Listening to the 'market experts' on your evening news, you could be forgiven for thinking that oil production is governed purely by economic theories. It is going to be a painful lesson, but even the economists will soon learn that the production of oil is in fact governed by very sound geological principles and the laws of physics.
The oil we have built our societies on was actually created one hundred million years ago. More of it is not now going to suddenly appear 10,000 feet underground just because economists say the price is too high. Let me try to clarify the situation.
The simplest observation to begin with is that you must discover oil before you can produce it. Figure 1 shows the worldwide trend of oil discovery and production. This chart reveals several important facts:
- There were enormous early discoveries (in the Middle East) in the late 1930's and late 1940's
- Worldwide oil discovery peaked in 1964 and has been falling ever since
- Every year since 1984, we have discovered less oil than we have produced
- We currently find one barrel of oil for every four that we use
Figure 1: Past Discovery and Production Worldwide (ExxonMobil)
We are not yet 'running out' of oil - there is still a lot in the ground. But, we are reaching the point where the production rate will 'peak' and begin to decline. For a world built on an assumption of continuing growth in energy and the economy, this is challenging news.
Incredibly, despite oil's fundamental importance, figures on oil reserves are very poor. Figure 2 lists the officially reported reserves figures for OPEC members - the 'Organization of the Petroleum Exporting Countries'. In 1985, Kuwait reported an improbable reserves increase from 63.9 to 90.0 billion barrels. Since OPEC production quotas were based on reported reserves, this had the effect of increasing their quota at a time when oil prices and revenue was low.
Figure 2: OPEC Reported Reserves from 1980-1999 (in Billion Barrels)
In 1988, other OPEC members followed suit as they could not continue to see their own quotas reduced by Kuwait's new figures. Venezuela increased their stated reserves from 25.0 to 56.3 and Dubai from 1.4 to 4.0 billion barrels. Abu Dhabi increased from 31.0 to 92.2 so Iran topped them with a new figure of 92.9. Saddam Hussein didn't mess around and went for a clean 100.0 billion barrels of stated oil reserves.
Saudi Arabia, with the largest reserves resisted making the same response, but eventually could not bear the impact on their quota and in 1990 increased their reserves estimate from 170.0 to 257.5 billion barrels. Despite a decade of high production reducing reserves since then, Kuwait continued to report exactly the same reserves figure of 94.0 through the 1990's. Other OPEC members have similarly unlikely reporting trends.
All of this could be quite amusing, were it not the for the fact that these are still the assumed oil reserves figures for the OPEC countries. The true nature of OPEC oil reserves is probably closer to 380 billion barrels, before this erroneous reporting began, rather than the 726 billion barrels reported in 1999. In "Twilight in the Desert", Matthew Simmons presents strong evidence that even Saudi Arabia is already at 'peak' and will not be able to make up for declining production from other regions or meet increasing worldwide demand.
This is at odds with 'official' forecasts of oil supplies continuing to increase until beyond 2020.
Figure 3: US Geological Survey - statistical discovery potential
The U.S. Geological Society is a US Federal Authority which published the "US Geological Survey World Petroleum Assessment" in June 2000. In what will become a famous mis-use of analytical statistical techniques, this report used Monte-Carlo simulations to predict possible future discovery curves, as shown in Figure 3.
With 95% confidence, the USGS predicted discovery potential shown by the yellow curve. They then made wildly optimistic predictions which they gave a 5% chance of being correct, shown by the blue line. Using Monte-Carlo simulations, they derived the green line which they described as the 'mean' or likely discovery potential between these two extremes. The red line shows, as in Figure 1, that discovery has in fact been decreasing steadily since the 1960s, an undeniable trend governed by geological facts. It is fanciful to suggest that we can overcome this geological reality and discover anything more than predicted by the yellow curve - and data to 2005 confirms this reality (see Figure 1).
However, both the US Energy Information Administration (EIA) and the International Energy Agency (IEA) in Paris use the USGS 'mean' (and even the widly optimistic 5% curve) as the basis for their forecast of future production, as in Figure 4. They also take for granted the official OPEC reserves, which are more likely only half the stated figures. These are not just mistaken assumptions but outright lies - by the principal agencies whose reports are used everywhere to form government and corporate policy.
Figure 4: International Energy Agency Future Production Forecast
"The projections presented by USGS, EIA and IEA regarding the future availability of oil give reason to grave concerns because the comforting messages of these studies unfortunately are not based on valid arguments. These studies ignore future limitations in the supply of oil which are meanwhile apparent, and by doing this they send misleading political signals." [W. Zittel, J. Schindler, L-B-Systemtechn].
Figure 5: Production as Forecast by the Association for the Study of Peak Oil
The Association for the Study of Peak Oil (ASPO) is a network of scientists, affiliated with European institutions and universities, having an interest in determining the date and impact of the peak and decline of the world's production of oil and gas, due to resource constraints. With substantial oil industry experience, they have prepared their own robust forecast of future oil and other hydrocarbon liquid production.
In stark contrast to the prevailing assumption of ever increasing supplies, ASPO and many other independent assessments show that we are very close to peak production in 2005. By 2010 decline will be self-evident, especially for conventional oil.
Some Frequently Asked Questions about 'Peak Oil'
Our 'market experts' routinely peddle a few simple myths to deny the imminent reality of peak oil. Technology and 'unconventional oil' are a reality in the industry today and will become more important. But they will not be able to make-up for the decline in production of the 'easy oil' which we have squandered.
"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground." [Kenneth S. Deffeyes, Princeton University Geologist]
"Most of the world's oil was found long ago with technology no more advanced than the hammer and hand lens. Some 60% lies in about 300 easily found giant fields. But over the last 20 years, we have seen amazing technological advances in the exploration arena." [Jack Zagar]
Geochemistry to identify the oil potential around the world. Seismic technology to define the size and shape of reservoirs. Drilling technology for longer, deeper, more accurate and multi-lateral wells. The industry has and continues to use advanced technology, but the trend is inescapable. We can only find smaller fields that are more difficult to produce. New technology often helps to increase production rates and drain oil fields faster, but rarely does it significantly increase the ultimate amount of oil that can be recovered.
The final argument from the optimists is that people have always been predicting the end of oil and they have always been wrong.
In the 1980's, resource companies often only had stated reserves equivalent to ten years or so of production. Ignoring new discoveries, which at that time still matched production, some people reached the simple but incorrect conclusion that oil would run out in that time frame. Now, though, we are discovering a lot less than we use each and every year. Technically competent analysis does not describe oil 'running out', but shows that production must soon peak and begin an inevitable decline.
In 1956, geophysicist M. King Hubbert working for Shell predicted oil production in the continental United States would peak in the early 1970s. He was proven right, but even in 1970 the industry scorned his prediction. They gloated that production levels continued to set records, only to see the predicted decline commence in the following years.
Following the same methodology, Hubbert predicted a world 'peak' in oil production for around the year 2000. This will be only a few years early, not because we have discovered more oil than he predicted, but through the oil shocks of the 1980's we used a little less in the meantime, slightly delaying the peak. Made half a century ago, Hubbert's prediction is still sound because he understood the principles of geology which underly discovery and production of oil.
In "The End of Cheap Oil" [Scientific American, March 1998], with more than 40 years of oil industry experience, Colin J Campbell and Jean H Laherre predicted that world oil production would peak in this first decade of the 21st century. As in the United States in 1970, the economists scorn these predictions, but science is not on their side.
Download this 'Introduction to Peak Oil' article as a PDF file.
Read more or stick your head back in the sand along with everybody else.
Energy Bulletin: The best news website for 'Peak Oil'.
Depletion Scotland: Proceedings of a Peak Oil Conference in Edinburgh that I attended.
Some Answers: My own thoughts on the right and wrong responses to our energy challenge.
Try a search on 'Peak Oil' or just 'Oil Production'.