... by Michael Trudeau, Colonial Resources
Many of us have already heard the words "Peak Oil" tossed about here and there. You may as well get used to it as the phrase is sure to become one of the new "buzzwords" of the twenty-first century. I myself have been talking about Peak Oil on many of my own previous radio broadcasts as well as numerous guest appearances on others shows as far back as the year 2000.
What is "Peak Oil?" Peak Oil is a term first coined in 1956 after Marion King Hubbert presented his theory which predicted that for any given individual oil field, geographical area, or the Earth as a whole, the rate of petroleum production of the reserve would resemble a bell curve. The beginning of the curve would signify very obtainable, therefore, inexpensive oil. However, the back side of the curve would signify oil much harder to extract and more expensive to obtain because the wells would need to be drilled increasingly deeper and oil fields in remote areas of the world would need to be explored, developed, and tapped. This would eventually lead to a permanent rate of production decline. Now couple this with the ever increasing demand for more petroleum in the United States and other western nations and the unprecedented need of petroleum to fuel China's and India's entry into the industrial age along with their 1.3 and 1.1 billion person populations, respectively, (China has 1 billion more people than the United States) and you can see we have a serious problem.
"Hubbert Curve" And A Warning In 1974 That
Global Oil Production Would Reach Its Peak In 1995
Hubbert's curve theory became known as the "Hubbert Curve" and the peak of the curve became known as "Hubbert's Peak." Using his theory, Hubbert predicted that United States' oil production would peak in the late 1960s to the early 1970s. Using this same theory, in 1974 he predicted that global oil production would reach its peak in 1995 if current trends continued. Hubbert warned that if the current rate of oil consumption was not drastically altered before we began the production decline phase, a world-wide energy crises would occur due to the lack of available oil. This drop in availability would then cause major spikes in petroleum prices as well as all of the things associated with or produced by using petroleum.
Why listen to Marion King Hubbert? First, we should start by referring to him as Dr. Hubbert. Dr. Hubbert began his career in geology and geophysics after attending the University of Chicago where he earned his B.S., M.S., and Ph.D. In the mid 1930s while in the process of obtaining his Ph.D., Dr. Hubbert began working as an assistant geologist for the Amerada Petroleum Company. He began working for the Shell Oil Company in 1943 where he continued his employ for over twenty years leaving to become a senior research geophysicist for the United States Geological Survey (the "USGS") retiring in 1976. He also held positions as a professor of geology and geophysics at Stanford University and as a professor at UC Berkley. I think we can all agree that Dr. Hubbert is certainly highly qualified in his field of expertise.
Where does oil come from? There are two schools of thought as to where oil comes from and there are no absolutes. The first theory states that oil was created using a biogenic process where all of the oil that is in the Earth was formed over many millions of years from decaying organic and fossil materials and is in fact, for the most part, all of the oil there will ever be. This theory is widely held by most every petroleum engineer and geologist. The other theory is a belief that petroleum is derived from an abiotic process (a process not associated with or derived from living organisms or decaying organisms in this instance) whereby the oil will continue to regenerate for eternity and that vast reserves of untapped oil are simply waiting to be "found." For the record, this writer sides with the bulk of the petroleum engineers and geologists and the first school of thought.
A Drum Roll For Dr. Hubbert - Ridiculed Then 14 Years Later Vindicated
Now, let's take a look at Dr. Hubbert's predictions and see how he did. Dr. Hubbert predicted that the United States would hit its oil production peak in the late 1960s to the early 1970s. Drum roll please. The United States did in fact reach its production peak in 1970 when we, as a nation, produced 3.5 billion barrels of oil annually. Today, production has dropped to just 2 billion barrels per year. Dr. Hubbert after being ridiculed and scoffed at by many of his peers, was vindicated just fourteen years after his original theory was released.
The United States is not alone in oil production decline. In 2005, the Worldwatch Institute observed that oil production was in decline in 33 of the 48 largest oil producing countries. The remaining producers can expect to reach their peaks in production within the next decade. Thus, it turns out that Hubbert's prediction for the globe to reach its peak by 1995 was not far off. Remember, his peak prediction for the globe was prefaced with "if current trends continued." We of course know that the oil crisis we faced in the mid and late 1970s caused us to slow our consumption dramatically for a period of time. This effort bought us a few more years.
So, have we hit global Peak Oil yet? That's a very good question. It seems that most of the experts agree on one thing, and that is that we are definitely closing in on the actual global peak, if we aren't already there now. Let's examine some of the evidence. We'll look at current production levels as well as the rate of new oil discoveries.
There is some contemplation on how many oil fields are actually in decline, but of the 21 largest fields, at least half are declining. In 2006, a spokesman for Saudi Aramco, the state-owned national oil company of Saudi Arabia, stated that its mature fields are now in decline. The largest oil field in the world is Saudi Arabia's Ghawar field. The speculation is that the comment of the Saudi Aramco spokesman points to the Ghawar field as being in current decline. The world's second largest oil field, the Bergan field in Kuwait, entered decline in 2005. Mexico stated in March 2006 that its workhorse field, the Cantarell field, had entered the decline phase of production.
Some of you may recall in 2000 when OPEC announced that they would be able to increase production enough so as to maintain a price level between $22 and $28 per barrel. It worked like a charm. In 2007, OPEC again announced that they could produce sufficient amounts of oil to keep the price level at $50-$60 dollars a barrel until at least the year 2030. Again, it worked like a charm considering. However, most recently in November 2007, King Abdullah of Saudi Arabia announced he would not be able to increase production leading to further speculation that Saudi Arabia is already operating at full capacity.
If We Roll Out The Barrels How many Will That Be?
Total world oil supply has been estimated as low as 1,500 billion barrels and as high as 2,400 billion barrels in total recoverable reserves. These numbers are based upon major oil surveys taken since 1965 rating 95% confidence. In 2000, the USGS survey reported total world oil supply at 2,300 billion barrels, but the number assumes a discovery rate over the next twenty years that cannot be readily substantiated. Current and past rates of discovery do not support the USGS survey claims. In fact, discovery levels have been falling since 1960 including the eight years since the USGS released its projection. According to several sources, world-wide oil discovery has been less than annual production since 1980. It would appear that world-wide oil production has been "maxed out."
A word about the oil reserves here at home. The annual rate of consumption here in the United States is equivalent to 25% of our proven reserves. If the United States were forced to rely on its own reserves, we would have less than a four year supply at our current rate of consumption. Remember too that our rate of oil consumption is growing at a fairly rapid pace. It's our insatiable demand for oil and its derivatives that point out how quickly this problem will become insurmountable and how it may affect the various aspects of our day-to-day lives.
Click Here For Part Two, The Conclusion...
© 2008, Michael Trudeau
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Michael Trudeau an Economic Advisor and Monetary Specialist for over fifteen years. Michael discusses the system, how it works, what is the truth and myth, what we can do. If we truly understand and accept the situation, what we must do is protect our assets. With utmost confidence we your hosts, highly recommend Michael as a trusted source for information and services.
