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Energy Insights: Energy News: Oil and Gas Production: Has oil reached its peak?

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Oil and Gas Production: Has oil reached its peak?



OIL SOURCE: In the Arctic, oil fields, which could yield as much as 118 billion barrels, were identified in the 1950s

To make petroleum takes millions of years and a lot of dead compressed animal and plant matter.

Now unless there is a mass extinction on the horizon, then petroleum is clearly a non-renewable product. Knowing how much oil we have left has caused a fierce debate amongst many scientists. The oil companies say there is plenty of oil left and it would take over 50 years before we start to run out. 

However a geologist named M. King Hubbert produced a graph in the 1950s to show how an oil reservoir follows a predictable path from discovery to depletion and the graph made it possible to predict how long the depletion process would take.

When oil production from a reservoir reaches the highest point this is called Peak Oil because the production trajectory will fall sharply. The theory of peak oil has now been applied to the Earth’s oil supplies and some believe we have now reached its peak oil state.

In February 2007, the U.S. Government Accountability Office published a stu­dy that examines the steps that would need to be taken in order to protect against a peak-oil fallout. The GAO concluded that there are a variety of factors that will ultimately influence the arrival of peak oil. Consider peak oil as a marathon, one where each of the runners’ progress has an effect on the others. Each of the runners -- oil consumption, oil production and alternative fuel technology -- is involved in the oil peak, which we’ll call a grim finish line.

In this race, oil production appears to have a tight lead over oil consumption. But remember, in this marathon, each of the runners’ progress affects the others. So every time alternative energy sources have a burst of speed -- say, through some new advancement in biofuel technology -- oil consumption slows down.­ The same goes for another runner who is relatively new to the race: conservation. This runner can surge ahead, perhaps through new government regulation, which forces auto makers to increase the fuel efficiency of new cars. In the same way, this would slow down consumption and prolong the race.

­The opposite is true as well. Political instability in oil-rich countries could trip up production, causing it to fall behind. The huge economic development that has begun to characterize two of the world’s most populous nations -- India and China, each with more than one billion people -- could give a boost to oil demand.

The way you look at the peak oil dilemma depends on which runner you bet on. Will alternative fuel sources overtake oil consumption? Or will increasing consumption simply be too much for the upstart to edge out? Will production get a sudden burst thanks to the discovery of a new oil field and leave the others in the dust? One way or another, the only guaranteed loser in this race will be production. It’s how long this race will last that’s up for discussion.

For peak-oil believers, the question is not whether oil production will decline while demand increases, but rather when the peak will take place. The Hubbert Curve of oil production can be extrapolated from individual wells all the way to worldwide production, and its creator, M. King Hubbert, has a history of accurate projections. In 1956, he predicted that the United States’ production of oil would peak between 1965 and 1970. It peaked in 1971 and has been in decline ever since, closely following the curve Hubbert predicted. As a result, the United States imported about 58 percent of the petroleum it used in 2007.

The U.S. isn’t alone in this dilemma. The United Kingdom’s North Sea oil production peaked in 1999. The decline in entire countries’ production may alter the world production bell curve. Many believe we have already reached the peak of world oil production and have entered a plateau. This appears to have happened sometime in 2005, and is being dubbed by peak oil adherents as “peak lite.”

But are peak-oil theorists simply overreacting? After all, no one can say for certain how much oil is left.

In 2006, Cambridge Energy Research Associates (CERA) said “the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the [peak oil] theory’s proponents”. The organization went on to say that, rather than peak and decline, the world’s oil supply will eventually resemble an “undulating plateau,” with small peaks and valleys that will continue to meet the needs of global oil consumption for decades to come.

In CERA’s opinion, one to which many of the peak-oil skeptics subscribe, the oil peak theory is just that -- a theory -- and one that it considers questionable. The organization instead believes the plateau will not occur until at least 2030, and by the time demand surpasses the supply plateau, other forms of energy will be sufficiently advanced enough to “fill in the gaps.”

So how is CERA coming up with such a sunny forecast for oil? They believe we can rely on future discovery and full exploitation of the resources of which we’re already aware.

There are many sources of petroleum that we already know exist.

In the Arctic, oil fields, which could yield as much as 118 billion barrels, were identified in the 1950s. The deep sea is also a source for potentially billons more barrels of oil. And there are also unconventional sources as well. Canada is home to vast ­fields of oil shale -- a rock that when heated releases its oil -- and more fields have been discovered in the western United States in 2005. And future discoveries of “superfields” of conventional oil reservoirs could boost world production.

­Enhanced oil recovery (EOR) may also help find new petroleum sources. Oil production usually exists in three phases: primary, secondary and tertiary. Primary recovery is the easiest, with oil virtually (and sometimes actually) spurting out of the ground due to pressure from gases within. This was perhaps most famously displayed in the opening credits of each episode of “The Beverly Hillbillies,” when Jed Clampett accidentally strikes oil with an old rifle.

Primary recovery usually draws about 10 percent of the oil in a reservoir. Secondary recovery can remove an additional 20 to 40 percent of the oil. In this process, water or gases are pumped into the reservoir to repressurize the oil. So after these two methods of drilling oil are exhausted, there is still as much as 50 percent of the oil left in the reservoir.

After the first two stages are spent, oil companies generally cap the reservoir, leaving the remaining oil in reserve. But why don’t they just recover it all? The answer is simple economics. Tertiary recovery is expensive. With oil at its current price, it’s simply not economically wise for oil companies to tap these harder-to-exploit resources. 

The price for oil hasn’t reached the level where companies will make enough money exploiting resources in places like the Arctic and deep ocean, or to roll out the more expensive technology for enhanced oil recovery.

But when easily accessed oil dries up, the price of oil will increase, since there will be less of it. This may have already begun. 

On Jan. 2, 2008, the price per barrel of oil reached $100 for the first time, a landmark many peak-oil proponents have warned of. On July 11, 2008 it reached an all-time high of $147. 

When oil suppliers must spend more money to recover oil, the price will rise further. This is one of the possible problems that could face the world if oil peaks or if alternative energy sources aren’t adopted more widely. 


 Brian Sallery, is the Principal at the Institute of Petroleum Studies Kampala. Together with

By Brian Sallery

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