My colleague Keith Kohl does an excellent job researching and discussing the oil industry.
This week, he published a brilliant piece about the immediate threat of peak oil.
As usual, comments poured in — both in support and opposition of Keith's conclusion that oil production is entering terminal decline.
Today (as I've done before), I'd like to take a look at some of those comments and evaluate their merit. What we find should not only help paint a clearer picture of the global energy scenario, but will highlight some crucial investment themes.
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Drill, for a Few Years, Drill
When domestic deniers are confronted with peak oil, they usually turn to the hackneyed argument of domestic drilling, be it in Alaska, offshore, or elsewhere.
Here are the comments that fell into this trap:
Under US soil there is still something like 336 Billion barrels left that we can't extract... supposedly. If a way could be found to get the rest of it, how hard would it be to find the financing to develop the equipment and procedures to remove the rest of it? Gilbert E.
It doesn't make sense to leave out the oil that's available but blocked by governements. Like ANWR Alaska, offshore US, and some big offshore discovery in Mexico that they won't let foreign companies get to. Maybe there is really peak oil, but you're so inaccurate leaving out those facts that your analysis is obviously way off. How about accurately accounting for everything? Chuck S.
I don't disagree with the general idea of 'peak oil' But the obvious reason the US does not produce more oil is POLITICAL. I am not saying that production would exceed what was produced in, say, 1970 — but it certainly could be much greater than it is now if government didn't block it. John S.
Those are the comments.
Here are the facts....
Peak oil is a global event. It's happening on a globe where approximately 85,000,000 (85 million) barrels of oil are consumed each day. Annually, that works out to over 31,000,000,000 (31 billion) barrels.
The United States consumes 19,500,000 (19.5 million) barrels per day or 7,117,500,000 (7.12 billion) barrels per year.
Now let's look at the maximum — the maximum, not the estimated recoverable oil — amount of reserves in these locales:
ANWR - 21 billion barrels
U.S. Offshore - 16 billion barrels
So we're looking at roughly 37 billion barrels at most. With a yearly consumption rate of 7.12 billion barrels, that gives us enough oil for just over five years... It's enough to supply the world for only one.
You see the problem here?
By all means, get that oil. Get it fast and get it now. There's plenty of money to be made in doing so...
But it isn't much. And it'll be gone soon.
That's why both the Department of Energy and the Energy Information Administration have said that to harvest those sources would have minimal impact on global markets, with respect to both price and supply. Domestic oil is a teardrop in the ocean; a Band-Aid on a bullet wound.
The era of cheap oil is over.
A Moronic Abiotic Theory
If thinking Alaskan and offshore oil will solve our woes isn't bad enough, one reader seems to think that oil isn't finite at all. Instead, he thinks there's plenty of it and believes more oil is constantly being made.
The reader's use of capitalization lets you know he's serious:
Oil is NOT a fossil fuel. There is a MASSIVE, MASSIVE EXPANDING amount of it.
THINK PEOPLE: JUST BECAUSE A PARTICULAR formation or well is decreasing, DOES NOT IMPLY THAT THE GLOBAL SUPPLY IS DECREASING — it only means that THAT ONE PARTICULAR AREA IS DECREASING, naturally. If you have a gallon of juice and continue to drink it, the total amount will decrease. Duh?
THERE IS PLENTY OF OIL. Stop spreading disinformation. READ THE ORIGINS of who put forth the ideas of how oil is produced, and that is this "fossil" fuel. That is incorrect, false, shortsighted, disingenuous and arrogant. John H.
I don't know about you, but I live in the real world — a world where crude oil was formed over geological time (millions of years) from intense pressure and heat applied to organic material under the earth.
In my world, there is a finite amount of oil. And half of it is already gone.
So keep these numbers and arguments in mind when investing in the oil market. There's plenty of misinformation out there that can lead you astray.
Sure, 16 billion barrels of offshore oil sounds great... Until you learn that the world would consume all of it in six months.
But rest assured, we'll use every last drop. And billions will be made as that happens.
Obama has already begun to ease offshore drilling rules as prices climb back toward the $100 per barrel mark.
Yet, our best prospects for domestic oil production are actually in the Midwest. In all reality, the fields of North Dakota may hold more oil than Alaskan and offshore sources combined.
It won't stave off peak oil by any means. But it will help us hold out a bit longer, reduce our dependence on foreign oil, and make smart investors a boatload in the process.
Peak oil is here. It's real.
Rather than waste time denying it with inaccurate information, why not profit from the opportunities it will create, both from the end of oil and the rise of clean energy?
Call it like you see it,
Nick
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creates natural gas and oil from dying off of sea life forms. Surely, one of your more scientific oil experts has used radio carbon dating of crude oil to prove that it is really millions of years old. Have you asked?
I have enjoyed your newsletter(s) a lot over the last 1 1/2 years, so keep them coming.
I have read (some with only mild interest, others with jaw-dropping realization) your letters on why trucks are NOT the future, but railroads are (i.e cheaper, less oil). I fear that solar, wind, geothermal, etc. are farther up the ladder than our rail infrastructure, so I think that day is long in coming.
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One topic I have not heard from anyone (at least that I can recall) has to do with how we will travel in the future (i.e. 2050). I think that until airplanes can be built that will run on hydrogen or natural gas, they will be the ones to get that last "drop" of oil that is pulled from the ground. That will be the case, because almost everyone in the world is accustomed to flying whenever they need to travel.
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Cruise ships are more efficient (like a train), but they require travel to get to the ports, and they also use fossil fuels to drive their engines. I imagine nuclear or natural gas are the logical alternatives there.
Thanks for listening.
But the fact is that you have no clue as the extent of undiscovered oil there is, and to state it as fact is to have that Al Gore standard of science.
And you didnt even mention the Bakken formation.
You people will have to grovel for credibility when it is proven that oil is constantly replenishing itself.
But you, Nick, your arroance is a sign of stupidity, as you seem to get a kick out of belittling opposing viewpoints.
John H
I agree that conceptually there is a peak oil problem.
Please use your numbers in context.
ie:
If US uses 7 B bbl/year and there is 37B bbl available in the two fields you mentioned then we have only 5 years left... only if all the other oil being produced stops.
Marc
I believe a good deal of oil forms deep within the earth and migrates to a reservoir with a trapping mechanism.
About abiotic oil generation - even you said "from intense pressure and heat applied to organic material under the earth.
dwell you got the intense pressure and heat right, thermodynamics tells us you need energy to get to the energy stored in oil from low energy organic matter. But tell me where were these concentrations of organic matter big enough (they have to be an order of magnitude bigger than the final pool of oil) to be squeezed into oil and make the Ghawar pool.
Abiotic theory tells us that oil is made deep underground and that it seeps up and collects in the correct geologic formations. Isn't it true that when we look deeper we find more oil. It is of course much more expensive.
Apparently around $150 a barrel the present global economy runs into problems - the last time it burst the US housing bubble. Which is what Peak Oil really is about. With the amount of cheap sweet crude out there, the American suburban way of life is doomed.
This is not a bad thing. Destroying the American and European middle classes so that the superrich can be richer is.
creates natural gas and oil from dying off of sea life forms. Surely, one of your more scientific oil experts has used radio carbon dating of crude oil to prove that it is really millions of years old. Have you asked?
Carbon dating can only be used for a few thousand years back, not hundreds of millions.
The rate of formation of oil is very slow, and highly dependant on the rock formation and even "global warming". Life flourishes in periods of warmer temps on the earth, and oil formed from those periods. The great oil fields come from only a few brief periods in geological history. Read Oil 101 for an excellent description of how oil is formed.
Interesting comments. I am a multidegreed independant geologist in this goofy business since 1966. Worked for the big guys, medium sized ones, small ones and been on my own since 1980. So far as getting more out of existing fields, you might want to get a reservoir engineer to fill your readers in on "relative permeability". This is the permeability of the "non-wetting" fluid relative to the permeability of the "wetting fluid" under the same physical constraints in any one particular reservoir. As the permeability of oil decreases the permaebility of water increases. This directly is effected by initial oil/water saturations. Roughly speaking, when water saturation is at 30%, you will produce no water, just oil. As you produce oil and those saturations change, you will produce more water and less oil. Eventually you get to a point where you will produce only water and no oil. This is usually somewhere between 30% and 45% oil saturation. That means you are leaving the balence of the oil in the reservoir. Multiple methods have been tried for decades to solve this relationship by some very talented and smart people in all kinds of organizations including E&P companies, acadamia, and various government agencies around the planet. Nothing has changed. Can't fool mother nature. Many of your readers are frustrated by the eventual loss of their life styles due to these facts. Tough. There are 7 billion souls on this planet with more on the way. They all want nice houses, 2 cars, a couple of TVs, computers, heating,air conditioning, hot and cold water and indoor plumbing. Really! Who would have "thunk". This is not rocket science. We have met the enemy and they is us.
A fine article and even more interesting commentary. Note how you are getting confirming response from the long time oil folk and geologists and more of the same wishful, willfull ignorance and distortion from others who don't have a credential to stand on.
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