Peak Oil Question

Of course there is a date for peak oil. The Earth has a finite mass, and even if it was totally made of hydrocarbons we will eventually use them all up. There are Malthusian overtones in some peak oil commentaries - the rest of the world has expectations of a better standard of living and the population of the world continues to grow exponentially. If you assume an exponential growth of population at the current rate, and a planet made of nothing but hydrocarbons, we reach peak oil remarkably soon. But that is just simple Malthus.

Where the peak oil doomsayers get it a bit wrong is in two parts, two discussed earlier.
One, new technology of extraction. Fracking is just the latest, and has extended estimates out past our current lifetime. But other technologies were already causing some extension.
Two, rising prices causes an increase in economically recoverable reserves.
Three, estimates of recoverable reserves are not reliable due to second order effects.

The last of these is an effect you see in all mining industries, as well as oil and gas. The listed quantities of recoverable resource only ever seems to cover a few decades of production (except for resources that are so large that a single discovery contains massive reserves.) We see this in oil and gas, and many rare minerals. Part of the reason is simply that oil, gas, and mining companies don’t go looking for resources past a decade or two of need. They don’t need to, it costs money (sometimes big money) to do so, the exploration technology is constantly improving so it will cost less to do so in the future anyway, and finally - once they find it, it costs more money, even if they leave the resource in the ground. Once they find it - everyone will know where it is. Resource companies don’t own the land, they get leases on the land that allow recovery. These cost money, usually big money, related to the value of what is there. Different governments have different ideas about how leases are valued and paid for, but no matter what, discovering a big deposit means you are in for some big expenses, even if you don’t exploit it right away.

There are many areas of the world where only the most basic, or even no, exploration has been done. The most astounding to me was Saudi Arabia. The oil bearing geology runs in a diagonal across the lower part of the country. The wells, including the massive Ghawar Field, are at the Eastern end. Most of this area has never been surveyed. There could easily be another few Ghawar Fields in there. (My source - the head of exploration of Saudi Aramco.)

The place where the peak oil doomsayers get the economics wrong is in forgetting the elasticity in recovery as the price varies. The simple models seems to assume that once peak oil is reached it is a single event, and once it has occurred the laws of supply and demand will drive a huge and irreversible rise in prices. But as pointed out above, this isn’t what happens. If the price rises, more oil becomes economically recoverable. We will still run out, and it may be that peak oil is reached, but you will be hard pressed to nail down the date it happens. The term “peak oil” seems to imply a summit. The reality is that we will have a very slow slope, with a few wiggles as different technologies affect the market, and it will be very very difficult to identify a peak. It will still be there. And in hindsight analysis might be able to come up with an estimate of its location. What we are not going to see is a situation where we reach a peak production and wake up the next day to see oil prices have tripled and still rising. That only happens when external forces such as massive speculation drives the market in unintelligent ways. A lot poeple made a lot of money speculating on oil prices. Even more people lost even more money. Many were the same people.

A single well in the Gulf of Mexico costs about $100 million to drill. And there is a lot of oil to be found if you are prepared to go to these lengths.

three parts … Insert appropriate Spanish Inquisition quote here..

Wikipedia is wrong. At least, I have heard other depictions of peak oil, such as, it is a market structure that is rather complicated and a bit blurry. Part of its definition pertains to the point at which production cannot meet demand, which results in a series of price oscillations (price increases suppress demand, which results in price declines, which allow for increased consumption, etc, etc). At some point, scarcity of the product will command a price that would simply make petroleum an impractical energy source, and there would almost certainly be a variety of viable alternatives available by that time.

What ever apocalypse you might be talking about, few or none of them will likely be satisfyingly cathartic but will take years to play out. We could be in the middle of one or more of them right now, and only our children will be able to identify what we cannot see.

I sorry for being a bit snarky here, but I’ve always considered the peakers to be a bit blurry and lumped them in with other ‘doomers.’ IOW, they’re just another group that seems to be anxiously awaiting the apocalypse, but it’s not the Rapture followed by the second coming rather it’s peak oil.

Anyway, I’m not really sure that ‘definition’ makes much sense from an economic point of view. As long as you have a relatively free market, there will always be a price at which supply and demand will balance out.

I think they sometimes rely on an argument involving an inelastic or vertical demand curve which somehow implies exponential increases in price - or something like that - but this doesn’t take into account that the shape of these curves can change over time. I suppose that’s where the oscillation idea comes in. IDK. But I’m pretty sure when you analyze it, it turns out to be gibberish.

Peak oil is sort of a science-y thing like AGW or ecological sustainability. For every person who has a reasonable grasp of the issues, or is at least duly aware of how little anyone actually knows, there are thousands who take up one side or the other and pound drums. If I look hard enough, I can find a study that indicates that the less one understands an issues, the more adamant they will be in their opinion.

Now, if we could take ignorance and stupidity and turn them into a tappable resource, we would … oh, wait …

The Malthusian model where usage continues to grow exponentially does in fact result in rapid depletion of all the oil that exists. And people are right to point out that the real world won’t work this way, and that as the remaining supply diminishes it’ll get more expensive and usage will gradually dwindle away. But this isn’t an argument against peak oil. In fact, it’s exactly what Hubbard was pointing out in the first place, in the paper that introduced the concept of peak oil. Peak oil isn’t the point at which the oil runs out entirely; it’s the point at which consumption of oil stops growing and starts shrinking.

That can’t possibly be a word. Can it?

Huh? Peak Oil is just that -

The point at which oil peaks, and without extraordinary measures, we cannot produce at a higher volume.

That is, all the oil fields, fracking, deep water drilling, whatever - cannot pump any larger volume, the new fields/sources coming online cannot equal the ones going offline (or declining significantly) for exhaustion.

The existing older fields - Saudis, Texas, Libya, Iran, Indonesia - these are producing pretty close to free, since the wells are long ago drilled and only the extraction and piping infrasructure needs to be maintained. Each new technology costs more and more - deeper and deeper drilling in more and more hostile environments (North Sea, Hibernia off Newfoundland, etc.) ; each new tech takes development, like fracking, or injection to extract from old wells.

The problems with oil production numbers are twofold - first, we use more and more energy, it seems. Second, more and more countries are eraching the stage where a lot of their citizens drive cars, want air conditioning, electrical appliances, in other words, use as much energy as the first world.

So oil production not only has to keep up to current levels, it has to climb even higher. As I said, each new oil source is more complex and more difficult; fracking shale fields may add decades to our current oil supply, but what replaces them? The Canadian Tar Sands have a century or two of oil at current production, but how many more open pits and refineries can you add, and if it finishes in half the time, what replaces it?

I seriously doubt there are many more complex hydrocarbon sources outside of shale oil. (Which has been known for deacdes, it’s just that the tech to extract was not yet considered feasible.)

Peak Oil does not mean “no more oil”, it means “more demand chasing a limited supply”. The result is prices being bid up. What would you do if you had to pay $8 or $15 or $25 for a gallon of gas? Certainly your cost of everything would go up as those costs get added to transportation of goods. Plastics and other oil-based products wuld also become more expensive. In Europe, where gas is significantly more expensive, there is good public transport and less suburban sprawl. (Of course, this is also because of denser population and scarce land.)

If someone would invent high capacity reliable batteries, so we could all drive an affordable Tesla-type auto with a 400-mile range, demand for oil would drop drastically. These same abtteries would be tied to solar power and demand for carbon-generated electricity would drop significantly too. But until that happens (like fusion, always around the corner, never here), we’re stuck with the current economy.

Of course, the longer we go with oil cheap and available, the less incentive to develop alternatives.

The whole concept of peak oil is a joke… we will drill and source fossil fuels until there are NONE left to be sourced. Yes it may get more expensive to reach and that cost will go to the consumer, most of which will still pay.

Believe me when I tell you that $10 a gallon gas will still be purchased by most. The upside to that is the accelerated proliferation of alternative energy (gimme my Tesla!) :D, government subsidies and credits, and yes even continued improvement of vehicle MPG (bye bye Hummers) :mad:

All this will continue until Mad Max days which will never happen because for all our human ignorance and government delays, waste and gridlock we will be off fossil fuels before that RoadWars comes to pass.

Sorta related…but is the success of natural gas fracking tending to prove the late Dr. Thomas Gold’s ideas? (that natural gas is of non-biological origin)?

I only saw this recently and the way it was used it seemed to mean futures prices for a commodity are lower than the current spot price. It was use to describe the situation with gold. However when I just looked it up, there is normal backwardation (which is in contrast to contango - not a typo) and plain old backwardation which really just means that the futures curve is inverted (see last link). I think it was probably meant in the latter sense.

This was actually the link I was looking for. The charts I thought were funny (if you’ve every seen the Crocodile Dundee movies that is).

Huh? You say peak oil is a joke, they proceed to say it will come to pass and we will go beyond it to No Oil.

Peak Oil is a concept - eventually, unless we go crazy drilling/fracking wells a few feet apart, the rate with which we can produce oil will hit an upper limit. We will still have oil left, but we cannot produce a greater amount each year.

This is relevant because the demand for oil, except for occasional blips like the Great Recession of 2008, is a steady upward graph.
( Oil: $100 Isn’t a Magic Price – Investing Daily )
At some point, demand will begin to outstrip supply by a serious amount, as production falls off. The general theory is without fracking, and without the global economic slowdown, we would be at that point.

The key issue here is *“elasticity of demand”. * How easy is it for you to cut your auto gas consumption in half? Your oil heating bill? Most Americans have over half an hour commute each way, sometimes over an hour. Unless they can afford a new Smart car or Prius (and the price of those will go up as people start denuding more than they can make) you have to buy X gallons a week. Does any neighbour work near your work, with the same schedule, so you can commute?

At a certain point the average consumer cannot afford an expensive fuel-efficient car, cannot afford Manhattan-style prices for a tiny apartment near work, cannot sell their old house or car that nobody else wants… We will HAVE TO pay the skyrocketing prices.

Keep in mind a Prius does not necessarily decrease your gas consumption. It allows you to get highway mileage in stop-and-go traffic, but if you already commute a lot of the way at 55mph, the savings will be minimal.

So, the $64,000 question is - will technological changes - fancier batteries, more efficient solar cells - arrive before China and India bid up the price of oil to make us third world, where a significant number of North Americans cannot afford to own or operate cars.

Everyone who puts down the peak oil concept says either (a) we got lotsa oil, we’ll find more… or (b) we will have magic cars with Mr. Fusion or super-cell batteries or some such advanced tech by the time we need it.

Both scenarios are difficult:
(a) We knew about shale oil long ago; we just could not figure out how to get it out. Now we can. To keep going the way we are, the common saying is we ned a new Saudi Arabia every 10 years or less. We’ve pretty much scoured the land clean, we’re getting deeper and deeper into the seabed, we’re exploiting the marginal deposits like the Tar Sands and shale oil that take extensive effort to extract. When Saudi Arabia and the middle east are pretty much depleted,

For example, one side says that Iran’s nuclear research is not about their hard-on for a bomb, it’s a side effect of the recognition that the oil is running out there, and they need to find other ways to generate electricity to help build toward a first world lifestyle. Big booms are just a beneficial side effect.

During the first Gulf War the Saudis would raise production, as they did often if prices got too high, to stick it to neighbours who really needed the cash. They used to be able to ramp up to 10 billion barrels a day or more, now they are lucky to do 6.

40 years ago Mexico didn’t “have oil”. Now it is declining. So is Venezuela.

(b) the longer that oil is available cheap, the less incentive to develop alternatives. This is the dogma of the “Oil is bad!” crowd, but it is truth. More cheap oil buys us time to research, but also lessens the urgency. Depends whether it’s a matter of time, or money invested, or just luck. You can’t bet your future on winning the lottery.

My POV is - we’ve bought ourselves some time with fracking, let’s spend that time wisely.

And yet as I pointed out here, the futures market has the price declining for the next 7 years. (BTW, I only looked at your article so far as to see it was Jan 2011).

Not all shale oils are shale oils…

That article correctly contrasts different shale formations but just this year, the Monterey Shale formation was announced to have 15.4 billion estimated reserves. To put that in perspective, we currently consume about 6.7B per year (18.5M/day) which is has been steadily declining)

No. The gas is in coal measures or shale beds. It is subject to all the usual issues with hydrocarbon genesis. The difference is that it won’t flow because the coal or shale is too restrictive or “tight”. You can drill a well - get a little gas and then it stops. The only trick is working out how to fracture the strata so that the gas will flow out. Fracking simply counts as a new recovery technology. There are a lot of hydrocarbon deposits down there. The big problem is finding one that will flow up a pipe. Coal doesn’t, so was useless, until it was worked out how to liberate any trapped methane. You still need a seal over the bed to ensure that the gas has not seeped out over the eons - just like in any other fluid or gaseos hydrocarbon deposit.

So that deposit has, what, a two and a half years supply for just the USA? To be set for the next century the USA just needs 40 more like that, if the Chinese don’t buy them out from under you.

You’re missing the point. We’ve just started looking for formations like this.

Or maybe we have a passable idea what’s out there but didn’t think it was economical until now. And, the Monterey shale is significantly bigger than other finds it seems. I doubt there are 40 formations this big -

-that we are unaware of.