Monday, September 14, 2009

peak oil - coming soon but when?

RealWorldEconomicsReview | The optimum pattern of extraction for any well or reservoir depends primarily on certain factors, such as the size of the initial find, the rate of extraction over time, the characteristics of the rocks in which the reservoir is located and, of course, the economics of further extraction. So many professionals have attempted to model this pattern mathematically.

One of the most famous models was M. King Hubbert's version of the logistic curve, by which he correctly predicted the peak and decline of US crude production. In fact, most of the debates over "peak oil" in the 20th Century revolved around what are, for lay people, arcane issues of modeling. So in that sense, and that sense only, the 20th Century debates may be characterized as "theoretical" in part.

However, the debate which has begun in the 21st Century is different. It is not theoretical. It is not even about forecasting techniques. It got started because people began to question the veracity of Saudi Arabian oil statistics and the accuracy of that country's projections of its future production. This is the story.
For some five decades, Saudi Arabia managed to make the world believe that it was a cornucopia of oil. It also managed to convince people that it had some "aces up its sleeve", in the form of geologically promising rock formations which had not been drilled. The writer remembers this very clearly, beginning in his refinery days, in the late 1960's.

Indeed up to a few years ago, Saudi oil executives were still claiming that the country would produce 10, 15 or even 25 million barrels per day of crude oil for the next 50 years! This was despite the fact that it had never produced much more than 10 million and is currently producing less than eight million. All of these allegations were of course very convenient because (a) they got the world "hooked" on cheap oil and (b) they assured the country of US military protection against hostile neighbors, who were stronger militarily and, in some cases, more populous (Iraq, Iran and Israel).

However, all of these assertions have turned out to be somewhat optimistic. Most of the reservoirs which are still active today "show their age", especially those which have been producing for 50 years or more, and some even began to do so decades ago. Last but not least, the unexplored or underdeveloped reservoirs appear to be only "jacks" or "tens", instead of "aces". Only the outside world didn't know any of this until recently.

The first person to "blow the whistle" was Dr. Sadad al Husseini, head of exploration and production for Saudi Aramco, the government oil company. In 2004, he wrote a memorandum to the Minister of Oil. Following a dead silence (at least as far as the public was concerned), Dr. Husseni retired.

However, Matthew Simmons, an American banker with 35 years of oil-industry experience, picked up the thread. Among other documents, he studied nearly 300 Saudi technical presentations given at international conferences with the approval of Saudi Aramco. He concluded that Husseini was right and wrote the now famous book, "Twilight in the Desert" (2005) which sets forth his findings. This book does not confirm the Saudi joke, "camel herders to camel herders in three generations", but still it tells a pretty somber story.

Needless to say, lots of people heard or read each and every one of these presentations but very few heard or read more than a few. So most people were not aware of the story which these documents told, when organized by reservoir and set end to end by date.

This book set off an international debate with various consequences. First of all, the Saudis are now talking about a peak in their production of 12 million barrels, to be followed by a "plateau" of 10 million barrels and then a decline. The plateau is expected to last no more than a decade. All of which begs the question: When Saudi production peaks, can a world peak be far behind?

Secondly, the King of that country reserved all futures discoveries "for our grandchildren", instead of allowing them to be exploited immediately, to satisfy the world's insatiable appetite for crude oil. Thirdly, everybody began to make projections of the year in which world crude-oil production would peak. In October 2008, the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) even warned that a peak in cheap, easily available oil production is likely to hit by 2013, posing a grave risk to the UK and world economy.