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| Tue Apr 15 22:13:14 2008 Peak Oil |
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| Tue Apr 15 22:13:14 2008 Peak Oil So when will the oil run out? |
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| In earlier posts (Apr 1 and Mar 26) I mentioned that oil prices would go up because demand would increase while supplies ran out. Reading some of the links, I started asking myself: "When will the oil really run out?" And then today, it was announced that Russian oil production declined in the first quarter of 2008. Maybe it's a trend? Some people think that the drop in Russian production is a short-term decline, but other articles claimed that the drop could be because the oil is running out. One Russian oil executive has claimed that "the period of intense oil production is over" and last year's Russian production was the most he would see "in his lifetime." Dire stuff! Could that happen across the world? For instance, will we see gas rationing in our lifetimes? Figuring out when the oil disappears depends on three things:
Worldwide Oil Consumption How much oil does the world use? It turns out there are decent statistics on that. For instance, there are many statistics about US oil consumption from the US Department of Energy. There are a lot of breakdowns of how much oil and petroleum products we produce and consume. We consume a lot more than we produce--no surprise. Of course, the oil market is global, so the US picture isn't enough. There is good information about world oil consumption from the CIA World Factbook. The summary? In 2005, the world consumed close to 30 billion barrels of oil. The US led the list with 7.5 billion barrels--that's over 20 million barrels a day. Determining the increase in consumption is difficult. The US has actually started flattening out. I think a few years of high oil prices are starting to affect consumer behavior. During the oil crisis of the 1970's, US oil consumption dropped by around 20%. So clearly we are able to cut consumption when needed! However, the rest of the world is consuming more. China's rate of increase is over 7% per year, and India's use is also growing at over 5% per year, according to The IAGS. So determining yearly growth is tricky. Based on historical data, I picked a yearly growth of around 1.5%. But that is probably on the low side. Worldwide Oil Reserves Okay, the world consumed 30 billion barrels in 2005, and we consume about 1.5% more each year. How long will the oil last? It turns out reserves are hard to determine. There is a lot of discussion about reserves, with several people noting that many countries suspiciously jacked up their stated reserves without any clear explanation. (See another example here.) I'm using a value of 1 trillion barrels of proven reserves, since that seems to be generally agreed upon as a minimum and is also the figure given by the Department of Energy. There may be more oil in the world, but it is generally believed that there are 1 trillion barrels of cheap oil. Other oil will be much more expensive to extract. Given consumption (30 billion barrels per year in 2005 with a 1.5% growth rate) and reserves (1 trillion barrels) it is simple math to calculate how many years remain. The result? The result is that we run out of oil in 2032 (24 years from now). A 3% growth rate in consumption would move that date closer to 2028. Twenty years. That's not long. But that's also not realistic. That assumes that consumption keeps growing, and production matches it. We'd keep pumping more and more oil out of the ground until everyone's wells ran dry on the same day. Worldwide Oil Production In practice, production starts declining as oil fields get depleted. According to Hubberts, any given oil field tends to have a rapid ramp up of production, hits its peak, and then rapidly declines. So the problem isn't that we run out of oil. The problem is that within a short time of hitting peak production, global production starts declining, and the world cannot possibly produce enough oil to meet its needs. And production will keep declining at a fast rate. If you add up all the oil production curves from all of the world's oil fields, you get a total worldwide oil production curve. The result is on the left for all but OPEC and Russia. As you can see, most predictions indicate that the rest of the world has already peaked (the US peaked in 1971). What can possibly save us? Originally OPEC and Russia were believed to have large production remaining, but Russia could be near their peak. So that leaves only OPEC, and no one is sure about their reserves or production capabilities. It seems doubtful that they could compensate for the world's increased demand and everyone else's production decline at the same time. Over the next decade, production should drop dramatically as oil fields are depleted, and we don't have large new oil fields to develop. The impact is hard to judge. Certainly we are hosed in 2032. The question is: will we hit hard oil shortages much earlier? Peak Oil This worst-case scenario, that we are only a decade or so away from worldwide oil shortages, is called Peak Oil. There are many believers in peak oil (such as this guy and these guys). Much of it has the ring of Y2K doomsayers! But even industry insiders like this guy think that we are close to significant oil production declines. Certainly there are people who disagree, such as this guy. But overall I am inclined to err on the side of caution. Based on all these sources, I think production will decline, and/or will become more expensive. The combination of less production, more expensive production, and increasing demand, will drive oil prices up through the roof. When will this happen? We may have a short breather, since US consumption is flattening a bit, and India and China haven't yet caught up. But I'm sure we'll see prices of over $10 a gallon (in 2008 dollars) for regular gasoline within 10 years as production declines kick in. And it will just get worse from there. Another prediction: we'll see gasoline rationing within 15 years. Start planning now! Comments |
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