Predicting the Peak … what’s the latest on oil …

One of the top students of predictions of peak oil predictions is Robert L. Hirsch, formerlay of DOE and now at SAIC.   He gained fame for the Hirsch Report, Peaking of World Oil Production: Impacts, Mitigation and Risk Management.   Well, Hirsch has a new article in World Oil Magazine entitled Peaking of world oil production: Recent forecasts.

Before launching into a discussion of Hirsch’s comments, we should take a moment to ensure that we’re on the same wavelength when it comes to defining Peak Oil.  Here a few places for good (basic) explanations of Peak Oil: Wikipedia, Energy Bulletin, Life After the Oil Crash, Peak Oil, and the wolf at the door. From the Energy Bulletin discussion:

“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 84 million barrels/day), has grown in most years over the last century, but once we go through the halfway point of all reserves, production becomes ever more likely to decline, hence ‘peak’. Peak Oil means not ‘running out of oil’, but ‘running out of cheap oil’. For societies leveraged on ever increasing amounts of cheap oil, the consequences may be dire. Without significant successful cultural reform, economic and social decline seems inevitable.”

With that in mind, where does Robert Hirsch find the forecasts.  As he starts,

The recent range of such estimates extends from late 2005 to an apparent denial that it will ever happen. Almost all forecasts are based on differing, often dramatically differing geological assumptions.

So, we either have already passed peak and are guaranteed to face serious economic and political consequences or, as per organizations like CERA, this is all fantasy and the guiding principle should be “don’t worry, be happy”.

Change is clear.  According to the International Energy Agency (IEA), “Worldwide, the rate of [oil] reserve additions from discoveries has fallen sharply since the 1960s. In the last decade, discoveries have replaced only half the oil produced. Nowhere has the fall in oil discoveries been more dramatic than in the Middle East, where they plunged from 187 billion bbl in 1963–1972, to 16 billion bbl during the decade ending in 2002.” What is critical here is that, for a long time, the world has been burning oil faster than new reserves have been found … we are literally burning through our capital without discovering ‘new’ capital as the existing stock goes up in flames. 

And a critical problem is that the difficulty of the data reliability.  As per Hirsch,  “much of the data needed for an accurate forecast is either proprietary to companies, state secrets of major oil exporting countries, or politically/economically biased.”  What is interesting is that Hirsch follows this comment with “even large differences in estimated remaining world oil reserves would not significantly change the date of world peaking, when viewed from the perspective of mitigation.”  The timetables shift by perhaps a decade dependent on different reserve scenarios; evidently not “significant” to Hirsch, perhaps just meaningful.

A sign, however, of “peaking” comes from the number of key people talking about the end of the “easy oil era”.  Hirsch’s list: “While their definitions vary, they believe that the world oil enterprise has entered a new, more difficult, more expensive phase. Important commentators include Samuel Bodman, US Secretary of Energy, David O’Reilly, Chairman of Chevron, Jeroen van der Veer, Shell Chief Executive, Alpha Oumar Konare, African Union Commission Chair, and Viktor Khristenko, Russian Energy Minister.”  As Hirsch concludes, when these people are saying that, “It is thus reasonable to conclude that the oil business has fundamentally changed.”

Hirsch lists out the Peak Oil forecasts from 33 noted individuals and/or organizations, from oil investor T Boone Pickens to ExxonMobil/CERA/and OPEC.  Of that 33, five state that Peak Oil has arrived already and another eight predict 2011 or sooner, with seven more early in the next decade.  Thus, if one were to put absolutely equal weight to all of Hirsch’s players, 20 of 33 put Peak Oil as 2015 or sooner, e.g. less than one decade. 

If we go back to the Hirsch Report on mitigating peak oil’s impact, the conclusion was that serious mitigation needed to begin 20 years out to prevent significant economic impacts and 10+ years out to avoid significant geopolitical impacts. According to 60% of Hirsch’s citations, we’re operating within that 10 year window.

“Since some forecasters opine that peak oil may be here now, it is reasonable to ask how that might be possible, when the world is not yet aware that it now exists. The answer is that a peak is not necessarily knife-edge sharp. Experience from oil fields and large oil producing regions demonstrates that maximum oil production is sometimes characterized by a few-year-long gentle rollover.”

Out of the 33, eight place peak oil 20 years out.  The 8: Shell, UBS, the US Energy Information Agency, CERA, ExxonMobil, MC Lynch (a consultant), J. Browne (BP’s CEO), and OPEC.  And, well, reasons exist to question the lack of bias or viewpoints of these eight.   In 2000, EIA reported that — dependent on assumptions — peak oil ranged from 2016 on out.  More recently, EIA changed this to “In any event, the world production peak for conventionally reservoired crude is unlikely to be ‘right around the corner’ as so many other estimators have been predicting. Our analysis shows that it will be closer to the middle of the 21st century than to its beginning.” And, EIA continues with post-2030 peak oil. 

There are serious issues going on related to oil and oil investment.  Industry insiders are expressing the view that easy, low-cost oil is a thing of the past. yet, there is an under-investment in searching for and exploiting additional oil. “This energy future is not only unsustainable, it is doomed to failure [because of] underinvestment in basic energy infrastructure,” According to [IEA], “…In short, we are on course for an energy system that will evolve from crisis to crisis”.  As Hirsch notes, “The recent IEA and Aspen warnings about worldwide underinvestment in upstream oil development is a matter of deep concern. Indeed, it is one thing to estimate what might be available underground, but it is quite another for the needed investment and skills to be brought to bear on a timely basis to overcome existing oil field depletion, as well as to provide production growth that the world demands.”

Peak Oil is a troubling and difficult issue — which overlaps quite seriously with Global Warming issues. (As, ‘high-cost’ oil is, generally, more polluting oil as well since ‘high-cost’ generally relates back to a lower EROEI — energy return on energy invested. Plus, many ‘oil’ substitutes, such as current coal-to-liquid fuel options, are higher polluting than oil to gasoline.)   As Hirsch concludes,

“The wide range of peak oil forecasts makes peak oil policymaking particularly difficult. ….

“Peak oil presents the world with a risk management problem of tremendous complexity and enormity.

“There will be no quick fixes. Even crash programs will require more than a decade to yield substantial relief. It is our sincere hope that readers will look beyond the conflicting forecasts and focus on the consequences of underestimating the enormity of the peak oil problem. Effective mitigation means taking decisive action well before the problem is obvious.”

 As always, Robert Hirsch is worth reading … and worth paying attention to …


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