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The Peak Oil Crisis

Peak Oil 101

Written by Keith Kohl
Posted November 6, 2007 at 4:26PM

I know there's a small army of you that have been asking about the #1 spot on my "9 Things That'll Happen When Our Oil Runs Out" list. Don't think I'm copping out like Time Magazine did when they named "You" the 2006 Person of the Year.

But to be honest, the decision is a lot tougher than you would think. More submissions pour in every day, and I refuse to just grab one at random.

Yet there is something more important I've noticed coming from you.

The question, phrased in every imaginable way, comes down to: "What exactly is peak oil?" It made me realize that we have a staggering number of new readers. So let me ask you, "Would it be fair to go on without giving them a heads up?"

I don't think so, either.

For those readers who have politely asked to be filled in (and even for the more bull-headed ones too), the next few articles are for you . . .

Peak Oil 101: The Past

The U.S. was buzzing in 1956. Elvis released his first album and was introduced to the American music charts. A 29-year-old born Norma Jeane Mortenson officially became Marilyn Monroe. Four months later, she took the plunge with playwright (and hero of yours truly) Arthur Miller.

On March 8, a desperate phone call was made in San Antonio to a 52-year-old geologist working for Shell Oil Company. A worried public relations representative for Shell pleaded with the geologist (who at the time was ready to give a speech to the American Petroleum Institute) to censor a few controversial parts of his paper.

It didn't work.

That day at the Plaza Hotel in San Antonio, Texas, Marion King Hubbert delivered his speech, aptly titled, "Nuclear Energy and the Fossil Fuels." The information was chilling.

Picture yourself as an oil man back in the 1950s. The U.S. was producing more crude oil than ever before, a little more than seven million barrels per day. The 569 operating wells were pumping an average of 13,000 barrels per day per well. Life was good.

Hubbert's famous speech that day in the Plaza Hotel portrayed a grim future for U.S. production. He believed that the production of fossil fuels would follow a bell curve, predicting that U.S. oil would peak between 1965 and 1971.

His prediction was dead on.

U.S. Crude Oil Field Production (in Thousands of Barrels):

US oil production

As you can see, U.S. oil production peaked in 1970, according to data from the Energy Information Administration (EIA).

Hubbert went even further, forecasting a peak in global oil production:

Hubbert's peak chart

Peak oil isn't about the world running out of oil.

In fact, there's plenty of oil left. The world has consumed a little more than a trillion barrels of the estimated three trillion barrels believed to be in the ground.

Rather, peak oil is about the amount of oil that can still be extracted. The more oil we pull out the ground, the harder (and more expensive) extraction becomes. In other words, we're running out of cheap oil.

Take your average oil field. Production increases as the number of oil wells in the field increase. As time passes, older wells require more pressure. Eventually, the cost of operating those wells becomes too expensive.

The problem is that we're running out of those "easy-to-get" oil fields. Nine out the ten largest oil fields in the world have already entered into depletion.

And here's the problem . . .

Not only do we have to add new production to compensate for growing demand, but also to offset depletion rates. A few weeks ago, I brought up the subject of depletion rates. Accepting the International Energy Agency's (IEA) 4% depletion rate means the world needs to add more than three million barrels per day to its production capacity.

Now let's add our growing consumption to the equation. The EIA puts demand growth around 2.4% annually, tacking on another two million barrels per day. Assuming production at the world's largest oil field, Ghawar, is about 5 million barrels per day, that means we need to find the equivalent of one Ghawar every year!

Peak Oil Crisis?

Have we reached peak oil on a global scale?

If I had asked that question a few years ago, I'd have been laughed out of the room. Today, I'd see a few people nodding with a knowing look on their faces. Granted, we've only caught a glimpse of the peak oil theory so far.

To give you a full account of peak oil would take days, even weeks, but I won't leave you hanging out to dry. On Thursday, I'd like to move out of the past and into the present, asking whether or not the world has reached peak oil.

Until next time,

keith sig

Keith Kohl

P.S. If you're interested in checking out Hubbert's original 1956 presentation to the American Petroleum Institute, you can find it here.

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