Peak Oil

Russell Peck

What Is Peak Oil?

• ‘Peak Oil’ refers to the point at which worldwide oil production reaches its peak extraction rate and subsequently enters terminal decline as newer, smaller fields and discoveries fail to replace falling output from older, larger fields.

• New production cannot compensate for older field declines.

A Brief History Of Oil Production

• Petroleum production first began in the mid-18th century in response to a shortage of whale oil on the world market and increased demand for kerosene.

• The first oil well in the United States was drilled in 1859.

A Brief History of Oil Production

• The invention of gasoline and diesel engines increased demand for crude oil.

• With the mass production of cars such as the Model T in the early 20th Century, demand soared for oil in the United States.

• Oil discoveries in Texas, California, and Oklahoma made the United States the largest oil producing nation in the world, and fueled tremendous economic growth.

A Brief History of Oil Production

• Oil’s importance continued to increase throughout the world in the 1930s.

• In 1939, World War 2 began in Europe. • In 1941, Japan invaded South-East Asia and attacked

the United States in order to secure a supply of oil for its empire.

• In both the Far East and Europe, lack of oil supplies played a key role in the defeat of Japan and Germany.

The Green Revolution

• The Green Revolution was an agricultural movement which began in the 1940s that increased crop yields throughout the developing world.

• Oil use was central to this movement, with petroleum-based pesticides, fertilizers, farming machines and high yield seeds greatly increasing food production in the Third World.

• As a result of this fossil fuel based revolution, the world’s population exploded as petrochemicals increased the carrying capacity of the planet through increased food supply.

A Brief History of Oil Production

• After WW2, oil exploration expanded throughout the world, with production greatly increasing in Africa, the Middle East, and Eurasia.

• In 1960 OPEC was created. • The world’s infrastructure increasingly began to

be built around cheap, abundant energy in the form of oil.

A Brief History Of Oil Production

• In 1973 OPEC organized an oil embargo on western nations and the United States in response to their support of Israel during the Yom Kippur War.

• In 1979 the Iranian Revolution and Iran-Iraq war caused world oil production to fall and prices to rise, causing an economic recession that lasted for several years.

• In response, conservation efforts were enacted and fuel efficiency increased.

• The drop in oil prices during the 1980s and 1990s caused consumption and inefficiency to rise again.

M. King Hubbert and Peak Oil

• M. King Hubbert was a geologist for the Shell Oil Company in Texas.

• In 1956 he predicted, based on production rates and remaining reserves, that US oil production would peak in 1970.

• Developed the ‘Hubbert Curve’ to model the production and peak of a finite resource.

• Widely derided for his views, he was validated when US production peaked just as predicted.

• Since Hubbert made his theory, many other nations and fields have peaked throughout the world.

Hubbert’s Curve

World Oil Producing Nations 2007

Source: EIA May 2008

Recent World Crude Oil Production

- Since 2005, world crude oil production has remained on a “peak plateau”, despite increases in demand and price.

Opposing Viewpoints on Peak Oil

• Due to the vast implications on society and the world economy that Peak Oil presents, the topic has been heavily debated by politicians, economists, and geologists, among others.

• The causes, problems, and solutions to Peak Oil have all been argued and discussed in various ways.

Opposing Views - Technology

• Many economists and politicians argue that better exploratory technology and improved methods of oil extraction will prevent peak oil from becoming a major issue in the future.

• Supporters of peak oil theory counter that better technology and drilling methods cannot increase production when the reserves aren’t there.

• Once the geologic limits of a field are reached, oil production will terminally decline regardless of technology.

Opposing Views - Technology

• The North Sea oil field is one example of technology failing to prevent a production peak.

• This field was drilled with no constraints by private companies using the best technologies and methods.

• After production peaked in 1999, increased drilling was unable to maintain or increase the extraction rate.

• After the geological limits are reached, technology and drilling cannot prevent field decline.

Opposing Views – Market Response

• Economists such as those with the energy consultation firm CERA and others argue that the market will respond to increased demand and higher prices by supplying more oil.

• Oil reserves will be brought online and produced when it becomes economical due to higher prices.

• Increased demand will create increased supply, following the law of supply and demand.

Opposing Views – Market Response

• Supporters of the peak oil theory and some geologists argue that the laws of supply and demand do not apply for finite resources.

• If there is no ability to increase supply in the face of declining production, the market will be unable to respond except with higher prices.

• Oil exports have been declining since 2005 even at a time of record oil prices.

• Exports have been declining due to peak production being reached and increased domestic consumption in oil exporting nations.

Opposing Views – Tar sands

• Many believe that the tar sands, a source of very heavy unconventional crude oil in Canada, can be expanded to help ensure a stable supply of oil to the United States.

• Tar sands have many problems with their production, requiring lots of water and natural gas to turn into a form of crude oil, causing severe environmental destruction, and releasing tons of CO2.

• Production from tar sands will likely not exceed 3.5 mbpd.

Opposing Views – Oil Shale

• Oil shales are another unconventional source of crude oil.• The United States has over 1 trillion barrels worth of oil shale

reserves.• Oil shales must first be heated to extract the oil-bearing kerogen,

which then must also be processed into crude oil form.• The extraction and production process requires huge amounts of

water and natural gas to complete, and so oil shales will likely never be a significant source of US oil supply.

Opposing Views – Biofuels/Ethanol

• Many politicians, economists, and industrial farmers favor expanded bio-fuel production as a way to expand domestic fuel production and help fight global warming.

• Corn ethanol is the favored source of bio-fuels in the United States.• Corn ethanol is highly inefficient to produce, using huge amounts of

water and natural gas.• Corn ethanol requires about the same amount of energy to produce

as it creates.• Corn ethanol decreases the amount of food available in the market.

Opposing Views – Oil Companies and OPEC Artificially Reducing Supply

• Both liberals and conservatives blame either private oil companies or OPEC for artificially reducing the supply of oil to the world market.

• Private oil companies such as Chevron, ExxonMobil, Shell, and others now control only a small percentage of world reserves.

• OPEC currently is operating at near its total production capacity limits, and no longer has as much control with increasing supply.

Consequences of Peak Oil

• An unmitigated near-term peak in oil production would have disastrous effects for our modern global civilization, which was built up around a cheap and abundant energy supply in the form of liquid petroleum.

Consequences – Higher Cost of Everything

• As world oil supply remains flat or declining at a time of increased demand, oil prices will continue to rise, and with it the cost of almost all goods.

• Currently being seen in the increased cost of gasoline, food, and transportation.

• This higher cost will eventually cause worldwide inflation in oil importing nations.

• Since nearly everything made today uses oil in some stage of its production or transportation, the rise in oil prices will cause a rise in every other good.

Consequences - Transportation

• Transportation accounts for nearly half of world oil consumption.• Rising costs of oil will cause disruptions in delivery of goods.• Global shipping and trade could collapse with higher oil prices and

declining supply.• Currently being seen with the recent elimination of independent

truckers and bankruptcies of airlines as the higher fuel costs force them out of the market.

Consequences – Electricity Generation

• A significant portion of the developing world uses oil for electricity generation.

• Significant increases in price and declining oil production can cause disruptions in power supply for many nations.

• This will cause significant economic disruption in those nations.

• Electrical infrastructure will break down due to neglect.

Consequences - Agriculture

• Since the Green Revolution took off in the 1940s, world agriculture has become very energy and oil intensive.

• Declining oil supply will cause disruptions in farming and reduce crop yields.

• Famine and population reduction may occur as a result.• Returning to previous methods will not work with the current large

world population.

Consequences – Social and Economic Collapse

• Declining oil supplies will disrupt the current global economy.

• Resources wars and conflicts will become more common as society breaks down.

• Political and social unrest will occur in oil importing nations.

• The economic system of infinite growth in a finite world will be shown to fail in a world of declining energy.

• Standards of living will fall and diseases will become widespread.

Solutions

• If the world moves to mitigate Peak Oil immediately much suffering can be avoided or reduced in the near future.

• Expansion of rail transportation.• Expansion of nuclear, wind, solar, and other viable

alternatives.• Electrification of transport.• Localize production of food and goods.• Increase in conservation efforts and initiatives.• Increase in mass transit systems.• Sustainable population growth rate.

Conclusions

• Oil was the key driver behind economic and population growth during the 20th Century.

• Oil production has reached a peak plateau and exports are declining.

• An unmitigated peak in the near future will be disastrous for modern civilization.

• Mitigation must begin immediately on a local and global scale to reduce consumption of oil and all other fossil fuels before its too late.

• Dealing with declining energy supplies is the most important issue of the 21st Century and will decide the future of humanity.