Peak oil: “It’s the flows, stupid!”
Recent peak oil critic: “In the public mind, peak oil means ‘running out.’”
Verbal shots from legendary political consultant James Carville land with the shock of a hand grenade. If the always-blunt and ever-controversial Carville were to grasp our oil dilemma and begin a peak oil education campaign, his war-room slogan would probably paraphrase his winning axiom from the 1992 Clinton campaign, using “It’s the Flows, Stupid!”
Peak oil is about peak flow. It’s that simple, despite all those lame statements (some from people who ought to know better) that “we aren’t running out.” That’s right, we aren’t, but who said we were!
“Running out” is a framing technique used with some success to belittle the legitimate peak oil concern. The “running out” epithet has been uttered often by Daniel Yergin, president of Cambridge Energy Research Associates. If you haven’t heard Yergin on CNBC saying, “this is the fourth or fifth time we were supposed to have run out of oil,” it could be because he’s up to “sixth time” by now.
Peak oil describes the maximum flow rate of oil from a well, an off-shore platform, a field, a basin, or a geographic area—state, nation, continent, and eventually the world. Peak doesn’t mean the end or the bottom or the dregs. In most areas of human life, peak is a high point, a cause for celebration.
When the USA hit its peak in October 1970, the record went unnoticed. Today, more than 50 nations have peaked, including Mexico and, it now appears, Russia. During the next few years the world will hit peak oil; it could be a sharp summit preluding a steep fall or perhaps a gentle bump on a long plateau.
Petroleum engineers know very well what peak oil means. Indeed, in larger projects they spend billions designing enormously complex systems to meet expected peak production. Consider Thunderhorse, BP’s offshore platform in the deepwater Gulf of Mexico. If memory serves, when it begins operation later this year the platform will process 250,000 barrels of crude oil per day.
The American Petroleum Institute published a 56-page paper entitled “Are We Running Out of Oil?” in December 1995. The executive summary concludes with this red herring: “There is a very real danger that attempts by government to address the non-problem of resource exhaustion will distract from or even aggravate the real challenge of removing remaining institutional barriers to supply growth.” Peak oil does not mean “resource exhaustion,” though M. King Hubbert’s curve does show production declining to zero many decades into the future.
Why does the obfuscation of peak oil deniers matter? The coming end of the “supply growth” world will require an enormous paradigm shift: there will be a little less oil to divvy up among more people. We will need to conserve with a vengeance, and substitute ingenuity, intelligence, and efficiency where we can. Treating this immiment event as a non-problem could end up being enormously painful.
The math determining present and future flow rates is simple:
- 85 percent of the world’s oil is produced by the 21 largest producers.
- Production declines dominate the story in six of those large producers: the USA, Indonesia, the U.K., Norway, Mexico and Venezuela.
- Flat or volatile production rules in five more: Russia, Iraq, Iran, Nigeria and Algeria.
- Production is increasing in the rest. But China is nearing peak. Saudi Arabia, Kuwait, Qatar and the United Arab Emirates are not planning much more expansion. Canada and Libya can continue growing, within limits. Of this crowd, only Brazil, Kazakhstan and Angola are likely to grow production sufficiently to make a difference past 2010.
Some factors act like dragging anchors on these flow rates:
- Geologic limits. We drilled the easy pickings first. Most new barrels—from offshore Brazil to the Bakken play in North Dakota and Montana—are smaller or harder to drill than the older giant fields they’re trying to replace.
- Non-OPEC production is flat, “mature” and underperforming, with few prospects for change.
- The world’s oil system lacks the skilled labor, equipment, and rigs to help us increase production off the recent three-year plateau. Delays from major projects like Thunderhorse are the norm.
- OPEC’s reserves are increasingly off-limits, and prevailing petronationalism won’t quickly reverse. To quote an industry player, “yesterday’s Big Oil is today’s small oil.”
- While investments to expand production are optional, depletion is mandatory and relentless. In a horse race with technology, eventually depletion will win the day.
- Rising domestic demand by major oil producers Russia, Iran, Venezuela and Mexico drives down their exports. Expect peak exports to hit before peak oil.
- Unconventional oil is more expensive and slow, with a small energy balance and a large environmental footprint. Unconventional oil will likely be a herd of turtles rather than the cavalry on which many are pinning their hopes.
Because they don’t understand peak oil, many reporters keep getting the story wrong. Because they don’t understand peak oil, some in the U.S. Congress and Senate now threaten to sue OPEC. Because they don’t understand peak oil, business journals keep whining that producer nations don’t practice rational economics.
And indeed they don’t. Lacking refinery capacity, Iran exports crude, imports finished gasoline, subsidizes it at 40 cents/gallon, and then rations its sale to curb consumption. Seems crazy, but Iran isn’t the only nation where cheap energy is the opiate of the people.
Summer sales tax holiday on U.S. gasoline, anyone? After all, we aren’t “running out.”
Steve Andrews and Randy Udall are two of the co-founders of ASPO-USA.