Peak Oil 101
I have organized the Peak Oil 101 series into a number of nested pages. You are currently at the ‘overview’ page. There are links within this page to more detailed discussions of peak oil concepts. These links can also be accessed through the drop down menu that appears when you hover the pointer over the ‘Peak Oil 101′ link that brought you to this page.
>>What is peak oil and should I be worried about it?
Oil is a finite, non-growing resource. Once discovered and produced, it can be refined into a variety of flexible, portable, energy-dense fuels, petrochemical feedstocks, asphalt, and lubricants. Here is an image that shows how a barrel of crude oil breaks down. On the left, the barrel is broken into refined petroleum products. On the right, the barrel is broken down by end use. Crude oil is mainly refined into fuels which are used for transportation. This is because oil-derived liquid fuels are stable, energy-dense, and easily transported. (Note: I’d love to give credit for this image, but I long ago forgot where this image came from).
>>Oil is the King of Energy Sources
More than 95 percent of all transportation in the U.S. runs on gasoline, diesel, jet fuel or bunker (see images below which were ripped from the EIA’s website). Oil literally and figuratively fuels the process of globalization. Without oil, consumers would be forced to pay far more for a much diminished variety of goods and services because global goods and services markets would evaporate.
For these reasons and many more, we should be very concerned about global oil supply. The good news is that there is A LOT of oil still in the ground. The bad news is that the amount of oil in the ground (or OIP for oil-in-place) does not matter nearly as much as how fast oil can be ‘produced’ (i.e. ‘extracted’).
>>Peak Oil is Not about Reserves – It’s about Production!
Oil in the ground is like a trust fund, and when it comes to oil, the world is fabulously wealthy. While the amount of cash in the bank matters to the trust fund recipient, their budget is determined by the size of their monthly check. Similarly, the total quantity of oil in the ground matters, but not as much as how fast the oil can be produced.
The two main goals of this blog/website are: 1) to educate the public about energy, the economy, and the environment, and 2) to promote voluntary conservation which is by far the best energy-scarcity mitigation strategy. I am personally motivated by the peak oil story because oil is the undisputed king of the fossil fuels, and the consensus among most forecasters is that a production peak is very near.
With bountiful energy, most problems can be solved, and oil satisfies 35% of the world’s energy needs. When oil production begins to decline, so too will gross energy… and as gross energy declines, problems become ever more difficult and expensive to solve. Furthermore, the amount of energy returned on energy invested (EROeI) has steadily declined, so we should expect to see net energy – the total amount of energy available to non-energy sectors of the economy – peak sometime before gross energy. In short, oil is Liebig’s limiter - the shortest slat (stave) of Liebig’s barrel. Oil is the weakest link in our energy portfolio, yet oil alone powers the global transportation system and is the fuel supporting global trade, economies of scale, and regional specialization.
>>All You Need to Know to Understand Peak Oil Theory
Peak oil is a prescient concern of the utmost priority. In order to understand peak oil and avoid being lulled to complacency by the slick marketing of western oil companies, the talking heads in the media, and (most unfortunately) our government representatives who are constantly lobbied and funded by big oil (not to mention the natural gas lobby, the coal lobby, big finance, etc.), one needs to understand a number of basic, but often elusive, concepts. So, let’s work through a quick exercise that will cover the basic vocabulary and graphically explain peak oil theory.
Disclaimer: I took great pains to make sure that the following representations are numerically representative of actual production, URR, etc. If you are not numerically inclined, just skip the text written in green. You will still get the picture (literally and figuratively). For the numerically inclined, read all the text, and if you feel like it, grab $60 in pennies and follow along
Imagine that you have a pile of pennies on a table, and each penny represents some quantity of oil (500 million barrels). This pile portrays all the oil that was in the ground in 1869 when Colonel Drake produced the first barrel of oil in Titusville, PA.
Image coming soon.
Only some portion of the total amount of the original oil in place (OOIP or original OIP) is recoverable. In this penny exercise, then, the big pile representing original OIP must be separated into two piles. In the first pile, we put all the ultimately recoverable resources (URR). For those of you interested in following the numbers, Most estimates of URR range between 2 and 4 trillion barrels. For this exercise, I will split the difference and define URR as 3 trillion barrels which is above both the mean and median estimates. Thus the pile representing 3 trillion barrels of URR contains 6,000 pennies. The second pile represents the total quantity of oil which will never be pulled from the ground because of technological, economic, political, or energetic constraints (i.e. when the EROEI approaches one).
Image coming soon.
We can now subdivide the pile of ultimately recoverable resources into two piles: oil that has been discovered and yet-to-find reserves (YTF). As oil fields are discovered, a penny or two is moved from the YTF pile to the discovered pile.
Image coming soon.
Just as we moved a penny from the YTF pile to the discovered pile, we remove pennies from the discovered pile as oil is produced. Rather than moving these pennies to another pile, though, we will stack them along a timeline, thus creating an oil production curve. The oil production curve in this exercise plots total production per year (y-axis) against time (x-axis).
Image coming soon.
Since oil is a finite and non-growing resource, the number of total pennies on the table cannot change. Hence, we know that eventually we will run out of pennies in the URR pile. Consequently, we can say with absolute certainty that oil production will eventually decline, so the question is not if production will peak but when. And an equally important question asks, “How fast will production decline after reaching the peak?” Will we have a long plateau with a gentle decline, or will we experience a sharp peak with a steep descent? Or will we experience something between these two extremes?
When looking at a production curve for a finite, non-growing resource, the area under the curve cannot exceed the URR. In the penny example, the pennies that get stacked along the production timeline are taken from the URR pile.
Now let’s imagine the different shapes that the stacks of pennies (e.g. the oil production curve) could theoretically assume. Because production takes a while to ramp up (mainly due to the upfront capital investment costs and the original lack of market demand for refined products), the curve will rise gently at first. As the market for refined products expands, production will begin to increase geometrically, which is to say that production increases at an exponential rate.
A wise society might decide to limit production when it reaches some pre-defined level. At this point, production would level off, and under managed conditions, a production plateau could extend the oil age for 500 or more years before gently declining to zero. In order to achieve a 500 year plateau, yearly production would need to be set at 6 billion barrels. Visually, this would be a ‘wall’ of pennies stacked 12 high which stretches for more than 31 feet. Such an approach would give engineers and entrepreneurs lots of time to bring renewable alternatives online, and the world would not come to depend on global production/consumption chains unless transportation could be powered by renewable fuels.
Image coming soon.
Instead of managing output, though, we allowed production to continue to grow at a geometric rate. Graphically, ramping up production means that we stack pennies ever higher each and every year. So where do these pennies come from? They come from farther out on the curve. In other words, these pennies are borrowed (make that, stolen) from the future. As a consequence, we will, without a doubt, have less oil and less net energy to fuel the economy in the future.
Image coming soon.
Over the 150 years that oil has been produced, production has grown at an average rate of 3.5 percent per year. To the vast majority of Americans, this sounds like a very sustainable trend. After all, we are only talking about a few percentage points. At this ‘reasonable’ rate of growth, the amount of oil produced and consumed has doubled every 20 years (rule of 70). As a result, we have consumed more oil in the last 20 years than we had consumed in the preceding 120+ years! The previous sentence is important. Read it again.
To date, the production curve somewhat resembles the left side of a bell curve – rising very slowly at first, then accelerating (the curve becomes steeper), then decelerating toward a possible near-term peak. We also see that by 2005 the world began producing and consuming more than 1% of total URR each and every year (even if URR is set at 3 trillion barrels… again, most methodologies indicate that URR is closer to 2 trillion barrels).
Image coming soon.
To date, the world has consumed over one trillion barrels of oil. If URR is 2 trillion barrels, we have already consumed as much as 50% of all the recoverable oil, and in doing so, we’ve emitted 420 Billion tons of carbon dioxide into the atmosphere! If it was possible for oil production to double again (it’s not!) and the low estimate of two trillion barrels of total recoverable oil is correct, then we would know that all of the remaining pennies would have to be used to in order to have one more doubling. In twenty short years, all the oil would be gone, and the world would be left with an insurmountable energy gap.
Image coming soon.
Even if URR is closer to 4 trillion barrels, oil would only last until 2050 at the historic rate of 3.5% annual growth.
In reality, we know that production simply cannot continue growing at a geometric rate right up until the last barrel is produced. We know that at some point production will reach a peak (or plateau) and then start to decline. How long a plateau will last and how fast production will decline depends on how many pennies we have already stolen from the future. And because we ‘pick the low hanging fruit first’ – which is to say that we produce the easiest to produce and refine oil first, the pennies left in the URR pile become ever costlier and energy intensive to produce (see the EROeI and Net Energy page).
This simple and irrefutable statement is profound. Oil production is currently at the seventh fold - meaning that increasing global production has quickly progressed from being easy to very nearly impossible. Consider the evidence. Between 2005 and 2008, the price for oil tripled, yet gross production remained essentially flat over these three years! The market provided producers with every financial motivation to sell more oil, yet they didn’t.
The problem was not that new production did not come online over this period. In fact, lots of new fields began producing oil over this three year period. The problem is that the vast majority of new production simply went into countering the production declines of aging fields (for an explanation, see the ‘production‘ page). The decline of aging fields is a significant challenge. The IEA (International Energy Agency) estimates that the current decline rate is equal to roughly 6.3% of global oil production. This means we need to find and produce a new Saudi Arabia every two years just to avoid global production declines! Even more troublesome is the fact that the rate of decline of existing fields will accelerate in the future.
We must understand that the longer and harder we fight to maintain production at current levels, the faster production will decline because there will be progressively less and less recoverable oil left in the ground, and this oil will be increasingly expensive and energy intensive to produce!
In other words, there exists a trade-off. We can choose either a long plateau with a sharp decline or a short plateau with a gentle decline. In fact, it might be too late for the former. Only time will tell.
When gross oil production begins to decline, food and everything else will become much more expensive, and trends in globalization will at first slow and eventually be forced to reverse (unless, of course, we manage to come up with some renewable fuel that works in our current fleets of cars, delivery trucks, planes, and boats).
>>When will Oil Production Peak?
If you’ve read this far, and are paying attention, you should be asking yourself, “When will the peak occur?” The only honest answer is “I don’t know!”. In fact, nobody knows. But, using sophisticated forecast models, we can get a pretty good idea.
The UKERC (United Kingdom Energy Research Centre) recently published a report titled “Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production” (.pdf warning). This report evaluates each of the major oil forecasting methodologies, the data used to make these forecasts, and the assumptions which underlie each of the forecasting approaches (I provide a summary on the ‘Production Forecast Methodologies‘ page). None of the models is perfect and the data is terrible. We should, therefore, expect there to be a wide margin of error. That said, I personally find it very troublesome that these models produce such similar forecasts – that production will peak between 2010 and 2020.
If these forecasts are not wildly flawed, we have very little time to engage a mitigation strategy.
In 2005, the U.S. Department of Energy commissioned Robert Hirsch, Roger Bezdek, and Robert Wendling to evaluate evaluate the peak oil threat and suggest a mitigation strategy. In this report – commonly referred to as “The Hirsch Report” – the authors argue that the U.S. needs to institute a ‘crash peak oil mitigation program’, and that for any such mitigation program to successfully avoid a liquid fuels shortfall altogether, the program must be initiated 20-years prior to the peak. They further argue that if a crash program is initiated 10-years prior to the peak, we should still expect a decade of liquid fuel shortfalls. A short version of the report can be found here (.pdf warning), and the full version can be found here (.pdf warning).
So here we sit today looking at what the UKERC describes as a “serious risk of a peak before 2020,” (that’s 10 years away), and not only have we not adopted a crash mitigation program, we’ve not adopted a mitigation program of any kind! We have done nothing to prepare for the serious challenges that peak oil presents to our well being.
While we should be pursuing increased efficiency and alternative fuels, these advances tend to be incremental, and “incremental innovations yield excremental results”. Increased efficiency and alternative fuels are entirely insufficient to the challenge we face, and we simply cannot afford excremental results!
We desperately need to adjust our personal expectations for the future so that they align with material and energetic realities. The easiest and most promising mitigation strategy is voluntary conservation and thoughtful, responsible consumption. We also need to reorient our economic and social structures so that they can function under conditions of declining net energy. If we fail to do so, we will suffer greatly under the weight of involuntary conservation. I believe voluntary conservation is a much more attractive option than involuntary conservation, and as a wonderful side-benefit, conservation and responsible consumerism will reduce greenhouse gas emissions. Along the way, we can become a healthier and happier society.
Thanks for reading! I’m hoping to eventually make a stop motion animation in order to communicate the peak oil story even more effectively. Stay tuned…