"What Exactly Is Peak Oil?... Part 2

There are more reasons for concern regarding the concept of "Peak Oil", which were outlined yesterday. 

First and foremost are the rapid quantity and quality of oil reserves.  Saudi Arabia hasn't had its reserves verified in decades.  It's certain that something is amiss.  Most of the exports from Saudi Arabia have deteriorated to a vastly lower quality oil.  Crude is actually a blend of many hydrocarbons.  The most valuable portion of a barrel is Jet Fuel, which is also known as kerosene.  Next is gasoline which is followed by Diesel Fuel.

Crude Oil also is referred to as either "sweet" or "sour".  The level of sweetness is dependent on the amount of sulphur found in the oil.  The less sulphur, the better.  Oil is also classified as "light" or "heavy".  Light refers to the proportion of the higher valued liquids, such as kerosene, gasoline and diesel.  Sour oil is filled with large amounts of Residual Fuel Oil and Tar.  "Resid", as it's known in the trade, is used on marine vessels, as it is known to be highly pollutive.  Tar is known for its use in paving roads.

Saudi Arabia exported light-sweet crude, but now exports heavy-sour crude.  So clearly, the good stuff is going.  Venezuela, another very large oil exporter, also delivers heavy-sour crude.

Even the worst quality crudes can be converted into more valuable products through refineries which have "crackers".  No, I don't mean graham crackers!  Crackers actually split the molecules, thereby allowing the transformation from heavy to light.  The longer the molecule, the heavier the product.  But cracking is expensive and the number of refineries with the requisite technology is falling behind the deterioration in crude.

Only a few countries, such as Russia, are producing increasing quantities of light-sweet crude, while most countries are on the decline in quantity and quality.

Marko's Take?  Peak oil is coming faster and becoming more dangerous at a rapidly accelerating rate!

Tomorrow, we'll re-examine the latest economic data as new information continues to appear.

Marko's Take

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