Peak Oil News: Oil expert: Output downhill from here

Monday, February 27, 2006

Oil expert: Output downhill from here

OregonLive.com

Energy - Author Ken Deffeyes thinks the depletion of fossil fuels could lead to a worldwide cataclysm

By TED SICKINGER

Few petroleum geologists qualify as celebrities. But Ken Deffeyes, a former Shell Oil geologist who is now a professor emeritus of geosciences at Princeton University, recently sold out Portland's First Congregational Church, where he came to lecture on his latest book, "Beyond Oil."

Before Princeton, Deffeyes worked as a researcher in the labs of Shell Oil and taught at the University of Minnesota and Oregon State University. At Shell, he worked with the now-famous petroleum geologist M. King Hubbert. Hubbert coined what is fast becoming a fixture in the modern lexicon -- "peak oil" -- when he predicted that U.S. oil production would peak in the early 1970s and decline thereafter. Widely criticized at the time, Hubbert has since been vindicated.

Building on Hubbert's hypotheses, Deffeyes recently theorized that world oil production peaked Dec. 16, 2005, and has begun its permanent decline, with economic disruptions to follow.

Deffeyes sat down with The Oregonian last week to discuss his book and the peak oil phenomenon. His comments have been edited for length and clarity.

What's the basic math behind your forecast that world oil production peaked Dec. 16?

Hubbert's theory says that the ease of finding oil depends on the fraction of oil that hasn't been found yet. It's a simple hypothesis that explained U.S. oil production, where we've already gone over the peak and we're halfway down the other side. A corollary that comes out of the math is that the peak occurs when half the oil has been produced. In Chapter 3 of "Beyond Oil," I take the date these oil fields were first discovered, the first wells, and it turns out that the whole world is mature. We've found 94 percent of all the oil we're ever going to find. It's easy to extend that line down to the zero level and say that there are 2.013 trillion barrels that we're on track to discover, and we've already discovered 94 percent of that. So there's not much guesswork in that number. So I divide that number by 2 and I get just over 1 trillion barrels. Then I add up the world oil production from the beginning and figure out when we're halfway, and that's where the Dec. 16 number comes from.

Doesn't a lot depend on the level of oil reserves the Saudis are sitting on?

Matt Simmons has this wonderful book called "Twilight in the Desert." It's a very detailed analysis of the Saudi fields based on papers that the Saudi Aramco petroleum engineers have published in the Journal of Petroleum Geography. He says they're struggling to keep up.

In the supergiant oil fields in Saudi Arabia, the water content is going up. It's called the water cut, the percentage of fluid produced that's water. It was 30 percent when Simmons' book came out. There are rumors now that it's 55 percent. When it gets to 80, things are largely over.

What is the highest estimate of reserves out there?

Reserves are hard to estimate, but if we talk about discoveries, the biggest estimate comes from the U.S. Geological Survey, at just over 3 trillion barrels. If you take their number, we have another 2 trillion barrels to produce and you get a peak in the year 2036. I could give a 15 minute lecture on the flaws in the USGS survey, and I think they're beginning to back off a little bit. In order to make the USGS or things like it correct, we've got to find another Middle East plus another North Sea on top of that. I don't think there's another Middle East lurking out there.

What would drilling in the Arctic Refuge do to the estimate ?

Prudhoe Bay, the largest oil field in the United States, kicked in when they got the pipeline finished in 1976, and it wasn't big enough to raise us back to our 1970 level of production. It put a little shoulder on the downside of the production curve, but that was it. My guess is that in our wildest dream, ANWAR (Arctic National Wildlife Refuge) will prove half as big as Prudhoe Bay. I'd have to work out the number, but if that's the case, it probably postpones the world situation for two weeks.

What about offshore fields?

The only thing on the shelf, literally the continental shelf, is the South China Sea, which has been drilled around the edge and it's mostly natural gas. There could be oil out in the middle, but six different countries claim the South China Sea.

What do the oil companies say?

With the oil companies, you have to watch what they do and not what they say. What they're doing is taking in $10 billion and $20 billion a quarter in profits and handing it out as increased dividends, buybacks of their stocks, giving it to their executives. They're not drilling, they're not building new pipelines and not building new refineries. If there were good prospects out there, they'd be out there drilling like crazy.

Is there a portfolio of alternative energy that makes sense

It's those things that we have the technology and engineering ready to go right now. At the top of my shortlist are the high-efficiency diesel automobiles being marketed in Europe right now that get 100 miles to the gallon. Nuclear and wind are things we have engineered right now that are ready to roll. Wind, even in your wildest dreams, is not going to be a very big part of the answer, but every little bit helps. Nuclear, we know how to build and operate safe nuclear power plants. Coal gasification, where you react the coal with steam and a little bit of air and get a little gas, would be a win.

What about oil shale and tar sands?

Oil shale is the fuel of the future and it always will be. In the case of tar sands, they're very heavy users of natural gas right now, for heat to melt the tar and to upgrade the oil so it will travel through a pipeline in a Canadian winter. Alan Greenspan told us more than a year ago that the North American gas market was gassed out. So they're going to be natural gas limited or having to compete with other users of natural gas. There's talk about building a nuclear plant up there, and that's a good idea, but it'll take 10 years to get a plant in there.

Biofuels?

There are both people and cows lined up for soybeans, and it's at least a factor of 2 more expensive than oil right now. Palm oil may be the closest to being the one ready to go to market right now. Ethanol from corn is close to being a tossup. You may use the same amount of energy when you burn the ethanol as goes into the fertilizers, the tractors, the trucks to haul it around. In Brazil, they're doing well with sugar cane.

Where is the economic impact of peak oil going to be felt acutely and when?

Geologists like to look back in time, and I'm not that good at futurology. I borrow the analogy of the Four Horsemen of the Apocalypse: war, famine, pestilence and death. Famine because particularly fertilizer is very energy intensive. The green revolution was based on better seed varieties, heavy use of mineral fertilizers, pesticides. Well, pesticides are all petrochemicals, so fertilizer is going to get much more expensive cause they use a lot of energy.

So famine and pestilence really are threats down the line. And if you look up Amos Nur's Web site at Stanford, he thinks the first Gulf War, the Trade Center attacks and the second Gulf War are the first three skirmishes in the oil war.

Do you envision problems gradually getting worse, or some sudden shock?

What I've heard from a lot of people is that it will take something terrible to get people's attention. You mean the World Trade Center wasn't big enough? The Iranian situation, that could trigger it. The hurricanes nearly triggered it. Really abnormally cold winters in the northeastern U.S. and Europe could trigger it. If we got a civil war in Saudi Arabia, you could kiss your lifestyle goodbye. The public will probably say after the fact that XYZ triggered it. That's the naming rights phenomenon, and I can't say which one is going to win.

By the end of this decade, we'll be down about 5 percent from the peak production, and demand in China and India is moving up fast, and someone's going to come up short on their ambitions.

So you really believe the Four Horsemen scenario is somewhat likely?

We're not doing much about it. We could have had a soft landing if we had listened to Jimmy Carter and started 20 years ago. But in the absence of a Winston Churchill or John Kennedy, I'm not sure we're going to get in gear fast enough to avoid this. The mildest form of the disaster is a global recession worse than the Great Depression, and that's a form it could take rather than war, famine, pestilence and death.

How would you prepare for this?

What I'd like to have is farmland on volcanic rich soils so that it doesn't require fertilizer. And I need a place where there's enough rainfall. Maybe this could be in Oregon. Owning something that's relatively energy independent and supplies food for the survivors to eat would be the sweetest target.


2 Comments:

At 8:30 PM, March 08, 2006, Blogger Zhang Fei said...

Article: With the oil companies, you have to watch what they do and not what they say. What they're doing is taking in $10 billion and $20 billion a quarter in profits and handing it out as increased dividends, buybacks of their stocks, giving it to their executives. They're not drilling, they're not building new pipelines and not building new refineries. If there were good prospects out there, they'd be out there drilling like crazy.

Actually, it's more that if they thought oil would stay at $60 a barrel, they'd be out there drilling like crazy. Note that Chevron paid somewhere in the teens for Unocal's reserves, and would not raise its offer, even though its Chinese competitor had a higher bid. Another important point is that many countries are setting exploration terms as if they think $60 oil will last forever. It makes no sense for the big oil companies to start bidding for drilling rights at today's inflated prices unless they believe the good times will last (i.e. high oil prices). And it is clear they don't believe these prices will last. Because the supply curve isn't the only thing that affects oil prices.

Demand will fall as prices rise, simply because people cannot afford to pay these prices. People who currently need to drive but cannot afford to, will move to areas where they don't have to drive. People who have large houses will stop heating every room. People who use oil heat will start using electric heat (which will now be generated by nuclear power stations).

 
At 4:52 PM, June 18, 2008, Anonymous Anonymous said...

Well, Zhang, it's 2+ years later, and oil is now about $140 a barrel. Seems like you were looking in the wrong end of the telescope.

 

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