Peak Oil

Recent Dialogue
on a Piquing
Issue

David Caron
ABSTRACT:

This paper hopes to encompass the current issues

surrounding peak oil. These issues include proper

definition of peak oil terms as well as assessing factors

which make the peak oil theory remain a contested one.

Also, the paper explains what makes knowledge of world

oil difficult to gauge and, therefore, the great variation of

opinion resultant of this matter. Lastly, it touches on the

consequences of mitigation options and their timeliness.

i
Table of Contents
• Introduction

• Definition of Peak oil

• Related definitions

• Assessment of World Oil

• Issues in Estimating/Forecasting World Oil

• Recent Peak Oil Studies/ Problems in Variation

• Peak Oil Impact

• Conclusion

ii
 The issue of the peak oil theory has begun to grow more and more

rapidly in the political and economic realm over the past decade, gaining

relevance within the rhetoric of not only government agencies, but of oil

industry heads as well. This growing concern about the future of liquid fuels

is, indeed, a critical one, one which requires the utmost attention of both

developing and post-industrial nations. The intent of this essay is to address

the current dialogue taking place within the U.S., a nation which consumes

almost one quarter of the world’s oil,1 and principally, moreover, to address

those proponents of the peak oil theory in respect to their arguments and

data.

First and foremost, it is crucial to have an understanding of what the

phrase peak oil means; the ASPO (Association for the Study of Peak Oil) at

their last world conference defined peak oil as, “the uncontroversial

observation that the world's yearly production of conventional oil, a finite

resource, will reach a high water mark, then probably remain in a plateau for

some period before declining thereafter.”2 Though this may suffice in

defining peak oil to some extent, the remainder of the definition lies in

dispelling what peak oil is not. The introductory text presented by the ASPO

expanded the definition in such a way by stating that the theory

1
House of Representatives, Committee on Energy and Commerce, Subcommittee on Energy
and Air Quality, "Understanding the Peak Oil Theory." 07 Dec 2005 11.
<http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?
dbname=109_house_hearings&docid=f:25627.pdf>.
2
Association for the Study of Peak Oil, "What is Peak Oil?." Introduction to Peak Oil 17 Oct
2007 1.
 …does not state that the world is running out of oil… that
conventional oil production will peak and decline when exactly
half the assumed global endowment has been used up… [or] that
the world oil production has reached its high water mark now,
although some analysts hold that opinion”3

Indeed it would be false to declare that the world is running out of oil since,

according to Cambridge Energy Research Associates (CERA) in a report for

the Department of Energy (DOE), there are 1.25 trillion barrels of

conventional oil remaining, the world having already used up 1.11 trillion

barrels.4 Furthermore, the notion of a half-point peak comes from the idea of

a “Hubbert” curve, named for M. King Hubbert a renowned geologist who

predicted that the peak of oil in the U.S would occur sometime in the 1970’s.

The variable missing which made Hubbert’s calculation possible is a

complete knowledge of all the recoverable oil reserves in the world;5 so

telling when a world peak would occur on that basis only weighs in on a

speculative level. Lastly, the great obstruction in the way of knowing

whether or not the peak has already occurred is present in the prior

statement, we simply do not know, based on the data available to us, how

much oil is viable and available to us.

Another word requiring definition is reserves. In Robert L. Hirsch’s

report “Peaking of World Oil Production: Impacts, Mitigations, & Risk

Management” he describes reserves in a rather negative light,

3
Ibid
4
Peaking of World Oil Production: Impacts, Mitigation and Risk Management, by Robert
Hirsch, Roger Bezdek and Robert Wendling. Report for the DOE, February, 2005.
5
“What is Peak Oil?” 17 Oct 2007 1.
 The concept of reserves is generally not well understood.
“Reserves” is an estimate of the amount of oil in a reservoir that
can be extracted at an assumed cost… Reserves estimation is a
matter of gauging how much extractable oil resides in complex
rock formations that exist typically one to three miles below the
surface of the ground, using inherently limited information.
Reserves estimation is a bit like a blindfolded person trying to
judge what the whole elephant looks like from touching it in just
a few places. It is not like counting cars in a parking lot, where all
the cars are in full view.6

This definition further degrades one’s understanding and trust of an ever

expanding basin of liquid fuel resources. Though Hirsch goes on to explain

that there are a number of methodologies which experts use to determine

the volume of reserves, he also notes that a large amount is based on

judgment. In expanding on these evaluations, Hirsch makes another vital

statement about reserves:

Reserves and production should not be confused. Reserves

estimates are but one factor in estimating future oil production
from a given reservoir. Other factors include production history,
understanding of local geology, available technology, oil prices,
etc. An oil field can have large estimated reserves, but if the field
is past its maximum production, the remaining reserves will be
produced at a declining rate. This concept is important because
satisfying increasing oil demand not only requires continuing to
produce older oil reservoirs with their declining production, it
also requires finding new ones, capable of producing sufficient
quantities of oil to both compensate for shrinking production
from older fields and to provide the increases demanded by the
market.7

His closing remark is intentionally underlined within the report and it very

accurately highlights the thoughts of those in opposition to or disbelief of

6
Hirsch, Robert L.. "Peaking of World Oil Production: Impacts, Mitigations, & Risk
Management." Feb 2005. SAIC. 9 Dec 2007
<http://www.hilltoplancers.org/stories/hirsch0502.pdf>.
7
Ibid
peak oil: that there must be an innumerable amount of estimated liquid fuels

available to us. Hirsch quickly counters this thought by defining peak oil in

terms of the prior description concerning reserves:

If large quantities of new oil are not discovered and brought into
production somewhere in the world, then world oil production will
no longer satisfy demand. That point is called the peaking of
world conventional oil production.

When world oil production peaks, there will still be large reserves
remaining. Peaking means that the rate of world oil production
cannot increase; it also means that production will thereafter
decrease with time.8

This description of peak oil seems more relevant than the ASPO version in

terms of speaking to the consumer of liquid fuels and their finite quality. It is

a supply and demand based definition which is subject to an enormous

amount of unpredictability on the part of those who hope to continue

expanding the world’s oil reserves and what furthers the issue is the fact

that there are no concrete data to about the world’s reserves.

There are a number of factors which prevent any factual knowledge of

the world’s oil availability; ranging from technological to political, these

issues create serious problems in the area of oil forecasting. Dave Cohen,

author and columnist for the ASPO website, in the article “On the Likelihood

of Peak oil,” writes on a method called “foresighting” in regards to oil supply:

A 1997 Battelle study for the U.S. Department of Energy,

Foresighting Around the World, by Marina Skumanich and

8
Ibid
 Michelle Silbernagel, explains why humankind's age-old struggle
to predict the future is doomed to failure.

Foresighting is the effort to assess future conditions based

on current conditions and trends... Although popular
perception is that the future will become more predictable
as foresighting methods improve, experts involved in
futures studies and foresighting have developed a
perspective of the future as inherently "contingent;" i.e.,
not able to be directly determined by current conditions
regardless of how much more detailed and rigorous any
foresighting method becomes.

Trend extrapolation is the simplest form of foresighting.

This method is based on an assumption that patterns in
the past will continue into the future. To perform this
method, information is collected about a variable over
time, and then extrapolated to some point in the future....

This method has two major weaknesses. First, it is often a

fallacy to assume that the future will follow the pattern of
the past. While people often make such assumptions due
to a lack of better information, any picture of the future
that is developed on this basis can be inaccurate. The
second weakness of this method is that it typically
provides information on only a single variable. Especially in
current world conditions, it is rare for any variable to act
independently. More often, the influence of outside forces
can dramatically alter the future of any one event or
condition.9

This type of mathematical prophecy is, in part, what lends such great

uncertainty as to when a peak will occur and is probably most prevalent

amongst market advocates. A report produced in February 2007 by the US

9
Cohen, Dave. "On the Likelihood of Peak Oil." Association for the Study of Peak Oil & Gas -
USA. 30 May 2007. ASPO. 9 Dec 2007 <http://www.aspo-usa.com/index.php?
Itemid=91&id=143&option=com_content&task=view>.
Government Accountability Office (GAO) states that “oil production will peak

sometime between now and 2040,” the reason being that:

Studies that predict the timing of a peak use different

estimates of how much oil remains in the ground, and
these differences explain some of the wide ranges of these
predictions. Estimates of how much oil remains in the
ground are highly uncertain because much of these data
are self-reported and unverified by independent auditors;
many parts of the world have yet to be fully explored for
oil; and there is no comprehensive assessment of oil
reserves from nonconventional sources. This uncertainty
surrounding estimates of oil resources in the ground
comprises the uncertainty surrounding estimates of proven
reserves10 as well as uncertainty surrounding expected
increases in these reserves and estimated future oil
discoveries.10

The article goes on to state that though some reserves are subject to a sort

of accountability on the behalf of federal securities laws, as is the case with

the U.S., often times these types of laws aren’t applicable. Unfortunately this

is the case with companies owed by OPEC and part of what makes this

prospect even direr is the fact that OPEC is in possession of most of the

world’s oil reserves. This poses a large problem in relation to world reserve

estimates since it has been noted that, “IEA reports that reserves estimates

in Kuwait were unchanged from 1991 to 2002, even though the country

produced more than 8 billion barrels of oil over that period and did not make

any important new oil discoveries.” Without these accountabilities, it is

possible that OPEC nations could simply lie in the name of money interest.

10
United States Government Accountability Office, "Crude Oil Uncertainty about Future Oil
Supply Makes It Important to Develop A Strategy for Addressing a Peak and Decline in Oil
Production." Feb 2007. GAO. 9 Dec 2007 <http://www.gao.gov/new.items/d07283.pdf>.
Estimates of OPEC and non-OPEC reserves are shown in the following

diagram: 11

Further difficulties arise from estimates concerning nonconventional

sources of oil as well as the location of certain potential sources. The GAO

11
Ibid
report cites enhanced oil recovery (EOR) methods and techniques as

workable prospects for increasing oil production however, it must also be

noted that

EOR technologies are much costlier than the conventional

production methods used for the vast majority of oil produced.
Costs are higher because of the capital cost of equipment and
operating costs, including the production, transportation, and
injection of agents into existing fields and the additional energy
costs of performing these tasks… EOR technologies have the
potential to create environmental concerns associated with the
additional energy required to conduct an EOR injection and the
greenhouse gas emissions associated with producing that
energy, although EIA has stated that these environmental costs
may be less than those imposed by producing oil in previously
undeveloped areas. Even if sustained high oil prices make EOR
technologies cost-effective for an oil company, these challenges
and costs may deter their widespread use.12

The same is true of mining oil in less accessible areas or in deepwater and

ultra-deepwater areas. Although these sources may provide sufficient

amounts of oil that could push off the impending peak, their cost may

discourage further expansion into such areas, yet at the same time it must

be noted that “IEA estimates of oil production have conventional oil

continuing to comprise almost all of production through 2030;”13 this is in

reference to such sources as the oil sands, heavy and extra-heavy oils and

oil shale as well. But even with all these sources contributing to the stalling

of peak oil the idea of exponential growth must come into play.

Congressman Roscoe Bartlett, in reporting on the GAO document that

has been previously cited, speaks of compound interest in terms of the

12
Ibid
13
Ibid
world’s remaining energy sources, referencing the amount of coal the U.S.

has at one point in his record before the House of Representatives:

there will be people who tell you don't worry about our future; we
have 250 years of coal at current use rates. That is true. But be
very careful when people say at current use rates because if we
increase our use of coal only 2 percent… that 250 years shrinks
to 85 years. You have to understand that at 2 percent increase, it
doubles, that it is compounded, exponentially compounded, it
doubles in 35 years.

But for most of our uses, we can't use coal. You can use
electricity with it, but you can't run your car with it. So if we are
now going to gasify or liquefy the coal, which, by the way, is very
easy to do… it takes energy to do that. And if the energy to do
that comes from coal, now you have reduced the supply of coal
to about 50 years.

But we live in a world economy, and we share our oil with

the world. It really doesn't matter today who owns the resource.
He who has the dollars can buy it. It is bid up, which is why it is
different prices different days, and he who has the dollars buys
it.

So if we have to share our oil with the world, there is not

much of a way to do that. Since if we keep all our coal, we won't
be buying oil from someplace else, and they will therefore have
the oil, and to a very large degree energy is fungible. So our 50-
year supply of oil, if we share it with the world, shrinks to 12 1/2
years. Big deal. With only a 2 percent increase and the use of
coal, if we convert it to a gas or a liquid and share it with the
world, our 250 years shrinks to 12 1/2 years. There is a lot of
energy there.14

In these terms it is much easier to understand those who forecast the world’s

oil peaking at the present time or in the very near future. However, even this

understanding is not enough. Other factors considered by the GAO in

accounting for the exploration and production of the world’s oil included

14
Bartlett , Roscoe. "Congressman Roscoe Bartlett Congressional Record GAO REPORT ON
PEAK OIL House of Representatives." GAO Special Order 032907. 27 Mar 2007. 9 Dec 2007
<http://bartlett.house.gov/uploadedfiles/GAOspecialorder032907.pdf>.
political risk and investment risk. Though these aspects may seem abstract

in terms of measurement, certain probability factors are taken into

consideration and assessed accordingly. In trying to acquire accurate

measure of such factors the GAO footnotes Global Insight, a consulting firm

which offers a Global Risk Service and from which they received their data

about political and financial risks. They go on to note that:

Using a measure of political risk that assesses the likelihood that

events such as civil wars, coups, and labor strikes will occur in a
magnitude sufficient to reduce a country’s gross domestic
product (GDP) growth rate over the next 5 years, we found that
four countries—Iran, Iraq, Nigeria, and Venezuela—that possess
proven oil reserves greater than 10 billion barrels (high reserves)
also face high levels of political risk. These four countries contain
almost one-third of worldwide oil reserves

The statement is then followed by a graphical representation of “Worldwide

Proven Oil Reserves, by Political Risk:”

15

15
"Crude Oil Uncertainty about Future Oil Supply Makes It Important to Develop A Strategy
for Addressing a Peak and Decline in Oil Production." Feb 2007.
Further speculation went into determining the investment risk of certain

nations,

According to our analysis, 85 percent of the world’s proven oil

reserves are in countries with medium-to-high investment risk or
where foreign investment is prohibited, on the basis of Oil and
Gas Journal estimates of oil reserves. (See fig. 8.) For example,
over one-third of the world’s proven oil reserves lie in only five
countries—China, Iran, Iraq, Nigeria, and Venezuela—all of which
have a high likelihood of seeing a worsening investment climate.
Three countries with large oil reserves—Saudi Arabia, Kuwait,
and Mexico—prohibit foreign investment in the oil sector, and
most major oil-producing countries have some type of
restrictions on foreign investment. Furthermore, some countries
that previously allowed foreign investment, such as Russia and
Venezuela, appear to be reasserting state control over the oil
sector, according to DOE.
Worldwide Proven Oil Reserves, by Investment Risk

16

16
Ibid
These, among many other variables, are factors which need consideration in

view of determining the overall amount of oil available in the world. But it

seems that these factors are constantly changing, making any estimate null

and void.

In a recent report that was sponsored by the Department of Energy

(DOE) and National Energy Technology Laboratory (NETL) entitled “Peaking

of World Oil Production: Recent Forecasts” there is a section which addresses

recent forecasts ranging from the present to an overall denial that peak oil

exists as a factor:

Important Recent Peak Oil Forecasts Ranging to 2012 (5 years)

Pickens, T. Boone12 (Oil & gas investor)………………………………………..……… 2005
Deffeyes, K.13 (Retired Princeton professor & retired Shell geologist).. December 2005
Westervelt, E.T. et al.14 (US Army Corps of Engineers)……………………….…At hand
Bakhtiari, S.15 (Iranian National Oil Co. planner)………………………………….……..Now
Herrera, R.16 (Retired BP geologist)………………………………………….Close or past
Groppe, H.17 (Oil / gas expert & businessman)……………………………..…….Very soon
Wrobel, S.18 (Investment fund manager)…………………………………………..….By 2010
Bentley, R.19 (University energy analyst)……………………………..…….....Around 2010
Campbell, C. 20 (Retired oil company geologist; Texaco & Amoco)…………..….…….2010
Skrebowski, C.21 (Editor of Petroleum Review)………………...…..…….2010 +/- a year
Meling, L.M.22 (Statoil oil company geologist)……………..A challenge around 2011

Important Recent Peak Oil Forecasts Ranging From 2012 - 2022.

Pang, X., et al.23 (China University of Petroleum)………………….……….. Around 2012
Koppelaar, R.H.E.M.24 (Dutch oil analyst)……………..…………..…….….Around 2012
Volvo Trucks25…………………………………….…………………………Within a decade
de Margerie, C.26 (Oil company executive) ……………………………....Within a decade
al Husseini, S.27 (Retired Exec. VP of Saudi Aramco)…………………….…………….2015
Merrill Lynch28 (Brokerage / Financial)……………………….…….…………Around 2015
West, J.R., PFC Energy29 (Consultants)………..………………….…………..2015-2020
Maxwell, C.T., Weeden & Co.30 (Brokerage / Financial)…Around 2020 or earlier
Wood Mackenzie31 (Energy consulting)…………..……....……Tight balance by 2020
Total32 (French oil company)……………………………………………..………..Around 2020

Important Recent Peak Oil Forecasts Ranging Beyond 2022.

UBS33 (Brokerage / Financial)…………………………………………………..Mid to late 2020s
CERA34 (Energy consulting)………………………………………………………Well after 2030
CERA35 (Energy consulting)………………………….………“Peak oil theory is garbage”
ExxonMobil36 (Oil company)………………………………………….…..No sign of peaking
Browne, J.37 (BP CEO)…………………………………………….…..Impossible to predict
OPEC38……………………………………………………………………..Deny peak oil theory17
The enormity of variation within these predictions is almost startling, but

what is more terrifying, to a degree, is the fact that those whose forecasts

stretch into a longer term only go so far as to predict within the next 20 or

30 years. It may be unnecessary to make such a statement, but it isn’t as if

the world is going to stop growing within that span of time. In all actuality,

those who predict the greatest time gaps are those who fall under the weight

of this idea of compound interest, i.e. exponential growth. We are already

aware that it takes roughly 35 years for the world’s population to double, so

it seems silly to suggest such a number without first considering a doubling

of demand on the part of the world’s population. It seems that such a

statement would necessarily need to be halved on this basis alone.

Assumedly what urges them on is the idea of unconventional sources and

the “technological fix” premise, but aren’t these concepts just as theoretical,

currently, as the idea of peak oil?

At the end of the 82 page report put together by the GAO on peak oil

they suggest “a minimum” strategy for executive action, calling on the

Secretary of Energy to “take the lead” in doing simply 2 things, these being:

17
DOE/NETL, "Peaking of World Oil Production: Recent Forecasts." 05 Feb 2007. DOE/NETL.
10 Dec 2007 <http://www.netl.doe.gov/energy-analyses/pubs/Peaking%20of%20World
%20Oil%20Production%20-%20Recent%20Forecasts%20-%20NETL%20Re.pdf>.
 • Monitor global supply and demand of oil with the intent of
reducing uncertainty surrounding estimates of the timing of peak
oil production. This effort should include improving the
information available to estimate the amount of oil, conventional
and nonconventional, remaining in the world as well as the
future production and consumption of this oil, while extending
the time horizon of the government’s projections and analysis.

• Assess alternative technologies in light of predictions about the

timing of peak oil production and periodically advise Congress on
likely cost-effective areas where the government could assist the
private sector with development and adoption of such
technologies.

These suggestions don’t seem to truly take into account the gravity of the

situation at hand. This same type of profound assessment was made by

Hirsch in his report before the House Committee on Energy and Air Quality in

December of 2005. Hirsch grants that, yes, the oil peak is unknowable based

on the large variation of opinions by expert studies, but how soon we act will

directly determine the amount of consequence. He states that:

Consideration of a number of implementation scenarios provided

the following startling insights:

• Waiting until world oil production peaks before taking

crash program action leaves the world with a significant
liquid fuel deficit for more than two decades.

• Initiating a mitigation crash program 10 years before

world oil peaking helps considerably but still leaves a liquid
fuels shortfall roughly a decade after the time that oil
would have peaked.

• Initiating a mitigation crash program 20 years before

peaking offers the possibility of avoiding a world liquid
fuels shortfall for the forecast period.

He goes on to highlight the economic impacts of peak oil, relating a study

done by a group called Oil Shockwave, a group of credible former high-level

government officials. They concluded:

 1. Given today’s precarious balance between oil supply and
demand, taking even a small amount of oil off the market
could cause prices to rise dramatically. A roughly 4 percent
(sustained) global shortfall in daily supply results in oil
above $160 per barrel.

2. Oil price shocks of this magnitude could do significant

damage to the U.S. economy. In Oil ShockWave, the
economy goes into recession and there are millions of
fewer jobs as a result of sustained higher oil prices.

Oil Shockwave was focused on a multi-year drop of just 4% in oil

supply. Major oil companies and others forecast oil declines of 4-
8% per year – Yes, per year.

Given these results it seems that the advice given by the GAO should have

been much more urgent, but apparently we have great confidence in our

guessing skills, so monitoring the oncoming peak should suffice.

The data presented in this paper comes largely from government

documents, either on the behalf of government agencies or presented to the

government in hopes of establishing proper recognition and critical outlooks

on peak oil. Perhaps what makes this problem so distant to the forces at

hand is that is it marked by a cliché: it is not a matter of if, it is a matter of

when. Though we may not have extensive enough databases to determine

exactly when, that is not grounds for exempting current mitigation options

and perhaps even enacting them. There needs to be a rigorous change in

terms of our stance on liquid fuels and their use. We have become so utterly

dependant on such a finite resource, one which is only a blip on the history

of modern civilization. Action needs to be taken now to make sure that peak

oil doesn’t strike without notice and cripple human progress. But then again,
what am I saying? That might be the best thing that ever happened to the

good old U S of A.