Peak oil is the simplest label for the problem of energy resource depletion, or more specifically, the peak in global oil production. Oil is a finite, non-renewable resource, one that has powered phenomenal economic and population growth over the last century and a half.
The rate of oil “production”, meaning extraction and refining (currently about 85 million barrels/day), has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production becomes ever more likely to stop growing and begin a terminal decline, hence “peak”.
The peak in oil production does not signify “running out of oil”, but it does mean the end of cheap oil, as we switch from a buyers’ to a sellers’ market. For economies leveraged on ever increasing quantities of cheap oil, the consequences may be dire. Without significant successful cultural reform, severe economic and social consequences seem inevitable.
Why does oil peak? Why doesn’t it suddenly run out?
Oil companies have, naturally enough, extracted the easier-to-reach, cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and “sweet” (meaning low sulfur content) and therefore easy to refine.
The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of lesser quality. It therefore takes ever more money and energy to extract, refine and transport. Under these conditions, the rate of production inevitably drops.
Furthermore, all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless, no matter what the price of oil.
M. King Hubbert – the first to predict an oil peak
The Hubbert Curve is used to predict the rate of production from an oil producing region containing many individual wells. Source: aspoitalia.net
In the 1950s the well known U.S. geologist M. King Hubbert was working for Shell Oil. He noted that oil discoveries graphed over time tended to follow a bell shape curve. He supposed that the rate of oil production would follow a similar curve, now known as the Hubbert Curve (see figure above).
In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Despite efforts from his employer to pressure him into not making his projections public, the notoriously stubborn Hubbert did so anyway. In any case, most people inside and outside the industry quickly dismissed the prediction.
As it happens, the US lower 48 oil production did peak in 1970/1. In that year, by definition, US oil producers had never produced as much oil, and Hubbert’s prediction was a fading memory. The peak was only acknowledged with the benefit of several years of hindsight.
No oil producing region fits the bell shaped curve exactly because production is dependent on various geological, economic and political factors, but the Hubbert Curve remains a powerful predictive tool.
In retrospect, the U.S. oil peak might be seen as the most significant geopolitical event of the mid to late 20th Century, creating the conditions for the energy crises of the 1970s, leading to far greater U.S. strategic emphasis on controlling foreign sources of oil, and spelling the beginning of the end of the status of the U.S. as the world’s major creditor nation.
The U.S. of course, was able to import oil from elsewhere. Mounting debt has allowed life to continue in the U.S. with only minimal interruption so far. When global oil production peaks, the implications will be felt far more widely, and with much more force.
What does peak oil mean for our societies?
Our industrial societies and our financial systems were built on the assumption of continual growth – growth based on ever more readily available cheap fossil fuels. Oil in particular is the most convenient and multi-purposed of these fossil fuels.
Oil currently accounts for about 41% of the world’s total fossil fuel consumption [PDF], 33% of all global fuel consumption, and 95% of global energy used for transportation [PDF]. Oil and gas are feedstocks for plastics, paints, pharmaceuticals, fertilizers, electronic components, tyres and much more.
Oil is so important that the peak will have vast implications across the realms of war and geopolitics, medicine, culture, transport and trade, economic stability and food production. Significantly, for every one joule of food consumed in the United States, around 10 joules of fossil fuel energy have been used to produce it.
The “Hirsch Report”
A U.S. Dept. of Energy commissioned study; “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” [PDF] was released in early 2005. Prepared by Science Applications International Corporation (SAIC), it is known commonly as the Hirsch Report after its primary author Robert L. Hirsch.
For many months the report, although available on the website of a Californian High School, remained unacknowledged by the DOE. The executive summary of the report warns that:
“…as peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”
A later paper by Hirsch recommends the world urgently begin spending $1 trillion per year in crash programs for at least a decade, preferably two, before peaking. Obviously, nothing like the kind of efforts envisaged have yet begun. Hirsch was not asked to speculate on when the peak was likely to occur.
So when will oil peak globally?
Later in life, M. King Hubbert predicted a global oil peak between 1995 and 2000. He may have been close to the mark, except that the geopolitically induced oil shocks of the 1970s slowed the growth of our use of oil.
As represented in the following figure, global oil discovery peaked in the late 1960s. Since the mid-1980s, oil companies have been finding less oil than we have been consuming.
Source: www.aspo-ireland.org
Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970, Indonesia in 1997, Australia in 2000, the UK in 1999, Norway in 2001, and Mexico in 2004.
Hubbert’s methods, as well as other methodologies, have been used to make various projections about the global oil peak, with results ranging from “already peaked” to the much more optimistic “peak” in 2035.
Many of the official sources of data used to model peak oil such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be frighteningly unreliable.
In November 2009, the International Energy Agency’s World Economic Outlook report stated that oil and gas liquids were not expected to peak until 2030, at significantly higher levels than today, however this was met by rebukes from internal whistleblowers who argued that the figures are more political than scientific.
In response to the questionable reliability of IEA reports, several notable scientists have attempted independent studies, most famously, Colin Campbell and associates with the Association for the Study of Peak Oil and Gas (ASPO).
Source: www.aspo-ireland.org
Already peaked?
ASPO’s latest model suggests that regular conventional oil reached an all time peak in 2005. If heavy oil, deep-water, polar and natural gas liquids are considered (the “all-liquids” category), the model suggests that this peak too is behind us, in 2008. Combined oil and gas is expected to have peaked globally simultaneously in 2008.
Other notable researchers such as Princeton University Professor Emeritus Kenneth Deffeyes, senior advisor to the Iranian National Oil Company A. M. Samsam Bakhtiari, UK Petroleum Review editor Chris Skrebowski, energy banker and former advisor to US President G.W. Bush Matthew Simmons and various researchers published at The Oil Drum have all projected similar peaks within the 2005-2011 range, using much varied methodology. A 2007 survey suggests that their perspective has become the consensus among informed observers and industry insiders [PDF].
Other sources supporting the view that global crude oil has already peaked globally include a study by the German Government-sponsored Energy Watch Group, oil billionaire T. Boone Pickens, the former head of exploration and production at Saudi Aramco, Sadad al-Huseini, and the Wikipedia hosted Oil Megaprojects database. As of January 2010, the peak of all-liquids production was July 2008.
What about Australia?
Source: ABARE
Australia’s oil production peaked in 2000. Since then it has been all downhill, to the point that condensates now produce more liquid petroleum than our oil fields. As the following graph shows, Australia’s petroleum import dependency is now up to 80% (crude oil and petroleum products) and rising.
Decline rates
Whether or not we’ve passed the peak, a more significant question may be: What will be the future rate of decline of oil production? Some form of co-ordinated adaptation might be possible if the annual drop in available oil was no more severe than 1-2% a year. Whereas 10% or more would soon implode the global economy. Most models project decline rates of 2-4%.
Exports
Nations dependent on imports are likely to find that their access to oil will fall at a far sharper rate than the global decline rate. During shortages, higher oil prices stimulate the economy of exporting nations which increases their internal consumption. Combined with a national peak in oil production, exports from any particular nation can drop to zero disturbingly quickly.
Natural gas peak
The effects of natural gas peak are relatively localized. This is due to the enormous economic and energetic expense of liquefying and transporting natural gas as a compressed liquid. Both European and North American natural gas production have likely already peaked, so these regions are facing the extra severity of a dual energy crisis.
Financial collapse and oil peak
After several years of rapid growth, the global crude price began falling in lockstep with financial markets in 2008, a fact which may have both contributed to – and masked – a concurrent global oil production peak. The oil industry has been running on a treadmill since 2005, with production staying essentially flat. Capital for oil infrastructure investments, which might have seen new production continue to offset declines for a few more years yet, has withered.
Conversely, the financial collapse itself was triggered in part by the approach of peak oil: higher commuting costs due to soaring oil prices set off the “exurb” house price collapse in the US and put stress on mortgage repayments, leading to the subsequent collapse of the mortgage backed securities bubble and further financial unraveling.
But this was merely a trigger event. In the long run, peak oil poses far more fundamental challenges to our dominant economic systems which are predicated on perpetual growth.
But it’s just oil and gas – there are other fossil fuels, other energy sources, aren’t there?
To evaluate other energy sources, it helps to understand the concepts of Net Energy, or the Energy Returned On Energy Invested ratio (EROEI). One of the reasons our economies have grown so abundant so quickly over the last few generations is precisely because oil has had an unprecedentedly high EROEI ratio.
In the early days of oil, for every barrel of oil used for exploration and drilling, up to 100 barrels of oil were found. More recently, as oil recovery becomes more difficult, the ratio has become significantly lower.
Certain alternative energy “sources” may actually have EROEI ratios of less than one, such as many methods of industrially producing biodiesel and ethanol, or extracting oil from shale. That is, when all factors are considered, you probably need to invest more energy into the process than you get back.
Hydrogen, touted by many as a seamless solution, is actually an energy carrier, and not an energy source. Hydrogen must be produced using an energy source such as natural gas or nuclear power. Because of energy losses in transformation, the hydrogen will always contain less energy than was invested in it.
Some alternatives such as wind, solar thermal and hydro-power may have much better EROEI, however their potential expansion may be limited by various physical factors. Even in combination it may not be possible to gather from renewable sources of energy anything like the rate and quality of energy that industrial society is accustomed to.
Peak oil author Richard Heinberg uses the metaphor that whereas fossil fuels are akin to a massive inheritance, one spent rather drunkenly, renewables are much more like a hard won energy wage.
For certain tasks, such as air travel, no other energy source can readily be substituted for oil in large quantities. As noted by the Hirsch reports, alternative energy infrastructures require long periods of investment, on the scale of decades, to be widely implemented. We may be already leaving the period of cheap energy before we have begun seriously embarking on this task.
NB: It’s worth noting briefly that any EROEI study is complex and different methods of accounting can come up with vastly different results, so any net energy study might be viewed with some suspicion. We may not know with total certainty the usefulness of any renewable energy technologies until the hidden fossil fuel energy subsidies are finally removed.
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This Primer has been adapted from the primer at Energy Bulletin, written by former EB editor Adam Grubb. This primer was released under a Creative Commons Attribution License, allowing for adaption of the work. My compliments to Adam for his hard work.
