THE PETROLEUM SITUATION; A BRIEF SUMMARY.

Ted Trainer.(5/2004)

Several geologists believe that the world will run into a huge and insoluble problem of oil scarcity within the next 10 to 20 years. Yet it is proving to be extremely difficult to get officialdom, the media or the general public to give any attention to the situation. Governments rush ahead with plans to build more airports and roads and car dependent suburbs, and no one can see any reason to question the commitment to ceaseless increase in the volume of producing and consuming going on.

Following is a summary of the basic claims being made. (… by Campbell, 1997, Laherrere, 1995, Duncan,1997, Fleay, 1995, Hatfield, 1997, Ivanhoe, 1997, MacKenzie, 1996, Youngquist, 1997, Bartlett, 2000.)

------- World supply will probably peak in the period 2005-2015.

------- By about 2025 supply will be down to half what it will be at the peak.

------- Oil prices will rise steeply and stay up after the peak. (In 1999 a 6% fall in supply was accompanied by

a trebling of price.)

-------- World supply will be in the hands of a few Arabian states.

According to Campbell we have now used just under half of the potentially recoverable quantity of petroleum. Reserves (known quantity) total about 850 billion barrels, and 150 billion barrels remain to be discovered.

Unfortunately data on the situation is in a quite unsatisfactory state, largely due to the interest oil companies and producing nations have in concealing tgheir situation and putting out misleading information.

There has long been considerable agreement among the 50+ estimates of :"Ultimately Recoverable Resources" previously made. The trend has been to a figure of a little under 2000 billion barrels. However other geologists do not think we can be very confident about such estimate.

It is clear that a many oil producing regions have passed or are near their peak output. Perhaps most impressive are "creaming" curves which often show that olil found in a region dwindles each year, and the cumulative curve approaches an asymptote. However there is disagreement about the interpretation etc. of some of these curves.

The US Geological Survey has recently put forward a much higher estimate of the oil URR, 3000 billion barrels. (USGS, 2000.) However it seems best not to take this as a prediction about the amount that will be recovered,but as an estimate of the amount of resources that could be discovered by 2030. Even if this amount is found it would only delay the peak by 10 years. Discovery plus reserve growth are running well below the level needed to achieve the USGS figure.

In the past people have simply divided the unused 1000 billion barrels by the current use rate, some 25 billion barrels p. a. and therefore concluded that oil will last 40-50 years, giving plenty of time to develop alternatives. However this is quite misleading. Firstly, oil use is increasing at about 2% p. a. Secondly the supply curve will not rise until there is none left; it will peak and decline. It takes a great deal of investment to raise output significantly, so producers would not be inclined to make this if output is likely to decline soon.

Campbell has cast serious doubt on stated reserve figures, firstly noting strange phenomena such as nations claiming no change in reserves despite huge production year after year, and sudden jumps in stated reserves. The amount of oil which producing states are allowed to produce under OPEC rules varies with their reserves. Also their credit rating can be boosted by large reserve statements. For these reasons they have strong incentives to falsify their reserve figures upwards.

One of the most persuasive facts is that in the 1980s world drilling doubled, but oil discovered p.a halved. In the last few years gas exploration effort in the US has greatly increased, with almost no increase in discovery. In other words more exploration will not necessarily solve the supply problem.

Most oil is in the giant fields. Heinberg (2003, p. 100) shows that in the period 1950 1980 the discovery rate for oil in such fields averaged around 8 billion barrels a year, but for the period 1980 – 2000 it averaged around 2 to 3 billion barrels a year, with no year over 5.)

Heinberg also notes (p. 109) that the discovery rate per foot of drilling in the 60 years to 1920 was 240 barrels. In the 1930s it was 360. It is now 10. Heinberg, R., (2003), The Party’s Over, Gabriola Island,New Society.

The pessimistic geologists say that we cannot expect the unconventional sources of petroleum such as tar sands and shale oil to make a significant difference to the situation. These have to be mined and they have high energy and ecological costs. Campbell thinks they might yield a steady 10 billion barrels pa over the next 70 years.

There is a very strong case to the effect that the coming energy problem cannot be solved by development of renewables such as the sun, the wind and biomass. (For a detailed explanation see Trainer 1995a, 1995b, but for the most detailed and recent analysis, Renewable Energy; What are the Limits?.)

If the above figures and estimates are at all valid the situation is very alarming. We are extremely dependent on petroleum, there is no plausible replacement, supply is likely to begin falling within a decade. Without petroleum used in fertilizer production two billion less people could be fed, and the situation is being almost completely ignored by the elites and the general public in "developed" countries. (Smill, 1997, explains the fertilizer situation. In addition about 480 million people are fed by pumping more water from the ground than falls as rain; petroleum is used for the pumping.)

The counter-arguments?

1. Althogh many people are now saying the peak is near, including some oil companies, the evidence for this conclusion is not very satisfactory. Mostly Campbell is quoted, but his arguments and data do not seem to be open to public evaluation or critical review by independent analysts.

2. Some arguments derive from "the Hubbert curve" but the significance of this for world oil supply would seem to be doubtful. Hubbert was able to predict the peak of US oil supply from the inflection and tapering of the cllear and smooth US production curve. However similar conclusions seem elusive when the erratic world supply curve is examined.

3. M. Lynch has emphssised that discovoery and production trends are strongly influenced by factors other than the geological abundance of oil, such as demand, costs, exploration effort and political factors.

4. Producing nations and companies only need to find enough oil to enable them to organise supply a decade or so ahead. Thus a falling rate of discovery does not necessarily mean there is less and less to find. However a falling discovery rate per foot of exploratory drilling, or per "new wildcat well" is impressive, and this seems to be happening.

5.Campbell says the discovery rate is about 1/4 of the use rate, but this is only so if the amounts discovered are "backdated", i.e., put down as discovered in the year when the field in question was discovered. If discoveries are recorded as for the year when they were actually made, discovery seems roughly in line with use; i.e.," reserves" are not falling significantly.

6. There is a tendency for the reserves within a discovered field to grow over time; i.e., for estimates of the recoverable amount there to rise. The USGS believes this is a very large factor, but its significance is much debated. For some regions reserve estimates fall; in 2004 Shell had to cut its stated reserves dramatically. The USGS bases its estimates on US reserve growth, but the laws there penalise companies for overstating reserves, so when they first announce them for a new field they aim low, meaning that growth is likely to be considerable.This is not so strong a growth factor in the rest of the world.

Despite these reasons for caution, we do seem to be heading towards a peak; the important and uncertain issue is how far from it we are, and again, many believe it will be met within 10 years.

Now consider the situation in the light of the limits to growth perspective.

If all the world’s present 6 billion people were to use petroleum at the rich world per capita rate world use would be around 120 billion barrels a year, not the present 25 billion barrels. In fact world population is on a path to 9 billion before stabilising. If 9 billion people used petroleum at the Australian per capita rate, the high USGS figure would be completely exhausted in 18 years.

Ý If the world economy averages 3% p.a. economic growth to 2070 (conventional economists would want a higher rate than that), then in 2070 total world economic output will be 8 times as great as it is today. Thus to supply all the people in 2070 with the energy per capita we in Australia use now, given 3% p. a. growth (and current technologies) would require annual petroleum supply that is about 60 times the present (quite unsustainable) level of production!

There would seem to be no more glaring illustration of the absurdity of an economy and a culture committed to the endless pursuit of affluence and growth. (For a detailed argument that it is necessary and possible to move to lifestyles and systems which use far less resources, "The Simpler Way", see Trainer, 1995b.)

 

Some references and web sites.
Bartlett, A. A., (2000), " An analysis of US and world oil production patterns using
Hubbert-style curves", Mathematical Geology, 32, 1, 1 –17.
Campbell, J., (1997), The Coming Oil Crisis, Brentwood, England, Multiscience and Petroconsultants.
Campbell, C. J., (1994), "The immanent end of cheap oil-based energy", Sun World, 1814, 17-18.
Campbell, C. J., (1995), The World’s Endowment of Conventional Oil and Its Depletion, Geneva, Petroconsultants.
Duncan, R. C., The Olduvai Theory; Sliding Towards a Post-Industrial Stone Age. (http://dieoff.com/page125.htm)
Duncan, R. C. and W., Youngquist, (1998), The World Petroleum Life Cycle, Seattle,
Institute of Energy and Man. (http://dieoff.com/page 123.htm)
Duncan, R. C. and W., Youngquist, (1999), "Encircling The Peak of World Oil
Production", Natural Resources Research, 8. 3.
Fleay, B. J., (1995), The Decline of the Age of Oil, Sydney, Pluto.
Gever, J., et al., (1991), Beyond Oil, Colorado, University of Colorado Press.
Hatfield, C. B., (1997), "How long can oil supply grow?" M.King Hubbert Center for
Petroleum Supply Studies, Hubbert Center Newsletter 97/4, 6 p.
Heinberg, R., (2003), The Party's Over, Gabriola Island, Island Press.
Ivanhoe, L. F., (1996), "Updated Hubbert curves analyse world oil supply", World Oil,
217, 11, Nov., pp. 91-94.
Ivanhoe, L. F., (1997) "Get ready for another oil shock", The Futurist, Jan/Feb.
(http://dieoff.com/page90.htm)
Ivanhoe, L. F., (1995), "Future world oil supplies; There is a finite limit", World Oil,
Oct., 77-88.
Laherrere, J., (1995), "World oil reserves; Which number to believe?", OPEC Bulletin,
26, 22, pp 9-13.
McCabe, P., (1998) "Cornucopia or empty barrel", American Association of Petroleum
Geologists, 82, 11, March, 2110-2134. (Argues against Campbell, putting more optimistic USGS position.)
MacKenzie, J, J., (1996), Oil as a finite resource; When is global production likely to
peak?, World Resources Institute, Washington, DC., 22 pp.
MacKenzie, J. J., Estimated Ultimately Recoverable Oil, World Resources Institute.
(wri.wri.org/wri/climate/finitoil/eur-oil.html
Masters, C. D, E. D. Attanasi, and D. H. Root, (1994), "World Petroleum Assessment
and Analysis", Proceedings of the 14th World Petroleum Congress, v 5, p 529-541. (USGS case.)
"Prophet or Cassandra?",Petroleum Economist, Oct. 1995, pp. 21 -24, 45.
Trainer; F. E. (T.), (1995a), "Can renewable energy save industrial society?", Energy Policy, 23, 12, 1009-1026.
Smill, V. (1999), "Global population and the nitrogen cycle", Scientific American, July.
Trainer, T. (F. E.), (1995b), The Conserver Society; Alternatives for Sustainability, London, Zed Books.
US Geological Survey, (2000), World Petroleum Assessment. DDS-60.
World Resources Institute, Estimated Ultimately Recoverable Oil,
http://www.wri.org/wri/climate/finitoil/env-oil.html
Younquist, W, (1997), Geodestines; The Inevitable Control of Earth Resources over
Nations and Individuals, Portland, National Book Co.
Many valuable papers are at Jay Hansen’s site, http://dieoff.org
Important articles are also to be found at, http://www.hubbertpeak.com/

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The Simpler Way: Analyses of global problems (environment,
limits to growth, Third World...)and the sustainable alternative
society (...simpler lifestyles, self-sufficient and cooperative
communities, and a new economy.) Organised by Ted Trainer.
http://www.arts.unsw.edu.au/tsw/