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The Financial Times Limited
September 14, 2007 Friday
PEAK OIL FACTS CONVERGE WITH THEORY
Over the last couple of years, this column has elaborated on the different theories that predict the timing of peak oil. It has also analysed other influencing factors such as world oil discovery peaking in the 1960s, the low net energy returns from unconventional sources like tar sands and the dilapidated status of the exploration/drilling industry that could impede additional production in the foreseeable future. With crude hitting an all-time high of $80 a barrel on NYMEX yesterday, this is probably a good time to summarise the discussion and to see whether the actual numbers have been in line with the forecasts made
The four theories Given in the Table is a summary of the four theories that could be used to estimate the timing of peak oil. All four methodologies show a remarkable confluence in their predictions regarding the timing of peak oil
So why is there a difference in timing between the four approaches? Firstly, predicting peak oil is not an exact science and there are various factors (below ground reserves, unverifiable production data and production policies of national oil companies) that are open to very subjective interpretations. More importantly, the definition of 'oil' itself is different in the four methodologies
Hubbert Linearisation is primarily concerned with conventional crude while the Giant Oil Fields study and the Mega Projects database add unconventional sources such as tar sands and natural gas liquids in their forecasts. This difference is however not significant from a long-term perspective. Conventional crude still accounts for the bulk of our supplies (more than 85 per cent) and a peaking of conventional crude would imply that the peak for the entire basket would soon follow. It is indeed remarkable that in spite of the above issues and differences, the range of peak oil as determined by the above four studies varies only by 5 years. The interesting point to note is that each of the above four approaches has taken an independent and different methodology in estimating peak oil and yet, all four have come to similar conclusions. More interestingly, Chris Skrebowski started his 'Mega Projects Database' study to disprove the peak oil theory and after completing the study, became a convert to the peak oil camp. Theory meets reality? So what does the actual data indicate? EIA data shows that conventional crude actually peaked in May 2005 at about 74.27 mbpd and by May 2007 production was down by about 1.2 mbpd to 73.06 mbpd. This is in line with the forecasts made by the Hubbert Linearisation technique for conventional crude. In spite of the decline in crude production from May 2005, we witnessed an increase in 'All liquids' production primarily due to an increase in the production of natural gas liquids and refinery processing gains. Though both the above are real additions to production, we should remember that these are one-time gains and hence should not be expected to increase indefinitely into the future. In the Graph, the 'all liquids' fuel production shows a peak in July 2006 at about 85.39 mbpd and production by May 2007 was down by about 1.2 mbpd to 84.17 mbpd. Again, this is line with the estimates made by Matt Simmons and Dr Campbell in their studies. This is even more remarkable considering that we have not had any major disruptions due to above-ground factors such as hurricanes or a drop in Iraq production due to political factors since 2005. So in all probability we would have passed the peak oil scenario within this decade with 2006 as the most likely candidate for the event. In the best case scenario we might have a bumpy plateau for another couple of years before the decline rates start to have a more observable impact on the production numbers
Conclusions In some sense, it really does not matter whether peak oil occurred in 2006 or will occur by 2010. Since we would require two decades of planning to mitigate the effects of peak oil, we are staring at a massive barrier even in the best case scenario. Even with the plateau scenario, the enormous demand for energy from China and India is going to cause the prices to zoom. What we think of as high prices today would look ridiculously cheap two or three years down the line
Ram Venkatachalam and Shanmuganathan N (The authors are Directors at Benchmark Advisory Services. They can be contacted at and . The previous articles of this series can be accessed at http://kinghubbert.blogspot.com) Copyright 2007 Business Line
http://www.thehindubusinessline.com/2007/09/14/stories/2007091450220800.htm
