Peak oil delayed but not over

By Drs. Robert & Sonia Vogl
President and Vice President
Illinois Renewable Energy Association

Some analysts say peak oil is over and the current global supply of oil proves it. A closer look suggests peak oil remains an issue but it is occurring differently than had been projected.

The peak oil concept was based on the scientific understanding that the amount of conventional, low cost oil in the ground is finite and at some point will be depleted. The late Shell geologist, M. King Hubbert, illustrated that the rate of petroleum production from an oil field increases until reaching a peak and then declining gradually. Production follows a bell shaped curve.

In 1956 Hubbert successfully predicted that oil production from conventional wells in the United States would peak in 1970. Later he predicted that global supplies of low cost conventional oil would peak around 2000. It is suggested that conventional global supplies of oil peaked in 2005.

Conventional low cost oil is produced from wells that are drilled straight down into the ground. Once developed they produce oil for decades with no significant new investment needed yielding low cost oil. Hubbert’s concern was that with dwindling low cost conventional oil supplies economic growth would end producing severe social stress.

As low cost conventional oil decreased, investments in unconventional supplies increased. These energy sources are more costly to secure, use more energy to produce, carry higher levels of risk and are of lower quality. Securing them also releases higher levels of climate changing gases while polluting air and water supplies. Art Berman, a director of the Study of Peak Oil, points out that we are not running out of oil but out of affordable oil.

In 2015 US crude oil production approached 9.5 mb/day, nearing levels of the 1970s peak. In recent years roughly half of the oil produced in the United States has come from unconventional oil sources. The new wells supply oil on average for only three to four years with half coming during the first year of operation. In order to continue producing oil, additional costly horizontal drilling and fracking operations must continue. The oil produced is far more costly than conventional oil. On average oil shale operations need $60 to $70 barrel to be profitable, so with oil around $30, many firms are going bankrupt and production is dropping.

Rapid development of fracking operations was based on large pools of money available from the sale of risky bonds offering high yields. Repayment of the loans depended on the price of oil remaining high. By continuing to develop more wells to sustain production and pay off the loans, when demand for oil dropped, a surplus developed which crashed its price.

The low price of oil and gas is forcing major cutbacks in exploring and developing new energy supplies. Global investments in new projects declined for two consecutive years setting the stage for higher prices in the future. Since the new supplies will come from nonconventional sources, the concern of running out of affordable oil will impact society.

The question is how to use this temporary surplus of low cost oil. Should it be used to expand the global oil infrastructure or should it be used to create a more sustainable energy system based on efficiency and renewable supplies?

3 thoughts on “Peak oil delayed but not over

  • Mar 23, 2016 at 2:26 pm

    Hubbert actually predicted (in 1955) a peak in about 1965, and suggested that adding 50 billion barrels to his best estimate (which he seems to consider unlikely) only delays the peak until about 1970. This is far from predicting a peak in 1970. Also, the rigidly symmetrical, bell shaped curve Hubbert preferred consistently predicts a peak of oil production within the next 10 years for virtually every year, starting in the 1870’s. Hubbert also presumed he could estimate through this curve, the ultimate production. However, this number continues to increase, even forty years after the peak, and before the rise of unconventional oil. Hubbert’s projections were always pessimistic, and it is not clear that Berman’s are any better today, unfortunately. What he really contributed was the critical observation that there must be a connection between the production curve and the ultimate resource (the area under the curve).

    If the renewables are not taking over after forty years of subsidies that are consistently larger (on a unit energy basis) than the comparable breaks for oil production, should we ramp them up even further, or continue at a modest pace, and allow technological progress to eventually win the day for the renewables? Would you prefer the solar panels of 1970 or today’s?

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  • Mar 24, 2016 at 12:40 pm

    Why is fossil fuel even receiving any subsidy at all, surely a mature industry (it’s over 150 years now isn’t it) can finance itself? And then there all the tax write offs. Do they count as subsidies?

    But in any case, I just want a viable planet no longer at risk from the output of an industry you are a member of. If we think of the subsidies for renewables as an investment in a viable future and rightly consider fossil fuels the opposite, as merely an investment in your hip-pocket then you boring argument above can safely be ignored.

    In your final quip, you are saying that the subsidies for solar are a good thing aren’t you?
    Renewables are taking over.

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