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Lures to Energy Complacency Part IV

July 23, 2012

This is Part IV of a 5-part blog that addresses the various pressures brought on American society to believe that we have an abundance of oil and gas and therefore no problems with alarmists who warn of impending shortages. “Energy is the key which unlocks all other natural resources”.1 It is essential that we not delude ourselves about its availability so that we can prepare ourselves for the future.

If snake oil2 could be refined into gasoline and diesel fuel, the nation would have no foreign oil dependency problem. It is always plentiful and cheap. Snake oil is the fuel and balm that lures us to curse those we imagine are responsible for high gasoline prices, to grasp at “vast new” fossil energy sources, to ignore peak oil, and to banish fears of climate change, all the while assuring us that technology will solve any impediment to our god-given right to enjoy life as we always have in the past.

1Eugene Ayres and C.A. Scarlott, Energy Sources – the Wealth of the World (McGraw-Hill, 1952)

2The term “Snake oil”, folk etymology has it, originated as a corruption of Seneca Oil. Seneca Indians supposedly had been observed to use crude oil from surface seeps as a liniment. Whatever its origin, it has become a generic name for panaceas or miraculous remedies whose ingredients, unknown to the buyer, are mostly inert or ineffective. That is the sense in which I use it (Wikipedia, http://en.wikipedia.org/wiki/Snake_oil; see also Rosie Mestel, Snake Oil Salesmen Weren’t Always Considered Slimy, Los Angeles Times, July 1, 2002)

 

Part IV. The Peak oil “Myth”

 

The euphoria surrounding “discovery of vast new” deposits of oil and gas (Parts II, III) is spawning many declarations by the snake oil merchants (both “experts” and wishful dreamers) that peak oil is dead:

Declining output no longer seems inevitable; some scenarios indicate sustained growth1

Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak oil’ in sight2

The world has plenty of [oil] reserves, and they will continue to fuel prosperity and growth around the world for many decades3

Contrary to the [peak oil] theory, oil production shows no signs of a peak . . . Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year, or for decades to come4

One of the points that economists have a really hard time getting over, probably because it is so counter-intuitive, is that we human beings don’t really consume resources, we create them5

Shale energy could be responsible for the resurgence of the US as an economic superpower, with cheap local energy underpinning the second coming of its manufacturing. One thing is for sure: the world isn’t running out of oil and gas any more6

‘Technologically recoverable’ resources are not the ‘total’ amount of oil thought to exist in the US, so the total in-place reserves are much, much larger. It does not take a lot of imagination to predict that many of these oil resources will eventually be unlocked with new technological innovation thus added to the total ‘proven reserves’7

“Of all the idiotic things people believe, the whole “peak oil” thing has to be right up there. It is literally impossible for us to run out of oil. We have never run out of anything. And we never will” 8

In a speech at the Council on Foreign Relations, Exxon Mobile CEO Rex Tillerson said “fears about climate change, drilling, and energy dependence were overblown” and “…huge discoveries of oil and gas in North America have reversed a 20-year decline in U.S. oil production9

For decades, advocates of ‘peak oil’ have been predicting a crisis in energy supplies. They’ve been wrong at every turn10

Besides trampling on some important facts, the critics of peak oil mostly don’t seem to understand what peak oil is—and isn’t.11 Peak oil isn’t about running out of oil, but rather represents a level of production that we are unable to increase because of the tension between the nature of new resources and depletion of those we have already found and are producing. This tension is not substantially alleviated by new technologies as is repeatedly claimed, because much of the oil remaining in the ground is very difficult and costly to extract, “new technologies” notwithstanding. The deposits containing most of this oil have characteristics endowed by their geologic history that make extraction of fluids a very slow process as explained in Part II. We can overcome these characteristics—very low porosity and permeability—by artificial fracturing (fracking), but only on a very small scale that requires constant drilling of new wells to replace the very rapidly declining older wells. The age of wells in shale and other tight formations and deep water deposits before they slip closer or into the stripper well range (<10 bpd) is very short—for tight formations just 5-10 years, for deepwater deposits a little longer, but not much.12 All those hundreds of thousands of stripper wells (Part II) have reduced the rate of decline of U.S. production, but did not prevent it.

Figure 1. U.S. oil production 1900 to 2009

Figure 1 shows U.S. oil production from 1900 to 2009, with a 1970 peak of about 9.6 million barrels per day (Mbpd); the production peak was preceded by 40 years by a peak in discoveries. The 1970 production peak was followed in 1985 by a lesser peak representing the giant Prudhoe Bay, Alaska field.13 Thereafter, production steadily declined reaching a low of about 4.9 Mbpd in 2008, several years into the period in which modern techniques of tight oil formation production began. The upward tick in 2009 on the graph reached 5.4 Mbpd, followed by 5.5 in 2010 and 5.7 in 2011.

These small increases, ascribed primarily to shale oil production, are claimed to herald further increases that will push U.S. production above the 1970 peak by 2020.14 Such claims by Citigroup and a Harvard University report are predicated on assumptions that, among other problems, ignore the very low flow rates of oil in shale deposits and propose well decline rates far lower than reported (see Figure 6, Part II).15 The Harvard report assumes a 15% decline in well production over the first 5 years followed by 7% decline, grossly misrepresenting actual experience. With decline rates averaging on the order of 50% or more and ranging to 90% in the first year, U.S. shale oil wells are quickly reduced to production levels far below those needed to support the report’s conclusion.  It took more than 6,500 wells to give us a tiny tick upward in Bakken field production, and many more to add a tidbit from the Eagle Ford field. To drill out the shale oil deposits will take tens of thousands of more wells, the Bakken alone is considered to require 33,000 more wells to fill that field.16 According to one operator,“To put the 33,000 new Bakken wells into perspective: at current costs it will take almost $200 billion for leases and drilling capital expense. The Current rig count is around 80 – 90. Expand that to 120 rigs in the future (this will take a lot of new rig construction). At an average of 4 wells per year per rig it will take about 70 years to drill all the wells. I am not saying it won’t be done–just putting it in terms more easily appreciated.” If this were not bad enough, sustaining production over 30 years would require more than 200,000 wells.17 But, “bear in mind that, after a while, it becomes harder to find a spot where no-one has already been. Also bear in mind that at $8.5 million per well and sweet spots receding ever farther toward the horizon, such a drilling program might be a hard sell.18

We solved our problem of declining production and expanding consumption by importing oil from elsewhere in the world. Our present (2011) consumption of oil is 18.8 Mbpd, down from 20.7 Mbpd in 2005, due in part to recession. Domestic oil production (5.7 Mbpd) is about 30 percent of consumption, so boosting our production to a figure close to the 1970 peak of 9.6 Mbpd, as claimed by the Citigroup and Harvard reports, would get us half way to our consumption level. This isn’t exactly energy independence. Pinning our hopes on unconventional oil sources is not a good idea if you believe the Energy Information Administration’s forecast, which is for shale oil to peak in 2020 at about 1 Mbpd and together with deepwater production to put U.S. oil production at about 6.5 Mbpd in 2020. That gets us to about 35% of current consumption and still a long way from the 1970 peak.19

Peaking of shale oil fields means that the frenzied pace of drilling is no longer exceeding the loss of production from older wells, and that means decline in production will be steep. Even at the present stage of development of the much ballyhooed Eagle Ford shale, tracking of 200 wells in 2008 indicated a 145% rate of decline—“the most astonishing decline rate of any shale play I’ve looked at.” 20

The history of U.S. oil production illustrates the meaning of peak oil. So, how bright is the future of our continuing to import a large fraction of our consumption? Or, in other words, is the rest of the world imminently faced with a problem similar to our own—peak oil?

Figure 2. World oil discovery and production

Figure 2 reveals a global oil discovery and production history like our own: discoveries of new oil deposits peaked more than four decades ago, in the mid-1960s, and since the mid-1980s consumption has exceeded production. The peak of discovery presages the peak of production.

Figure 3. U.S. crude oil and other liquids production 1980 to 2010

Figure 3 represents production of four categories of petroleum liquids21 with a discernable flattening of production starting in 2004.

Figure 4. U.S. crude oil production 2002 to 2010

A tighter illustration of the flattening in production of crude oil is shown in Figure 4, a plateau that has persisted for 7 years through 2011. Production beyond the plateau is likely to signal lasting decline.22

More important than the time of peak production is the rate of decline of the world’s giant conventional deposits, which contributed more than 60% of world production in 2005 and which contain approximately 65% of ultimately recoverable conventional oil. Most of the world’s giant fields are already in decline, generally reaching their peak production before 50% of their recoverable resources had been extracted. Overall production from giant fields is declining because most are more than 50 years old and fewer and smaller giant fields have been discovered with time (Figure 5).

Figure 5. Giant field discoveries and volumes, 1900 to 2006

The average decline rate of 261 giant fields that are past their peak production plateaus is 6.5%, with offshore fields declining faster than onshore ones. Importantly, decline rates have increased over time, and a strong correlation between depletion and the rate of decline indicates that much new technology has only been able to temporarily slow depletion at the expense of rapid future decline.23

The problem posed by any expectation that we can continue to depend on foreign oil imports is diminishing quantities of oil available, increasing competition for that oil, and increasing domestic consumption by exporting nations.

Sources and Notes

1Oystein Noreng, Peak Oil? – Not in Norway, World Oil, v. 233, April 2012

2Leonardo Maugeri, Oil: The Next Revolution, Harvard Kennedy School, Belfer Center for Science and International Affairs, June 2012

3Saudi Arabia’s Petroleum and Mineral Resources Minister Ali I. Naimi, speaking at the same conference as de Margerie, further stated that “it is not just that oil continues to be discovered. It is that technology, partly driven by prices, enables ever greater reserves to be booked, and eventually recovered” (Cameron England’s, Peak Oil Debate is Over)

4Exxon Mobil Advertisement in New York Times, June 2, 2006

5Tim Worstall, We Don’t Consume Resources, We Create Them, Forbes, 24 March 2012. Worstall explained this statement: “I am not trying to state…that we do not live on a finite Earth” without limits, but rather while there are indeed “hard limits to availability they are so far away from our current situation that they’re irrelevant”

6Alan Kohler, The Death of Peak Oil, Crikey, February 29, 2012

7George Wuerthner, The Real Problem Is Not Too Little Oil, But Too Much, CounterPunch, March 29, 2012

8Quoted by Peter C. Glover, Whatever Happened to Peak Oil? Canadian Free Press, August 15, 2012. Attributed to Mike Munger, Posted by Mungowitz http://mungowitzend.blogspot.co.uk/2009/12/peak-idiots.html

9Associated Press, Oil Exec: Earth Can Adapt, June 28, 2012. Tillerson “blamed a public illiterate in science and math, a lazy press, and advocacy groups that manufacture fear for energy misconceptions.” I have to conclude that it is Tillerson who is illiterate in the effects of climate change, speaking as he does from a platform of endless oil production and ever increasing greenhouse gas emissions. He also said that “dependence on other nations for oil is not a concern so long as access to supply is certain.” Why does he think access to foreign oil is certain now, particularly in light of declining reserves and increasing internal consumption in the world’s major exporting countries?

10Daniel Yergin, There Will Be Oil, The Wall Street Journal, September 17, 2011

11Robert Rapier, Power Plays: Energy Options in the Age of Peak Oil (Apress, Springer-Verlag, New York, 2012); Energy Bulletin, Peak Oil Primer, last updated October 20, 2011

12“Rockman,” The Oil Drum, Drumbeat comment, March 31, 2012

13U.S. Energy Information Administration, Crude Oil Production http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm. The 2009 upward tick was due primarily to deep water production rather than onshore tight oil production (see Richard Heinberg, The Oil Depletion Protocol, New Society Publishers, Canada, 2006, figure 1.1). Shale oil contributed increasing amounts to the still small 2010-2011 production increases

14Citigroup, Oil Supply Growth: No End in Sight?, March 2012; Maugeri, Oil: The Next Revolution, June 2012

15”Heading Out”, The Citicorp Energy Projection – A Gentle Cough, Bit Tooth Energy, March 27, 2012 (http://bittooth.blogspot.com/2012/03/citicorp-energy-projection-gentle-cough.html); “Heading Out”, Tech Talk – New Energy Report from Harvard Makes Unsupportable Assumptions, The Oil Drum, July 2, 2012

16Lynn Helms, Director of the North Dakota Department of Mineral Resources, which has direct oversight over Bakken oil production stated that “We think it is going to take about 33,000 wells to produce this oil field [Bakken]

17“Rockman”,The Oil Drum, Drumbeat comment,18 November 2011 (slightly edited); To sustain production over 30 years, more than 200,000 wells are estimated to be required (“WebHubbleTelescope”, The Oil Drum, Drumbeat comment, July 1, 2012)

18“Heading Out”, The Citicorp Energy Projection

19Tom Whipple, The Peak Oil Crisis: Parsing the Bakken, Falls Church News-Press, March 21, 2012

20Arthur E. Berman, quoted by Michael Barajas, Why the Great Shale Rush in the Eagle Ford May Be Over Sooner Than You Think, Current, March 14, 2012. This along with the EIA’s forecast of shale oil peak in 2020, makes it difficult to understand how the EIA can forecast tight oil production levels above 6.0  Mbpd after 2020. Indeed, some experts believe that 10 years from now “at least 90% of the wells currently producing oil from shale formations will be plugged and abandoned, or down to 10 bpd or less” (“Westexas”, The Oil Drum, Drumbeat comment, March 23, 2012)

21Production in barrels per day is reported variously as some combination of crude oil, natural gas liquids, condensates, refinery gain, and biofuels. Hence total values vary by as much as 10 million barrels per day or more, and it is not always easy to find out exactly what the figures represent. In Figures 2, 4 and 5, the categories represented are stated

22Mikael Höök, Robert Hirsch, and Kjell Aleklett, Giant Oil Field Decline Rates And Their Influence On World Oil Production, Energy Policy, 2009. Giant fields are the world’s largest, defined as having more than 0.5 billion barrels of ultimately recoverable oil. There are some 500 such fields, about 1% of total fields; 261 of these are considered post-peak

23Höök et al, Giant Oil Field Decline Rates, 2009. As an example of the effects of technological improvements, consider a conventional reservoir whose pressure is maintained by injection of water below the oil column. This displaces the oil level upwards as oil is extracted. Oil production of a vertical well declines gradually as oil at the bottom of the well is displaced by water and both oil and water are produced, with gradually increasing proportion of water as the water level rises to the top of the reservoir. A horizontal well drilled near the top of the reservoir produces only oil until the water level reaches the well, at which point decline in oil production is abrupt—in oil patch parlance it falls off a cliff.

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