Oil production nearing the peak

Dele Aderibigbe, Lagos

A refinery

AS first expressed in Hubbert peak theory, peak oil is the point or timeframe at which the maximum global petroleum production rate is reached. After this timeframe, the rate of production will by definition enter terminal decline. According to the Hubbert model, production will follow a roughly symmetrical bell-shaped curve.

Some observers such as Kenneth S. Deffeyes, Matthew Simmons, and James Howard Kunstler believe that because of the high dependence of most modern industrial transport, agricultural and industrial systems on inexpensive oil, the post-peak production decline and possible resulting severe price increases will have negative implications for the global economy. Predictions as to what exactly these negative effects will be vary greatly.

More optimistic outlooks, delaying the peak of production to the 2020s or 2030s and assuming major investments in alternatives occur before the crisis, show the price at first escalate and then retreat as other types of fuel sources are used as transport fuels and fuel substitution in general occurs. More dire predictions which operate on the thesis that the peak will occur shortly or has already occurred predict a global depression and even the collapse of industrial global civilization as the various feedback mechanisms of the global market cause a disastrous chain reaction. The shortfall will cause demand destruction which may be mitigated with planned conservation measures and using alternatives if implemented 20 years before the peak.

Timing
The only reliable way to identify the timing of peak oil will be in retrospect. M. King Hubbert, who devised the peak theory, predicted in 1974 that peak oil would occur in 1995 at 12-GB/yr "if current trends continue". However, in the late 1970s and early 1980s, global oil consumption actually dropped (due to the shift to energy efficient cars,the shift to electricity and natural gas for heating, then rebounded to a lower level of growth in the mid 1980s. The shift to reduced consumption in these areas meant that the projection assumptions were not realised and, hence, oil production did not peak in 1995, and has climbed to more than double the rate initially projected.

Colin Campbell of the Association for the Study of Peak Oil and Gas (ASPO), has suggested that the global production of conventional oil peaked in the spring of 2004 albeit at a rate of 23-GB/yr, not Hubbert's 13-GB/yr. During 2004, approximately 24 billion barrels of conventional oil was produced out of the total of 30 billion barrels of oil; the remaining six billion barrels coming from heavy oil and tar sands, deep water oil fields, and natural gas liquids.

In 2005, the ASPO revised its prediction for the peak in world oil production, again, from both conventional and non conventional sources, to the year 2010. These consistent upward (into the future) revisions are expected in models which don't take into account continually increasing reserve estimates in older accumulations.

Another peak oil proponent Kenneth S. Deffeyes predicted in his book Beyond Oil - The View From Hubbert's Peak that global oil production would hit a peak on November 25th, 2005 (Deffeyes has since revised his claim, and now argues that world oil production peaked on December 16, 2005).

Texas oilman T. Boone Pickens has stated that worldwide conventional oil production will top out at 84 MB/day[8] (31 BB/yr).

Colin Campbell, a well-known petroleum geologist, has put the tilting point at 2010. The U.S. Department of Energy predicts that the peak won't happen until 2037.

Related peaks
The peak of world oilfield discoveries occurred in 1965.[9] Because of world population growth, oil production per capita peaked in 1979 (with a plateau 1973-1979).
Supply

2004 U.S. government predictions for oil production other than in OPEC and the former Soviet UnionPeak oil is concerned with the production flow of oil measured as the quantity extracted over time. Recoverable reserves are important only in that they must exist before any oil can be extracted and delivered to the market.

Reserves
Conventionally reservoired crude oil resources comprise all crude oil that is technically producible from reservoirs through a well bore using any primary, secondary, improved, enhanced, or tertiary method. Not included are liquids from mined deposits (tar sands; oil shales) or created liquids (gas-to-liquids; coal-to-liquids).

Oil reserves are classified into categories - proven, probable and possible. Proven reserves are claimed to be "Reasonably Certain" to be producible using current technology at current prices and are intended to be 90 per cent certain of containing the amount specified or more. The "Probable Reserves" category has an intended probability of 50 per cent and the "Possible Reserves" an intended probability of 10 per cent. Some care must be taken with these categories, as the majority of reserves have not been subject to outside audit or examination.

Most of the easy-to-extract oil has been found. Recent oil exploration is being carried out in areas where oil is much more expensive to extract, extremely deep wells, extreme downhole temperatures, environmentally sensitive areas or where high-technology will be required to extract the oil. Oil companies such as Exxon Mobil, Shell, and BP are having to spend more money on oil exploration due to a shortage of drilling rigs, increases in steel, an increase in service charges - like drilling rig rates, and overall increases in costs due to complexity.

Quantifying reserves
In forecasting the date of peak oil - and in testing the validity of Hubbert's theory - one difficulty is the strong opacity surrounding the claimed proven oil reserves. This was best exemplified by the scandal surrounding the 'evaporation' of 20 per cent of Shell's reserves.

For the most part, proven reserves numbers come from the three major players of the oil market: the oil companies, the producer states and the consumer states. All three have an interest to inflate their proven reserves: oil companies see their potential worth augmented as much; producer countries are bestowed a stronger international stature; and governments of consumer countries aren't keen on sending alarming signals to their economies and consumers. Many worrying signs concerning the depletion of 'proven reserves' have emerged in recent years.

On the other hand investigative journalist Greg Palast has argued that oil companies have an interest in making oil look more rare than it is in order to justify higher prices (Armed Madhouse).

Unconventional sources
Unconventional sources, such as heavy crude oil, tar sands, and oil shale are not counted as part of oil reserves until oil companies can book them as proven reserves after they finish a strip mine or thermal facility to extract them. The three major sources of unconventional oil are the extra heavy oil in the Orinoco river of Venezuela, the tar sands in the Western Canada Basin, and the oil shale in the Green River Formation in Colorado, Utah and Wyoming in the United States. It is estimated that these sources account for as much oil as the reserves of the Middle East.

Some experts say that all the world’s extra oil supply is likely to come from expensive and environmentally damaging unconventional sources within 15 years, according to a detailed study. This will mean increasing reliance on these hard-to-develop unconventional sources of energy. The downside is that these resources are typically full of contaminants and energy intensive to extract. To make them usable as transportation fuels, sulfur, heavy metals and carbon must be removed.

Demand
The demand side of Peak oil is concerned with the consumption of oil measured as the quantity consumed over time. World crude oil demand has been growing at an annualized compound rate around two per cent in recent years. Demand growth is highest in the developing world, particularly in China and India, and to a lesser extent in Africa and South America. Where high demand growth exists it is primarily due to rapidly rising consumer demand for transportation via cars and trucks powered with internal combustion engines.

The U.S. Department of Energy categorizes national energy use in four broad sectors: transportation, residential, commercial, and industrial.In the United States, in contrast to other regions of the world, about 2/3 of all oil use is for transportation, 1/5 goes to industrial uses, and the remainder goes to residential, commercial and electric energy production.[23]

Transportation
Most oil is consumed in transportation, approximately 66.6% in the United States[24] and 55% worldwide,[25] World demand for oil is set to increase 37% by 2030, according to the US-based Energy Information Administration's (EIA) annual report. Demand will hit 118 million barrels per day (bpd) from today's existing 86 million barrels, driven in large part by transport needs.

Population
World Population GrowthBecause of world population growth, oil production per capita peaked in the 1970s.[10] The world’s population in 2030 is expected to double from 1980 and be much more industrialized and oil-dependent than it was in 1980[27]. Some predictions suggest that worldwide oil production in the year 2030 will have declined to the same level as it was in 1980, in which case worldwide demand for oil will significantly outpace worldwide production of oil.[28] Some physicists maintain that the non-sustainability of oil production per capita was not addressed due to the political correctness implications of suggesting population control.[29]

One factor that may ameliorate this effect is the rapid decline of population growth rate since the 1970s. In 1970, the population growth rate was 2.1%. By 2006, this had declined to 1.1%. Meanwhile, oil production has continued to grow strongly. From 2000 to 2005, human population only grew by 6.3% [1], whereas global oil production increased by 8.2% [2].

Supplies of oil and gas are essential to modern agriculture,[30] so coming decades could see spiraling food prices without relief and massive starvation on a global level such as never experienced before.[31][32] Geologist Dale Allen Pfeiffer claims that to achieve a sustainable economy and avert disaster, the United States must reduce its population by at least one-third, and world population will have to be reduced by two-thirds.

Current U.S. population of more than 300 million as well as world population exceeding 6.6 billion are, according to Pfeiffer, unsustainable.[33]

Industrialization
As countries develop, industry, rapid urbanization and higher living standards drive up energy use markedly. The energy supply to drive industrialization mostly comes from oil.

For example, thriving economies such as China and India are quickly becoming large consumers of oil. China has seen oil consumption grow by 8% yearly since 2002[34], currently imports roughly half its oil, and is expected to double its oil consumption by 2025 to 14.2 mb/d. India's oil imports are expected to more than triple to some 5 million barrels a day by 2020.[35] Cars and trucks will cause almost 75% of the increase in oil consumption by India and China between 2001 and 2025.[36] As more countries develop, the demand for oil will increase further.

Mitigation
According to the Hirsch report prepared for the U.S. Department of Energy in 2005, a global decline in oil production would have serious social and economic implications without due preparation.

The effects of peak oil can be mitigated through conservation and finding alternatives 20 years or more before the peak. Because mitigation can reduce the consumption of traditional petroleum sources, it can also affect the timing of peak oil and the shape of the Hubbert curve.

(Culled from Wikipedia)

Sustainable energy: Growth to 2070 and beyond

Basil Omiyi, MD, SPDC

The world’s growing population needs more energy to improve living standards, especially in developing countries. As competition intensifies to secure conventional oil supplies, all would benefit from cleaner, more efficient energy. Saving energy rather than burning it, as consumers did after the price hikes of the 1970s, is clearly the simplest and quickest way to save money, avoid pollution and reduce wasteful, unnecessary pressure on the current supplies.

Recognizing that the climate is changing, booth physically and politically, Exxonmobil has joined other industry leaders like BP and shell to acknowledge the growing threats we face in securing sufficient low cost energy supplies with less damage to our environment. More companies are sending the message to their host governments, consumers and shareholders that failure to address these difficult challenges will damage the global economy and hurt some of these companies themselves.

Do changing consumer opinions, political objectives and business realities offer opportunities for energy companies farsighted enough to anticipated needs 10 years from now?

Limits to growth
Even with high prices since 2004 giving the market strong signals, many leading energy companies have not invested enough to renew their project, infrastructure and technology portfolios. Now, they struggle to maintain, let alone grow, their production and reserves organically. Together the top seven international oil companies (IOCs) produce about 12.5 million barrels a day (just over a quarter of all non-OPEC output), plus 43 billion cubic feet a day of gas.

They have delivered only about half the growth promised a few years ago. Exxon Mobil, Shell and Chevron all produce less now in 2002. Other is effectively that, and now the cost of growth has risen significantly.

Access to many of the most prospective areas of the Middle East, Russia, southern former Soviet union, North Africa and Latin American for 10Cs is now denied, restricted or under harder terms, while costs have spiraled in the ultra deepwater, the arctic and tar sand plays. Rather than reinvesting in growing more of these higher cost energy supplies, most have returned billions in share buybacks to their shareholders. It is getting harder to see where the next generation of good projects and growth for the leading IOCs will come from.

Global demand for oil and gas has stabilized over the last year or so, after a steady increase at 1.4 to 1.6 percent a year up to the surge in 2004. Future growth may remain lower, driven nor by higher prices. Tighter emission controls and less wasteful use, as some priorities and attitudes evolve. International energy agency director Claude Mandilhas dismissed his own groups business as usual scenario for energy demand, with oil use rising by 42 percent and gas by 67 percent from now to 2030, as unsecured, unattainable, unstainable and unrealistic.

At the same time, energy expert Mathew R. Simmons has said than, under this scenario, china and Indian would still use less energy per capita in 2030 than Mexico does now. At around 84.7 million barrels a day, the world uses 30 to 32 billion barrels of oil a year. Roughly all the oil we hope to find in two of the 20 most prospective basins is now used up each year!

How long can we expect global oil output to keep growing Global ‘proven” oil reserves are sometimes questioned, as many of the Middle East numbers were suddenly and significantly increased when OPEC quotas were set in the mid-1980s and do not appear to account fully for subsequent production.

At face value, the nearly 1.2-trillon barrels would imply in approximate 40 years reserve life with no growth in either production of reserves. Saudi Arabia recently claimed 100 years of production (or, at early 2007 levels, 316 against its stated “proven” reserves of 267 billion barrels. If some of these proven reserves are not quite equivalent to the figures from the US Securities and Exchange commission, something over 800 billion is seen by many as a reasonable lower limit.

Most people regard proven plus probable (2P) as the best estimate of what is eventually producible. While there are both much higher and some lower estimates, a reasonable range for 2P as the best estimate of what is eventually producible. While there are both much higher and some lower estimate, reasonable range for 2Pis from 1.6 to 2.2 trillion barrels.

This is somewhat conservative as some Russia and heavier Middle East oil is not yet properly evaluated. The third category of discovered resources is ‘possible” and companies is 2006 started announcing their estimated long-term resources. Improved recovery effectively draws from these and moves resources into producible 2P and then proven.

Over the next 20 years, we may continue to expect improved recovery to add over 1 billion barrels a year to producible resources, increasing with time and better reservoir imaging and management technologies up to perhaps 15 or more – or around 250 billion barrels in total. Exploration may continue to add 10 to 15 billion barrels a year declining over time. Looking beyond conventional resources, heavy oil sands projects have are likely to add a further 300 to 500 billion or more to the producible resource high enough. We have already produced around 1.1 trillion barrels of oil. At 30 to 36 billion a year, we may produce another 600 to 700 billion over the next 20 years, again strongly depending on how rapidly oil demand grows. This is likely to slow down with much higher prices and tighter controls on CO2 emissions.

The 0.6 percent growth in oil demand over the last 12 months highlights this slowdown. The relatively simple and straightforward estimates in the above scenario imply an oil resource growth of around 250 billion barrels over the next 20 years. Remaining producible oil would still exceed by around 400 billion barrels the expected cumulative oil production of around 1,.75 trillion in 20 years.

Under this scenario, we would not have reached half way, indeed, the slowing now of oil demand growth, with high prices, environmental concerns and uncertainties in economics, politics, investment and energy substitution, may be evidence that an undulating and asymmetrical plateu is more likely than an Alpine peak. Individual field production profiles, too, are asymmetrical with long tails extended by reservoir management activity. In addition, more oil from the massive, already-known but expensive unconventional heavy and shale resources, more enhanced oil recovery of the large volumes left in the ground (perhaps using some of the abundant CO2) and new remote basins such as the Arctic and eventually the Antarctic will add to the oil resources base in the long term. But whether they come quickly enough will depend on prices, access and technology.

Meanwhile, gas offers a relatively low-cost, cleaner substitute and is set to last much longer. Over 100 percent is still replaced on a 2 basis each year, mainly in he Easter Hemisphere.

Better estimates for both oil and gas to aid energy planning would be possible if transparent production data from most of the world’s 200 largest fields were available. As in individual fields, the decline is, fortunately, likely to be slower than the ramp-up to peak production levels and will probably be extended by new imaging, drilling, completion and recovery technologies.

But the oil industry has cut costs and become more conservatives, and, as Simmons also has noted, the technology blackboard is somewhat bare. A real push to innovate is needed now. Predictions by some (dubbed the “Malthusians”) of an peak and shortfall within one to 10 years may be useful wake-up call, reinforced by falling production in such leading producer countries as the United State, Mexico, Indonesia, United Kingdom and Norway.

The continuing lack of production growth from most of the leading oil majors, who face mega-project delays and stronger national oil companies (NOCs) wanting bigger shares of national asset, has certainly hurt their revenues and market value. Nevertheless, most of these delayed projects will still come on stream over the next few years. The cornucopias can point to growing oil and gas production capacity in Canada, Russia, the Caspian, brazil, GoM deepwater, Saudi Arabia, Angola, Qatar, UAE, Kuwait, Libya, Algeria, Egypt, Kazakhstan, china, Indian, Myanmar and Australia. Others with potential to grow more, but held back by above ground problems, include Iraq, Iran, Nigeria, Venezuela and Bolivia.

Much of the real problem may be short-term delivery, and the recent tight capacity may persist for another two years or more.