[Ok-sus] We're still on the slippery slope to peak oil

Bob Waldrop 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

or *http://tinyurl.com/93q5m7y*

     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 
too optimistic.

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.

more at 

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