Saturday, May 22, 2010

Peak Oil Update

"Peak Oil" refers to an analysis of the likely trajectory of world crude production which suggests that the resource has already, or shortly will, commence an unstoppable decline.  It was developed by a geophysicist named M. King Hubbert, who took into account several factors, such as the properties of oil depletion and market forces to produce a theory that production of any non-renewable resource would follow a bell-shaped curve.  Once the peak had been reached, the resource would inevitably decline in production.  When applied to crude oil, this concept became known as Peak Oil.

Decades ago, Hubbert predicted that world oil production would peak in about 2005.  It did.  However, as crude oil prices skyrocketed in 2007 and 2008 to nearly $150 per barrel, emergency output from giant Saudi Arabia briefly gave oil production a slightly higher peak in 2008.  That high has not been surpassed since.

Oil production peaked in mid-2008 at just under 88 million barrels per day.  Recently released data puts it at about 86.5 million, roughly equivalent to the 2005 level.  Crude production has oscillated in a fairly tight range for the last 5 years, despite much higher average prices.

This plateau is VERY significant when compared to historical trends.  For example, post Oil Embargo, worldwide production dipped to about 60 million barrels in the early 1980's and crossed 70 million in the mid-1990's.  Thus, the failure to grow at historical rates, despite MUCH higher prices, suggests that the planetary capacity for oil production is quite constrained.

On the demand side, the United States remains the largest consumer, currently using about 19 million barrels per day, down from a peak of 21 million in 2007.  China is now number 2 with consumption of about 10% of world production.  Beijing's demand, however, is growing by leaps and bounds, up nearly 13% year-over-year and is expected to grow another 10% or so in the next 12 months.  Should that forecast be realized, China alone will add about 1 million barrels per day to the demand picture.

The US military has warned that surplus oil production capacity could disappear within two years and there could be serious shortages by 2015 with significant economic and political impact.  Surplus capacity is believed to be less than 4 million barrels per day.

The energy crisis has been outlined in a Joint Operating Environment report from the US Joint Forces Command.  "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day," says the report.

Total oil reserves are estimated to be around 1.8 trillion to 2.2 trillion barrels, of which about 1.1 trillion barrels have been consumed through 2005.  Another 1.5-1.6 trillion barrels remain to be extracted, of which 1 trillion barrels are proven reserves with the remaining 500-600 billion barrels consisting of reasonable projections.

About half of all the petroleum consumption has taken place after 1984 and about 90% of all the petroleum that has ever been consumed was done so after 1958.  Most of the remaining oil could be extracted by 2060.

Investors looking to benefit from Peak Oil will have to take an indirect route.  Oil companies will undoubtedly be slapped with a "Windfall Profits Tax", especially as the budget situation gets more desperate.
Therefore, the avenues for investment must be through alternative fuels such as uranium, tar sands, wind or shale.  These are frought with peril since they require a high level of expertise as many alternative fuel concepts are not yet economically viable on a large scale.

Marko's Take

For more on "Peak Oil", we have two You Tube episodes to provide some background.  They can be accessed by clicking here (Part 1) and here (Part 2).


  1. Are you kidding here, where have you been? The proven existence of abiogenic oil sources is a game changer. It is only now being understood in terms of the possibilities. How do you think the Russians have gained the top producer spot over the past 10 years? They are on their way to mastering superdeep extraction methodology. Being smart, they've cut their teeth and gained their key experience on land.
    Like so-called "global warming", "peak oil" will soon be a dead letter. The term fossil fuels will soon be a fossil. Don't get me wrong, we're not out of the woods by any means. But I see many reasons to believe that the much bigger challenge will be to keep pace with exploding global demand for all the various refined and finished petroleum based products. There are many, many good reasons this will likely not happen but the supply of crude probably won't be in the top 5.
    Especially after how the GoM catastrophe has highlighted the existence of abiogenic oil and the possibility there's more of it than we can ever use, the concept of peak oil as depicted has been outed as just another industry scam to help keep prices high. Sorry but that's just the fact.
    After GoM, for you to be beating this drum now is puzzling. You must be kinda worried about being seen as wrong on the issue. Who cares, just amend the thinking to account for a new petroleum source you can thank the Russians for bringing to mankind. Providing of course that accursed British Petroleum (or does it really stand for Barak's Pimpdaddy) doesn't kill off the eastern half of the USA first...

  2. Ed:

    Abiogenic fuels account for such a small portion of energy supply, that I can't even believe you would bring this up! Where have YOU been?

    Even the Department of Energy and EPA view this source as only a small piece of the energy puzzle.

    Oil production is due to decline at such a rate, that even if abiogenic grows exponentially for the next 10 years, it will hardly be significant.

    I appreciate the comment.

    We already use ethanol. My argument remains valid.

    Thanks for reading.



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