The Peak Oil Theory – A Myth or Geological Reality?

By Lawan Usman Ali

The essential role that petroleum plays in today’s industrial society has made the study of future oil production profile indispensable. In 2007, oil accounted for 33% of the global primary energy mix (OECD/IEA, 2008) and over 94% of world energy use for transport (OECD/IEA, 2008). Although the importance of this resource is without doubt, the rise in oil prices between 2003 and 2008 reiterate the fear that the world is running out of oil.

The peak oil advocates forecast an impending peak in production with ensuing decline, causing serious supply crises resulting from ground resources constraint (Campbell, 2002; Laherrere, 2007). On the other hand, critics argue that there is sufficient oil resource to meet increasing demand beyond 2030 (Radetzki, 2010; Verbruggen and Al Marchohi 2010).

Concept and Data of Fossil Fuel Resources

Fossil fuel denotes hydrocarbon deposit (e.g. petroleum, coal, or natural gas) obtained from the decomposition of ancient organism. It is usually in finite quantity and cannot be restocked in the short term. The term “fossil fuel resources” is defined here to include both conventional and non-conventional oil categories.

Craig et al., (2001), defined conventional oil as a liquid with API gravity greater than 10, of which 20-30% of the oil in place may flow naturally from the well due to pressure within the reservoir or can be pumped using primary recovery. Other categories of oil considered as conventional resources include offshore oil from deep-water, Arctic oil and the enhanced oil recovery, that are extracted using non-conventional techniques at a higher production cost.

Non-conventional oil categories include extra heavy oil, tar sand, oil shell, bitumen, coal to liquid and natural gas to liquids. Petroleum products from non-convention oil are extracted using techniques such as Fischer-Tropsch Synthesis. Currently, non-conventional oil resources are characterized by high intensity and relatively high cost of production, and are considered to be economically viable only when oil prices are high.

Data Quality and Interpretation

Data on cumulative oil production history, together with knowledge about available oil reserve and resources are informative when studying future oil supply trend. However, Campbell, (2002) observed that the main sources of public data, namely; Oil & Gas Journal, World Oil and BP Statistics are not in position to verify information supplied to them by governments. Hence publicly available data are not reliable and inadequate for studying oil depletion.

Other industry databases considered as reliable are available for a price and are very expensive for most researchers to access. Laharrere, (2007) argues that several different sources provide different estimates depending on the impression they would like to portray and this has lead to inconsistency in determining resource estimates and forecasting. Moreover, there is no established unanimity on how to measure reserve and there is no globally recognized organization to enforce one.

Global Oil Production Trend

The historical data on world oil production are obtain from BP Statistical Review, 2010 (BP, 2010) and U.S Energy Information Administration, 2010 (EIA, 2010). Three different set of data on oil production trend are collected from the sources, these data are reported in figure 1. The data available from BP Statistics is from 1965, while that of the EIA is from 1980. Discrepancies in the data are mainly due to the different categories of oil reported by the sources. BP Statistics includes crude oil, shale oil, oil sands and NGLs in oil production while EIA reports two sets of data; one refers to oil production including lease condensate and the other, crude oil and NGL production.

Figure 1: World Oil Cumulative Production Trend

Fig.1: Data Sources: BP Statistics 2010; EIA Data 2010.

World cumulative oil production stood at 1187 Gb in 2009, with an annual average production of 28.75 Gb since 2000 (BP, 2010). Production has increase at an average growth rate of 1.5% per annum with over 60% of cumulative production occurring in the last three decades. Thus, the proponents of peak oil theory are concerned that if the current trend continues, we will soon run out of oil and an impending energy crisis awaits the future.

Proved vs. Probable Reserves

The PRMS define “Proved Reserve” (1P) as hydrocarbons with a 90% probability that it can be exploited profitably at the current market price, using available technology. “Proven and Probable Reserve” (2P) are defined to include additional resources that have been discovered, but have only a 50% probability that they can be produced profitably. “Possible Reserve” (3P) include 2P reserves and volume discovered with only a 10% probability of being profitable. While oil resources are defined to comprise both discovered quantities that cannot be exploited profitably given current market prices and using available technology, as well as the potentially discoverable quantities.

Despite the problem associated with data reporting, discrepancies in current estimates of world proven reserves are very minimal. At the end of 2007, O&GJ reported global proven reserves to be 1322 Gb, World Oil reported 1120 Gb and HIS’s estimates stand at 1241 Gb while BP Statistic’s figure is 1240 Gb, (OECD/IEA, 2008).

Ultimately Recoverable Resources (URR)

Ultimately Recoverable Resources denotes the total amount of known oil resources that might be produced commercially. This comprise proved and probable reserves from known fields, including; cumulative production, reserves in fields that are not yet developed, reserves growth and potentially discoverable reserves.

The most reliable and widely used estimates of global URR are from the US Geological Survey (USGS) which has published five global assessments since 1980 (USGS, 2000). Its recent assessment of global conventional oil resources was the USGS World Petroleum Assessment 2000. Based on data from 1995 and a baseline of 1st Jan, 1996 it assessed a total of 409 out of 937 petroleum provinces using previous estimates from the United States and approximated the mean estimates of global URR for conventional oil to be 3345 Gb (USGS, 2000). The USGS recently reviewed this estimates, comparing them with trends in discoveries and reserves growth in the period 1996 – 2003 (Klett et al., 2007).

In its World Energy Outlook (2008), the IEA reviewed USGS updates taking into account the new remaining reserve estimates from IHS and cumulative oil production to the end of 2007. OECD/IEA (2008), estimated the world URR for conventional oil and NGLs to stand at 3577 Gb. Of this, cumulative production stood at 1128 Gb and remaining resources amounted to 2448 Gb. Of the remaining resources, 2P reserves amounted to 1241 Gb, reserves yet to be discovered stand at 805 Gb, and future reserve growth accounted for 402 Gb. This is shown in figure 2 below.

Figure 2: Global URR for Conventional Oil Resources

Data Sources: OECD/IEA World Energy Outlook 2008

The estimate in figure 2 does not include conventional oil produced by unconventional means. The IEA also used a long-term oil supply cost curve to include these categories. Combining the two estimates gives a higher URR for conventional oil of 4276 Gb and a higher total recoverable resources (3148 Gb) compared to the 2448 Gb reported in figure 2.

A similar estimate of URR is provided by Aguilera et al., (2009). They argue that there are 528 provinces in regions such as the Arctic and Sub-Sahara Africa that are not represented in the USGS 2000 study. Using a Variable Shape Distribution (VSD) model they assessed all 937 provinces identified by the USGS and suggest that the URR for global conventional petroleum is 4233 Gb. This figure less cumulative production (1128 Gb) brings the remaining recoverable resources estimate to 3516 Gb.

Promoters of the peak theory have question URR estimates reported by USGS and the IEA as unrealistic and unattainable. Laharrere (2007), referred to the IEA oil cost curve as a wishful thinking and wild guess to promote the idea of peak oil critics. Campbell (2002) faulted the large increases in reserves (reserve additions) in the late 1980 especially within the OPEC member countries attributing it to the OPEC quota wars.

The “Peak Oil Theorists” provide a somewhat lower estimate of global URR for oil resources ranging from 2000-3000 Gb. Laharrere, (2007) estimated all liquids URR at 3000 Gb being the sum of; Light crude 2000 Gb, Extra-heavy crude 500 Gb, natural gas to liquids and GTL 250, and synthetic oil (BTL,CTL) and refinery gains 250 Gb. Campbell (2002) provides one of the lowest estimates of URR for conventional oil at 1958 Gb. And Hutter (2009) estimated global URR for conventional oil (including NGL) at 3000 Gb based on the most recent updates of 21 independent estimates.

Non-conventional Oil Resources

Non-conventional oil resources are considered to be in large quantity around the world. OECD/IEA (2008), estimates world oil sands and extra-heavy oil resources in place to around 6000 Gb, of which it considers 1085 Gb to be ultimately recoverable at the end of 2007. In addition, Laharrere (2007), estimated the ultimately recoverable Natural Gas resources to 12,000 Tcf and URR for coal resources to 600 Gtoe. These estimates are shown in fig. 3:

Figure 3: World Oil Resources from different sources

Data Source: OECD/IEA World Energy Outlook, 2008; Laharrere, 2007

Although there appears to be abundant sources of oil from both conventional and non-conventional oil categories, the contribution of the latter towards global oil production has been considerably low – mostly due to high production cost, technological constraints and environmental challenges. According to OECD/IEA (2008), in 2007 non-conventional oil contributed 1.7 mb/d or 2.7% of global oil production. Even so, with anticipated technological advancement and lowering costs, the IEA projected this figure to increase to 8.8 mb/d by 2030.

Most peak oil analysts debunk IEA’s claims, arguing that the prospect of considerable contribution by non-conventional oil sources towards global transport fuel production especially with regards to oil shale and coal is gloomy. Laharrere (2007), while acknowledging the huge volume of coal and shale oil reserves classified them as lignite, being degraded fuel. OECD/IEA (2008), confirmed Laharrere’s position by noting that oil shale are not expected to make considerable contribution to world oil supply before 2030.

NUTSHELL:

“Perceived production peaks in nearby future may result from political and economic constraint and not lack of oil resources as advocated in some quarters”… says Lawan Usman Ali. In this article, the author examines the theories behind the global oil production profile and attempts to predict the future of the world oil production by reviewing data available. This is the first part of this stimulating analysis. Questions, comments and observations on this issue would be appreciated. Enjoy.