Welcome to the age of diminishing returns

Monday, June 18, 2012

Peak oil: has it arrived?


Last week, at a public meeting, I was asked several times if this famed "peak oil" has arrived or not. People who have heard of peak oil seem to be becoming impatient, but I am afraid we'll have to wait a little longer. Peak oil is not here yet, at least if we intend it as a significant decline in the production of combustible liquids. Does that mean that the predictions based on the Hubbert model were wrong? In a sense, yes: you should know that all models are wrong by definition. Some, however, can be useful if you know how to use them. That's the case of the Hubbert model: it had given us a useful warning that, however, we chose to ignore. Let me explain this point by means  of a summary of a talk that I gave at the conference on the future of energy organized in Basel by the Club of Rome on 16-17 october 2011. A few months have passed since I gave that talk, but things haven't changed much from then.


Good afternoon, ladies and gentlemen. My time today is short, so I'll try to go as fast as possible, limiting myself to a brief discussion on the models that lead to the concept called "peak oil." From that you can make up your mind yourselves on what's happening today to the oil market and how the economy could be affected. 

So, first of all, what is "peak oil"? The term was introduced by Colin Campbell in 2002 to indicate the "tipping point" in the world oil production, that is the point when the historical production maximum is reached and an irreversible decline starts. But the idea of a "production peak" for oil is much older. It goes back to a paper that Marion King Hubbert presented in 1956, where he proposed that the production of crude oil in the United States (more exactly in the 48 lower states) would follow a "bell shaped" curve. Here is the curve that Hubbert proposed

  
You see that the curve is supposed to have a peak midway, and that is the element that has gained most of the attention today. The date of the peak, in particular, has taken a certain value of prophecy. And there is no doubt that Hubbert got something right. Here is a comparison with the historical data. 



Now, as you can see, the agreement with the historical data of one of the curves proposed by Hubbert is very good. Actually, it is excellent considering the time span involved. It is not so easy to make a prediction that turns out to be so good 14 years afterward! And the prediction continued to be good for many years, until recently, when production showed an increase that moved it away from the Hubbert curve. But, again, that doesn't detract from the fact that Hubbert had clearly predicted that production would run into troubles at a certain point. It did.

So. let's go to "Peak Oil", the worldwide peaking of oil production. In the same 1956 paper where he had estimated the date of the US peak, Hubbert made the first serious study of how long the world's oil reserves would last. It was a difficult task, because the world's oil resources were not so well known at that time, but Hubbert attempted it. So, let's see what were his results:

As you see, the curve for the world has the same shape as the one for the US states and the peak was supposed to occur around the year 2000. In later times, other authors revised Hubbert's study using similar methods. For instance, Campbell and Laherrere in 1998 saw the peak for around 2005. Later on, ASPO (Association for the study of Peak Oil) revised these predictions finding the peak somewhere between 2005 and 2010 (see, for instance, these 2007 predictions).

How do these results compare with the actual historical data? Let's see some data by Euan Mearns, which include not just crude oil, but also condensate and natural gas liquids.


We don't see a peak for the year 2000, nor we see it for 2005. If the peak had been in 2000 or 2005, we should be already seeing a significant production decline. What we see, instead, is a plateau that has been lasting for the past five years or so, interrupting the growth trend that had been the rule from 1983. So, no peak so far, but clearly "something" has been happening with oil production starting with the first decade of the 21st century, considering also the remarkable increase in oil prices of that period. But what's happening, exactly? Where is the peak? Should we expect it soon, or is it delayed for a long time?

I think that at this point we need to pause for a moment. What is exactly a model and what can it be used for? Models come in a variety of forms: formal, informal, complex, simple, aggregated, multiparameter and more. But, no matter what model you are using, one thing that can be said is that if you think it can predict the future, I am afraid that you are going to be sorely disappointed. Complex mathematical models may not be any better than the crystal ball that is part of the toolbox of any self respecting magician. Models are no magic. Models are just tools. And, just as with any tool, you need to know how to use them, otherwise you risk to hurt yourself.

The future is not an easy thing to study. It always fans out in multiple paths as you move onward. So, you use the models not in order to make predictions, but to understand what path you have taken. Without models, you are walking on, blindly, and you have no idea of where you are going. With models, it is like having a flashlight. You may not be able to see far away in the darkness, but at least you have some idea of what you are stepping on. Good models will give you a longer range, less good ones will be more limited. But if you know what your model can do (and what it can't do) then a model can always be useful.

We can apply these considerations to peak oil models. The simplest version, as we said, is Hubbert's one. We could call it a "first order" model as it assumed that the main factors affecting oil extraction are related to geology and that the industry would continue to act as usual, even when facing the peak. But that didn't happen. The market reacted with increasing oil prices and the production system adapted by pouring investments into the exploitation of expensive oil resources that the Hubbert model didn't consider as extractable. In a sense, the future was changed by a "second order" factor: prices. And so we took a different path; we didn't have a peak; not yet, at least. 

But the Hubbert model had not been "wrong;" it had done well within its limits. It had given us a useful warning that we should have expected troubles with oil production during the first decade of the 20th century. We chose to ignore that warning and we were taken by surprise by the price spike that is causing us a lot of troubles. The future always surprises you, especially if you don't have good models.

What should we expect now? Well, we don't need a formal model to understand that the oil industry can keep extracting oil as long as there are customers able to pay for it. The problem is that, with progressive of depletion, extraction costs can only increase as we tackle more and more difficult, dirty, and remote resources. That will be continue to generate high prices. So, we'll have peak oil when we won't be able to pay these prices any longer.

If you like a formal model that takes into account these factors, you may give a look to my "Seneca Model". It generates a production curve like this one:

Seneca, as you may remember, was a Roman philosopher who had noted that "ruin is much faster than progress". The Seneca model is a "second order" model in the sense that it takes into account factors that the simpler Hubbert model doesn't consider.  You see that, in this model, the peak is smoothed out; it appears as a plateau that lasts for a while, similar to what we have been seeing with oil production up to now. Then, we have a precipitous fall, something that I called the "Seneca Cliff".

Is this the future? Possibly; but always remember that if a model is a flashlight, it doesn't show to you more than a dim impression of a number of different paths that the future may take. Don't take the Seneca model as a prediction. We cannot predict the future, we can only be prepared for it.

_____________________________

On the Hubbert model, you may be interested to read these posts of mine


"No Peak Oil Yet? The limits of the Hubbert Model" http://www.theoildrum.com/node/7241


"Mind sized Hubbert" http://www.theoildrum.com/node/5731


"A simple interpretation of Hubbert's model of resource exploitation", http://www.mdpi.com/1996-1073/2/3/646





25 comments:

  1. Dear ugo Bardi,

    In Deffeyes' "Beyond Oil: The View from Hubbert's Peak" I've read that we consumed 50% of the available standard Oil (ie, not including natural Gas, and other oil-like reserves) around the end of 2005.

    He did that by plotting the cumulative oil extraction up to year N (called Q) and the ratio of that year production by Q. The time series fits amazingly in the last decades with its linear regression. So, if we extend that line to the future and see where it intersects with the axis Q, we have an estimation of the total amount of Oil. Half of it (Q/2) was extracted at 2005.

    Do you know this way of presenting Hubbert's model? If so, do you agree with its data? A time line of 55 years seems quite convincing to me!

    Thank you for your attention,

    ReplyDelete
    Replies
    1. (sorry, Q/2 was meant as Q'/2, where Q' is the value at the intersection)

      Delete
  2. Yes, I have Deffeyes' book. His treatment is the standard version of the Hubbert model, also called "Hubbert linearization". It is fine as a "first order model", and I think it does give us a valuable hint on what's going on. My point is that we are deviating from the bell shaped curve and, as a consequence, also from the linear fitting. The past is a guide, but not a law!

    ReplyDelete
    Replies
    1. So, if I understand you, these last years where production more or less stabilized (say production of ~P barrels for the last 6 years or so), the ratio P/Q in 2006 and the ratio P/(Q+P) in 2007 (and so on) do no longer fit well in the regression line of the previous time-series?

      However, even if that's so, the ratios are still approaching zero, only at a slower rate. Which means that value Q' will be larger that the model predicted. That will give us some extra years that we stubbornly will not take advantage.

      Thanks,

      Delete
    2. I haven't looked in detail at the latest results of the Hubbert linearization method. But I think you are right. We are deviating from the line. The "extra years", yes, but we are paying dearly for them.

      Delete
  3. High oil prices were killing demand, so the price is going down, which makes all that fracking and tar sands removal that is necessary to maintain plateau production, uneconomic = Peak Oil. Add in too much debt, and it's looking very much like Seneca's precipice. Add in institutional mismanagement of pretty much everything, and peoples dependence on institutions, and it figures to be an interesting next couple of decades.

    www.offthegridmpls.blogspot.com

    ReplyDelete
  4. I predict that in December of 2012, both oil and coal will go into terminal decline of 4 percent per year, putting us in the stone age by 2020. Nat. gas will slowly increase due to fracking, then decline by the same percentage worldwide around 2020. Uranium will also be in short supply due to megatons to megawatts ending in 2013. Civilization will be no more by 2050, then the few survivors will begin building a new civilization using nuclear breeder reactors, as Hubbert predicted.

    ReplyDelete
  5. As more and more liquids have been redefined as oil, is it possible to get a graph of energy content produced? This might show a clear peak, rather than a plateau (I realise the some liquids are used for other than fuel, but this would be an interesting chart). Of course, the net energy should also be factored in but there are differing views about that for each liquid fuel; energy content would be a good start.

    ReplyDelete
  6. Hubbert estimated world oil production would peak in 1995, not 2000. It's funny that peak oil proponents keep altering history in this respect. Also, world oil production just set a new record in 2011, so Hubbert has been off by 16 years so far. The error on Hubbert's part, was that he only estimated 2 trillion barrels URR, when in fact URR could be as high as 15 trillion barrels according to some experts. Hubbert did not take into account deep water, or unconventional oil. I wouldn't be worrying about oil production peaking anytime soon.

    ReplyDelete
    Replies
    1. It's 1995 + 10 years, or after 2005, as he stated in a 1976 TV interview shared in Youtube.

      Delete
  7. Hubbert was right on the spot for his US peak prediction though, which is as important, especiallly considering that this historical fact (US peak more than the prediction), isn't known by the vast majority of the US population, and the basis of probably one of the biggest "cover up"/"spin doctors operation" of the XXth century, the first oil shock still being associated with the "arab embargo" or an "OPEC agressive move", when both US diplomacy and western majors **pushed** for the price rise, necessary especially to start Alaska, GOM, North Sea (and the embargo a complete epiphenomenon).
    Maybe things would be a bit different if US peak had been more reported as such ...

    ReplyDelete
    Replies
    1. Hubbert was also wrong about US production. One of Hubbert's predictions was that once a countries oil production peaks, it goes into terminal decline. That didn't happen in the US, and in fact US oil production is not only much higher than Hubbert predicted, but is increasing, not decreasing. It is certainly possible that US production could set a new peak.

      John B.

      Delete
    2. No, Hubbert was right about US production, as it has never gone back to the 1970 level.

      And the best-case scenario is that non-conventional North American sources will add only 4 to 6 mb/d to production for the next two decades.

      With that, there is no possibility of setting a new peak.

      Delete
    3. No, Hubbert was wrong on US production, world production, and total reserves. According to Hubbert, world oil production should have been in decline for the past 15 years, when in fact we are setting new production records.

      Hubberts predictions:

      http://www.hubbertpeak.com/hubbert/natgeog.htm

      John B.

      Delete
  8. This guy blew it in the first paragraph. Peak production can plateau.

    ReplyDelete
  9. Hubbert said that oil production would peak after 2005, following his 1976 TV interview.

    Since we are dealing with aggregate data, then we should expect the peak to be like a plateau. If we zoom out, the peak will look sharper, though.

    We should also keep in mind that in terms of per capita oil production, that peaked back in 1979. This is important because we usually look at oil production but not in relation to population.

    Finally, what's just as important as the point when oil production drops is the one when oil demand exceeds production. According to BP, that has been taking place since 2006. Excess demand is being met by non-conventional sources.

    Thus, we can argue that peak oil arrived six years ago.

    ReplyDelete
    Replies
    1. This is the interview you are talking about, and he clearly states world oil production will peak in 1995, and that there are only 2 trillion barrels URR. He was wrong on both accounts.

      http://www.youtube.com/watch?v=ImV1voi41YY

      John B.

      Delete
    2. So, anonymous, you think that oil will NEVER peak?

      Delete
  10. Aw... our anonymous is making exactly the kind of low level argument that's so common in this debate. It goes like this: "X predicted the peak in the year Y, but it didn't happen. Hence it will not happen for a long, long time (or maybe never).

    Now, there is a very clear figure in the post showing that in 1956 Hubbert saw the global peak for the year 2000 (NOT 1995). Was it wrong? Sure, because we haven't yet peaked in 2012. But that's not the point. For the time it was made (1956) it was a good guess. Did anyone else predicted so much in advance the troubles we had with oil in the past decade? That's my point in the post: it is not a question of horoscopes or crystal balls. It is a question of being prepared.

    ReplyDelete
    Replies
    1. Hello Mr. Bardi,

      Actually it is a very simple argument. That Hubbert was basing his peak on 2 trillion barrels total URR. If Hubbert were correct, we would aready be seeing huge declines in production, because we have already used more than 1 trillion barrels - the half way point.

      In fact Hubbert did not include deep water, oil sands, heavy oil, tight shale, etc, because at the time there was no technology to develop these resources. So instead of 2 trillion barrels, we now have 15 trillion.

      Stock up on dried tomatoes and ammunition if you wish, but I think perhaps it would be much wiser to just admit you were wrong. Thanks.

      John B.

      Delete
  11. Anonymous is making the common error of confusing reserves with production rate. Once the rate of production fails to match the requirements for continued economic growth, the whole system goes into recession, then depression, then total collapse.

    There could be 100 trillion bbls in reserves, and they would all just sit there, as they all sat there in the Middle Ages.

    Ken Provost

    ReplyDelete
    Replies
    1. There is not much you can say to people who fall into this kind of mistake - it is not that they can't understand that it is not the total amount that counts, but the energy cost to extract it. They can, but they don't want to.

      Delete
    2. First Peak Oil proponents claim the oil reserves just aren't there. Then they claim you just can't produce them fast enough. Then they claim it costs too much. Then they claim alternatives can't possibly replace oil prodcution, because THEY cost too much. Then thy claim oil poduction has indeed peaked, but we just don't notice it because alternatives are making up the difference. Something that they had earlier claimed was impossible! Who are the confused ones again?

      This is the problem when you start your theory with a foregone conclusion - economic collapse, the end of civilization, doom. Then try to fit scenarios which produce a preconceived result.

      As Noe van Hulst says in this video - peak oil is a myth.

      http://www.youtube.com/watch?v=6v3w4eyXVWE

      John B.

      Delete
    3. Fine, John, we took notice of your opinion. Now, please don't keep repeating the same things over and over. Thanks.

      Delete
  12. One of the most obvious signs that we are already past Peak is that oil production curves are no longer used; total liquids curves are used instead to cover the Peak. And Mtoe are not used as units for those curves either.

    ReplyDelete