Have we run out of oil yet? Oil peaking analysis from an optimist's perspective.
Introduction
The debate over oil resources is generally framed in terms of “pessimists” who foresee an imminent peaking of world oil production versus “optimists” who expect innovation and market forces to make the question of oil resource limitations irrelevant. Of course, many fall somewhere between these two viewpoints. The pessimists’ analysis is based on “peaking curves” for individual petroleum deposits, using methods derived from the seminal analysis of Hubbert (1956) who accurately predicted the peaking of US oil production. The pessimists are sometimes referred to as “geologists” because of their belief that geology will be more important than economics or technology in determining when oil production will peak. The optimists are often referred to as “economists” because of their belief that markets and technological change will make the scarcity of oil an irrelevancy.
The debate is important because a sudden, unanticipated and permanent decline in world oil production would severely damage world economies, probably for a decade or longer. In addition, the transition from oil to some other source of energy for transportation is almost certain to have important economic, environmental and security implications. A transition to more carbon intensive fossil energy sources would increase the likelihood of major climate changes. As several have pointed out, the longer-term problem of climate change depends on the world's decision to burn or not to burn the world's vast fossil resources of coal and unconventional oil and gas and release the carbon to the atmosphere. There is not enough carbon in all the world's conventional oil and gas resources to raise atmospheric carbon concentrations above the threshold of 450 ppm. Knowing more about when and how rapidly such a transition might occur could allow nations to plan for a more desirable path.
This paper describes a quantitative analysis of oil peaking from the perspective of an optimist including the potential for developing alternative sources for liquid fuels. To date, most quantitative analysis of the oil peaking issue has been done by the pessimists. This is logical, since from the optimists’ perspective, why waste time analyzing an irrelevancy? A premise of this study is that if a quantitative analysis of the oil peaking issue from the optimists’ viewpoint shows that it is neither so distant in time nor so gradual that negative impacts can be safely neglected, then understanding oil peaking and the consequent transition to alternative sources of energy should be a critical priority for energy policy research.
The analysis makes an effort to incorporate uncertainty along three dimensions: (1) alternative scenarios of future oil demand, (2) alternative assessments of the extent of world oil resources, and (3) risk analysis of rates of technological change, reserve growth, resources discovery and Middle East oil production.
Conclusions
Peaking of conventional oil production is almost certain to occur soon enough to deserve immediate and serious attention. If peaking is already underway and oil supplies are as limited as the pessimists believe, the world is facing a drastic transition for which it is unprepared. If peaking is one to three decades away, it is not too soon to begin efforts to understand and prepare for the transition to other energy sources. Furthermore, supposing that a smooth transition from conventional to unconventional oil could be achieved, the problems of greatly increased carbon dioxide emissions and continuing oil market dominance by Middle Eastern producers would persist. Even from the optimists perspective, oil peaking is a serious issue.
If present energy use trends continue, unless the best available estimates of world conventional and unconventional resources as well as the representation of uncertainty in these estimates are very seriously in error, a major transition from conventional to unconventional oil will begin before 2030. If the resource estimates based on the USGS (2000) survey are used, peaking of non-Middle Eastern conventional oil production is likely sometime between 2010 and 2030. If the lower resource estimates of Campbell are correct, the transition is already underway. The key determining factors of the date of peak production are how much conventional oil remains and how quickly reserves can expand.
The peaking of conventional oil production is only a part of this equation. Under a wide range of assumptions the rate of growth in world conventional oil production will slow substantially after 2020 if it does not decline. In order for oil consumption to continue to increase at substantial rates, the Middle East region must rapidly expand production or production of oil from unconventional resources must be greatly expanded. Under almost any assumptions, it is not too soon to consider whether this transition is desirable and to evaluate the risks and opportunities it presents.
Assuming the USGS (2000) resource estimates are correct, the transition to unconventional oil will be rapid if the growth of oil consumption continues at current rates or rates projected through 2020 by the Energy Information Administration or the IEA. Rates of growth in unconventional oil supply of 7–9%/yr. appear necessary as the peak in non-Middle East oil production is passed. The transition could be greatly slowed and substantial development of shale oil resources avoided if the growth of world oil consumption could be curbed by 2020, as it is in the ecologically driven scenario. If the pessimistic assessment of world unconventional resources proves to be correct, the transition to unconventional oil will be rapid but limited and short lived, and largely ineffective in preventing a supply constrained downturn in oil consumption.
At first, unconventional oil supplies are likely to come from the oil sands resources of Canada, followed by increased development of Venezuelan and Russian unconventional resources. If growth in demand continues, US shale oil will begin to be developed at a rapid pace following the peaking of conventional oil production from regions outside of the Middle East. Development of oil shale could be delayed by a substantial increase in conventional oil production from the Middle East. Nearly all of the supply of shale oil is likely to come from the US due to its massive shale oil resources. Fossil alternatives to shale oil, such as coal, exist but have not been included in this study.
Given the USGS resource estimates, it appears that the market dominance of MEA oil producers is robust to a wide range of alternative demand and resource availability scenarios. This is evidenced by their ability to maintain market shares in the vicinity of 30 percent to 50 percent over all or most of the 50-year period in all scenarios and variants. Moreover, the Middle East will remain the lowest cost supplier of oil. While the emergence of large-scale unconventional oil production could put a cap on long-run oil prices, with the majority of the world's proved conventional reserves Middle East producers will have the ability to temporarily raise or lower world oil prices throughout the period.
In the reference scenario, US oil imports increase until shale oil (or perhaps coal) becomes an important resource. This is not likely to happen until after 2025, if then. If the model's predictions of flat or increasing US oil output for the next decade or more are overly optimistic (as they probably are) the near-term increase in US imports will be greater still. This implies that the US oil dependence problem is a long-run problem, and one that will probably require major changes in transportation technology, or energy sources for transportation, or both.
The analysis of world oil depletion presented in this paper is dependent on a number of critical assumptions, nearly all of which are debatable. Furthermore, there are several areas in which improvements to data and methods are needed. Nonetheless, it is hoped that this analysis makes a contribution to a better understanding of the future of conventional and unconventional oil supply. The results presented here strongly suggest that it is not too soon to begin analyzing potential transitions from conventional oil and considering alternatives.
Petroleum is the most critical energy resource for modern economies, supplying about 40% of the world's primary energy and nearly all of the fuel for the world's transportation systems. Over the past 30 years, world oil use has increased by 47% despite oil price shocks and economic downturns. Over the next 30 years oil demand is expected to grow by 60% as the transportation systems of developing economies become increasingly motorized. This growing reliance on oil and the continuing lack of economical substitutes for petroleum-based transportation fuels has generated concern about the future adequacy of the world's petroleum resources.
The debate over oil resources is generally framed in terms of “pessimists” who foresee an imminent peaking of world oil production versus “optimists” who expect innovation and market forces to make the question of oil resource limitations irrelevant. Of course, many fall somewhere between these two viewpoints. The pessimists’ analysis is based on “peaking curves” for individual petroleum deposits, using methods derived from the seminal analysis of Hubbert (1956) who accurately predicted the peaking of US oil production. The pessimists are sometimes referred to as “geologists” because of their belief that geology will be more important than economics or technology in determining when oil production will peak. The optimists are often referred to as “economists” because of their belief that markets and technological change will make the scarcity of oil an irrelevancy.
The debate is important because a sudden, unanticipated and permanent decline in world oil production would severely damage world economies, probably for a decade or longer. In addition, the transition from oil to some other source of energy for transportation is almost certain to have important economic, environmental and security implications. A transition to more carbon intensive fossil energy sources would increase the likelihood of major climate changes. As several have pointed out, the longer-term problem of climate change depends on the world's decision to burn or not to burn the world's vast fossil resources of coal and unconventional oil and gas and release the carbon to the atmosphere. There is not enough carbon in all the world's conventional oil and gas resources to raise atmospheric carbon concentrations above the threshold of 450 ppm. Knowing more about when and how rapidly such a transition might occur could allow nations to plan for a more desirable path.
This paper describes a quantitative analysis of oil peaking from the perspective of an optimist including the potential for developing alternative sources for liquid fuels. To date, most quantitative analysis of the oil peaking issue has been done by the pessimists. This is logical, since from the optimists’ perspective, why waste time analyzing an irrelevancy? A premise of this study is that if a quantitative analysis of the oil peaking issue from the optimists’ viewpoint shows that it is neither so distant in time nor so gradual that negative impacts can be safely neglected, then understanding oil peaking and the consequent transition to alternative sources of energy should be a critical priority for energy policy research.
The analysis makes an effort to incorporate uncertainty along three dimensions: (1) alternative scenarios of future oil demand, (2) alternative assessments of the extent of world oil resources, and (3) risk analysis of rates of technological change, reserve growth, resources discovery and Middle East oil production.
Conclusions
Peaking of conventional oil production is almost certain to occur soon enough to deserve immediate and serious attention. If peaking is already underway and oil supplies are as limited as the pessimists believe, the world is facing a drastic transition for which it is unprepared. If peaking is one to three decades away, it is not too soon to begin efforts to understand and prepare for the transition to other energy sources. Furthermore, supposing that a smooth transition from conventional to unconventional oil could be achieved, the problems of greatly increased carbon dioxide emissions and continuing oil market dominance by Middle Eastern producers would persist. Even from the optimists perspective, oil peaking is a serious issue.
If present energy use trends continue, unless the best available estimates of world conventional and unconventional resources as well as the representation of uncertainty in these estimates are very seriously in error, a major transition from conventional to unconventional oil will begin before 2030. If the resource estimates based on the USGS (2000) survey are used, peaking of non-Middle Eastern conventional oil production is likely sometime between 2010 and 2030. If the lower resource estimates of Campbell are correct, the transition is already underway. The key determining factors of the date of peak production are how much conventional oil remains and how quickly reserves can expand.
The peaking of conventional oil production is only a part of this equation. Under a wide range of assumptions the rate of growth in world conventional oil production will slow substantially after 2020 if it does not decline. In order for oil consumption to continue to increase at substantial rates, the Middle East region must rapidly expand production or production of oil from unconventional resources must be greatly expanded. Under almost any assumptions, it is not too soon to consider whether this transition is desirable and to evaluate the risks and opportunities it presents.
Assuming the USGS (2000) resource estimates are correct, the transition to unconventional oil will be rapid if the growth of oil consumption continues at current rates or rates projected through 2020 by the Energy Information Administration or the IEA. Rates of growth in unconventional oil supply of 7–9%/yr. appear necessary as the peak in non-Middle East oil production is passed. The transition could be greatly slowed and substantial development of shale oil resources avoided if the growth of world oil consumption could be curbed by 2020, as it is in the ecologically driven scenario. If the pessimistic assessment of world unconventional resources proves to be correct, the transition to unconventional oil will be rapid but limited and short lived, and largely ineffective in preventing a supply constrained downturn in oil consumption.
At first, unconventional oil supplies are likely to come from the oil sands resources of Canada, followed by increased development of Venezuelan and Russian unconventional resources. If growth in demand continues, US shale oil will begin to be developed at a rapid pace following the peaking of conventional oil production from regions outside of the Middle East. Development of oil shale could be delayed by a substantial increase in conventional oil production from the Middle East. Nearly all of the supply of shale oil is likely to come from the US due to its massive shale oil resources. Fossil alternatives to shale oil, such as coal, exist but have not been included in this study.
Given the USGS resource estimates, it appears that the market dominance of MEA oil producers is robust to a wide range of alternative demand and resource availability scenarios. This is evidenced by their ability to maintain market shares in the vicinity of 30 percent to 50 percent over all or most of the 50-year period in all scenarios and variants. Moreover, the Middle East will remain the lowest cost supplier of oil. While the emergence of large-scale unconventional oil production could put a cap on long-run oil prices, with the majority of the world's proved conventional reserves Middle East producers will have the ability to temporarily raise or lower world oil prices throughout the period.
In the reference scenario, US oil imports increase until shale oil (or perhaps coal) becomes an important resource. This is not likely to happen until after 2025, if then. If the model's predictions of flat or increasing US oil output for the next decade or more are overly optimistic (as they probably are) the near-term increase in US imports will be greater still. This implies that the US oil dependence problem is a long-run problem, and one that will probably require major changes in transportation technology, or energy sources for transportation, or both.
The analysis of world oil depletion presented in this paper is dependent on a number of critical assumptions, nearly all of which are debatable. Furthermore, there are several areas in which improvements to data and methods are needed. Nonetheless, it is hoped that this analysis makes a contribution to a better understanding of the future of conventional and unconventional oil supply. The results presented here strongly suggest that it is not too soon to begin analyzing potential transitions from conventional oil and considering alternatives.
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