Things Could Be Worse Than We Think

A couple of years ago, petroleum geologist Ken Deffeyes predicted that the world would hit peak oil on Thanksgiving of 2005. Early this year, he amended that date to December 16, 2005, which he stands by today. Unfortunately, oil production varies too much from year to year to know for certain if Deffeyes is right, but it has certainly reached a plateau since 2004; and as everyone knows, we have seen a big runup in prices. Those prices will be nothing, however, compared to what will happen when production really begins to decline.

How steep will that decline be, when it arrives? The methodology of M. King Hubbert points to an average decline of 2% per year. But as independent Texas petroleum geologist Jefferey J. Brown has pointed out, small declines in total world oil production may mean dramatically less oil for net importing nations. His argument in a nutshell: oil exporters must meet domestic demand before they export oil:

“Consider a simple example, a country producing 2.0 mbpd, consuming 1.0 mbpd and therefore exporting 1.0 mbpd. Let's assume a 25% drop in production over a six year period (which we have seen in the North Sea, which by the way peaked at 52% of Qt) and let's assume a 10% increase in domestic consumption. Production would be 1.5 mbpd. Consumption would be 1.1 mbpd. Net exports would be production (1.5 mbpd) less consumption (1.1 mbpd) = 0.4 mbpd. Therefore, because of a 25% drop in production and because of a 10% increase in domestic consumption, net oil exports from our hypothetical net exporter dropped by 60%, from 1.0 mbpd to 0.4 mbpd, over a six year period.”

So: have we passed peak oil? Matthew Simmons has repeatedly argued that when Saudi Arabia peaks, categorically, the world has peaked; in his latest presentation (large PDF), he seems increasingly convinced that it has.

In April of this year, Saudi Arabia’s oil production decreased from its normal 9.5 million barrels per day to 9.1 million. Preliminary numbers suggest that it dropped to 9.05 in May. The Saudi government claims that this is because they can’t find buyers for their oil, which seems counter-intuitive, to say the least.

Other reputable insiders, like Robert Rapier, believe that in spite of threats of an imminent oil peak, what we are facing now is really just a demand crunch, exacerbated by a lack of refining capacity. Rapier argues that while he is seriously concerned that oil production will peak within the next decade, he believes the current price runup is only a prelude, and the production will edge up slightly over the next few years.

Let’s hope Rapier is right. But if he’s not, it may be time to start preparing ourselves for some vary jarring transitions as we head into the second half of 2006.

Vancouver’s Dynamic Cities Project recently put together an excellent Powerpoint slideshow outlining a matrix of possible outcomes regarding peak oil and global warming; it’s worth looking at if only to contemplate the range of possible futures we face.

Comments

[tory burch uk]

Other reputable insiders, like Robert Rapier, believe that in spite of threats of an imminent oil peak, what we are facing now is really just a demand crunch, exacerbated by a lack of refining capacity. Rapier argues that while he is seriously concerned that oil production will peak within the next decade, he believes the current price runup is only a prelude, and the production will edge up slightly over the next few years.