The peak oil issue is essentially a race between resource depletion and the continuing development of technology, according to industry and academic experts at the third annual conference by the Association for the Study of Peak Oil (ASPO) in Houston Oct. 17-20.
Peak oil production when world supplies of crude can’t meet global demand is “real and imminent [and] will occur sooner than most people expect,” said Chris Skrebowski, editor of Petroleum Review. He cited falling discovery rates, fewer large discoveries, rapid depletion, companies’ struggles to maintain production levels, and too few countries with real growth potential for output.
Skrebowski said these factors are combined with nongeological threats to supply flows, including “resource nationalism” in Russia, Venezuela, Bolivia, and Ecuador; tighter terms and conditions for production-sharing agreements; civil insurrection; cost inflation; ageing equipment and facilities; lack of skilled workers; and refinery constraints.
He said net depletion of 4%, or 3.3 million b/d, is now double annual demand growth. Depletion is accelerating at a rate of 0.1-0.15%/year, so “to avoid economic disaster, we need to shed lots of oil demand,” said Skrebowski.
Compounding the issue even more, the rules of economics are not working, Skrebowski said. Governments of most oil-producing states outside the Organization for Economic Cooperation and Development subsidize fuel prices for their citizens while some governments of OECD countries tax fuels heavily. As a result, pump prices around the globe range from 20¢/gal to $9/gal.
Other conference speakers agreed that the economics are malfunctioning.
Matthew Simmons, chairman of Simmons & Co. International, Houston, said, “There is no sign that high prices have had any impacts on demand.”
Robert L. Hirsch, senior energy advisor of Management Information Services Inc. (MISI) and coauthor of a peak oil report to the US Department of Energy, said, “The problem is [the price] shocks, where [changes] occur rapidly. Markets cannot react that fast.”
Skrebowski said crude supplies may be mitigated by limited discoveries, infill and other small production projects, trimming the depletion rate, limited spare capacity among the Organization of Petroleum Exporting Countries, and the relatively small number of megaprojects.
In response to audience questions, Skrebowski was skeptical whether megaprojects in Saudi Arabia will help since it essentially would be reworking old fields.
He estimates oil production will peak in 2011-12 at 93 million b/d.
Reserves growth
Jeremy Gilbert, managing director of Barrelmore Ltd., said there are huge disparities in forecasts of future reserves. ASPO forecasts 130 billion bbl and the US Geological Survey forecasts as much as 724 billion bbl.
Gilbert contends, however, that yet-to-find oil reserves won’t influence medium-term supply, even if found in 10-15 years with an average 6-7 years from discovery to production. In addition, he said, there is no agreement on how much reserves growth is to be achieved. “Reserves don’t always grow,” Gilbert said. Some are sustained and some are depleted. Thus, he said, most forecasts for reserves growth are overestimated.
He estimates potential reserves growth of 180 billion bbl, which he warns will “not all come at once” and “will not affect the peak.” He said reserves growth occurs in existing fields, and typically recovery by new technology is taken into account in the initial reserves estimate.
Gilbert said most growth occurs because operators were overcautious in their initial estimates of reserves, especially in the US where the US Securities and Exchange Commission’s reserves reporting rules are followed. He said SEC rules for reserves growth are used by the major integrated companies but not by OPEC members. Therefore, it is used for about 23% or less of world production, he said, adding that the resources that don’t fall under SEC rules will not follow US reserves growth patterns.
Gilbert said reserves growth “will help fill the gap” but cautioned that “the pace [of reserves growth] in the past [is] not a guide to pace in the future.”
If oil peaks in 10-15 years, he said, “It’s probably already too late for smooth transition to add alternative energy.” He said problems for consumers will begin before peak is reached.
Recovery, reserves growth
Recovery growth will be a major source of future additions but is not a panacea that eliminates peak oil, said Richard Nehring, president of Nehring Associates.
He said recovery growth increases resources, but it will occur slowly and will have only modest effect on peak oil since “the modest-to-high resource levels will only be reached within 10-15 years.”
Nehring’s assumption is predicated on his estimate of ultimate world oil production of 3.39-5 trillion bbl or 2.275-2.785 trillion bbl. This includes cumulative production, proved reserves, recovery growth, future discoveries, and unconventionals. The difference with the two estimates represents what Nehring refers to as the delayed peakist view and that of the imminent peakist.
Nehring, who contends “we are all peakists,” classifies peak oil advocates into two groups: the imminent, who see the oil peak occurring around 2005-15 and the delayed, who see the oil peak occuring around 2020-40, with a plateau of 15-30 years.
Nehring emphasized that although the dates between the delayed and imminent views may seem like a small difference, “it represents the difference between catastrophe and a difficult but manageable transition.”
Variations in the estimate of ultimate world production put the occurrence of peak oil around 2007-16.
Different views of remaining world oil reserves is the essential difference between imminent peakists and delayed peakists, said Nehring.
He said, “Recovery growth is central to the delayed peakist, and it is immaterial to the imminent peakist.”
Technology vs. depletion
Simmons questioned whether the world can cope with even a 4.5%/year depletion decline, as estimated by Cambridge Energy Research Associates. He said CERA’s estimate requires adding 60 million b/d of production in 10 years.
He also noted that Gulf of Mexico fields are declining with just 5 years from peak to plateau.
George Baker, research director of energia.com, a publishing and consulting firm in Houston, suggested that if the Mexican upstream scenario remains the same, then that country is already in a state of peak oil. Mexico’s peak oil occurred in 2004 when Cantarell oil field peaked, he said. Giant Cantarell is now in decline, and Ku-Maloob-Zaap and Chicontepec fields are suspect, he said.
He said Mexico “needs 80 oil companies instead of one oil company with 80 contractors.” He said changes in Mexico’s upstream rules could delay peak oil for decades in that country.
Baker asserts that Mexico’s plan to drill more than 10,000 development wells through 2016 is unlikely, since about that many wells were drilled in the past 30 years.
Simmons said demand will outpace supply unless demand slows or begins to decline or crude oil production soars. He asked, “Can crude rise 2.5-4 million b/d?” He suggested that even if wellhead output can grow, infrastructure soon will shrink due to the immediate need to rebuild oil and gas facilities.
He also questioned the likelihood of planned Saudi Arabia projects to come on line, and noted that recent big discoveries, specifically Chevron Corp.’s Jack field in the Gulf of Mexico, cannot find rigs to complete further tests.
Gilbert said, “New technology will continue to add to recovery but will achieve less.”
Transportation
Oil demand is not likely to slow or decline. One reason is its fundamental growth engine (transportation), which is unstoppable, said Simmons.
With a global population of 6.5 billion and a vehicle production rate of 50 million vehicles/year, it is hard to stop transportation growth, he said.
Skrebowski pointed out that 76.5-83% of the oil barrel is used for transportation. He said jet fuel and ship bunkers are difficult to substitute, but even then surface transport fuel still accounts for 50% of the barrel.
Hirsh contends that the situation is “a liquid fuels problem, not an energy problem.” He said, “Windmills are not going to run our cars.”
Roger Bezdez, president of MISI, says jet fuel costs have tripled in the past 4 years. Aviation fuel costs are forecast to grow to nearly half of US domestic oil production in 2030, he said.
Hirsh posed a question to the conference attendees: At what price would you stop using your vehicle? His implication is that attendees would attempt to perpetuate their way of life for as long as possible.
Change takes time
Peter Tertzakian, chief energy economist of ARC Financial Corp. and author of “A Thousand Barrels a Second,” said, “Changes in the world of energy do not happen rapidly.” He noted that it took 25 years for electricity to be widely used.
Justin Ward, engineer with Toyota’s Advanced Technology Vehicles Department, said it took 27 years for gas-powered vehicles to become mainstream in global markets. And it has taken 9 years for the Prius, Toyota’s hybrid car, to get to 100 million sold.
In order to elicit change in consumer behavior, Tertzakian said “There must be a compelling alternative at a cheaper price.”
Complicating the peak oil issue is the fact that hydrocarbons are compelling and cheap. “Only when alternatives are as compelling will consumers be compelled to buy,” he said.
In addition, he proposed that the peak oil challenge is not a technological engineering issue, but a social engineering issue, involving traffic congestion, urban sprawl, and “vehicle obesity,” e.g., the Hummer H6.
“We are going to the ends of the earth to find energy,” Tertzakian said, referencing the Sakalin Island project and Russia’s move of putting its flag on the North Pole, as well as operators’ compulsion to invest $20 billion/year in the Canadian oil sands to capture bitumen—“natures unbaked oil.” He concluded that the solution “will not come from energy but from changes in our lifestyle.”
Policy response
John Kaufman from the US Department of Energy, suggested various responses to mitigate the peak oil challenge, including reducing oil and gas use by 50% in 25 years.
John Darnel, from the office of Congressman Roscoe Bartlett (R-Md.), said, “We can’t produce ourselves out of this mess,” referring to the peak oil crisis. He added, “Alternatives are not going to be there in the amount or timeframe that is needed.”
He sees conservation as the fastest response to the oil peak crisis, claiming that the “cheapest, quickest source of energy is energy we have and don’t use.”
Darnel also said there is a need to challenge the global community towards international cooperation.
Roger Duncan, deputy general manager for Austin Energy in Austin, Tex., the nation’s 10th largest community-owned electric utility, said, “Elected officials need to understand that [manmade] law does not supersede laws of physics.” He said society needs to prioritize clean energy instead of trying to do everything at once, and understand that the solution is different depending on the situation.
He said the first line of defense should be efficiency and renewables.
Texas Railroad Commission Chairman Elizabeth Ames Jones said the economy needs to “stair-step up the use of renewables as well as stair-step down use of petroleum.”