Wednesday, November 15, 2006

More on the CERA Oil Study

I posted yesterday on the article by Kevin G. Hall of the McClatchy Washington Bureau that talks about the CERA oil study that claims there is more oil available than generally recognized; I want to comment on this part of the article:
The CERA study debunks the so-called Hubbert Peak Oil Theory, first espoused in 1956 by geologist M. King Hubbert. Working at the time for Shell Oil Co., he predicted that world oil production would follow a bell-shaped curve in which production grows steadily until it peaks, followed by a rapid decline.

Hubbert was pretty accurate on the timing of U.S. peak oil production, coming within two years of 1970, the year experts now recognize as the peak of continental U.S. production.

But his theory failed to recognize that new technologies enabled reserves to grow over time. His theory preceded the exploitation of massive oil reserves in Alaska and the Gulf of Mexico.

That's why Yergin dismisses talk of peak oil.

"This is really the fifth time we've `run out of oil,'" Yergin said in a teleconference with journalists on Tuesday. He recalled past predictions dating back to 1880 of an end to oil or gasoline production.

First, there is no such thing as reserves growing over time; I would like to assume that's simply awkward phrasing but it's important to jump on it since there seems to be a prevailing attitude out there that more oil is always just around the next corner. Let's be clear then: the oil in any reserve is finite. The only question is how much oil the reserve holds and how far and how deep does the reserve go; underestimating the size of a reserve is common but reserves finally exhaust themselves all the time. Also, new technology does not create 'new' reserves; it simply enable oil producers to pump out the oil faster, sometimes restoring the production rates of old fields simply by more drilling and more engineering gimmicks. The reserve is still emptying out.

Second, it's misleading to add Alaska to Hubbert's analysis of oil; in the 1950s, before Alaska was even a state, he was analyzing the entire lower 48 and his analysis shown a depletion profile that has been repeatedly seen in other countries. It's interesting to note, by the way, that Yergin and the CERA study consider arctic oil to be unconventional oil; Hubbert was studying the profile of conventional oil. Alaska oil production, of course, is slowly falling as all oil fields eventually do.

Third, it's true that the experts in the past were worried that we were running out of conventional oil and that in specific cases they were wrong (I can't say whether it's been two or three times or five times, by the way). But Yergin is making a political statement, not a scientific statement. The previous cases when experts worried we may be running out of oil on a global scale identified a simple fact: oil is a finite resource and there is a great deal less than we assumed in oil's heyday. In addition, in country after country where there has been considerable exploration, production has passed its peak. That includes the United States. If we consider the whole world, we have also found no truly large oil fields in the last thirty years (the recent oil discovery in the Gulf of Mexico is still less than the amount of oil pumped worldwide in a single year and there is concern the numbers were overly optimistic). The world is roughly maintaining production by relying heavily on the Middle East and the Soviet Union, two areas of the world not known for their reliability and stability.

It's getting harder and harder to maintain production of conventional oil. Increasingly, we're having to turn to unconventional sources and oil. Think of it this way. We mine oil. We have mined oil in ways that have been relatively cheap and easy for a hundred years. We are now in a stage where we need to mine substitutes in addition to conventional oil. Let's call all the different kinds of substitutes and unconventional oil, substitutium. If substitutium was better than oil, we would have been mining it all along. If substitutium cost less, we would have been mining it all along. If substitutium produced less pollution, we would have been mining it all along.

Substitutium is the canary in the mine. It is the warning that we need to start working towards a transition. The earlier episodes where we worried about the supply of oil were also the canaries in the mine. A good honest look at the data for over thirty years has made it clear that eventually we would have a problem. With the rise of the economies of India and China, two countries with a billion people each, demand today is outstripping supply. When oil prices go down, it doesn't mean the problem is licked. It might mean prices are reaching their level. It might mean people are suddenly consuming less oil because of price and supply concerns. It might mean the poorest countries in the world are no longer in the market, and that has moral, social and foreign policy consequences we need to be thinking about.


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