[Ok-sus] We're still on the slippery slope to peak oil
bwaldrop1952 at att.net
Mon Aug 20 12:46:21 CDT 2012
The data continue to pile up on the side of "peak oil is still a looming
reality" in spite of the hyper-ventilating press push of the oil
companies et al.
Bob Waldrop, OKC
20 August 2012 by David Strahan
Technology and exploitation of unconventional sources can't defer the
long-predicted decline in global oil production
IN 2007 former US energy secretary James Schlesinger claimed the
arguments in favour of peak oil - the key theory that global production
must peak and then decline - had been won. With production flat and
prices surging towards an all-time high of $147 per barrel, he declared,
"we are all peakists now".
Five years on and production has risen by 2.7 million barrels per day to
93 mb/d, prices have recently slumped to around $100 a barrel and those
who dismissed the idea that the rate we extract oil from the ground must
inevitably decline jeer in delight.
In June a much-touted report by Leonardo Maugeri - an Italian oil
executive now at the Geopolitics of Energy Project, based at Harvard
University and part-funded by BP - forecast that far from running out of
oil, this decade will see the strongest growth in production capacity
since the 1980s and a "significant, stable dip of oil prices".
So is that it, panic over, as some commentators who once agreed with the
peak view have declared on the basis of Maugeri's report? Ironically,
such shifts come just as some economists - traditionally hostile to peak
theory - were coming round to it. Peakonomics, if you will.
Unfortunately, any reasonable reading suggests Maugeri is wide of the mark.
The recent hysteria rests heavily on the rise of shale oil in the US,
which was unforeseen and is significant. After four decades of decline,
US oil production turned in 2005 and has generated the bulk of the
global supply growth since then. But to brand this a "paradigm-shifter",
as Maugeri does, is wrong.
He forecast that this boom will lead to an astonishing 4 mb/d of
additional US shale production capacity by 2020. By contrast, the US
Department of Energy, usually optimistic, predicts total US shale oil
production will peak at just 1.3 mb/d in 2027.
One reason Maugeri's forecast is so high is that he assumes production
from existing shale wells will decline by just 15 per cent per year.
Industry consultant Art Berman puts decline rates at around 40 per cent.
Analysis by Bob Bracket of US market analysts Bernstein Research shows
similarly steep declines, and also that the average shale well takes
just six years to become a "stripper well" - producing just 10 to 15
barrels a day. Such declines are far higher than for conventional wells,
effectively meaning the industry must drill furiously just to stand
still. It is this factor that will limit future production growth.
It is distressing that Maugeri's report - which appears to contain
glaring mathematical mistakes - got so much attention, but he insists
the gist of his report is right. In contrast, an excellent International
Monetary Fund working paper in May received much less attention.
The IMF's paper sets out to test the idea that the recent 10-year rise
in the oil price - it hit a low of $10 a barrel in the late 1990s - can
be explained by geological constraints. The team took an approach which
expresses mathematically the idea that oil becomes harder to produce,
the less there remains to be produced - the basis of peak oil theory.
This is clearly right: why would we be scraping out tar sands if there
were easy oil left?
When they combined this with the impact of global GDP and oil price, the
results were striking. By testing their model against historical data,
they found their production forecasts were more accurate than those of
both peak oilers, who are traditionally too pessimistic, and authorities
such as the US Energy Information Administration, which is generally far
Their price forecasts were also far more accurate than traditional
economic models that take no account of oil depletion, predicting a
strong upward trend that closely fits what has happened since 2003.
"When you look at the oil price [over the past decade], the trend is
almost entirely explained by the geological view," said Michael Kumhof,
one of the authors, when I interviewed him earlier this year.
The IMF paper also slays the belief that rising oil prices will liberate
vast new supplies and vanquish peak oil. The team found that production
growth has halved since 2005, and forecast that even the lower rate of
growth will only be sustained if the oil price soars to $180 by 2020.
"Our prediction of small further increases in world oil production comes
at the expense of a near doubling, permanently, of real oil prices over
the coming decade," write the authors. In this context, shale oil is not
a "game-changer" but a sign of desperation. "We have to do these really
expensive and really environmentally messy things just in order to stand
still or grow a little," says Kumhof.
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