Peak Oil Is Back With A Vengeance

Ha! You thought peak oil was ‘debunked’, or ‘solved’ a long time ago by the ‘shale oil revolution’ in the US? Well, it is time to think again… (For a more scientifically reticent commentary on the subject I recommend reading Richard Heinberg’s recent correspondence on the story. In this blog however, as you might have got used to it, I’m not going to mince words.)

The story begins in 1956 when the renowned petroleum geologist M. King Hubbert came up with his famous model for predicting the future production rate of oil for the continental United States — the now famous Hubbert Curve. However, his method is now considered to be an accurate model for the production cycle of any finite resource.

Let me emphasize this right at the beginning — to avoid any misunderstandings, or even worse: a misrepresentation of this information — the Hubbert-curve is not a vague, unproven theory (like just about every economic theory starting with neo- and ending with classical), but a well researched, proven scientific method. Something, like calculating trajectories over large distances or tracing light through a set of lenses.

For the sake of fairness, it must be noted that this method is just as prone to statistical errors — coming from inaccurate, or god forbid falsely reported input data — like any other measurement in science. Since the production of oil, and especially the amount in reserves is a strategically important measure of any exporting country’s strength, and it sometimes gets somewhat exaggerated by the leaders of said nations or oil companies.

However, given enough time, and enough historical data it is possible to refine the model and increase it’s accuracy. And this is exactly what we have got this time with a freshly released study from Jean Laherrére, Charles A. S. Hall and Roger Bentley. These names need no introducing to readers familiar with the topic — for those new to the subject it is enough to be said, they are well established petroleum geologists and scientist producing well researched peer reviewed articles since decades. They are not the type of folks you can hire to write rosy articles pushing unrealistic solutions, or trying to defend economic interests. In fact the study — linked above — goes straight against the grain while staying away from pushing false technical “solutions” others hope to profit from.

The great misunderstanding

Now, back to the topic of peak oil. What most people misunderstand about the topic, is that oil production cannot rise or stay flat indefinitely, or until reserves run out on one bad day.

Saying things like we have fifty years of oil at current production rates left is both silly and misleading. Oil is not like your favorite sugary water in a bottle. You cannot stick a straw into it and suck it at a constant rate. Make no mistake, this misrepresentation of how petroleum gets ‘produced’ is no accident: it was deliberately pushed on us by oil companies, as their future value (i.e. stock price) depends on the false belief that they can bring just about any quantity of oil to the market, if ‘the price is right’, and if they receive enough money to invest in ‘increasing production’.

Oil, however, is not a ‘product’ rolling off from a manufacturing line, but a finite natural resource with its own set of limitations. In reality, when you drill a well oil starts to flow at a relatively moderate, but ever increasing rate — up until the point (when roughly half of the oil in that given well is still underground), the flow starts to slow at a gradual, but similarly ever increasing rate (take a look at the chart again). Oil companies then push more and more water or CO2 underground to keep the juices flowing, until it no longer worth to keep the equipment pumping (churning energy and machine time while returning ever dwindling returns) and finally plug the well. In many cases with some oil still left in it.

This is what Hubbert realized and poured into a mathematical formula which describes the flow of oil from a given well from start to finish. It is not a linear march upwards nor a steady flow till the end, but a roughly symmetric hump with a rise and fall dynamic.

Put many wells together — all producing according to their own Hubbert curves — and you get one big Hubbert curve for a given field, country or even the world. Yes, before you ask, the laws of physics and geology are the same everywhere on Earth.

The results have been proven by millions and millions of wells across the surface of this planet. It is only a matter of time and accurate input data (historical production rates of each field) to find out where we are on this curve globally. With enough data plotted against this curve one can estimate the ultimate recovery rate: the holy grail of oil production, telling us how much we had originally to start with. Deduct how much we have used up so far, and voila: we got how much oil is left.

This is exactly what this latest study from Jean Laherrére et al accomplished. They have come up with a number on how much oil is left, and how much can be expected to be found globally. The bad news is — and this is now confirmed — that we have just reached the midpoint of the curve for conventional oil. In other words, we have used up the first half of our heritage. Globally. Now scroll back up, check what usually comes after the midpoint, and draw your own conclusions.

What about the shale revolution?

The main argument against Peak Oil in the 2010s was that Hubbert’s peak doesn’t apply because — thanks to human ingenuity, what else — we have found a way to harvest previously untapped resources and managed to increase production well above historical highs. This statement, however, could not be a better textbook example on how to prove a theory right by trying to disprove it.

First, Hubbert’s original curve in the 1950’s was calculated to represent the lower 48 states, excluding the Gulf of Mexico and Alaska, as well as shale oil (the later of which Hubert himself knew a lot about, but deemed it uneconomical to recover). His prediction for this limited set of fields, however, proved to be remarkably accurate. See below:

Then came the great financial crash and with it the unprecedented flow of money in form of quantitative easing and cheap credit — some of which found its way to oil companies experimenting with an old technology (fracking) and trying to make it look sexy against the backdrop of skyrocketing oil prices. The later of which was a result of oil production lagging behind rising demand since 2005 as world conventional (easy and cheap to extract) oil started to hit a plateau phase (the middle section) of the Hubbert curve.

Petroleum geologist Art Berman called this sudden upswing in US oil production a ‘retirement party’ — and rightly so. And this where the second part of statement, namely that ‘we have found a way to harvest previously untapped resources’ proves Hubbert right — again. Oil is a finite resource. If one batch of it runs out, then it is only a question of time when the next — previously untapped — batch will run out.

Neither the fields nor the planet itself is infinite. You have a certain set of fields with a certain amount of oil underneath them. When you tap a new reserve you are just about to experience another Hubbert curve kicking into action — this time though (with tight oil) it is even steeper and more squeezed then before. Don’t be surprised should US production fall just as steeply as it rose in the coming decades.

Much to their credit, the authors of this new study have now included all sorts of oil into the calculation — from Canadian tar sands to extra heavy crude from the Venezuelan Orinoco-belt — and came up with additional curves for these non-conventional sources as well. The message did not got much brighter though: even if we push all of these expensive, hard to get resources to the limit we still experience a peak in overall production by 2030 latest.

Is it really worth it?

Since you have read this far, let me share my findings with regards to something even more important than peak oil production. As I wrote earlier, it is the net energy what really matters when we talk about any energy ‘production’ be it hydrogen or oil. In the later case and with an ever increasing share of unconventional sources (tar sands, extra heavy oil, deep water etc.) we are getting less and less useful energy for society as whole. These sources demand an ever large share from oil to be maintained, let alone to be further developed. Oil is not used only by cars, but by the very equipment doing the drilling and pumping of the black gold itself. It doesn’t matter how high you can push production in barrels when you have to return a considerable fraction of the product into extraction. It’s no wonder that authors of another great study examining this factor came to the conclusion that:

“The total energy needed for the oil liquids production thus continually increase from a proportion equivalent today to 15.5% of the gross energy produced from oil liquids, to the half in 2050. We thus foresee an important consumption of energy to produce future oil liquids.”

As a result, no matter how many different unconventional resources we tap, we will eventually reach peak net energy from oil by 2023. That is: next year.

Sit with this, and while at it, ponder how many uses oil has in our high tech lives from mining, to transportation and food production. This means that you cannot expand these activities globally any further, and since peak oil (and peak net energy from oil) means a gradually falling production, this will translate into a permanent crisis. Not a sudden fall or apocalypse. But a steady slimming diet for the economy, turning many parts of it off for good, resulting in less international trade, less travel, less products (including ‘renewables’) and unfortunately less food.

Authors of the newly released study came to the same conclusion:

Firstly, our findings suggest that unless the world rapidly weans itself off oil for reasons of climate change, there are likely to be significant economic and political consequences due to oil resource limits, as first conventional oil, and then all-oil, become supply-constrained. Particularly hard hit are likely to be developing countries, as without significant financial reserves accessing oil will be difficult, as is currently the case for Sri Lanka. Large oil importing economies, such as India and China, also may well see their economies contract; while large oil exporters will face very changed market conditions. The latter is because oil prices cannot go much higher for long, as this destroys demand as was clear in the early 1980s. Finally, the near-term aim of a number of countries to reduce their imports of Russian oil (and gas) due to the recent war in Ukraine is likely to further exacerbate petroleum supply/demand balances. Such findings suggest difficult times ahead.

I don’t know about you, Dear Reader, but I would not hold my breath waiting for governments stepping up their climate pledges and actions amidst an unfolding economic and energy crisis blamed on everyone and everything but the true cause: resource depletion.

As for closing thoughts I give the word back to the authors to tell the same story what I keep telling on this blog for more than a year now:

But there is a range of other constraints that seem likely to impede the global energy transition, and which in our view are also seeing insufficient consideration in most current energy modelling. These constraints are set out in The Energy Pivot report (Ratcliffe et al., 2021), and include the following:

- The near-term resource-limited maximum in the global production of conventional gas.

- Declining ore concentrations of many minerals, with impacts on mineral availability and on the energy used for their mining and benefaction, and hence on mineral price.

- The fact that the energy transition still has a long way to go, with currently the ‘new’ renewables of wind, solar, biomass and geothermal energy combined contributing only some 5% to global primary energy (BP, 2021).

The interlinkage between the various factors involved above are complex, and include population growth, rising economic expectations across many populations, the issues of hydrocarbon and minerals availability mentioned above, declining EROIs, the impact of ‘dynamic’ EROIs, and the need for a diversion of considerable financing to the energy sector (Hall et al., 2014; Perèz et al., 2020). Also important is the combined effect of these factors on GDP per capita, which some studies expect to see fall because of the energy transition. Perhaps only ‘systems dynamics’ modelling can handle the required degree of linkage, and here the results from the still relatively few systems dynamics models that look at these issues are unfortunately not encouraging; see for example (Perèz et al., 2020; King and van den Bergh, 2018; Solé et al., 2018). Perhaps of greatest concern is that if many people see a decline in their financial well-being, which they will perceive mostly as inflation, they will blame politicians or other groups, thus making governance more difficult, and the tackling of problems related to declining net energy delivered to society harder to achieve, as discussed by Ahmed (Ahmed, 2017).

Peace.

B

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A critic of modern times - offering ideas for honest contemplation.