PEAK OIL THEORY & CLIMATE CHANGE

The Hubbert peak theory posits that for any given geographical area, from an individual oil field to the planet as a whole, the rate of petroleum production tends to follow a bell-shaped curve. It also shows how to calculate the point of maximum production in advance based on discovery rates, production rates and cumulative production. Early in the curve (pre-peak), the production rate increases due to the discovery rate and the addition of infrastructure. Late in the curve (post-peak), production declines due to resource depletion.

The Hubbert peak theory is based on the fundamental observation that the amount of oil under the ground is finite. The theory is named after American geophysicist Marion King Hubbert, who created a method of modeling known oil reserves and production rates. Hubbert’s theory was initially greeted with skepticism by many in the oil industry, but oil companies now routinely use Hubbert’s methods to predict future yields of existing oil fields.

“Peak Oil” refers to a singular event in history: the peak of the entire planet’s oil production. After Peak Oil, according to the Hubbert Peak Theory, the rate of oil production on Earth will enter a terminal decline. Based on his theory, in a paper he presented to the American Petroleum Institute in 1956, Hubbert correctly predicted that production of oil from conventional sources would peak in the continental United States around 1965-1970 (actual peak was 1970). Hubbert further predicted a worldwide peak at “about half a century” from publication. Many observers such as Kenneth S. Deffeyes, Matthew Simmons, and James Howard Kunstler believe that because of the high dependence of most modern industrial nations on inexpensive oil, the impending post-peak production decline and resulting severe price increases will herald grim implications for the future global economic outlook.

If Peak Oil leads to a sharp decrease in oil supply, it will lead to economic hardship but will hasten the use of alternative energy sources and a reduction in global warming.

Peak oil theory and recent history

In 2004, ASPO predicted that conventional plus unconventional oil production would peak around 2007.In 1974, Hubbert projected that global oil production would peak in 1995 “if current trends continue”. However, in the late 1970s and early 1980s, global oil consumption actually dropped (due to the shift to energy efficient cars, the shift to electricity and natural gas for heating, etc), then rebounded to a lower level of growth in the mid 1980s (see chart on right). The shift to reduced consumption in these areas meant that the projection assumptions were not realized and, hence, oil production did not peak in 1995.

Colin Campbell of the Association for the Study of Peak Oil and Gas (ASPO) has suggested that the global production of conventional oil peaked in the spring of 2004 albeit at a rate of 23-GB/yr, not Hubbert’s 13-GB/yr. During 2004, approximately 24 billion barrels of conventional oil was produced out of the total of 30 billion barrels of oil; the remaining 6 billion barrels coming from heavy oil and tar sands, deep water oil fields, and natural gas liquids (see adjacent ASPO graph). In 2005, the ASPO revised its prediction for the peak in world oil production, from both conventional and nonconventional sources, to the year 2010.

Another peak oil proponent Kenneth S. Deffeyes predicted in his book Beyond Oil - The View From Hubbert’s Peak that global oil production would hit a peak on Thanksgiving Day 2005 (Deffeyes has since revised his claim, and now argues that world oil production peaked on December 16 2005).Texas oilman T. Boone Pickens has stated that worldwide conventional oil production will top out at 84MB/day (31GB/yr).

Predictions from other models

In 2004, ASPO predicted that by United States government prediction, world consumption of oil will increase to 98.3 million barrels a day in 2015 and 118 million barrels a day in 2030. This represents more than a 25% increase in world oil production.

The Energy Information Administration’s study breaks with Hubbert peak theory on several points. It does not use symmetry. It uses a post-peak constant reserves to production ratio of 10, and the authors believe in recovery from “geologically conceivable small sources of conventionally reservoired crude oil”.

The United States Geological Survey claimed at one time that there are enough petroleum reserves to continue current production rates for 50 to 100 years. That is countered by an important Saudi oil industry insider who says the American government’s forecast for future oil supply is a “dangerous over-estimate.” Campbell argues that the USGS estimates are methodologically flawed. One problem, for example, is that OPEC countries overestimate their reserves to get higher oil quotas and to avoid internal critique.

Has Peak Oil production happened already?

Matthew Simmons, Chairman of Simmons & Company International, said on October 26, 2006 that global oil production may have peaked in December 2005, though cautions that further monitoring of production is required to determine if a peak has actually occurred.

Chevron states that “oil production is in decline in 33 of the 48 largest oil producing countries”. Other countries have also passed their individual oil production peaks.

World oil production growth trends, in the short term, have been decreasing over the last 18 months. Average yearly gains in world oil production from 1987 to 2005 were 1.2 million barrels per day (mbbl/d) (1.7%). Global production averaged 84.4 mbbl/d in 2005, up only 0.2 mbbl/d (0.2%), from 84.2 mbbl/d (13.4 million m³/d) in Q4 2004 (see figure at right). Production in Q2 2006 was 85.1 Mbbl/d, up 0.4 mbbl/d (0.47%), from the same period a year earlier. Yearly gains in the last 8 years ranged from -1.4 mbbl/d, (-1.9%; 1998-1999) to 3.3 mbbl/d (4.1%; 2003-2004).

Of the three largest oil fields in the world, two have peaked. Mexico announced that its giant Cantarell Field entered depletion in March, 2006, as did the huge Burgan field in Kuwait in November, 2005. Due to past overproduction, Cantarell is now declining rapidly, at a rate of -13% year over year. In April, 2006, a Saudi Aramco spokesman admitted that its mature fields are now declining at a rate of 8% per year, and its composite decline rate of producing fields is about 2%, thus implying that Ghawar, the largest oil field in the world, may have peaked.

The Jack 2 deep water test well in the Gulf of Mexico, announced September 5, 2006, may have the potential, however, to provide as much as slightly less than 2 years of U.S. consumption at present levels.

Global warming could make drilling unknown reserves in the arctic less problematic. Increasing investment in harder to reach oil is a sign of oil companies’ belief in the end of easy oil. “All the easy oil and gas in the world has pretty much been found,” said William J. Cummings, ExxonMobil’s spokesman in Angola. “Now comes the harder work in finding and producing oil from more challenging environments and work areas.”

Peak Oil and Oil price

In 2004, 30 billion barrels of oil were consumed worldwide, while only eight billion barrels of new oil reserves were discovered. New discoveries of huge, easily exploitable oil fields are most likely a thing of the past. In August 2005, the International Energy Agency reported global demand at 84.9 million barrels per day, resulting in an annual demand of over 31 billion barrels. This means consumption is now within 2 Mbbl/d of production. At any one time there are about 54 days of stock in the OECD system plus 37 days in emergency stockpiles. In June 2005, OPEC admitted that they would ‘struggle’ to pump enough oil to meet pricing pressures for the fourth quarter of that year. The summer and winter of 2005 brought oil prices to a new high (not adjusted for inflation). On the other hand, some analysts attribute much of this new high to disruptions caused by the war in Iraq.

Speech by Bill Clinton, early supporter of the Baku-Tbilisi-Ceyhan pipeline, explaining peak oil and later warning:

'And then finally, and I think most important of all, more important than the deficit, more important then healthcare, more important than anything, is we have got to do something about our energy strategy because if we permit the climate to continue to warm at an unsustainable rate, and if we keep on doing what we’re doing till we’re out of oil and we haven’t made the transition, then it’s inconceivable to me that our children and grandchildren will be able to maintain the American way of life and that the world won’t be much fuller of resource-based wars of all kinds'.

Criticism of the Peak Oil theory

Economist Michael Lynch claims that the theory behind the Hubbert curve is overly simplistic, and that in his opinion available evidence contradicts some of the more specific predictions. He points to the date of the coming peak, which was initially projected to occur by 2000, but has now been pushed back to 2010, and note that Campbell’s predictions for world oil production are strongly biased towards underestimates. Throughout 2001-2003, in his monthly newsletters, Campbell maintained that his 1996 prediction of a peak in 2000 was unchallenged. Finally in his April 2004 Newsletter, Campbell relented and shifted the peak to 2010. Later this was brought forward to 2007 but in October 2005, was shifted back to 2010.

Critics such as Leonardo Maugeri, vice president for the Italian energy company ENI, claim that Hubbert peak supporters such as Campbell previously predicted a peak in global oil production in both 1989 and 1995, based on oil production data available at that time. Maugeri claims that nearly all of the estimates do not take into account non-conventional oil even though the availability of these resources is significant and the costs of extraction and processing, while still very high, are falling due to improved technology. Furthermore, he notes that the recovery rate from existing world oil fields has increased from about 22% in 1980 to 35% today due to new technology and predicts this trend will continue.

The ratio between proven oil reserves and current production has constantly improved, passing from 20 years in 1948 to 35 years in 1972 and reaching about 40 years in 2003. These improvements occurred even with low investment in new exploration and upgrading technology due to the low oil prices during the last 20 years. However, Maugeri feels that encouraging more exploration will require relatively high oil prices.

Edward Luttwak argues that peak oil is a myth. He claims that unrest in countries such as Russia, Iran and Iraq has lead to a massive underestimate of oil reserves. Cambridge Energy Research Associates sells a report that is critical of Hubbert influenced predictions:

Despite his valuable contribution, M. King Hubbert’s methodology falls down because it does not consider likely resource growth, application of new technology, basic commercial factors, or the impact of geopolitics on production. His approach does not work in all cases-including on the United States itself-and cannot reliably model a global production outlook. Put more simply, the case for the imminent peak is flawed. As it is, production in 2005 in the Lower 48 in the United States was 66 percent higher than Hubbert projected.

Market economy versus government

Part of the current debate revolves around energy policy, and whether to shift funding to increasing energy conservation, fuel efficiency, or other energy sources like solar, wind, and nuclear power. Rep. Tom Udall at congressional peak oil hearings:

Some say that market forces will take care of the peak oil problem. They argue that as we approach or pass the peak of production, the price of oil will increase and alternatives will become more competitive. Following this, consumers will act to replace our need for non-petroleum energy resources. This philosophy is partly true. However, the main problem with this argument is that current U.S. oil prices do not accurately reflect the full social costs of oil consumption.

Currently, in the United States, federal and state taxes add up to about 40 cents per gallon of gasoline. A World Resources Institute analysis found that fuel-related costs not covered by drivers are at least twice that much. The current price of oil does not include the full cost of road maintenance, health and environmental costs attributed to air pollution, the financial risks of global warming from increasing carbon dioxide emissions or the threats to national security from importing oil. Because the price of oil is artificially low, significant private investment in alternative technologies that provide a long-term payback does not exist. Until oil and its alternatives compete in a fair market, new technologies will not thrive.

Implications of an unmitigated world peak

According to the Hirsch report prepared for the U.S. Dept. of Energy, a global decline in oil production will have serious social and economic implications without due preparation. Initially an unmitigated peak in oil production would manifest itself as rapidly escalating prices and a worldwide energy crisis. While past oil shortages stemmed from a temporary insufficiency of supply, crossing Hubbert’s Peak means that the production of oil continues to decline, so demand must be reduced to meet supply. If alternatives are not forthcoming, then the many products and services produced with oil become scarcer, leading to lower living standards.

Air travel, using roughly 7% of world oil consumption, would be one of the impacted services. The energy density of hydrocarbons and the power density of a jet engine are so necessary for aviation that hydrocarbon fuels are nearly impossible to replace with electricity, to an extent beyond any other common mode of transport.

On average, a one percent increase in fuel prices leads to a 0.4% increase in total freight rates. Using this rule of thumb, the recent doubling in oil prices has raised averaged freight rates by almost 40%.Shipping costs are particularly relevant to a country like Japan that has greater food miles.

Increasing cost of oil for importing countries ultimately reduces those countries purchase of non-oil goods abroad. The Federal Reserve Bank of San Francisco discusses oil and the US balance of trade:
Oil prices have almost quadrupled since the beginning of 2002. For an oil-importing country like the U.S., this has substantially increased the cost of petroleum imports. International trade data suggest that this increase has exacerbated the deterioration of the U.S. trade deficit, especially since the second half of 2004.

US indications of economic volatility have manifested themselves in the largest increase in inflation rates in 15 years (Sept. 2005), due mostly to higher energy costs. Significant oil-producing countries will have a national purchasing advantage over similar countries with no oil to sell. This can result in larger militaries for oil producers or inflation of the price of whatever commodities they purchase. Saudi Arabia purchased $40 billion worth of arms from the US since 1990.

Oil industry analyst Jan Lundberg proposes a dark scenario called Petrocollapse. Contrasting views note that most uses of oil, from plastics to transportation fuels, have substitutes.

Other Hubbert peaks

Natural gas

While Hubbert correctly predicted peak oil in the United States, the peak he predicted for natural gas was very far off. In 2000, U.S. natural gas production was 2.4 times higher than Hubbert had predicted in 1956. Because gas transport is a complicated operation, the global peak of gas is less important than the peak per continent. The North American peak happened in 2001, according to Western Gas Resources Inc; according to Doug Reynolds, the peak will occur in 2007; according to Bentley, production will peak anywhere from 2010 to 2020. Since compressed natural gas powered cars are already available in North America, peak oil and peak gas are related for transportation usage.

Coal

Peak coal is significantly further out than peak oil, but we can observe the example of anthracite in the USA, a high grade coal whose production peaked in the 1920s. Anthracite was studied by Hubbert, and matches a curve closely. Pennsylvania’s coal production also matches Hubbert’s curve closely, but this does not mean that coal in Pennsylvania is exhausted--far from it. If production in Pennsylvania returned it its all time high, there are reserves for 190 years. Hubbert had recoverable coal reserves worldwide at 2500 × 109 metric tons and peaking around 2150 depending on how the usage graph is drawn.

Fissionable materials

In a paper in 1956, after a review of US fissionable reserves, Hubbert notes of nuclear power:

There is promise, however, provided mankind can solve its international problems and not destroy itself with nuclear weapons, and provided world population (which is now expanding at such a rate as to double in less than a century) can somehow be brought under control, that we may at last have found an energy supply adequate for our needs for at least the next few centuries of the “foreseeable future.”

Also technologies such as thorium, reprocessing and fast breeders can in theory considerably extend the life of uranium reserves. Roscoe Bartlett predicts that our current throwaway nuclear cycle will use up the world reserve of low-cost uranium in about 20 years. Caltech physics professor David Goodstein has stated that:

"... you would have to build 10,000 of the largest power plants that are feasible by engineering standards in order to replace the 10 terawatts of fossil fuel we’re burning today.. that's a staggering amount and if you did that, the known reserves of uranium would last for 10 to 20 years at that burn rate. So, it’s at best a bridging technology...You can use the rest of the uranium to breed plutonium 239 then we’d have at least 100 times as much fuel to use. But that means you’re making plutonium, which is an extremely dangerous thing to do in the dangerous world that we live in".

Metals

Hubbert applied his theory to “rock containing an abnormally high concentration of a given metal” and reasoned that the peak production for metals such as copper, tin, lead, zinc and others would occur in the time frame of decades and iron in the time frame of two centuries like coal. The recent jump in the price] of copper has become known among traders as “peak copper”. Lithium availability is a concern for a fleet of Li-ion battery using cars but world reserves are estimated as adequate for at least 50 years. A similar prediction for platinum use in fuel cells notes that the metal could be easily recycled.

Phosphorus

Phosphorus supplies are essential to farming and depletion of reserves is estimated at somewhere from 60 to 130 years. Individual countries supplies vary widely; without a recycling initiative America’s supply is estimated around 30 years. Phosphorus supplies affect total agricultural output which in turn limits alternative fuels such as biodiesel and ethanol.

Underground water reserves and lakes

Although water is a renewable resource, a reserve such as the Ogallala Aquifer can be mined at a rate that far exceeds replenishment. This turns much of the world’s underground water and lakes into finite resources with peak usage debates similar to oil. These debates usually center around agriculture and suburban water usage but generation of electricity from nuclear energy or coal and tar sands mining mentioned above is also water resource intensive.

Fisheries

Noting that the Hubbert curve seems to be applicable to any resource that can be harvested much faster than it can be replaced, at least one researcher has attempted to perform Hubbert linearization on fisheries, notably the whaling industry, as well as charting the transparently dependent price of caviar on sturgeon depletion. Other example is the Cod of the north sea.

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