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Let’s “hope and pray that Hirsch is wrong” about our oil supply

10 January 2009

Summary:  The global recession might push back the arrival of peak oil for threee reasons.

  1. Less consumption now leaves more oil in the ground for future use.
  2. Less investment now in oil exploration and development means less consumption in the next few years (or decade).
  3. Alternative energy technology has more time to develop, reducing future oil consumption.

This is a grace period, useful if we make good use of the time.  If we squander it, we might find ourselves in more poorly prepared foe peak oil than if the recession had never happened.  For example,

  1. energy research might fall victim to budget cuts, and
  2. programs to develop unconventional and alternative energy sources might be scrapped.

The recession ends 5 years of torrid economic growth, and hence provides a reprieve from peak oil — not a pardon.  The following article providess one look into a future we cannot ignore.

When will the oil run out?“, George Monbiot, The Guardian, 15 December 2008 — “George Monbiot puts the question to Fatih Birol, chief economist of the International Energy Agency – and is both astonished and alarmed by the answer.”

Can you think of a major threat for which the British government does not prepare? It employs an army of civil servants, spooks and consultants to assess the chances of terrorist attacks, financial collapse, floods, epidemics, even asteroid strikes, and to work out what it should do if they happen. But there is one hazard about which it appears intensely relaxed: it has never conducted its own assessment of the state of global oil supplies and the possibility that one day they might peak and then go into decline.

If you ask, the government always produces the same response: “Global oil resources are adequate for the foreseeable future.” It knows this, it says, because of the assessments made by the International Energy Agency (IEA) in its World Energy Outlook reports.

In the 2007 report, the IEA does appear to support the government’s view. “World oil resources,” it states, “are judged to be sufficient to meet the projected growth in demand to 2030,” though it says nothing about what happens at that point, or whether they will continue to be sufficient after 2030. But this, as far as Whitehall is concerned, is the end of the matter. Like most of the rich world’s governments, the UK treats the IEA’s projections as gospel.

Earlier this year, I submitted a freedom of information request to the UK’s department for business, asking what contingency plans the government has made for global supplies of oil peaking by 2020. The answer was as follows: “The government does not feel the need to hold contingency plans specifically for the eventuality of crude-oil supplies peaking between now and 2020.”

So the IEA had better be right. In the report on peak oil commissioned by the US department of energy, the oil analyst Robert L Hirsch concluded that “without timely mitigation, the economic, social and political costs” of world oil supplies peaking “will be unprecedented”. He went on to explain what “timely mitigation” meant. Even a worldwide emergency response “10 years before world oil peaking”, he wrote, would leave “a liquid-fuels shortfall roughly a decade after the time that oil would have peaked”. To avoid global economic collapse, we need to begin “a mitigation crash programme 20 years before peaking”. If Hirsch is right, and if oil supplies peak before 2028, we’re in deep doodah.

So burn this into your mind: between 2007 and 2008 the IEA radically changed its assessment. Until this year’s report, the agency mocked people who said that oil supplies might peak. In the foreword to a book it published in 2005, its executive director, Claude Mandil, dismissed those who warned of this event as “doomsayers”. “The IEA has long maintained that none of this is a cause for concern,” he wrote. “Hydrocarbon resources around the world are abundant and will easily fuel the world through its transition to a sustainable energy future.”

In its 2007 World Energy Outlook, the IEA predicted a rate of decline in output from the world’s existing oilfields of 3.7% a year. This, it said, presented a short-term challenge, with the possibility of a temporary supply crunch in 2015, but with sufficient investment any shortfall could be covered. But the new report, published last month, carried a very different message: a projected rate of decline of 6.7%, which means a much greater gap to fill.

More importantly, in the 2008 report the IEA suggests for the first time that world petroleum supplies might hit the buffers. “Although global oil production in total is not expected to peak before 2030, production of conventional oil … is projected to level off towards the end of the projection period.” These bland words reveal a major shift. Never before has one of the IEA’s energy outlooks forecast the peaking or plateauing of the world’s conventional oil production (which is what we mean when we talk about peak oil).

But that is as specific as the report gets. Does it or doesn’t it mean that we have time to prepare? What does “towards the end of the projection period” mean? The agency has never produced a more precise forecast – until now. For the first time, in the interview I conducted with its chief economist Fatih Birol recently, it has given us a date. And it should scare the pants off anyone who understands the implications.

Birol, the lead author of the new energy outlook, is a small, shrewd, unflustered man with thick grey hair and Alistair Darling eyebrows. He explained to me that the agency’s new projections were based on a major study it had undertaken into decline rates in the world’s 800 largest oilfields. So what were its previous figures based on?

It was mainly an assumption, a global assumption about the world’s oil fields. This year, we looked at it country by country, field by field and we looked at it also onshore and offshore. It was very, very detailed. Last year it was an assumption, and this year it’s a finding of our study.

I told him that it seemed extraordinary to me that the IEA hadn’t done this work before, but had based its assessment on educated guesswork. “In fact nobody had done this research,” he told me. “This is the first publicly available data.”

So was it not irresponsible to publish a decline rate of 3.7% in 2007, when there was no proper research supporting it?

No, our previous decline assumptions have always mentioned that these are assumptions to the best of our knowledge – and we also said that the declines [could be] higher than what we have assumed.

Then I asked him a question for which I didn’t expect a straight answer: could he give me a precise date by which he expects conventional oil supplies to stop growing?

In terms of non-Opec [countries outside the big oil producers' cartel] we are expecting that in three, four years’ time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global-oil-supply point of view.

Around 2020. That casts the issue in quite a different light. Birol’s date, if correct, gives us about 11 years to prepare. If the Hirsch report is right, we have already missed the boat. Birol says we need a “global energy revolution” to avoid an oil crunch, including (disastrously for the environment) a massive global drive to exploit unconventional oils, such as the Canadian tar sands. But nothing on this scale has yet happened, and Hirsch suggests that even if it began today, the necessary investments and infrastructure changes could not be made in time. Birol told me: “I think time is not on our side here.”

When I pressed him on the shift in the agency’s position, he argued that the IEA has been saying something like this all along.

We said in the past that one day we will run out of oil. We never said that we will have hundreds of years of oil … but what we have said is that this year, compared with past years, we have seen that the decline rates are significantly higher than what we have seen before. But our line that we are on an unsustainable energy path has not changed.

This, of course, is face-saving nonsense. There is a vast difference between a decline rate of 3.7% and 6.7%. There is an even bigger difference between suggesting that the world is following an unsustainable energy path – a statement almost everyone can subscribe to – and revealing that conventional oil supplies are likely to plateau around 2020. If this is what the IEA meant in the past, it wasn’t expressing itself very clearly.

So what do we do? We could take to the hills, or we could hope and pray that Hirsch is wrong about the 20-year lead time, and begin a global crash programme today of fuel efficiency and electrification. In either case, the British government had better start drawing up some contingency plans.

Afterword

If you are new to this site, please glance at the archives below.  You may find answers to your questions in these.

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information from the FM site

To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp relevance to this topic:

Some posts about unconventional and alternative energy sources

  1. Links to articles and presentations of some A-team energy experts , 11 November 2007
  2. The most dangerous form of Peak Oil , 8 April 2008
  3. The three forms of Peak Oil (let’s hope for the benign form) , 23 April 2008
  4. The world changed last week, with no headlines to mark the news, 25 April 2008
  5. Fusion energy, too risky a bet for America (we prefer to rely on war) , 4 May 2008
  6. Peak Oil Doomsters debunked, end of civilization called off , 8 May 2008
  7. When the King of Saudi Arabia talks about oil, we should listen , 2 July 2008
  8. Red Alert: the Saudi Princes have annouced the arrival of Peak Oil , 11 July 2008
  9. Good news about oil, but for our grandkids – not us , 14 July 2008
  10. The secret cause of high oil prices , 6 August 2008
  11. Another example showing how energy research is just inspired guessing, since America prefers being blind, 23 September 2008

A series about energy myths

  1. Our massive reserves of unconventional oil.
  2. We’ll run crash programs to solve peak oil, just as we mobilized for WWII.
  3. Demand creates supply, by raising prices.
  4. Oil is Oil, even if it is not oil
  5. Demand creates supply, from new technology.
  6. The greenest of energy: inedible biofuels
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10 Comments leave one →
  1. 10 January 2009 2:59 am

    FM note: At 680 words this comment was almost 3x the 250 word max length of the FM site’s Comment Policy — which appears at the end of every post and on the Comment Policy page. I edited it down to 270 words. I inserted comments into the text, in bold. The part snipped was mostly overconfident speculation without any supporting evidence or links — and promotional for the commercial service sold at his website. I have allowed several promotional posts, but enough.
    .
    .
    The Hirsch report was right on the money. Peak Oil is now and it is too late to do much. The top story of the year is that global crude oil production peaked in 2008. The media, governments, world leaders, and public should focus on this issue.

    ** First, Hirsch has been careful not to make forecasts, so he cannot be “right on the money.” See a selection of his online articles and presentations here. Second, oil demand “peaked” as the global economy slowed. There is zero evidence that production peaked in the sense of demand exceeded production.

    Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.

    ** Not at all. It may have been political peaking (see here and here), . Or just reflected insufficient capital investment in energy as the world economy grew at almost 5%/year — perhaps the fastest growth since the invention of agricuture. That would explain the high prices.

    Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of “Oil Watch Monthly,” December 2008, page 1)

    ** Totally absurd. The global economy crashed in August – December. As always, price changes lag the change in the supply-demand balance. Brent crude oil peak in June (aprox), and began a steep fall in July.

    Peak Oil is now. Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):

    ** Note that Wirth gives no citations. The forecasts he lists are of 4 types.
    (1) Interesting, and might be correct (too soo to say).
    (2) Interesting, but I would like to see a citation — and history of previous forecasts.
    (3) This person has made many wrong predictions.
    (3) Predicting a future date for peak, so we do not yet know if correct
    I organized his list into these groups, and added some background info and links. Also, here is Hirsch’s list of forecasts as of October 2006, see slides 11 – 13.

    Group #1 – Perhaps correct

    * Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

    Group #2: I would like to see a link for this forecast

    * Association for the Study of Peak Oil (2007)
    * Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008) - Hirsch shows 2012.
    * Tony Eriksen, Oil stock analyst and Samuel Foucher, oil analyst (2008)
    * U.S. Army Corps of Engineers (2005)
    * Energy Watch Group in Germany (2006)

    Group #3: experts with a history of false predictions

    * Matthew Simmons, Energy investment banker, (2007) See here, here.here, here, and here.
    * T. Boone Pickens, Oil and gas investor (2007) See here.
    * Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005) See here.

    Group #4: predicting a future peak for oil

    * Chris Skrebowski, Editor of “Petroleum Review” (2010) (source, slide 28)
    * Fredrik Robelius, Oil analyst and author of “Giant Oil Fields” (2008 to 2018) (source, slide 28)
    * Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008) The last forecast I see predicts a peak around 2015, plateau beyond 2020 (source).

    Oil production will now begin to decline terminally. {Snip, too commercial. For more information see Wirth’s: Peak Oil Report}

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  2. grondeau permalink
    10 January 2009 5:41 am

    I found it interesting to note that the IEA finally came to this conclusion about the same time that The Oil Drum’s Megaprojects compilation was also putting the nails in the oil supply coffin. I would say that the IEA was play catch-up with the bloggers on this one.

    http://www.theoildrum.com/node/4419

    Like

  3. Patrick Cummins permalink
    10 January 2009 8:13 am

    It’s good that you’re giving attention to this very important issue. On the matter of the recession you mention

    This is a grace period, useful if we make good use of the time. If we squander it, we might find ourselves in more poorly prepared foe [sic] peak oil than if the recession had never happened. For example, … programs to develop unconventional and alternative energy sources might be scrapped.

    In fact, this is already occurring. In particular, development projects for the oil sands of Alberta are being postponed or cancelled because they are no longer viable at the current price of oil. Projections for future production from the oil sands are being reduced as a result. In fact, it would that all sorts of unconventional oil projects (ultra-deep water, arctic, oil sands, etc.) that only a year ago looked to go ahead are now being shelved.

    In its 2008 World Energy Outlook, the IEA called for very substantial and sustained investments to maintain and expand oil production. It always seemed doubtful that investments on such a scale would be made in a timely manner. With a deep and protracted recession, it seems even more unlikely.

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  4. seneca permalink
    10 January 2009 2:56 pm

    The “grace period” that you talk about, the global Depression which will lower demand for oil for a few years, will almost by definition be a missed opportunity, since public funds for investment in alternative technologies will be scarce during a Depression. Most likely, whatever capital investments in alternate energy are made wlll come from the oil industry itself (drillers, transporters and refiners), as they see their dominant position in the eoonomy threatened.

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  5. Duncan Kinder permalink
    10 January 2009 3:48 pm

    This is a grace period, useful if we make good use of the time. If we squander it, we might find ourselves in more poorly prepared foe [sic] peak oil than if the recession had never happened. For example, … programs to develop unconventional and alternative energy sources might be scrapped.

    As the punch line to the old joke goes, “What You Mean ‘We’, Kimosabe?”

    The current debate focuses on the need for public or for private “investment” of “capital” in “new technologies.” This is in the face of our daily receiving vastly greater solar capital inputs than huge new petroleum reserves stretching for centuries.

    While I, for one, have often advocated an alternative energy Manhattan Project, the need for this was as obvious in 1975 as it is today – which causes me to conclude that no such thing will ever happen.

    The inputs into an economy are land, labor, and capital. Our current public policy debate pits liberals, who advocate labor, against conservatives, who advocate capital. These solar inputs, however, are part of land. Hence our polity ignores them and hence neither public nor private sector is able to recognize them.

    ‘Tis a crisis and failure of the imagination.

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  6. pluto permalink
    10 January 2009 5:07 pm

    Note that the IEA’s calculations for the 2020 Peak Oil date assume that OPEC will continue to invest in drilling technology in a timely fashion.

    A lot of OPEC countries are very politically unstable and the common way to keep the lid on is to spend a lot of their oil gains on social programs. This is hitting them very hard with our current low oil prices and I serious doubt that the rulers of these unstable countries are going to be able to afford to invest in their oil fields on the IEA’s schedule or scale.

    Mexico, Russia, and Venezuala are all facing this dilemma right now. Nigeria (the major US crude oil supplier) is dealing with a low-scale civil war because they DIDN’T spend enough to placate the angry locals. Even the more stable countries such as Canada and Iran are trying to figure out how to keep the economy stable when they have relied so heavily on oil for government revenues.

    We need to assume that prices will have to go WAY up over the next 5-10 years (probably in the form of a series of price shocks followed by relatively lower prices but never as low as the previous low) before OPEC will get back on the IEA’s schedule.

    This will help push back the Peak Oil date but will likely to have a MAJOR impact on our recovery in the same way that the price shocks of the 1970’s impacted our recovery then.

    The key issue, as Fabius has already noted, is that we need to continue to develop our solution to the Peak Oil throughout the current economic downturn otherwise we are going to be in REALLY DEEP KIMCHEE when push comes to shove.

    Please note that Alternative Energy is an important part of our solution but CAN’T be the only solution. The technology simply isn’t mature enough yet to replace oil by itself. I personally favor a combination of more efficient (effectively reducing) energy consumption, alternative energy, and limited expansion of fission nuclear power power (at least until somebody finally proves they’ve solved the problems with keeping a fusion power plant running profitably).

    Duncan: While I, for one, have often advocated an alternative energy Manhattan Project, the need for this was as obvious in 1975 as it is today – which causes me to conclude that no such thing will ever happen.

    Your logic is sound as far as it goes. The problems in the 1970’s were caused by Arab political ambitions and economic turmoil that obscured the larger issue of Peak Oil. Things are different this time so I hope the result will be different.

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  7. John Klug permalink
    10 January 2009 6:34 pm

    I wish people would stick with what we can achieve today. I think hoping for a sustainable battery or some algae fuel breakthrough, and continuing to drive off a cliff if the road doesn’t magically appear underneath us is foolish.

    I think its time they start thinking of re-engineering transportation. With today’s computers, highways could be automated and based on some system of electric rails. Maybe a hybrid car is one that has an electric motor, an internal combustion motor, rubber tires, and rollers or steel wheels and computer controlled navigation. The government provides our roads, and Obama could start to re-engineer America over the next 10 or 20 years by updating them.

    A railroad is much cheaper to build than a road, especially if we abandoned much of the existing infrastructure, and why not electrify our urban areas? Of course roads have been with us since the dawn of civilization.

    * Wikipedia on Dual Mode Vehicles
    * And courtesy of one of their links: Roger Pullway, Inc

    Railroads use these sorts of vehicles in their operations (I see pick up trucks frequently), but why not the public, provided we automate?

    Of course, where besides Japan or the third world would they think of doing such a thing? Companies and countries frequently will not change until its too late. Think Penn Central.

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  8. 12 January 2009 2:52 pm

    Until extraction price is explicitly included in the definition, then ‘conventional’ and other such labels are too imprecise to be strong policy guides. Saudi Arabia has huge reserves still available at some $10 /bbl of extraction (and/or conversion) cost. The Alberta Tar Sands are huge reserves available at some $55 /bbl of extraction cost.

    The USA used to have lots of $10 /bbl (end of year 2008 dollars) oil, but I doubt that there is much left of that, altho I don’t really know the cost of Alaskan ANWAR oil (including the pipeline building capital costs); my guess is around $25 / bbl. (Any facts FM?)

    The point is this: we will never run out of oil. What we face are many alternative futures of varying prices for varying amounts. All futures include a huge feedback loop of recession to follow with a lag after prices increase ‘too rapidly’ — but how much is too much isn’t known until afterwards.

    We should increase the gas tax immediately, but make it macro-revenue neutral by sending a monthly gas tax rebate check to all taxpayers. In fact, the expected rebate check (say $1000/month) should go out first, and then the gas should be taxed. This is to help people choose alternative lifestyles that reduce their use of gas, AND to allow the gov’t to have a gas tax cushion of reduction available to smooth the increases.

    The USA should probably agree to buy a huge amount of oil, now, for filling its Strategic Petroleum Reserve (by printing the money).

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  9. 13 January 2009 2:19 pm

    Sorry about going over the word limit. I was saying Hirsch is right on about oil supply, then I went into the Peak Oil is now, about which you are right, he did not say, but the independent sources sighted in his report focus on about now when averaged. The word independent is important. Volvo or Shell for example are not going to announce that Peak Oil is now, as it is not good for the stock value of the company and stock options of the executives.

    All of the sources are given in the report that you deleted. {FM note: here it is}

    This statement is factually accruate, so it is not “totally absurd”:

    Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of “Oil Watch Monthly,” December 2008, page 1)” The price of oil was above $80 per barrel at this time, and the price that makes the oil industry jump is above $40 per barrel, where the profits are high.

    FM Note: The part in bold is absurd, not the production #s. Brent crude oil peaked in June and began a steep fall in July as the global economy crashed; unrelated to Peak Oil (a change in demand, not supply).

    Besides, the four year plateau with such high prices indicates Peak Oil.

    There are few alternatives and no way to get there, that is what my report is all about: a review of government studies, like the GAO study which indicates alternatives won’t fill the gap, and the Congressional Research Service.
    .
    .
    Fabius Maximus replies: It’s like debating a member of the John Birch society in 1960, who ses commies under every bed. Everything is a sign of peak oil, no matter what else is happening in the world. (sidenote: I added back the link to his report).

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  10. 10 February 2009 12:06 am

    I used to feel very positive about next-gen biofuels (e.g. cellulosic ethanol, algae biodiesel). However, over the past year, I’ve become increasingly convinced that the future of transportation lies with electrification rather than improved liquid fuels.

    That’s not to say that natural gas and next-gen biofuels can’t play a part, but the focus going into improving battery technology right now leads me to believe that this is ultimately where things are headed.

    Like

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