Still on slippery slope to peak oil: Comment
August 23rd 2012
Technology and exploitation of unconventional sources can’t defer the long-predicted decline in global oil production says David Strahan in the New Scientist.
In 2007 former US energy secretary James Schlesinger claimed the arguments in favour of peak oil – the key theory that global production must peak and then decline – had been won. With production flat and prices surging towards an all-time high of $147 per barrel, he declared, ‘we are all peakists now’. Five years on and production has risen by 2.7 million barrels per day to 93 mb/d, prices have recently slumped to around $100 a barrel and those who dismissed the idea that the rate we extract oil from the ground must inevitably decline jeer in delight. In June a much-touted report by Leonardo Maugeri – an Italian oil executive now at the Geopolitics of Energy Project, based at Harvard University and part-funded by BP – forecast that far from running out of oil, this decade will see the strongest growth in production capacity since the 1980s and a ‘significant, stable dip of oil prices’. So is that it, panic over, as some commentators who once agreed with the peak view have declared on the basis of Maugeri’s report? Ironically, such shifts come just as some economists – traditionally hostile to peak theory – were coming round to it. Peakonomics, if you will. Unfortunately, any reasonable reading suggests Maugeri is wide of the mark.
The recent hysteria rests heavily on the rise of shale oil in the US, which was unforeseen and is significant. After four decades of decline, US oil production turned in 2005 and has generated the bulk of the global supply growth since then. But to brand this a “paradigm-shifter’, as Maugeri does, is wrong. He forecast that this boom will lead to an astonishing 4 mb/d of additional US shale production capacity by 2020. By contrast, the US Department of Energy, usually optimistic, predicts total US shale oil production will peak at just 1.3 mb/d in 2027. One reason Maugeri’s forecast is so high is that he assumes production from existing shale wells will decline by just 15 per cent per year. Industry consultant Art Berman puts decline rates at around 40 per cent. Analysis by Bob Bracket of US market analysts Bernstein Research shows similarly steep declines, and also that the average shale well takes just six years to become a ‘stripper well’ – producing just 10 to 15 barrels a day. Such declines are far higher than for conventional wells, effectively meaning the industry must drill furiously just to stand still. It is this factor that will limit future production growth. It is distressing that Maugeri’s report – which appears to contain glaring mathematical mistakes – got so much attention, but he insists the gist of his report is right. In contrast, an excellent International Monetary Fund working paper in May received much less attention.
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The IMF paper slays the belief that rising oil prices will liberate vast new supplies and vanquish peak oil. The team found that production growth has halved since 2005, and forecast that even the lower rate of growth will only be sustained if the oil price soars to $180 by 2020. ‘Our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade,’ write the authors. In this context, shale oil is not a ‘game-changer’ but a sign of desperation. ‘We have to do these really expensive and really environmentally messy things just in order to stand still or grow a little,’ says Michael Kumhof, one of the authors. It is true that global oil production has not yet peaked, but that is almost beside the point. The people who fixate on this need to wake up and smell the fumes we are reduced to running on. The IMF paper shows clearly we are supply-constrained. The oil price itself ought to be a clue: persistently above $100 per barrel, 10 times higher than it was at the eve of the 21st century.
Read the full article: New Scientist
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