The rising fears over peak oil

Some say the year will be 2015, some say it will be 2020, and some say it’s all nonsense. Predicting if and when we will reach peak oil, a peak in global supply, is a tricky business which instills a sense of urgency and worry in many of us. If it takes at least 10 million years for oil to be created, to say we’re out of time is an understatement.

But what if the theory behind peak oil was founded on inaccurate figures, without account for technological advancements allowing us to get to newly economical resources, and the nature of fluctuating global demand? There are theories from over 50 years ago, and commentary from world-leading petroleum organisations, and they simply don’t match up. There are media vehicles that have no real impartiality or understanding of what may or may not be; which can harmfully drive public and political opinion without merit.

How much is there to know? What really looks likely to happen? Most importantly, what on earth are we going to do if our darkest predictions are confirmed?

What’s it all about?

While various adaptations, adverse theories and variations have sprung up, today we take a look at a few of the most popular around. Much of the peak oil concept origins are drawn from the Hubbert curve; a formula to predict the approximate rate of production for a resource over a period of time. In 1956, the famed geophysicist M. King Hubbert presented the Hubbert curve to the American Petroleum Institute (API) whilst working for Royal Dutch Shell. It is this concept that the Hubbert Peak Theory is based on; the idea that oil, as a finite resource, will enjoy an initial increase upon discovery but must ultimately suffer a maximum level and a following decline. Hubbert based his theory on an oil well discovery in 1948, and predicted that oil production rates in the United States would likely peak at around 1970.

Although this appears not to have been the case, this prediction was actually the more optimistic of the two that Hubbert presented to the API. These were:

A logistic curve which had a logistic growth rate equal to 6 per cent and an ultimate resource equal to 150 Giga-barrels (Gb) which would peak in 1965. This was presented as the most likely future for U.S. oil production.

A logistic curve which had a logistic growth rate equal to 6 per cent and an ultimate resource equal to 200 Giga-barrels (Gb) which would peak in 1970. This was presented as Hubbert’s “upper-bound” estimate.

One example touted as proof of how accurate the Hubbert theory can be, is the 2005 predicted US oil production figures. Hubbert’s theory delivered figures of 178.2 Gb cumulative and 1.17 Gb current production. In actuality, the figures which occurred were very close; 176.4 Gb cumulative crude oil and condensate with annual production of 1.55 Gb. It should be noted that the Hubbert Curve was created with application to all manner of mined resources, however for the purposes of this feature, only oil is compared.

Kenneth S. Deffeyes, a geologist and peak oil theory expert who worked alongside Hubbert during his days at Shell, once said that, “Crude oil is much too valuable to be burned as a fuel.”  In his book Hubbert’s Peak: The Impending World Oil Shortage, Deffeyes updated Hubbert’s original work, speaking frankly about the way that Hubbert’s work was originally received. This goes a long way in explaining the origins of conflicting attitudes as we (potentially) stare down the gauntlet of reaching peak oil within the coming decade. Of Hubbert’s work, Deffeyes says, “It was as if a physician had diagnosed virulent, metastized cancer; denial was one of the responses.” He implies that denial or confusion as to the validity of Hubbert’s theory is likely born out of a lack of information.

“Put another way, I have never known anyone to switch sides as a result of an intellectual analysis of Hubbert’s methods,” he continues. Deffeyes also stresses that “we are not asking whether ‘Hubbert was right.’” He points out that neither Alaska nor the offshore Gulf Coast had come on-stream as major oil plays at the time Hubbert’s original work was presented. His argument is rather to embellish upon the original theology, support the wider argument that peak oil is by no means a myth, and demonstrate how Hubbert’s findings may be used efficiently as we explore ways to deal with peak oil as and when we understand its role as a global plight.

Another expert, Matthew Simmons, chairman and CEO of Simmons & Company International, is one of the leading authorities on peak oil today. He tends towards the Club of Rome predictions. Rather than focusing research on the U.S., Simmons states that analysis of the Saudi Arabian oil reserves, the country with the largest proven reserves which stand at around 264.3 billion barrels, is more beneficial in identifying this topic. In 1972, the Club of Rome, the international think tank which tackles all manner of politically motivate global issues, published a report titled Limits to Growth. This report, the number one most popular environmental book ever that sold 12 million copies, examines the premise that economic growth cannot continue on forever because our natural resources, oil in particular, are finite. This work was republished in 2004 as Limits to Growth: The 30-Year Update, by Donna Meadows, Jørgen Randers, and Dennis Meadows. Then in 2008, a paper called A Comparison of ‘The Limits to Growth’ with Thirty Years of Reality, was published by Graham Turner of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in Australia. According to this report, the predictions made relating the various world resources and issues in Limits to Growth, all played out to be correct. These later works support the original findings from the Club of Rome, as does Simmons. He states that Saudi Arabian production in particular from the Ghawar oil field, the world’s largest with an estimated 71,000 barrels, will or may have already peaked.

The critics

The non-Peakists (as the phrase has been coined) can typically be split up into two separate camps depending on their base premise for disbelief.

First there is the group which is often viewed as the most ludicrous by Peakists; those who predict that world reserves will regenerate themselves in time to meet our needs as consumers. It is this group whose view is often described as “cornucopian,” by ecologists, which might have prompted Deffeyes’ famous words, “The economists all think that if you show up at the cashier’s cage with enough currency, God will put more oil in ground.”

The next group is made up of people who believe that we will never reach peak oil because of technological advancements. Some of these individuals cite examples which suggest that product demand and economically viable oil extraction have grown in sync, or with economically extractable resources surpassing demand. These can include heightened drilling technology which could enable us to extract resources which were previously viewed to be uneconomical, and our changing oil needs as transportation and construction requirements adapt to become greener.

The third group of non-Peakists is made of people who predict that reaching peak oil is a long way away and/or will have little or no effect on our global economy should it occur.

One aspect relating to Hubbert’s curve which critics often begin with is the argument that the term ‘Peak Oil’ does not refer to when oil will run out, but when it is most abundant. While this is not the fault of Hubbert, many interested in the subject, but ill-informed, will make the wrong assumption here. Questioning the accuracy of the curve itself, critics say that as oil production trends towards the sort of bell curve Hubbert’s curve presents, it can be altered depending on the size of the individual reserve(s) applied to the theory. This allows for increased estimates and looking towards the end of any curve, however altered, we will see the low-end uneconomical oil from any one supply. One argument is that upon reaching the end of the curve, we might bring unconventional oil resources online, such as the oil sands projects which we see so much coverage of in the media today. Unconventional oil resources could provide product for a great many years to come. According to proponents of this argument, the advent of unconventional sources of oil, coupled with advancing technology to enable us to reach them, indicates that the reserves we draw from today could make up a mere five per cent of what is available, with the other 95 per cent coming from oil shale, oil sands, coal and beyond.

Another concept, whilst perhaps not providing criticism to the peak oil theory, but rather offering a different idea, is Plateau Oil. In 2006, as the peak oil debate gathered momentum, the Cambridge Energy Research Associates, also known as CERA, stated that it did not expect us to reach peak oil before 2020. In addition, CERA said that this notion of one single peak was not correct, and we would in fact see an “undulating plateau.”  What is interesting about CERA’s work, is that the research engine states that peak demand for oil has likely passed around 2005, but the peak oil concept, which is more concerned with the amount of reserves left, not global demand, has not yet been reached. It sounds confusing, but right or wrong, in identifying the difference between global demand and exactly what the peak oil theory attempts to predict, CERA does raise an important distinction about two of the main ways that people approach the peak oil concept; as an economist, or as a geologist.

Another interesting voice in the issue, which again does not deny peak oil, but adapts theory, is the International Energy Agency, or IEA. In 2008, this organisation predicted that we will hit plateau oil by 2020, and peak oil by 2030. However this prediction was short-lived, when in 2009 the IEA changed its mind and predicted 2020 would be the peak oil year as a result of lacking investment in production, an unsustainable global energy appetite and likely large hikes in oil pricing before an “oil crunch” a concept and phrase particularly unwelcome in light of the global financial crisis.

Abdullah S. Jum’ah, President, Director and CEO of Saudi Aramco, the state-owned national oil company of Saudi Arabia with the largest reserves in the world, says that the world has enough oil to last for another century. Jum’ah represents what is more of an archaic and steadfast opposition to peak oil, as opposed to the IEA and others who adapt theory.

“We have grossly underestimated mankind’s ability to find new reserves of petroleum, as well as our capacity to raise recovery rates and tap fields once thought inaccessible or impossible to produce” he said in 2008. “I do not believe the world has to worry about ‘peak oil’ for a very long time.”

In the news today

Charting each and every attempt to improve upon the peak oil theory, and subsequently the many opponents and proponents of the various incarnations today, is virtually impossible. But perhaps equally as important as delving into the array of opinions available, is looking at public and media attitudes, coverage and current events of note relating to the theory. In assessing the application of the peak oil theory to goings on today, we can look more closely at if and how the world might be prepared for any eventuality. The bottom line here is: what are we going to do?

Colin J. Campbell, a retired petroleum geologist long-associated with the peak oil debate, predicted that oil production would peak in 2007. While he continues to denounce those who believe that technological advancements will save the day, he has changed his mind on the price impact and market appetite. This is due to oil hitting around US$150 per barrel in July, 2008, followed by the recession which brought prices back down to US$30 per barrel following plummeting fuel use by December that same year.

“Peak oil drives prices up in the first place. It has its own mechanism. We’re sort of at peak demand right now,” Campbell told Reuters in early April, 2010. “I think presently the price limit is about US$100.” Campbell states that our only means of preparation for the future of oil is to embrace more green energy solutions.

In mid-April, 2010, the Organization of the Petroleum Exporting Countries, OPEC, said that it will have to step in and make a decision if oil reaches US$100 per barrel. However, OPEC themselves have a part to play, as accusations that the organisation has exaggerated oil reserves pose disastrous consequences for the peak oil debate and indicate that analysis and figures could be inaccurate. In late March, 2010, news hit that Oxford University researchers and scientists believe 1980s figures were over-reported in order to gain market share. The team’s figures indicate a drop from the 1,150 billion to 1,350 billion barrel OPEC figures, to between 850 billion and 900 billion barrels; creating strong potential that demand will exceed production by as early as 2014.

The U.S. military has come out with similarly gloomy predictions lately, warning that world oil outputs could dip and cause huge shortages by as early as 2015. The U.S. Joint Forces Command issued a Joint Operating Environment report to prove their findings.

“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day,” the report states.

News from the United Kingdom’s Peak Oil Taskforce is equally pessimistic, indicating that world oil production could hit the decline within the next five years. In fact, these dark predictions are cropping up on an almost weekly basis now, and with them reports of closed-door meetings and fearful committees flood in.

It appears that this argument has endless sides, influences and factors. First, there are the original sources of the idea: Hubbert and his peers. Then there are those who choose to believe unquestioningly in their work, partially or not at all. Then we have those who adapt, replace or condemn replacements of the updated theory. Then we have the infinite list of impacts – technology, cultural bias, exaggerated figures, market demand, unforeseen economical disaster, scientific breakthrough, green energy, political gain, and surely many more. The quest to prove, disprove and even pick a side in the peak oil debate is a web of different factors which have each played a part over the years. Perhaps within this, the common goal to predict what will happen, when, and asses what we need to do has been a little lost. Ultimately, nature will win out and we will be forced to act accordingly. The final question really, is exactly how we will all come together and meet our energy consumption needs, protect our world markets and continue to develop more economical, sustainable ways of doing so.