Peak oil down to war, depression and geopolitical shifts

Given the increase in the amount of oil that China and India are importing, it looks as if there will be no oil available for other countries to import in another decade, warns expert

In recent months, there has been a spate on stories in the press pronouncing that any imagined energy crisis is over for the foreseeable future and that the notion that world oil production will peak is now dead. These stories talk about the great quantities of oil being found deep under the sea or that will soon be found beneath the Arctic ice cap, or in what are termed ‘shale beds’ around the world.

Recently, attention has been focused on the rapid increase in domestic American oil production that is coming from ‘shale oil’ – more properly termed ‘tight oil’ – fields in North Dakota and Texas. Before going into why there are serious flaws in all this happy talk about how much oil we are going to have for another decade or two, we should define just what is meant by the term ‘peak oil’ and why it carries serious implications for global economic development, now and in the years ahead.

Peak oil is simply shorthand for the point in time when world oil production stops growing and will eventually be followed by a decline in production. Note that we are talking about the flow of oil. It does not matter how much is hidden under the arctic ice cap, deep beneath Brazil’s offshore waters, or in the Alberta tar sands in Canada; if it is not being extracted, processed and transported to our fuel tanks – then we have peak oil. Constrictions to the global oil flow can come for several reasons. The most obvious is that the older oil fields start to dry up and new ones cannot be found or exploited fast enough.

At the present time the world’s existing oil fields are believed to be losing some three to four million barrels per day of production each year due to normal depletion, which must be replaced by new oil fields just to stay even. Another factor is political restrictions on access to oil. These may simply be government mismanagement of state oil companies, insurgencies and even full-scale wars preventing access to oil deposits.

It does not matter, if the oil is not getting to the world’s fuel tanks fast enough to support continued economic growth – then we have a problem. Yet another constraint is the steadily increasing cost of oil, which has been increasing at about 7 percent a year. At every increase, additional consumers of oil are being priced out of the market. It is conceivable that global oil production could peak simply because a sufficient number of consumers can no longer afford to purchase it.

A little-known fact of world oil production is that the major exporters are using an increasing share of their production for themselves. Global exports are down by some two million barrels per day in recent years. Given the incessant increase in the amount of oil that China and to lesser extent India are importing, it is starting to look as if there will be little or no oil available for other countries to import in another decade or so.

The difference between conventional oil and what is now called ‘all liquids’, which consists of conventional oil plus biofuels, natural gas liquids and refinery processing gains is important to understand. Biofuels and NGLs are useful products for many purposes but they are not readily useable as direct substitutes for all the many uses of conventional crude oil. This is especially true of several types of fuel used for transportation.

So-called refinery gains, which are usually included as part of our fuel supply, do not produce more energy; they simply puff up the refined oil products so they take up more space in their containers – something akin to baking bread. At the current time, the world is producing about 75 million barrels per day of conventional oil and an additional 15 million barrels per day of other combustible liquids. After growing steadily for the last 150 years – interrupted by the occasional war, economic depression and political upheaval – conventional oil production has grown very little in the last eight years.

What growth there has been in the global oil supply recently has come from the United States and Canada. American oil production, mostly from tight oil fields in Texas and North Dakota, is up by 1.5 million barrels per day in the last two years and Canadian oil sands production is up about 400,000 barrels per day. Two of the most important questions affecting global oil supplies in the next few years are just how much longer the boom in US tight oil production will continue and when the deteriorating political situation in the Middle East will seriously curtail oil exports.

Oil production from tight wells that have been hydraulically fractured depletes very rapidly with production declining by 80-91 percent of initial output in the first 24 months. In this situation, some 40 per cent of production must be replaced annually just to maintain a level output. Independent geologists looking at the prospects for tight oil in the US forecast that production from current fields will peak in 2016 and will be to down to about 700,000 barrels per day by 2025. Therefore, total tight oil from the North Dakota and Texas fields will likely be on the order of five billion barrels – equivalent to about 10 months of US consumption.

With half a dozen Middle Eastern countries sliding into chaos, the threat to oil exports from the region is increasing rapidly. Of the countries currently having serious problems, only Libya and Iraq are major oil producers. But unrest in the region is just starting and is likely to continue for many years. While peak oil – the time when global production starts to decline – may have been put off a few years by the exploitation of high-cost tight oil, it has definitely not gone away, a fact that will be obvious to all in a few short years.

public service Europe