Energy#1: What is Peak Oil?

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Photo by: MissusK

This post is part of my World-Changing Wednesday series. Tune in each Wednesday to read my thoughts on an issue which I think will have a huge impact on how we live our lives in the years to come.

“My main motto never changes, the era of low oil prices is over.” Dr Fatih Birol, Chief Economist, International Energy Agency

Most mornings I try to read the headlines in the Australian news because I like to keep up with what’s happening back home. This morning I was surprised to see the following headline in the Breaking news section: ‘Four Saudi Arabias’ needed for oil. For many of us aware of Peak Oil, this is hardly breaking news, but I’m somewhat pleased that this type of article is finally making its way into the mainstream media. I consider Peak Oil to be the one issue which could impact us most in the decades to come, affecting almost every facet of our lives. I think it’s about time for me address this topic on my blog.

Firstly, I want to say right from the start, Peak Oil does not mean we’ve run out of oil, nor will we run out any time soon. What it does mean is that there will be a decline in production of ‘easy oil’ (light, sweet crude oil) and we’ll move to more production of ‘difficult oil’ (heavy, sour crude oil, oil shale and tar sands) . Since I like to use diagrams, let me try to explain this visually.

Peak Oil definition

Peak oil is the simplest label for the peak in global oil production. The rate of oil ‘production’ (meaning extraction and refining) has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production ceases to grow and begins a terminal decline, hence ‘peak’. The peak in oil production does not signify ‘running out of oil’, but it does mean the end of cheap oil, as we switch from a buyers’ to a sellers’ market.

Oil production peak

oil-wellExtraction of oil is not like pumping water from a tank. Oil does not simply flow out at a constant rate until there is no more. When an oil field starts production, the oil is under a lot of pressure and comes up easily. Images like the one to the right show how oil literally gushed from the ground when new fields were tapped. As more and more wells are sunk into a field the amount of oil able to be extracted from a field increases….up until a point.  Eventually water, steam or gas has to be injected to repressurise the wells. Finally, once most of the recoverable oil has been taken out, it becomes impossible to maintain the same production rate. The remaining oil has to be pumped out at a much slower rate. The production peak occurs when that output begins to decline.

Typically, each oil producing country will stagger the development of their oil fields. The biggest and easiest fields will be developed first. Then the harder and smaller ones. As more and more fields reach their production peak, the production of the country (the aggregate production of the individual fields) will also eventually peak and decline (see below).

typical-production-pattern-for-oil-region

Source Energy Watch Group, Oil Report 2007.

Every oil field exploited to date has exhibited this same basic extraction profile. Just as individual fields peak, so do collections of fields. Peak Oil, then, is NOT an abstract theory. It is a physical description of an extremely well characterised physical phenomenon. Already, a large number of oil-producing countries are past the peak of their oil production.

oil-producing-countries-past-peak

Source Energy Watch Group, Oil Report 2007.

Global peak oil

As more and more countries are reaching their own national peak, the question on everyone’s minds is: When is world oil production going to peak? The answer to this question is what is generally refered to as ‘Peak Oil’.

oil1

In the 1950s the well known U.S. geologist M. King Hubbert was working for Shell Oil. He noted that oil discoveries graphed over time tended to follow a bell shape curve. He supposed that the rate of oil production would follow a similar curve, now known as the Hubbert Curve. In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Most people inside and outside the industry quickly dismissed the predictions but as it happens, the US lower 48 oil production did peak in 1970/1. The peak was only acknowledged with the benefit of several years of hindsight.

No oil producing region fits the bell-shaped curve exactly because production is dependent on various geological, economic and political factors, but the Hubbert Curve remains a powerful predictive tool. Later in life M. King Hubbert predicted a global oil peak between 1995 and 2000. He may have been close to the mark, except that the oil shocks of the 1970s slowed the consumption of oil for close to a decade.

From the graph below, we see that global oil discoveries peaked in the sixties which means that the bulk of oil extracted today is coming from aging fields discovered decades ago.

world-oil-discovery-10-years-period

Source The Oil Drum: Peak Oil Overview – March 2008.

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004. Hubbert’s methods, as well as other methodologies, have been used to make various projections about the global oil peak, with results ranging from ‘already peaked’, to the very optimistic 2035. Many of the official sources of data used to model oil peak such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be frighteningly unreliable.
oil-production-world-summary-forecast

Source Energy Watch Group, Oil Report 2007.

Personally I find myself in the ‘near peak’ camp meaning I tend to think world oil production has already peaked or will very soon. I’ve tried to keep today’s post pretty simple and based on factual evidence based on what we know about the characteristics of individual oil fields. Over the next few weeks I intend to delve a little more deeply into this issue and also look at some of the ramifications of peaking global oil production. I hope you join me.

Read more from me:

Economy#1: How Money is Created

Economy#2: Is a housing bubble looming in Australia?

Economy#3: How the Credit Crisis Happened

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6 comments

  1. Thank you for taking the time to bring together that information. I’ll be honest – i only recently started to appreciate the reality of peak oil and what its implications are for our lifestyle. Looking forward to your future posts on the issue.

  2. Let me start by saying that WE are now more inter-connected, than at any other time in human history.

    However, this has been enabled by a cheap & abundant source of energy (Oil), which has recently (2005) Peaked over Hubbert’s hill and some of the Human Population have Peeked at the downhill slope, some were already aware.

    As I said, we are inter-connected; with Energy, Food Production, Climate & other issues, all linked to and feeding off each other and Population growth.

    Clearly, there is great change coming, but the establishment is also clearly trying to retain the status quo, in Economics & Politics, as long as possible.

    In trying to retain the status quo, there are reasons that the establishment, including Oil producing countries, particularly OPEC, would want to refuse to verify or even discuss their actual level of their reserves and talk up the likelihood of future Discoveries & Technologies.

    There are advantages in conjecture & uncertainty?

    There are a few likely scenarios –
    1) The levels of current reserves & likely future discoveries are UNDERSTATED, THE IS MUCH MORE OIL THAN COMMONLY THOUGHT.
    Whilst this is a very unlikely outcome, in this instance the result would be the usual where Supply exceeds Demand, the Price of Oil would fall!
    An outcome not favoured by major self interest groups!

    2) The levels of current reserves & likely future discoveries are substantially OVERSTATED, THE IS MUCH LESS OIL THAN COMMONLY THOUGHT.
    This would be the likely outcome and in this instance that would spark a MASSIVE & URGENT MOVE AWAY FROM OIL, towards other possible Energy sources, particularly for the transport sector.
    That would result in a massive fall in Demand for Oil, in the near term and as usual where Supply exceeds Demand, the Price of Oil would fall!
    An outcome not favoured by major self interest groups!

    3) The levels of current reserves & likely future discoveries REMAINS UNKNOWN, UNVERIFIED & SUBJECT TO CONSTANT CONCERN.
    This is the current Status Quo outcome and the result is as usual where Demand appears to exceed Supply, there is constant pressure on the Price of Oil to rise!
    THE PREFERRED OUTCOME for major self interest groups!

    Real Power seldom cedes Power to another, voluntarily!

  3. Over the holidays I just learned something new from my brother-in-law; the oil fields are filling back up so we don’t have to worry. We can just sit back and relax, buy a bigger truck, whatever. (can you hear the sarcasm?) I actually did a little poking around and found some studies from 2003(?) which reported some previously played-out wells in the gulf of mexico were becoming productive again, and I also discovered that ‘fossil’ fuels were really NOT from a biological (and therefore limited) source, but ‘just carbon’. Oil company propaganda? Probably. What do you think??
    Kris

  4. Thanks for a really good, succinct post on peak oil. There are so many people out there who are *still* discounting peak oil, which is really worrying. How it will all fall out, I just don’t know, but it’s a pretty sure guess that the governments of the world are not prepared.

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