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Peaking Global Oil Production

& the EnvironmentNational Center for

Environmental Economics(OPEI/NCEE)

John Davidson & Keith Sargent

(May 2005)

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Preview• Conventional oil production is expected to peak before 2050 & may peak in the next decade.– Oil sand / shale production will increase.– Synfuel production from coal will increase.– Biofuel production will likely increase.

• Oil prices will continue to rise (acting like a US energy tax) reducing GDP growth rates.– Transportation sector will be most affected.

• Environmental effects are difficult to predict– Oil shale and synfuel production have environmental effects but increased efficiency and slower economic growth (due to more costly oil) could limit pollution.

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Background

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Draining the Tank

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Two Views of World Oil Production Conventional & Unconventional Resources

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Big Picture Observations

(from ORNL 2003 Report)

• World conventional oil production slows substantially or declines after 2020.

• Non-Mideast conventional oil is likely to peak between 2010 and 2030.

• OPEC market dominance is robust under a wide range of scenarios.

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ORNL Observations (cont.)

• A major transition from conventional to unconventional oil is likely to begin before 2030 to meet increasing energy demand.

• Without dramatic efficiency improvements:– US oil imports are likely to increase until shale oil becomes an important source.

– US oil dependence appears to be a long-run problem without major changes in transportation technology and/or energy sources.

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Proved Oil Reserves in 2003

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When Will the Oil Peak Occur?

(Non-Mideast Oil Production)

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When Will the Oil Peak Occur?

(World Production)

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What happens after the peak?

• Will oil production fall so quickly that alternatives will be inadequate to meet demand?

• Will the price of backstop technologies be above or below the peak oil price?

• How will the market respond?

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The Transition to Alternatives

(from ORNL 2003 Report)• Transition to unconventional oil will be rapid if EIA growth rates of 1.7% in oil consumption continue thru 2020.– 7 to 9% annual growth rates in unconventional oil production appear necessary as peak in non-Mideast oil is approached.

– If the demand for oil consumption could be slowed, the transition would correspondingly be slowed

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The Transition (cont.) (from ORNL 2003 Report +

new info)• Unconventional oil first comes from Canadian oil sands [2004 Production: about 1Million B/Day] – Followed by Venezuelan and Russian unconventional resources

• US shale oil is likely to be developed at a rapid pace following peaking of non-Mideast oil– The US is likely to supply nearly all of the shale oil due to its enormous resources

– US DOD has earmarked funds starting in 2009 for shale oil and other unconventional domestic resources

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Alternatives• Increased Fuel Efficiency–Hybrid Vehicles

• Improved Oil Recovery• Heavy Oil & Oil Sands• Gas-to-Liquids• Coal Liquification• Oil Shale Production• Biomass / Biodiesel• Hydrogen & Electric Vehicles

(Source: “Peaking of World Oil Production.” R. Hirsch, et al.)

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US Oil Shale Resources

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Oil Sand & Oil Shale Depletion Curves

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Future World Oil Production

Oil Sands and Oil Shale

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U.S. Economic Effects• A global disruption of 1 million barrels per day results in a $3 - $5 increase per barrel of oil– Transportation sector will be hardest hit

• Higher energy prices will act like an energy tax– Each 10% increase in oil prices results in a 0.05 to 0.1 percent decline in the U.S. GDP growth rate

• A shift to oil shale production will allow oil revenue to be “recycled,” offsetting some of the fall in U.S. GDP growth rates

• Oil prices may become more volatile

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U.S. Environmental Effects

• Increased domestic oil drilling• Increased coal mining for synfuel production

• Mining of U.S. oil shale deposits– Open pit mining - Aquifer depletion– Water leaching - Increased CO2 emissions

• Political pressure to weaken pollution regulations

• Lower GDP growth may moderate pollution increases

• Alternatives will become more cost-competitive (fuel cells, hydrogen, natural gas & electric power)

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End of Presentation