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DOE sidles up to peak oil

from Lewis L. Smith

Traditionally, the US Department of Energy has denied the existence [or at least the imminence] of a peak in world production of crude oil. In this regard, it has faithfully followed the traditional oil-industry line, frequently referring to such an event by the pejorative phrase, “the theory of peak oil”.

Suddenly, however, DOE seems to be sidling up to the possibility that this alleged “theory” might actually become a reality. In a recent, largely ignored, semipublic meeting, the US Department of Energy presented, as one of its scenarios of the future, the most pessimistic scenario in the agency’s history,  apparently without assigning it any probability . 

DOE warned that due to inadequate investment in exploration and development, production might reach an all-time high between 2011 and 2015. This would be followed by an “undulating plateau” of unspecified length and then by an irreversible decline.

Although DOE appears to regard this scenario as having a chance of less than 50%, it is noteworthy that that the possible starting date is one of the earliest in the peak oil community, whose fearless forecasts nearly all fall in the range 2010-2032, well within the planning horizon of most electric utilities.

[Personally we abstain from precise predictions requiring the use of oil statistics. For us a range of 2020-2030 is good enough. While not as bad as those in the wine industry, oil statistics are full of errors, omissions and bald-faced lies !]

For those of us who have followed the peak-oil controversy over the years, the fact that DOE would even admit to the possibility of such a scenario represents an astounding change of attitude.

For the details, see  >>

http://petrole.blog.lemonde.fr/2010/03/25/washington-considers-a-decline-of-world-oil-production-as-of-2011/

[Courtesy of Oil Depletion Analysis Centre, London.]

However, note that the link contains two errors  >>

[1]     “Peak oil” in the 21st Century is NOT a theory. It is a highly probable forecast.

The King of Saudi Arabia has spoken. Saudi Aramco has spoken. The UKERC has spoken et cetera.  The debate is over. The pessimists won. The only uncertainty is as to WHEN this event is going to occur.

[2]     An “undulating plateau” scenario is NOT incompatible with any of the peak-oil forecasts, contrary to what DOE and Le Monde may believe.  In fact, such a scenario is entirely compatible. Moreover, none of these forecasts depend in any way on the shape of the decline curve.

On this latter issue, there is no consensus but probably a majority of those who do take a stand believe that the curve will be steep rather than shallow, which could bring on a worldwide depression and possibly, regional wars over energy sources, according to the proponents of a steep decline curve.

Although the 2011-2015 scenario does not appear to be DOE’s favorite, the fact that the agency is even willing to consider such an early peak, should be a wake-up call for energy planners, legislators and public officials everywhere. As someone told a Babylonian emperor long ago, “The writing is on the wall”.

As a result, we must accelerate our efforts to install energy conservation measures and replace petrofuels by renewable sources of energy, above and beyond what is already planned.

###

  1. negconvexity
    July 4, 2010 at 8:23 pm

    Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
    – China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
    – Transition takes 30 years
    – No peak in global production

    In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
    – Oil demand elasticity of -0.3
    – Current production 84 million BOPD, current price US$ 80
    – Peak production 100 million BOPD
    – Post peak decline rate of 3-4%

    If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

    • Lewis L. Smith
      July 7, 2010 at 12:39 am

      from Lewis L. Smith

      The question of what oil prices will be during some period or at some date in the future is surely a very important one, but one which I deliberately did not address [except tangentially] in the blog contribution, “DOE sidles up …”. My reasons are —

      [1] Following each of the three occasions on which I dared to forecast a crude-oil price or a bounds thereto, I ended up with “egg on my face” within six months !

      [2] The links between oil prices and oil production are nonlinear.

      [3] These links are asymmetrical. The impact of an increase during one period is not the same [with the sign change] as the impact of a decrease of identical absolute magnitude during another period of identical length.

      [4] These links are complicated, with multiple scenarios possible.

      For example — As we approach the peak, oil prices are liable to increase well in anticipation. However, if prices rise enough to induce a worldwide depression, then prices are certain to decline at some point, On the other hand, they could peak and then drop down a bit, to an expensive but tolerable plateau lasting a decade or more. A lot depends on the rates at which things change, and how people respond to both the rates of change and to the price levels which result. And so on.

      [5] Based on experience since WW II, causation can flow either way.

      On one hand, economic growth can stimulate increases in oil prices. Anticipation of future growth can do this too. Surely exaggerated visions of Chinese and Indian economic growth were major contributors to the great price run up which ended with WTI at $147 per barrel in 2008.

      So “negconvexty’s” point about the importance of developing country demand, especially China’s, is very well taken.

      On the other hand, rapid and severe increases in oil prices can be major contributors to subsequent recessions. Which way the causation flows at any one time will depend on the circumstances.

      [5] The oil industry is unusual among industries in the degree to which it has to worry about “wild cards”, in addition to the usual cycles, competitive factors, technological ambushes and trends.

      One of these wild cards is the complex Chinese domestic situation. If for some reason, the anger which many Chinese feel towards local and regional authorities [80,000 disturbances in 2009] gets redirected against the central government, the regime will be in big trouble and all bets on Chinese growth should be cancelled.

      A postscript —

      We ought to stop thinking about oil and gas separately and about each in terms of their gross production. We ought to think about “net energy available for export”, calculated in the following manner —

      [a] The gross crude-oil equivalent extracted from active reservoirs of oil and natural gas, including refinery-type liquids extracted from natural gas, LESS the sum of —

      [b] The equivalent in crude or natural gas of the energy used to maintain pressure in aging reservoirs by injection of water, natural gas et cetera and for the subsequent cleanup of the crude and the gas extracted, PLUS

      [c] The equivalent of the energy used to fracture shale rock and then clean up the product extracted, PLUS

      [d] The equivalent of the energy used to process tar sands, PLUS

      [e] The natural gas used for injection into aging crude reservoirs, PLUS

      [f] The producing country’s own consumption of crude oil and natural gas, PLUS

      [g] The crude oil and natural gas required to generate electricity for export to neighboring countries.

      [h] The equivalent used to power tankers and LNG carriers.

      Surely this exercise would make us a little less optimistic about the among of oil and gas which might be available in the future. It might even take BP’s chief economist down a peg or two, the man who said recently, “OIl will never peak”.

      Cordially.

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