House 109-41. December 7, 2005. Understanding the Peak Oil theory. U.S. House of Representatives.
[What follows are excerpts from the 95 page transcript of this hearing. This hearing is the only one about peak oil and the possibility that peak production may happen soon, though both the DOE and GAO wrote peak oil risk management plans for Congress. It’s also the only hearing where most of the speakers explaining peak oil, including Representative Roscoe Bartlett, were scientists. From now on EIA bureaucrats, think-tank experts and CEO’s of large companies — not scientists — promise peak oil production is decades away and that the U.S. has 100 years of energy independence. Has Congress only invited bureaucrats rather than scientists and engineers since 2005 so that after the next energy crisis they can say they knew nothing? Or to gain more leverage in international affairs by offering to share our bounty with Europe so they don’t kowtow to the Russians? Though of course Congress knows we’re in deep trouble — see the March 7, 2006 “Energy Independence” Senate hearing. Alice Friedemann www.energyskeptic.com ]
RALPH M. HALL, TEXAS. We are having this hearing today to learn more about peak oil theory, to hear different opinions, and to learn what we can do about it, if anything. While some theorists believe that we have reached our peak, the point at which the rate of world oil production cannot increase at any time, there are others that tell us that we are not going to peak any time soon, and others who still believe oil is continuously being created and will therefore never peak. We have not been ignoring a possible peak in oil production and this energy bill that was signed into law in August had provisions that address oil usage by promoting conservation and conventional and unconventional production. Whether or not we are reaching our peak, it seems responsible to continue in the vain we are going in by continuing to work on ways to conserve energy while increasing our domestic supply of oil and using research to develop substitutes for conventional oil.
JOE BARTON, CHAIRMAN, Committee on Energy & Commerce. I asked Chairman Hall to hold this hearing on the “peak oil” theory at Congressman Bartlett’s request. Congressman Bartlett is an active and persuasive advocate for peak oil theorists and I look forward to hearing his views and perspectives on peak oil.
TOM UDALL, NEW MEXICO. Mr. Bartlett and I started the House Peak Oil Caucus to bring immediate and serious attention to this issue. The continued prosperity of the United States depends on the Nation taking immediate and intelligent action concerning Peak Oil.
I have had a chance to review the testimony of my colleague, Mr. Bartlett, and also that of Mr. Aleklett and I agree with their analysis that the peak in oil production will occur in the next two decades and potentially as early as 2010. The central theme here is there is not much time to act.
Our economy and way of life is dependent on cheap oil. In many ways, cheap oil is responsible for our prosperity. Since oil provides about 40% of the world’s energy, a peak and global oil production will be a turning point in human history. Oil and natural gas literally transport heat and feed our country.
Therefore, we must act immediately to diversify our energy supplies to mitigate the economic recession and social and political unrest that will undoubtedly accompany the peak in oil and natural gas production if we do not act.
The United States’ demand for oil continues to increase by about 2% a year, and global demand has increased faster than production. The once substantial cushion between world oil production and demand has decreased. This phenomenon has increased the price of oil and consequently huge amounts of American money up to $25 million per hour goes abroad to pay for foreign oil. And as many people are now aware, some of this money goes to governments and groups who are considered a threat to our national security. Middle Eastern Countries flush with oil dollars help fuel the terrorism we are fighting.
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 the alternatives will become more competitive.
But no available alternative is anywhere near ready to replace oil in the volumes we use it today.
The main problem with the market force 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 risk of global warning, or the threats to national security.
Over the past 100 years, fueled by cheap oil, the United States has led the revolution in the way the world operates.
Replacing this resource in a relatively short time is not only an incredible challenge, but also imperative to the survival of our way of life.
We must produce effective policies that create a new generation of scientists devoted to changing the way we produce energy. We must also commit to decreasing our demand for oil. We can start by increasing efficiency. The United States consumes 25% of the world’s oil. Of that 25%, two-thirds is used for transportation. Hence, transportation in the U.S. accounts for 16.5% of the world’s oil consumption.
It is obvious that more efficient transportation is one of the keys in reducing our demand for oil. Transporting goods and people by rail is at least five times as efficient as automobiles. Therefore, we must revive and reinvest in our passenger and freight rail system. A modest increase in fuel efficiency of our automobile fleet from 25 miles per gallon to 33 miles per gallon using existing technology would decrease our demand for oil by 2.6 million barrels a day or about 1 billion barrels a year. However, the turnover rate for the automobile fleet is 10 to 15 years, therefore, we must start immediately.
Simple, everyday things like automobile maintenance also increase efficiency. According to the Department of Energy, proper inflation of car tires can increase fuel efficiency by 3%, translating to the equivalent of 100 million barrels of oil per year. The buildings in which we work and live are terribly inefficient. We could easily reduce their energy consumption by one half. We must immediately weatherize and make more energy efficient tens of millions of buildings. Our bold new initiative must instill these ideas in the American consciousness.
The sooner we start the smaller our sacrifices will be. These tasks will not be easy but I am confident that we will achieve our goal for we have little in the way of alternatives.
The theory of Peak Oil states that, like any finite resource, oil will reach a peak in production after which supply will steadily and sharply decrease.
In 1956, Shell Oil geologist M. King Hubbert predicted that oil production in the contiguous United States would peak in about 1970 and be followed by a sharp decline. At the time, many dismissed his predictions as false, but history shows they were remarkably accurate.
A growing number of geologists, economists and politicians now agree that the peak in the world’s oil production is imminent; predicted to occur within one or two decades. Some disagree with this prediction, calling it a doomsday scenario and say that technological advances will buy us more time before we reach peak production. Theirs, however, is not the consensus view and even they agree that a peak in the world’s oil production is inevitable
The strongest evidence that the peak in world oil production is imminent is that for the last thirty years, production of oil has exceeded discovery of new oil resources.
The reason for this is relatively simple. Oil is a limited commodity and the large oil fields with easily extractable resources were naturally the first ones to be exploited.
These fields were found thirty or forty years ago in the Middle East (Saudi Arabia, Iraq, Iran and the United Arab Emirates) and are still the main suppliers of the world’s oil. As the finite supply of oil in these deposits diminishes, exploration for new supplies continues. However, new discoveries tend to be small and rapidly exhausted, making them less economically viable.
Meanwhile, global demand for oil, which is at an all-time high, continues to rise. The United States demand continues to increase by about 2% per annum. Also, with the globalization of the market economy and increases in oil-driven industrial production in Asia, new consumers are contributing to rising demand. To meet rising demand oil companies must increase production, accelerating us towards the peak.
The United States only possesses 2% of the world’s oil reserves and only produces 8% of the world’s oil capacity. Therefore, we are not in a position to control the world’s oil production.
Oil is a very powerful resource with an incredibly high energy density. For example, the energy in just one barrel of oil (42 gallons) is equivalent to eight people working full time for a year.
Over the past 100 years, fueled by affordable oil, the United States has led a revolution in the way the world operates. For example, petroleum-based fertilizers are used to inexpensively grow remarkable amounts of food and airline transportation allows us to reach virtually anywhere in the world within 24 hours helping to create a global economy. However, the sustainability of the oil-based economy is rapidly decreasing.
Reaching a peak in oil production has the potential to destroy our economy and cause great social and political unrest.
And the carbon released using fossil fuels is contributing to dramatic changes in the earth’s climate.
Therefore, replacing this resource in a relatively short time is not only an incredible challenge but also imperative to the survival of our way of life.
ROSCOE BARTLETT, Maryland. Thirty of our leading citizens, Boyden Gray, McFarland, Jim Woolsey, and 27 others, including a lot of retired four star admirals and generals, wrote a letter to the President saying Mr. President, the fact that we have only 2% of the known reserves of oil and we used 25% of the world’s oil and import nearly two-thirds of what we use is a totally unacceptable national security risk. We need to do something about that. I would submit that if you do not believe that there is such a thing as Peak Oil, you need to understand that this really is a big national security risk. And the things that we need to do to transition to alternatives so that we are not so dependent on foreign oil are exactly the same things that we need to do to attenuate the effects of Peak Oil.
We have only 2% of the world’s oil reserves but we are producing 8% of the world’s oil which means that we are pumping our oil roughly four times faster than the rest of the world. We are really good at pumping oil. These data have made me opposed to drilling in ANWR and offshore, because if we have only 2% of the known reserves of oil, how is it in our national security interest to use up that little bit of oil we have as quickly as possible? If we could pump the offshore oil and ANWR oil tomorrow, what would we do the day after tomorrow? And there will be a day after tomorrow. I would like to husband these resources. This is very much like having money in the bank that is yielding really high interest rates. If you have money in the bank yielding really high interest rates, you probably would leave it there and that is what I think we need to do for the moment with this oil.
To put this discussion in context, we really need to go back about six decades to the mid-40s and 50s. A scientist in the Shell Oil Company M. King Hubbert was looking at oil fields, their exploitation and exhaustion. He noted that they all tended to follow a rough bell curve and he theorized that if he could add up all those little bell curves he would have one big bell curve where he could predict when we would reach our maximum production in this country. He made a prediction in 1956 that we would peak at about 1970, which was correct. We are now about halfway down what many people call Hubbert’s peak. Texas has been a big contributor to oil in our country. And notice that we did reach maximum oil production in 1970. And in spite of Prudhoe Bay, which produced a quarter of the oil that we were pumping in our country, it has been pretty much downhill since Prudhoe Bay peaked.
I remember the fabled Gulf of Mexico oil discovery that was supposed to solve our oil problem for the foreseeable future. But it didn’t. The observation was made that we are not running out of oil, and that is true. There is still a lot of oil there. As a matter of fact, worldwide there is probably about half the oil there yet to be recovered than we have recovered so far.
The same M. King Hubbert that predicted that we would peak in 1970 and he was correct there, predicted that the world would peak would be about now If M. King Hubbert was right about our country, why shouldn’t he be right about the world? And we have known for at least 25 years that M. King Hubbert was right about our country. By 1980, when President Reagan came to office, we were already 10 years down the other side of Hubbert’s peak and we knew very well that we were sliding down Hubbert’s peak. The response was to drill more wells, but we really did not find any more oil. You cannot find what is not there. You cannot pump what you have not found.
Most of the discoveries of oil occurred 30 or 40 years ago. For the last two and a half decades there has been an ever decreasing discovery of oil. Since the early 1980’s, we have been using more oil than we have found. It is obvious you cannot pump more oil than you have found.
If we have enhanced oil recovery we can recover it more quickly. But all that does is cause us to reach a higher peak a little later, and change the shape of the down slope to fall off more steeply.
Mr. Green mentioned crying wolf, and yes, we have cried wolf several times in the past. But in the parable the wolf did come. I think he ate all the sheep and the people. So one day the wolf will come and that is what we are trying to do is to avoid the kind of catastrophe that they had in the parable.
Energy Return on Invested (EROI)
When we are looking at replacing the fossil fuels we have been using, you have to look at energy profit ratio. We are now producing oil from the oil shales in Canada at about $30 a barrel, maybe less than that when it is selling at $60. That is really a good dollar profit ratio. But I understand that they are now using more energy from natural gas than they get out of the oil they produce. So the energy profit ratio is negative. That is a good thing for them because they got a lot of gas, it is cheap, it is hard to transport to other places and oil is in high demand and they can sell it for twice the production cost so that makes a lot of sense. But at the end of the day with the limited energy resources in the world, we really should not be producing energy with a negative energy profit ratio.
Two hundred and fifty years of coal, I wish we would stop saying that unless we qualified it by saying at present use rates, because as soon as you increase use just 2% a year, it shrinks to 85 years. If you use energy to convert it to a gas or a liquid, you have now shrunk it to 50 years.
Yeah coal is there, it is a finite resource. We really need to husband it, because it is not 250 years worth.
Albert Einstein said that that exponential growth was the most powerful force in the universe, the power of compound interest. If you have not heard Dr. Albert Bartlett’s Hour Lecture on Energy, pull it up and read it. It is the most interesting one hour lecture I have ever heard. One of his examples is an ancient kingdom where the king was so pleased with a subject he promised to give him anything reasonable he asked. His subject asked for a grain of rice on the first square of a chessboard, twon on the second, and to double the grains on each subsequent square. And the king thought stupid fellow, I would have given him something really meaningful and all he asked for is a little bit of rice on a chessboard. The number of grains on the 64th squares would be 18,446,744,073,709,551,615 and weigh 461,168,602,000 metric tons, a mountain of rice higher than Mount Everest, and over one thousand times the global production of rice in 2010. That is the power of exponential growth.
I would also like to note that the population curve of the world roughly follows the production curve for oil. We started out with about a billion people and now we have about 7 billion people almost literally eating oil and gas because of the enormous amounts of energy that go into producing food. Almost half the energy that goes into producing a bushel of corn comes from the natural gas that we use to produce the nitrogen fertilizer.
Just a comment or two about energy density and how difficult it is going to be to replace oil. And by the way, we are about 100 years into the age of oil. In another 100 years or so, we will be through the age of oil. In 5,000 years of recorded history, 200 or 300 years is just a blip, just a tick in the history of man. We found this incredible wealth under the ground. And rationally what we should have done as a civilization is to ask ourselves what will we do with this incredible wealth to do the most good for the most people over time. Each barrel represents about 50,000 man hours of effort, the equivalent of having 12 people work all year for you. And today at the pump with gas prices about $2, it costs you, 42 gallons costs you less than $100. That is incredible.
If you have some trouble getting your arms around that, imagine how far that gallon of gas or diesel takes your car or truck and how long it would take you to push it the same distance to get some idea of the energy density. And how long would it take you to get it there? If you go work really hard in your yard all day, I will get more work out of an electric motor with less than 25 cents worth of electricity. That gives us you some idea as to the incredible energy density in these fossil fuels. What wealth it was we found under the ground. And almost like children who found the cookie jar, we had no restraint. We tried to use it up as quickly as we could use it up. And there will be an age of oil. One day there will be no more economically feasible recovery of oil, gas, and coal.
The cheapest oil that we use that we buy is the oil that we do not use. And so if we are going to have any energy to invest in alternatives it will take three things. Money we will not worry about that. We will just borrow money from our kids and our grand kids. But you cannot borrow time and you cannot borrow energy from our kids and our grand kids. And we are going to have to make big investments of both time and energy to get these alternatives. In order to have energy to invest, we are going to have to have enormous conservation efforts now so that we free up some of the oil because if in fact we are reaching peak oil, when we have reached peak oil, all the oil that is produced is needed by the world’s economies, none will be available to invest in the alternatives.
So I would suggest that maybe the goal would be to find a way to have high quality of life without increasing energy use.
We are very much like the young couple whose grandparents have died and left them a big inheritance and they now established a lifestyle where 85% of the money they spend comes from their grandparent’s inheritance and only 15% from their income. But they look at their grandparent’s inheritance and the amount they are spending and it is going to be gone before they retire. So they are going to clearly have to do one of two things. Either spend less money or make more money. Similarly, 85% of the energy we use today comes from fossil fuels. And only 15% of the energy comes from the alternatives.
By and by, all of the energy will need to come from the alternatives. Of the 15% that is not fossil fuels, a bit more than half of that comes from nuclear. This could and should grow probably. But that will not be the water reactors we have because fissionable uranium is of finite supply in the world. We will have to move to breeder reactors and the problems that come with that.
I think planning to solve our energy future with fusion is a bit like planning to solve our personal economic problems by winning the lottery.
Of the other 7% renewable energy almost half of that is conventional hydro. We have maxed out hydropower in our country. We have dammed up all the rivers that could be dammed and maybe a few that we should not have dammed.
The next biggest source of alternative energy is wood. Not the West Virginia hillbilly, it is the timber industry and the paper industry burning what would otherwise be a waste product. And then the next biggest one is waste.
And now we are down to the things that we will transition to in the future, solar. We have been growing at 30% a year. That doubles in 2.5 years. It was .07% in 2000 and now it is .28%, big deal. That is a long way from any meaningful contribution. The same thing is true of wind.
Just a word of caution about energy from agriculture, the world has to eat. If we will eat the corn and the soybeans that the pig and the chicken and steer would have eaten, maybe we can get more energy from agriculture. And be careful, Mr. Chairman, about taking biomass to produce energy because we are barely able today to maintain the quality of our topsoils without returning much of that biomass to create humus in the soil.
Geothermal we need to exploit as much as we can.
We need the kind of commitment we had in World War II. No new cars were made for three years. They rationed gasoline. They rationed tires. They rationed sugar. You brought the grease from your kitchen to a central depository. I think we need a program that’s a combination of putting a man on the moon, with the urgency of the Manhattan Project and the involvement of every one of our citizens to avoid a bumpy ride.
Perhaps Matt Savinar is more pessimistic than he needs to be, but he is not an idiot. He says, dear reader, civilization as we know it is coming to an end soon. I hope not, Mr. Chairman.
At the start of the age of oil, world population was one billion; now it’s seven billion. The population of the United States is almost 300 million and increasing by nearly 30 million people every decade. Nitrogen fertilizer is made from natural gas. In a very real sense, oil feeds the world.
I thank the Committee for scheduling this hearing and inviting distinguished witnesses to discuss House Resolution 507 which expresses “the sense of the House of Representatives that the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency that was incorporated in the “Man on the Moon” project to address the inevitable challenges of “Peak Oil.”
Shell Oil company geologist M. King Hubbert first identified “Peak Oil” in the 1940’s and 1950’s. He discovered oil field production follows a bell curve. Oil flows slowly at first, then rapidly increases, reaches a maximum or peak when half of the oil has been extracted, and then production declines rapidly. Adding the curves from individual wells in the United States, Hubbert projected in 1956 that “Peak Oil” for the United States would occur in 1970. He was right. U.S. oil production peaked and has declined every year since 1971. Despite sharp increases in prices and better technology, US domestic oil production has declined every year since then.
Just as Hubbert was right about the United States, peak oil has occurred in other countries and global peak oil will happen. Oil production is declining in 33 of the world’s 48 largest oil-producing countries.
U.S. natural gas production has also peaked. The United States is now the world’s largest importer of both oil and natural gas. From importing one third of the oil we used before the Arab Oil Embargo, the U.S. now imports about two thirds of the oil we use. After U.S. oil production peaked in 1970, our country started and we are continuing to accelerate down a path of growing energy insecurity.
The United States used to be the world’s largest oil producer. After the U.S. peaked in 1970, Saudi Arabia became the world’s largest single oil producer and the leader of OPEC nations which became the world’s dominant oil suppliers.
Global “Peak Oil” has not yet occurred, but will.
I met with the President at the White House on June 29, 2005 and was impressed by his understanding of the need for our government to act now to prepare for global “Peak Oil”.
On October 5, 2005, Department of Energy Secretary Samuel Bodman requested the National Petroleum Council to study “Peak Oil” and the oil and natural gas industry’s ability to produce enough oil and natural gas at prices that would not cripple the American economy. Our country’s leadership is slowly becoming aware of “Peak Oil”.
However, it is my hope because of hearings like this and the testimonies given by some of our most prominent figures, our country’s leadership will start to see the urgency in addressing this issue, and make it the centerpiece of their agenda.
For example, in testimony before the U.S. Senate Committee on Foreign Relations on November 16, former CIA Director James Woolsey discussed “seven reasons why dependence on petroleum and its products for the lion’s share of the world’s transportation fuel creates special dangers in our time.” 1. Transportation infrastructure is dependent upon oil 2. The Middle East will continue to be the low-cost and dominant petroleum producer. 3. Petroleum infrastructure is highly vulnerable to terrorist and other attacks. 4. The possibility is increasing of embargoes or supply disruptions under regimes that could come to power in the Greater Middle East. 5. Oil revenue transfers fund terrorism. 6. Current account deficits for a number of countries create risks ranging from major world economic disruption to deepening poverty that could be reduced by reducing oil imports. 7. Oil used for transportation produce greenhouse gases that increase the risk of climate change. The planes, ships and trucks of our military run on oil.
Tight supplies and high oil prices threaten our national security and the Department of Defense is responding. For instance, in an October 11, 2005 memo on “Assured Fuels,” Assistant Secretary of the Navy for Research, Development and Acquisition John J. Young, Jr., endorsed a recommendation by the Naval Research Advisory Committee in its “2005 Summer Study of Future Fuels” to set the goal of the Navy to become independent from reliance on foreign oil by 2020. Secretary Young explained, “In light of the current painful reality of DoD fuel price adjustments, and the risks to our fuel sources posed by natural disasters and terrorist threats, I believe we need to act on this recommendation with a sense of urgency.”
For many years, Saudi Arabia maintained enough production flexibility to leverage oil prices at around $20 per barrel. In recent years, the cushion between world supply and demand whittled away. Three years ago in November 2002, the prompt price for immediate delivery of oil was $27 per barrel NYMEX WTI (New York Mercantile Exchange – West Texas Intermediate). The price for contracts on 10-year long term derivatives combining NYMEX and forward swaps market transactions was between $22 and $24 per barrel. Beginning in December 2003, the price for 10-year contracts began a sharp upward trend that has not abated. The change was prompted by an increase in long term contract purchases by the Chinese and the judgment by market participants that Saudi Arabia could no longer maintain sufficient extra capacity to drive the price of oil down. In November 2005, the prompt price for immediate delivery of oil was $60 per barrel after a spike to $71 per barrel after Hurricane Katrina. The price for 10-year contracts was $59 per barrel. In the past three years, the prompt price increased two times from $27 per barrel to $60 per barrel. The 10-year price increased almost three times from $22 per barrel to $59 per barrel. The world’s largest banks are the primary transactors in the private forward swaps markets on behalf of clients who are among the world’s largest and best financed institutions and companies. Those price increases in oil, the emergence of a well-defined forward swaps market in oil and the larger magnitude increase between the prompt and 10-year price represent a dramatic change in world oil markets.
A December 1, 2005 CRS report (prepared at my request) documents and ranks countries that experienced declines in oil production between 2003 and 2004. Despite the increase in oil prices, United Kingdom oil production declined 228 thousand barrels. United States oil production declined 159 thousand barrels. Australia declined 83 thousand barrels. Norway declined 76 thousand barrels. Indonesia declined 57 thousand barrels. Argentina declined 50 thousand barrels. Other countries with production declines included: Egypt, Oman, Syria, Yemen Brazil, Columbia and Italy. At the same time, demand for oil is increasing. China and India are increasing their oil consumption. China increased consumption 51.3% and is the world’s second largest importer of oil, behind the United States. Developing countries around the world are increasing their demand for oil consumption at rapid rates. For example, the average consumption increase, by percentage, from 2003 to 2004 for the countries of Belarus, Kuwait, China, and Singapore was 15.9%;
In order to keep energy costs affordable, improve the environment, safeguard economic prosperity, and reduce the trade deficit, the United States must move rapidly to increase the productivity with which it uses fossil fuels, and to accelerate the transition to renewable fuels and a sustainable, clean energy economy.
There is no one silver bullet to solve this problem. Only through a combination of conservation, improved efficiency, and a combination of alternate sources of energy for transportation and ultimately renewable sources of energy (i.e. wind, solar, geothermal, harnessing ocean tides) will we be able to meet the energy demands of the future.
How and when we as individuals and government leaders will respond to global “Peak Oil” is what we need to address immediately. I believe global “Peak Oil” presents our country with a challenge as daunting as the one that faced the astronauts and staff of the Apollo 13 program. Contingency planning, training, incredible ingenuity, and collaboration to solve the problem brought the Apollo 13 astronauts back home safe. The U.S. government must lead and inspire Americans’ unmatched ingenuity and creativity to end our unacceptable and unsustainable energy vulnerability and to prevent a worldwide economic tsunami from global “Peak Oil”.
We in the Congress must work with and on behalf of our constituents to debate, develop and start implementing appropriate policy changes and legislation to make Americans more secure, as we did in the 1940’s with the Manhattan Project. The federal government took an active role in funding a crash program, in partnership with the United Kingdom and Canada, to develop the first nuclear weapon in order to defeat Nazi Germany. Now, we again must adopt a crash program, this time in cooperation with our international allies. We must overcome the obstacles we can foresee and those that will emerge. “Peak Oil” will inflict unprecedented pressure upon our citizens and strain the capability of our social, economic, and political institutions. We must survive the challenges of “Peak Oil” only with the tools we have available. We have no choice.
The Hydrogen Economy
Hydrogen, of course, is not a source of energy. We will always use more energy producing hydrogen than we get out of it because we are not going to suspend the first and second laws of thermodynamics.
To understand what hydrogen will do for us, please think of it as a battery. It is just a way of carrying energy from one place to another. Hydrogen is not a solution to our energy problem, it is simply a way–for instance, using energy from coal, you cannot put a trunk full of coal in your car and go down the road. But you can use coal to produce electricity. The electricity can split water into hydrogen and oxygen. You can then use the hydrogen in a fuel cell to take your car down the road. So you can run, you can use coal to take your car down the road.
I would remind you that even some things God cannot do. God cannot make a square circle. There are not infinite resources here. And so you have to qualify what the marketplace can do in terms of that. But as you will hear in later testimony from SAIC, none of the alternatives have the potential for being ramped up quickly enough to make up the slack [of declining oil production]. That is the reality. We should have started 20 years ago if we wanted to make sure we were not going to have any dislocations.
KJELL ALEKLETT, PH.D., PROFESSOR, Department of Radiation Sciences, Uppsala University.
By choosing the wording Peak Oil Theory, some persons might think that this is just a theory and it is not reality. I must say sorry, ladies and gentlemen, Peak Oil is reality.
As a summary of m y written testimony, I would like to highlight the following points.
- Peak Oil will come because oil is a limited resource.
- Fifty years ago the world was consuming 4 billion barrels of oil per year and the average discovery rate (the rate of finding undiscovered oil fields) was around 30 billion barrels per year. Today we consume 30 billion barrels per year and the discovery rate is dropping toward 4 billion barrels per year. This is significant; Chevron is even running an ad saying, “The world consumes two barrels of oil for every barrel discovered.” By discovery, I mean only new oil fields. Some analysts include reserve growth—newly accessible oil in old fields—as new discoveries, but we are using the same approach as in World Energy Outlook 2004, IEA, International Energy Agency.
- We can only empty the reserves that we have at a limited speed. Depending on demand, Peak Oil will happen within the near future.
- Another problem is that most countries are planning to increase their import of oil. Very few countries are planning to decrease their import of oil.
- Studies of the correlation between oil consumption and the growth of GDP in individual countries such as Sweden or China, as well as for the world, shows that since the Second World War, there has never been an increase in GDP without an increase in the use of oil
- The enormous resources of oil sands in Canada are often mentioned as a lifesaver for the world. Our group in Uppsala has made studies that show that even a crash program for production of oil from Canadian oil sands will yield only a limited amount of oil. By 2018, it might be possible to produce 3.5 million barrels per day. If that should rise to 6 million in 2040, they need to open up a couple of nuclear power plants to get heat to get the oil out of the ground.
- Excluding deep water oilfields, output from 54 of the 65 largest oil-producing countries in the world are in decline
- If we extend the decline in existing fields through 2030, and accept the 2004 Energy Information Administration estimate that global demand will be 122 mbpd, then we need 10 new Saudi Arabias. Some might call this a doomsday scenario, but if so I’m not the doomsayer, this was said by Sadad Al Husseini, until recently vice-director of Saudi Aramco, the largest oil company in the world.
- There is at present an extreme dependence on supply from the Middle East holding more than 60% of the global oil reserves. A key country is Saudi Arabia, which is supposed to hold about 20% of the global reserves of conventional oil and much of the world’s spare capacity.
Currently, 2010 is the most likely year for Peak Oil. And the question is then more oil be produced for export. And if you look at the 20 largest countries for export, you have as number two on the list, Russia. Russia will not increase their export because they need more oil within Russia. Number three on the list is Norway, and the production in Norway is declining at 10% per year. And I could go down the list. In principle, there are only one, two, three, four countries that can increase their production for export.
The role of the Swedish Academy of Science is an independent non-Government organization with expertise in most of the sciences. The academy has a made a statement about oil that said to avoid acute, economic, social, and environmental problems worldwide, we need a global approach with the widest possible international cooperation. Activities in this direction have started and they should be strongly encouraged and intensified.
Technically advanced countries like the United States have a particular responsibility. If you or one of the members of the committee have grandchildren, they will also face Peak Oil. What you decide to do will affect the future for our grandchildren. I hope that you are not the kind of politicians we used to see that can only promise that they can do better in the future and maybe promise to take care of crisis when it happens. As Peak Oil is here in the near future, we need action now.
Now consider China, a developing country with 21% of the global population. It consumes 8% of the global oil supply, and thinks it is fair to claim 21% of daily global consumption, or 17.6 million barrels per day (mbpd). During the last five years the average annual GDP growth in China has been 8.2% and the average increase in oil consumption 8.4% per year. We can now see the same correlation between increase in GDP and use of oil in China as in Sweden 50 years ago. If China’s economy grows 8% per year over the coming five years, we can expect that it will need an increase in the consumption of oil of 3 million barrels per day by 2010.
According to Professor Pang Xiongqi at the China University of Petroleum in Beijing, China’s oil production will plateau in 2009 and then start to decline. This means that the total increase in consumption must be imported. As China is already importing 3 million barrels per day, it will have to increase imports 100% during the next five years. Where will it come from?
Since 2001, when ASPO was founded, we have tried to tell the world that there will soon be a problem supplying the world with crude oil while demand continues to rise.
Unfortunately, few have heeded our alerts, even though the signs have been so obvious that a blind hen could see them.
If we extrapolate the downward discovery slope from the last 30 years , we can estimate that about 135 billion “new” barrels of oil will be found over the next 30 years. The latest large oil field system to be found was the North Sea (in 1969), which contains about 60 billion barrels. In 1999 the North Sea field production peaked at 6 mbpd. Our extrapolation suggests that over the next 30 years we will discover new oil fields equal to twice the size of the North Sea—a very pessimistic prediction, according to our opponents. But I think the oil industry would be ecstatic to find two new North Sea-size oil provinces.
The problem we are facing is that we are using too much oil per year, 30 billion barrels per year. A 5 billion barrel east Texas oil field is only a couple of months of global oil consumption. You do not find big fields often anymore. The largest field discovered during the last 20 years is in Kazakhstan, and it is 10 billion barrels, equal to 4 months of global oil demand. Tar sands could produce 3 million barrels a day in a crash program. But there are 2 problems: Only a small part is the best part – the mined tar sands. The larges part must be obtained with in situ methods and that means you must heat it up and take it out, and for that you need a lot of energy.
The problem with the technology in Texas and the other lower 48 States hasn’t stopped production decline. If you use all the technology you have in the 5 billion barrel East Texas field, the decline rate is just increasing. You are talking about 10 to 20% per in decline now. So what technology did was bring it out faster and now we see, for instance, that in the North Sea, which has had advanced technology from the beginning, the decline is now 10% per year, 10% per year! So do not hope that technology will solve the problem. It might make the problem even worse in the future.
The World Energy Outlook 2005 base-case scenario projects that by 2030 global oil demand will be 115 million barrels per day, which will require increasing production by 31 million barrels per day over the next 25 years, of which 25 mbpd is predicted to come from fields that have yet to be discovered. That is, we’ll have to find four petroleum systems of the size of the North Sea. Is this reality?
Every oilfield reaches a point of maximum production. When production falls advanced technologies can reduce but not eliminate the decline. The oil industry and the IEA accept the fact that the total production from existing oil fields is declining. ExxonMobil informed shareholders that the average production decline rate for the global oil fields are between 4 and 6% per year (The Lamp, 2003, Vol 85, #1). Current global production is 84 mbpd, so next year at this time current fields may produce a total of roughly 80 mbpd. Given the expected increase in global GDP, one year from now total oil demand will be 85.5 mbpd—so new capacity might have to make up for 1.5 mbpd plus 4 mbpd, or 5.5 mbpd. Two years from now the needed new production will be 11 mbpd and in 2010 at least 25 mbpd. Can the industry deliver this amount?
Indonesia, a member of the Organization of Petroleum Exporting Countries (OPEC), not only can’t produce enough oil to meet its production quota, it can’t even produce enough for domestic consumption. Indonesia is now an oil importing country. Within six years, five more countries will peak. Only a few countries—Saudi Arabia, Iraq, Kuwait, United Arab Emirates, Kazakhstan, and Bolivia—have the potential to produce more oil than before. By 2010, production from these 6 countries and from deepwater fields will have to offset the decline in 59 countries and the increased demand from the rest of the world.
Can they do it? Let’s look at Saudi Arabia, which in the early 1980s produced 9.6 million barrels per day. According to the IEA and the EIA Saudi Arabia must produce 22 mbpd by 2030. But Sadad Al Husseini claims that “the American government’s forecasts for future oil supplies are a dangerous over-estimate.” The Saudi Ghawar oil field, the largest in the world, may be in decline (see for example the book “Twilight in the dessert” by Mathew Simmons). Saudi Aramco says that production can be increased to 12.5 mbpd in 2015. They plan a new pipeline with a capacity of 2.5 mbpd, so it looks like they are willing to increase production to 12.5 mbpd, but so far there are no signs of reaching 22 mbpd.
Now consider Iraq, which in 1979 produced 3.4 mbpd. Iraq officially claims reserves of 112 billion barrels of crude oil, but ASPO (and other analysts) think that one-third of the reported reserves are fictitious “political barrels.” At a recent meeting in London, I was told (privately, by a person who is in a position to know) that Iraqi reserves available today for production total 46 billion barrels. If this is the case, it will be hard for Iraq to reach its former peak production level in a short time. And so on. It’s time to ask, can the Middle East ever again produce at the peak rates of the 1970s?
The examples of Sweden and China suggest that, if past economic development patterns are followed, doubling GDP will require doubling global oil production. Can this even be done?
The United States, the wealthiest country in the world, has 5% of the global population and uses 25% of the oil. It is time to discuss what the United States should do to cut consumption—and rapidly. In February 2005 a report for the U.S. Department of Energy (DOE), (Peaking of World Oil Production: Impacts, Mitigation, & Risk Management) argued that “world oil peaking represents a problem like none other. The political, economic, and social stakes are enormous. Prudent risk management demands urgent attention and early action.” Any serious program launched today will take 20 years to complete.
What about oil sands?
The enormous reserves of oil sands in Canada are often mentioned as a lifesaver for the world. The report to DOE in February inspired us to undertake a “Crash Program Scenario Study for the Canadian Oil Sand Industry” (B. Söderbergh, F. Robelius, and K. Aleklett, to be published). In the study we found that Canada must very soon decide if its natural gas should be exported to USA or instead used for the oil sands industry. In a short-term crash program the maximum production from oil sands will be 3.6 million barrels per day in 2018. This production cannot offset even the combined decline of just the Canadian and North Sea provinces. A long-term crash program would give 6 million barrels by 2040, but then new nuclear power plants would be needed to generate steam for the in-situ production.
The problem is that we should have started preparing for peak oil at least 10 years ago. We must act now, as otherwise the bumps and holes in the road might be devastating. I like to summarize the global situation for Peak Oil the following way: When I was born in 1945, none of the four small farms in my little Swedish village used oil for anything. Ten years later, the oil age had arrived: we had replaced coal with oil for heating, my father had bought a motorcycle, and tractors were seen in the fields. From 1945 to 1970, Sweden increased its use of energy by a factor of five, or nearly 7% per year for 25 years.
It is very likely that the world is now entering a challenging period for energy supply, due to the limited resources and production problems now facing conventional (easily accessible) oil. Nearly 40% of the world’s energy is provided by oil, and over 50% of the latter is used in the transport sector. An increasing demand for oil from emerging economies, such as China and India, is likely to further accentuate the need for new solutions
Some analysts maintain that there are inherent technical problems in the Saudi oilfields, but this is not an uncontested viewpoint. It is uncertain how much the oil production in the Middle East can be increased in the next few years and to what extent it would be in the interest of these countries to greatly increase production. It is clear that, even in these countries, conventional oil is a limited resource that they are almost totally dependent on. It is, however, also clear that the countries of the Middle East are undergoing massive internal and regional changes which may have negative consequences for the global oil supply system. Mitigation measures must be initiated in the next few years in order to secure a continued adequate supply of liquid fuels, especially for the transport sector. Over the longer term, completely new solutions are required. Therefore, increased R&D (Research and Development) in the energy sector is urgently needed.
- Shortage of oil. The global demand for oil is presently growing by nearly 2% per year and the current consumption is 84 million barrels per day (1 barrel=159 liters) or 30 billion barrels per year. Finding additional supplies to increase the production rate is becoming problematical, since most major oilfields are well matured. Already 54 of the 65 most important oil-producing countries have declining production and the rate of discoveries of new reserves is less than a third of the present rate of consumption.
- Reserves of conventional oil. In the last 10-15 years, two-thirds of the increases in reserves of conventional oil have been based on increased estimates of recovery from existing fields and only one-third on discovery of new fields. In this way, a balance has been achieved between growth in reserves and production. This can’t continue. Half of current oil production comes from giant fields and very few such fields have been found in recent years. Oil geologists have a wide range of opinions on how much conventional oil there is yet to be discovered, but new reservoirs are expected to be mainly found in the deeper water, outer margins of the continental shelves, and in the physically hostile and sensitive environments of the Arctic, where the production costs will be much higher and lead times much longer than they are today. A conservative estimate of discovered oil reserves and undiscovered recoverable oil resources is about 1200 billion barrels, according to the US Geological Survey; this includes 300 billion barrels in the world’s, as yet unexplored, sedimentary basins.
- Middle East’s key role. Only in the Middle East and possibly the countries of the former Soviet Union is there a potential to significantly increase production rates to compensate for decreasing rates in other countries. Saudi Arabia is a key country in this context, providing 9.5 million barrels per day (11% of the current global production rate). Their proven reserves are 130 billion barrels and their reserve base is said to include an additional 130 billion barrels. Iraq also has considerable untapped oil reserves.
- Unconventional oil resources. In addition to conventional oil, there are very large hydrocarbon resources, so-called unconventional oil, including gas, heavy oil and tar sands and oil shales, coal, from which liquid fuels can be produced. At present, 1 million barrels of oil per day comes from Canadian tar sand and 0.6 million barrels from Venezuelan heavy oil. The Canadian government estimates that by 2025 the daily production rate will have increased to 3 million barrels per day. Thus, the problem with these unconventional oils is not so much price, but lead times and non-price related aspects, such as the effects on the environment and availability of water and natural gas for the production process.
- Immediate action on supplies. Forceful measures to improve the search for and recovery of conventional oil as well as improving the production rate of unconventional oil are required to avoid price spikes, leading to instability of the world economy in the next few decades. Improved recovery of oil in existing fields can be expected. The estimated reserves of conventional oil are, however, located primarily in unexplored sedimentary basins, in environments difficult to access. A substantial part has yet to be found! Sizable contributions from unconventional oil need time (some decades) to become really effective. It is necessary to have public funding for long term petroleum-related research, since this must not be an exclusive task for the oil companies.
- Liquid fuels and a new transport system. Oil supply is a severe liquid fuels problem. Major programs need, therefore, to be implemented to develop alternatives to oil in the transport sector. Until these measures have been introduced, which may take one to two decades, demand for oil for the needs of a globally expanding transport sector will continue to rise; other users of oil will suffer, including those concerned with power generation.
- Economic considerations. At present the high oil prices are due to the limitations of worldwide production, refining and transportation capacities. Furthermore, the price is influenced by the threat of terrorist attacks on the world’s oil supply, transport system and infrastructure.
- Environmental concerns. Constraints on unconventional oil similar to those imposed on other fossil fuels (for example emission controls and CO2 sequestration) will be necessary and provide major challenges for industry.
In view of the importance of the world’s future energy supply, The Royal Swedish Academy of Sciences (the Academy that awards the Nobel Prizes in physics, chemistry, and The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel) has recently established an Energy Committee. The Academy is an independent nongovernmental organization, with expertise in most of the sciences as well as economic, social, and humanistic fields. The Energy Committee has selected a number of subjects to be studied in some depth and one of these deals with oil and related carbon-based fuels. The Academy organized hearings and a seminar before subsequently (on October 14, 2005) issuing a statement about oil (the full statement can be found at the end of this text). I’ll note just one excerpt from the general remarks: “It is very likely that the world is now entering a challenging period for energy supply, due to the limited resources and production problems now facing conventional (easily accessible) oil.
For the United States, saving oil is the most important thing that you can do. I mean why should you consume twice as much oil per person than we do in Europe? We are doing quite well with half the amount of oil.
Thanks to the Committee for this opportunity to discuss Peak Oil and the work of Uppsala Hydrocarbon Depletion Study Group, Uppsala University, Sweden. We are also members of ASPO, the Association for the Study of Peak Oil and Gas, and since 2003 I’ve been president of ASPO. Members have an interest in determining the date and impact of the peak and decline of the world’s production of oil and gas, due to resource constraints (www.peakoil.net). The mission is to: 1. Define and evaluate the world’s endowment of oil and gas. 2. Model depletion, taking due account of demand, economics, technology and politics. 3. Raise awareness of the serious consequences for Mankind.
Robert Hirsch, Senior Energy Program Advisor, SAIC, lead author of 2005 Peaking of World Oil Production: Impacts, mitigation, & risk management, Department of Energy.
The era of plentiful, low-cost petroleum is approaching an end.
Oil is the lifeblood of modern civilization. It fuels most transportation worldwide and is a feedstock for pharmaceuticals, agriculture, plastics and a myriad of other products used in everyday life. The earth has been generous in yielding copious quantities of oil to fuel world economic growth for over a century, but that period of plenty is changing.
The world has never confronted a problem like Peak Oil.
Oil peaking represents a liquid fuels problem, not an energy crisis in the sense that that term has been used. Motor vehicles, aircraft, trucks, and ships have no ready alternative to liquid fuels, certainly not the large existing capital stock. And that capital stock has lifetimes measured in decades. Solar, wind, and nuclear power produce electricity, not liquid fuels; their widespread use in transportation is at least 30 to 50 years away.
Risk minimization mandates the massive implementation of mitigation well before the onset of the problem. Since we do not know when peaking is going to occur, that makes a tough problem for you folks as decision makers because if you are going to start 20 years ahead of something that is indeterminate, you have a tough time making the arguments. Mustering support is going to be difficult. We would all like to believe that the optimists are right about peak oil, but the risks, again the risks of them being wrong, are beyond anything that we have experienced, the risks of error are beyond imagination.
The peaking of world oil production represents an enormous risk to the United States and the world. Peak Oil is not a theory. Maximum conventional oil production is coming, but we cannot predict when because no one has the verified data needed for a credible forecast. Peaking could be soon. Our studies through the Department of Energy indicate that soon is within 20 years.
The economic future of the United States is inextricably linked to Saudi Arabia because they are the lynchpin of future world oil production.
No one outside of Saudi Arabia knows how much oil they have in the ground because that is a closely held state secret. Also, no one outside of Saudi Arabia knows how much and how fast the Saudis will be willing to develop what they have. Like it or not, Saudi Arabia is not required to satisfy world needs and conserving their oil is in their national interest. Think risk.
Until recently, OPEC assured the world that oil supply would continue to be plentiful, but that position is changing. In fact, some in OPEC are now warning that oil supply will not be adequate to satisfy world demand in 10-15 years (Moors). Dr. Sadad al-Husseini, retired senior Saudi Aramco oil exploration executive, is on record as saying that the world is heading for an oil shortage; in his words “a whole new Saudi Arabia (will have to be found and developed) every couple of years” to satisfy current demand forecasts (Haas). So the messages from the world’s “breadbasket of oil” are moving from confident assurances to warnings of approaching shortage. Think risk.
Today, EIA is forecasting adequate world’s oil supplies for decades into the future. The question is, are they going to get it right this time? The National Petroleum Council has been asked by Secretary Bodman to assess Peak Oil. Are they going to get it right this time? Think risk.
It is important to recognize that oil production peaking is not “running out.” Peaking is the maximum oil production rate, which typically occurs after roughly half of the recoverable oil in an oil field has been produced.
What is likely to happen on a world scale will be similar to what happens with individual oil fields, because world production is by definition the sum total of production from all of the world’s oil fields.
A recent analysis for the Department of Energy focused on what might be done to mitigate the peaking world oil production. It became abundantly clear early in our study that effect of mitigation would be dependent on the large scale implementation of mega projects and mega changes. We performed a transparent scenario analysis based on crash program mitigation worldwide which is the fastest that is humanly possible. The timing was left open because we do not know when peaking is going to occur. The results were startling. If we wait until peaking occurs, the world will have a problem with adequate liquid fuels for more than two decades. If we start ten years before peaking occurs, that will allay the problem somewhat but in ten years after that, a problem will arise. And finally, if we initiate a crash program 20 years before peaking occurs, we have the possibility, a possibility of avoiding the problem.
If we get oil peaking wrong, how bad might the economic damage be? Unfortunately, there is a paucity of analysis in this area which is tough analysis to do. One study called oil shock wave, which I believe was mentioned earlier, was performed by a group of distinguished former high level Government officials not too long ago. They concluded at a sustained 4% global shortfall would result in oil at $160 a barrel which would push the United States into recession losing millions of jobs.
Note that oil shock wave focused on a multi-year drop in oil supply of 4% total but experts in this business will tell you that 4 to 8% per year is entirely possible and is happening in many parts of the world. Think risk.
Chinese officials have forecast the peaking world oil production around 2012. As this committee knows, China has been making huge investments to secure oil for its own country doing this around the world and paying premium prices. They tried to buy Unocal and that did not work. They offered a premium in that particular case.
Oil was formed by geological processes millions of years ago and is typically found in underground reservoirs of dramatically different sizes, at varying depths, and with widely varying characteristics. The largest oil fields are called “super giants,” many of which were discovered in the Middle East. Because of their size and other characteristics, super giant oil fields are generally the easiest to find, the most economic to develop, and the longest-lived.
The world’s last super giant oil fields were discovered in the 1960s. Since then, smaller fields of varying sizes have been found in what are called “oil prone” locations worldwide — oil is not found everywhere.
The concept of the peaking of world oil production follows from the fact that the output of an oil individual field rises after discovery, reaches a peak, and then declines. Oil fields have lifetimes typically measured in decades, and peak production often occurs roughly a decade or so after discovery under normal circumstances.
Oil is usually found thousands of feet below the surface. Oil fields do not typically have an obvious surface signature, so oil is very difficult to find. Advanced technology has greatly improved the discovery process and reduced exploration failures. Nevertheless, world oil discoveries have been steadily declining for decades.
“Reserves” is an estimate of the amount of oil in an oil field that can be extracted at an assumed cost. Thus, a higher oil price outlook often means that more oil can be produced. However, geological realities place an upper limit on price-dependent reserves growth. Specialists who estimate reserves use an array of technical methodologies and a great deal of judgment. Thus, different estimators might calculate different reserves from the same data.
Sometimes self-interest influences reserve estimates, e.g., an oil field owner may provide a high estimate in order to attract outside investment, influence customers, or further a political agenda.
Reserves and production should not be confused. Reserves estimates are but one factor used in estimating future oil production from a given oil field. Other factors include production history, local geology, available technology, oil prices, etc. An oil field can have large estimated reserves, but if a well-managed field is past maximum production, the remaining reserves can only be produced at a diminishing rate. Sometimes declines can be slowed, but a return to peak production is impossible. This fundamental is not often appreciated by those unfamiliar with oil production, and it is often a major factor in misunderstanding the basic nature of oil production.
THE OIL PRICE-RESERVES NEXUS
In the past, higher prices led to increased estimates of conventional oil reserves worldwide. However, this price-reserves relationship has its limits, because oil is found in discrete packages (reservoirs) as opposed to the varying concentrations characteristic of many minerals. Thus, at some price, world reserves of recoverable conventional oil will reach a maximum because of geological fundamentals. Beyond that point, insignificant additional conventional oil will be recoverable at any realistic price. This is a geological fact that is often not understood by economists, many of whom are accustomed to dealing with hard minerals, whose geology is fundamentally different.
Oil companies and governments have conducted extensive exploration worldwide, but their results have been disappointing for decades. On this basis, there is little reason to expect that future oil discoveries will dramatically increase. A related fact is that oil production is in decline in 33 of the world’s 48 largest oil-producing countries.
IMPACTS OF IMPROVED TECHNOLOGY AND HIGHER PRICES
Exploration for and production of petroleum has been an increasingly more technological enterprise, benefiting from more sophisticated engineering capabilities, advanced geological understanding, improved instrumentation, greatly expanded computing power, more durable materials, etc. Today’s technology allows oil fields to be more readily discovered and better understood sooner than heretofore.
Some economists expect improved technologies and higher oil prices will provide ever-increasing oil production for the foreseeable future. To gain some insight into the effects of higher oil prices and improved technology on oil production, consider the history of the U.S. Lower 48 states. This region was one of the world’s richest, most geologically varied, and most productive up until 1970, when production peaked and started into decline.
In constant dollars, oil prices increased by roughly a factor of three in 1973-74 and another factor of two in 1979-80. In addition to these huge oil price increases, the 1980s and 1990s were a golden age of oil field technology development, including practical 3-D seismic, economic horizontal drilling, dramatically improved geological understanding, etc. Nevertheless, Lower 48 oil production still trended downward, showing no pronounced response to either price or technology. In light of this experience, there is no reason to expect that the worldwide situation will be different: Higher prices and improved technology are unlikely to yield dramatically higher conventional oil production.
PEAKING OF WORLD OIL PRODUCTION
Various individuals and groups have used available information and geological tools to develop forecasts for when world oil production might peak. A sampling is shown in Table 1, where it is clear that many believe that peaking is likely within a decade.
A recent analysis for the U.S. Department of Energy addressed the question of what might be done to mitigate the peaking of world oil production. Various technologies that are commercial or near commercial were considered: 1. Fuel efficient transportation, 2. Heavy oil/Oil sands, 3. Coal liquefaction, 4. Enhanced oil recovery, 5. Gas-to-liquids.
It became abundantly clear early in this study that effective mitigation will be dependent on the implementation of mega-projects and mega-changes at the maximum possible rate. This finding dictated the focus on currently commercial technologies that are ready for implementation.
New technology options requiring further research and development will undoubtedly prove very important in the longer-term future, but they are not ready now, so their inclusion would be strictly speculative.
Initiating a mitigation crash program 20 years before peaking offers the possibility of avoiding a world liquid fuels shortfall for the forecast period. The reason why such long lead times are required is that the worldwide scale of oil consumption is enormous – a fact often lost in a world where oil abundance has been taken for granted for so long. If mitigation is too little, too late, world supply/demand balance will have to be achieved through massive demand destruction and shortages, which would translate to extreme economic hardship.
In an effort to gain some insight into the possible character of world oil production peaking, a number of regions and countries that have already past oil peaking were recently analyzed. Areas that had significant peak oil production and that were not encumbered by major political upheaval or cartel action were Texas, North America, the United Kingdom, and Norway. Three other countries that are also past peak production, but whose maximum production was smaller, were Argentina, Colombia, and Egypt. Examination of these actual histories showed that in all cases it was not obvious that production was about to peak a year ahead of the event, i.e., production trends prior to peaking did not provide long-range warning. In most cases the peaks were sharp, not gently varying or flat topped, as some forecasters hope. Finally, in some cases post-peak production declines were quite rapid. It is by no means obvious how world oil peaking will occur, but if it follows the patterns displayed by these regions and countries, the world will have less than a year warning.
IT’S NOT YOUR MOTHER’S ENERGY CRISIS
Oil peaking represents a liquid fuels problem, not an “energy crisis” in the sense that term has often been used. Motor vehicles, aircraft, trains, and ships simply have no ready alternative to liquid fuels, certainly not for the existing capital stock, which have very long lifetimes. Non-hydrocarbon-based energy sources, such as renewables and nuclear power, produce electricity, not liquid fuels, so their widespread use in transportation is at best many decades in the future. Accordingly, mitigation of declining world conventional oil production must be narrowly focused, at least in the near-term.
It is possible that peaking may not occur for a decade or more, but it is also possible that peaking may be occurring right now. We will not know for certain until after the fact. The world is thus faced with a daunting risk management problem. The world has never confronted a problem like this. Risk minimization requires the implementation of mitigation measures well prior to peaking.
Over the past century world economic development has been fundamentally shaped by the availability of abundant, low-cost oil. Previous energy transitions (wood to coal, coal to oil, etc.) were gradual and evolutionary; oil peaking will be abrupt and revolutionary. The world has never faced a problem like this. Without massive mitigation at least a decade before the fact, the problem will be pervasive and long lasting. Oil peaking represents a liquid fuels problem.
Robert L. Hirsch is a Senior Energy Program Advisor for SAIC and a consultant in energy. Previous employment included executive positions at the U.S. Atomic Energy Commission, the U.S. Energy Research and Development Administration, Exxon, ARCO, EPRI, and Advance Power Technologies, Inc. Dr. Hirsch is a past Chairman of the Board on Energy and Environmental Systems at the National Academies. He has a Ph.D. in engineering
Haas, P. August 21, 2005. The Breaking Point. New York Times Magazine.
Moors, K.F. How Reliable are Saudi Production and Reserve Estimates? Dow Jones
Robert Esser, Senior consultant & director, Global oil & Gas resources, Cambridge Energy Research Associates (CERA):
CERA does not recognize a peak in oil capacity until at least 2030.
We at CERA have been conducting continuing research on the future of oil supplies. The following are our basic conclusions. One, the world is not running out of oil imminently, or in the medium term. Our field by field activity based analysis points to a substance build-up of liquid capacity over the next several years. Two, an increasing share of supplies will come from non-traditional or unconventional oils from the ultra-deep waters, from oil sands, from gas related liquids in which we include condensates and natural gas liquids and also the conversion of gas to liquids. Three, rather than an isolated peak, we should expect an undulating plateau, perhaps three or four decades from now. Peaking does not imply a precipitous decline towards running out. Four, one reason for the general pessimism about future supplies is that based on Cambridge Energy’s reserve study, the reserve disclosure rules mandated by the Securities and Exchange Commission are based on decades old technology and need to be updated to reflect the new technology which is now available to verify reserves. Five, the major risk to this outlook, however, are not below ground geological factors but above ground geopolitical factors.
Our sources of new supply: new capacity comes from the development of recent discoveries, older discoveries only recently made available – such as all of those huge fields now being developed in the Caspian Sea area – existing field reserve upgrades, and the drilling response to high prices which will tend to reduce decline rates in mature areas. Accordingly, the CERA outlook is a more optimistic picture than many of the other publicly available outlets and strongly contradicts those who believe Peak Oil is imminent.
Key trends: in our core scenario, which is at the high end of our expectations, CERA expects capacity could increase by as much as 15 million barrels a day to 102 million barrels a day by 2010. This is up from the 87 million barrels a day currently with a further increase of 6 million barrels a day to 108 million barrels by 2015. This is a 25% increase. All regions except the United States and the North Sea will show strong growth to 2020. Non-OPEC countries with strong growth in exports include Russia, Azerbaijan, Kazakhstan, Angola, Brazil, and Canada. Actually right now there is no more intense exploration in producing play than the Canadian oil sands. Strong growth takes place in both OPEC and non-OPEC countries till 2010, however, we also recognize that this will moderate by 2015.
This is led by gas related liquids associated with the gas under development to meet the soaring demand for liquefied natural gas, especially for the United States and other country and regional gas demand growth. The inclusion of these gas related liquids is certainly warranted as they too satisfy the demand of the liquid oil demand.
The increases in capacity are also underpinned by the development of the characteristic very large discoveries recently made in very deep waters since the late 1990’s. The top ten discoveries alone each year add something on the order of 2 to 2-1/2 million barrels a day. Accordingly, CERA does not recognize a peak in oil capacity until at least 2030.
Many risks loom on the horizon that could impact productive capacity. Most of these are above ground risks such as severe lack qualified manpower and the shortage of rigs. Political risks occur in most OPEC countries especially in Iraq, Iran, Venezuela, and non-OPEC Russia. Other risks include access to areas of major under discovered reserve potential, a slowdown in the company sanction of new field development, and this is most important, an unexpected higher than assumed decline rate in some of the large Middle East fields, and lastly, delayed Government sanction of certain long awaited projects in Iran, Kuwait, and the UAE. Should many of these concerns take place in the near future, capacity in 2010 could be 5 million barrels a day lower than projected.
In addition to crude oil from conventional settings, our analysis concludes that unconventional oil—condensates, natural gas liquids (NGLs), deepwater production, extra heavy oils and gas-to-liquids (GTLs) will represent about 35% of total capacity in 2015— compared to 10% in 1990.
Political risks also have an impact on capacity expansion in the Middle East, where the situation in Iraq continues to be highly problematic, and there is growing uncertainty over events in Iran. In Russia, changes in ownership, the constraints of geology, and the fiscal and regulatory systems, as well as logistical bottlenecks and geological challenges – all these have led to the end of Russia’s high supply growth era. In Venezuela fiscal and political changes have hindered the recovery of oil production and investment in the aftermath of the late 2002/early 2003 disruption and are likely to have continuing impact.
Our views about the peak oil debate have been reinforced by a detailed new audit of our own analysis and also further evidence that has come to light concerning the enormous scale of field reserve upgrades of existing fields. We also draw upon the proprietary databases of IHS, of which CERA is now part. These are the most extensive and complete databases on field production around the world. We see no evidence to suggest a peak before 2020, nor do we see a transparent and technically sound analysis from another source that justifies belief in an imminent peak.
It will be a number of decades into this century before we get to an inflexion point that will herald the arrival of the “undulating plateau. Assuming no serious political crises in key producing countries or an unexpected shortfall in investment, global oil production capacity will continue to grow strongly toward 102.4 mbd by 2010 from the current level of 87.2 mbd. [NOTE: BUT IT DIDN’T GO UP 15.2 mbd, it went up only .7 mbd. EIA world oil production 2005 = 73.9 mbd, 2010 = 74.6, not sure where CERA came up with 87.2 mbd]
Production capacity of extra heavy oil from Canada and Venezuela will expand from 1.8 mbd in 2005 to 4.9 mbd in 2015 . Despite accidents earlier in 2005 the Canadian projects are moving forward at an accelerating pace. Expansion from 1.2 mbd currently to 3.4 mbd by 2015 is anticipated, with approximately half being mined and the remainder in situ.
[Canadian oil sand production was only 2.2 mbd in 2014 and possibly less in 2016 due to oil bubble popping]
MURRAY SMITH, MINISTER—COUNSELLOR GOVERNMENT, CANADIAN EMBASSY
Today Alberta produces just over 2 million barrels a day and will grow to 2.5 million in three to four years and about 3 million barrels per day before 2015. Alberta crude oil production from oil sands is currently in excess of 1 million barrels per day (bbl/d). Production is anticipated to reach 3 million bbl/d by 2015, and 5 million bbl/d by 2030.
Alberta is recognized as the home of the second largest oil reserves in the world. From initial reserves in place of 1.7 trillion barrels of oil, there are currently 174.5 billion barrels of oil in established reserves and 315 billion barrels believed to be ultimately recoverable.
Replies of Robert Hirsch to questions asked by representatives
I was on the National academy panel that reviewed a hydrogen program and provided the report that came out a year ago. We spent a year looking into the issues in a great deal of detail. It is technically feasible to do hydrogen, but it is not economically feasible. And for the economics to make any sense at all, you have to have breakthroughs in two areas in particular. One is in fuel cells which are totally inadequate for the application right now and the other is onboard storage. You cannot predict when those breakthroughs are going to occur. We took an optimistic view as to when these vehicles might enter the market in order to see how long it would take for them to have an impact. But do not bet on it. You just cannot bet on it because the things that are needed that are essential to go do not exist now.
My work was for the Department of Energy, National Energy Technology Laboratory and I am familiar with the work at other laboratories. Computer simulations are not worth a damn if you do not have data to go in that has any kind of certainty to it. And that data does not exist. It simply does not exist. When CERA makes their estimates, they are using estimates. When other people predict other dates for peaking, they are using estimates. They are taking bits and pieces of information. In some cases they are basing their projections on what somebody tells them without any independent verification. So a computer program with bad data is going to give you a bad result.
I ran exploration and production research at Atlantic Richfield and we looked at not only the technologies that were being developed, but we looked off into the future and there have been improvements, 3D, 4D seismic has come along, there is horizontal drilling that was developed in large part by somebody who was in the laboratory that I managed. There is deep water. What has happened there is rather dramatic and rather marvelous. But if you look at all of those things and the character of the problem, there will definitely be improvements made, but they are not going to change the basic picture. They will change the time by maybe a matter of years.
You have to keep in mind that some of those technologies in fact will drain reservoirs faster than would otherwise be the case. And under those conditions, you are going to have a big ramp up, but then you are going to have a much sharper drop afterwards.
I think that all of us would agree that you do not pick winners in a situation like this; you go with anything that is reasonable. I totally agree with my colleague here that biodiesel, as wonderful as it sounds, is going to be a sliver in terms of the problem. And finally, in terms of having a program, there needs to be a will first and there needs to be a worldwide will and then there needs to be Government stepping in and facilitating the private sector to doing things on a basis that has not been done before. That is the only way you are going to minimize the risks. That is not what we are talking about today in detail, but that is effectively what has to happen.
ROSCOE BARTLETT. When it comes to ethanol production you should not look at the total BTU’s in ethanol and assume that those will contribute to our energy usage. The production of ethanol I hope will have an energy profit ratio which is positive. But it will never be very positive. We will always be putting a major percentage of the energy into producing ethanol that we get out of ethanol. Just a word of caution in looking at ethanol and that goes for any of the things produced in agriculture by the way.
I understand that the Canadian oil sands may be using more energy from natural gas to produce the oil than they are getting out of the oil. That is fine if it is stranded gas, but ultimately we will have a real limitation on what we can do there. They are now thinking of building a nuclear power plant to get the quantities of energy that they use to do this. So I would just like to caution that the enormous reserves in the oil sands and tar shales are not net energy realizable. You may end up using six barrels of oil and get a net energy of one barrel of oil. I do not know what that energy profit ratio will be but it ain’t high.
Fuel cells: two problems with fuel cells, one is storage that was mentioned. We had experts testifying recently and they said of the three methods of storing it one is as a gas in a pressure vessel that is just too heavy. Another is a liquid. The insulation is too much and the difficulty of pressurizing it is too great. But the only feasible way that it will become economically widely used is to have solid state storage which really means you are dealing with a hydrogen battery. And a fundamental question is – is the hydrogen battery fundamentally more energy efficient than an electron battery, which we have a whole lot of. I understand if you could wave a magic wand that every vehicle in the world today would have a fuel cell in it that we would use all the platinum in the world. So clearly, you have got to have some big breakthroughs in fuels cells before this is going to be feasible.
One of the ways of producing more oil is to drill as many wells in Saudi Arabia as we drilled in our country. We have about what three fourths of all the oil wells in the world in our country. Yeah, you will get more oil more quickly from Saudi fields but all you are doing is climbing a hill and the peak is going to be higher. You are going to fall off the peak and the descent, you know, you cannot pump what is not there and if you are able to pump it more quickly now there is going to be less to pump in the future.
I would just like to note that there are risks that responding too early, you are using resources you might have used for something else but I think that the risk of responding too late are overwhelming, that any rational people would buy, you know, maybe responding too early. Thank God it is too early because if it is too late we are really in for a big problem.
I would like to caution about energy from agriculture. Two cautions, one, we are barely able to feed the world. Tonight a fourth of the world will go to bed hungry.
And I would like to caution you to be careful about how much biomass you want to rape from our topsoils.
We are barely able now to maintain the quantity and quality of our topsoils and that is because we are not returning humus to them. I asked the Department of Agriculture, do you think we have more and better topsoil? The answer is no. For every bushel of corn we raise in Iowa, we lose three bushels of topsoil down the Mississippi River. So I would be very cautious about how much energy you expect–and by the way, it is not–the energy profit ratio from agriculture is not high. We would have to have a much more energy efficient agriculture if we are going to get any energy from agriculture in the future.
Twenty-five of the 48 oil producing countries in the world are now in decline. How are we going to get more oil in the future if that is true? And, you know, what to do? I think what we need to do is obvious, a massive effort of conservation, a big investment in efficiency, and big investments in alternatives. I do not think what we need to do is questionable. I think the will to do it may be very questionable.
KJELL ALEKLETT. We have now 65 countries in the world that are major producers of oil; 54 out of those 65 have already passed the peak of production and are going down. The next five years, another five countries will be past the peak, for instance China and Mexico that we know about. And so by 2010 there will be six countries that might be closer to increase their production. One of those is Bolivia and they are making something like 800,000. But take for instance Brazil that is considered to be one of the successful nations. What they have found down there is something like 12 billion barrels of oil in ultra deep water. And 12 billion barrels when we are consuming 30 billion barrels per year, well can that save the world?
Yes, Saudi Arabia will go up to 12.5 and they are committed to do that, but Kuwait for instance, the big field there is declining now. They are officially saying that and many other things. So I do not think it is possible to get this increase. And just look at numbers and start to think for yourself because that is what we need now, even level thinking.
ROBERT HIRSCH. Well I would just amplify on his points. If you have got the overwhelming number of countries in the world that have been oil producers that are already past their peak, that means less production from them and world demand continues to increase, therefore, the gap is not just the increased gap, it is the increase plus the loss that is associated with these others on the down slope and that gets to be bigger, and bigger, and bigger, and the rates catch up to you very, very quickly.
UDALL. I think the crucial part of the debate here and you have–the panelists have hit it several times that it does not matter when we peak. The important thing and, you know we have people today that are reliable folks that are saying that we peaked already. And one of our panelists says it is 2030, others it could be 2010, we do not know. But I do not think we should be getting in that debate. The focus we should have on this is what should we be doing to move us forward.
These panelists have hit on the idea of political will around the world and I think that is very, very important, us to have the will and the stamina to really take this on. My understanding we are doing a very small amount of research compared to what people do and Governments do in other areas. And what about global warming?
ALEKLETT. Let me start with the global warming, please, because if you look into these scenarios about how much carbon dioxide that will be produced in the future, it is obvious that they are overestimating the amount that can be produced from oil and natural gas. And it is now more or less agreed that we can burn all the natural gas and the conventional oil and it will not affect so much the global change. The problem is coal. We should work on coal. We should not have the carbon dioxide coming out in the air from coal. That is a big problem for the future.
HIRSCH. I would like to comment on your point about political will because the political will in our system with the way things are working right now is very hard to muster. In fact, in the current circumstances, the high probability would be to wait until the problem hits because then the political will be there, because consumers will be screaming. I would say that China has the political will and China is out acquiring and investing in ways to secure their own supply. They seem to have the political will which we do not have as yet.
ALEKLETT. Another thing with China is that they can say that you are not allowed to buy a car that takes so much gas; you must buy one that takes a smaller amount. Another thing is we have the world problem with diesel coming out. Everyone thinks that diesel should be used because you get better efficiency on the cars. But the problem is that the capacity of producing diesel in the refineries is not enough in the world.
Another thing I think we have to consider is the countries in the Middle East and North Africa. These countries have 75% of the remaining resources of oil in the world and these people also understand that this is the only resource they have to make money for the future.
I have visited the Middle East a couple of times now and every time when I am down there they said we had to think about future generations, our children and grandchildren; they must get money for something also. So why should we pump all now that we do not need the money when our children need it in the future. In Kuwait the parliament says no to increasing production to save it for future generations, so do not count on these countries increasing their production, because they know that they need it in the future.
When I lived in California, I liked to go up in the gold country and the ghost towns there were quite chilling. They are ghost towns because there was a limited resource of gold and silver.
UDALL . Any predictions at all on prices in terms of gasoline? I mean are we going to go back down in terms of the price per barrel?
HIRSCH. I do not think anybody could tell you. And anybody that gives you a prediction may not understand the problem. It is too complex. There are too many forces at work. There are things that happen that are unpredictable. You cannot predict the price.