Later On

A blog written for those whose interests more or less match mine.

WSJ carries Peak Oil story

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Peak oil

The above graph shows several different projections of when oil production might peak. (None include the possibility that it has already peaked, though production has been flat for two years.) Part of the story:

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world’s fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit — which two senior industry officials recently pegged at about 100 million barrels a day — is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.

The world certainly won’t run out of oil any time soon. [And no one has ever maintained that position. — LG] And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau [i.e., peak – LG] before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.

The current debate represents a significant twist on an older, often-derided notion known as the peak-oil theory. Traditional peak-oil theorists, many of whom are industry outsiders or retired geologists, have argued that global oil production will soon peak and enter an irreversible decline because nearly half the available oil in the world has been pumped. They’ve been proved wrong so often that their theory has become debased. [Of course, they’ve also been right, as when they predicted in 1956 that US oil production would peak around 1970, and it did. – LG]

The new adherents — who range from senior Western oil-company executives to current and former officials of the major world exporting countries — don’t believe the global oil tank is at the half-empty point. [In fact, they don’t know: oil reserve estimates are fudged and actual estimates are secret. – LG] But they share the belief that a global production ceiling is coming for other reasons: restricted access to oil fields, spiraling costs and increasingly complex oil-field geology. This will create a global production plateau, not a peak, they contend, with oil output remaining relatively constant rather than rising or falling.

The emergence of a production ceiling would mark a monumental shift in the energy world. Oil production has averaged a 2.3% annual growth rate since 1965, according to statistics compiled by British oil giant BP PLC. This expanding pool of oil, most of it priced cheaply by today’s standards, fueled the post-World War II global economic expansion.

On Oct. 31, Christophe de Margerie, the chief executive of French oil company Total SA, jolted attendees at a London conference by openly labeling production forecasts of the International Energy Agency, the sober-minded energy watchdog for industrialized nations, as unrealistic. The IEA projects production will grow to between 102.3 million and 120 million barrels a day by 2030. Mr. de Margerie said production by 2030 of even 100 million barrels a day will be “difficult.”

This is “the view of those who like to speak clearly, honestly, and [are] not just trying to please people,” he bluntly declared. The French executive said many existing oil fields are being depleted at rates that will damage their geologic structures, which will limit future output more than most people allow. What’s more, some nations endowed with large untapped pools of oil are generating so much revenue from their current production that they feel they don’t need to further develop their fields, thus putting another cap on output.

Earlier this month, James Mulva, the chief executive of ConocoPhillips, echoed those conclusions in a speech at a Wall Street conference: “I don’t think we are going to see the supply going over 100 million barrels a day…. Where is all that going to come from?” He questioned whether the industry has enough support services and people to execute projects to add that much oil production.

Even some officials from member states of the Organization of Petroleum Exporting Countries, which has long insisted on its ability to supply the world with fuel for decades hence, are breaking ranks and forecasting limits. The chairman of Libya National Oil Corp. said at the same London conference the world will have difficulty producing more than 100 million barrels a day.

A former head of exploration and production at Saudi Arabia’s national oil company, Sadad Ibrahim Al Husseini, has also gone public with doubts. He said in London last month that he didn’t believe there were enough engineers or equipment to ramp up production fast enough to keep up with the thirsty global economy. What’s more, he said, new discoveries are tending to be smaller and more complex to develop.

Many leaders of the industry still dismiss the idea that there is reason to worry. “I am no subscriber to the theory that oil supplies have already peaked,” said BP’s chief executive, Tony Hayward, earlier this month in a speech in Houston.

Exxon Mobil Corp. Chief Executive Rex Tillerson has said that if companies had better access to the world’s oil reserves, production would increase and prices would go down. “Sufficient hydrocarbon resources exist to play their role in meeting this growing global demand, if industry is allowed to access them,” he said in a speech this month. If access were granted, Exxon Mobil believes the industry would be able to raise fuel production to meet demand in 2030 of 116 million barrels a day. [Exxon Mobil denies global warming for a very financial reason: they want to sell that oil. – LG]

… One limit: Many people think most of the world’s giant fields already have been discovered. By 1970, oil-industry explorers had discovered 10 giants that could each produce more than 600,000 barrels a day, according to Matt Simmons, chairman of energy investment banking firm Simmons & Co. International. Exploration in the next 20 years, to 1990, yielded only two. Since 1990, despite billions in new spending, the industry has found only one field with the potential to top 500,000 barrels a day, Kazakhstan’s Kashagan field in the Caspian Sea. And Mr. Simmons notes it is proving expensive and difficult to extract.

… Compounding the problem: Most of the world’s biggest fields are aging, and production at them is declining rapidly. So, just to keep global production at current levels, the industry needs to add new production of at least four million daily barrels, every year. That need is roughly five times the daily production of Alaska, with its big Prudhoe Bay field — and it doesn’t assume any demand growth at all.

Mr. Simmons scoffs at estimates that production from proven fields will decline only 4.5% a year. He thinks a more realistic rate of decline is 8% to 10% a year, especially because modern technology actually succeeds in depleting fields faster.

If he’s right, the industry needs to add new daily production of at least eight million barrels — 10 times current Alaskan production — just to stay even.

Mr. Simmons thinks the world needs to shift its energy focus from climate change to more immediate concerns. “Peak oil is likely already a crisis that we don’t know about. At the furthest out, it will be a crisis in 2008 to 2012. Global warming, if real, will not be a problem for 50 to 100 years,” he says. [Totally ignoring the scientific consensus that if we haven’t seriously addressed global warming and made significant reductions in CO2 emissions by 2015, it will be too late. – LG]

Oil executives who believe a production ceiling is coming are making plans to stay relevant in a world where oil production is constrained.

… Canada’s massive oil-sands deposits, which hold the largest oil reserves after Saudi Arabia’s, offer a vivid example. They contain an estimated 180 billion barrels of oil. But after years of intensive development and tens of billions of dollars of investments, the sands are producing only a little more than 1.1 million barrels of crude a day. That’s projected to reach three million a day by 2015. The oil deposits are so heavy that companies must either mine them or slowly steam them underground to get the oil to flow out of the sand.

Randy Udall, co-founder of the U.S. chapter of the Association for the Study of Peak Oil and Gas, has written that these unconventional oil supplies are like having $100 million in the bank, but “being forbidden to withdraw more than $100,000 per year. You are rich, sort of.”

As these uncertainties mount, there is growing hope that Saudi Arabia, which has about 20% of the world’s oil reserves, would ride to the rescue if needed. Saudi Aramco, the national oil company, has embarked on an ambitious plan to increase its daily production by 30%, or three million barrels, early next decade, and thus reclaim the title of top producer from Russia. But Mr. Al Husseini, the former Saudi oil executive, now an independent consultant, said others aren’t doing as much, leaving the world entirely dependent on Saudi Arabia to provide extra capacity.

“Everyone thinks that Saudi Arabia will pull us out of this mess. Saudi Arabia is doing all it can,” he says in an interview. “But what it is doing, in the long run, won’t be enough.”

Go here for the full article.

Written by Leisureguy

19 November 2007 at 2:17 pm

Posted in Business, Daily life, Environment, Science

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One Response

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  1. A personal note: I view the Earth more or less as a complex organism. These thoughts have bothered me for many years. Why does all that oil exist? Does the Earth need it? What are the effects / consequences of man trying to fiond all the oil, extract it, and simply burn it? Will this cause some sort of geological disaster (other than the much-discussed global warming)?



    Tim Cuthbertson

    19 November 2007 at 3:25 pm

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