Peak Oil Explained

Peak Oil explained By Dirk Masuch Oesterreich ( [email protected] )

Peak Oil is a reality. It is, however, a tough call to predict when world oil supplies will start to run out. A little theory on the concept of Peak Oil is in order to gain perspective on the problem. It all goes back to 1956 when Shell research geologist M. King Hubbert predicted US oil production to peak in 1969 which was an outrageous statement at that time. US production in fact peaked in 1970, never to recover to that year’s production level, despite new discoveries made afterwards. At its core, Hubbert’s method is easy to understand. Imagine a graph that plots cumulative production of a determined area on the horizontal axis, and the ratio of annual production to cumulative production on the vertical axis. A falling trend line appears that will at some point intersect with the horizontal axis at which point production will equal zero. This is actually quite similar to what Dr. Colin Campbell, a leading Peak Oil analyst, calls “a simple theory that any beer drinker understands”. Once the glass is half empty depletion is fully under way. In terms of Peak Oil this means that once an oil field / a producing area / a country / the world is on the down side of the approximately bell shaped production curve it is never to recover to older levels on a sustained basis, even, and this is the point that is hotly debated, if new discoveries are made. Peak Oil theory implies that the biggest oil fields and the easy to find oil were already found. It says that the world’s ability to produce oil depends only on the amount of the non producing fraction, which is the amount to still be found. The less there is the harder it is to find. Exploring for what is left will be more difficult and more costly. While it is safe to assume that a finite resource at some point will show a production peak, discussion of Peak Oil theory centers on two issues: 1. When is world oil production going to peak? (or did it already?) 2. What will be the implications? There is the perception that Peak Oil is all about declining production and reserve replacement. While this point is in fact debatable, the most import implication of Peak Oil is that the cheap oil is already found. What is left to find, and there is possibly a lot left, will be ever more costly to explore for and to produce. Nothing much can be expected from onshore basins. They are all pretty much known worldwide. The largest of them are in decline. Offshore possibilities on the continental shelf exist and are being explored for and brought into production. The last frontier, however, is exploring, drilling, and producing the deep water basins. It is here where the most potential for large discoveries is expected. This cannot be done at the lower oil prices of the past. It is becoming ever more expensive to find and produce new oil. Economics and technology, however, are not the only challenges. Producing oil will be more energy intensive in the future. The day that it costs the energy equivalent of one barrel of oil to produce one barrel of oil all production will come to a halt. Though the exact year of peak world oil production will probably only be obvious after it occurred we can assume that we are presently living in the period of peaking oil production. No need for panic here, this is not the end of the world. It is, however, a transitional period that will be recognized as having profound implications for our way of living and that we will have to adjust for sooner rather than later.