Saturday, March 17, 2007

Peak Oil Debate

Back to Fundamentals

More than doubling of the oil prices in the past few years, combined with nearly stagnant global oil production at a time of ever increasing demand have placed the future of oil on global agenda.

There is no crystal ball to predict the future of oil. But even though almost all available estimates up to now have consistently failed to accurately forecast national, regional and global oil production peaks, there is an ever increasing supply for such kind of forecasts.

While nearly everybody agrees that oil is a non-renewable resource and hence we will reach a point in time after which oil production rate cannot be increased any more, disagreement on the timing prevails. Some argue that we are at or near peak or plateau. Some others, on the hand, believe that such a peak is not even at sight.

Although the world’s oil resource base lies in the core of those wide ranging opinions, no one knows in reality how much oil our planet has. Estimates provided by the most credible agency, the U.S. Geological Survey, are based on the data that are already 17 years old. And yet, undiscovered oil resource estimates of the USGS are still used today as if nothing has changed since 1995.

Nearly 150 years old oil industry is proud of its innovations and technological advancements. But when it comes to questioning the fundamental questions, which has serious implications on the future of oil age, the industry has not achieved much. In fact “much” is a very optimistic word. Industry hasn’t achieved anything!

We even don’t know how much oil is produced worldwide. Oh yes, there are weekly industry journals and regular (monthly) reports from EIA, IEA etc. But does anybody mention that they NEVER match. If this is the case, which it is, then imagine the reserves figures. For resources? Simply forget it.

Why is that? Industry has no capability of estimating resources? Yes, of course. Why don’t they do it then? Because they don’t care! Whatever the big oil bosses and industry/government organizations say about the current reserves and further for resources should be taken with tons of salt.

That is why Peak Oil debate comes always “Back to Fundamentals”. So long as questioning and finding reasonable answers to the following questions are ignored, this debate will continue, until the peak hits.
  • What is the distinction between conventional and non-conventional oil? Past, present and future? Believe me many people with nice high level jobs do not know the distinction.
  • What do/should we mean with reserves and resources? Does it make sense the definitions we have today?
  • Reserves estimates: what, where, how much, how reliable? At the end you will realize that there are no more than a handful of countries they are very good at the information they provide.
  • Resource estimates: what, where, how much, how reliable? USGS 2000 was the worst ever. Strangely, also the most popular ever.
  • How much of the world’s prospective areas explored? Global, regional and country level? Yes, you will hear that 70-80% of exploration wells drilled worldwide was in the US and Canada, and the rest of the world is unexplored. Fine, for some countries this is true. Try finding oil where it can not be found.
  • What does the history of exploration tell us? Discovery Size vs Success Rate? Past trends and future expectations? A hint, just look at the North Sea where data are publicly available.
  • Can we really find more oil? Where? What type? How much? For this you will hear answers such as technology and investment will help. Right. Money and technology find oil where it does not exist. Then all the ones who spend millions of dollars and are getting no more than a dry well must be either too stupid, have no idea what they are doing or insane.
  • Can we increase the recovery factor? How? How much? When?
  • Can we increase conventional, nonconventional, other liquids production? Where? How much? When? Just calculate how much mining and agricultural area would be needed to replace even today’s daily oil productions. Forget the future.
  • Assumptions in Peak Oil estimates: How valid are they? I mean mostly creaming curves. How valid they are? Useful tool but more suitable for areas that are mature and free market is valid?
  • What is/will be the determining factors of future investments: Energy Returned on Energy Investment vs Money Return on Investment.

Certainly there are several other points to be added into this list. But even this short list is enough to show the complexity involved.

So far, only peak oil aware people seriously consider those questions. All invisible hand believers, wishful thinkers, and dreamers do not care and will not care. Simply because they don’t want to cut the tree they are on. When the quake hits it will be too late and they will question what went wrong. A typical economist reaction. Good luck.


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