This is the fifth time that the world is said to be running out of oil. Each time ... technology and the opening of new frontier areas has banished the specter of decline. There is no reason to think that technology is finished this time. — Daniel Yergin
Prophesy is a good line of business, but it is full of risks. — Mark Twain
No one can predict the future. The best we can do is to amass lines of evidence that point toward plausible scenarios. Cambridge Energy Research Associates (CERA) claims that the oil supply will continue to grow as it has in the past. Those studying the peak oil hypothesis, so-called peakists, are not so confident that the future will resemble the past. Peakists believe that CERA is ignoring the warning signs of peak oil. Can we gauge the likelihood of a near term peak in the oil supply?
A 1997 Battelle study for the U.S. Department of Energy, Foresighting Around the World, by Marina Skumanich and Michelle Silbernagel, explains why humankind's age-old struggle to predict the future is doomed to failure.
Foresighting is the effort to assess future conditions based on current conditions and trends... Although popular perception is that the future will become more predictable as foresighting methods improve, experts involved in futures studies and foresighting have developed a perspective of the future as inherently "contingent;" i.e., not able to be directly determined by current conditions regardless of how much more detailed and rigorous any foresighting method becomes.
Trend extrapolation is the simplest form of foresighting. This method is based on an assumption that patterns in the past will continue into the future. To perform this method, information is collected about a variable over time, and then extrapolated to some point in the future....
This method has two major weaknesses. First, it is often a fallacy to assume that the future will follow the pattern of the past. While people often make such assumptions due to a lack of better information, any picture of the future that is developed on this basis can be inaccurate. The second weakness of this method is that it typically provides information on only a single variable. Especially in current world conditions, it is rare for any variable to act independently. More often, the influence of outside forces can dramatically alter the future of any one event or condition.
Extrapolation of a single variable, the oil supply, is subject to large uncertainties. This is true regardless of the method used, e.g. applying the first derivative of Verhulst's logistic function to model oil production rates over time.
The peak oil scenario's plausibility depends on an analysis of constraints limiting the conversion rate of oil reserves or resources into usable flows. In its usual usage, the phrase "peak oil" refers to the hypothesis of a near term (by 2015) peak or plateau in the available oil supply — a maximum production rate. CERA asserts that "there is no evidence that a peak will occur in the next 10 to 15 years." Their futurology predicts an undulating plateau of oil production sometime after 2030 (graphic, left). An eventual peak or plateau in conventional oil production is not in dispute. Only the time frames under consideration are incompatible.
A fallacy dogs those studying the peak oil question. It is commonly believed that these analysts are making dire "end of the world" predictions about the future. While some are drawn to Mark Twain's risky enterprise, many of those studying the problem, including a number of oil & gas industry veterans, spend their time examining worrisome evidence that tends to support a near term peak scenario. The plausibility of their case rises or falls on this evidence and its interpretation.
Oil production rates are a function of these six interacting factors.
There is evidence arguing for a plausible peak oil scenario in each area. Despite what CERA says for public consumption, they agree that demand is unrelenting (#6), geological declines are happening (#2), and aboveground risks (#3, #5) may adversely affect the oil supply. The disagreements pertain to aspects of volumetric reserve and resource estimates (#1) and whether technology can come to the rescue fast enough to increase production (#4) in the required 2015 time frame.
Note — future columns will deal with all the factors affecting production rates. Only volumetric estimates (#1) and demand (#6) will be discussed here. Unconventional resource plays (e.g. Orinoco extra-heavy oil or the Canadian tar sands) are not discussed here.
CERA's main argument that there is no imminent peak in production rests on what is termed reserves growth, and uses data compiled by IHS Energy, their parent company. The discoveries curve (graphic, left) is from Perspective on Oil Resource Estimates (PORE), a presentation made by Ken Chew and Pete Stark of IHS Energy at the AAPG Hedberg Conference in November, 2006. The figure shows that since 1986, more liquids (conventional oil, condensates and natural gas liquids) were produced to meet demand than were replaced by new discoveries. Most reserves were found prior to 1980, and the peak of discoveries took place in the mid-1960's.
Reserves growth, also called field upgrades, refers to additions to existing producing fields, and is due to four factors (PORE, slide #17): 1) new pool discoveries; 2) improved oil recovery (IOR) technology that raises recovery factors; 3) higher commodity (oil) prices that spur investment in IOR or infill drilling; 4) field micromanagement, e.g. computerized downhole data acquisition. In 2005, CERA's Peter Jackson and Robert Esser testified before the House Energy and Air Quality subcommittee, saying that "from 1995 to 2003 global production of 236 billion barrels (bbo) was more than compensated by exploration success and field upgrades that collectively added 144 billion barrels and up to 175 billion barrels, respectively."
CERA's testimony was based on IHS Energy's Report on 10-year Petroleum Trends: 1994-2003. This document indicates that the 175 bbo backdated reserves addition was a proved-plus-probable (P50) rough estimate of pre-1995 reserves as assessed at the end of 2003. This represented a 133% liquids replacement during the period, so the world was "discovering" more oil than it was consuming between 1995 and 2003.
CERA claims that failure to take reserves growth into account is the fatal flaw in the peak oil argument (setting aside unconventional resources). Is it all over for the peakists? Judge for yourself. The future can not be determined from past trends or current conditions, but consider the world's position regarding oil reserves and demand, taking IHS Energy's data at face value.
It is not possible to discuss the future without making reference to the present and past. If demand continues to rise, if reserves growth does not imply greater production rates, if reserves estimates are invalid, if declines rates remain constant, etc. The future is unpredictable. A severe global recession could ensue, causing oil demand to crash. Almost anything could happen, but not all events are equally probable. Although we must examine the likelihood of future scenarios based on current knowledge and past trends, it is not valid to extrapolate past growth of the conventional oil supply into the future as CERA does. Daniel Yergin's "fifth time" statements, based on his fine history The Prize, are prophecy. CERA's gospel is sanctioned by his status as an "expert" authority on the future oil supply.
The observations made here do not permit the inference that peak oil will certainly arrive by 2015. The evidence does allow for a plausible scenario under which the oil supply may shrink or plateau in the near term, and never rise above that level ever again. CERA's assertion that "there is no evidence that a peak will occur in the next 10 to 15 years" does not hold water. Concerning the future, it is helpful to remember that —
Some things are so unexpected that no one is prepared for them — Leo Rosten
Well, virtually no one.
ASPO-USA is a nonpartisan, proactive effort to encourage prudent energy management, constructive community transformation, and cooperative initiatives during an era of depleting petroleum resources. ASPO-USA will hold its 2007 World Oil Conference, October 17-20, at the Hilton Americas in downtown Houston, Texas.