Version 2 released October 5, 2009. A more recent version of this video is available here. References and notes are below the video players.
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Slide: What the Next Decade Will Bring
Narration:"...has left the auto and airline industries on their deathbed"
Airline Traffic Declines Slow, But Outlook Grim, August 27, 2009
Narration:"...climate change is happening much faster than thought even two years ago."
EU: Earth warming faster (April 7, 2009)
Does peak oil mean we don't have to worry about climate change? Unfortunately, I don't think so. See my write up, Peak Oil and Climate Change Q&A, here.
Two meter sea level rise unstoppable (Reuters)
Slide: Peak Oil: Supply Falls Short of Demand
Despite peak oil educators repeatedly saying that "oil is not running out," journalists continue to make this mistake when they write on the topic (in some cases they appear to do it for shock value to get people to read their article). Peak oil is an increasing imbalance between supply and demand. Oil is not running out.
Slide: U.S. Oil Production
The United States currently uses 25% of the world oil production but has only 2% of world reserves. This gross imbalance is about to right itself.
U.S. Oil Production:Energy Information Administration. The estimated quantity of oil in the Alaska National Wildlife Refuge ranges from 1.9 billion barrels to 4.3 billion barrels, with the likely amount being 2.6 billion barrels, according to the 2008 Department of Energy Analysis of Crude Oil Production in the Arctic National Wildlife Refuge. Current U.S. consumption (2009) is approximately 6.75 billion barrels per year (EIA).
Slide: Fresh Fields Can't Make Up for Declining Fields
In 1956, much to the dismay of his employer (the Shell oil company), a geologist named Dr. M. King Hubbert delivered a speech that put the peak of U.S. production between 1966 and 1971. He was proved correct when actual production peaked in 1970. (Original paper here. You can watch Dr. Hubbert himself explain it here. You can read the reaction to the paper in an interview of Dr. Hubbert here.)
Slide: Most Countries Past Peak Production
Countries past peak:
Albania, Argentina, Austria, Australia, Bahrain, Bangladesh, Barbados , Belarus, Benin, Bosnia, Bulgaria, Cameroon,
Canada, Chile, China, Colombia, Congo Kinshasa, Croatia, Czech Republic, Denmark, Egypt, France,
Gabon, Georgia, Germany, Ghana, Greece, Guatemala, Hungary, India, Iran, Israel/Palestine, Italy, Japan,
Jordan, Kyrgyzstan, Mexico, Morocco, Myanmar, Netherlands, New Zealand, Norway, Oman, Papua New Guinea, Peru, Poland, Romania, Russia, Senegal, Serbia, Slovakia, South Africa, Spain, Surinam, Syria, Taiwan,
Tajikistan, Trinidad & Tobago, Tunisia, Turkey, UK, Ukraine, USA, Uzbekistan, Yemen
Algeria, Angola, Azerbaijan, Brazil, Brunei, Cote d'Ivoire, Ecuador, Equatorial Guinea, Iraq, Kazakhstan,
Kuwait, Libya, Malaysia, Nigeria, Qatar, Saudia Arabia, Sudan, Turkmenistan, United Arab Emirates,
Read the faster than expected decline warnings here.
For an example of how fast a supergiant oil field can crash, study Mexico's Cantarell. From a peak of production of just over 2 million barrels per day in 2004, it looks like production will decline to under 500,0000 bpd by the end of 2009.
Mexico’s declining oil production, rising social problems
Slide: EIA Assumptions Incorrectly Create a Late Peak
There are three main late-peak models and they share some fundamental errors as well as contain errors unique to them. The late-peakists are the Energy Information Administration (the EIA, part of the U.S. Department of Energy), the International Energy Agency (IEA) and Cambridge Energy Research Associations (CERA).
The Energy Information Administration
The first error the Energy Information Administration makes is using the ratio of proved reserves divided by production instead of the proved and probable reserves divided by production. The proved reserves are 95% likely to exist while the proved and probable reserves are 50% likely to exist. It may seem that 95% is the best number to use because it is more certain. However, in this case it isn't the best number because, when averaged across all oil producing regions, the actual amount of oil that will be discovered will be closer to the 50% probable reserves — below-average regions will tend to cancel out above average regions. The consequence of this mistake is that their calculation puts the peak of production in 2037. If you are math-inclined, you can read the paper that spotted their error: How Reasonable Are Oil Production Scenarios From Public Agencies? (accepted by Energy Policy, PDF).
The second error they make is continuing to use the United State Geological Survey (USGS) World Petroleum Assessment 2000 for world oil discoveries, which has been shown by time to be incorrect. Their reserve growth estimate appears to be on track, but actual new discoveries are far below their projections. From Jan 1, 1996 to Jan 1, 2006, the USGS predicted that 265 billion barrels would be discovered. In fact, only 110 billion barrels were discovered. Thus, all oil models that use the USGS projections will produce a late peak when reality is a near-term peak.
Organizations other than the Energy Information Administration (U.S. Dept. of Energy) that use this incorrect report include the International Energy Agency, oil companies like ExxonMobil and the Saudis. For details, see this article.
Cambridge Energy Research Associates (CERA)
Cambridge Energy Research Associates assumes completely untenable amounts of oil will come from unconventional sources and their projections have been consistently incorrect. Kjell Aleklett, President of ASPO International, describes why in CERA's Report is Over-Optimistic. Of course, just a few years after issuing that report, we did not see all the oil CERA claimed would come online and saw $147 oil instead. In fact, there is good evidence that CERA's models have been completely wrong for years now. In 2004, in an article in Forbes, here is what CERA was predicting:
"Given these facts, where will oil prices be a year from now--$75 a barrel? $100?
Wrong numbers, says Daniel Yergin. Wrong direction, too. Try $38. Yergin knows oil. . .
Yergin's prediction of cheaper oil prices is noteworthy because he doesn't dispute any of the alarming facts cited in my opening paragraph. Not that he would. The facts came straight from Yergin's own mouth at the recent Forbes Global CEO Conference in Hong Kong. I jotted down Yergin's comments while listening to him speak at a dinner. Then he gave a formal speech the next morning and, fueled this time by highly caffeinated tea, I again took notes, just to be sure. Yergin is pretty clear about his predictions. He says oil demand will rise, yet prices will drop. How can this be?
Answer: capitalism's amazing resiliency. Oil prices rise--oilmen become innovative. They work, they invest, they put their heads to the task, they apply technology, and pretty soon they'll discover how to extract oil profitably from oil sand. Or open wells in deeper water. Or scour the planet for new sources using scanners thousands of miles in space. As Yergin reminds us, oil output is 60% higher today than it was in the 1970s. Not many sages from the 1970s would have bet their reputations on this development. The opposite sentiment prevailed back then; experts said the planet was running out of oil. Wrong."
CERA completely missed the run up to $147 oil despite many people warning of it. We saw the same thing with real estate prices — everyone laughed at the people who said there was a crash coming. CERA's predictions have a very poor record (scroll down to see the graph of their incorrect predictions). With such a track record, it is no wonder that the oil analysts who are predicting a peak in production view CERA as using a fundamentally flawed view of the world, much like how people once thought the sun revolved around the earth.
Slide: The International Energy Agency
World Energy Outlook 2009, the annual report that the IEA puts out describing the future of world oil, is available for a fee at the IEA website. Excellent critical analyses of the 2008 version are available here (and are being written for the 2009 version). See the note above for one reason why their model produces a late peak. To their credit, the IEA does point out how unlikely it is that all the money will be available to get the needed oil to market.
However, the bomb dropped at the beginning of November was the revelation that the IEA, under pressure from the Americans, has been purposefully publishing optimistic (rather than realistic) numbers. According to Guardian UK article "Key oil figures were distorted by US pressure, says whistleblower", one whistleblower claims "[the IEA] has been deliberately underplaying a looming shortage for fear of triggering panic buying." A second source, now retired from the IEA, says, "We have [already] entered the 'peak oil' zone. I think that the situation is really bad." The IEA rejects the allegations (CNN).
Peak oil educators have known for years that the IEA estimates are too high and suspected that politics was playing a role because the math just didn't work. The graph below comes from the World Energy Outlook 2008:
Because of the faster-than-expected decline rates (6.7% for post peak fields) the IEA points out that just to keep oil production at today's level (the top of the deep red wedge) the world must put into production 45 million new barrels per day, or the equivalent of four Saudi Arabia's in just 20 years. They further say that they think production can increase to 105 mb/d by 2030 — or six Saudi Arabias worth of production. For some perspective, that means building the equivalent of 75% of today's world oil extraction infrastructure in just twenty years. These projections just aren't credible, especially when one considers how much capital must be marshaled — many, many trillions of dollars in just 20 years. Further, this investment must occur almost entirely in the OPEC countries, since even the IEA says that non-OPEC production peaks in 2010 (see the WEO 2009 Executive Summary, p. 42, PDF).
Kjell Aleklett, head of the Global Energy Systems Group at Uppsala University, Sweden and President of ASPO International, recently pointed out at the 2009 ASPO conference another fundamental error with the IEA model. The "undiscovered oil" their model relies on must be pumped at a rate of between 10% and 14% per year for their projection to work. No oil fields have ever been pumped at this rate, nor will they ever be. The IEA model is not grounded in reality. For more, see Kjell's video discussing it here (behind paywall) or read George Monbiot's "The one thing depleting faster than oil is the credibility of those measuring it."
An excellent (and free) overview of the world's largest oil fields is available from:
Giant oil field decline rates and their influence on world oil production, 2009, Mikael Höök, Robert Hirsch, Kjell Aleklett
Slide: ASPO World Oil Model
Slide: Extraction Follow Discovery
The most important oil is light and sweet crude ("conventional oil"), which is what the discovery and extraction curves on this slide depict. Oil locked in tar sands or shale is relatively unimportant because it takes so much money and energy to get it out that it can't be brought to market in time to make up for declining liquid oil.
Slide: The Growing Gap in Conventional Oil
The peak of conventional oil discovery was around 1963. Every decade since we have found either less oil or only small fields that collectively take much more money and energy to produce.
All numbers and graphs from ASPO-Ireland newsletter.
The U.S. chapter for ASPO with their incisive weekly summary of events in the oil and energy sectors is here.
Slide: The Age of Oil
At first sight, that we have about half of the conventional liquid crude still available might give a sign of relief — but it's not so simple. Like all resources, we extracted the easy oil first. The remaining oil will not be easy or inexpensive to bring to market.
Slide: Peak Oil Models
The graph is a colored version of the one included in each ASPO-Ireland (Association for the Study of Peak Oil and Gas) newsletter:
There are other oil models and in almost every case the peak dates are being revised earlier:
The International Energy Agency recently brought their date earlier and says we will reach "plateau" by 2020. However, because they are extremely pessimistic the investment will be forthcoming, the actual date will be earlier than 2020.
Shell Oil called for a plateau by 2015, but made that prediction before the financial crisis (http://peakoiltaskforce.net). Shell has a planning group that creates future scenario. They have publicly posted their two scenarios here. Their "Blueprints" scenario involves the world's governments cooperating as the world oil supply declines. Their "Scramble" scenario involves...much less cooperation.
Neftex (Peter Wells/Toyota) calls for a peak by 2020 but only if Iraq's production, currently at 2 mb/d, can get to 7 mb/d in eight years and Saudi Arabia doesn't decline at all in that time period. Iraq's plan is to get to a total of 6 mb/d, if BusinessWeek is reporting correctly.
The French oil giant Total doesn't think oil can go above 90mb/d, and that seems to go down each time its CEO de Margerie mentions it (his previous peak was 95mb/d, and 100 mb/d before that):
We think the Association for the Study of Peak Oil and Gas (ASPO) has the "most correct" model for our oil future for a number of reasons. First, other models use overly optimistic projections for the growth of unconventional oil (oil sands, polar, ultra deep-sea, etc.) as conventional oil declines. For instance, after $25 billion in investment, the production from the Alberta oil sands is just 1.5 million barrels/day, and it took decades to reach that level. Ultra deep-sea isn't as slow to come online, but it's close, and polar oil is just a dream for the moment.
Second, the peak oil dates from many other models are being revised closer to the ASPO model every year.
Last, and as important as the first reason, there are three oil mega project databases that track the quantity of oil coming online from projects around the world. All three show that there aren't enough projects to increase oil production much beyond the level of last summer (a public database is here). With the financial crisis, many projects are being canceled. Will the world ever top 2008's production? It's possible but we think it's unlikely.
For an investor's view of peak oil, read this interview with Marshall Adkins, the Houston-based Managing Director of Energy Research for Raymond James & Associates, who recently called 2008 the year for "practical" peak oil.
Slide: World's Largest Undeveloped Fields
Slide: World's Largest Undeveloped Fields Are In Iraq
This graphic is slide 38 of the Neftex presentation. If you believe Iraq can increase its oil production as quickly as that graph shows (likely what the Bush administration was counting on), then we have at least another five years before severe declines overwhelm that new production.
See also Will Iraq Be a Global Gas Pump?: The (Re)Making of a Petro-State, Michael Klare, Huffington Post.
Slide: The Great Oil Squeeze, Top Five Exporters and What Will Oil Decline Look Like to an Oil Importing Country?
The Net Oil Export problem is largely unknown outside of the peak oil community, which is surprising since it is such a large problem — and the math is very simple.
Jeffrey Brown and Samuel Foucher are preparing the next version of their paper from which these data come. Their previous work, which demonstrates the Great Oil Squeeze, is here. Watch a video of Jeffrey discussing the oil export problem at Sandia National Labs here (with slides).
Here is a synopsis from Jeffrey:
"Once production in an exporting country starts declining, if their consumption does not fall at the same rate, or at a rate faster than, the production decline rate, their net export decline rate will exceed the production decline rate and the net export decline rate will tend to accelerate with time.
We have reviewed 23 examples of production declines in exporting countries. So far, we have not seen a single example of an exporting country cutting their consumption enough to keep the net export decline rate above the production decline rate.
...Sam's best case is that the top five — accounting for half of world net oil exports — will have shipped 52% of their post-2005 cumulative net oil exports by the end of 2013."
Slide: Alternatives to Oil
Ethanol production from Renewable Fuels Association 2008 production data:
769,744,000 gallons per month (2008 average) = 609,000 barrels per day
Biodiesel production from Biodiesel trade group:
700,000,000 gallons per year = 45,000 barrels per day
Total biofuels ~ 650,000 barrels per day
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