Oil Depletion

Author: David Delaney, May 2002, August 2002

So, you think there's a lot of oil  left?

You're right.

Here's what you may not know:

The amount of oil we can take from the ground each year is about to reach a limit that cannot be increased by ingenuity or determination. That limit will then decrease forever, with short plateaus and little upward bumps on the way down.  A similar limit for natural gas will follow in a few years.

The act of taking oil or gas from the ground is called producing it.  Since the start of oil production in the nineteenth century, the world has produced close to half of its ultimately recoverable oil resource.  At the half-way point, the world will achieve its production peak -- more oil will be produced in a year near the half-way point than ever before or ever after. This statement follows from a regularity of oil production statistics first observed by M. King Hubbert. If we consider a large enough number of oil fields, their aggregate production rate will display a characteristic curve.  The group of fields will reach a peak rate of aggregate production when half of the ultimately recoverable oil has been produced.  After the half-way point, the physical properties of oil reservoirs and the variation of the dates of discovery of the fields will cause the aggregate rate of production to slow progressively until all recoverable oil has been produced. Hubbert used this regularity of oil field statistics to predict corrrectly that the lower 48 United States would produce half of their ultimately recoverable oil resource by 1972, and that production from the lower 48 states would, consequently, peak in 1972.

Jean Laherrère is a well known petroleum engineer and analyst of the world's oil reserves.  He forecasts oil production by comparing discovery records with production records, and by exploiting the principle that oil cannot be produced until it has been discovered.  Here's a figure from Forecasting future production from past discovery.  It predicts a startling rate of decline of our oil supply between 2010 and 2050.

North American natural gas depletion

North American natural gas production is about to go over a cliff, decades before the world peak of natural gas production. Since gas flows through porosities in rock much more easily than oil, gas fields can be drained much faster than oil fields.  For this reason, and since most known gas fields in North America are connected to a common network of pipelines,  the exhaustion of individual gas fields is masked until the totality of fields cannot meet demand. Since most of the gas fields in North America were discovered and came under exploitation decades ago, the whole North American gas supply will be only a few years from complete exhaustion when the first shortages are encountered.  The cliff is very close, as you can see from the following graph of time-shifted discoveries (source: Forecasting future production from past discovery). The red curve is not in itself a prediction. It is the graph of past discoveries shifted to the right by 20 years--a shift chosen to give a good fit with production history. Gas must be discovered before it can be produced. Applying this basic truth allows us to conclude that North America approaches a gas production cliff.

Our vulnerability to oil depletion

Modern economies grow only if transportation grows. Less oil, less transportation, smaller economy. More oil, more transportation, bigger economy. The oil increases are about to end forever. Two thirds (69%) of all petroleum consumed by the US in 1999 was burned to power transportation.  Natural gas is almost as important, both because it is a possible alternative source of transportation fuels, and because we are already critically dependent on it as a source of energy for industrial processes, and as a feed stock for many synthetic materials. Almost half (44%) of all energy used by US households in 1999 was provided by direct consumption of natural gas. Almost half (42%) of all energy used by US industry in 1999 was provided by natural gas. These quantities of natural gas do not include the natural gas used by utilities to generate electricity which was then distributed to households and industry.  Slightly less than 10% of the electricity generated by US utilities in 1999 was produced from natural gas. (Consumption data source: Lawrence Livermore National Labs (PDF).)

The price of oil and gas will not signal shortages until the decline is upon us. For many years after the peak we will have progressively less energy at progressively higher prices. This contradicts our usual expectation that rising prices will quickly result in greater supply.  Higher prices, no matter how high they are, will not create enough new supplies of transportation fuel to prevent sustained contraction of the economy.  The resulting paradoxes will create confusion in an economy that depends on economic growth, believes in economic growth, even worships economic growth.  The economy will contract every time fuel prices rise sharply, knocking the price of fuels down as recession reduces demand for them.  An unregulated market will not invest large amounts of fuel in the deployment of alternative fuels in these circumstances. Nor will an unregulated market make the "uneconomic" investments needed before the peak to prevent being caught in such cycles. Governments must compensate for this deficiency of the market. They must acknowledge the peak of oil and gas production, and introduce appropriate market incentives ahead of the peak.

Those who most need to understand the function of energy in our economy don't.  Energy differs from other commodities.  Nothing can be done without energy.  Nothing can be moved, built, manufactured, planted, fertilized, harvested, or mined, without the liquid transportation fuels that petroleum provides so well, and for which no competitive replacement has ever been found.  As a consequence, new energy sources require large investments of energy itself. In particular, the energy investments needed to obtain alternative energy sources and fuels are not only large, but they are much larger than the energy investments needed to obtain fossil energy. These energy investments are so large that some forms of alternative energy will never serve as primary sources of energy.  For example, solar electricity from photovoltaic cells will not provide enough energy for the mining, manufacturing, transportation, transportation infrastructure, installation,  transmission infrastructure, maintenance, and decommissioning required by the existence of the solar cells. This is not a question of building more solar cells. The ratio of energy returned to energy invested is too small.  Solar cells don't work as a primary energy source, although they have other uses. Similarly, ethanol from corn doesn't work as a primary energy source, although it has other uses.

These properties of energy as a commodity invalidate a fundamental assumption made by economists.  Rising prices will not result in the smooth substitution of alternative sources of energy.   The large energy investments needed by alternative energy sources, and the smaller energy output produced by them, will mean that alternative energy sources will not fully compensate for the decline of oil and gas. Progressively less transportation fuel will be available for use outside of energy production. In spite of our best efforts, the world's economy will contract for many decades.

Why don't economists get it?

 After Oil, by David Fleming,  is the best short discussion of why mainstream economists don't get the significance of the peak of oil production.

In addition to their failure to understand energy, and the other factors described by Fleming, I believe there is an ideological explanation for the failure of mainstream economists to acknowledge what is about to happen.  Government direction of markets will be needed to mitigate the damage the post-peak decline will cause.  Any new or restored regulation of markets by governments is offensive to free market dogma. The free market fundamentalists are in the driver's seat.  They reflexively deny  the reality of problems that require collective action.  Perhaps only an economic crash will knock them out of the driver's seat.

What needs to be done?

It matters far less to propose detailed solutions than to get people and governments to accept that radical change will happen.  The tendancy of our society, perhaps of our race, is to deprecate problem statements that don't have proposed solutions attached.   I cannot propose a detailed "solution".  Progressive adaption will come from the collective imagination and experience of thousands or millions of people responding to a clear threat. But the threat is not yet seen by those whose engagement is needed. The hardest thing will be to agree that action is needed before change is forced on us. If we wait, we will be trapped with too little of the critical resource needed for adaptation to its own disappearance.   Acting before the change,  rather than waiting for it to happen, will make the difference between great political difficulty on the one hand, and chaotic disruption and misery on the other.

Although I prefer to create awareness than propose solutions, certain measures seem obviously necessary.

Government, funding institutions, and universities must promote study and understanding of the function of energy in the economy.  Government policy workers must allow an understanding of the function of energy to permeate their view of the world.

Energy conservation, from better insulation to fuel efficiency, must be encouraged and mandated by government as an investment in a more appropriate infrastructure for the difficult times ahead.

The prospects for alternative transportation fuels are not promising. Fundamental problems have not begun to be solved: providing the energy to manufacture the alternative fuels and the infrastructure to distribute them. Governments must start encouraging radically more efficient transport for freight and passengers--railways, for example.

In North America, we should stop using natural gas as a fuel for new electricity generators, or for upgrades to existing electricity generators. Although its lower CO2 emissions are attractive from an environmental perspective, North American natural gas will soon disappear. We must reduce our reliance on natural gas now, or at least stop increasing our reliance on it, or face much more serious disruption than necessary.  We must reconsider coal and nuclear generation of electricity, looking for ways to make them more acceptable environmentally.  We must provide at least as much economic incentive for wind and solar as for oil and gas.

None of these measures will prevent a great reduction of consumption, but may prevent serious social disorganization.  We need to figure out how to retain social cohesiveness while going through the reduction.

What can you do?

Oil depletion will hit us soon and hard. Governments are ignoring the problem. Their lack of action will make the coming disruption of the world's economy much worse than it needs to be. It is too late to avoid hardship, even in rich North America. The longer we avoid facing up to the approaching conditions, the greater the hardship will be.  Learn more about the consequences of oil and gas depletion. Talk about it. Write a letter to a politician. (Letter from David Delaney to the Canadian Minister of Natural Resources, February 6, 2001) Write a letter when you see a story in the newspaper or on TV that assumes we will have all the oil and gas we need. Help figure out how society can be changed to accept what will soon be forced on us--a permanently lower level of consumption.

More information

The End of Cheap Oil, Colin J. Campbell and Jean H. Laherrère, Scientific American, March 1998.

After Oil, by David Fleming

The Coming Oil Crisis, by C.J. Campbell, Multi-Science Publishing Company & PetroConsultants S.A., 1997,  210 pp.

Hubbert's Peak, The Impending World Oil Shortage, by Kenneth S. Deffeyes, Princeton University Press, 2001, 208 pp., ISBN: 0-691-09086-6

The Party's Over: Oil, War, and the Fate of Industrial Societies, by Richard Heinberg, New Society Publishers, 2003, 288 pp, ISBN 0-86571-482-7

Julian Darley interviews Colin Campbell.  Colin Campbell is one of the best known of the Hubbert's Peak analysts.

Julian Darley  interviews Matthew Simmons.  Matt Simmons and other people from his company seem to be the only employed mainstream oil professionals who talk openly about the oil peak. Simmons and Company, in Houston,  provides investment services to the oil industry.

Julian Darley interviews David Pursell of Simmons Co, discussing natural gas in Canada & the US.

ASPO Newsletter Archive:  http://www.asponews.org/.  ASPO, the Association for the Study of Peak Oil, is a network of scientists affiliated with European institutions and universities. ASPO works to determine the date and impact of the peak and decline of the world’s production of oil and gas. There is another archive of the ASPO newsletter at http://www.energiekrise.de/e/. Click on "ASPO News".

The Oil Crash and You  (HTML),   (PDF). A summary of the facts of oil depletion, with many references.

General information about Hubbert's peak. http://www.hubbertpeak.com/

Forecasting future production from past discovery,  Jean Laherrère, OPEC and the global energy balance: towards a sustainable energy future,Vienna Sept. 28-29, 2001. Good outline of how we can predict both the amount of oil that is ultimately recoverable, and it's depletion schedule, with current data.

www.dieoff.org  Jay Hanson's web site dedicated to the implications of the peak and why we don't seem capable of anticipating it sensibly.

GeoDestinies, by Walter J. Younquist, The National Book Company, 1997, 500 pp.

The Decline of the Age of Oil, by Brian J. Fleay, Pluto Press Australia, 152 pp.

Beyond Oil, The threat to Food and Fuel in the coming Decades, by John Gever et al, Ballinger Publishing Company,  1991.

The Ecology of Money, by Richard Douthwaite, Shumacher Briefing No. 4, 1999, Green Books. The best short explanation of how the money system helps to create the growth imperative.  Very creative and practical solutions.

Beyond Growth, by Herman E. Daly, 1996, Beacon Press Books, Boston, ISBN 0-8070-4709-0. The best description of the impossibility of indefinite economic growth.