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The Looming Energy Crisis

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1 The Looming Energy Crisis
PEAK OIL The Looming Energy Crisis J. R. WOOD GEOLOGY DEPT. MICHIGAN TECHNOLOGICAL UNIVERSITY

2 ANNUAL PRODUCTION OF CRUDE OIL
ACTUAL & PROJECTED SOURCE: ASPO, 2004

3 U.S. energy consumption, 2001

4 US CRUDE CONSUMPTION ANNUAL CRUDE OIL CONSUMPTION IN THE US & SOURCES

5 GDP AND OIL CONSUMPTION
DEPENDENCE OF NATIONAL GDP ON OIL CONSUMPTION: 67 COUNTRIES GDP (PPP)

6 WORLD ENERGY CONSUMPTION
EXXON-MOBIL

7 THE DEBATE OVER RESERVES: PESSIMISTS AND OPTIMISTS
During the 1990’s, the debate over oil reserves generated controversy between the "pessimists" and the "optimists".

8 OIL IS POLITICAL “Oil is so important that publishing reserve data has become a political act. Most of the dispute between the so-called pessimists (mainly retired geologists) and the optimists (mainly economists) is due to their using different sources of information and different definitions. The pessimists use technical (confidential) data, whereas the optimists use the political (published) data. “ Jean Laherrère "Future of oil supplies” Seminar Center of Energy Conversion Zurich May

9 PESSIMISTS the world is finite and so are its recoverable oil resources all of the oil-bearing regions worth exploring have already been explored the big fields have already been discovered claim that official figures for proven reserves have been overestimated world oil production is currently at its optimum (peak) and will decrease steadily Geologists and physicists tend to hold this position.

10 OPTIMISTS hold a “dynamic” concept of reserves
believe that volumes of exploitable oil and gas are closely correlated to technological advances, technical costs and price tend to be economists

11 THE “FLAT EARTHER’S” PRODUCTION CURVE
the economist sees economic activity as a function of infinite "money creation", rather than a function of finite "energy stocks" and finite "energy flows". In fact, the economy is 100% dependent on available energy -- it always has been, and it always will be. THE “FLAT EARTHER’S” PRODUCTION CURVE “… often assumed by economists that oil production can simply be increased to keep pace with consumption until the wells finally and suddenly run dry.”

12 Summary: Optimists and Pessimists
Discovery reached a peak in 1964, with spikes representing the huge Middle East discoveries. Production matched the theoretical bell-curve until the oil shocks of the 1970s, which curbed demand. Had production not been constrained by the shock, the World would have had a higher peak around 1995, followed by a steeper decline. The demand constraints gave a lower and later peak, with a shallower subsequent decline. Obviously, the less used to-day leaves more for tomorrow. It is a lesson to be taken to heart. These limits are imposed by Nature and the physics of the reservoirs. Will the hydrocarbon era finish soon? Oct. 2000 H. Rempel, Federal Institute for Geosciences and Natural Resources, Stilleweg 2, Hannover

13 World - Regular Oil Peak Discovery 1964 High Prices Curb Demand
Discovery reached a peak in 1964, with spikes representing the huge Middle East discoveries. Production matched the theoretical bell-curve until the oil shocks of the 1970s, which curbed demand. Had production not been constrained by the shock, the World would have had a higher peak around 1995, followed by a steeper decline. The demand constraints gave a lower and later peak, with a shallower subsequent decline. Obviously, the less used to-day leaves more for tomorrow. It is a lesson to be taken to heart. These limits are imposed by Nature and the physics of the reservoirs. Ultimate : Gb To-date : 920 Gb

14 DISCOVERIES

15 WORLD OIL DISCOVERIES Oil discoveries worldwide peaked at 90 Gb in (except for an exceptional, solitary peak year in 1948 of Gb. It clearly shows the fall in discovery. Even the successes such as North Sea oil in the mid-1970s do not halt the trend,. Source: ASPO “You have to find it before you can produce it “ Production mirrors discovery after a time lag 3 YEAR AVERAGE

16 Production mirrors discovery …
Drilling more does not help After a time lag of ~35 years for the US Lower 48. The gap between consumption and discovery has been widening. We started consuming more than we found in 1981. Drilling more does not help. There was a huge surge in drilling in the early 1980s, which was driven by high prices giving high tax charges against which exploration expense could be offset, but it delivered little. Exploration drilling is declining because there are fewer viable prospects, and advances in technology mean that the industry drills fewer dry holes. In short, we are eating into our inheritance from past discovery. That cannot continue indefinitely

17 Real Discovery Trend Past discovery by ExxonMobil
Discovery reached a peak in the mid 1960s, as now confirmed by no less than ExxonMobil, the World’s largest oil company. It has been falling: despite a worldwide search, always aimed at the biggest and best prospects; despite improved geological knowledge and understanding; despite great technological progress; despite favourable tax treatment of exploration expense. If more could have been found, it would have been. Accordingly, there is no reason to expect the trend to change direction. Extrapolating the future trend is straightforward.

18 Production mirrors discovery …
Drilling more does not help … for the world? The gap between consumption and discovery has been widening. We started consuming more than we found in 1981. Drilling more does not help. There was a huge surge in drilling in the early 1980s, which was driven by high prices giving high tax charges against which exploration expense could be offset, but it delivered little. Exploration drilling is declining because there are fewer viable prospects, and advances in technology mean that the industry drills fewer dry holes. In short, we are eating into our inheritance from past discovery. That cannot continue indefinitely

19 The Growing Gap between Discovery and Consumption
Drilling more does not help The gap between consumption and discovery has been widening. We started consuming more than we found in 1981. Drilling more does not help. There was a huge surge in drilling in the early 1980s, which was driven by high prices giving high tax charges against which exploration expense could be offset, but it delivered little. Exploration drilling is declining because there are fewer viable prospects, and advances in technology mean that the industry drills fewer dry holes. In short, we are eating into our inheritance from past discovery. That cannot continue indefinitely

20 BUT “OFFICIAL” PROJECTIONS CONFUSE …
SOURCE: EIA & USGS

21 Regular Oil How Much has been Found? 1700 Gb (rounded)
When was it found? Peak discovery was in 1964 So, we face a challenge in finding good numbers, with which to work. We are forced to do the best we can, lifting veils of confusion and searching out the anomalies. We may never get a precise answer but we can make a reaonable approximation. It shows that about 1700 Gb (billion barrels) of Regular Oil have been found and that discovery reached a peak in 1964. These are the answers to the two questions we posed earlier. They are not exact answers but not far off.

22 ESTIMATTES OF ULTIMATE RECOVERY
“The attached graph shows 76 estimates of ultimate recover estimates published by major oil companies and serious scientific institutions. There is a consensus, ... from which only a few eccentric high estimates depart (that) ... the average works out at Gb, of which 920 Gb, or almost half (48%), have been consumed.” How Much has been Found? Gb (rounded) When was it found? Peak discovery was in 1964

23 Where is it? Regular Oil The distribution of Regular Oil is uneven because only centain areas had the required geology. North America has used most of its oil, whereas the Middle East has more left than anywhere else. Yet North America consumes 28% of the world’s production. There is an irony about producing a finite resource. The better you are at doing it, the sooner it is gone. It explains why dynamic America has used most of its endowment

24 RESERVE ESTIMATES RESERVES ARE: ORIGINAL OIL IN PLACE – PRODUCTION
RELIABLE DATA ARE HARD TO COME BY “RESERVE GROWTH” IS REAL BUT SOMETIMES HARD TO VERIFY PRIME DIFFERENCE BETWEEN “OPTIMISTS” AND “PESSIMISTS”

25 “Political” Reserves Companies officially under-report where they can. Stock Exchanges encourage under-reporting Countries variously Under-report based on company returns Over-report, for example, for OPEC quota Simply fail to update - 68 countries in 2003 Companies have commercial motives to over- or under-report reserves. Under-reporting helps them to: - smooth their asset base, presenting a better image - reduce tax - comply with Stock Exchange rules designed to prevent fraud Over-reporting may be practiced for promotional purposes. By contrast, countries variously under-report, based on company returns, or over-report either by failing to update or for specific reasons such as: - OPEC quota - Collateral for debt (as in Mexico) - as under the Soviet classification As many as 68 countries failed to change their estimates in 2003, which is utterly implausible. Some have not changed for many years.

26 “Reserve Growth” Confidential Public
This shows the pattern of how reported reserves evolve. The process opens with the "best estimate" of the prospect by the explorers. Next, comes the normal exaggeration to persuade the management to provide the money to test the prospect against other conflicting exaggerated claims by other affiliates competing for budget. Then, comes the intial conservative estimate, which enters the public domain. Over time, large fields "grow" as extimates are revised upwards, whereas small ones often disappoint.

27 STANDARD SOURCES OF DATA
“Reserves published as “proved” by Oil & Gas Journal (OGJ), World Oil, BP Statistical Review, American Petroleum Institute and OPEC, can be called “political” (or financial).” Jean Laherrère "Future of oil supplies” Seminar Center of Energy Conversion Zurich May STNADARD SOURCES OIL & GAS JOUIRNAL WORLD OIL BP STATISICAL REVIEW API (DOE) OPEC OGJ and World Oil simply report what governments and companies send them BP uses OGJ & WO data but does not filter, QC or apply institutional knowledge API and OPEC are meant to be political

28 World Discovery The Popular Image
Many analysts, especially those outside the oil business, can be forgiven for believing that the BP Statistical Review is an authoritative source of information. By failing to grasp the need for backdating, they are misled into extrapolating the growth of reserves ever upward. At first sight, it seems emminently reasonable to do so, but it is a grave error. Based on non-backdated revisions

29 Reality and Illusion Flat-earth illusion Reality Inflection due to
falling Discovery Reality OPEC “quota war” The red line shows the trend based on public data, which has led to the illusion of ever onward growth on a Planet of limitless resource. Proper backdating and correcting the estimates, so far as is possible, gives a very different view, showing that discovery peaked in the 1960s, as now confirmed by ExxonMobil. Extrapolating the falling discovery trend gives a good indication of what is left to find.

30 Evolution of Reporting
Confidential Public This shows the pattern of how reported reserves evolve. The process opens with the "best estimate" of the prospect by the explorers. Next, comes the normal exaggeration to persuade the management to provide the money to test the prospect against other conflicting exaggerated claims by other affiliates competing for budget. Then, comes the intial conservative estimate, which enters the public domain. Over time, large fields "grow" as extimates are revised upwards, whereas small ones often disappoint.

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32 Spurious OPEC Reserve Revisions
OPEC PRODUCTION QUOTAS DEPEND ON STATED RESERVES THE TEMPTATION TO EXAGGERATE PROVED IRRESISTABLE The main OPEC countries added about 300 Gb to their reserves in the late 1980s although only about 10 Gb eas actually discovered. They did so because production quota was based on reserves. Kuwait added 50% to its reserves in Venezuela then doubled its reserves by the addition on long known heavy oil, not previously counted. That caused the other countries to retaliate with massive increases, except the Neutral Zone which is owned by Kuwait and Saudi Arabia, its two owners having no common motive to exaggerate. But it is not as simple as it seems, for the early numbers were too low having been inherited from the foreign companies before they were expropriated. Some increase was called for, but that has to be backdated to the discovery of the fields concerned as much as 50 years before. In billions of bbls.

33 Misleading Reporting by BP Statistical Review
Genuine revisions not back dated ! Most public databases report revisions when they are announced without backdating, giving a misleading impression that more has been found in recent years than was the case. Many analysts assume that the widely used BP Statistical Review of World Energy carries at least the tacit confirmation of a knowledgeable oil company. In fact, the Company explains in a footnote that it merely reproduces the Oil & Gas Journal data, which are not backdated. It is not even consistent : Reported Production statistics include synthetic oil made from tar sands whereas Reported Reserves do not

34 WORLD OIL RESERVES - BP STATISTICS
The BP statistics for the world's proved reserves of oil are unrealistic, showing the unsupported OPEC leap in the 1980s and a steady increase despite years when consumption was greater than discovery Source: BP

35 THE CRUDE OIL CRISIS So, what does it mean …
if WORLD CRUDE PRODUCTION IS PRESENTLY PEAKING, if MOST OF THE WORLD’S OIL HAS BEEN DISCOVERED, and if WORLD DEMAND CONTINUES TO GROW?

36 if WORLD CRUDE PRODUCTION IS PRESENTLY PEAKING
Just the perception that oil is peaking will be a problem Financial markets can be counted on to react badly Governments too; some may even consider going to war General population will bear the brunt, esp. in poorer, undeveloped countries End of cheap oil Exxon stock anyone? Really a stretch, Dr. Wood Population crash?

37 if most of the World’s oil has been discovered
The OPEC/Middle East Crossoverv One consequence: OPEC is expected to produce more than 50% of the world's oil around , How will Western economies cope? Oil production comparing OPEC with the Rest of the World. Source: ASPO

38 and if WORLD DEMAND CONTINUES TO GROW?
2003

39 Population Trends – Less & More
Developed countries may squeak by IF energy alternatives can be found and put on line quickly enough. If these population projections are at all correct, then less developed countries have no chance. Developed countries will not let their economies crumble under the oil threat. As long as significant quantities of oil remain, the developed countries will fight to maintain share. Less developed countries will suffer in comparison as they will be shut out of oil markets, probably even if they own the supplies. Source: UN Population Trend Data

40 The Olduvai Theory of Industrial Civilization
THE ANTHROPOLOGIST’S PERSPECTIVE? The Olduvai Theory of Industrial Civilization EXAGGERATED? PERHAPS, BUT THE OIL AGE WILL BE REMEMBERED AS A TIME WHEN MANKIND WENT THROUGH 100’S OF MILLIONS OF YEARS OF HYDROCARBON RESOURCES IN LESS THAN 200 YEARS. The Olduvai Theory: Sliding Towards a Post-Industrial Stone Age. Richard C Duncan, Ph.D. Institute on Energy and Man, June 27, 1996

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42 THE CRITICAL IMPORTANCE OF GIANT FIELDS
Saudi Arabia has over recognized reservoirs but 90% of its oil comes from the five super giant fields discovered between 1940 and Since the 1970s there haven't been new discoveries of giant fields. IAGS, 2004, “New study raises doubts about Saudi oil reserves “ AAPG EXPLORER, JAN., 2005

43 Number of data points used = 876
GIANT OIL FIELDS* * >500 MILLION BBLS Fit Results Fit 1: Normal Number of data points used = 876 Average X = Standard Deviation = HISTOGRAM CONTAINS 876 FIELDS WORLDWIDE RATE OF DISCOVERY CLEARLY IN DECLINE DISCOVERY PEAKED IN 1966

44 Saudi Arabia's Ghawar Field
Discovered in 1948, Ghawar is the world's biggest oil field, 174 miles in length and 16 miles across and encompasses 1.3 million acres.Current estimates, for cumulative oil production are 55 billion barrels. Average production for the last 10 years is five million barrels per day. Ghawar accounts for more than one-half of all oil production in Saudi Arabia

45 ANNUAL PRODUCTION OF CRUDE OIL
SOURCE: ASPO, 2004

46 WORLD OIL & THE HUBBERT CURVE
The yellow line in the graph is the Hubbert curve and shows how oil production would have expanded and then contracted if it had been governed solely by physical constraints. The red line shows the amount of oil actually produced up to 2003 and what is likely to be produced in the future. The actual curve followed the theoretical curve very closely until the early 1970s when five OPEC producers gained control of more than 30% of the world market. This pushed up prices, limiting demand. High oil prices can be expected to cause world oil demand to stay on a plateau until around After that, output will fall whatever the price because fields will be becoming exhausted. Peak Discovery Discovery reached a peak in 1964, with spikes representing the huge Middle East discoveries. Production matched the theoretical bell-curve until the oil shocks of the 1970s, which curbed demand. Had production not been constrained by the shock, the World would have had a higher peak around 1995, followed by a steeper decline. The demand constraints gave a lower and later peak, with a shallower subsequent decline. Obviously, the less used to-day leaves more for tomorrow. It is a lesson to be taken to heart. These limits are imposed by Nature and the physics of the reservoirs. World - Regular Oil Ultimate :1850 Gb To-date : 920 Gb

47 All Oil & Gas The Green represent Regular Oil, assuming that the Middle East is now producing at close to its practical capacity. The Brown represents the heavy oils and bitumen of Canada and Venezuela that can be extracted only slowly and with difficulty The Blue represents the new deepwater frontier, which is limited to a few areas with the right geology. The White represents uncertain polar oil mainly from Siberia The Striped represent Natural Gas Liquids, linked to gas The Red is Natural Gas, whose production is set to rise to a plateau before falling steeply The Purple is unconventional gas, such as Coalbed methane

48 ENERGY CONVERSIONS 1 BARREL OF OIL = 6.1 GJ = 5.8 X 10 6 BTU
= 1,700 kilo-watt-hr (kWh) = 42 gallons (U. S) 7.2 BARRELS OF OIL = 1 ton of oil (= GJ)

49 “Reserve Growth” misleads
It is widely attributed to technology, market forces or good management, but is simply a reporting phenomenon. Proved Reserves grow by definition Proved & Probable Reserves do not Revisions have to be backdated to obtain a valid discovery trend. This apparent "Reserve Growth" has greatly misled many analysts, especially those with no actual experience of the oil business. It is expedient to attribute this "growth" to advances in technology, market forces or good management, when it is primarily nothing more than a function of reporting practices. Proved Reserves grow by definition whereas revisions to so-called "Proved & Probable Reserves" are statistically neutral with upward revisions matching downward ones. There was much greater scope for “Reserve Growth” in old large fields with low economic thresholds than is the case in the smaller more recent ones, especially offshore. So, the scope for general "Reserve Growth" in the future is greatly diminished. Extrapolating past Reserve Growth into the future is thus a great mistake. It is one of the principal ways by which vested interests succeed in misleading.

50 Data Sources Two trade journals Oil & Gas Journal and World Oil compile data given to them by governments but do not assess validity BP reproduces the Oil & Gas Journal But does not reveal its own knowledge Industry databases give the best available data but is too expensive for most analysts to access There are two main sources of public information: the Oil and Gas Journal and World Oil. They are industry journals which compile the information from questionnaires sent to governments and others. They do a valiant job reporting Proved Reserves, but lack the expertise of an oil company to spot the anomalies. Another source of information is the BP Statistical Review of World Energy, already referred to. The Company is in a position to properly evaluate the data but explains that it prefers to simply reproduce published sources, not wishing to involve itself in sensitive issues affecting host governments in countries where it works. There are other commercial industry databases, reporting properly backdated Proved & Probable Reserves, as derived from direct contacts within the industry. They are relatively reliable, but their cost puts it out of reach for most analysts.

51 Conclusion Most of the confusion and controversy derives from the unreliable reporting of production and reserves. It is not primarily a technical problem, but a political one. There are vested interests with good reasons to conceal and confuse Most of the confusion about the subject relates to the unreliable reporting of Production and Reserves. It is not primarily a technical problem, because valid scientific estimates, based on accurate data, can be made with quantified degrees of uncertainty. It is rather a "political" problem to access the right data. There are many vested interests with good reasons to conceal the true position. It is a shocking state of affairs that analysts, including many government analysts, are forced to work with such unreliable public data, being denied access to the valid information that does exist within the industry. There are compelling reasons to overcome these artificial obstacles as a matter of urgency, if we are to have a chance to prepare in time for all the many consequences of declining oil production. With better data, the imminent decline in production would be self-evident

52 Hyperbolic Creaming Curve
One such statistical method is the so-called Creaming Curve. It plots cumulative discovery against cumulative wildcats, giving a good indication of the true trend, being unaffected by the incidental effects of oil price variations or government policy changes. The trend normally fits a hyperbola because the larger fields are found first. Sometimes more than one hyperbolic trend are indicated. Extrapolating the trend to asymptote gives an indication of what is left to find, subject to an economic cut-off when the remaining prospects become too small to be viable under any foreseeable circumstances.

53 Size Distribution Another statistical technique was pioneered by Jean Laherrère, who discovered that the distribution of objects in a natural domain plots as a parabola when size is set against rank on log-log scales. Rank means the largest, second largest and so forth. When all the larger fields have been found, they set the parameters for the parabola, which can then be extrapolated to the smallest viable field under a fractal law of self-similarity, whereby a complete segment of the distribution represents the whole. The same approach can be applied to many other phenomena. For example, the population of a country can be determined by plotting the size of its larger cities in the same way. When the total size of the endowment is determined, it is possible to calculate the size and number of fields remaining to be found.

54 Yet-to-Find in New Areas
All the larger provinces with Regular oil have already been found. The largest found in 50 years was the North Sea with about 70 Gb. It is inconceivable that anything near as large has been missed. There may be small new areas. But the discovery trend of a country based on its major productive provinces will not be much affected any small new ones. The World has now been very thoroughly explored. The largest new province found in the last fifty years was the North Sea with about 70 Gb (billion barrels). It is inconceivable that anything near as large has been missed. Although there remains some scope for finding smaller, leaner new provinces, such additions are not large enough to have much global impact. Most future supply will come from the already known areas. The potential for discovery in new deepwater or Polar regions is another matter to be considered separately later.

55 WAS IT ALL ABOUT OIL AFTER ALL?
Shell along with Chevron, BP and seven other oil giants, have won contracts to buy Iraq's new oil production of Basra Light crude. The contracts cover production from the Mina Al-Bakr port in southern Iraq from August to December of this year. The sales contrast sharply with contracts signed by the previous regime of Saddam Hussein with Russia and France. "Unfortunately, not a single Russian company managed to clinch a contract, as we went for the best price," says acting oil minister Thamer Ghadhban. EXCERPTS FROM: “To the Victors Go the Spoils of War” CORPWATCH, 2004

56 WAS IT ALL ABOUT OIL AFTER ALL?
“Executive order number states "any attachment, judgment, decree, lien, execution, garnishment, or other judicial process is prohibited, and shall be deemed null and void", with respect to "all Iraqi petroleum and petroleum products, and interests therein.” "Effectively Bush has unilaterally declared Iraqi oil to be the unassailable province of US oil corporations." Jim Vallette, Sustainable Energy & Economy Network of the Institute for Policy Studies, Washington DC. FROM: “To the Victors Go the Spoils of War” CORPWATCH, 2004

57 CRTITQUE OF OFFICIAL RESERVE ESTIMATES
“According to BP, reserves increased dramatically in the 1980s and s, from 670 billions barrels at the end of 1960 to 1147 billion barrels at the end of But most of the increase occurred in OPEC countries, mainly in the Middle East, in the second half of the 1980s. Saudi Arabia and Kuwait revised their reserves upward by 50%, while Venezuelan reserves were boosted 57% by the inclusion of heavy oil in The United Arab Emirates and Iraq also recorded large upward revisions in that period. Total OPEC reserves jumped from 538 billion barrels in 1985 to 766 billion barrels in As a result, world oil reserves increased by more that 30%. This hike in OPEC countries’ estimates of their reserves was driven by negotiations at that time over production quotas, and had little to do with the actual discovery of new reserves. In fact, very little exploration activity was carried out in those countries at that time. Total reserves have hardly changed since the end of the 1980s.” The Outlook, 2004

58 NEXT BIG THING: PEAK OIL
“The peak-oil debate is getting more polarized and more rancorous—and, especially noteworthy, more politicized. So here's an immodest prediction: The peak-oil debate will be the Next Big Thing. The story with legs. The overarching theme that will resonate throughout the oil and gas industry for decades to come. It will be propelled forward in the public consciousness not only by serious debate within the industry itself but also on the political hustings and by antioil forces who can't seem to pry Americans out of their sport utility vehicles even as war rages in the Middle East and Chicken Little lies sacrificed on the Kyoto altar Iraq and Saudi Arabia will figure largely in that debate. So will Russia and the Caspian. And Orinoco oil and Athabasca tar sands. And reserves accounting and transparency. And alternate energy viability. “ Bob Williams: Oil and Gas Journal, 2004

59 NEXT BIG THING: PEAK OIL

60 CRITIQUE OF USGS RESERVE ESTIMATES
“The USGS commenced its study of world oil following the shocks of the 1970s, and for many years issued sound evaluations at successive meetings of the World Petroleum Congress. But a departure came with the study of 2000, under the project’s new director, claiming a Mean estimate of the total discovery to of 3.3 trillion barrels. The following Figure illustrates the record of some 65 past estimates by major oil companies, serious institutions and the USGS itself, which average 1.93 trillion barrels, indicating that the latest USGS estimate is far from the consensus.”

61 Examples of Depletion Evidence for peak and decline as demonstrated by examples of countries at different stages of depletion

62 US-48 The United States is almost unique in that the oil rights belong to the landowner, which gave it an exceptional depletion profile. The reserve and reporting practices are also unique. There is a very large number of what are treated as small independent fields because of the fragmented ownership. Most of these small fields are intimately related to the large ones. The above plot attributes all discovery to the large fields to give a fairer picture. The peaks of discovery and production were in respectively 1930 and 1971. A new cycle of discovery is now opening with the deepwater projects in the Gulf of Mexico (here excluded from Regular Oil). The United States has supported a dynamic oil industry which explains why it is the most depleted country, now importing more than 60% of its needs on a rising trends. It also explains why access to foreign oil is declared to be a vital national interest to be protected by military means as necessary.

63 Germany Germany is another example of a heavily depleted country with a long oil history. Discovery peaked in 1952 followed by production in 1966, ten years before the midpoint of depletion.

64 United Kingdom Production in the United Kingdom has been dominated by the North Sea, although there there had been a number of earlier small onshore finds. The North Sea was developed under an environment of hyperactivity under an extreme Open Market policy, as a monument to free enterprise and engineering. As a result, the resources have been depleted rapidly. The saddle in production reflects an accident calling for new safety standards, and the second peak relates in part to the entry of a large number of smaller fields, which had to be produced while the major facilities were still in place. A recent government paper shows a steep decline to exhaustion by about 2020.

65 Norway Norway has jurisdiction over the eastern half of the North Sea, where the first discovery was made in 1968, followed a year later by the giant Ekofisk fields with its unusual Chalk reservoirs. At first the government took a cautious approach concerned about the impact of oil wealth on the country’s national life. A series of giant fields were found in the late 1970s on a trend extending out of UK waters, giving an overall peak of discovery in 1979. A second basin was opened to the north off mid Norway in the 1980s. Production is now at or past peak, and is set to decline at almost 7% a year. Norway also has substantial gas reserves for export of the next 20 years or so. It remains to be seen if the will deplete them rapidly to supply Europe now or conserve them for the future when Europe’s plight becomes severe.

66 Algeria Algeria was a French territory until it became independent in 1962, following the discovery of the giant Hassi Massaoud oilfield in 1956, Africa’s largest field. Algeria is an OPEC country with production curtailed by quota giving it an anomalous depletion profile. Production reached a first peak in 1978 followed by a saddle, due in part to OPEC quota, falling to a low in A second peak is now building before terminal decline sets in before the end of the decade. A second smaller cycle of discovery occurred during the 1990s. Algeria also has substantial gas reserves.

67 Egypt Some early onshore discoveries were made in Egypt during the 1930s, but it was not until the opening of the Gulf of Suez during the late 1950s that the countrys’ full potential was realised. Discovery peaked in 1965 giving a corresponding peak of production in 1995 at the midpoint of depletion. Production is now in terminal decline at about 6% a year. Egypt is a populous country of 66 million becoming a net importer of oil within the next few years on a rising trend. Substantial gas-condensate reserves have been found in recent years in the Nile delta.

68 Libya Libya delivered a series of giant onshore fields around 1960 giving a marked overall peak in discovery. Peak production followed in 1970s, but fell steeply in part due to OPEC quota constraints. The country’s depletion rate has been curtailed by political factors including an embargo by the United States preventing the entry of US companies. Accordingly it seems likely that production can hold at approximately the present level til around 2010 before the terminal decline sets in.

69 Nigeria Active exploration during the 1950s and 1960s led to the discovery of a large number of generally modest sized fields in the Niger Delta, both onshore and offshore. Over all discovery peaked in 1967 although there were several subsequent cycles. Production peaked in 1979 before falling steeply from OPEC quota constraints. A second slightly lower peak followed in 1997, and production is now expected to remain about flat until around 2010 when terminal decline sets in. Some recent discoveries have been made in deepwater providing a third cycle. Nigeria is Aftica’s most populous country with about 120 million inhabitants, yet is likely to remain a major exporter for several decades.

70 Indonesia Indonesia has a long oil history being the birthplace of Shell Oil in the 19th Century. An early cycle of onshore discovery peaked in the 1940s to be followed by a second offshore peak in the early 1970s. Production reached a peak in 1977, followed by a decline partly due to OPEC constaint to a low in 1988 before building to a second peak in Production is now in terminal decline at about 3.5% a year. The country has no good reason for remaining a member of OPEC as its decline is now set by Nature, making quotas largely irrelevant. It is a populous country of some 200 million likely to become a net importer within a few years.

71 Oman The Oman has been actively explored by Shell and other companies. Discovery has been relatively spead out as typical of an onshore area after an initial overall peak in 1962. Production has now peaked and is set to decline at about 4% a year. It remains to be seen if a second cycle of offshore discovery will follow, but that seems rather doubtful.

72 Venezuela Venezuela has had a long oil history. It contains substantial amounts of heavy and extra heavy oil, not easily distinguished in the data. There are two main oil provinces : Eastern Venezuela and the shallow Lake Maracaibo in the west. Considering Regular Oil only, discovery appears to have peaked around 1941, giving a corresponding peak of production in 1970. Venezuela nationalised its oil industry in 1976, having been a founder member of OPEC That was followed by a decline, due partly to OPEC quota, followed by a second peak in Production is probably now entering its terminal decline at about 2% a year, relying heavily on infill drilling in the long established oil fields.

73 Mexico Mexico too has had a long history, supplying about a quarter of the World’s need in the early part of the last Century. The country expropriated the rights of the foreign companies in 1938, since when the industry has been run by a State entity, Pemex. There have been several cycles of discovery both onshore and later offshore, the latter giving an overall peak in 1977. The country’s reserves reports have been particularly unreliable, subject to a large recent downward revision Production rose sharply during the 1970s to peak around Being now expected to enter its terminal decline at about 4.5% a year. Mexico is a populous country of about 100 million which is likely to become a net importer within ten years. It is already a net gas importer. There may however be a cycle of deepwater discovery and production in the Gulf of Mexico, which has yet to be confirmed.

74 Iran Iran has a long oil history since 1908 when BP, which had exclusive rights to the country, made the first discovery was made, opening the Middle East. BP’s rights were expropriated in 1951, but it later returned as part of the so-called Consortium by which various American companies gained access to the country. That led to a second cycle of discovery during the 1960s. But it did not survive long either, before the National Iranian Oil Company took exclusive control. Production peaked in 1974 before falling sharply to a low in 1980, due partly to OPEC quota and partly to the Islamic Revolution. It has since recovered. It is here expected remain constant til around 2007 before entering its terminal decline at about 2% a year. The country’s reserve reports are unreliable. They were arbitrarily doubled in the later 1980s as part of the OPEC “quota wars” and there have been some recent suspect increases.

75 Saudi Arabia Saudi Arabia granted a concession to a group of American companies in 1932, which led to the formal discovery of the World’s largest field Ghawar in 1948, although it had been virtually identified before the Second World War interrupted operations. It stands head and shoulders above all the other discoveries, giving the overall peak. Production peaked in 1981 at 9.6 M b/d before declining precipitately to 3.3 Mb/d in 1985 before recovering to almost 8 Mb/d in 2000. Its reserve data is unreliable, having been also subject to the OPEC quota wars in the late 1980s. The scope for future discovery is limited because the size of fields outside the prolific Ghawar-Safaniya trend is quite modest. Production may also collapse sooner than expected because the water table in Ghawar is rising with the injection of 7 Mb/d of salt water. Multi-branch horizontal wells are now being drilled to tap bye-passed low permeability zones in the difficult reservoirs where faults and fractures provide anomalous paths for the injected water to reach the wells. Production is here assumed to be roughly flat until terminal decline sets in around 2013 at about 2.5% a year. The Sauds themselves give much higher estimates. The country’s population has soared to about 20 million, almost all of whom live directly or indirectly on oil revenue.

76 Russia Some of the world’s first oil wells were drilled in the 19th Century on the shores of the Caspian. But exploration was curtailed during and between the two world wars, before expanding rapidly during the 1950s when most of the productive basins and the giant fields within them were found. The Soviet explorers were able to conduct high quality scientific exploration, being the pioneers in the critical subject of geochemistry. Discovery peaked around 1960, providing thew production that rose to a peak in 1987, some fields being over produced under the last days of the Soviet regime. It then declined sharply to a low in 1996 before recoving as new private Russian companies stepped up production, in part making good what would have already been produced but for the anomalous collapse on the fall of the Soviets. It is now expected to rise to a second peak in 2010 of about 9 Mb/d before commencing its terminal decline. Russian reserve reports are influenced by the Soviet system and need to be reduced by about 30% to satisfy decline curve analysis. Russia’s consumption is relatively low at about 1 Mb/a at which level it can remain a net exporter for about 20 years.

77 World Summing the discovery and production profiles of all the countries gives a world total. Discovery peaked in 1964, ignoring the spike of Saudi Arabia in 1948, and has been in relentless decline ever since, despite a worldwide search, improved knowledge and expertise and a deliberate effort to find the best and biggest prospects left. There is no reason to expect it to change direction. Production rose rapidly after the Second World War to reach an initial peak in 1979 when high prices curbed demand, leading to a second peak during this decade. The precise date depends on many unpredictable short term factors in an increasingly volatile situation, but terminal decline is likely to have set in before 2010 at about 2.5% a year

78

79 IRAQ ASPO

80 Main Point The data used in preparing the slides comes from many sources, but shows a general pattern of growth, peak and decline of discovery followed by production The data used to produce the country profiles comes from many sources, all of which are in varying degrees unreliable. Nevertheless, the general pattern of growth, peak and decline of discovery mirrored after a time lag by production is compelling. It is well said that “All numbers are wrong : the challenge is to determine by how much” .

81 World Population “It has been estimated that, without hydrocarbons to provide energy, fertilizers and pesticides, agriculture could not support a population greater than two billion. This reduction would take us back to pre-20th century levels but the disruption to society and its infrastructure would probably mean a reversion to pre- industrial revolution.” Paul Thompson Reading, England August 2004 The data used to produce the country profiles comes from many sources, all of which are in varying degrees unreliable. Nevertheless, the general pattern of growth, peak and decline of discovery mirrored after a time lag by production is compelling. It is well said that “All numbers are wrong : the challenge is to determine by how much” .

82 Prices and Production over a complete Hubbert Cycle: the Case of the American Whale Fisheries in 19th Century Bardi : Sept. 2004, ASPO - The Association for the Study of Peak Oil and Gas, and The Dipartimento di Chimica - U. Firenze, Italy

83 Saudi Arabia's Ghawar Field
Discovered in 1948, Ghawar is the world's biggest oil field, 174 miles in length and 16 miles across and encompasses 1.3 million acres. Current estimates, for cumulative oil production are 55 (??) billion barrels. Average production for the last 10 years is five million barrels per day. Ghawar accounts for more than one- half of all oil production in Saudi Arabia. (AAPG EXPLORER JAN. 2005)

84 Hubbert’s Model: constraints
Hubbert’s modelling technique has been variously applauded and criticised, but the constraints to its application have not been widely appreciated. It works well only: where applied to a natural domain, unaffected by political or significant economic interference; to areas having a large number of fields; and to areas of unfettered activity. Hubbert himself worked primarily on the US-48, which had the necessary characteristics to be well modelled by a single cycle. from“THE HUBBERT CURVE : ITS STRENGTHS AND WEAKNESSES” by J.H. Laherrère, Oil and Gas Journal ms, Feb (http://www.dieoff.com/page191.htm)

85 PEAK OIL: SOME CONSEQUENCES
The world is not about to run out of oil, but production is about to peak. The sky does not fall in at peak, but the perception of the future changes. It is likely to lead to severe political and economic tensions, including economic recession, a stock-market crash, and, financial instability from the huge flows to the Middle East. There are obvious dangers of misguided military intervention as the United States, Europe and the East vie for access to Middle East oil. The inequality between rich and poor nations will be more severe. Agriculture is at risk because it is now heavily dependent on synthetic nutrients and irrigation, both directly and indirectly dependent on petroleum. The global market may wither from high transport costs. from the Feasta conferencemoney, energy and growth’ March the imminent peak of global oil productionCOLIN CAMPBELL

86 FLAT EARTH PRODUCTION CURVE
Other experts, notably economists, assume that oil production follows this type of curve. As demand increases, the oil fields simply increase production, the two lines rising and falling together. Those who admit that oil is finite (and not all do) expect that the end will come suddenly as the oil fields simply run out. This is often known disparagingly as 'flat-earth economics'

87 SOURCE: INTERNET ENCYCLOPEDIA
FUEL ENERGY DENSITY SOURCE: INTERNET ENCYCLOPEDIA

88 US-48 The United States is almost unique in that the oil rights belong to the landowner, which gave it an exceptional depletion profile. The reserve and reporting practices are also unique. There is a very large number of what are treated as small independent fields because of the fragmented ownership. Most of these small fields are intimately related to the large ones. The above plot attributes all discovery to the large fields to give a fairer picture. The peaks of discovery and production were in respectively 1930 and 1971. A new cycle of discovery is now opening with the deepwater projects in the Gulf of Mexico (here excluded from Regular Oil). The United States has supported a dynamic oil industry which explains why it is the most depleted country, now importing more than 60% of its needs on a rising trends. It also explains why access to foreign oil is declared to be a vital national interest to be protected by military means as necessary. COLIN CAMPBELL

89 Oil Production Curve (actual and adjusted)
The symmetrical Hubbert curve is often skewed as shown. For an individual area, it often turns out to be cheaper to buy oil elsewhere rather than extract the difficult remaining oil after the peak, thus reducing the downslope angle. In the case of world production, there will be nowhere else to go and it will be declining prosperity after the peak that will reduce demand.

90 Oil Production (USA lower-48) 1930-2002
Because the USA has been producing longer than anyone else, largely unaffected by external matters, it shows the Hubbert Curve better than anywhere else. Production has been declining since the 1970s and, despite the efforts of the richest, most technologically advanced society in the world, has not been stopped. Source: ASPO

91 Oil Discovery minus Consumption (world)
The really important statistic is the difference between discoveries and consumption. Until (with the exception of ), discoveries exceeded production worldwide. Since then, the trend has been negative and we consume more oil than we produce. As discoveries continue to fall and consumption rises, it can only get worse. Source: ASPO

92 Proved World Oil Reserves - J. Laherrère
Compared to BP's chart of the world's oil reserves, Jean Laherrère's version, produced from creaming curves, seems much more realistic. As consumption outgrew discovery in the early s, reserves fell as one would expect. Source: Jean Laherrère

93 OIL PRODUCTION: ASSUMING R/P (FLAT EARTH) MODEL
Many people (including some 'experts') assume that oil produced from a field follows the R/P ratio model: there is a fairly constant flow until near complete depletion when it suddenly drops. Actually, a single well is not unlike this and natural gas flow is somewhat similar. But it is nothing like most actual oil fields or oil provinces.

94 SINGLE WELL PRODUCTION CURVE
This chart shows how an individual oil well acts differently from the Hubbert Curve, with a long, fairly stable plateau rather than a peak.

95 HUBBERT 4-WELL CURVE four individual oil wells when totaled begin to create the Hubbert Curve

96 Hubbert Curve (8 wells) eight individual oil wells when totaled begin to resemble the Hubbert Curve. Given enough wells, a smooth curve will result.

97 PEAK PRODUCTION AND RESERVE GROWTH
The growth of reserves has little impact on peak production, as illustrated by the example of the Prudhoe Bay field in Alaska. The growth in reported reserves normally coincides with the onset of decline, prolonging the field’s life by extending the tail end of production. Aleklett, Uppsala Hydrocarbon Depletion Study Group, Uppsala University, Sweden Prudhoe Bay

98 Cumulative Discovery against Production (World)
Discovery and production curves for the World compared. Discovery peaked in when the discovery curve changed from a concave (growing) to convex (declining) slope. At this time, the production curve is at a similar position. The production curve will mirror the discovery curve with a time lag of about 36 years.

99 FUTURE VIEWS “My view of the near future then is pessimistic, a view that the oil crisis will hit us hard with wars, famines and the environment drastically devastating the population. Assuming that we can avoid a nuclear war, I believe that the world would eventually settle down. It has been estimated that, without hydrocarbons to provide energy, fertilizers and pesticides, agriculture could not support a population greater than two billion. This reduction would take us back to pre-20th century levels but the disruption to society and its infrastructure would probably mean a reversion to pre- industrial revolution.” Paul Thompson Reading, England August 2004

100 Coal fields of the United States.

101 Oil shale in Green River Formation

102 WILL TECHNOLOGY SAVE US?
“New “technology”, which in fact is not new being as much as thirty years old for horizontal wells and 3D seismic, is being used already in most producing fields. It allows cheaper and faster production but does not add to the reserves themselves in conventional fields.” Jean Laherrère "Future of oil supplies” Seminar Center of Energy Conversion Zurich May

103 Transport Efficiency This chart shows the relative efficiencies of different forms of transport taking into account the number of passengers carried and the energy needed to move each kilometer). If we are to deal with the energy crisis to come, we will have to alter our way of life to use more energy- efficient forms of transport. Source: "Energy: A Guidebook" by Janet Ramage 1997

104 The point at which the supply begins to diminish is much more important economically than when the wells run completely dry. M Lawton and Tacildayus Andrews issues/JulAug99/MS406.htm The “production peak” is therefore the main event in the future history of oil extraction, a point which will mark the epochal change from cheap oil to expensive oil. Ugo Bardi to appear in Energy PolicyDipartimento di Chimica — Università di Firenze, Polo Scientifico di Sesto Fiorentino, Sesto Fiorentino (FI), Italy

105 EUGENE ISLAND - AN “ODD RESERVOIR”
Odd Reservoir Off Louisiana Prods Experts to Seek a Deeper Meaning By CHRISTOPHER COOPER Staff Reporter of THE WALL STREET JOURNAL HOUSTON -- Something mysterious is going on at Eugene Island 330. Production at the oil field, deep in the Gulf of Mexico off the coast of Louisiana, was supposed to have declined years ago. And for a while, it behaved like any normal field: Following its 1973 discovery, Eugene Island 330's output peaked at about 15,000 barrels a day. By 1989, production had slowed to about 4,000 barrels a day. Then suddenly -- some say almost inexplicably -- Eugene Island's fortunes reversed. The field, operated by PennzEnergy Co., is now producing 13,000 barrels a day, and probable reserves have rocketed to more than 400 million barrels from 60 million. Stranger still, scientists studying the field say the crude coming out of the pipe is of a geological age quite different from the oil that gushed 10 years ago.

106 Peak oil is a turning point for Mankind
Peak oil is a turning point for Mankind. The economic prosperity of the 20th Century was driven by cheap, oil- based energy. Everyone had the equivalent of several unpaid and unfed slaves to do his work for him, but now these slaves are getting old and won't work much longer. We have an urgent need to find how to live without them. - C.J.Campbell - Peak Oil: an Outlook on Crude Oil Depletion Revised February 2002

107 DATA SOURCES - GAS & OIL There are two main sources of public data: the Oil & Gas Journal and World Oil, which are trade journals that compile information given to them by governments and others. They are not in a position to assess the validity of the information supplied to them. Another widely used source is the BP Statistical Review of World Energy. BP is in a position to evaluate the data, but prefers to reproduce the Oil and Gas Journal numbers, understandably not wanting to involve itself with sensitive issues that might affect its relationship with the host governments of the countries where it works. Lastly is the industry database, which is relatively reliable, but too expensive for most analysts to access. All these sources provide different numbers.

108 IMPACT OF TECHNOLOGY “Great advances in seismic technology make it possible to see the smallest and most subtle trap. In general, this better knowledge has reduced the perceived potential, because it shows a dearth of large prospects. In other words, we can find a needle in a haystack, but it is still a needle. We did not need the resolution to find the giant fields of the past holding most of the world's oil. It means we have a much better knowledge of the endowment in Nature than we used to have.” (C.J.Campbell Peak Oil: an Outlook on Crude Oil Depletion - - Revised February 2002)

109 USGS GAS& OIL ESTIMATES
The US Geological Survey has failed to live up to its scientific reputation. It has assessed the Undiscovered Potential of each basin with a range of subjective probabilities. It has a Low Case for the most sure and a High Case for the least sure. The High Case itself has little meaning, being little more than a wild guess. The Low Case is consistent with the discovery trend, but The Mean value, which is the one publicized is meaningless because it is influenced by the High Case. This has been confirmed by experience in the real world because the Mean estimate is already 100 Gb short, five years into the study period. Its notion of "reserve growth" is also flawed. It is depicted as a technological dynamic when it is simply an artifact of reporting practice, not to be extrapolated into the future. (C.J.Campbell Peak Oil: an Outlook on Crude Oil Depletion - - Feb 2002)

110 "The CIA owns everyone of any significance in the major media.“
Over the past few years I have often been amazed by the degree to which the American public remains willingly uninformed, and despite my skepticism, I sometimes wonder about the validity of this statement: "The CIA owns everyone of any significance in the major media.“ --former CIA Director William Colby Revisited - The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth by William Clark Original Essay January 2003 -Revised March 2003 -Post-war Commentary January 2004

111 CONSEQUENCES - AN “EXPANDING EARTH”
In May 2004, Simmons explained that in order for demand to be appropriately controlled, the price of oil would have to reach $182 per barrel. With oil prices at $182 per barrel, gas prices would likely rise to $7.00 per gallon.

112 OIL COMPANY ENLIGHTENMENT
Nobody knows or can know how much oil exists under the earth's surface or how much it will be possible to produce in the future BP STATISTICAL REVIEW 2004 Proved oil reserves at the end of 2003 are estimated to have been billion barrels. That represented an increase of around 12% over the end-1993 figure of billion barrels, despite estimated cumulative production of almost 264 billion barrels during the intervening ten years, ie reserves replacement amounted to almost 400 billion barrels between end-1993 and end-2003. BP STATISTICAL REVIEW 2004

113 THE CRUDE OIL CRISIS MAIN POINTS (CONT.)
CRISIS IS POLITICAL AND TECHNICAL GOVERNMENT VERSION DIFFERS CONSIDERABLY FROM PROFESSIONAL OPINION WORLD POPULATION GROWTH IS PART OF PROBLEM

114 ELECTRICITY AND OIL CONSUMPTION

115

116 GLOBAL ENERGY CONSUMPTION
EACH MAN WOMAN AND CHILD IN U.S. USES ABOUT 8 TONS OF ENERGY (boe) / YR This is about 2,352 gallons of gas/oil /yr Enough to drive around the world twice. The average citizen of Bangladesh uses less than 1/100 that amount in a (good) year.

117 WORLD OIL CONSUMPTION The growth in the world's oil consumption doubles in about thirty years. Valleys and plateaus tend to be caused by recessions as in the s and 1980s. The change in the previous year was a 2.1% rise. Source: BP

118 WORLD CRUDE OIL: DISCOVERIES & PRODUCTION
NOTES: 1. Discoveries precede production. Difference is reserves. 2. Trend is for discoveries to taper off. 3. Exponential increase in pre-1970’s production. 4. Area under both curves will be same at depletion. Lights out.

119 PRODUCTION

120

121

122 “The official forecast from the IEA/USDOE of 120 Mb/d in 2020 or 2030 seems too optimistic in front of the currently indicated poor economic performance, and seems almost impossible in term of supply.” Jean Laherrère "Future of oil supplies” Seminar Center of Energy Conversion Zurich May

123 CREAMING CURVE This is an example of a creaming curve where the actual values (yellow) are compared to a hyperbolic curve (red). Where the curve becomes horizontal will show the total oil in the field. Source: ASPO

124

125 CRITIQUE OF INTERNATIONAL ENERGY AGENCY
“We may conclude that the International Energy Agency (IEA) has delivered a forecast designed to fulfill the Agency’s political agenda, but between the lines it clearly sets out enough evidence to show that it is indeed no more than a political statement, far removed from what is attainable in the real world. The critically important message that emerges is that peak oil will come in the near future, and that a peak in 2030 is nothing more than a political posture. “ Kjell Aleklett, professor in Physics Uppsala Hydrocarbon Depletion Study Group Uppsala University, Sweden

126 OPEC OPEC (The Organization of Petroleum Exporting Countries), is an international organization of eleven countries that rely heavily on oil revenues as their main source of income. OPEC was formed in 1960, and its current members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Its stated objective is to ”co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”

127 INTERNATIONAL ENERGY ORGANIZATION
OECD AUSTRALIA AUSTRIA BELGIUM CANADA CZECH REPUBLIC: DENMARK FINLAND FRANCE GERMANY GREECE HUNGARY ICELAND IRELAND: ITALY: JAPAN: KOREA: LUXEMBOURG: MEXICO NETHERLANDS NEW ZEALAND NORWAY POLAND: PORTUGAL SLOVAK REPUBLICSPAIN SWEDEN SWITZERLAND TURKEY UNITED KINGDOM UNITED STATES “The IEA was established in November 1974 in response to this oil crisis as an autonomous inter-governmental entity within the Organization for Economic Cooperation and Development (OECD) to study energy supply and security, and advise the member nations accordingly. In general, OPEC is accepted as a political organization with its statements being coloured accordingly. What many do not realize is that the IEA is also a political organization and that its reports are highly coloured by the perceived best interest of its members. “ Kjell Aleklett, professor in Physics Uppsala Hydrocarbon Depletion Study Group Uppsala University, Sweden

128 COMMENTS FROM ABROAD “The US energy crisis is just beginning, and is very dangerous. It may easily lead to a global disruption of the energy supply system.” ASPO NEWSLETTER #2, FEB. 2001 “ the commercial value of oil and gas discovered by the 10 largest energy groups over the last three years is well below the sums spent to find them. In 2003, the top 10 oil groups spent about $8 billion hunting for oil, but only found about $4 billion worth of the stuff. Development spending on existing oil and gas properties has jumped from about $35 billion in 1998 to a record $50 billion in During the same time frame, exploration spending has fallen from $11 billion to $8 billion. ASPO NEWSLETTER #48, DEC. 2004

129 COMMENTS FROM ABROAD “The US energy crisis is just beginning, and is very dangerous. It may easily lead to a global disruption of the energy supply system.” ASPO NEWSLETTER #2, FEB. 2001 Even the U.S. government agrees that the amount of oil that can be pulled from the planet is finite. But it estimates that global oil production will likely peak in 2037, rather than in "All or nearly all of the largest oil fields have already been discovered and are being produced. Production is indeed clearly past its peak in some of the most prolific basins," the federal Energy Information Administration (EIA) said in a recent report on peak oil. ASPO NEWSLETTER #48, DEC. 2004

130 CONVERSION FACTORS AND ENERGY EQUIVALENTS
Electricity 1 kWh of electricity output = 3.6 MJ = approx. 860 kcal Representative Average Conversion Factors 1 tonne of crude oil = approx. 7.3 barrels 1 tonne of natural gas liquids = 45 GJ (net calorific value) 1 000 standard cubic metres of natural gas = 36 GJ (net calorific value) 1 tonne of uranium (light-water reactors, open cycle) = – toe 1 tonne of peat = toe 1 tonne of fuelwood = toe 1 kWh (primary energy equivalent) = 9.36 MJ = approx Mcal Basic Energy Units 1 joule (J) = cal 1 calorie (cal) = J (1 British thermal unit [Btu] = kJ = kcal) 1 tonne of oil equivalent (toe) = 42 GJ (net calorific value) = Mcal 1 tonne of coal equivalent (tce) = 29.3 GJ (net calorific value) = Mcal Volumetric Equivalents 1 barrel = 42 US gallons = approx. 159 litres 1 cubic metre = cubic feet = barrels

131 The long-term price of oil in 2003 dollars through is shown in the attached graph. ... the volatility imposed by the difficult swing role of OPEC is over, and prices are set to rise to reflect the underlying supply constraints. The remarkable stability before the foreign companies were expropriated in the main producing countries stands out, and a future rise into the $ range does not look altogether out-of place, still being below the 1980 spike. - James Dow, ASPO Economics Correspondent, Sept. 2004 OIL PRICE The United States is almost unique in that the oil rights belong to the landowner, which gave it an exceptional depletion profile. The reserve and reporting practices are also unique. There is a very large number of what are treated as small independent fields because of the fragmented ownership. Most of these small fields are intimately related to the large ones. The above plot attributes all discovery to the large fields to give a fairer picture. The peaks of discovery and production were in respectively 1930 and 1971. A new cycle of discovery is now opening with the deepwater projects in the Gulf of Mexico (here excluded from Regular Oil). The United States has supported a dynamic oil industry which explains why it is the most depleted country, now importing more than 60% of its needs on a rising trends. It also explains why access to foreign oil is declared to be a vital national interest to be protected by military means as necessary.


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