Peak Oil: Why is it so difficult to explain/understand?

After several years of partial success in explaining the physics-based phenomenon sometimes known as “Peak Oil”, this author has come to one conclusion: Peak Oil is difficult to explain, and it is difficult for most people to understand.

Now, some folks make the conscious choice to avoid considering a concept like Peak Oil because it might imply future hardship or a change in lifestyle, and they’d rather dwell on “positive” matters. Others would consider the acceptance of Peak Oil to be defeatist – ie, a surrender of man’s great ingenuity and/or his ability control his own destiny. Make no mistake about it, this author has a high regard for the power of positive thinking, for man’s ingenuity and for his ability to help influence his destiny.

For others, the difficulty with Peak Oil might be a subconscious one. Theories such as “cognitive dissonance” and “consensus trance” have been advanced, and these are likely manifestations of what is sometimes referred to as “crowd behavior”.

But for this exercise, let’s set aside these willful and subconscious roadblocks.

So, why do rational, intelligent, objective people have a hard time with this concept?

Well, a good guess might be that we are barraged - on a daily basis - with volumes of commentaries, data and unintelligible statistics:

• “Oil inventories are down this week.”
• “OPEC is increasing production by 500,000 barrels per day.”
• “There are trillions of barrels of tar sands around the world.”
• “They just found a new, 8 billion barrel field in Brazil.”

Who has the necessary time to sort through it all, and have any chance of understanding? Who has the time to continually determine what's good data, what's bad data, or what's skewed data? Or, what's "big" (important) and what's "little" (not important) in terms of scale? What's the maximum rate that can be produced from a new discovery? How long will it take to drill all the wells and get the infrastructure in place? Then how quickly can the field be depleted?

Without continuous study, it all becomes a fog. And sometimes even WITH continuous study, it is still foggy! As a result, most of us resort to: “Just tell me the answer! And tell me something good!”

The term “Peak Oil” is really a shorthand. It is an abbreviation for “peak production rate” or “maximum worldwide production rate”. Peak Oil is a manifestation of the physics of the depletion of a finite resource. And physics indicates that over the life of a group of all the fields in a country - or in the world - there is a maximum rate that can be achieved, and that rate occurs when roughly half of the RESERVES are depleted.

Currently, the average rate of oil consumption/production is around 85 million barrels per day, and many believe that there is little current "surplus capacity". Some believe that Peak Oil may be 80 – 85 million barrels per day, ie we are “already there”. Others believe that the world may be able to achieve 100 million barrels per day by 2011 or so. And the IEA has forecasts that indicate that it will be possible to produce as much as 120 million barrels per day in 2030!

But what if the world population grows, developing nations develop, and 2.4 billion Chinese and Indians just want to use a little more oil? Well, if the demand is 110 million barrels per day, and the world can only produce 100 million barrels per day, then the price will go up until the demand abates. And if worldwide economic growth is proportional to the rate of growth in energy consumption (as it has been since the beginning of the Industrial Revolution), then if we can’t grow energy consumption, we’ve got a problem with growing the economy!

To make matters worse, after the maximum oil production rate (Peak Oil) is reached, then the rate begins to decline - at least within a few years! (Hirsch's recent work with respect to "plateaus" is not encouraging.) So, post-Peak Oil, the economy not only can't continue to grow, but it must contract – IF economic growth is proportional to growth in energy usage (as it has been in the past).

So far we’ve talked about production RATE. Now let’s cover one other concept: RESERVES. RESERVES are "how much oil that there is left in the ground, which can be gotten out".

Once again, understanding RATE and RESERVES are the keys to understanding Peak Oil:

• RATE (in our context) is the maximum rate of oil production for a group of fields, or for the world.
• RESERVES are how much oil that is in the ground that can be ultimately be produced (for this analysis we won’t even differentiate between oil types, ie tar sands v. light oil, or different categories of reserves, based on risk).

So, many folks believe that the world was endowed with around 2 trillion barrels of conventional, recoverable oil. So the RESERVES for the world were 2 trillion barrels before any oil was produced. Most folks think we have produced about 1 trillion barrels of oil. So, that would leave current RESERVES of 1 trillion barrels.

Now, that’s a lot of oil! Why all the fuss? Well, here’s the punchline, and it has as much to do with the lack of cognition of Peak Oil as anything:

The maximum production RATE for a given field or group of fields in not arbitrary! In other words, it can’t just be anything you want it to be! For instance, if a field has RESERVES of say 10 million barrels, the maximum RATE might be several thousand barrels per day, but it could never be 1 million barrels per day.

Why? OK, here is the key take-away:

Due to the physics of the flow of oil through rock, a field’s (or a country’s, or the world’s) maximum oil production RATE is not arbitrary but is dependent on the RESERVES’:

• SIZE (how big is the field in terms of area and thickness?)
• AGE (is the field newly discovered/produced, or is has it been producing for 40 years?)
• QUALITY (how well does the oil flow through the rock?)

Examples:

• All of the world’s largest oil fields – Ghawar, Cantarell, Burgan and Daquing - have excellent SIZE and excellent QUALITY ... but their AGE is old! Hence, all of these (except possibly Ghawar) are in decline (their RATE is declining each day).
• The Athabasca tar sands, on the other hand, have excellent SIZE, they are essentially “new” in AGE (relatively little compared to the RESERVES has been produced so far), but they have the very poorest QUALITY – the oil is so thick it won’t flow and must be melted with heat, dissolved with solvents or mined.

Most who take the “no Peak Oil” (or no Peak Oil until 2030 and then an “undulating plateau”) side of the debate speak of RESERVES. They don’t often address the difficult topic of trying to explain where the RATE will come from.

Recently this author attended a trade conference concerning “unconventional resources”. “Unconventional resources” is another way of saying “difficult to produce at a high rate, but prevalent in a given area”. For the most part, it’s what we’re left with, especially in the United States. So, a representative from IHS (who owns CERA) gave a talk and presented, among other things, maps showing trillions of barrels – worldwide – of bitumen, tar sands and heavy oil. Afterwards he smugly said, “WELL, I guess there are no supporters of PEAK OIL in this room!”

With respect to oil production RATE (which is what Peak Oil is all about), he may as well have been showing a map of coal resources.

What he didn’t explain was the fact that Canada, despite having huge tar sands RESERVES of 188 billion barrels (or call it a trillion barrels, it really doesn’t matter), is currently producing oil from those tar sands at a RATE of about 1.1 million barrels per day. And this after a Herculean effort and tens of billions of dollars invested!

The Canadian tar sands producers have a roadmap for increasing the production RATE from those huge RESERVES to a total of ... 3 million barrels per day, by 2015! That’s an increase of only another 1.9 million barrels per day, but over 7 years, and with additional tens of billions of dollars injected!

So, that huge amount of RESERVES is limited in RATE because it is of the poorest QUALITY.

To put this in perspective and show why it is important - why Peak Oil is important - take a look at the second largest field in the world, Cantarell, in Mexico. In early 2006, PEMEX announced that Cantarell Field was about to go into decline, for the first time ever. In fact, they projected that this field that produced 2 million barrels per day of Mexico’s total 3.4 million barrels per day (end of 2005) would be down to between 1.5 and 0.5 million barrels per day by the end of 2008! Now, at the end of 2007, it is already down to 1.3 – 1.5 million barrel per day! So, if it finishes 2008 at 800,000 barrels per day, that is a loss of 1.2 million barrels per day, over just 2 years.

Compare this with the Canadian tar sands production increase of only 1.9 million barrels per day over 7 years - after a huge incremental effort. Factor in the depletion going on in most every field around the world – and you have an idea of the problem at hand, and a better understanding of Peak Oil. Among other things, huge RESERVES of poor QUALITY oil are not going to be able to provide the RATE of production necessary to stem the declines from the giant high QUALITY fields that are now old in AGE, much less continue to increase our total RATE.

In summary, Peak Oil is about RATE. And RATE is dependent on the SIZE, AGE and QUALITY of the RESERVES.