Peak Oil

[Derec]

A strange thing happened on the way to total collapse of modern society due to Peak Oil - everybody seems to have forgotten about it. Just about a decade ago, Peak Oil seemed to be on everybody's lips, including numerous threads on the old forum.
Some of the old Peak Oil threads:
It's the oil, stupid
The US Lifestyle Is Non-negotiable - this thread has a side discussion over Saudis increasing production to drive North Sea oil out of business. How similar to our present day discussion of Saudis not cutting production possibly in order to drive North American shale oil out of business.
Peak Oil: Have you made preparations for the global decline of oil production?
Peak Oil
Peak oil is NOW? - the thread in which Gurdur predicted the end of "cheap airplane tickets, and mass air-transported tourism, in about 10 years time" - aka now, as well as the end of "your supermarket flying in fresh veggies during winter". Whatever happened to that crazy bruce anyway?
Peak Oil: Concern Becoming Mainstream
Future of air travel
Peak Oil Update: G7 Officials Admit There May Be a Problem
Peak Oil, Renewabilty questions, and effects of peak oil
Peak Oil Revisited
Peak Oil, Blackouts, Information Shutdown; A Solution?

Peak Oilers have made a a few fundamental mistakes. They have underestimated technology that makes extracting more oil from difficult sources both possible and economical. Second, effects of high prices on supply have been underestimated. Third, the ability of our economy and society to adjust to higher oil prices has been underestimated. One thing that is evident from skimming these old threads (especially "Peak oil is NOW?") is that oil price in the 40s was considered very high. Nowadays we consider it very low, and we haven't all taken up homesteading and given up our cars and air travel. In fact, contra Gurdur, we travel more than ever. Lastly, they mistakenly assumed that if M. King Hubbard's depletion model works for individual basins or countries that it will work globally.

 

[DBT]

Oil is a finite resource. New technology does extend economical production beyond previous estimates, but as a finite resource, at some point demand must exceed supply. The only question is when.

 

[Nexus]

Oil is a finite resource. New technology does extend economical production beyond previous estimates, but as a finite resource, at some point demand must exceed supply. The only question is when.

To be fair, peak oil refers to the concept that society when suffer unsolvable catastrophic effects when a tipping point of demand exceeding supply is reached. Its not simply that oil will run out one day.

 

[dismal]

Oil is a finite resource. New technology does extend economical production beyond previous estimates, but as a finite resource, at some point demand must exceed supply. The only question is when.

A nitpick: demand and supply equilibrate due to price.

I do think it is reasonable to believe at some oil production will peak as at some point (just as we had "Peak Whale" and "Peak Tree" etc in the past.) the cost/benefit of some other technology is likely to be less than the cost of using oil for most things. Indeed, this has already happened for most things with oil being largely used these days for transportation fuel.

The fallacy most Peak Oilers make is attributing some sort of doomsday significance to the point where oil production peaks. In reality production peaks when and because there is a reasonable substitute.

 

[Jimmy Higgins]

But how much is global politics involved with this drop in oil price? Russia downs a plane and was advancing an aggressive campaign while ISIS was taking over oil wells and using that to make money.

And then all of a sudden, granted demand is down because of a European slowdown, oil just bottoms out. I don't recall if gasoline was this cheap in the '08 crash.

 

[dismal]

But how much is global politics involved with this drop in oil price? Russia downs a plane and was advancing an aggressive campaign while ISIS was taking over oil wells and using that to make money.

And then all of a sudden, granted demand is down because of a European slowdown, oil just bottoms out. I don't recall if gasoline was this cheap in the '08 crash.

Oil is a global commodity and much of it is in the hands of dysfunctional governments, some of whom attempt to collude with varying degrees of success to keep prices high. So it's fair to say it's not a market that responds to supply and demand signals all that quickly.

Oil did briefly get into the $30s in 2008. I also recall it being around $10 in 1998.

 

[Bronzeage]

But how much is global politics involved with this drop in oil price? Russia downs a plane and was advancing an aggressive campaign while ISIS was taking over oil wells and using that to make money.

And then all of a sudden, granted demand is down because of a European slowdown, oil just bottoms out. I don't recall if gasoline was this cheap in the '08 crash.

Oil is a global commodity and much of it is in the hands of dysfunctional governments, some of whom attempt to collude with varying degrees of success to keep prices high. So it's fair to say it's not a market that responds to supply and demand signals all that quickly.

Oil did briefly get into the $30s in 2008. I also recall it being around $10 in 1998.

This short period of time will probably be remembered as our last chance to catch our breath and change direction. Of course we didn't take the opportunity. We never do.

There is something ironic to the problem of expensive new extraction techniques boosting US oil production, just as political events trigger an oil price crash. There is still a lot of oil deep under Louisiana, but until prices go back over $85/bbl, we really can't afford to pump it out.

 

[Derec]

Oil is a finite resource. New technology does extend economical production beyond previous estimates, but as a finite resource, at some point demand must exceed supply. The only question is when.

Yes, it is a finite resource. But total oil in place is much higher than proven reserves, which are a function of both technology and price. Thus supply is a function of price because increasing prices enable production of reserves not hitherto considered economical. In principle that can continue as long as there is demand at the price necessary to develop these more difficult reserves.

- - - Updated - - -

\To be fair, peak oil refers to the concept that society when suffer unsolvable catastrophic effects when a tipping point of demand exceeding supply is reached. Its not simply that oil will run out one day.

Which is why I like to use capitalized "Peak Oil" in reference to the former to distinguish it from the latter.

 

[Derec]

The fallacy most Peak Oilers make is attributing some sort of doomsday significance to the point where oil production peaks. In reality production peaks when and because there is a reasonable substitute.

Peak oil as originally conceived by Marion King Hubbert was supposed to be a geological imperative - once you produce half the reserves you can't produce at a higher rate than at the peak no matter what. He predicted US peak which actually occurred in 1970 at something less than 10 Mbbl/day. What he got wrong though is extrapolate from a part of global oil supply to the whole. The reason US oil peaked when it did is because there were other plentiful sources of oil (Saudi Arabia was just coming into its own) that US could inexpensively import and so investment in order to keep US production high wasn't practical. However, given that US production has now exceeded this original Hubbert peak some 40 years later shows that it is hardly a strict geological rule but a function of economics.

 

[Derec]

But how much is global politics involved with this drop in oil price? Russia downs a plane and was advancing an aggressive campaign while ISIS was taking over oil wells and using that to make money.

A lot of it has to do with US shale revolution. US is now past its original peak in 1970. Russia is also producing record amounts and KSA is producing as much as it ever did as well. There is really no entity that can take control of the market to maintain a certain price which means that game theoretically it pays to produce more rather than less.

And then all of a sudden, granted demand is down because of a European slowdown, oil just bottoms out. I don't recall if gasoline was this cheap in the '08 crash.

I think it was $2 for a while then too as a consequence of prices going way too high previously. We didn't have such a surge in prices this time around.
Then again, we had a brief gas shortage here in Atlanta back in 2008 as a result of a hurricane shutting down refineries and the product pipeline supplying us. The problem was exacerbated by our state government threatening to prosecute price gougers which didn't allow for the price at the pump to adjust to realities on the ground. The result was lines at the pump as many people wanted to fill up as soon as they were at 3/4 tank full rather than only fill up when they really needed which would have been the case had the price been allowed to go to $8 or so. Just goes to show that price controls are not a good thing.

 

[dismal]

The fallacy most Peak Oilers make is attributing some sort of doomsday significance to the point where oil production peaks. In reality production peaks when and because there is a reasonable substitute.

Peak oil as originally conceived by Marion King Hubbert was supposed to be a geological imperative - once you produce half the reserves you can't produce at a higher rate than at the peak no matter what. He predicted US peak which actually occurred in 1970 at something less than 10 Mbbl/day. What he got wrong though is extrapolate from a part of global oil supply to the whole. The reason US oil peaked when it did is because there were other plentiful sources of oil (Saudi Arabia was just coming into its own) that US could inexpensively import and so investment in order to keep US production high wasn't practical. However, given that US production has now exceeded this original Hubbert peak some 40 years later shows that it is hardly a strict geological rule but a function of economics.

Right. And anyway "Reserves" is a term of art, not a geological fixture. Economically recoverable reserves for a given geology are a function of price and cost, which is a function of technology. Price is a function of demand and supply, which is a function of among other things, the cost and usefulness of substitutes, which is also a function of technology.

 

[T.G.G. Moogly]

In fact, contra Gurdur, we travel more than ever.

My Honda Fit averaged 39mpg last year, combined highway/city.

 

[ksen]

dismal, do industry experts have an idea how much oil is in the ground including the stuff that may not be easily recoverable given current technological limitations?

 

[TV and credit cards]

Oil is a finite resource. New technology does extend economical production beyond previous estimates, but as a finite resource, at some point demand must exceed supply. The only question is when.

A nitpick: demand and supply equilibrate due to price.

I do think it is reasonable to believe at some oil production will peak as at some point (just as we had "Peak Whale" and "Peak Tree" etc in the past.) the cost/benefit of some other technology is likely to be less than the cost of using oil for most things. Indeed, this has already happened for most things with oil being largely used these days for transportation fuel.

The fallacy most Peak Oilers make is attributing some sort of doomsday significance to the point where oil production peaks. In reality production peaks when and because there is a reasonable substitute.

Agreed. It's not necessarily a matter of running out of supply. We can run out of demand. If need be, the infrastructure for CNG could be built out and we would move toward that. Technological advances do not necessarily have to increase our ability to draw more oil out of the earth more cheaply. Technological advances could and likely will decrease our demand for oil.

I recall stories in years past of how environmentally nasty photographic film was to manufacture and develop. Long before we cleaned up that industry, it was largely replaced.

 

[Derec]

This short period of time will probably be remembered as our last chance to catch our breath and change direction. Of course we didn't take the opportunity. We never do.

All major car companies developed or are developing electric cars and plug in hybrids. There are also successful startups like Tesla. I would say that counts as a change in direction.

There is something ironic to the problem of expensive new extraction techniques boosting US oil production, just as political events trigger an oil price crash. There is still a lot of oil deep under Louisiana, but until prices go back over $85/bbl, we really can't afford to pump it out.

Boosted oil production is one of the reasons for the price crash. There is still a lot of difficult to get oil all over the place actually, which is why we will never run out. Alternatives will get cheaper first, especially if some sort of global carbon tax is introduced.

 

[repoman]

Limits to Growth is now 43 years old and nothing has been done about it.

 

[dismal]

dismal, do industry experts have an idea how much oil is in the ground including the stuff that may not be easily recoverable given current technological limitations?

People estimate things like that but it's an absurdly large and relatively meaningless number. Even in most major oil fields a relatively small percentage of the oil in place is recovered.

$100 oil had people going back into old oil fields where maybe 10 or 15% of the oil had been recovered with new technology and bumping that to 20 or 25%. If price is high enough you do more of that in more places.

And I speak in these terms only of the US and Canada. In most of the rest of the world your decision are made by a basket case government whose oil related policies are based on cronyism, crazy internal politics and corruption or sometimes OPEC quotas, not microeconomics. The easiest way to unleash the next great flood of oil would be to improve the political conditions above the surface.

 

[ksen]

thanks buddy

 

[Derec]

dismal, do industry experts have an idea how much oil is in the ground including the stuff that may not be easily recoverable given current technological limitations?

It's ultimately a probability game. "Proven reserves" are those reserves that can be economically recovered with a high degree of probability. This graph gives a qualitative illustration of the difference between economically recoverable oil, technically recoverable oil and total oil in place and the variability of each of these estimates with regard to confidence. As you can see, there are a lot of ins, outs and what-have-yous. Change in oil price can shift the green curve back and forth, technological developments can shift the red curve right and in any case all you really have is a pretty wide range of possibilities for each of these.

This table illustrates the wide gap between the proven reserves and technically recoverable reserves for US. The difference is about the factor of 10, which is huge.

 

[Bronzeage]

All major car companies developed or are developing electric cars and plug in hybrids. There are also successful startups like Tesla. I would say that counts as a change in direction.

There is something ironic to the problem of expensive new extraction techniques boosting US oil production, just as political events trigger an oil price crash. There is still a lot of oil deep under Louisiana, but until prices go back over $85/bbl, we really can't afford to pump it out.

Boosted oil production is one of the reasons for the price crash. There is still a lot of difficult to get oil all over the place actually, which is why we will never run out. Alternatives will get cheaper first, especially if some sort of global carbon tax is introduced.

Hybrids are still the "one man-four tires" transportation model. That is not a change in direction. A sharper knife is still a knife.