Is Peak Oil finally here... ?

Labels don't matter.

It's the lack of stability that's a problem.

Calling the chaos we see now "peak oil" is fine. History will likely look back at these years differently anyway. After all, the "age of awareness" we have just entered is unlike anything ever previously experienced.

.

 

Some related literature:

http://www.cftc.gov/stellent/groups...ments/file/itfinterimreportoncrudeoil0708.pdf

Of particular interest is figure 1, which shows oil production dropping off as world demand continues to increase.

So it is no surpise that:
* T. Boone Pickens, an oil tycoon is pushing for alternative energy
* President Bush, an oil man, recently decried our (US) national addiction to oil.
* Middle eastern sovereign investment funds are financing hybrid car manufacturers.
* Iranians are supposedly wanting to refine uranimum for power plants
* Saudi Arabia is developing solar energy technology
* Masdar City - a green (oiless) city is being built in the UAE
* Despite having added two countries to it's cartel last year (El-Salvador +1.5%, Angola +5.9%), overall OPEC oil production fell by 1.5% last year.

Based on what I saw at the gas station last night when I pulled up to refuel, there are going to be a lot of wild eyed, desperate people casting their longing eyes at our Prii if the oil starts running out.

 

Here's a challange to Peak Oil:

Peak oil: postponed ? The Register

If the article is correct in that the world has a lot more oil than is accepted as fact, demand is just rising faster than we're willing to pump it out. The article also left me thinking about how much oil has been wasted over the years...

 

I've been hearing for many years that ~2005 was the year of peak oil production. But it really doesn't matter anymore, because demand has fallen. How and why has demand fallen? Few SUVs on the roads and more small cars on the roads, plus people are driving more fuel-efficiently.

The reason that oil has fallen from $147/barrel to $90/barrel was attributed to a decrease in demand. (oil has since risen back up to $101/barrel due to the recent financial "turmoil"). If there is a decrease in demand, causing prices to fall (demand lower than supply is what causes prices to fall). If supply was also falling along with demand, then prices would not have decreased. Is oil too expensive to produce? Hardly. Oil was at $40/barrel just a few years ago. The cost to produce it hasn't tripled that quickly.

 

Not even close.

The only thing creating "peak" oil is artificial restrictions on exploration and drilling. Production could be doubled in 5 years (or less) if there was significant additional exploration in places where oil exists. OPEC (scumbags) routinely restrict oil production. Given new technologies, even with significantly expanded production, there is about 100 years of "known" oil reserves.

That said, I support moving the U.S. transportation and housing energy production off of oil due to the control of the resource by real scumbags. (not the oil companies but the foriegn government controlled production, Saudi, Iran, Venezuala..etc).

How bout this: In ten years a complete ban (phased in over ten years) of all internal combustion engines in the U.S. (Some heavy equipment would need exempted for now). ALL new technolgies would have to be manufactured in the U.S. and then when oil actually hits $200 a brl, allow massive drilling in U.S. reserves and reap untolled tax dollars from the rest of the world!

 

Peak oil has already set in. Look at Russia's production, they plateaued as well. You can add a bunch of new wells in mature fields (see the Gulf of Mexico) and still not produce that much oil.

Don't blame OPEC, our big multinationals have not ramped up exploration despite all of their massive profits in recent years. (This is one reason I've not invested in oil stocks lately, they are resting on their laurels but not really players in future production.)

And how 'bout that Iraqi production?

There was a vast overestimate of available capacity back in the 2002 timeframe and it continued as prices and demand increased. Even driving oil up to $100/bbl did little to improve production. Global recession however is having an impact on demand and prices, just as it has in previous cycles. Nothing new, that's the normal economic cycle, but it is overlaid on a vastly changed supply/demand picture for oil. Smart folks will keep their eye on the ball for when we start to pull out of recession...just like I was doing earlier this decade when I pointed out to my employer that the industry forecasts were bunk because of where we were in the economic cycle.

 

We have entered "Peak Everything" (oil, food, water, land) with 6.6 billion people and growing. Credible references include: (2007). A Crude Awakening - The Oil Crash (DVD) Zurich, Switzerland: Lava Productions; and Heinberg, R. (2007). Peak Everything. Gabriola Island BC: New Society Publishers; Lovins, A. (2007). Winning the Oil Endgame, Rocky Mountain Institute & US Dept of Defense. These sources objectively identify "Hubble's Hump", oil production estimates and mis-estimates, and international wheelings and dealings. Time is overdue to emphasize efficiency and conservation while beginning a robust program based on sustainable & renewable energy (small hydro, solar, wind, geothermal, conservation & efficiency).

 

Few SUVs on the roads? Maybe true in Southern California. Not true in Maryland. Definitely not true in Texas. Demand for oil is not just linked to the difference in consumption between SUVs and small cars. Oil is used for all kinds of things - chemicals, plastics, heating, electricity generation etc.

and a corresponding backup local supply. However, the refineries will order less oil and eventually the backup will go away. There is more than enough world demand to use the oil that the US does not.

If you take a look at the attached figure from the "Interim Report on Crude Oil (July 2008)" (see the link I posted above), Figure 1 shows that just four years ago, oil production was keeping up with world GDP (as an indicator of oil demand). The figure also shows starting in 2005, oil production began to level off, while demand continued to increase - hence the increase in oil prices we see today.

Another thing to consider is that just 80 years ago, oil pooled on the surface of the earth (cheapest to obtain). Soon, that was used up and people had to drill to get it, but not so deep - slightly more expensive. But pretty soon, those easy to get supplies were gone. People had to drill even deeper. Then they had to use exotic deep drilling techniques, water and gas injection and other technologies to extract oil (more expensive) from aging fields. They drilled from oil platforms in the ocean (even more expensive). Now, they squeeze even smaller amounts of oil from tar sands (extremely expensive, low yield). Now, all of the cheap, easy to get oil has been gotten. The price only goes up from here.

All oil fields eventually stop producing oil at a rate that makes it profitable to continue pumping. They typically last several decades, then peter out. New oil fields have to be discovered to replace aging ones. Fewer and fewer new oil field discoveries are being made.

Summary: Around the world, growing industrialized/emerging economies are bidding up the cost of oil in an environment of flat production. Flat production will eventually lead to decreased production as aging oil fields are not replaced. Ever increasing oil extraction costs are being passed on to the public in the form of higher prices. Peak Oil.

 

Apparently, you don't follow financial news. For the past several weeks, news article after news article has been blaming falling oil prices on the decrease in demand. There are two things that make market prices go up, whether we are talking about the stock market or the commodities market, and those two things are: fundamentals and speculation. Fundamentals are the real/actual data, and speculation are things like news articles that say "Hurricane [Name] may be the worst in history." The news articles have been reporting consistently that the market is moving due to a drop in demand for oil, the Oil Information Severices and AAA Auto Club have been reporting a drop in demand. Yes, you read that correctly; AAA Auto Club, who surveys gas stations nationwide, has reported a decrease in demand. In addition to the Oil Information Services, which keeps track of wholesale oil supply and demand for the oil industry, the government, and large investors. (on the "few SUVs," that was a typo. I meant to type "fewer SUVs")

That proves you know nothing about the NYME commodities market. The refineries do not buy their oil directly from the suppliers. Oil futures are traded on the NYME futures exchange, a full month in advance of delivery. OPEC currently produces 28.8 million barrels per day, and that is an agreed upon quantity that can only be changed by a meeting of the OPEC Oil Ministers. OPEC was set up specifically to control the quanitity of supply/demand to support price-points. Just like the Federal Reserve in the United States only meets quarterly to determine interest rates, OPEC meets only periodically to change production quantities. "However, the refineries will order less oil and eventually the backup will go away." Here is where the backup WILL occur: at the NYME! Investors who bought large supplies of paper futures contracts for oil delivery will find a reduction in demand for oil delivery, and so they will have to offer the paper to refineries at a lower price to offload the contracts. As a result, the NYME market price for oil will decline. (and this is exactly what has been happened over the past few weeks)

Your report is from July 2008, which neglects that July 11, 2008 was the peak; when oil was at $147 per barrel. Since then, the price has been falling. (your graph does not include the decline. Gasoline was still at $4.79/gallon when your graph stops). It hit $90/barrel just a few days ago, before correcting back to around $100/barrel.

I AGREE WITH YOU COMPLETELY ABOUT PEAK PRODUCTION. YES, ON THE SUPPLY SIDE, GLOBALLY, WE HAVE REACHED PEAK PRODUCTION. I AGREE, AND I INCLUDED THAT IN MY ORIGINAL POST. HOWEVER, OPEC has not reached peak production. They are sitting on billions of barrels that they could potentially pump right out of the ground at any time if they added the additional pumps. BUT, that is exactly why OPEC was created ... to make sure that member countries do NOT pump more than their OPEC quota, so that they can support higher prices. Aside from OPEC, world supply is decreasing. Again, I repeat, I agree with you 100% that oil is a finite resource, demand is infinite, and we already reached peak production.

 

There is no replacement source for the lighter crudes. They are gone forever as far as "peak oil" is concerned. They are in serious decline and heavier sources from OPEC are increasingly filling the gap. "Drill, drill, drill" everywhere will never bring them back as they are too far depleted.

Going heavier has a cost. And even heavier there are problems. The Saudi's and others keep much of this very close to the vest, but what has leaked out suggests there is far less remaining capacity than has been claimed. They are bringing up a lot of saltwater (pumped in previously to maintain production pressure) and that is not a good sign for the future.

Tar sands and shale are another matter. The greater CO2 cost of these materials is problematic, suggesting a death spiral with respect to global warming if we don't pull our heads out before we are stuck relying on them.

 

Rybold: I just had to scoff (in a friendly sort of way) at the statement that there were "Few SUVs on the roads" - I sit in traffic every morning surrounded by them. Everyone knows that SUVs are a dying breed, you just couldn't tell it by looking around here. There IS is an observable increase in the number of new small cars (including Prii) - mine being one of them. I do follow the financial news and I've learned that most of it is generated by journalists who are no better at figuring things out than anyone else - so I ignore quite a bit of it.

"That proves you know nothing about the NYME commodities market." - never said I did, so I won't try to prove it. Whether a backup in supply is caused by one thing or another it's still a backup in supply and it will be temporary. Oil prices fluctuate based on all sorts of things, but the long term trend is always up.

P.S. I hope you didn't take my posting (using excerpts from yours) as a personal attack on you. I was only meaning to add to the discussion. On the contrary I'm really pleased with the level of discussion that takes place on these boards and I'm happy to be among such knowledgeable people. The collective brain on this site is amazing. I learn new things here every day.

 

A decade ago, peak oil was discussed as a theory. Now it is being discussed as something that is in front or behind us. A decade from now it will be discussed as something we did too little about.

Start thinking a decade ahead.

 

No offense taken. I actually had to read my comment over three times before posting to make sure I wasn't sounding "mean." I apologize. I was a little upset at the comment that the decrease in prices was not due to decreased demand, and the whole thing about refineries just ordering less oil. (I'm actually quite surprised how little most people on here know about what makes gas prices go up and down from day to day, and from week to week. I'd think people this interested in hybrids, EVs, and the environment would be watching the price of oil more closely).
Being completely honest, there has been a noticeable decrease in SUVs in SoCal (although there are still thousands here), and there has been a noticeable increase in small cars (there are millions of small cars here). Also, I see about ten Prius every day, and I see about one or two Smart Cars each week. I see about 1-4 Camry Hybrids, Altima, Ford, HCH, and other non-Prius Hybrids every day. It's a shame that those educated people in Maryland are still driving SUVs. (I visited D.C. and Mt. Vernon a few years ago - so that's what I think of when I hear "Maryland." Alexandria, VA. Nice place). The local journalists that write in the newspaper and many on telvision do not know what they are talking about; I agree completely with you! However, the news that is posted on finance.yahoo.com is generally very reliable and that is what most traders read. (you just have to make sure they aren't putting a "panic" twist on the news. They know what they're talking about, but they don't always think about the impact that their article will have on the markets) There is the old adage "Buy on the rumor, sell on the news." Key word: "Rumor." Journalists can write ludicrious things, but if they post it in the right media (that the traders read), it can have a SIGNIFICANT impact ... until rationality sets back in and corrects the market. (true fact: I've been trading stocks since my junior year of high school. I used to ask to go to the rest room, and I'd use the pay phone (remember those things?) to make stock trades. LOL!) I majored in biochemistry and I work as a researcher in a pharmaceutical company. I still trade on the side, but no where near as much as I used to. I used to be day trader, and today I just manage slow growth for my future retirement some day. I don't know everything ... but I do know quite a bit.

Bob Lutz said the Volt will get you laid.
(I agree with you that healthy discussion is a very good thing - and that we are all very knowledgeable in different ways, as most here are educated in a specialized area. I learn new things here all the time. It's nice to have fellow scientists and engineers here that actually understand the math and statistics that some of us post! )

 

Not even close. Oil production could not be doubled from current levels even if you allowed drilling EVERYWHERE. Almost all of the remaining oil fields are lower output fields. Most fields are requiring water or CO2 injection and need to be pumped out instead of just naturally flowing due to pressure.

There may be some truth to the 100 year mark. Many of these fields deliver oil so slowly that they may last a while. That is not 100 years at current levels but 100 years ago there will probably be some oil. There are large reserves but they are not quick flowing reserves.

 

Check this out. $500.00 oil?

Recent drop in crude is an illusion - oil is going to $500. - Sep. 22, 2008

 

Rybold, your post makes a lot of sense. One thing for sure, the oil market is not a free market. As noted a large portion of the supply is controled by a "monopoly" or "cartel" - OPEC. Just as Debeers (sp?) controls the price of diamonds (to a large extent) by controlling supply. OPEC does the same (to a large extent).

The cost of getting oil from the ground is going up, but not nearly as much as the wholesale price of crude would indicate.

In short, I do not believe that the earth's supply of oil is (the main influence) affecting the price of gas at the pump. No way. IMHO.

 

OPEC probably would like to increase output and lower prices, but they just don't have the ability. If they could they would because alternatives (EVs) are close to being competitive and they don't want that. I've read that their fields are already at/near maximum output capacity.

 

No, I really do not believe this.

I think they look at things this way.

1. They want to make as much money as they can. (not that there is anything wrong with that)
2. They dont want to appear like they have any real control over the oil marketplace. They will decrease capacity if the prices get too low, or they will increase capacity a token amount if prices get too high. Other than that they just sit back and keep production level, and make their money.

They are not afraid of EV's. EV's will not be a threat for many many years. Even if EV's take hold in the US, there is plenty of market for oil in the rest of the world.