Energy & Peak Oil
Brett W. Parris

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Introduction

'Peak oil' doesn't mean running out of oil. It refers to a peak in the rate of global oil production - which everyone agrees is inevitable at some point. The main areas of disagreement concern how soon this will happen, with estimates ranging from now to around 2040, and what will happen after the peak. Some believe we'll see a protracted, undulating plateau, followed by a gentle decline, others believe that the peak will be followed by a quite sharp decline in oil production, leading to all manner of calamities.

In my view there are a number of factors that should be borne in mind in evaluating this issue:

    1. The fact that there may be people who seem to gravitate all too willingly to apocalyptic scenarios, does not mean the issue should not be taken seriously.

    2. A great deal depends on the definitions of oil 'reserves' used (see Bentley et al.'s paper below) and the quality of reserves data. Both are problematic. 'Proven' reserves (also called 1P or P90 reserves) are reserves meeting a very strict reporting definition of the US Securities & Exchange Commission - basically reserves which are known with greater than 90% probability and are ready to be pumped out of the ground. 'Proven and probable' reserves (also called 2P or P50 reserves) are the assessments oil companies themselves tend to use based on their assessments of what a field is likely to yield. Much of the supposed growth in reserves is due to the upgrading of 2P reserves to 1P. But there has been nowhere near as much growth in 2P reserves.

    3. Reserves data are poor. It's often not clear whether 1P or 2P is being referred to. Many countries hold their true reserve situations as closely-guarded state secrets. Some reserve inflation looks very suspiciously political, such as the dramatic increases in many OPEC countries' reserves in the mid-1980s when production quotas came to be allocated on the basis of reserves.

    4. According to the International Energy Agency's (IEA), World Energy Outlook 2007 (p. 42, 94-95) around US$22 trillion (that's 22 with 12 zeros folks!) of new investment (in 2006 US dollars) is needed to meet rapidly growing energy demand by 2030, including US$9.6 trillion in the oil and gas sectors. In November 2007, the IEA even declared: "A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out."

    5. Many economists have a pollyanna-ish view that somehow the magic of the market will solve everything. But we have a global shortage of oil rigs and skilled personnel and the rate of new oil discoveries has been declining since the 1960s [Source]. Yes, rising oil prices make some formerly unprofitable fields economic - but we're finding fewer and fewer large, super-giant fields, and the fixed costs of developing multiple small fields are much higher than developing a few super-giant fields.

    6. Canadian tar sands aren't going to come to the rescue. It's not just the amount of oil that's important, but how quickly it can be pumped. There are definite upper limits on the rate at which tar sands can be mined and processed into synthetic crude - due to the fact that the process takes huge volumes of water and natural gas. The extraction and conversion process is also horrendous for greenhouse gas emissions.

As someone who trained originally as a petroleum geologist, with a PhD in economics, my view is that this issue deserves to be taken far more seriously than it currently is.

World Vision Australia's Submission to the Garnaut Climate Change Review - This submission has a sizable section on energy and the future of oil supplies.

Books
Papers & Chapters
Quotes
Links

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Books & Reports

Anonymous, (2008) "Solar Fact Finding Mission to Germany for Utility Decision Makers: Summary Report", Solar Electric Power Association, Northwest Solar Center & World Future Council, June 9-13, 15 pp.

Commonwealth of Australia, (2007) "Australia's Future Oil Supply and Alternative Transport Fuels: Final Report", Senate Standing Committee on Rural and Regional Affairs and Transport, Canberra, February, xxii + 196 pp.

Deffeyes, K.S., (2003) Hubbert's Peak: The Impending World Oil Shortage, Revised Edition; Princeton University Press, Princeton, NJ & Oxford, xi + 208 pp.

Deffeyes, K.S., (2005) Beyond Oil, Updated Edition; Hill & Wang, New York, xvii + 202 pp.

Diesendorf, M., (2007) Greenhouse Solutions with Sustainable Energy, University of New South Wales Press, Sydney, xvi + 413 pp.

Ebel, R.E., (2005) China's Energy Future: The Middle Kingdom Seeks its Place in the Sun, Center for Strategic and International Studies, Washington DC, viii + 96 pp.

InterAcademy Council, (2007) Lighting the Way: Toward a Sustainable Energy Future, IAC Secretariat, Amsterdam, xxxi + 174 pp.

Ghazvinian, J., (2007) Untapped: The Scramble for Africa's Oil, Harcourt, Orlando, FL, xv + 320 pp.

Heinberg, R., (2005) The Party's Over: Oil, War and the Fate of Industrial Societies, 2nd Edition; New Society Publishers, Gabriola Island, BC, xi + 306 pp.

Klare, M.T., (2001) Resource Wars: The New Landscape of Global Conflict, Henry Holt, New York, xiii + 289 pp.

McNamara, A., (2007) "Queensland's Vulnerability to Rising Oil Prices: Taskforce Report", Brisbane, Queensland Oil Vulnerability Taskforce, Queensland Government, April, 158 pp.

Pfeiffer, D.A., (2006) Eating Fossil Fuels: Oil, Food and the Coming Crisis in Agriculture, New Society Publishers, Gabriola Island, BC, xvi + 125 pp.

Ren21, (2008) "Renewables 2007: Global Status Report", REN21 Secretariat, Paris and Worldwatch Institute, Washington DC, 55 pp.

Roberts, P., (2004) The End of Oil: The Decline of the Petroleum Economy and the Rise of a New Energy Order, Bloomsbury, London, 399 pp.

Simmons, M.R., (2005) Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, John Wiley & Sons, Hoboken, NJ, xxxv + 428 pp.

Smil, V., (1994) Energy in World History, Westview Press, Boulder, CO, xviii + 300 pp.

Strahan, D., (2007) The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man, John Murray, London, xi + 292 pp.

Tertzakian, P., (2007) A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World, McGraw Hill, New York, xvi + 272 pp.

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Papers & Chapters

Augustine, C., Broxson, B. and Peterson, S., (2006) "Understanding Natural Gas Markets", Lexecon for the American Petroleum Institute, 27 pp.

NEW  Aleklett, K., Höök, M., Jakobsson, K., Lardelli, M., Snowden, S. and Söderbergh, B., (2009) "The Peak of the Oil Age - Analyzing the World Oil Production Reference Scenario in World Energy Outlook 2008", Energy Policy, Vol. 38, No. 3, March, pp. 1398-1414.

Bentley, R.W., Mannan, S.A. and Wheeler, S.J., (2007) "Assessing the Date of the Global Oil Peak: The Need to Use 2P Reserves", Energy Policy, Vol. 35, No. 12, December, pp. 6364-6382.

Campbell, C.J. and Laherrère, J.H., (1998) "The End of Cheap Oil", Scientific American, Vol. 278, No. 3, March, pp. 78-83.

Energy Watch Group, (2007) "Crude Oil: The Supply Outlook", EWG-Series No. 3/2007, Ottobrunn, Germany, Ludwig-Bölkow-Stiftung for the Energy Watch Group, October, 101 pp.

Flavin, C. and Aeck, M.H., (2005) "Energy for Development: The Potential Role of Renewable Energy in Meeting the Millennium Development Goals", Paris & Washington DC, Renewable Energy Policy Network for the 21st Century (Ren21) Secretariat & Worldwatch Institute, 46 pp.

Fletcher, S., (2008) "CERA: Action Needed Now on Demand, Supply Fronts to Avoid Crisis, Hess Says", Oil & Gas Journal, Vol. 106, No. 8, 25 February, pp. 27-29.

Fournier, D.F. and Westervelt, E.T., (2005) "Energy Trends and Their Implications for U.S. Army Installations", ERDC/CERL TR-05-21, U.S. Army Corps of Engineers, Engineer Research and Development Center, September, xix + 65 pp.

GAO, (2007) "Crude Oil: Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production", GAO-07-283, Washington DC, United States Government Accountability Office, February, iii + 76 pp.

Grant, K., Ownby, D. and Peterson, S.R., (2006) "Understanding Today's Crude Oil and Product Markets", Lexecon for the American Petroleum Institute, May, 26 pp.

Graus, W.H.J., Voogt, M. and Worrell, E., (2007) "International Comparison of Energy Efficiency of Fossil Power Generation", Energy Policy, Vol. 35, No. 7, July, pp. 3936-3951.

Gupta, E., (2008) "Oil Vulnerability Index of Oil-Importing Countries", Energy Policy, Vol. 36, No. 3, March, pp. 1195-1211.

Haines, A., Smith, K.R., Anderson, D., Epstein, P.R., McMichael, A.J., Roberts, I., Wilkinson, P., Woodcock, J. and Woods, J., (2007) "Policies for Accelerating Access to Clean Energy, Improving Health, Advancing Development, and Mitigating Climate Change", The Lancet, Vol. 370, No. 9594, 6 October, pp. 1264-1281.

Hirsch, R.L., (2008) "Mitigation of Maximum World Oil Production: Shortage Scenarios", Energy Policy, Vol. 36, No. 2, February, pp. 881-889.

Hirsch, R.L., Bezdek, R. and Wendling, R., (2005) "Peaking of World Oil Production: Impacts, Mitigation & Risk Management", Office of Systems, Analyses and Planning at the National Energy Technology Laboratory of the U.S. Department of Energy, February, 91 pp.

Hoyos, C. and Blas, J., (2008) "Fears Emerge Over Russia's Oil Output", The Financial Times, London, 14 April.

Kerr, R.A., (2005) "Bumpy Road Ahead for World's Oil", Science, Vol. 310, No. 5751, 18 November, pp. 1106-1108.

Kerr, R.A., (2007) "Even Oil Optimists Expect Energy Demand to Outstrip Supply", Science, Vol. 317, No. 5837, 27 July, pp. 437.

Kerr, R.A., (2007) "The Looming Oil Crisis Could Arrive Uncomfortably Soon", Science, Vol. 316, No. 5823, 20 April, pp. 351.

Klett, T.R., Gautier, D.L. and Ahlbrandt, T.S., (2005) "An Evaluation of the U.S. Geological Survey World Petroleum Assessment 2000", AAPG Bulletin, Vol. 89, No. 8, 1 August, pp. 1033-1042.

Lesser, J.A. and Su, X., (2008) "Design of an Economically Efficient Feed-in Tariff Structure for Renewable Energy Development", Energy Policy, Vol. 36, No. 3, March, pp. 981-990.

Meng, Q.Y. and Bentley, R.W., (2008) "Global Oil Peaking: Responding to the Case for 'Abundant Supplies of Oil'", Energy, Vol. 33, No. 8, August, pp. 1179-1184.

Modi, V., McDade, S., Lallement, D. and Saghir, J., (2005) "Energy Services for the Millennium Development Goals", New York, Energy Sector Management Assistance Programme, United Nations Development Programme, UN Millennium Project & World Bank, x + 100 pp.

Mortished, C., (2008) "Shell Chief Fears Oil Shortage in Seven Years", The Times, London, 25 January.

Mufson, S., (2007) "Oil Price Rise Causes Global Shift in Wealth", The Washington Post, Washington DC, 10 November, p. A01.

Nel, W.P. and Cooper, C.J., (2008) "A Critical Review of IEA's Oil Demand Forecast for China", Energy Policy, Vol. 36, No. 3, March, pp. 1096-1106.

Porcaro, J. and Takada, M. (Eds.), (2005) Achieving the Millennium Development Goals: The Role of Energy Services - Case Studies from Brazil, Mali and the Philippines, United Nations Development Programme / BDP Energy and Environment Group, New York, 78 pp.

Riedy, C. and Diesendorf, M., (2003) "Financial Subsidies to the Australian Fossil Fuel Industry", Energy Policy, Vol. 31, No. 2, January, pp. 125-137.

Saddler, H., Diesendorf, M. and Denniss, R., (2004) "A Clean Energy Future for Australia", A Study by Energy Strategies for the Clean Energy Future Group, April, 164 pp.

Saddler, H., Diesendorf, M. and Denniss, R., (2007) "Clean Energy Scenarios for Australia", Energy Policy, Vol. 35, No. 2, February, pp. 1245-1256.

UNDP, (2005) "Energizing the Millennium Development Goals: A Guide to Energy's Role in Reducing Poverty", New York, United Nations Development Programme Bureau for Development Policy - Energy and Environment Group, August, 21 pp.

UN-Energy, (2005) "The Energy Challenge for Achieving the Millennium Development Goals", New York, UN-Energy, July, 16 pp.

Wilkinson, P., Smith, K.R., Joffe, M. and Haines, A., (2007) "A Global Perspective on Energy: Health Effects and Injustices", The Lancet, Vol. 370, No. 9591, 15 September, pp. 965-978.

Wolf, M., (2007) "Welcome to a World of Runaway Energy Demand", The Financial Times, London, 13 November.

Wolf, M., (2007) "The Dangers of Living in a Zero-Sum World Economy", The Financial Times, London, 19 December.

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Quotes

High oil prices are fueling one of the biggest transfers of wealth in history
"High oil prices are fueling one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago, pumping more than $2 trillion into the coffers of oil companies and oil-producing nations this year alone."
Mufson, S., (2007) "Oil Price Rise Causes Global Shift in Wealth", The Washington Post, Washington DC, 10 November, p. A01.

Around US$22 trillion of new investment (in 2006 US dollars) is needed to meet rapidly growing energy demand by 2030, including US$9.6 trillion in the oil and gas sectors.
"The Reference Scenario projections in this Outlook call for cumulative investment in energy-supply infrastructure of around $22 trillion (in year-2006 dollars) for the period 2006-2030. … Investment in the oil sector, mostly for upstream developments and mainly to replace capacity that will become obsolete over the projection period, amounts to $5.4 trillion, equal to one-quarter of total energy investment. Investment totals $4.2 trillion in the gas sector … China alone needs to invest about $3.7 trillion – 17% of the world total … India’s investment needs are more than $1.2 trillion, most of it – as in developing countries generally – in the power sector. The Middle East will require about $1.9 trillion, of which about 60% is for upstream oil and gas projects."
Source: IEA, (2007) World Energy Outlook 2007: China and India Insights, International Energy Agency, Paris, pp. 94-95.

How feasible is it?
From 2005-2030: "The volume of oil required will be 35% greater than what was produced in the previous 25 years; that's more oil than consumed throughout human history up to 2005. And the easiest oil to extract has by now been produced."
Source: Kerr, R.A., (2007) "Even Oil Optimists Expect Energy Demand to Outstrip Supply", Science, Vol. 317, No. 5837, 27 July, pp. 437.

Hirsch Report, for the US Department of Energy, 2005
"The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary." Source, p. 64.
 
US Government Accountability Office, 2005
"The prospect of a peak in oil production presents problems of global proportion whose consequences will depend critically on our preparedness." Source, p. 38.

Fournier & Westerfelt, US Army Corps of Engineers, 2005
"The doubling of oil prices from 2003-2005 is not an anomaly, but a picture of the future. Oil production is approaching its peak; low growth in availability can be expected for the next 5 to 10 years. As worldwide petroleum production peaks, geopolitics and market economics will cause even more significant price increases and security risks." Source, p. vii.

International Energy Agency, 2006
"The world is facing twin energy-related threats: that of not having adequate and secure supplies of energy at affordable prices and that of environmental harm caused by consuming too much of it.  … Non-OPEC production of conventional crude oil and natural gas liquids is set to peak within a decade."
Source: IEA, (2006) World Energy Outlook 2006, International Energy Agency, Paris, p. 1.

International Energy Agency, 2007
"Rising global energy demand poses a real and growing threat to the world's energy security."
Source: IEA, (2007) World Energy Outlook 2007: China and India Insights, International Energy Agency, Paris, p. 48.

International Energy Agency, 2007
"Although new oil-production capacity additions from greenfield projects are expected to increase over the next five years, it is very uncertain whether they will be sufficient to compensate for the decline in output at existing fields and keep pace with the projected increase in demand. A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices cannot be ruled out."
Source: IEA, (2007) World Energy Outlook 2007: China and India Insights, International Energy Agency, Paris, p. 43.

Fatih Birol, IEA Chief Economist in Time, 5 November 2007
"I am sorry to say this, but we are headed toward really bad days … Lots of targets have been set but very little has been done."
Source: Walt, V., (2007) "Oil Prices: It Gets Worse", Time, 7 November.

Australian Senate Inquiry Report, February 2007
"The essence of the peak oil problem is risk management. Australian governments need better information from which to decide a prudent response to the risk. … In the committee's view the possibility of a peak in conventional oil production before 2030 should be a matter of concern." Source, p. 54-55.

Queensland Government Oil Vulnerability Taskforce Report, April 2007
"The Taskforce concludes that the overwhelming evidence is that world oil production will peak within the next 10 years." Source, p. 4.

Christophe de Margerie, Head of Exploration for French oil company Total, April 2006
"Numbers like 120 million barrels per day will never be reached, never."
Source: Mortished, C., (2006) "World 'Cannot Meet Oil Demand'", The Times, London, 8 April.

Jeroen van der Veer, CEO of Shell, January 2008
"Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
Source: Mortished, C., (2008) "Shell Chief Fears Oil Shortage in Seven Years", The Times, London, 25 January.
            For the email sent by Jeroen van der Veer to all Shell staff, see here.

Rick Wagoner, CEO of General Motors, January 2008
"There is no doubt demand for oil is outpacing supply at a rapid pace, and has been for some time now. As a business necessity and an obligation to society we need to develop alternate sources of propulsion."
Source: Dowling, J., (2008) "Time's Up for Petrol Cars, Says GM Chief", Sydney Morning Herald, Sydney, 15 January.

Africa aid wiped out by rising cost of oil
"The rising cost of oil has wiped out the benefits many African countries were expecting from western aid and debt relief over the past three years, new research from the International Energy Agency has shown. Surveying 13 non-oil-producing African countries, including South Africa, Ghana, Tanzania, Ethiopia and Senegal, the IEA found that the increase in the cost of oil bought by the countries since 2004 was equivalent to 3 per cent of combined GDP. This was more than the sum of debt relief and aid received over the past three years by the countries, which have a combined population of 270m, of whom 104m live on less than $1 a day."
Source: Crooks, E. and Wallace, W., (2007) "Africa Aid Wiped Out by Rising Cost of Oil", The Financial Times, London.

UNDP on the importance of energy for meeting the Millennium Development Goals
"None of the MDGs can be met without major improvement in the quality and quantity of energy services in developing countries."
Source: UNDP

John B. Hess, Chairman and CEO of the oil company Hess Corporation at the Cambridge Energy Research Associates’ conference in Houston in February 2008
"Given the long lead times of at leat 5-10 years from discovery to production, an oil crisis is coming and sooner than most people think. Unfortunately, we are behaving in ways that suggest we do not know there is a serious problem."
Fletcher, S., (2008) "CERA: Action Needed Now on Demand, Supply Fronts to Avoid Crisis, Hess Says", Oil & Gas Journal, Vol. 106, No. 8, 25 February, pp. 27-29.

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Links

ASPO - The Association for the Study of Peak Oil & Gas. The ASPO-Ireland newsletter produced by Colin Campbell is very useful.

ASPO Australia

Dry Dipstick - 'A peak oil metadirectory'

Energy Bulletin

EnergyFiles

EIA - The Energy Information Administration of the US Department of Energy produces official statistics on energy from the US Government.
The EIA's Monthly Energy Review is very useful.

IEA - The International Energy Agency. See particularly its annual World Energy Outlook and its monthly Oil Markets Report.

Matthew R. Simmons - Speeches & papers

Oil Depletion Analysis Centre

Oil Drum - "Discussions about energy and our future"

Oil Drum Australia & New Zealand

Peak-Oil Debunked - An interesting and often informative blog, somewhat misnamed. The author does not deny that oil production will peak, possibly soon, but believes it won't be as catastrophic as many 'doomers' make out.

Peak Oil News & Message Boards - A useful site, always kept up to date with links to recent news.

Plug-in America - Electric cars in the US

Plug-in Australia - Electric cars in Australia

Policy Innovation Systems for Clean Energy Security (PISCES)

Ren21 - Renewable Energy Policy Network for the 21st Century.

Tradable Energy Quotas (TEQs)

World Allicance for Decentralized Energy

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