The Return of Peak Oil

 

M. King Hubbert. Peak Oil.
M. King Hubbert (1903-1989)

My interest in issues to do with the Age of Limits started about nine years ago when I was working on an offshore oil and gas project in the nation of Malaysia. At that time my focus was on what was then referred to as ‘Peak Oil’. In the following years I learned more about other issues, such as global warming (which became ‘climate change’), our destruction of the biosphere, and the scary debt bubbles that we are blowing. It all came together in the idea of an Age of Limits.

The Peak Oil story, at the time, seemed so simple.

  • We need to find new sources of oil to replace what we are currently using.
  • Actually we need to find more than what we are using in order to fuel economic growth.
  • Unfortunately we have picked the low-hanging fruit, those sources of oil that provide abundant quantities at low cost. Finding and exploiting new sources is increasingly expensive. The technical term for this issue is Energy Returned on Energy Invested (ERoEI). It takes energy to find and exploit new sources of energy. Our ERoEI has been steadily declining.
  • Hence the price of crude oil will increase and supplies will be increasingly prone to interruption.

Absence of Peak Oil

But then, about seven years ago, extensive investments were made in the recovery of shale oil from fields in the United States (mostly in Texas and North Dakota). The impact of these discoveries can be seen in the following chart.

Hubbert Curve Actual

The chart has two lines. The red line is the famous Hubbert curve developed by M. King Hubbert in the early 1950s. Hubbert correctly predicted that production of conventional oil would reach a peak in the year 1970.

The green line shows actual oil production in the United States. Up until the year 1990 actual production followed Hubbert’s prediction closely. But then, starting around the year 2010 production of tight oil/shale oil took off such that overall production in 2018 was not much less than what it was in 1970.

Geologists always knew that the shale oil was there. But it required new (and expensive) technology in the form of hydraulic fracturing (fracking) using high pressure injection fluid consisting of water, sand and other chemicals. The produced oil is generally quite light, hence it is often referred to as Light Tight Oil (LTO).

The production of shale oil is costly. Therefore, it required that investors be willing to pour billions of dollars into this money-losing venture. Because the oil is so difficult to extract, and because there are relatively few sweet spots of high oil concentration, it has been estimated that the price of crude needs to be above $120 / barrel for the shale oil business to be profitable.

The chart shows actual prices (US $/bbl) for West Texas Intermediate. For the last few years the price of oil has mostly been in the $50-60 range — well below what is needed for the shale oil business to make a profit.

Oil Price (West Texas Intermediate)
Oil Price (West Texas Intermediate)

Consumption Continues

In the meantime, our consumption of crude oil and other fossil fuels is climbing quickly. In the recent article Fossil fuel burning leaps to a new record, crushing clean energy and climate efforts published in July in Canada’s National Observer, the author, Barry Saxifrage, cuts through much of the supposed good news to do with fossil fuel usage. He shows that since the year 1990 the rate at which fossil fuels are burned world wide has gone from 7.1 to 11.7 billion tons of oil equivalent (BTOE).  That’s a steady increase of 2.2% per year. Here is the chart.

Fossil fuel consumption since 1990

And here is another chart from the same article showing just how much oil we have used in recent years. Roughly half of the oil ever used by humanity has been used since the year 1980.

cumulative global fossil use since 1750

Global warming is not something we can blame on generations past — we are doing it to ourselves in the here and now. In fact, we have made the situation worse.  We are not slowing down.

Shale Oil Realities

Going back to the early work of M. King Hubbert, he made it clear that we need to focus on the exploration side of the oil business. It is essential that new reserves be found at a sufficient rate to replace what is being used. He himself did not use the term ‘Peak Oil’, but he developed the concept. Peak Oil does not mean that we run out of oil — it means that we run out of affordable oil. In other words, there comes a point at which it does not make economic sense for companies to continue exploration because the new discoveries cannot be extracted profitably.

In his post The wheels come off shale oil Kurt Cobb states that investors have had enough. He says,

. . . investors at some point would realize that shale oil was a long-term money loser. A former industry CEO did the math and calculated the damage as minus 80 percent for investors in the industry as a whole since 2008. Lately, investors seem to be reacting to facts rather than the hype.

Renewables

The first chart from the National Observer article shows that renewables and nuclear power have also been growing over the same time period. This leads to the good news conclusion that, “Alternative fuels are replacing fossil fuels”. Such a statement ignores two facts. First, our consumption of fossil fuels continues to climb. Second, alternative fuels still constitute only a small fraction of the overall energy picture.

Not only have alternative fuels failed to replace fossil fuels, it could be that the effect is additive — renewables have not replaced oil, they have simply added to the total energy consumption picture.

Also, since the rate at which we are using oil and other fossil fuels continues to increase the impact on the climate becomes ever more severe. Our overall emissions of greenhouse gases continues to rise. The atmosphere does not care about percentages — global warming increases with the total amount of greenhouse gases in the atmosphere.

Hence, in spite of all the conferences, articles, meetings and protests that have taken place since 1990 the harsh truth is that we have done nothing to cut back on our use of fossil fuels. In the words of the proverbs. “Fine words butter no parsnips” and “Talk doesn’t cook the rice”.

Conclusions

The situation can be summarized as follows,

  • The production of conventional oil is steadily declining, just as Hubbert said it would, all those years ago. The oil companies are having ever increasing difficulties in finding new reserves.
  • Yet we are consuming oil at ever increasing rates.
  • The production of shale oil is likely to go down. It is a money loser and it appears as if investors have had enough.
  • Alternative energy sources are growing, but they are only a small fraction of the overall energy picture — they are not replacing fossil fuels.
  • “If something cannot go on forever it will stop”. Like it or not, the growth in fossil fuel consumption will come to an end.

All of which suggests that the concept of Peak Oil may be ready to stage a comeback.


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Author: Ian Sutton

Ian Sutton is a chemical engineer who has worked in the chemical, refining and offshore oil and gas industries. He is the author of many books, ebooks and videos.

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