Matt Simmons, the chief advocate of Peak Oil, died of an apparent heart attack last night. The original theory was developed by M. Hubbert King. Has the theory held up?
For some background on Peak Oil, it can be reviewed by clicking this recent piece: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
Recent statistics from the International Energy Agency (IEA) bear out Hubbert's predictions. Growth in worldwide oil demand has slowed but continues to grow. Currently, the planet uses approximately 86 million barrels per day (mbd). This is projected to grow to 88 mbd by late 2011. Of course, an intensifying downturn in the global economy is likely to ensure that this forecast will not be met.
Peak Oil, however, refers to the production side. It anticipates a growing shortage as existing oil fields commence an inevitable and accelerating decline, while the alternatives are still very slow in being developed. According to the IEA, world production averaged 86.6 mbd in 2008 and fell to 85 mbd in 2009. It has rebounded in 2010, but has fallen in the 2nd quarter.
OPEC, which produces just less than 40% of global supply, averaged 28.9 mbd in June, down by 65 kbd from May. A lull in OPEC crude capacity expansion is expected between now and year-end 2011. Non-OPEC supply is expected to rise by a modest 0.4 mbd in 2011 to 52.8 mbd, following a 0.8 mbd growth in 2010. Increases from Brazil, global biofuels, Azerbaijan, Colombia, Ghana and Oman are expected to offset declines from Mexico and the North Sea during 2011.
The imminent "Double Dip" will undoubtedly have a major bearing on future production, especially if prices decline to possibly much lower levels in the intermediate term.
Peak Oil is significant for a variety of reasons. For one, it undoubtedly was a major factor in the invasion of Iraq. It has a bearing on future potential military actions against Iran. Was there a connection to British Petroleum and the infamous oil spill and U.S. policy on offshore drilling? They don't call it "Black Gold" for nothing.
Another "Windfall Profits Tax" seems a virtual certainty in light of the out-of-control budget deficit. Our roads are paid for by Gasoline taxes. Virtually every industry is affected by oil prices. The automobile industry, the transportation industry, the mining industry and the military are all affected by oil. So is foreign policy. Global Warming? Cap and Trade? Yeah, I'd say "Peak Oil" is important.
Unfortunately, profiting from a knowledge of "Peak Oil" is most difficult. The chief beneficiaries, shareholders of ExxonMobil, Chevron, British Petroleum and Conoco-Phillips will not be allowed to enjoy the profits which are politically unpopular. So, the only way to invest is in alternatives, or to own royalty trusts whose cash flows rise and fall with oil prices. That is, assuming they will be exempted from future legislation.
The most viable response for the average American is conservation. If one can afford a hybrid or install solar panels, great. But, most people can't. All most of us can do is turn down our thermostats and burn wood in the fireplace. I hope I never see another line at the gasoline pump again. But, unfortunately, I suspect that vestige of the 1970's will return.
Marko's Take
Showing posts with label Hubbert's Peak. Show all posts
Showing posts with label Hubbert's Peak. Show all posts
Monday, August 9, 2010
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 http://www.youtube.com/markostaketv#p/u/4/yFxE3GsPnRQ (Part 1) and here http://www.youtube.com/markostaketv#p/u/3/ywn2F3XAaJA (Part 2).
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 http://www.youtube.com/markostaketv#p/u/4/yFxE3GsPnRQ (Part 1) and here http://www.youtube.com/markostaketv#p/u/3/ywn2F3XAaJA (Part 2).
Tuesday, March 16, 2010
Peak Oil: Going Mainstream
We've written twice about "Peak Oil", the notion that world oil production has peaked with no possibliltiy of exceeding the brieflly achieved record in 2008. (http://markostake.blogspot.com/2010/01/what-exactly-is-peak-oil-part-1.html) and (http://markostake.blogspot.com/2010/01/what-exactly-is-peak-oil-part-2.html).
The notion of Peak Oil has been controversial, especially given the claims from larger Middle Eastern producers that their reserves keep growing. Most Middle-Eastern producers, including giant Saudi Arabia, have not let Western scientists access to geological data necessary to verify their reserves. However, now the conventional wisdom is shifting dramatically.
Kuwait has now admitted that global production will peak in 2014. Their work represents an updated version of the famous Hubbert Model, which correctly predicted in 1956 that U.S. oil reserves would peak within 20 years. Many researchers have since tried using the model to predict when worldwide oil production might peak.
Thier prediction is flawed. Even their own scientists acknowledge that the world continues to consume its oil reserves at a rate of about 2.1% each year. According to the Hubbert Model, that rate of decline will accelerate. They plan to continue including new data that can refine the model as time goes by.
Some, like Marko's Take, have said production has ALREADY peaked, barring the fluke discovery of some unknown humungous, readily accessible oil field. FAT CHANCE! One earlier model by Swedish researchers suggested that oil would peak sometime between 2008 and 2018. Other researchers have argued there are decades to go before oil production goes into irreversible decline. The only thing they all agree on: OIL IS FINITE!
The issue's profile was raised recently with a new report projecting increased demand. After peaking above $140 a barrel in mid-2008, crude oil prices dipped to below $40 in early 2009, as global demand tanked amid the recession. Prices have been rising ever since and are above $80 now. Recently, the International Energy Agency (IEA) said it expects demand to resume the sort of growth that was common in recent years. Much of that growth has involved the modernizing economies of China and India.
Production cycles reflect the influence of new technological innovations in the oil industry, government regulations, economic conditions and political events. The factors include the discovery of new oil deposits, the recent economic recession (aka DEPRESSION) and the rise of renewable energy. As we've pointed out, renewable energy, AT THIS TIME, is insufficient to materially dampen the supply for oil FOR YEARS!
A perfect example is Mexico. The nation, which has been a top oil exporter, has experienced cacscading production and might even begin IMPORTING oil within the decade, the New York Times reports! Its troubles have arisen from a lack of technology to explore more inaccessible oil deposits and a misguided, nationalistic policy stemming from a 1938 law that banned foreign oil companies.
More complications may still change the ultimate end date for peak oil. OPEC's latest projection suggests that world oil demand will grow by 900,000 barrels per day in 2010, according to an Associated Press story this week. That follows a period of low oil demand during the height of the worldwide recession in 2009.
There is now little doubt that Peak Oil is more than just a lunatic "doomsday" notion. As oil does peak, if even by some fluke, it occurs this year or next year instead of 2008 as we have contended, the result will be the same: MUCH HIGHER OIL PRICES!
Marko's Take
We have two video blogs on "Peak Oil" if you wish to familiarize yourself with some of the statistics backing up our assertion. They can be found here http://youtube.com/markostaketv.
The notion of Peak Oil has been controversial, especially given the claims from larger Middle Eastern producers that their reserves keep growing. Most Middle-Eastern producers, including giant Saudi Arabia, have not let Western scientists access to geological data necessary to verify their reserves. However, now the conventional wisdom is shifting dramatically.
Kuwait has now admitted that global production will peak in 2014. Their work represents an updated version of the famous Hubbert Model, which correctly predicted in 1956 that U.S. oil reserves would peak within 20 years. Many researchers have since tried using the model to predict when worldwide oil production might peak.
Thier prediction is flawed. Even their own scientists acknowledge that the world continues to consume its oil reserves at a rate of about 2.1% each year. According to the Hubbert Model, that rate of decline will accelerate. They plan to continue including new data that can refine the model as time goes by.
Some, like Marko's Take, have said production has ALREADY peaked, barring the fluke discovery of some unknown humungous, readily accessible oil field. FAT CHANCE! One earlier model by Swedish researchers suggested that oil would peak sometime between 2008 and 2018. Other researchers have argued there are decades to go before oil production goes into irreversible decline. The only thing they all agree on: OIL IS FINITE!
The issue's profile was raised recently with a new report projecting increased demand. After peaking above $140 a barrel in mid-2008, crude oil prices dipped to below $40 in early 2009, as global demand tanked amid the recession. Prices have been rising ever since and are above $80 now. Recently, the International Energy Agency (IEA) said it expects demand to resume the sort of growth that was common in recent years. Much of that growth has involved the modernizing economies of China and India.
Production cycles reflect the influence of new technological innovations in the oil industry, government regulations, economic conditions and political events. The factors include the discovery of new oil deposits, the recent economic recession (aka DEPRESSION) and the rise of renewable energy. As we've pointed out, renewable energy, AT THIS TIME, is insufficient to materially dampen the supply for oil FOR YEARS!
A perfect example is Mexico. The nation, which has been a top oil exporter, has experienced cacscading production and might even begin IMPORTING oil within the decade, the New York Times reports! Its troubles have arisen from a lack of technology to explore more inaccessible oil deposits and a misguided, nationalistic policy stemming from a 1938 law that banned foreign oil companies.
More complications may still change the ultimate end date for peak oil. OPEC's latest projection suggests that world oil demand will grow by 900,000 barrels per day in 2010, according to an Associated Press story this week. That follows a period of low oil demand during the height of the worldwide recession in 2009.
There is now little doubt that Peak Oil is more than just a lunatic "doomsday" notion. As oil does peak, if even by some fluke, it occurs this year or next year instead of 2008 as we have contended, the result will be the same: MUCH HIGHER OIL PRICES!
Marko's Take
We have two video blogs on "Peak Oil" if you wish to familiarize yourself with some of the statistics backing up our assertion. They can be found here http://youtube.com/markostaketv.
Thursday, January 7, 2010
What Exactly Is Peak Oil?... Part 1
Peak oil refers to a hypothesis originated by M. King Hubbert in 1956. He accurately predicted that U.S. production would crest between 1965 and 1970. U.S. production topped at 9.4 MM barrels in 1970. His model, known as "Hubbert's Peak" suggests that a non-renewable resource will follow a roughly symmetrical bell-curve shape based on the limits of exploitability and market pressures.
Hubbert also predicted that world production would peak shortly after 2000. He was right. World oil production peaked in 2005 at approximately 85 MM barrels per day. However, given the unprecedented rise in oil prices in 2008, output slightly exceeded the prior peak as various countries like Saudi Arabia took unprecedented measures to boost production in order to keep prices from skyrocketing further. We know that the subsequent crash in oil prices caused production to be curtailed, so 2008 will prove to be the year of maximum oil production.
But, how do we know that production won't rise again as a result of the discovery of some major oil field?
Elementary, my dear Watson! There are no new fields large enough and close to production that could possibly offset the inevitable decline in the production of existing fields. In order for any field to begin production, it must first be found, drilled and delineated BEFORE any meaningful production occurs. That process takes many, many years. So, by the time a GIANT oil field comes into production, the existing fields will be well into decline and the new field will only slightly offset the decline.
What about synthetic crude such as Tar Sands or Oil Shale? At this time, neither are significant except to a few countries. Shale oil, touted as the next big thing has been known since the 1950's, yet no significant production from that source is in existence! It isn't a matter of price. Oil shale is "energy intensive", meaning that it requires a lot of energy to produce energy under current technology. Therefore price is meaningless!
Tar Sands are produced, especially in Alberta, Canada. However, current production is only 1.2 MM barrels per day.
The ONLY reason Peak Oil might be incorrect would be the belief that oil is renewable as some have argued. This argument is ridiculous! Air and water are renewable as they are both composed of gasses. In the case of water, Hydrogen and Oxygen, while air is composed primarily of Nitrogen and Oxygen. Crude Oil is composed of Hydrogen and Carbon, so it doesn't share similar properties.
Finally, the U.S. has known about Peak Oil for years, as Hubbert's predictions have turned out to be uncannily correct. We invaded Iraq in 2003. Wonder if there was a connection?
Tomorrow we'll continue our "Take" on Peak Oil.
Thanks for reading!
Marko's Take
Hubbert also predicted that world production would peak shortly after 2000. He was right. World oil production peaked in 2005 at approximately 85 MM barrels per day. However, given the unprecedented rise in oil prices in 2008, output slightly exceeded the prior peak as various countries like Saudi Arabia took unprecedented measures to boost production in order to keep prices from skyrocketing further. We know that the subsequent crash in oil prices caused production to be curtailed, so 2008 will prove to be the year of maximum oil production.
But, how do we know that production won't rise again as a result of the discovery of some major oil field?
Elementary, my dear Watson! There are no new fields large enough and close to production that could possibly offset the inevitable decline in the production of existing fields. In order for any field to begin production, it must first be found, drilled and delineated BEFORE any meaningful production occurs. That process takes many, many years. So, by the time a GIANT oil field comes into production, the existing fields will be well into decline and the new field will only slightly offset the decline.
What about synthetic crude such as Tar Sands or Oil Shale? At this time, neither are significant except to a few countries. Shale oil, touted as the next big thing has been known since the 1950's, yet no significant production from that source is in existence! It isn't a matter of price. Oil shale is "energy intensive", meaning that it requires a lot of energy to produce energy under current technology. Therefore price is meaningless!
Tar Sands are produced, especially in Alberta, Canada. However, current production is only 1.2 MM barrels per day.
The ONLY reason Peak Oil might be incorrect would be the belief that oil is renewable as some have argued. This argument is ridiculous! Air and water are renewable as they are both composed of gasses. In the case of water, Hydrogen and Oxygen, while air is composed primarily of Nitrogen and Oxygen. Crude Oil is composed of Hydrogen and Carbon, so it doesn't share similar properties.
Finally, the U.S. has known about Peak Oil for years, as Hubbert's predictions have turned out to be uncannily correct. We invaded Iraq in 2003. Wonder if there was a connection?
Tomorrow we'll continue our "Take" on Peak Oil.
Thanks for reading!
Marko's Take
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