Here's a basic overview of the issue from the Oil Depletion Analysis Centre (ODAC).
M. King Hubbert
Born in the Texas oil patch and educated at the University of Chicago, Hubbert observed that the production histories of most oilfields follow a similar pattern. Output climbs slowly after discovery, rises steeply once the reservoir is mapped, slows during the peak-production years, and then declines steeply once the easy-to-get oil is gone. When plotted on a graph, this looks like a bell curve.
Hubbert poured his own most productive years into directing research for Shell Oil, where he knew that the discovery of new U.S. oilfields had peaked in the 1930s. Hubbert factored this data into his bell-curve model, and predicted in 1956 that production of crude oil in the contiguous 48 states would peak sometime between 1966 and 1972. The oil industry dismissed his prediction and discredited his work.
U.S. crude oil production peaked in 1970, and has fallen steeply ever since.
Hubbert became a legend, and his prediction became known as "Hubbert's Peak." In the past decade – as the rate of discovery of worldwide oil reserves has slowed to a trickle – a flood of Hubbert followers have tackled the obvious question: When will global production peak?
Peak Oil
When the last oil well runs dry
Just as certain as death and taxes is the knowledge that we shall one day be forced to learn to live without oil.
Exactly when that day will dawn nobody knows, but people in middle age today can probably expect to be here for it.
It has come apparent that we are headed off the plateau going down the arc of decline on the global production curve. What this means is that from now on, every barrel of oil will be harder to get to, more expensive and energy intensive to extract, and more costly to refine.
Oil in the ground isn't like gas in the tank of your car. With a car, you can drive it until you get to the last drops. With oil, you have a certain quantity that you can extract economically (known in the industry as 'proven reserves'), and then after that the well will no longer be viable for extraction since it will become what's known as an 'energy sink' and require more fuel to pump out the oil than you actually get.
There is light oil, and then there is heavy oil. The light surface crude is what we have been running off of this entire time. The heavy crude settles to the bottom of the well, is hard to feasibly recover if at all possible, and is harder and more costly to process and refine. The vast majority of all heavy crude is deemed 'unrecoverable' because its an energy sink.
Right now we are headed to the downslope of the bell curve of oil production and will begin riding the arc of decline. Oil production levels will drop, therefore there will be less energy available to do work, and therefore everything will shrink along with it.
I am sure most if not all of you are familiar with the fundamental dynamics of supply and demand. Demand for oil has done nothing but gone up since it's inception, with the notable exception of the oil shock of the 70's where OPEC nations refused to sell the U.S. oil in protest of our involvement in the Yom Kippur war. During the oil shock, demand went down for the first time in history and fuel prices skyrocketed exponentially. Back then we had other swing oil producers such as Venesuela to help fill in some of the gap and supply us with a percentage of our oil requirements. After production decline, there will be no such producers.
China's appetite for Canadian oil derives from its own insatiable domestic energy demand, which sent their oil imports soaring 40 percent in 2004. Yeah,
40% increase in demand in 1 year. That's an insane level of growth. In a world with oil on decline, the last thing we need is that kind of consumption. China is now the #2 consumer of oil in the world, second only to the US. India is trying to expand it's economy and is demaning more oil as well.
So as you can see, we clearly have a dillema on our hands. Increasing demand with decreasing supply. But that is only the beginning.
Signs
For this section I will cite relevant info from the topic
Canary in a Coalmine
In the practice of mining, there is a story about miners placing a canary in the mineshaft to test the safety of its atmosphere. If the bird lives, the air is breathable and you're probably going to be okay. If the bird dies, get out quick. In today's world, the airline industry is akin to that figurative canary in the mineshaft. I think the peak oil crisis, as it pertains to the economy, will start here. I believe it has already begun.
Airline's bankruptcy filing cites higher fuel costs
Jet fuel prices, which are about 16 percent of airline costs, experienced a 52% surge in the last 12 months. Many companies use financial trading strategies that hedge their fuel expenses and, where possible, slap fuel surcharges on customers' bills. Hedging effectively enables them to lock in prearranged prices for fuel, so that they are not hurt if prices jump above those levels. Some distressed airlines, needing the money for other expenses, have less than half of their fuel requirements hedged, leaving them more vulnerable to the high market prices. Delta has no hedges in place, and in the second quarter its fuel costs soared 54% from a year earlier.
The International Air Transport Association estimates a $1 per barrel rise in jet-fuel prices costs the airline industry $1 billion per year. Several of the large, conventional carriers such as United Airlines and Delta, already were in dire financial straits before this year. United, the nation's second-largest airline, has been operating under court-supervised bankruptcy protection since 2002. United sought a $1.6 billion loan guarantee from the government, and was turned down. Arlington-based US Airways, which already received a $1 billion loan guarantee, says it is trying to avoid a return to bankruptcy. Delta has said bankruptcy is an option unless it can eliminate its losses.
Executive Travel Associates
"Unless fuel prices abate, or the revenue environment improves, we will have to furlough employees and seek wage and benefit concessions," Bethune warns. "We may also have to reduce our pension funding."
The U.S. airlines have pleaded for President Bush to stop diverting oil from the market to the Strategic Petroleum Reserve at a time of record jet-fuel prices. Any investor will tell you that you buy low, sell high. Unfortunately, the government is doing just the opposite by accelerating the rate at which it's filling the SPR at a time when oil prices are abnormally high. Well, we know why they are doing that, the price is low compared to what it will be.
Opec urges Bush to release oil from reserve
When the largest petoleum exporting countries in the entire world are telling you to fall back on your emergency supplies, that's a major red flag.
Soaring Fuel Costs Undermining Airlines
Even as big airlines are beginning to successfully rein in labor costs -- $1 billion in annual concessions from Delta's pilots being the latest example -- soaring fuel expenses are essentially negating their effects, leaving many of the carriers in perilous financial shape.
"It's like they're all treading water, but they've got 100 pound weights around their necks," said airline consultant Robert W. Mann of Port Washington, N.Y. "You can only do it for so long."
'Fiscal timebomb' for US airlines
For U.S. airlines to break even, oil prices must remain below $31 a barrel.
Canadian natural gas reserves continue to fall despite record drilling activity
Canada was responsible for 15% of our natural gas, which is half of their production. Well they recently peaked and cut us off.
Evidence
Opec agrees to cut oil production
That was the first production cut
Saudis reduce oil production
And here was the second one at a time of high prices and an high in demand. They're just cutting into profits now. Anything over $35 a barrel is bankroll.
International Energy Agency accepts Peak Oil
In the Summary, the IEA states: "Production of conventional oil will not peak before 2030 if the necessary investments are made". But we find in Chapter 3 that a peak on this date is premised on the USGS Mean estimate of 2626 Gb (billion barrels) for remaining conventional oil (IEA include NGL, Natural Gas Liquid, in conventional oil), adding that if this estimate should prove too high, the peak of production would come by 2015 or before . It is very important to note that the IEA now accepts the notion that there is a peak in oil production, even if there is uncertainty as to the date. The range is from 2015 to 2033, coming even sooner if all the assumptions are not fulfilled. It follows that Governments are now on notice that they must make energy plans for the future that accept peak oil as a reality. That will be a departure from past practice.
Well, I hate to say, the investments
aren't being made, and with Ghawar, Saudi Arabia's dominany oil field and the biggest in the world, hitting declining production with seawater cut rates of 50% and growing, we're not going to have until 2030. It's going to hit much sooner than that. Look for Peak Oil to begin knocking at the door by the end of 2005/06 when Ghawar dies off and Saudi Arabia peaks as an oil province. They'll have to then accellerate production on all the rest of their wells, wells that are well past their prime and are already over the 50 year life expectancy and due to peak soon, to make up for some of the lost slack.
US Dept of Energy office supports Peak Oil theory
An office of the US Department of Energy addresses - and supports - Peak Oil research in this unusually frank document entitled Strategic Significance of America’s Oil Shale Resource. Produced by the DoE's Office of Naval Petroleum and Oil Shale Reserves, it disregards the overly optimistic oil production projections of the DoE's own Energy Information Administration. It references instead the research of Colin Campbell, Jean Laherrère, Kenneth Deffeyes, Matthew Simmons and other so called 'pessimists' in one of the first serious official documents supporting the thesis of an imminent oil peak.
BP Executive Says World Oil Output To Peak 2010 - 2020. Lord Browne Tries To Calm Fears As Saudi Insider Issues Warning
A senior executive at BP PLC (BP) thinks world oil production will peak in the next decade, earlier than most other forecasts, the Business reported Sunday. BP exploration consultant Francis Harper estimated the amount of total usable oil reserves in the world are 2.4 trillion barrels, and production would peak between 2010 and 2020, the report said. Harper said production would drop off outside the Organization of Petroleum Exporting Countries first, concentrating power in the producer group. That forecast would mean demand outstripping supply much earlier than other forecasts by ExxonMobil Corp. (XOM) or Royal Dutch/Shell Group (RD SC), the report said.
Trouble in the World's Largest Oil Field-Ghawar
^From Geologist Glenn Morton.
It turns out that they have been flooding the wells on Saudi Arabia. For some time now, it would appear.
Today the world produces 82.5 million barrels per day which means that Ghawar produces 5.5 percent of the world's daily production. Should it decline, there would be major problems. As Ghawar goes, so goes Saudi Arabia.
The field was brought on line in 1951.
I have noted elsewhere that the data I am being told by engineers who have actually worked on Ghawar, that this decade will see it's peak. (Morton, 2004 PSCF in press). Others have noted how the percentage of water brought up with the oil has been growing on Ghawar. There are published reports that Ghawar has from 30-55% water cut. This means that about half the fluids brought up the well are water. Today the decline rate is 8%.
Cumulative production from the field is 55 billion barrels. In 1975 Exxon, Mobil, Chevron and Texaco estimated that the ultimate recovery from the field would be 60 billion barrels.
What is the future of Ghawar and Saudi production? It is not good.
"All production comes from 'very old fields', with no major exploration success since the 1960s, and almost every field has high and rising water cut.
"Saudi Aramco is injecting a staggering 7 million barrels of sea water per day back into Ghawar, the world's largest oilfield, in order to prop up pressure. It accounts for 30% of Saudi oil reserves and up to 70% of daily output."
"Doubts grow about Saudi As Global Swing Producer,"
Remember these facts:
- Ghawar supplies 5.5% of worlds daily oil production.
- Ghawar supplies up to 70% of Saudi daily oil production.
- The average life of an oil well is 50 years. Ghawar started producing in 1951. Look at the numbers.
- Ghawar is declining production at 8% per year and that number is increasing every year. Ghawar production numbers could drop off a cliff any month now due to water injection.
- In 1975, estimated ultimate recovery from the field would be 60 billion barrels. Cumulative production from the field so far is 55 billion barrels.
Oil & Gas
Saudi's "king" of oil fields, Ghawar, is the world's largest oil field. Wildcat discoveries there from 1948 to 1952 proved reserves estimated at 170 billion barrels of oil in place and 60 billion barrels recoverable. Those numbers remained unchanged in Aramco's 1975 reserve estimates. Ghawar has accounted for 55 percent to 60 percent of all Saudi oil produced. If these numbers are correct, Ghawar's oil is 90 percent gone.
Simmons points out that 20 percent of the world's oil supply comes from 14 fields that are an average of 60 years old. New giant oil field discoveries, he says, ended in the late 1960s to early 1970s.
An oil well's average lifespan is 50 years. Most of Saudi Arabia's largest producing oil fields could collapse at any time.
It is becoming increasingly apparent that Ghawar has peaked. It peaked 2 decades ago, it started declining, and they started to inject water to delay the decline and maintain production, increasing the overall recovery rate from about 60% to now, which is so far 88%.
The fact is, the Ghawar reserve estimate is 60 billion barrels, so far they've produced around 55 billion. Either some massive shock is coming very soon, or the reserve estimate was wrong, and it's actually larger than stated. I think the latter can be ruled out by virtue of the fact that most the oil is turning to cut -- the 7 million barrels of seawater per day they've been flooding the wells with to raise the oil.
Ghawar is in terminal decline and nearing death.
When Ghawar goes offline, that's it. It's officially happened then. Saudi Arabia will have peaked as an oil province, and therefore categorically the world itself will have peaked.
Assuming that the ultimate recovery figure for Ghawar is 60 billion barrels, then it should fail in late 2006/early 2007 if oil continues to be extracted at 1.8 billion barrels a year. Unless another Ghawar or several North Sea-sized oil fields are up and running, the global economy will be slammed into a recession.
When that happens, I predict Peak Oil and its implications will be seared into the mainstream public consciousness, the same way satelite photos showing the Antartic ozone hole highlighted the threat of ozone depletion. The effect of Ghawar's demise will be immediate and significant. No amount of spin can cover up a sudden 70% drop in Saudi production.
When Ghawar shuts down, the other wells will be extracted from much faster in an effort to pick up some of the slack since the big daddy king of Saudi Arabia went belly-up. That is going to accelerate depletion on these already mature wells, and the individual wells will be headed toward their peak capacities even faster, assuming they aren't already there, and then terminally decline.
When these other wells start terminally declining, then Saudi Arabia will cease to become a swing oil producer altogether. If you've been following along, it's necessary for me to illustrate the ramifications of that happening.
Where's the Crude?
"So where is the remaining oil?" you may ask.
65 percent of the remaining oil is in the Persian Gulf. Whoever controls that region militarily controls the vast majority of the planets dwindling supplies, and in turn controls the world and the global economy. With the coming oil crisis, politicians will have to have some way of obtaining more of it to defend their countries from stagflation.
There's obviously a tremendous vested interest in controlling those reserves, a-la Carter doctrine (The oil in the Middle East is of strategic importance to the U.S. and we will use our military to defend our access to it).
Alternatives
Alternatives to Oil: Fuels of the Future or Cruel Hoaxes?
The more and more you research this issue, the more you see that there is no combination of alternative fules or energies that are going to allow us to run things the way we are running them now and go about our merry way.
Worst Case Scenario
I'm pretty skeptical of the resources we're going to have to convert our energy systems, even if we do find some renewable source that's as cheap, easy, and efficient as fossil fuels. Here we were in this tremendously affluent and oil-rich period, and we didn't invest in the future. It's a little late for that now. We've gone far too long even addressing the issue. This is clearly on the third rail of politics - noone wants to touch it. The political will to confront energy depletion is nonexistent. There is a tremendous opposition at the political level to the idea of conveying the need to change lifestyles.
In America, we grew up with the idea that the American way of life was non-negotiable. Consuming resources at a frenzied pace has become a perfectly normal thing, and it's become pretty much accepted that this sort of lifestyle arrangement is what we should expect for our children and our children's children. People don't think about energy, it's just something they take for granted and pay a bill for monthly. But when you start to look at the details and analyze the scientific geologic data and figures like the energy advisor to the President: Matthew Simmons and the rest of the geologists and scientists have been doing, the reality of the situation is made manifest. This is not a sustainable form of living and it can't last much longer.
The day of plentiful cheap energy was a very prosperous era, and it had a good 7 decade run, but the big money days are gradually going to draw to a close unless we have some unprecedented scientific breakthrough like the advent of sustained cold fusion, which still hasn't made much progress into becoming a reality.
We don't practice things like crop rotation anymore due to petrochemical fertilizers and pesticides.
The Green Revolution, which brought along all of that and exploded the quantity of food we could grow, is responsible for the world population numbers as they are today.
Without petrochemicals, the progress of the Green Revolution is reversed and we go back to old production capacity at best.
So what happens to billions of people when food production can't sustain the population? Geologist Glenn Morton responded with the following:
Energy is important to our survival. We should pay attention to the example of St. Matthews Island in the Bering Sea. This island had no reindeer until 29 were introduced in 1944. There they found an excellent energy source--4 inches of lichen covering all the rocks. It was a reindeer's dream. They could eat really easily and lots. They grew fat and sassy in that otherwise barren place. By 1957 the 29 had grown to 1350 and by 1963 to 6000. Then the lichens were eaten. Over that winter, the 6000 reindeer starved and by spring there were only 41 females and one malfunctioning male. While he was probably the happiest reindeer in reindeerdom, he left no offspring. The reason I mention this island is that one can correlate at an above .9 level the human population and energy consumption! What happens when oil production goes down?
In other words, A massive die-off. One which is usually prefaced by turbulent political instability, rioting, looting, and impromptu survival behavior.
If this issue doesn't get confronted, The suburbs are going to become the graveyards of the 21'st century. Everything that comes into the suburbs is produced somewhere else and transported to them, all thanks to cheap oil. The Suburbs have little to no prospects as self-sustaining environments. Especially cul-de-sac subdivisions.
What Can We Do?
Alternative energy sources are going to be small lifeboats at best. We're going to have to downscale everything we do in this country. Economies are going to have to take place on the local level. Energy grids are going to have to be compartmentalized so that if there's an energy crisis, it's a problem for your village and not the problem for your entire country.
Food production and distribution will have to take place locally. Food production will become a lot more labor intensive and people are going to be more involved in the production of what the consume. People will have to band together for survival.
These kinds of changes are going to have to be made, whether we like SUV's or not. People are going to have to take initiative and prepare for tough times. That's the only way the human race is going to survive.
