, November, 1996, pp 91-94.

–  F. Barnabé (Chief Executive of ENI): ‘Cheap Oil: Enjoy it While it Lasts’, Interview in Forbes Global Business and Finance, June 15 1998, pp 22-24.

–  W.H. Ziegler (former Head of Exploration Studies and Senior Group Advisor, Petrofina; & Manager, Regional Assessment Group, Esso Exploration Europe): quoted on pp 22-26 of The Coming Oil Crisis, C.J. Campbell, MultiScience & Petroconsultants S.A., 1998

–  J.H. Laherrère (former Deputy Head of Exploration, TOTAL, France): ): Numerous publications.

–  C.J. Campbell (former Exploration Manager in several companies, including Amoco and Fina): Numerous publications.

–  P-R. Bauquis, Special Advisor to the Chairman, TotalFinaElf. See: A Re-appraisal of Energy Supply and Demand in 2050, Oil & Gas Science & Technology, Rev. IFP, Vol. 56 (2001), No. 4, pp 389-402. An excellent paper covering a range of important issues.

  1. L. Magoon, USGS Open File Report, 00-320 Version 1.
  2. F. Harper. Ultimate Hydrocarbon Resources in the 21st< Century. Presentation at the American Assoc. of Petroleum Geologists conference: ‘Oil & Gas in the 21st Century’, Sept. 12-15th 1999, Birmingham, UK. (To my knowledge, the AAPG did not publish proceedings from this conference, so copies should be requested directly from the author.
  3. E.g.:

–  C.J. Campbell and J.H. Laherrère. The End of Cheap Oil. Scientific American, March 1998, pp 60-65; (and see the following papers in the same issue on related topics).

–  Data published annually by consultancies, including IHS Energy/Petroconsultans.

–  See sources referenced in:

–  R. Bentley. Global oil and gas depletion: an overview. Energy Policy, Vol. 30, No. 3, February 2002, pp 189-205.

–  R.W. Bentley, R.H. Booth, J.D. Burton, M.L. Coleman, B.W. Sellwood, G.R. Whitfield.  Perspectives on the Future of Oil. Energy Exploration and Exploitation, Vol. 18, Nos. 2 & 3, pp 147-206, Multi-Science Publishing Co. Ltd., 2000.

–  Data from ‘official’ sources (EIA, IEA, etc); but these need very careful handling if they are not to be mis-interpreted. Eschew all public domain ‘proved reserves’ data.

  1. The Coming Oil Crisis, C.J. Campbell, MultiScience & Petroconsultants S.A., 1998;

ISBN: 0 90652211 0.

Hubbert’s Peak. K.S. Deffeyes, Princeton University Press, 2001; ISBN 0-691-09086-6.

The Hydrogen Economy. J. Rifkin. Tarcher/Putnam, 2002, ISBN 1-58542-193-6.

  1. BGR (Bundesanstalt für Geowissenschaften und Rohstoffe ), Germany, see: www.bgr.de; and publications.
  2. W. Schollnberger to the EU Parliament (see Note 4, above). For comments on the errors in this paper, see Footnote 6 of the Energy Policy paper referenced in Note 8, above.
  3. UK House of Lords report: Session 2001-02; 14th Report, Select committee on the European Union: (see Note 4, above). Oral evidence paragraph 230, Professor P. Davies, Chief Economist, BP, page 79.
  4. Exxon Mobil submissions to: The UK Cabinet Office (PIU) 2001/2 Energy Review,

(www.cabinet-office.gov.uk/innovation/2001/energy/submissions/ ExxonMobil.pdf); and to the EU Directorate-General for Transport and Energy, “ExxonMobil Contribution to the Debate on the [November 2000] Green Paper: Towards a European Strategy for the Security of Energy Supply.”  For example, the latter has: “Commentators tend to focus on reserve to production ratios … 40 years for oil and 61 years for gas. However, such ratios fail to take account of probable reserves and reserves yet to be discovered. In addition, [there are Orinoco] heavy oils … and tar sands [and gas-to-liquids]. On this basis, R/P ratios in excess of 100 years will likely be achieved. Resource availability is simply not the issue.”

If availability means simply ‘what is out there’, Exxon’s statement is strictly true. But if availability includes the rate at which these resources can be made available, then Exxon’s submission is very misleading, as there is no mention of the mid-point peaking of conventional oil, nor of technical constraints in the production of the non-conventionals.

  1. A recent Shell presentation (IAEE Conference, Aberdeen, 2002) shows Europe surrounded by gas sources adequate for over 100 years; but fails to mention either production peaking, or the fact that other hungry regions, such as the U.S. and Asia, already have plans in place to access this gas.
Posted in Default | Comments Off on SUMMARY

SOLUTIONS

Contents:  (Introduction, Consequences, Solutions, Conclusions)

Introduction

This section of the website moves away from straightforward data and analysis into less chartered waters. It considers what might be the consequences of global oil supply difficulties, and what solutions society might apply.

This discussion is needed. At least two senior UK government officials, on being told of the oil depletion calculations, have each said, in effect: ‘Well, I don’t agree with your analyses on oil, but even if you are correct, I would not know what the government should do.’ 1  This section sets out a preliminary list of what might be done.

First, however, we look at some of the possible consequences of the oil supply becoming increasingly limited.

The Consequences of Oil Supply Limits

The implications of a one-way oil price shock early in the next decade are likely to be serious.

There is, first, the real possibility of a profoundly de-stabilised economy. The current assumptions of economic stability and sustained growth well into the century must now be re-evaluated. Oil is the primary energy source for the global market economy, and a significant rise in price will raise industrial costs, reduce real incomes, and derail business-as-usual growth expectations.

 

All industries will be affected, beginning with air transport and related sectors, including tourism which, taken as a whole, is, surprisingly, the world’s biggest employer. Transport in all its forms is also in the front line of risk; massive fuel price increases, and actual interruptions in supply would threaten a breakdown of distribution systems and have economic consequences far in excess of any experienced in the developed economies in modern times. These consequences would include high unemployment and inflation.

 

Secondly, there are implications for the costs, and perhaps even availability, of food. The food chain is massively hydrocarbon-dependent at every stage: fertilisers, chemicals, equipment, transport and processing. A rise in the price of oil will knock-on immediately to a comparable rise in the price of food. Political and social instability as a consequence cannot be ruled out.

 

Thirdly, the coming oil shock transforms the climate-change agenda. The Kyoto process has been built on the assumption that oil supplies will not be the constraint that will limit carbon emissions in the future, and that if the latter are to be reduced, this will have to be through deliberate limitations on demand. In this new situation, however, the problem is transformed: reductions in affordable oil may turn out to be faster than the most ambitious targets that have been conceived in the context of climate change. The CO2 implications of reduced conventional oil use, vs. the increased use of gas, non-conventional oils, coal, and perhaps nuclear, need examination.

 

Fourthly, there are implications for alternative supplies of energy. Effort will need to be devoted to energy conservation technologies, and to the renewables. One of the great missed opportunities of the 1980s and 1990s has been the slow development of these technologies. There have been important advances, but, relative to the need, a massive job of development lies ahead.

 

One of the main reasons for this slow development has been that energy conservation and the renewables have suffered a price disadvantage relative to conventional energy sources. This is about to change, and these alternatives will soon look very cheap indeed. The problem is that the programme of shifting a mature market economy away from oil-dependency and into conservation and renewables would normally require about fifty years of intensive investment and training. 2  This will now have to be compressed into a decade or so.

 

Fortunately, as a number of both war-time and civilian programmes have shown, rapid results can be achieved if government gives a determined lead.

(top)

 

Solutions

 

So, what should we do? Here we indicate the kinds of action required.

 

(a).  Evaluation

 

The first step must be to properly evaluate the near- and medium-term hydrocarbon supply prospects, and the potential for hydrocarbon substitution and energy-use reduction. As important, a range of national and international bodies need to be able to understand these calculations, and subscribe to the conclusions drawn. The topic is relatively easy, and well within the competence of various organisations active to-day, provided their attention is directed to the problem. Some suggested lines for the evaluation are indicated in the Notes, below. 3

 

(b).  Communication

 

Once the problem is understood, there will be a need to communicate what is known, and what is uncertain, across government, and to industry and the wider public. 4

 

(c).  Precautionary Measures

 

As research results gain increasing acceptance, there is a range of low-cost, and often (to use Nick Hartley’s phrase) ‘no-regret’, policy actions that could be taken. These include investigating the energy and economic impacts, social acceptability, legality, and implementation mechanisms of measures that would not be implemented until serious energy shortages occur. From a UK perspective, precautionary measures include the following (with similar considerations applying in most other countries):

 

(i). Quantifying current best-practice in energy conservation; getting an accurate handle on the likely timescale such energy-savings actions could be implemented; and quantifying the cost, and energy savings, that would result. 5

 

(ii). Identifying the additional research required for the implementation of ‘quick-fix’ projects that would have significant energy impact. 6

 

(iii). Setting up an Energy Board, perhaps under an ‘Energy Czar’, tasked with looking in far more depth at the UK’s energy options than is possible with to-day’s Departmentally-fragmented, and market-driven, structure. Such a Board could also, with a changed remit, be in a position to mandate actions should this become necessary. 7

 

(iv). Check the reliability of, and extend, the 90-day IEA committed oil stock. (The IEA’s  1998 World Energy Outlook suggested action along these lines.) 8

 

(v). Look into the legality, within EU, and World Trade Organisation rules, of restricting exports of UK oil and gas (and of other countries doing the same). 9

 

(vi). Develop, within the Bank of England, and by consultation with the Treasury and others, a robust strategy for setting UK interest rates, and for handling other fiscal measures, so as to limit the inflationary impact of a sustained rise in energy prices, while at the same time allowing the economy to sensibly adjust to the consequent recessionary pressure. 10

 

(vii). Ensure, with the main actuarial bodies, and other interested parties, that current accounting practices serve their desired reporting and management control functions during a period of consistent inflation. 11

 

(viii). Think about the social impacts of inflation, and devise strategies to minimise these.12

 

(ix). Devise internationally, a stable and just way to re-cycle petro-dollars. Particularly important will be the need to avoid the drastic increases in unsupportable third-world debt that happened last time. 13

 

(x). Develop International collaboration and Protocols, and set these in place, before the crises occur; levels of hostility and mistrust will likely to be too high during a crisis for sensible accords to be reached. The need is simply expressed: for the world to be weaned from its dependence on cheap oil as gradually and intelligently as possible, while producer countries, some now with large populations and still little alternative economic activity, are compensated reasonably for their depleting asset base. 14

 

(d).  Longer-term measures

 

Longer-term measures to move the economy away from its high hydrocarbon dependence will need to be considered. Many of these are broadly similar to those envisaged for cutting greenhouse gases. For this reason, only some typical examples are listed.

 

(i). Longer-term actions on conservation, renewables and other energy technologies. Because lead times for significant introduction of some of these technologies are long, action will need to be considered on research, bringing forward, and training for the new energy-efficient technologies, localised systems for renewables, carbon-sequestration, and related technologies.

 

(ii). Appraisal of current patterns of land use and supply logistics. The dependence on oil for the production and transport of food and other goods will need to be reduced, as will the distances individuals travel for work, shopping and recreation.

 

(iii). Allocation, and the individual response. The transition to a low-carbon economy will require informed and positive partnership with individuals. It may be that in due course a fuel rationing or allocation system will be required, and options for the use of information technology in rationing systems should be explored. Government leadership will be needed to encourage changes in household behaviour.

 

(e).  Possible Mandatory Measures

 

The following are examples of mandatory actions that may be required.

 

(i). Space Heating.

 

–  Introduce a new House Building code, nearer or equal to Denmark’s.

 

–  Bring all hosing stock up to this building code; financed by the utilities, and targeted by computer programmes based on current energy use and a simple questionnaire of number of occupants, etc. Loans for house improvements should stay with the house (i.e. pass across on house sale), and be paid out of utility bills over a reasonable payback time dependent on each technology used.

 

–  Bring all government / industrial / commercial stock up to a new (‘near-Denmark’) code, over a phased 15 year period.

 

(ii). Transport.

 

–  Mandatory speed limits of 55 mph.

 

–  ‘CAFE’ requirements (mpg goals) on vehicles, by manufacturer.

 

–  Extended ‘vehicle efficiency’ excise tax incentives.

 

(iii). Electricity Generation/Use.

 

–  Speed the introduction of increased power station efficiency; mandate waste heat utilisation where possible.

 

–  Mandate CHP schemes for all industrial commercial users larger than a set MW.

 

–  Establish true lifetime; and effects of short duty cycles, of home fluorescent light bulbs. If the answers warrant, place a high tax on incandescent bulbs.

 

(iv). Energy from Waste.

 

–  Resolve the dioxins concerns about combustion of the plastics in domestic / industrial waste (a function of flue-gas temperature?); and, if warranted, mandate that all non-putrescent combustible community waste not recycled must be incinerated for electricity, or district heating.

 

(v).  Re-cycling.

 

–  Mandate recycling of all consumer durables; encourage buy/rent options that make consumers prefer durable-life items (aluminium/galvanised vehicles; ball-bearing electric motors, etc.) over cheaper up-front items.

(top)

 

Conclusions

 

It is possible to shift a modern economy off hydrocarbon dependency, though a combination of conservation technologies, renewables, changes in patterns of logistics, and other measures. However it has been calculated that a change of this magnitude requires long-term planning and incremental application over a period of some half century. The task is likely to thrust upon us at short notice, and will need a programme of urgency and intensity.

 

A painless transformation into the post-hydrocarbon economy is probably not possible, but certainly its stresses can be mitigated.

 

There is an opportunity for the United Kingdom to take the initiative in designing, communicating and implementing a programme of developing post-hydrocarbon solutions. Once one government has led the way in appreciating the true urgency of the situation, others will follow.

 

Notes

 

  1. M. Keay, formerly with the DTI, now with the World Coal Institute, and N. Hartley, formerly on secondment to the Cabinet Office, now with OXERA; both, it must be admitted, in response to questions, with little time for these gentlemen to reflect on their answers.

 

  1. The LTE Study, Germany.

 

  1. Our greatest surprise in this whole oil depletion business has been the complete unwillingness of the government departments we have approached to consider carrying out, or funding, any investigation whatsoever into the issue.

 

An initial technical ‘look-see’ at the problem would take a couple of people, preferably a geologist and another scientist, only a few days; while a report looking at the substance of the topics would require perhaps a month. Additional investigation, if thought warranted, would then need to cover the following:

 

–  Determination of when oil resource constraints will limit non-OPEC supply;

 

–  Determination of the likely date, and production volume, of the world

 

conventional oil peak;

 

–  Assessment of the potential for:

 

–  enhanced recovery oil,

 

–  heavy oils,

 

–  substitution by other fuels (particularly gas),

 

–  energy saving.

 

Most of these issues have already been addressed in the research reported elsewhere in this website, but if government or other organisations wish to carry out their own investigations ab initio, they would need to consider work along the following lines:

 

(a). When will oil resource constraints limit Non-OPEC supply?

 

(i). Develop a working definition of conventional oil. The avenues here are:

 

–  Discover the definitions of conventional that are explicit, or implicit, in the databases, as analysis can only be done with the data available.

 

–  Discuss the possible definitions in more detail with a limited number of reservoir engineers: this is an area where pragmatism is more important than consensus.

 

(ii). Evaluate the IHS Energy/Petroconsultants’ data.

 

Of all the tasks, probably the most important is to check the general validity of the field ultimately recoverable reserve (URR) figures in the IHS Energy/Petroconsultants’ database. This is because the data on the world fall-off in oil discovery, the key driver to near-term predictions of oil difficulties, are based on these numbers.

 

Numerous sources indicate that the Petroconsultants’ data are the only practical data available for global oil resource estimation, but there is a need to evaluate carefully the sources and assumptions used to generate these numbers, particularly as to recovery techniques envisaged.

 

The question breaks into three parts:

 

–  Sources and assumptions:  Understand (by country, date, and field type), how the data are processed by Petroconsultants for entry to their database.

 

–  Cross-checking:  Key data (those for all very large fields, and a sampling for large and smaller fields, and by type) need to be checked against the corresponding data held by explorers / producers; watching particularly for artefacts from ‘the U-shaped reporting curve’. It is vital to get the data directly from the explorers / producers themselves, and not to use standard in-house numbers, still less externally reported data. Experience suggests it should be quite possible to obtain data that are useful without requiring the companies to reveal commercially sensitive data. For example, data of the type: ‘25% of such-and-such a class of fields operated by our company are 30% – 50%, under-reported in the database’, etc., will be adequate in the majority of cases. In addition, other databases with more specific coverage exist, where similar ‘statistical’ cross-checking should be feasible without compromising commercial considerations.

 

–  Reserves growth.  It is possible to get a handle, to some extent, on this contentious issue by examining past Petroconsultants’ reports. Other approaches to estimating reserves growth are also available, including tracking the reporting curve for a number of typical fields to separate out genuine improvements in access and recovery factors from what have been simply reporting changes.

 

(iii). Checking the depletion models.

 

The range of depletion models needs to be evaluated; in particular the ‘decline from xx% argument’ needs additional calibration. There are many US and other basins that can be examined to examine the general validity of the approach.

 

(iv). New Frontiers oil.

 

Discussion with oil explorationists, on a non-disclosure basis, can give a view on the quantity and timing of oil from new frontiers: Greenland, Canadian / Russian polar, deep offshore not yet in play, and so on. In particular, for U.K. oil, one would aim to establish quantitative views about:

 

–  the stratigraphic vs. structural traps discussion;

 

–  the potential from specific geological horizons;

 

–  the potential from WoS, and the Atlantic margin.

 

(v). Impact of technology and oil price on new oil exploration.

 

Past improvements in technology, and the decade of very high prices, did little to stem the fall in new-field find rates. However, a number of groups, including at least one U.K. consulting company, have optimistic views in this area, and though there appear to be good reasons to question such views, there is a need to examine the topic in detail.

 

(vi). Impact of technology and price on existing fields reserves growth

 

Here analysts raise a number of possibilities: better field knowledge with time, denser collection networks, horizontal drilling; 4-D seismic, etc. Approximate quantitative indications of the contributions these might make are required, and their timing. Discussion with industry reservoir and production engineers, targeting particular basin types and field sizes, will give adequate first-approximation answers. As mentioned above, past Petroconsultants’ data can help to give a quantitative guide as to the real magnitude of reserves growth.

 

(b). The Timing and Level of the World Conventional Oil production peak.

 

Much of the material for this question will have been produced by the activities described above, but for world production, additional specific data for the Middle East will have to be estimated. Data can be drawn from companies with current or past experience of the area, and from the USGS, IHS Energy, the IEA, and possibly OPEC; as well as, perhaps, the Iraq Petroleum Company database at the University of Reading.

 

(c). Establish Production rate limits of EOR and Heavy Oil.

 

The task will focus on both near-term cost of production of these oils, and on the investment levels and other constraints affecting the ability to bring forward the amounts of such oils required by the decline in conventional oil.

 

(d). The Scope for Energy use avoidance, and Oil-Substitution, to avoid energy shortages.

 

This will need to cover demand modelling, investment and pipeline limits on gas production, rate and investment limits on gas conversion technologies, and coal / nuclear substitution rates for the hydrocarbons.

 

  1. Discussion in DG-TREN following the European ‘Fuel Protests’ worried about the difficulty of getting the public to accept additional rises in fuel cost. But our impression is that much of the general public is reconciled to inevitability of hydrocarbon limits, but they need clear indications of the extent and timing, and a feeling that any burden is shared across the community.

 

  1. Technology exists today to cut space heating/cooling requirements in most buildings to very low levels, but this needs a degree of sophistication in controlling solar gain, heat loss, humidity control and air change.

 

  1. Such as retrofit of interior vapour-proof insulation, quantifying the economic loss associated with the imposition of vehicle speed limits, or tax on aviation fuel, etc.

 

  1. Within the UK, ideas for a body of this sort are being discussed. The current situation, where energy policy at the highest level (e.g., within the Cabinet Office Energy Review) is advised simply by canvassing opinion, with no scope for a solid technical evaluation of the issues, goes no way to addressing the problem. Currently, every lobbying group, oil, nuclear, environmental, CHP, energy savings (and oil depletionists!) state their case, and the governmental energy enquiries have no time, expertise, nor mechanisms to gain a coherent technically-based view of the situation, let alone address strategy.

 

  1. Some oil storage, at least elsewhere, has been questioned as to usefulness (pipelines, tank bottoms, etc.). The UK takes advantage of the fact that, as a producer, it has a lower storage requirement than 90 days.

 

  1. The UK DTI has trailed the idea of restricting exports at times of global oil shortage; the EU implications of this need examination.

 

  1. In an interview a few years back, Eddie George, Governor of the Bank of England, said his banks’ aim, given their new mandate from the then recently elected Labour government, was to keep UK inflation to within a low target band, unless some strong external pressure would prevent such a goal from being met. When asked what might be such a pressure, he replied that a significant rise in oil prices was the only one that came to mind.

 

  1. During the inflationary periods of the 70’s and 80’s, most commercial companies unwittingly consistently overstated their profit levels, as has been documented in excellent retrospective graph for that period in one of the UK government Statistical Office publications. As a consequence, most companies badly mis-understood their returns on capital, asset replacement capabilities, and general financial health.

 

There were subsequently a number of revisions to accounting practices to better handle inflation, but it is desirable now to review the situation to check that no significant accounting oversights, under inflation, remain.

 

  1. For example, at times during the ’70’s ’80’s interest rates fell behind inflation, leading to the pernicious effect last time Labour was in power that government effectively rewarded borrowers (frequently the rich) by allowing inflation to reduce the real value of loans; while at the same time penalising savers (often poorer people with small nest eggs) by allowing their savings to be eaten rapidly away.

 

Particularly inequitable, in those inflationary times, was the loss of income to people on fixed pensions.

 

Likewise, people in jobs with weak or non-existent unions got left behind in the pay race. Ultimately, a professor had to be called in, who recommended very large catch-up pay rises for people in these groups.

 

On a wider scale, inflation reduces the efficiency of the market, by adding a halo of uncertainty to every transaction, due to the inability to properly determine competitive costs and prices. There is a need for theoretical analysis to properly understand the effects of chronic energy shortage on a developed country economy.

 

(A parallel might be the lessons learned from the First World War, which were successfully applied at the end of the Second World War, about the economic and social problems caused by large-scale de-mobilisation. Likewise, we need to now remember, and be ready to apply, the economic and social lessons learned from the 1970’s oil shocks.)

 

  1. Initially, re-cycling petro-dollars will be a lesser problem than last time, as the main producer countries now have significant internal needs for revenue. But after a while the monies accrued may become significant, and major international re-cycling will be needed. Last time, significant monies were re-cycled to developing countries as loans against apparent in-country assets (frequently minerals) to offset their increased fuel bills. (Such loans were strongly promoted by at least one of the main supra-national financial institutions.) In practice, the loans were usually not supervised, and the economies of the counties lent to were frequently mismanaged, leading to the atrocious levels of developing-country indebtedness that subsequently developed.

 

(Note, the term ‘petro-dollars’ is used here generically, OPEC having asked that its oil be denominated in other currencies, and perhaps even in other commodities. But the general problem, that higher oil prices will engender global inflation, which will cause currencies to devalue, and hence an oil-producer’s revenues to fall, will need to be addressed.)

 

  1. This time, price and supply restrictions will originate from any oil or gas exporter who will be caught between a desire to continue revenue streams and employment levels, and a natural wish – in an oil-short world – to retain resources for future home use, or possible future sale at a higher price. To meet these stresses, Dr. Campbell has proposed a draft of an ‘Oil Protocol’ that has received initial support by some in OPEC.

 

In addition, the fundamental question of ‘whose oil is it?’ may need to be addressed. This author does not know the legal situation, but the presumption is that minerals are owned by those under whose feet they lie. But like the now CO2-threatened atmosphere, some things will have to be treated as Global Commons. Will minerals belong to this category? Which nation will give up its resources for the common good? It is going to be a testing time for international good sense.

Posted in Default | Comments Off on SOLUTIONS

GOVERNMENT INTERVENTION, OR MARKET FORCES?

This is an important topic, and this website will return to it more fully at a later date. Certainly, the prevailing view within the UK’s DTI is that there are no oil supply difficulties on the horizon, but if there were, it would be best to let the efficiencies of the market resolve them. 1

The question of government intervention, or market forces, breaks into two parts: should the government intervene; and will the government intervene?

Historically, at least since the Second World War, whenever energy supplies became difficult, the government felt obliged to act. Whether this was true of the UK Prime Minister during the UK’s ‘Fuel Protests’ in 2000 (after having initially expressed a view that the matter was for the industry to resolve), or the Governor of California during the rolling blackouts, or earlier, the public’s need for energy is so important that when supplies are threatened governments have been driven to act.

Should the government act, is another matter. Companies (‘the Market’) are numerous, in evolutionary competition, and contain tens of thousands of bright, motivated people. Fast and effective solutions come from the market. By contrast, government contains extraordinarily few thinkers (in terms of those who actually influence decisions), is slow, and is dogged by multiple, conflicting, objectives. If you want to solve a cost-based problem that is current, ask the companies to do it.

But the first problem is that, intrinsically, the Market is about production and consumption, not about reduction and saving. Companies make profits by making more goods, or providing more services; they make losses if they sell less. Certainly, given high prices, or adequate legislation, energy supplying and conserving technologies will be efficiently invented and developed. But fundamentally, the drivers of the Market push for doing more with more, not less with less.

 

An equal difficulty, however, is that companies respond very poorly to problems with time lags. Unless a problem is crystal clear, and almost immediate, effort expended today to resolve the problem is lost profit, weakened market position, and, in the current ridiculous share-price driven economy, makes the far-seeing company a prime take-over target.

 

(This is not a diatribe from an idle academic; we last heard these views from the most senior UK executive of a European oil major, ranting about the short-sighted stupidity of the City – in whose square mile the conversation took place – that would not let him invest realistically even in exploration, as the loss in this quarter’s bottom line would look too bad to the stock-pickers analysing away in the neighbouring buildings. That this same company, only a few weeks later, gobbled up a large rival, whose bargain share price was the direct result of doing less well in the ‘reserves replacement’ game, told volumes. 2)

 

Certainly, there is a degree of company expenditure in anticipation of problems, but absolutely nothing on the scale needed to move the economy rapidly away from oil when supply becomes tight. Even the oil companies we speak to spend virtually nothing on looking at future global oil availability. 3

 

In virtually every case that one can think of, from tobacco, asbestos, pesticides, fluorocarbons, general Health and Safety legislation, to building insulation codes and forthcoming CO2 controls, it is government that has to anticipate future problems, and set the parameters within which companies can efficiently respond. Companies simply cannot risk spending significant money before the signals (whether from price, or legislation) arrive.

 

And the awfully long time lags associated with changing an economy’s basic energy sources means that if the signals do not come now from a government doing sensible calculations about the hydrocarbon future, that when the signals do arrive, from high prices and shortages, and the efficient companies finally swing into gear, the pain and shocks will be those of the 1970s writ large.

 

Notes.

 

  1. When the University of Reading was presenting data to the DTI, in the presence of a Shell representative, once Shell had raised the appropriateness of the market for solving any future supply problem, the sigh of relief from the DTI bureaucrats was palpable, and the meeting swung rapidly to a close.

 

  1. Of course, intrinsically, it is not the stock-pickers fault either. They must get the best return on their investment funds today if they, too, are not to be out of business or taken over. We have been told of the evils of economic ‘short-termism’ by many very senior people across all aspects of the oil and investment business. It is an issue that needs serious attention.

 

  1. ‘Well, we used to look at [global oil supply]; now I think we have one girl back in [a European capital city] who is working on this.’
Posted in Default | Comments Off on GOVERNMENT INTERVENTION, OR MARKET FORCES?

ECONOMIC ASPECTS

Contents:  The Issues, Why no Price Signal?, Oil Supply has little impact on GDP, Increasing Price Accesses More Oil, The European 2000 Fuel Protests, References

The Issues

For many years now the geologists have been warning that conventional oil production will start to decline once about 1000 Gb have been used, (see Past Forecasts). In the 1970’s this 1000 Gb threshold was a safe three decades into future, now it is close. Throughout this period, the economists have derided this position, and explained that the geologists just do not understand economics. 1

The general arguments of the economists are:

–  It is impossible for there to be any near-term risk of oil resource limits; if there were, the market would have warned us via rising prices. 2  Put another way: the market will ive adequate warning. 3

–  Oil supply difficulties will not be of much significance anyway, oil is a much lesser part of the global GDP than back in the 1980’s. 4

–  When the limit of current reserves eventually approaches, the resulting higher prices will solve the problem: increasing reserves through increased exploration, and by bringing on new field extensions, fields, technologies, and sources of supply (tar sands, gas-to-liquids, shales, etc.) that are currently uneconomic. 5

 

These arguments are discussed below. (top)

 

Why no Price Signal?

 

The economists ask: Why, if oil resource limits are imminent, has there been no price signal? The answer to this question is five-fold:

 

(i).  Commodity prices are intrinsically volatile.

 

Oil, to some degree, behaves like other commodities, where price is set by very small differences between supply and demand. Demand is a strong function of global economic activity, itself partly determined by oil price. Supply reflects a host of competing production trends. It is therefore hard, perhaps impossible, to forecast changes in supply and demand in the detail required to identify the small amounts of over/under supply that drive the short-term price. In this regard, oil price forecasting is as difficult as for other commodities, such as metals, foodstuffs (wheat, coffee), or ‘commodity’ chemicals (e.g., ammonia, sulphuric acid.)

 

Such intrinsic price volatility is aggravated in the case of oil by very poor information (e.g., on real reserves), and sometimes by market over-reaction, even hysteria.

 

Thus the first lesson is that for oil, with its intrinsic price volatility, it is hard to pick out the underlying price trend. Trying to communicate the message of oil’s near-term resource limits when the price fell to $10/bbl in 1999 (due in part to weak Asian demand) was a thankless task.

 

(ii)  The price warning of oil difficulties is likely to be short.

 

The economists say that when the fundamental oil limits approach, the price signal will give adequate time for response.

 

The answer to this view is, in a sense, a corollary of (i), above. Commodity prices tell a lot about the current over/under supply situation; they contain less information on the longer term. The oil supply fundamentals that drove the US peak in 1971 had been known to analysts for 15 years, but the price signal that warned of impending difficulties was only available for about three years, prices doubling from about $9 to $18/bbl in to-day’s money between early 1971 and late 1973. But this increase was not perceived to be significant, so the subsequent trebling of the price in 1973, to nearly $60/bbl in to-day’s money, came as a surprise to most.

 

Underlying to-day’s situation is the fact that sunk costs, and hence the need for return, dictates a short-term requirement on pricing by producers. Since future supply is never known for sure, even a strong feeling that next year’s price will be higher is unlikely to close the spigot, at least for commercial companies or nation-states with large budget requirements, as it is to-day’s income stream that dominates.

 

So the second lesson is that oil price contains mostly short-term information.

 

(iii).  Part of the natural ‘market-based’ price warning has occurred, but was disguised by geopolitics.

 

Of course, over the longer term, commodity prices tend to average out at cost price plus some reasonable return; and this is the basis for the economists’ argument that for all minerals an approaching scarcity (hence lower grade ore, hence more expensive extraction costs) must be reflected in price.

 

But many factors can push a commodity price away from the ‘cost-plus’ price for long periods. Producers may accept disastrously low prices for long periods wishing to retain market share; or just hoping things will improve; while prices well above production cost can also last, due to difficulties of market entry for new producers, hoarding in expectation of still higher prices, or geopolitics of supply.

 

For oil, the latter cause of ‘price disequilibrium’ has been in operation since 1973.

 

In its early days, oil was a true commodity, and its price was indeed volatile (see graph in BP’s Statistical Review), with successive shortages, and times of over-supply, sending the price on a roller-coaster. As increasing numbers of new basins came on-stream, the problem became one of chronic over-supply. It took heroic efforts before pro-rationing, backed by US Federal mandate, was finally installed. 6  The days of ruinously low prices were over, and the ‘Seven Sisters’, in conjunction with Uncle Sam, set oil on a long period of tranquil markets, with price steadily decreasing as technology and scale were brought to bear.

 

The sequestration of oil company assets by host states, and the peak in US production, ended this idyllic state. The US was left with nothing to pro-ration, as US fields were running flat out, and the Seven Sisters were no longer in quiet competition, but at the mercy for much of their supplies from sellers newly aware of their position.

 

Exploration had already found the new oil in Mexico, China and Russia, and the entirely new basins of Alaska and the North Sea, and the high prices encouraged these supplies on-stream. But, crucially, because of geopolitics, oil was no longer coming from just the cheapest sources. Had the ‘Seven Sisters’ still been in command, oil would have mostly flowed from the cheap Middle East, with the more expensive sources largely left until later. But this did not happen, and some of the ‘scarcity-driven’ price rise (due to pumping intrinsically more difficult oil) occurred in the 1970’s.

 

The third lesson, therefore, is that part of the scarcity price signal has already occurred.

 

(Subsequently, flush production from the new sources more than satisfied world demand, and OPEC’s share fell. Saudi Arabia sacrificed its own production to hold the cartel together, until finally it could accept no further reductions and the price collapse of the mid-1980’s ensued. To-day those ‘new provinces’ are getting old, either near or past their peak production, and there is little in the way of newer provinces to take their place, except for Kazakhstan, which, in reality, is a very old province indeed).

 

(iv). Market ignorance.

 

Markets are not very knowledgeable. Were the dot.coms really worth a lot one year, and little the next; did Marconi change in intrinsic value almost overnight?

 

For oil, the ignorance of the market is appalling. If Chief Economists can show so little understanding of the business; if City of London analysts think ‘replacement of proved reserves’ is significant, and if Newsweek does not understand the difference between reserves and recoverable resource, what hope is there for the punters out there? Adequate price warning requires the market to know what is happening. Otherwise the price signals do arrive, but they come like a summer storm.

 

(v).  The price rises since January 1999 are due, in part, to scarcity.

 

Some of the ‘scarcity-driven’ price rise was taken in the 1970’s, but there is also an aspect of scarcity in recent price moves.

 

Currently (Spring 2002), OPEC has several million barrels per day of potential production in hand, while the former Soviet union (FSU) may be able to up its production by perhaps 3 million barrels per day over the next 10 years or so. But most of world production outside these two regions is already in decline, making these regions the primary market setters. It was the resource limit in non-OPEC, non-FSU conventional oil that allowed the OPEC quotas of recent years to stick (despite OPEC members cheating), and which led to the price rise from $10 to $30/bbl that started in 1999.

 

The latter led in turn to the European ‘Fuel Protests’ of 2000. Had the warnings the University of Reading passed to the UK government in 1998, of OPEC soon regaining control of the marginal barrel, been passed on to the UK Farmer and Freight lobbies, it is probable that the UK fuel protests would have been averted, or at least managed more rationally. (See

European 2000 Fuel Protests, below.) (top)

 

‘Oil Supply has little impact on GDP’

 

The UK fuel protests had at least one beneficial effect. Up till then the UK’s Department of Trade and Industry (DTI) was convinced that oil played only a minor role in the UK economy; the UK using less oil than previously, having switched to gas. 7  In many quarters the argument still holds, that, since oil is only a small part of GDP, price rises will be of little consequence. 8

 

The reality is very different.

 

It is true that oil is now a smaller percentage of the global energy mix than in 1973 (some 40% of traded energy to-day vs. 50% in 1973); and, because oil is also currently cheaper in real terms, its proportion of the global GDP is smaller still.

 

But to-days’ use of oil is greater in absolute terms (some 25 Gb to-day vs. 20 Gb in 1973), so Humankind is now more dependent on oil to do the many things our burgeoning population wants and needs. And as the fuel protests showed so graphically, transportation, now largely oil-based, is the lifeblood of modern society: in the protests the doctors and nurses couldn’t reach the hospitals, the food did not get to the shops, the schools closed. Society, deprived of transportation, without adequate time to adjust, collapses.

 

Humankind is in the process of replacing light oil that flows at great rates from single wells with oil obtained by digging up and processing large quantities of sand coated in modest quantities of heavy, degraded oil. That is, the end of conventional oil is the end of intrinsically cheap oil. To-day the ‘cheap’ oil may be priced at $25/bbl due to market control, and the ‘expensive’ oil at $18/bbl due to prime sites, cheap local energy and sunk costs; but as the world moves progressively from real $5/bbl oil to real $25/bbl oil we all lose out. Humankind becomes the poorer, and the world’s real GDP decreases.

 

And if the difficult oils cannot be brought on-stream fast enough, perhaps because of technical constraints, or because doing so would breach Kyoto limits by unacceptable amounts, then we face actual shortages. Of course, demand then falls to meet supply. But this is what recession (some predict depression, and some even worse) is all about, a world economy running at a significantly lower level. Facile arguments about oil’s current low proportion of global GDP are frighteningly naďve.

 

So much for generalities; what about the detail of the economists’ specific contention that a price rise will not be significant? As long as the oil price stays within a moderate range, this is true. Following the 1973 shock, the oil price was about $40/bbl in to-day’s money. This halted growth, but did not push the world into major recession. That only happened following the second shock, when the oil price, in the first half of the 1980’s, averaged around $60/bbl in to-day’s money. So as long as the world sees no shortage of oil, and the price stays below, say, $40/bbl, the impact will not be too great. 9

 

But shortage is shortage, and the succession of production peaks (non-OPEC conventional oil, all-world conventional oil, and ‘all hydrocarbons’) will move the world into very dangerous and totally uncharted economic waters. As the peaks roll by, bland assurances that oil ‘does not matter much’ will look foolish indeed. (top)

 

‘Increasing price accesses more oil’

 

A strong defence by economists is that price will solve the supply problem. 10

 

Higher price clearly does curb demand, and bring on more supplies, but in the latter case, the question is: By how much?

 

This is a numerical question, and is partly addressed in the University of Reading publication: Perspectives on the Future of Oil, Energy Exploration and Exploitation, Vol. 18, Nos. 2 & 3, pp 147-206, 2000; and the ODAC publication: Global oil and gas depletion: an overview. Energy Policy,Vol. 30, No. 3, February 2002 pp 189-205.

 

The availability of a mineral is often seen as a pyramid; a small resource of cheap mineral at the pyramid’s apex, and ever-larger resources of more expensive (typically, lower concentration) mineral as one descends within the pyramid.

 

As explained earlier, such a view is essentially correct for all the hydrocarbon resources combined (but where extraction technologies for some of these are not available, or at negative net energy cost). But it is decidedly not true for conventional oil, where the latter is defined by extraction technology. For conventional oil, there is no large base to the pyramid waiting to be tapped at marginal increase in cost. The oil-water contact defines what fields exist; the size distribution in basins dictates that only the large fields (almost all already discovered) contain significant oil; while the physics of oil entrapment in reservoirs, coupled with the technology specified, determine the proportion of oil-in-place that can be extracted. The ‘resources pyramid’ analogy is not correct for conventional oil.

 

In this respect, it is worth recalling that the job of oil exploration geologists, like Ivanhoe, Laherrčre, Campbell, and Hardman, is not just to identify a probable location of oil, but also to make a detailed financial case to persuade their Boards to drill. The latter decision depends critically on the cost of wells, and on the perceived future price of oil. All of these people have lived through times of both plummeting and soaring prices, so know in their bones that price can change the economic amount of oil in a reservoir, sending it to zero in a difficult reservoir when the global oil price is low, raising the amount when the oil price rises, or the engineers dream up a better extraction technology. So these geologists have an intimate feel, that their economist critics deny them, of what price and technology can do. The oil geologists’ experience leads them to conclude that the impact of price on the date of peak, though real, will not be large, primarily because most of the world’s oil is in large, known fields. (top)

 

The European 2000 Fuel Protests

 

Because it was an early manifestation of the coming resource limits, it is worth saying a few words about the European fuel protest of 2000.

 

Following a period of disastrously low oil price, when commercial companies were producing some their barrels below full cost, and national oil companies were putting far too little into their countries’ exchequers, OPEC decided to be rigorous about quota reductions. At that time, much of the financial community saw OPEC as a ‘non-cartel’, as an organisation where political differences, and a tendency to over-run quotas, would always prevent effective co-operation. Few seemed to realise that OPEC, like virtually all other commodity cartels, finds it difficult to stay together in an over-supplied market (like the late 1980’s, and much of the 1990’s), and easy to stay together when product is tight. Talking to the financial community about OPEC back then was like mentioning the Suffragettes: OPEC was universally seen as an organisation once important, but currently with little relevance.

 

So when OPEC decided on significant quota reductions, most of the financial community thought little of it, and the best current view was that the oil price would head further downwards, to $5/bbl, not up. 11

 

But reality intervened. The amount of non-OPEC oil available to compensate for the OPEC cuts was small, with nearly all non-OPEC, non-FSU oil production either in decline, or reaching plateau. Though the OPEC producers cheated on quotas quite substantially, as was expected, supply tightened, and the price rose roughly threefold to about $30/bbl.

 

Fishermen in France were the first to complain, seeing the cost of business hit; the views spread across Europe, including to UK farmers (who use low-tax fuel on-farm, so feel the price rise in full), and freight hauliers who could see rival companies on the continent using lower taxed diesel. Not a word in the entire debate mentioned resource limits, and in a re-run of the 1970’s, attention focussed instead on oil company profits (a foretaste of problems yet to come) and OPEC’s behaviour, but mainly, at least here in the UK, on the government tax take.

 

The latter is illustrated in the Figure below.

 

UK Fuel prices 1980-1999

 

[FIGURE 12:]  UK Petrol Prices: Fuel Cost, and Taxe

Data in pence/litre, real 1990 prices.

Upper lines: prices at the pumps; Lower lines; excluding taxes and duty.

Source: Booklet, UK Energy in Brief, DTI/National Statistics.

 

As this Figure shows, the UK government increased tax and duties on fuel as the underlying cost of fuel price fell dramatically from about 1985. These tax and duty increases (partly reflecting the ‘fuel price escalator’, put in place for CO2 reasons) were very large. They rose from about 100% of the basic cost of fuel in the 1980s to over 300% by the end of the 1990s. Consumers largely did not notice these tax hikes, as the pump prices changed relatively little. But once the OPEC quotas bit, and the government did not revoke the taxes, conditions were in place for the fuel protests.

 

The next time prices rise, the same culprits (OPEC, oil companies – they need to be beware of windfall taxes), and government will all again be blamed in error. What is required instead is a better understanding of the hydrocarbon resource base, and its capacity to deliver. (top)

 

References

 

  1. Numerous references. A key example was a meeting held at the IEA in 1997 to discuss the question of global oil resources. Speakers included Campbell and Laherrčre, Odell, Adelman and Lynch. Campbell and Laherrčre made the quantitative case based on Petroconsultants’ data. Odell said ‘now let’s look at some real data’, and used the 1980’s gains in proved reserves to argue for a world ‘running into oil’; Adelman said the oil resources were “unknown and unknowable”, but effectively infinite, so price could always turn resources into reserves; Lynch listed many failed forecasts from the past. At day’s end, the rapporteur, an American economist, summed up by saying ‘We’ve heard the geologists’ Chicken-Little views before; on-balance I go with the economists.’ [Chicken Little in the story cried: ‘The sky is falling!’] Incidentally, one fellow present, on hearing of the accuracy of Hubbert’s 1956 prediction for the US oil peak said: ‘Well, somebody had to guess it right’.

 

  1. See, e.g., P. Davies’ ‘Balanced View’ article, or W. Schollnberger’s submission to the European parliament. (both op cit.)

 

  1. This is a widely held view, for example the UK House of Lords Select Committee report (Feb., 2002, op. cit., p18) has: “ .. we accept .. that at some stage this century oil production will start declining. However, we go along with the majority view to the extent that we do not believe that this presents an immediate security issue of itself. … we should receive adequate warning of any shortage of oil through the normal mechanisms of the market – higher prices .. .”

 

  1. Many references, see, e.g., Refs. 7 & 8, below.

 

  1. The peak in conventional oil production is the beginning of the decline of availability of cheap oil. More expensive oil is there a’ plenty. The question is: at what rate can the more expensive oil be brought on-stream?

 

  1. D. Yergin. The Prize, Simon & Schuster.

 

  1. Discussion between the DTI and the ‘Oil Group’ at the University of Reading (including David Fleming). The DTI listened to geological resources argument, but made no comment, saying they had little knowledge in that area. Where they felt on solid ground was in strongly denying Reading’s assertion that oil supply was important. (One of the DTI economists present has since joined the Treasury, the other gone to the antipodes.)

 

  1. For example, Newsweek, April 8th – 15th, 2002, p34, has: “The United States is also increasingly immune to oil shocks. In 1980, when prices shot up due to the Iran-Iraq war, the United States spent 8 percent of GDP on oil, and the shock produced a deep recession. In 1999, prices spiked by a similar magnitude, but the United States had cut oil costs to 3 percent of GDP, and many economists believe it’s no accident that the recession was surprisingly mild.”

 

  1. See, e.g., papers by Professor Oswald of the UK, and from Los Alamos(?) of the US, correlating past recessions with energy prices, driven by oil prices. (But we are surprised at not having read of more tangible linkages than correlation. Access to company internal reporting must be able to tie changes in ‘primary energy user’ companies activity to external energy costs; and this could be analysed for indicative companies in selected sectors, with additional analysis for ‘downstream’ companies dependent on the primary companies, in order to make the energy-price/recession mechanism explicit. More fundamental work would also seem possible, tracking the effect of increased energy costs in terms of reductions in Humankind’s ‘energy slaves’, and hence global loss of productivity, hence real GDP loss.)

 

  1. This refers to increases in supply, but the economists also look at demand, e.g., Newsweek, April 8th – 15th, 2002, p34 has: ‘ “You know, it’s hard to have a supply crisis to-day”, says Adam Sieminski, a strategist for Deutshce Bank. The energy market works: if prices are allowed to go up, demand goes down. Crisis averted.’

 

  1. The Economist, cover article: ‘Drowning in Oil’, 1999(?). Oil company CEO’s were quoted as seeing $5/bl well on the cards.
Posted in Default | Comments Off on ECONOMIC ASPECTS

Global depletion of the World’s conventional oil and gas is set to cause major near-term supply problems.

Hydrocarbon production is fixed mainly by past discovery. Key facts for conventional oil are:

U.S.A     –  Discovery peaked in the 1930s; production in 1971.

–  The U.S. has now burnt between half and 3/4 of its original endowment.

 

U.K.      –  Discovery peaked in the early 1970s; production in 1999.

–  The U.K. has burnt about half its original endowment.

 

World   –  Discovery peaked in the 1960s; to-day only 1 barrel of oil is found in new fields for every 3 barrels consumed.

–  World production will peak 2010 to 2015; non-OPEC production will decline earlier.

–  The World has burnt between a third and a half of its original endowment of conventional oil.

 

In total, over 50 countries are past their resource-limited conventional oil production peak, and are in production decline. The global regions of Europe, Asia-Pacific and North America (excluding tar sands) are all in production decline.

 

For conventional gas, depletion of the original endowment is less advanced. The World, in addition, contains large stores of non-conventional oil and gas. But the total production of all hydrocarbons (oil plus gas, both conventional and non-conventional) is likely to peak fairly soon, probably around 2015.

 

These limits to global hydrocarbon availability will have economic and political impacts of great consequence. This site gives independent information on the subject, and discusses issues that society will face

Posted in Default | Comments Off on Global depletion of the World’s conventional oil and gas is set to cause major near-term supply problems.

THE CALCULATIONS

Contents:  Definitions, Conventional Oil, Non-Conventional Oil, Conventional Gas, Non-Conventional Gas, Using USGS Data.

The calculations needed to find out the date of the world conventional oil and gas production peaks, and anticipated rates at which non-conventional oil and gas can compensate, are fairly straightforward. Here they are summarised, but for more details see the many papers by Campbell and Laherrère in the open literature, or the original consultancy reports listed in this web site under Further Information>Consultancy Reports .

We must start with some definitions.

Definitions

‘Hydrocarbons’ refers to oil or gas. Coal, though it contains some hydrogen, is not usually considered a hydrocarbon.

Conventional oil is defined here (and fairly generally) as oil produced by primary or secondary recovery methods (specifically: own pressure, physical lift, water flood, and water or natural gas pressure maintenance.). However, this definition is not universal. On this definition, conventional oil currently accounts for about 95% of all oil production, with some 1-2% coming from enhanced recovery, and a further 2-3% from heavy oils, and tar sands. (In addition, an additional 10% of the ‘liquids’ supply is provided by natural gas liquids from gas fields.)

 

There is no agreed terminology for ‘reserves’, ‘resources’ etc., but here we use the fairly common definitions of:

 

–  Resource:  All of the mineral, whether discovered or not, whether recoverable or not.

 

– Recoverable resource: That part of the resource that is recoverable under certain assumptions (usually not stated) on price and technology level.

 

–  Reserves:  That part of the recoverable resource that has been located, but not yet used.

 

–  Yet-to-Find:  That part of the recoverable resource that has not yet been located.

 

–  Ultimately recoverable reserves (the ‘ultimate’):  The original endowment of reserves, hence this is the same as the recoverable resource.

 

Thus:

 

Ultimate  =  Cumulative production  +  Reserves  +  Yet-to-Find.

 

Reserves are generally classified as proved, probable, or possible; where these, usually, are seen as additive, so the largest amount of reserves judged reasonably likely are the (proved + probable + possible) reserves. Alternatively, one can quote reserves as 95% likely (P95); 50% likely (P50) or 5% likely (P5). Here we use P50 reserves and (proved & probable) reserves as synonymous; this correspondence may not be strictly correct, but given the uncertainty in real-world reserves quantities (see text), appears justified. (See the text, also, for the extraordinary unreliability of published ‘proved’ reserves.)

 

Units used are:

 

b:        barrel.

 

Mb:        million barrels; Mb/d:  million barrels per day.

 

Gb:        giga (billion) barrels.

 

Tcf:        trillion cubic feet. (top)

 

Conventional Oil

 

The analysis carried out by Colin Campbell and Jean Laherrère in the 1995 study for Petroconsultants (now IHS Energy Petroconsultants) on conventional oil was as follows:

 

(a).  Estimation of ‘P50’ oil reserves, by country. (‘P50’ reserves are those with a notional 50% probability, i.e., being equally likely to see downward revision as upward revision with time.) These estimates were generated by taking the reserves data from the Petroconsultants’ data base, but adjusting:

 

–  in the light of the authors’ extensive geological knowledge;

 

–  on the basis of a variety of reasonableness tests. A key one of these is to plot a field’s production vs. its cumulative production. For most fields, once in decline, this plot gives a good check of the field’s likely ultimately recoverable reserves. (For fields in the former Soviet Union (FSU), for example, this approach shows that the reserves of many fields are significantly over-reported.)

 

(b).  Generation of estimates of oil yet-to-find. This analysis was on a basin-by-basin basis, where appropriate; and mostly used a range of statistical approaches, essentially based on the discovery data to date, to estimate the quantities of conventional oil likely be found within a reasonable exploration time-frame (for example, assuming twice as many wildcats as already drilled in a basin).

 

(c).  Addition of cumulative production, P50 reserves, and to yet-to-find, to give an estimate of each country’s ‘ultimate’ (i.e., ultimately recoverable reserves).

 

(d).  Modelling each country’s future production by:

 

–  if already past peak, by declining production at the existing decline rate (i.e., by a fixed percentage of the remaining recoverable resource);

 

–  if prior to peak, by increasing production at an annual growth rate until cumulative production equals half that country’s ultimate, and thereafter declining production at the then-existing decline rate;

 

–  in the case of the Middle-East ‘swing’ producers, calculating their production, subject to their own resource limits, using a small number of ‘geo-political’ scenarios. (top)

 

Non-Conventional Oil

 

There are very large amounts of non-conventional oil and gas in the world, so the issue here is not the size of the resources base, but the rate and cost at which these hydrocarbons can be produced.

 

Bock diagram of resource base of all hydrocarbon fuel

 

The Resource Base of all Hydrocarbons

 

–  The blocks in this Figure are all to-scale. Data are given in billion of barrels of oil (or oil’s energy equivalent in the case of gas), Gboe.

 

–  Reserves are industry data, i.e. (proved & probable) reserves.

 

–  Abbreviations:  CONV: Conventional

NGLs: Natural gas liquids

CBM.: Coal bed methane

 

–  The Figure shows the resources in-place, and the proportion thought to be recoverable under current and medium-term technology.

 

–  For conventional oil and conventional gas, the hatched bars show the amount consumed to-date.

 

–  Shows (by dotted lines, and smaller-font underlined figures in italics), for conventional oil and gas, and enhanced recovery and non-conventional oil, the quantities that will be consumed and found over the next 10 years, at the present consumption and discovery rates.

 

–  Note: Recoverable gas hydrate quantities may be large, but probably are not; see e.g., papers by Laherrère.

 

–  Sources: Based on data in F. Harper, and Perrodon at al., (see Further Information>Consultancy Reports).

 

The calculations on the rate that non-conventional oil can expand are based on known projects, and on reasonable extrapolations into the future.

 

As mentioned in Summary, the various types of non-conventional oil face a number of fundamental constraints (including cost, investment requirements, energy requirement, energy payback times, other input requirements, and pollutants, including elevated CO2 levels) that limit the rate that they can be brought on-stream.

 

More work is needed to define the various growth rates that these non-conventional oils might achieve. (top)

 

Conventional Gas

 

The production profile of conventional gas is less certain than that for conventional oil, but will be similar to that shown, and is resource-limited in the medium term. Here it is modelled by XXXXXXX. (top)

 

Non-Conventional Gas

 

For the future production of non-conventional gas, the same remarks apply as for non-conventional oil. (top)

 

Using USGS Data

 

Periodically, the United States Geological Survey (USGS) makes an estimate of the amounts of the global oil and gas that are yet-to-find, and adds these to past production and reserves data from IHS Energy Petroconsultants, to arrive at estimates for the world’s original endowments of conventional oil and conventional gas by basin (and also aggregated by country). The last such survey was in 2000, and is available free of charge.

 

There are a number of important comments to make about these data (see, for example, the ODAC publication in Energy Policy, February 2002), but provided the data are handled with caution, they can be used to calculate the conventional oil peak dates by country.

 

The way to do this is as follows:

 

(i). For all countries that are clearly past peak, determine the total quantity of conventional oil in each case that was consumed at the peak.

 

(ii). Compare these figures with the USGS 2000 estimates of each country’s ‘ultimate’ (i.e., original endowment of conventional oil), and list each country’s ‘peak percentage’ (i.e., quantity of oil used at peak divided by the USGS figure for that country’s ‘ultimate’, expressed as a percentage.)

 

(iii).  Drop from this list those countries (or adjust their percentages) where you judge special situations make this percentage unreliable.

 

(iv).  Determine a representative percentage across the countries included.

 

(v).. Apply this percentage to the remaining countries’ ultimates (i.e. those not yet clearly past peak) to determine their likely peak dates.

 

The assumption behind this method is that the USGS survey approach, while finding significantly higher ultimates (at ‘mean’ probability) than estimates based on past discovery rate, is reasonably consistent between countries in its estimating approach. (top)

Posted in Default | Comments Off on THE CALCULATIONS

ASPO TUTORIAL

The Association for the Study of Peak Oil (ASPO) is a loose association of European independent institutes and governmental and academic bodies who liaise on questions related to global oil depletion and its effects.

Dr. Campbell has written the following eight-part Microsoft ‘Powerpoint’ tutorial, and the text has been reviewed by a number of the ASPO membership, and by ODAC.

You may download all or part this tutorial, and, if required, further distribute to others. It is a condition of downloading all or part of this tutorial that further distribution be free of any charge (except for genuine costs incurred in the processes of reproduction or distribution). Acknowledgment of Dr. Campbell or ASPO as the original source of the tutorial is requested.

Updated: 5/April/2002

ASPO tutorial downloads

To download and save these files right click on your chosen link below and select, in Netscape:”Save Link As”, in Internet Explorer: “Save Target As”.

 

 

 

Tutorial No 1 Powerpoint (.ppt) file (2.28 Mb, about 10 minutes to download at 56k)

this is a fully editable version of the tutorial, complete with all notes

 

Tutorial No1 Acrobat (.pdf) file (134 kb, about 50 seconds to download at 56k)

this has all the slides and, where appropriate, the accompanying notes

 

More tutorials to come…………tba

Posted in Default | Comments Off on ASPO TUTORIAL

ABOUT THIS SITE

The site is written by Dr. Roger Bentley, Senior Research Fellow, Department of Cybernetics, The University of Reading, UK.

Since 1995, Dr. Bentley has been part of the University of Reading’s ‘Oil Group’, a group of physicists, engineers and petroleum geologists studying global hydrocarbon resources.

In 2001-2002, Dr. Bentley was Co-ordinator of the Oil Depletion Analysis Centre, London.

Well-founded comment on this website is appreciated. Please e-mail to:

r.w.bentley@reading.ac.uk

Use of Information, and Disclaimer.

Material from this site may be published freely, but acknowledgement is requested. The views are those of the author, and not necessarily those of the data suppliers. No responsibility is accepted for use of the information provided.

 

Posted in Default | Comments Off on ABOUT THIS SITE

PAST OIL FORECASTS

Contents: Introduction, Conclusion, Table of Forecasts, Notes to Table, Discussion of The Limits to Growth, References

Introduction

One of the main reasons that people, oil experts in particular, are disinclined to believe the situation forecast by current global oil depletion calculations is their conviction that past oil forecasts have been wrong, particularly those made in the 1970’s. This view sees the present calculations as just another example of ‘crying wolf’. 1

On examination, it turns out that most reputable oil forecasts made in the 1970’s were substantially correct.

Oil forecasts made in the 1970’s nearly all fit into one of four classes.

– General, non-quantitative, fears of global supply scarcity, based on the experience of shortages that occurred during the oil shocks.

– Predictions of global oil would run out (i.e., reach exhaustion) in 30 years or so, based on the then-proved oil reserves of about 30 years’ worth of current production.

– Predictions of oil global exhaustion in a much shorter timescale, based on the then proved oil reserves (or some assumed larger amount), but with growth assumed to rise at a fast exponential rate, as had been the case until fairly shortly before the shocks.

– Predictions that global oil would reach a production peak (very different to oil running out) around the year 2000.

It was this fourth view that characterised the forecasts from nearly all reputable organisations at the time, and which was also reflected in many textbooks and monographs on energy published at the time (see a summary of some of these in the Table of Forecasts, later in this section).

This fourth, ‘production peaking’, forecast was based on:

– the then well-accepted estimate for the world’s conventional oil ‘ultimate’ (i.e., original endowment of recoverable oil), of roughly 2000 Gb;

– the knowledge that global production peak would not occur until something like half of this, 1000 Gb, had been used;

– the knowledge that only ~300 Gb had been consumed at that date;

– the assumption that production would follow an ‘unrestricted’ logistic (‘Hubbert’) production profile.

On this basis, the global midpoint was calculated to lie around the year 2000, (a precise calculation by Hubbert giving the date as 1996).

In the event, global demand was substantially curtailed by the price rises of the oil shocks, and an unrestricted logistic profile was not followed; with the result that the estimate of conventional ultimate of around 2000 Gb (still to-day, for this purpose, the best estimate to use) simply moved the global conventional oil production peak to around 2010. This is illustrated in the following Figure.

[FIGURE 11: ] 1970’s ‘Logistic Curve’ Forecast, and Actual Demand

This graph is for ‘narrowly-defined’ conventional oil (i.e., it excludes oil with API < 17.5, oil in waters deeper than 500m, oil in polar regions, and NGLs). The graph shows: - Global oil discovery by year (finds prior to 1930 shown in 1930); - An unconstrained logistic (‘Hubbert’) curve with an area of 1800 Gb; - Actual production to 1999; - Estimated future production, also with an area of 1800 Gb. (The short plateau in production ( ~2000 to 2008) is based on the assumption that price will curb demand.) As can be seen, the high prices from the oil shocks lopped the top off the unconstrained curve, and shifted the date of peak by about 10 years. Source: C.J. Campbell. Conclusion It is true that there have been calculations in the past warning of oil’s approaching scarcity that turned out to be misleading. Some, like many of those enumerated by Butler of the DoE, correctly indicated that production from a particular region or country was soon to decline, but overlooked the scope for new discoveries elsewhere. Other have been clearly erroneous, such as a CIA forecast from the 1970's that was predicated not on resource limits, but on assumed structural decline in the Soviet Union; or an early forecast by the UK’s UKOOA that was based only on areas so far licensed. Still others, as mentioned above, predicted oil exhaustion based on only proved reserves, or assumed the continuation of very high growth rates in demand. But, as pointed out above, nearly all the forecasts made by reputable organisations in the 1970’s combined mid-point peaking arguments with realistic estimates for the world’s original endowment of conventional oil. Hence these forecasts gave, in quantitative terms, exactly the same warnings of the ‘wolf’s’ approach as given by to-day’s oil depletion calculations: that global conventional oil production will peak when roughly 1000 Gb has been produced. These are warnings it would be wise to heed. Table of Forecasts of World Oil Supply Date of Forecast Source Forecast Date of Conventional Peak Assumed Ultimate* Notes 1972 ESSO “Oil to become increasingly scarce from about the year 2000.” 2100 Gb [1] 1972 Report for the UN Confr. on Human Environment “ likely that peak production will have been reached by the year 2000.” 2500 Gb [2] 1974 SPRU, Sussex University, UK n/a 1800 – 2480 Gb [3] 1976 UK Dept. of Energy Peak: “about .. 2000.” n/a [4] 1977 Hubbert Peak: 1996. 2000 Gb (Nehring) [5] 1977 Ehrlich et al. Peak: 2000. 1900 Gb [6] 1979 Shell “.. plateau within the next 25 years.” n/a [7] 1979 BP (Oil Crisis … again?) Peak (non-communist world): 1985. n/a [8] 1981 World Bank “.. plateau around the turn of the century.” 1900 Gb [9] 1995 Petroconsultants Peak: 2005. 1800 Gb, (excl. NGLs) [10] 1997 Ivanhoe Peak: 2010. ~ 2000 Gb [11] 1997 Edwards Peak: 2020. 2836 Gb [12] 1998 IEA: WEO 1998 Peak: 2014. 2300 Gb refnce. case [13] 1999 USGS (Magoon) Peak: ~2010. ~ 2000 Gb [14] 1999 Campbell Peak: ~2010. 2000 Gb (incl. polar, deep) [15] 2000 Bartlett Peak: 2004, or 2019. 2000, or 3000 Gb [16] 2000 IEA: WEO 2000 Peak: “Beyond 2020.” 3345 Gb (from USGS) [17] 2000 US EIA Peak: 2016 - 2037. 3003 Gb (from USGS) [18] 2001 Deffeyes Peak: 2003 - 2008. ~ 2000 Gb [19] 2002 Smith Peak: 2011 - 2016 2180 Gb [20] 2002 ‘Nemesis’ Peak: 2004 - 2011 1950 - 2300 Gb equiv. [21] * Gb = billion barrels. Notes to Table [1]. The Ecologist. ‘A Blueprint for Survival’, Penguin, London, 1972; see pp 18 and 130. This report looked at the impact of continued exponential demand growth on oil’s lifetime, but also presented the ESSO forecast given here. (As mentioned above, the calculations of the 1970’s did not foresee the global demand reduction from the oil shocks, so assumed production would rise to peak at about 100 million barrels per day. This put the conventional oil peak earlier than if based on actual demand.) [2]. B. Ward & R. Dubos, ‘Only One Earth: the Care and Maintenance of a Small Planet, Penguin Books, UK, 1972, p 184. This was a landmark report. Its status was ‘an unofficial report commissioned by the Secretary-General of the United Nations Conference on the Human Environment’, Stockholm, 1972. A committee of 158 extraordinarily eminent ‘scientific and intellectual leaders from fifty-eight countries served as consultants’ in the report’s preparation. The full extract (p184) is: “One of the most quoted estimates for usable reserves [of oil] is some 2,500 billion barrels. This sounds very large, but the increase in demand foreseen over the next three decades makes it likely that peak production will have been reached by the year 2000. Thereafter it will decline.” [3]. H.S.D. Cole et al., Eds. Thinking about the Future: A critique of 'The Limits to Growth', Science Policy Research Unit, Sussex University, Chatto & Windus, 1974. This quotes a variety of estimates of ultimately recoverable oil reserves made mostly in the 1960's, including those of Hubbert in 1969 and Warman in 1971. [4]. W. Marshall. Energy research and development in the United Kingdom, Energy paper No. 11, UK Department of Energy, 1976; p 12. [5]. M.K. Hubbert. Project Interdependence: U.S. and World Energy Outlook Through 1990. Congressional Research Service, Washington, 1977, p 624; quoted in: ‘The Global 2000 Report to the President’, Penguin’, 1982, p 353. Hubbert took Nehring's world ultimate oil reserves estimate of 2,000 billion barrels, and assumed that oil production would be limited only by resource availability. On this basis, he calculated that world production would reach a peak at about 100 Mb/d, around the year 1996. [6]. P.R. Ehrlich, A.H. Ehrlich and J.P. Holden. EcoScience: Population, Resources, Environment. W.H. Freeman, San Francisco, 1977, ISBN 0-7167-0567-2, pp 400-404. A widely-quoted textbook. 2 The authors calculated a ‘Hubbert’ peak based on the ‘high-estimate’ for global conventional oil endowment of 10,900 trillion MJ (~ 1900 Gb). (Interestingly, the book also draws attention to the then-controversy which led to the USGS revising down, by a factor of 3, its estimates for US undiscovered recoverable oil and gas.) [As a side comment, it is probable that the famous Simon vs. Ehrlich, Harte and Holdren ‘commodity price bet’ failed in large measure because of the more than two-fold fall in real-terms oil price (reflected also in other energy prices) between 1980 and 1990; energy being a large component of mineral extraction costs. Since the high price of 1980 was driven, fundamentally, by the US oil peak nearly a decade earlier, the conclusions generally drawn by economists from the outcome of that bet probably need revision.] [7]. A.F. Beijdorff. ‘Energy Efficiency’, Group Planning, Shell International Petroleum Company, London, April 1979; p 1. (Current modeling suggests the world peak may be fairly sharp, rather than the long plateau suggested in this Shell study.) [8]. BP report Oil crisis ... again ?, published in 1979. In terms of UK views, this report is one of the more significant of the examples of 'failed' forecasts that people (e.g., J. Mitchell, P.R. Odell) choose to quote. It indicated that non-communist world oil production would peak in 1985. This forecast bears examination. The first step is to add back in communist production. Then, like other forecasts of that time, the report assumed rising production when high prices were in fact reducing demand. Adjusting for this, and for the subsequent increases in production of NGLs and non-conventional oil, makes the resulting prediction look reasonable; forecasting a fall in global conventional oil production from around the year 2000. [9]. The World Bank. Global Energy Prospects, World Bank Staff Working Paper No. 489, 1981. See pp 37, 46. The report said: "The bulk of the world's reserves, principally in the Middle East, was built up in most part during the 1960s. Despite increased incentives to explore for oil provided by higher prices, conventional oil production is projected to reach a plateau around the turn of the century.” (Note that by the early 1980’s, the impact of the demand reduction was becoming visible, and hence the calculated global peak date, for a given assumed ‘ultimate’, falls later.) Elsewhere, p 46, this quotes ultimate recoverable oil reserves as being 1,900 billion barrels, and says: "According to some estimates, the world's ultimate recoverable gas reserves are at least equal to [those of oil]". [10]. C.J. Campbell and J.H. Laherrère. ‘The World’s Supply of Oil, 1930 – 2050’. Report from Petroconsultants S.A., Geneva, 1995. (See also: C.J. Campbell & J.H. Laherrère, The End of Cheap Oil, Scientific American, March 1998, pp59-65.) This is one of the more detailed studies to date, and is the basis for the information provided in this website. As explained in earlier sections of this website, this study used full access to the standard industry oil resource database to carry out analyses of hydrocarbon reserves, with those in particular countries requiring adjustment. It also used a range of statistical approaches to assess the yet-to-find, and the logistic model to generate future hydrocarbon production. As critics have pointed out, this study did not explicitly include the effects of technology or price on the assessments of regional and global ‘ultimates’. But the authors maintain, with considerable supporting evidence, that price and technology have only a limited effect on the size of these ‘ultimates’, at least as they affect calculations of production peak date. [11]. L.F. Ivanhoe. Updated Hubbert Curves Analyze World Oil Supply. World Oil, Vol. 217, No. 11, November, 1996, pp 91-94. Used USGS discovery data, and the fact that production has to largely mirror discovery. A clear warning of the problems to come. [12]. J.D. Edwards. Crude oil and alternative energy production forecasts of the Twenty-First Century: The end of the Hydrocarbon Era. AAPG Bulletin, vol. 81 pp1292-1305, 1997. A reasonable study, but limited by lack of access to industry data, so arrives at a high global ultimate. [13]. The International Energy Agency ‘World Energy Outlook’; published Nov. 1998; ISBN 92-64-16185-6. Used the 1994 USGS mean estimate for global conventional ‘ultimate’, of 2300 Gb, for its reference case. It also used a low case of 2000 Gb, (based on the Petroconsultants report) and a high case of 3000 Gb (based perhaps on Odell’s data). The rate of discovery that would support the high case ‘ultimate’ was not examined. The study did not specifically account for the impact of likely price and technology developments, though it did examine the scope for non-conventional oils to come on-stream. [14]. L. Magoon. USGS Open File Report, 00-320 Version 1. The main USGS 2000 survey (Ahlbrandt et al.) examined total oil available (basin ‘oiliness’), but did not look in detail at the rate at which these resources can be discovered. Magoon of the USGS endorsed data in the Scientific American article by Campbell & Laherrère on the rate at which the resources can become available. [15]. C.J. Cambpbell. Oil Reserves and Depletion. PESGB Newsletter, Petroleum Exploration Society of Great Britain, March 1999, pp 87-90. A partial update of the 1995 Petroconsultants report. It analysed polar & deepwater oil separately, but added these back in the full analysis. [16]. A.A. Bartlett. An analysis of US and world oil production patterns using Hubbert-style curves. Mathematical Geology, 32/1, pp1-17, 2000. Bartlett does not have access to the industry data, so predicted peak based on these two assumed values for the conventional ‘ultimate’. [17]. The International Energy Agency. ‘World Energy Outlook’, 2000. Used the USGS 2000 survey mean oil-plus-NGLs ‘ultimate’, including reserves growth, of 3345 Gb. The IEA state that such data are “authoritative”, but, as mentioned above, the data pay no attention to the rate that such oil can be discovered. Note that USGS 2000 data include a large allocation for reserves growth, contrary to the decision of the previous survey. The USGS team has subsequently re-evaluated its approach of basing global reserves growth on the US’ experience. [18]. US Energy Information Administration website, 2001. Uses the USGS 2000 mean ‘ultimate’ of for conventional oil (excluding NGLs, but including reserves growth), of 3003 Gb. If the world decline rate is taken as 2% p.a., this puts peak at 2016. If a much steeper (probably unrealistic) decline rate of 10% p.a. is assumed, this puts the peak later, at 2037.As with the IEA 1998 World Energy Outlook above, this study uses USGS 2000 survey results in an uncritical manner, both on the rate of discovery of oil, and on the scope for reserves growth outside the U.S. [19]. K.S. Deffeyes. ‘Hubbert’s Peak’, Princeton University Press, 2001; ISBN 0-691-09086-6. Uses a range of statistical techniques, based, essentially, on the discovery trend curve indicating the likely ‘ultimate’. This study has no direct access, we believe, to the industry database. [20]. M.R. Smith. Analysis of Global Oil Supply to 2050. Consultancy report from The Energy Network, March 2002. Production estimates are based on detailed country by country exploration analyses, and use individual depletion curves to meet calculated ‘ultimates’, rather than simple ‘mid-point peaking’. Includes data on the non-conventionals, and expected oil price forecasts. Global ultimate is 2180 Gb, making the global peak in 2011 if global demand is assumed to rise by 2%/yr.; or 2016 at 1%/yr. growth. [21]. ‘Nemesis’, in a contribution in ASPO/ODAC Newsletter, Issue 15, March 2002. This study generates a range for the dates of peak production, based on cumulative production to-date; plus reserves and ‘net discovery’ data from Campbell and BP’s Schollnberger. This approach avoids the need to use specific estimates of ‘ultimate’, but yields the approximate ‘equivalent ultimates’ listed in the Table. The ‘Club of Rome’ Report: Limits to Growth Because of its importance in many people’s perception of resource limits, it is useful here to also discuss the Club of Rome report: The Limits to Growth, (D.H. Meadows, D.L. Meadows, J. Randers and W.W. Behrens III, Earth Island, 1972.) This report was a key contributor to the 1970’s understanding that resources are finite; that man’s use of these could reach limits within comprehensible time spans; and that the complex interactions between resources, population, capital and pollution demanded system thinking if a proper understanding is to result. Prior to the report, oil use had been growing at around 7% per year, and the calculations of the Club of Rome correctly showed that if this sort of growth rate were to continue, a resource base of almost any feasible size would be exhausted in a surprisingly short time-span. The lesson, still true today, is that unfettered exponential growth is unsustainable. The authors gave a table (p 58) listing the then-current proved reserves of various minerals, including oil at 455 billion barrels. The authors recognised that the figure they gave for each mineral represented only the resource discovered so far, and suggested that a larger amount, up to perhaps six times as much, might represent the total useful quantity of that mineral. (In oil’s case, co-incidentally, six times 455 Gb is roughly correct for conventional oil’s original endowment, i.e.,‘ultimate’). But the authors made no use of these current resource numbers in their modeling. Instead they assumed, in their 'standard computer run', that all non-renewable resources, lumped together, had a resource base in 1970 of 250 years' supply at 1970 rates, (p 126). The standard run then showed that society would collapse in less than a hundred years due to resource depletion, itself driven by: - population growth, - compounded by an increasing per capita use of non-renewable resources, - and further compounded by the assumption that the material capital to extract the resources increases as the resources themselves are depleted. Finally a point is reached where too little capital is left for future growth, as investment cannot keep up with depreciation (p 125), and the industrial base collapses, taking food and service production with it. If the authors doubled the resource base (p 127), society still collapsed, now primarily due to pollution limits, but also to severe restraints on resource availability. Interestingly, in the sequel: Beyond the Limits (D.H. Meadows, D.L. Meadows, J. Randers; Earthscan, 1992), estimates are given for oil's ultimately recoverable reserves (as opposed to then-current proved reserves given in the previous book), an acceptable range of 1,800 - 2,500 billion barrels (Table 3-2, p 71). But the authors appeared unaware of the Hubbert 'peaking from the mid-point' argument. Overall, the key perceptions about the Club of Rome’s report (despite the details of its simulations) are that, since no major resource shortages have appeared, the report must be fundamentally flawed; that forecasting resource limits is a fool's game; and that man's ingenuity and skill will always overcome the outdated Malthusian nightmares of resource depletion. The report is due for re-consideration. References 1. Numerous references. Recent ones include: Lord Lawson to a British meeting of energy economists; and BP’s Professor Peter Davies in the 2002 UK House of Lords report (op. cit., p 79). 2. Other influential books from the 1970’s, at least on this side of the pond, include: - G. Foley, with C. Nassim. The Energy Question, Penguin Books, Middlesex, ~1975. This contains a fascinating discussion of the then-generally available data on oil resources; including an early understanding of apparent discrepancies in the data from Professor Odell. - J.G. McMullan, R. Morgan and R.P. Murray. Energy Resources and Supply, Wiley, 1976. This has an excellent graph, Figure 1.3, showing the possible future production from a wide range of fuels, including fission and fusion. For conventional oil it shows a peak soon after the year 2000. (Professor John McMullan is now at Ulster University, and was Chairman of the DTI’s ‘Foresight Programme’ Energy Futures Task Force); - G. Leach et al. A Low Energy Strategy for the United Kingdom, Science Reviews, London, 1979, ISBN: 0-905-927-20-6. Page 9 has: “Forecasts show energy needs rising implacably, with widening energy gaps appearing around the turn of the century as oil and gas production begin to decline.” (Gerry Leach is now with the Stockholm Environment Institute, and is based in London.)

Posted in Default | Comments Off on PAST OIL FORECASTS