Hubbert’s Peak and Oil

I recently read the book Out of Gas by David Goodstein, which reflects upon energy use especially in light of the coming oil shortage. One thing this book got me thinking about was Hubbert’s Peak and when we really might start to feel the pain of declining oil supplies. Goodstein makes the point that Hubbert’s Peak followers and the major oil companies (using BP’s data as representative) essentially agree that we only have about 40 years of oil supply left at current consumption rates.

If I understand correctly, Goodstein argues that the major oil corporations and the Hubbert followers disagree on the point of crisis. According to Hubbert’s peak, societies will start to spiral into an energy crisis once we pass peak oil production. Passing the peak would be the turning point when supply can no longer keep up with our energy needs–leading to higher prices and shortages. In contrast, the energy corporations seem to argue that we can rest assured about our oil supplies until we’ve pretty much pumped out everything we can.

In thinking about this issue, there are at least three points that deserve further discussion and analysis.
1. Is Hubbert’s view correct that oil supplies will start to fall short of demand once we pass the peak?
2. How much proven reserves of oil are there?
3. What are our contingency plans in the face of an oil shortage?

Hubbert’s view has credibility to it. He correctly predicted that U.S. oil production in the lower 48 states would peak around 1970, which is exactly what happened. Furthermore, the Hubbert curve also adequately characterizes the production curve of individual oil wells. The general trend of oil production appears to follow a rising curve which tops out once half of the oil has been extracted. After that peak, production declines. It therefore doesn’t require a big stretch of the imagination to assume that global oil production would follow the same pattern.

Another way of looking at this point would be to ask whether it is plausible that we can keep raising production to meet increasing demand until we’ve exhausted our oil supplies. It might be; but it also might not be very realistic. Declining oil reserves necessarily mean that certain oil fields will dry up or will start to yield less. Increasing our production in tandem with a growing global thirst for oil means that new oil fields will have to be brought on-line faster than existing ones dry up. The challenge, however, is that new oil fields lie in remote regions and pumping more oil from existing regions would require costly new technologies as the oil becomes harder to extract. The large capital investment in technology, discovering new fields, and bringing them on-line imply that oil-reliant economies might already experience more pressure (at least in terms of cost) well before we’ve extracted the last drop.

The second point is also contentious because the limited time frame in which our oil-thirsty economy can survive depends on the amount of proven reserves. The OPEC 2005 Bulletin estimated that there are 1.15 trillion barrels of proven reserves left in the world (pdf, p.45). The U.S. Energy Information Administartion estimated world oil reserves in 2006 at 1.29 trillion barrels of oil (pdf, p.28). At current global consumption (excel spreadsheet) rates of about 84 million barrels of oil per day this means we have 42 years of oil left in the earth.

The problem with the above calculation is that it assumes that global consumption of oil will remain at present levels in the future and that the proven reserves of oil will also remain the same. In reality, both of these numbers are dynamic. A look at global demand statistics for oil reveals that they rise every year. EIA estimates show that by 2025 global oil consumption could be at about 115 million barrels per day (p.26).

On the other hand, the size of proven reserves could increase for a while (pending new discoveries). The same EIA document estimates that by 2025 we will have 2.96 tillion barrels worth of proven oil reserves in the world (p.29), however it is not clear whether that number takes into account the additional amount we will have consumed by then. In Sept. 2006, an official at Aramco (the Saudi oil company) stated that 4.7 trillion barrels of oil remain. As the Wall Street Journal points out, though, “3.5 trillion of the roughly 4.7 trillion barrels of oil Mr. Jum’ah is counting on will depend on the development of new technologies… He also factored in 1.5 trillion barrels from nonconventional sources, such as Canadian tar sands.”

Estimating future reserves is quite a hotly contested matter, nor is it straightforward. An increase in proven reserves does not translate into prolonged bliss for the oil economy. Advanced extraction techniques and nonconventional sources would most likely be more costly and energy-intensive, so prices could rise and we’d be getting less net energy per barrel produced. Furthermore, some people have taken a more cynical view of proven reserve statistics. High jumps in reported oil reserves have led some to suspect certain countries have over-reported the size of their reserves for political/economic gain.

All this begs the question, what is our backup plan? What happens if oil fields dry up faster than expected, or if we face another oil embargo? Or even, what’s our plan once oil runs out? The U.S. has built a transportation infrastructure that relies almost entirely on oil products, and it’s just not clear at this point what would happen when gas prices spike even higher and when the shortages begin. How will millions of people commute to work? What sacrifices will we be forced to make when gasoline costs rise even more? What about airfare? Road trips? Our three-car garage lifestyle? Higher transportation costs will also affect the prices for products we buy, most of which are shipped 10 to 1000 miles to reach our store shelves.

No matter what view you take on peak oil, it’s clear that our way of life as we know it will no longer be possible if we continue to build economies and lifestyles dependent on ever rising appetites for oil. Oil consumption does not need to grind to an instantaneous screeching halt, however we need Plan Bs and Cs and we need to develop alternative energy sources that will make our economy more resilient in the face of oil supply shocks. After all this fretting, I haven’t even made mention of the climate change angle, an issue intimately connected to, and one that will only be exacerbated by, ever more voracious oil consumption. In a scathing dose of reality, James Howard Kunstler describes our attitude towards the oil dilemma as sleepwalking into the future. Indeed, it is time to wake up.

Indonesian Mud Volcano Update

In a previous post, I discussed the mud volcano in Indonesia that has been spewing hot mud in East Java since May.  About 12,000 people have been forced to flee their homes as the mud has flowed over the landscape, destroying villages and croplands.  As if that weren’t enough, just this week another tragedy unfolded as a result of the mud volcano.  Because of the outpouring of mud from underground, land surrounding the volcano has sunk by about 5 meters; this week, the pressure from this land subsidence cracked a natural gas pipeline, causing a serious explosion, according to an article in the Hong Kong Standard.  “The blast shot flames 500 meters into the night sky and burst a dyke built to contain hot mud that has inundated East Java’s Sidoarjo district, sweeping away vehicles and forcing the closure of a nearby highway”  The explosion killed at least 8 people and dozens more are missing or injured.  According to an Australian radio program, other companies with pipelines in the region have shut down their production to avoid similar disasters (http://www.abc.net.au/pm/content/2006/s1796100.htm).

There is still no end in site from the mud volcano.  According to Nur Hidayati from Greenpeace Indonesia, “The area that has been covered by the mud is around 400 hectares … it is predicted that already six million cubic meters of mud has already gone out … the volume of the mud is now reaching 150,000 cubic meters per day, with a temperature of 100 degrees Celsius.”  In my previous post last month, I reported a rate of 125,000 cubic meters a day.  Recent articles contain little speculation about the original cause of the mud volcano, although the likely culprit (as I said in previous post) is an oil and gas exploration company, Lapindo Brantas, that may have engaged in unsafe practices that triggered the mud eruption.  Workers are trying hard to build dykes to contain the mud, to pump some of it into the ocean, and to try to cap the flow of mud, but it is by no means clear whether such efforts will be successful.

Lapindo Brantas agreed to pay for all damages resulting from the mud volcano, which now include the costs of human life.  However, according to an article in Al-Jazeera, it appears that the company is so far not living up to its promises.  People who have been forced to resettle as a result of the mud volcano claim that the money paid to them by the company has been insufficient to compensate for their loss of home and livelihood.   Ironically, according to the Al-Jazeera article, “Lapindo Brantas [is] a subsidiary of PT Energi Mega Persada (EMP), Indonesia’s second largest publicly listed energy company. EMP is controlled by the family of a senior cabinet minister, Aburizal Bakrie. He is minister of people’s welfare.”

Indonesian Mud Volcano

I’m taking a break from my China updates today because I ran across a really fascinating article in Der Spiegel this weekend: “Eruptions Displace Thousands in Indonesia”.  This is not, as I had initially expected from the headline, about a volcanic eruption.  Rather the article describes a mud volcano which formed back in May of this year and has been spewing hot mud ever since at an unbelievable rate – it started at 5,000 cubic meters a day and is now up to 125,000 cubic meters a day (“enough to transform a soccer field into a pool of mud 17 meters deep”).  The volcano has already grown to be almost 50 feet tall.

“So far the mud has claimed 20 factories, 15 mosques, a cemetery and 18 schools. It has closed a section of the main road to Bali and is only a few meters away from flooding an important rail line. Authorities have already declared eight villages partly or completely uninhabitable. More than 12,000 people have been evacuated. But this is only the beginning.”

This is an unusually dramatic illustration of the environmental and human rights disasters that all-too-often occur when multinational companies are given rights to extract resources in developing countries.  Although it hasn’t been conclusively proven, many people are laying the blame for the mud volcano on Lapindo Brantas, an oil and gas exploration company.  The company constructed a drilling rig only 500 meters from a residential area and then proceeded to drill down to almost 9,500 feet.  It seems that this may have released the pressure in a huge underground pool of mud, forcing it up through the surface to form the world’s largest mud volcano.  Some experts accuse Lapindo of failing to use standard industry safety equipment.  Under pressure from the Indonesian government, Lapindo has accepted responsibility and agreed to pay all damages, estimated at more than $250 million.

 Once again, I am also surprised by the failure of U.S. media, even environmental media, to pick up on this.