The Myth of Peak Oil is Melting Away….Literally

Sometimes Silence is Golden The Peak Oil Theory was Created by….You Guessed it… Big Oil!

The Myth of Peak Oil is Melting Away….Literally

November 7th, 2006

November 7, 2006 -

I have never believed that Peak Oil was real despite the plethora of experts that claim its legitimacy. In life, the majority of people will believe something as long as enough talking heads repeat the same thing and enough newspapers proclaim it as “fact” or “inevitable”. In fact, you can find such instruction in many military manuals –

To get a nation, or even a world, to believe something, even if it is not true, print it in the major media. Then the whole world will believe it if it is in print.

I have always formulated my opinions by trying to understand the origins of such claims rather than accepting something as truth because I heard about it on TV or read about in a paper. But the reality is that many people are lazy and would rather have someone else tell them what to think. In December, 1999, a great majority of people all over the world believed in Y2K because the media made us believe in its catastrophic inevitability – a catastrophe that never happened. I believe Peak Oil is the same.

However, I do believe that global warming is real. In fact, the reality, and not they myth, of global reality is changing the Peak Oil situation. As I mentioned in my previous blog, there has been extensive melting of the polar ice cap that is opening up previously unexplorable areas to exploration. This is not just true for mineral reserves but also for natural gas and oil reserves. This is Reality #1.

Reality #2 is that 375 billion of oil reserves are believed to lie beneath the polar ice cap. That would increase world oil reserves by 1/3^rd.

Reality #3 is that with improved 4-D seismic imaging technology that can locate oil reserves much more efficiently and accurately, we will soon know if those estimates are accurate.

Reality #4 is that we’ve had technology for decades that would be able to replace oil as a source of energy. There has always just been too much money and power consolidated in the big oil companies for any of them to prosper. If push comes to shove and we need them to be developed, these alternative energy models will not only thrive but prosper.

Reality #5 is that improved technology within the oil industry is making drilling to depths that were previously unfathomable, well, fathomable. This makes reserves previously inaccessible – accessible. And now global warming is increasing the amount of accessible reserves. Peak oil is based upon static reserves being depleted over time. With possibly 375 billion of oil reserves now accessible, that calculation significantly changes.

4 Comments Add your own

1. Barry Yeong&hellip | November 7th, 2006 at 6:16 pm

Hi Kim

Did you study the demand side of oil?

World urban population growth; number of new cities/infrastructure created each year especially in China and India; increase in air travel; new innovations/products requiring oil as efficient source of energy etc.

What if all countries are addicted to oil?

Barry
2. J.S.&hellip | November 7th, 2006 at 8:00 pm

HI Barry,

Yes, I have looked at the demand side. I realize demand outweighs supply now and that’s where the concept of peak oil comes from. However, as I stated in my blog entry I think three things compensate for that. New discoveries such as in the Arctic which alone increases known global reserves by over 33%, not to mention oil shales in the U.S., tar sands in Canada and Venezuela and the recent deep sea discoverie in the Gulf of Mexico. I know that some of these discoveries are not economical to produce now, but (2) technology should change that. And (3) if push comes to shove, alternative sources of energy that will replace oil will occur. At least, those are my beliefs.

Best,
-J.S.
3. Enn&hellip | November 10th, 2006 at 12:41 am

Hey,

Its not that there isn’t enough oil, its that the cost of extracting unconventional oil is huge. There are massive amounts of oil in the tar sands, but at what price is it economical. Combine this with declining production in something like 90% of producing countries, with the possiblity of saudi araiba going into decline soon and the fact that the majors aren’t replacing their reserves and that emerging markets are industrializing and you get a serious problem.

I’d like to also mention, that if inflation (money supply growth) was lower, it would be impossible for energy prices to rise, without prices somewhere else in the economy falling. However this is not the case, and credit growth has actually accelerated since the fed funds rate was at its low in 2004.

Enn
4. Alex&hellip | December 18th, 2006 at 11:07 pm

I’m an avid believer of peak oil, which is precisely why I’m heavily invested in Halliburton, Schlumberger, and have worked in industries peripheral to new frontiers unconventional oil exploration for the past six years.

Anyone who tells you that the Saudis aren’t _already_ in decline as far as light crude is concerned is selling you a story. Do the Saudis have their claimed million barrels/day in excess capacity? Quite possibly, but it’s the heavy stuff which is about as easy to convert into useful fuel as old tires (and actually, is probably even less so). All you have to do is look at the leaks of the of Saudi oil columns (a mere 1/10th their original size) in their largest fields, or the constant reports that Ghawar is in a seven year annual decline, or the absolute lack of oil in the empty quarter, which was the basis of the sudden rise in reserves in the 80s. Ghawar peaked in 1981, and haven’t matched their production since, and the last realistic figures they had seem to be closer to the 177 billion barrels they would have had if you subtract the 90 bbl increase in reserves that magically appeared when production quotas became based on reserves. Little wonder that transparency of their production disappeared in 1982. Their active fields have been in a 7% annual decline for some time now, and it’s only production of already discovered fields coming online that they have been able to maintain production. There hasn’t been a supergiant oil field discovered ANYWHERE in the world since 1968, and oil has to be discovered before it can be produced. We hit the discovery peak in the 60s. Production decline inevitably follows, and we find 1 barrel of oil for every 5 barrels we use today. In the 60s, we discovered hundreds of significant oil fields annually. We discovered 12 sizeable oil fields worldwide in 1997. We discovered exactly 0 of these in 2003, despite the army of geologists out there looking. We can’t produce oil we aren’t finding.

The other major production problem is the cost and producibility of oil, in a little concept called energy return on energy invested. It costs energy to obtain energy. Your typical oil well in the KSA has an EROEI of 30 to 1. Your typical American oil well has an EROEI of about 12 to 1. Corn ethanol? It’s more like .9 to 1. Artic deep drilling? We’ll be lucky to get 1.5 to 1.

This is why oil shale is a complete non-starter for replacing conventional (though it doesn’t stop me from throwing money at it, it’s still highly profitable). Shale is exactly that. Rocks laced with oil. It is much easier to obtain usable oil from old tires than it is from shale, because you load the rocks up onto trucks, where it is carried to a plant for processing. Will we ever be able to satisfy even 1% of the world’s demand for oil with shale, as many reserves as it holds? Never, ever. Because we will quickly hit a wall where it costs more energy to extract the oil than we get from it. We run into similar issues with deep sea-drilling, where the energy costs associated are approaching the energy we obtain. It’s a fundamental physical limit. That we’ve more than increased our active oil wells by a factor of 10 since 1970, the peak for American oil production, while declining almost exactly along a Hubbert Linearization profile (even taking into account Prudhoe Bay, the largest US find EVER) should tell you something. We can’t drill our way out of oil decline, because the wells we’re discovering are less and less productive. Everything easy to find and drill is already discovered, and we’re left to scouting places 7000 ft below the ocean surface to find new oil (as in the Gulf), which might NEVER give us a positive energy return.

Economists tend to be idiots about such things. I’ve heard an economist say, “if the price is right, even roosters will lay eggs.” Normally, I’d dismiss this as creative license, but considering that it was an economist, he might have actually believed it.

A more immediately worrisome trend is how much oil is actually being exported from oil exporting nations. These have been in decline for some years now (and surprise surprise, oil prices have been rising during the exact time period). Domestic demand from these nations has been surging flush with their new found oil wealth, and their production hasn’t been keeping up.