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Oil Peak vs. Oil Panic: Revisiting MKHubbert
Abstract
Worldwide, per-capita oil consumption is closely correlated with standard of living. In developing nations like China and India, increasing prosperity therefore requiresincreased per-capita oil consumption. However, oil is a finite resource whose production globally is about to begin to decline irreversibly. This is a source of increasing panicfor consumers. Consequently the growing demand for oil is leading to bargaining local skirmishes between producers and consumers of which the Gulf war, the 9/11 attacks, andthe war in Iraq are just the most recent ones and are being closely followed by Iranand Venezuela. These skirmishes pale in comparison with the looming panic that could lead to a global conflict among major consumers(specifically the US and China) when they mustcompete for dwindling oil reserves in the future.
Oil Peak vs. Oil Panic: Revisiting MKHubbert
Abstract
Worldwide, per-capita oil consumption is closely correlated with standard of living. In developing nations like China and India, increasing prosperity therefore requiresincreased per-capita oil consumption. However, oil is a finite resource whose production globally is about to begin to decline irreversibly. This is a source of increasing panicfor consumers. Consequently the growing demand for oil is leading to bargaining local skirmishes between producers and consumers of which the Gulf war, the 9/11 attacks, andthe war in Iraq are just the most recent ones and are being closely followed by Iranand Venezuela. These skirmishes pale in comparison with the looming panic that could lead to a global conflict among major consumers(specifically the US and China) when they mustcompete for dwindling oil reserves in the future.
Projected World Energy Supplies
19001900 19201920 19401940 19601960 19801980 20002000 20202020 20402040 20602060 20802080 30002100
2020
4040
6060
8080
100100100 BILLION
BARRELS
BillionBarrels
of OilEquivalent
per Year(GBOE)
BillionBarrels
of OilEquivalent
per Year(GBOE) Natural
GasNatural
Gas
HydroelectricHydroelectric
Crude OilCrude Oil
Solar, WindGeothermal
Nuclear Electric
1993
CoalCoal
Decreasing
Decreasing
Fossil FuelsFossil Fuels
New
TechnologiesN
ew Technologies
World Energy DemandWorld Energy Demand
Edwards, AAPG 8/97
Heavy + OilHeavy + Oil
Production history of 8 giant or super-giant oilfieldsRef: Matthew R. Simmons,Twilight in the Desert, 2005
The big question:What rules the oil business?
Demand (market forces) or
Supply (limited resource availability)?
* Demand means that market forces take care of any problem.
* Resource availability means political panic at some point in time.
bbls/year bbls/person/year______________________________________________________
World 3.3x10**9 4.6
USA 7.5x10**9 24.0
China 1.9x10**9 1.5
India 1.1x10**9 1.1________________________________________________________________
Current Consumption
What if?
Added bbl/year Added %/yr
bring China + India pp to
world average now 8.3x10**9 32%
1/4 of US consumption now 11.5x10**9 44%
1/3 of US consumption now 15.8x10**9 61%
1/2 of US consumption now 25.0x10**9 96%
the whole world pp to
1/4 of US consumption level now 13x10**9 50%
1/3 of US consumption level now 18x10**9 75%
1/2 of US consumption level now 26x10**9 100%
US consumption level now 52x10**9 200%
We found the most oil during the 1960s; production follows discoveries; technology hasn’t helped much
Pressure on Supply : Major oil discoveries are behind us… but in a high energy
price environment E&P is no longer commercially independent business
We found the most oil during the 1960s; production follows discoveries; technology hasn’t helped much
Pressure on Supply : Major oil discoveries are behind us… but in a high energy
price environment E&P is no longer commercially independent business
StanfordRock Physics &Borehole Geophysics
Buyer Acquired
BP Amoco, ArcoChevron Gulf Oil, Texaco, UnocalExxon MobilPhillips/Conoco Conoco/PhillipsTotal ElfStatoil SagaRepsol YPF
The first 3 skirmishes:
• Kuwait in 1991• The 9/11 attacks• The war in Iraq
StanfordRock Physics &Borehole Geophysics
The third skirmish: Iraq
Months before the attacks of 9/11 the White House was already considering toppling Saddam, and … was … studying Iraq's oil fields ...Dick Cheney was pivotal both in advancing the administration's plans for regime change in Iraq and in formulating U.S. energy policy.
(Specifically)… a map was studied…. in the spring of 2001 by (a Cheney task force) of White House and a select group of oil company executives meeting in secret. It …show(s) … Iraq's …southwest … neatly divided … into nine "Exploration Blocks."
A National Security Council directive, dated February 2001, instructing NSC staff to co-operate fully with the task force …that … would be considering the "melding" of two policy areas: "the review of operational policies towards rogue states" and "actions regarding the capture of new and existing oil and gas fields."
From Linda McQuaig, 2004
The third skirmish: Iraq
Months before the attacks of 9/11 the White House was already considering toppling Saddam, and … was … studying Iraq's oil fields ...Dick Cheney was pivotal both in advancing the administration's plans for regime change in Iraq and in formulating U.S. energy policy.
(Specifically)… a map was studied…. in the spring of 2001 by (a Cheney task force) of White House and a select group of oil company executives meeting in secret. It …show(s) … Iraq's …southwest … neatly divided … into nine "Exploration Blocks."
A National Security Council directive, dated February 2001, instructing NSC staff to co-operate fully with the task force …that … would be considering the "melding" of two policy areas: "the review of operational policies towards rogue states" and "actions regarding the capture of new and existing oil and gas fields."
From Linda McQuaig, 2004
I call these local skirmishes becausethey are ‘bargaining’ conflictsbetween oil consumers and producers.
The real big problem are the emergingglobal conflicts among consumers whomust compete for the same dwindling crucial resources.
I call these local skirmishes becausethey are ‘bargaining’ conflictsbetween oil consumers and producers.
The real big problem are the emergingglobal conflicts among consumers whomust compete for the same dwindling crucial resources.
OIL IN WW-II
Germany
•Desparate drive to Baku for Caspian sea oil•Drive through North Africa to theMiddle East oil fields
Japan
•Attack Pearl Harbor, trigger WWII in the Pacific
OIL IN WW-II
Germany
•Desparate drive to Baku for Caspian sea oil•Drive through North Africa to theMiddle East oil fields
Japan
•Attack Pearl Harbor, trigger WWII in the Pacific
Conclusions 1. The petroleum decline problem is independent of Hubbert’s model.
2. The notion that market forces will take care of the looming petroleum shortages is a belief based on ideology and hope. The finiteness of recoverable petroleum reserves is fact.
3. To gradually replace fossil energy with alternatives on the scale of tens of billion barrels/year will require several decades and trillions of dollars.
4. A different approach to our national energy security policy will become growingly crucial to avoid future wars. Using force to secure stable global sources and free flow of oil will not work in the long run.
The future isn’t what it used to be.
““There is no There is no likelihood man can likelihood man can
ever tap the power of ever tap the power of the atom.the atom.””
Robert Millikan, Nobel Prize in Physics, 1923
[after TRW Inc, 1985]
StanfordRock Physics &Borehole Geophysics
Evolution of World Oil and Gas ResourcesEvolution of World Oil and Gas Resources
Source: IHSE IRIS21 / PEPS 2005
GasLiquidsNumber of Discoverie
Gachsaran
Burgan
Ghawar
Ahwaz
MarunUrengoy
North Field
Astrakhan
South Pars
Kashagan
(excludes USA and Canada)
We found the most oil during the 1960s; production follows discoveries; technology hasn’t helped much
1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050-
10
20
30
40
50
60
Bill
ion
bbl/y
ear
Pressure on Supply : Major oil discoveries are behind us… but in a high energy
price environment E&P is no longer commercially independent business
[ M. K. Hubbert, 1956]TIME (THOUSANDS OF YEARS)
Human affairs in time perspective
StanfordRock Physics &Borehole Geophysics
The Size of the World’s Oil Business
$6.8 ·1012/yrActual cost of gasoline/price in Europe @$5.2/gallon
3.
$3.4 ·1012/yrPayment at the pump @ $2.6/gallon
2.
$1.6·1012/yrPayment to producers @ $50/bl1.
Adding Natural Gas:
Multiply by x 1.5 $2.4 - $10 ·1012/yr
Conclusions 1. The petroleum decline problem is independent of Hubbert’s model.
2. The notion that market forces will take care of the looming petroleum shortages is a belief based on ideology and hope. The finiteness of recoverable petroleum reserves is fact.
3. To gradually replace fossil energy with alternatives on the scale of tens of billion barrels/year will require several decades and trillions of dollars.
4. The emerging conflict is not between consumers and producers butamong competing major consumers. Because of that a totally different approach to our national energy security policy will become growingly crucial to avoid future global conflicts. Using force to secure stable global sources and free flow of oil will not work in the long run.
•As worldwide greenhouse-gas emissions climb, so will global temperature and sea level.•{Technology Review, March 2005}
PROCESS ENERGY CONSUMED PER NET ENERGY (COMBUSTION HEAT VALUE) OF FUEL PRODUCED
1.6000GasolineHydrogen by reforming
1.6000Natural gasHydrogen by reforming
1.6500WaterHydrogen by electrolysis
0.4380SoyBiodiesel
0.5650CornEthanol
1.8648Wood/grassEthanol
1.4312WoodSynthetic compressed gas
2.0212WoodMethanol
1.8150CoalMethanol
1.5090Natural gasMethanol
0.0349UraniumNuclear
0.0165Natural gasCompressed natural gas
0.0455OilFuel oil
0.0652OilDiesel
0.1670OilGasoline
Fuel ProductionFeedstockFuel
Conclusion:
• M.K. Hubbert’s model - why does it (roughly speaking) work?
• The consumers burn the oil while the producers burn the money.
• Oil peak vs oil panic.
• Conflict between consumers and producers vs conflict among consumers.
What is in it for Israel?
1. R & D opportunities in future– Energy technology– Hydrogen production– Gas hydrates– Desalination technology
2. Thinking about oil related national security and international conflicts issue.
What if?
Added bbl/year Added %/yr
bring China + India to
world average now 8.3x10**9 32%
1/4 of US consumption now 11.5x10**9 44%
1/3 of US consumption now 15.8x10**9 61%
1/2 of US consumption now 25x10**9 96%
the whole world to
1/4 of US consumption level now 13x10**9 50%
1/3 of US consumption level now 18x10**9 75%
1/2 of US consumption level now 26x10**9 100%
US consumption level now 52x10**9 200%
“On Predicting”
StanfordRock Physics &Borehole Geophysics
How do you want it – the crystal mumbo-jumbo or statistical probability? [Harris, 1992]
• “For the first time in our history, ideology and theology hold a monopoly of power in Washington. Theology asserts propositions that cannot be proven true; ideologues hold stoutly to a world view despite being contradicted by what is generally accepted as reality. When ideology and theology couple, their offspring are not always bad but they are always blind. And there is the danger: voters and politicians alike, oblivious to the facts”.
• [Bill Moyers, 12/2004, Harvard University]
Complete cycle of world crude oil production
StanfordRock Physics &Borehole Geophysics
1920 1950 1980 2010 2040 2070 21000
10
20
30
40
50
60
Year
Pro
duct
ion
Rat
e (1
09 bbl
s/yr
)
80% (80 years)
Demand
Prodcution
Q∞=2100x10 9
bbls
Modified from M.K. Hubbert (1956)
After Smith & Lidsky (TLE, 1993)
StanfordRock Physics &Borehole Geophysics
Production vs. Consumption in US lower 48 states
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 20500
1
2
3
4
5
6
7
Year
Pro
duct
ion
(Billi
on b
bls/
year
)
ConsumptionNOW
Production
Production includes crude oil, natural gas liquids and refinery gain. Source: EIA.
China’s Oil Production and consumption, 1980-2000
“On Predicting”
StanfordRock Physics &Borehole Geophysics
How do you want it – the crystal mumbo-jumbo or statistical probability? [Harris, 1992]
Abstract
• Worldwide per-capita oil consumption is closely correlated with the standard of living. In developing nations like China and India increasing prosperity therefore requires increased per-capita oil consumption. However, oil is a finite resource whose production globally is about to begin to decline irreversibly. Consequently the growing demand for oil is leading to a growing global conflict in which the Gulf War, the 9/11 attack, and the war in Iraq are just the first three skirmishes. These skirmishes pale in comparison with the looming potential conflict over oil with China.
Population changes due to ecological disturbance
Population Changes Due to Ecological Disturbance
P3’
P2’
P1’P3
P2
P1
PO
PU
LATI
ON
(NU
MB
ER
)
TIME
ORIGINAL EQUILIBRIUM FINAL EQUILIBRIUMECOLOGICALDISTURBANCE
StanfordRock Physics &Borehole Geophysics
[M.K. Hubbert, 1956]