The politically-induced valley in the 1970s made some people think that we were past the peak.
To my knowledge, none of the prominent geologists who are active today promoting public awareness of Peak Oil were asserting that a peak had been reached in world oil production in the 1970s or the 1980s. The crisis at that time did raise public awareness of the finite nature of global oil reserves; I can remember being taught in primary school that oil production was destined to peak early in the next century, but that coal would last for several hundred years after that. 25 years went by with little discussion of the issue, and now here we are.
We could predict the peak if we knew the sum total of oil resources. But we don’t. Estimates of oil reserves both depend on and feed into the price of oil. If the estimates are too high, prices go down. Equity prices also influence the reserve numbers that companies are willing to publish.
Cheryl is correct that a Hubbert analysis is highly dependent upon the assumption that is made with respect to Ultimately Recoverable Reserves (URR). It is true that experts such as Colin Campbell predicted in past decades that Peak Oil would occur sometime in the mid to late 1990s. These predictions were predicated on a pessimistic assessment of Ultimately Recoverable Reserves; the early Campbell predictions were based on a figure of about 1.8 to about 2 trillion barrels of oil. Current estimations of URR are converging on a figure of about 2.4 trillion barrels of oil.
The amount of reserves claimed by major commercial oil companies are of course important to their market valuation. According to Colin Campbell, it was not unusual for the oil companies to intentionally underestimate reserves so they would have a cushion that would permit them to revise their estimates upwardly in subsequent years in the event that new discoveries were inadequate to replace their annual production. Judging from the Royal Dutch Shell scandal last year, it would seem that at least some of these companies have exhausted their cushions. As I have pointed out in earlier articles, the five biggest US oil companies together control less than 3% of the world's reserves. They generally have Reserve to Production ratios that give them on average 10 more years of production before their reserves are exhausted. Even that figure assumes that the other major oil companies are not overstating their reserves as Royal Dutch Shell did. Given the recent scandals that have soiled corporate America, this may not be a safe assumption to make.
In fact, the biggest uncertainties with regard to URR and the total amount of oil that is left to be produced depend not on the major commercial oil companies, but on the reserves of countries like Russia and Saudi Arabia. In Saudi Arabia's case, the reserves are probably overstated rather than understated, because they were inflated during the oil glut of the 1980s and 1990s in order to maximize Saudi Arabia's OPEC quota allocation. In the case of Russia, one argument is that their reserves are understated because the country has not yet been properly explored. On the other hand, there are experts that will tell you that the country has been explored more thoroughly than Western controlled areas have been because the Soviet oil industry was not constrained by economic factors when performing the exploration as Western oil companies would have been.
A friend just sent me an article from Offshore magazine, “India: the next North Sea.” The subtitle says that 80% of India’s basins remain unexplored. The area around the Caspian Sea is at the beginning of its development, and more reserves can be expected to be added there.
The energy poor Indian government has recently permitted commercial oil companies to bid for offshore exploration rights. As explained above, the oil companies are desperate to find new reserves; their continued existence depends upon it. Even given that, there has been little enthusiasm for investment in Indian offshore drilling. The technology for assessing which parts of the world are geologically promising in terms of oil is more advanced than you might think.
The area around the Caspian Sea has been in continuous production since the 1800s. In the late 1990s, there was considerable optimism that significant offshore Caspian reserves existed, and that these reserves were the OECD's answer to the imminent decline of North Sea production and a way to hedge against OPEC dominance. Unfortunately, after extensive drilling (and even more considerable machinations by the US Government to gain influence with the newly independent local states), the actual amount of reserves in this area were determined to be relatively disappointing. There is oil, and some of it is beginning to be produced this year, but it will not significantly change the global oil supply picture.
Do significant oil reserves exist that have yet to be discovered? This chart seems to suggest that most of the big discoveries were made some time ago (discovery peaked in the 1960s) and at this point we are scrambling to find whatever small leftovers that remain. In the past decade, only one barrel of new reserves have been discovered for each four barrels of crude produced.
Currently rising oil prices seem to have to do with limited refinery capacity in the US and specialized requirements for gasoline in places like California (news article), along with increased demand by China and India as their economies expand, and a “terror premium.”
If in fact there was a significant terror premium, the price of oil futures would be significantly elevated with respect to current spot prices. While currently there is a small contango, this has more to do with an expectation of heavy demand at the end of this year when fuel oil stocks will need to be accumulated for the winter heating season.
How would lack of refinery capacity raise crude oil prices? Think about it. Insufficient refinery capacity reduces the demand for crude oil, which should be lowering its price, not raising it.
The answer to this logical disconnect has to do with the fact that there is a growing insufficiency of light, sweet crude oil production. It is much easier to refine gasoline from light sweet crude then it is from sulfur-laden sour oil, heavy crudes or Syncrude. Production of light, sweet crude has been decreasing as a result of depletion in significant production areas, most notably the North Sea Brent field. The North Sea oil fields have seen declining production in recent years, particularly on the British side, as they are now over 50% depleted and it is getting physically harder to extract the remaining crude. Production of light sweet crude oil from fields in the continental United States has been in decline for several decades. Most Arabian light crude comes from the Ghawar field, which is being kept alive by significant seawater injection and is estimated to be about 48% depleted. In other words, global production of light, sweet crude appears to have already peaked, and the decline of production is expected to accelerate as Ghawar crosses its depletion midpoint.
So what we have is a situation where there is barely enough oil production to meet global demand, and where a growing proportion of the oil that is being produced is not refineable in conventional oil refineries. The lack of refinery capacity that we hear about is actually a lack of refinery capacity for processing sour grades of crude and heavy crude oils.
Countries with nationally controlled oil industries, like Saudi Arabia, are politically motivated to regulate the flow of oil and estimates of reserves.
You bet they are, but in the end this may mean that the global oil supply situation the next several decades will be even less favorable to the Western industrialized OECD economies than a Hubbert curve analysis would predict. If global oil supply is to be maintained at anywhere near present levels after 2010, the Saudis will have to permit a significant amount of additional investment to be made in their infrastructure so that production can be increased from the present 9.5 Mb/d to 15 Mb/d or higher. They may not feel that it is in their best interest to do so, irrespective of whether or not it is physically possible. Similar situations may exist in countries like Iran, Iraq, Russia and Venezuela.