Kjell Akelett and Mike Lynch beg to differ

Dear Kjell,

Current fears about oil production peaking fall into two categories: specific claims that half of the resource has been produced (based on mathematical models), resulting in an inevitable peak and decline, and more general claims that problems in the industry, political and other, will result in a peak. The latter are more difficult to address because they are so general.

Shortages of trained personnel and sophisticated equipment have certainly delayed projects and reduced available supply, but these are hardly novel, permanent or insurmountable.

The fears about resources are based on work by a handful of analysts, including the founder of the Association for the Study of Peak Oil & Gas. I disagree with their statistical modeling and oil forecasting more particularly. The methods employed have been found to work only on mature basins, and to be basin specific. But Peak Oil analysts have applied it to larger regions, where they fail to produce reliable results, because they cannot predict the discovery of new basins. More importantly, political interference is interpreted by these methods as geological results.

Actually, resources are far beyond those estimated by the models, and a peak is nowhere near. Yours, Mike

Dear Mike,

Statistics from the oil industry show that the greater part of the reserves were found during the 1950s, 60s and 70s. During the 1960s, 48 billion barrels of oil were found each year, while consumption was then only 8 billion per year. Today, consumption is 30 billion barrels per year, while recent new finds average fewer than 10 billion per year. If we follow the trend of the last 40 years, new finds during the next 30 years will be approximately 150 billion barrels, but the estimated demand during this period is over 1000 billion barrels.

We have this amount in the fields that were found during the twentieth century, but emptying them is not like upending a can of Coca-Cola. A global average is that one can only extract five to seven per cent of existing reserves per year. This phenomenon is called depletion, and it is these characteristics that form the basis for our research and those analyses done by Colin Campbell, ASPO’s founder.

At Uppsala University, we have a best and a worst case scenario. The worst is that we will be on a production plateau at today’s levels for about 8-10 years. The best gives an increase to a peak of 93 million barrels per day around 2012. The best case requires political decisions to open seven giant oil fields in Iraq. Currently global production is following our worst case.

Yours, Kjell 

Dear Kjell,

Peak Oil advocates tend to treat industry constants as new and argue that they now must cause a peak and decline in oil production. In fact, oil has always been finite, as have coal, gas, and many other minerals, and that has not prevented production from increasing for decades. 

Depletion has been present in the industry, which has always offset it and added new supply. The problems the industry faces now are transient and do not necessitate a decline in production any time soon. Political problems in Iraq, Nigeria and Venezuela removed large amounts of oil from the market, and are responsible for high prices. Shortages of equipment and personnel hardly represent permanent obstacles.

The alleged lack of discoveries has concerned many, but represents a misunderstanding of the technical jargon. The reported size of discoveries represents an estimate of recoverable oil, and these estimates grow substantially over time. 

Thus, the amount of oil now known to be discovered three decades ago is far greater than what was reported then, because we have been able to recover more of what was discovered than we anticipated at the time. Similarly, the amount of oil reported discovered in the last decade will grow in the future. The combination of discoveries and better recovery is replacing production, which is what matters.
Yours, Mike

Dear Mike,

The oil industry reports new production numbers day by day. Every month new numbers are released, and at the end of the year we will have a new figure for annual production. We believe that this figure will increase every year until a point in time when the industry cannot increase production. It is then that we have reached Peak Oil.

The USA reached a production maximum in 1971. More than 50 of the 60 largest oil-producing nations have reached maximal production.

Everyone should understand that if all the world’s oil-producing nations have one day reached maximum production, and if the production thereafter is decreasing in all nations, then global production must decrease. It is the produced oil that we buy, and if the amount available to buy decreases despite increasing demands then, according to economists, the price will rise. Yours, Kjell

Dear Kjell,

Historically, many have warned of the depletion of the petroleum resource, as they watch fields and basins mature and decline, with every new effort seeming harder than the ones before, and voices lamenting that the industry must struggle, ‘running harder just to stay in place’. But they misunderstand reserve data as being fixed, not dynamic, and mistakenly assume that if production is declining in an area, it must continue to decline. And so for three decades now, nearly every forecast has been too pessimistic about the potential supply.

And all the while, the industry has not just stayed in place, but made progress. New basins are opened up, old fields are rejuvenated, and all in all, technical progress makes the ‘hard’ oil accessible and cheaper. The resource base is huge, with only perhaps 10-15 per cent of conventional oil in the ground produced to date, and a much larger amount of heavy oil and oil shale still untapped. 

Most of the world is hardly drilled, and the industry has repeatedly been able to find new ways to access the resource base. Today’s troubles represent yet another commodity cycle which, yet again, is being misinterpreted as due to resource scarcity.
Yours, Mike

Dear Mike,

The oil industry will find more oil fields in the future. As I said, we estimate that during the next 30 years they will discover a total of 150 billion barrels. If we could continue to use as much oil in the future as we do today, then a constant consumption within the next 30 years would be 900 billion barrels. The reserves that we have today, together with what we will find, cannot produce 900 billion in the next 30 years. That includes even oil sands and very heavy oils.

New technology is normally applied when production decreases. This makes the downward curve less steep, but one does not return to higher production levels. This is verified in a study that we just have completed for the oilfields that produce more than 50 percent of global oil production.

Mexico is an example where production is falling dramatically. There is every reason to believe that, by 2012, Mexico’s production will decline to a level where they can no longer export oil. 

All oil-producing nations will reach maximal production at some time. Those that have not yet done so must currently compensate for those nations that have decreasing production. At the moment world production is on a plateau of around 85 million barrels per day. In ten years, production will be lower. We will never see the International Energy Agency’s official prediction of consumption in 2030: 116 million barrels per day.
Yours, Kjell

Kjell Akelett is Professor of Physics at Uppsala University, Sweden, and leader of Global Energy Systems research and the Uppsala Hydrocarbon Depletion Study Group. He is also President for the Association for the Study of Peak Oil and Gas. His blog is at Aleklett.wordpress.com. See also www.fysast.uu.se/ges/en/
publications

Mike Lynch is President of Strategic Energy and Economic Research, Inc. He expands on his views at www.energyseer.com/
NewPessimism.pdf