10/27/09 Pittsburgh, Pennsylvania – Eighty-five million barrels a day.
That’s the world’s current production of crude oil…and that may very well be close to the world’s PEAK production of crude oil. Although the recession caused a temporary decrease in consumption, demand is already bouncing back toward pre-crisis levels. Too bad production isn’t.
“Can’t we get more than 85 million barrels?” some folks are bound to wonder. Let’s look into that…
A couple weeks ago, I attended the 2009 international conference of the Association for the Study of Peak Oil and Gas (ASPO), out in Denver. Here’s the long and short of it. We’re in trouble. With a capital “T,” and that rhymes with “P,” and that stands for Peak Oil. By every measure, the world’s output of crude oil peaked between 2005 and 2007.
Yes, the worldwide total output of what we generically call “oil” has risen – slightly – in recent years. But that’s because there are increasing volumes of natural gas liquids (NGLs) in the mix, plus unconventional oil like what the global marketplace obtains from Canada’s oil sands. But the production of oil – actual oil – has peaked already. The future of conventional petroleum output is downhill, even with the future output from the deep-water offshore discoveries.
“There’s no such thing as West Texas Intermediate [WTI] oil anymore,” Peak Oil apologist, Matt Simmons, moaned to the ASPO conference attendees. Instead, the pipeline crossroads like Cushing, Okla., have become little more than “crude oil pharmacies.”
In other words, as the quality of the crude from the traditional US oil patch continues to degrade, oilmen must mix and match their product with “sweeter” forms of crude if they hope to sell it as the premium-priced WTI. Thus, operators at Cushing take whatever oil they can obtain from one place, plus whatever oil they can obtain from another place. They mix and match, and blend it all with synthetic crude from Canada. Maybe they add some imported oil juice and then send it down the line as WTI.
Along these same lines, Venezuelan economist Carlos Rossi stated to ASPO his analysis of oil trends in the US. “You are worried about your foreign oil imports now,” he said. “You in the US import about 65% of your oil today. You don’t like it. But if you follow the clear trends, by 2025, you’ll be importing about 92% of your oil. You’ll like that even less.” No doubt.
The market meltdown and world recession of the past year has bought some time. But the planet is still staring at an energy problem that’s coming down the tracks like a runaway freight train.
Sure, there’s a lot more oil “out there”…as in WAY out there – 150 miles offshore, beneath 8,000 feet of water and 20,000 feet of rock and salt. Yes, that offshore resource is out there, but it’s super hard to extract.
And so what? Aren’t the world’s oil companies busy developing these massive offshore deposits? Yes, but this development will take decades. It’ll take time and capital and expensive cutting-edge technologies, some of which are barely commercially viable.
Future energy supplies have never been more uncertain, according to Simmons. It’s difficult to say with specificity how bad things are, he says, because the data are so poor on a worldwide basis.
“Look at what happened with the bad information we had, or didn’t have, with the financial institutions over the past couple of years,” Simmons said at the recent ASPO Conference. “With our energy data, it’s worse. We’re in for some shocks that will change our lives in ways that’ll rival Pearl Harbor.”
Things could go wrong with energy supplies in any of a dozen places, according to Mr. Simmons. In Venezuela, the output of the state oil company PdVSA is declining at alarming rates due to political interference and underinvestment. In Nigeria, the low-grade civil war could quickly morph into a large-scale civil war. In Iraq, according to Mr. Simmons, “They’re in the dark about how to rebuild their oil industry.”
Closer to home, Simmons expects net oil exports from Mexico to vanish within 24 months or less. This event will play havoc with US refiners on the Gulf Coast. Mexico has simply delayed for too long its effort to explore, drill and rebuild its fast-depleting oil resources. Mexico is going to have to scramble to salvage something from its looming energy disaster.
But even without a supply shock, Simmons believes that the mere inevitability of declining production will cause oil to hit $200 a barrel by the end of next year. Longer term, Mr. Simmons expects to see oil at $500-700 per barrel. “People need to understand how expensive it is to obtain oil,” said Simmons.
Much of the world’s energy infrastructure is old and rusting and will require several trillions of dollars to replace – if it can be replaced. Furthermore, new technology is coming on line slower than most people anticipate. The deeper, more challenging environments are sucking down technology and money, and yielding less than expected in many cases. According to one study, only eight out of 100 major energy projects came in on time, were within budget and yielded the expected volumes of oil and natural gas.
The stark fact is that oil is going to get a lot more expensive and the bull market in oil will be firmly in place for a long time. Smart investors would take advantage of any corrections or dips to get themselves buckled-in for the ride.
Regards,
Byron King,
for The Daily Reckoning
Byron King
Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
Bunch of nonsense. Oil production has been supressed for 80 years and likely since the Russian Revolution. We just exited a 20 year bear market and entered into a time when nearly half the worlds population is suddenly consuming what they weren’t 10 years ago. This is nothing but speculator fuel. Robert Prechter said it right, if there is Peak Oil, then there won’t be oil at all, as man will abandon it.
I agree with mannfm11. This is a bunch of nonsense. I attended a conference in Montreal in the late 1970′s that said the same thing – peak oil is here. The largest Saudi oil field (Gashwar) – also the world’s largest – was supposed to be in decline in the 1960′s. Today it is producing more than ever. These scare projections have been around for more than 100 years. John D. Rockefeller said he could drink all the oil that would ever be produced west of the Mississippi. This propaganda is designed to do one thing – drive up the price of crude.
So I suppose it’s an illusion that over 60 percent of the oil producing countries are in decline, including the US, which does have the advantage of ever single bit of cutting edge technology, but still can not reverse or even stop it’s declines. One after an another, each oil producing country has peaked and gone into decline……how the hell can you deniers think that the rest will not……..you defy logic
Wow you attended a peak oil conference and they convinced you we have gone beyond peak oil. Stunning! Bet those time share sales people love you too!
This is yet another scare tactic. The earth’s cold, the earth’s hot, we are out of oil…
If we are then start up them there nuclear reactors and lets buy Electric cars. You know Colorado is giving a 40K+ tax break on the Tesla.
I certainly agree that some of these problems are serious and will likely lead to an extended bull market in oil. Chief among these problems are the dilapidated oil infrastructure and the political instability of major oil exporting countries. Nevertheless, I must caveat the idea that Peak Oil is an insurmountable geophysical reality which will lead to permanent shortages of liquid hydrocarbons. Here are the reasons why:
1. The United States has oil which has never been tapped. The coasts of Florida and California, the ANWR region in Alaska, and much of the interior West are all highly productive areas, but are off limits for political reasons.
2. Once the price of oil stabilizes above $120 dollars per barrel, the conversion of coal to liquids will become economically feasible. America’s (and the world’s) supply of coal is effectively limitless.
3. There is no shortage of natural gas. None. The Pickens plan will work and will free up millions of bpd of conventional oil.
Yes, the adjustment from light sweet crude to alternative liquid hydrocarbons will be a long and painful process. It will bring about (or perhaps it would be more accurate to say it will happen in conjunction with) large-scale geopolitical realignments and economic disruptions. Our society will have to reorganize many things about the way we live and work, but this has happened countless times before in world history. There will be winners and losers, but America is poised to do very well in the new regime provided we use our resources and our talents wisely.
Hello Matt Beck,
You say “America’s (and the world’s) supply of coal is effectively limitless.”
That’s just pure golden! Are you a comedian?
Your chart is mislabeled, that is the Cantarell output chart but you have it labeled as global production of crude.
No Hugh, I’m perfectly serious. The world has 130 years’ worth of proved reserves; that is, coal resources that economically reoverable at current prices using current technology. It has about 500 years’ worth of the raw material itself. I call that limitless for planning purposes.
Matt – I see from your blog that you have issues with the standard of scientific publications, which would indicate to me that you have a scientific bent. Might I humbly suggest that you learn about the exponential function and then revisit your previous post and insert the words “at present rates of consumption”.
Also, you should take Richard Wakefield’s advice and read the article suggested in the link.
I’m sorry Matt, but this is going to be the century where we humans find out that the rock we are living on is not best friends with the mad economic principle of ever increasing growth.
Hugh:
Perhaps we disagree, but thanks for visiting my blog nonetheless. I just want to clarify something before the argument gets too hetaed. As I thought I mentioned in my original reply to this thread, I do not adhere to “the mad economic principle of ever increasing growth.” I fully expect the next three or four decades to be a more or less continuous period of economic shocks and geopolitical disruptions on the order of 1914-1945. However, I maintain that the supply of raw materials, commodities, energy, etc. has nothing to do with this. The human race is more than capable of solving these technical problems; there will always be energy available if we’re willing to go out and get it. Our real problems are social, political, and spiritual.
Richard:
I appreciate the link, but it doesn’t change my essential point. Even if we use The Oil Drum’s rather pessimistic numbers, the rate of coal consumption can continue and even grow for several decades before peaking, which is plenty of time to allow for alternative arrangements to be made. Once again, my forecast called for a long and painful adjustment, but not a permanent and insurmountable limit to Western Civilization. Given the history of human challenge and response, this seems entirely reasonable.
Also, it isn’t true that it takes more energy to convert coal to liquids than the liquids could provide; and even if this were true, I don’t quite understand the sacramental hypostasis you attach to the statement that “coal-to-liquids is a net energy loser.” As if that matters! Industry is always a “net energy loser,” inasmuch as it consumes energy in order to manufacture a product or achieve a result. If we need the liquid, we need the liquid. The costs, in that case, would have to be covered by alterations in consumption patterns that cannot be foreseen at present. It wouldn’t be a pointless endeavor even if it was a net energy drain; but since it isn’t, this is all academic.
The Oil Drum is an alarmist site. Many of the contributers and respondants there are ideologically invested in the failure of fossil fuels, either because they believe the Anthropogenic Global Warming hoax or becasue they are aesthetically opposed to suburban American life, a la James Howard Kunstler.
There are plenty of things that ought to change about American life, but there is no sense in being invested (ideologically or financially) in catastrophe. Even when catastrophes strike (as they will), we will have to work through them; and we will need lots of energy and initiative to do so. All the more reason to make full use of our current resources, as I advocated earlier.
*sigh* Typos occur…
Matt, I’m sure you also predicted the financial crisis.
Bottom line, you are speculating that the future will take care of itself. What you don’t understand is how fast cheap oil will decline and how incredibly expensive the alternatives will be.
We can have enough oil available for many years to come, only if we are willing to pay the price to get it. Can we afford five times, ten times, fifteen times what we now pay per barrel? Willingness is not the issue, cost is.
The cheap shot you take at the Oil Drum leaves out the fact that the core group are oil and gas industry veterans who know more about the future of oil and natural gas than you or I ever will. They have no agenda other than education. Picking away at those who are the fringe does not invalidate their dedication to the truth.
Your last post is full of wishful thinking, but no facts. For example:
“The human race is more than capable of solving these technical problems; there will always be energy available if we’re willing to go out and get it.”
“the rate of coal consumption can continue and even grow for several decades before peaking, which is plenty of time to allow for alternative arrangements to be made.”
“Once again, my forecast called for a long and painful adjustment, but not a permanent and insurmountable limit to Western Civilization. Given the history of human challenge and response, this seems entirely reasonable.”
“The costs, in that case, would have to be covered by alterations in consumption patterns that cannot be foreseen at present.”
Do you understand the concept of EROI? Here are some rough numbers (for example purposes only). If coal currently has an EROI of 80 and coal to liquids drops that EROI to less than 2, what does that do our economy? The coal based economy you are predicting will save us until we can invest the trillions of dollars needed to replace the bulk of oil and natural gas we now depend on.
Why are my posts being deleted?
That’s against the ideals of the Oil companies and producers. Expensive oil promotes a transition to alternatives. A transition to alternatives is the last thing they want.
The marginal cost of new production (not legacy production like Ghawar and the old giants) such as the Brazilian Deepwater Pre-Salt discoveries is around $70/bbl or more. All the cheap oil is gone.