Climbing Hubbert's Peak: the Looming World Oil Crisis
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03TQEM_17_3_eccleston.qxd 3/7/08 12:19 PM Page 25 Climbing Hubbert’s Peak: The Looming World Oil Crisis When the American Peak Oil Theory Petroleum Institute Hubbert argued met for a conference Declines in global oil production that petroleum pro- in March 1956, duction would fol- most of the partici- are inevitable low a standard sta- pants probably ex- tistical “bell-shaped pected to hear up- curve.” He noted beat news. After all, that the quantity of back in the 1950s, oil available for production in any given region the U.S. petroleum industry was humming and must necessarily be finite, and therefore subject vibrant. The petroleum companies were produc- to depletion at some point. ing more U.S.-generated crude oil than ever be- Whenever a new oil field is discovered, the fore—in excess of 7 million barrels per day.1 The petroleum yield from that location tends to in- sky was the limit. Or so it appeared. crease rapidly for a period of years, as drilling in- Then M. King Hubbert delivered his paper. frastructure is put in place and extraction activi- ties are ramped up. Hubbert’s Prediction Once half of the oil field’s reserves are Dr. Hubbert, then age 52, was a geologist with pumped out, however, the oil source reaches its Shell Oil Company. Officials at his company had peak rate of production. Then decline sets in, received advance word about Hubbert’s speech, with the rate of production decrease ultimately and they were worried. They pleaded with him to approximating a “mirror image” of the produc- downplay some of the paper’s more controversial tion increase rate seen in the oil field’s early years. claims.2 The actual date when oil production reaches But Hubbert refused and went ahead with his its peak depends on the number of barrels ex- presentation, entitled “Nuclear Energy and the tracted from the oil field. So plugging different Fossil Fuels.”3 His theme was grim, and it disturbed figures into the variables of Hubbert’s equations many of his distinguished guests: He boldly pre- dicted that U.S. oil production would peak some- where around 1970, and then begin declining. Charles H. Eccleston © 2008 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/tqem.20173 Environmental Quality Management / DOI 10.1002/tqem / Spring 2008 / 25 03TQEM_17_3_eccleston.qxd 3/7/08 12:19 PM Page 26 can yield a range of “peak date” estimates. The dicted that a peak in world oil production would end result is the same, however: Oil production occur around 2000.5 crests and then rapidly declines. The graph in Exhibit 1 shows a forecast that Hubbert made in the late 1960s, based on esti- The Trajectory of U.S. Oil Production mated world oil supplies of approximately 2,100 In the years after Hubbert’s speech, U.S. oil billion barrels. Assuming the production rates production continued its steady upward progres- shown in this graph, the world would deplete sion. 1970 came and went. Many commentators about 80 percent of its available oil in a period of dismissed Hubbert. under 65 years. But trends are not always immediately appar- ent. It can take a few years of data before they be- Developments in World Oil Production come clear. Within a few years after Hubbert made his And soon enough, the statistics were indis- prediction about global peak oil, political events putable: Hubbert had been dead on. U.S. oil pro- arose that affected his estimates. In particular, the duction had in fact peaked in 1970—exactly the 1973 oil embargo imposed by the Organization of year he had predicted based on his “high oil in- the Petroleum Exporting Countries (OPEC) re- ventory” estimate.4 sulted in an “energy crisis” that changed the dy- namics of Hubbert’s equation. By reducing oil Repeating the Peak? consumption and encouraging greater energy ef- But Hubbert’s prediction went much further. ficiency, the embargo and its aftermath probably He argued that his theory applied not only to the delayed the worldwide Hubbert’s Peak.6 U.S. petroleum industry, but to global oil produc- tion as well. Heading into the Future Throughout the 1960s and 1970s, Hubbert But a global peak in oil production is still in- continued to refine his theory. He eventually pre- evitable, assuming Hubbert’s theory is correct. Exhibit 1. Projected Worldwide Oil Production 26 / Spring 2008 / Environmental Quality Management / DOI 10.1002/tqem Charles H. Eccleston 03TQEM_17_3_eccleston.qxd 3/7/08 12:19 PM Page 27 Every oil field has its own unique Hubbert pump only the quantity of oil specified in their curve. Once its peak is reached, decline is un- individual quotas, and these quotas are based avoidable. on the estimated reserves that each OPEC mem- To see what this means in practice, look at oil ber declares. So the higher a country’s reserve production in Pennsylvania, where the U.S. pe- estimate climbs, the more oil it is allowed to troleum industry began in the mid-nineteenth pump—and the more revenue it can earn from century. There are approximately 20,000 produc- petroleum sales. ing oil wells in the state. These wells each yield an This of course creates a strong incentive for average of only around 1/4 barrel per day. All the OPEC states to overstate their reserves in order to oil wells in Pennsylvania produce less than half as gain larger production quotas. After all, the big- much as a single high-producing well in Saudi ger the production quota, the more income the Arabia.7 country can generate. Thousands of oil fields around the world are Kuwait was the first OPEC nation to sud- quickly heading toward the same fate as those in denly increase its reserve estimate, which soared Pennsylvania. And even where production is not by over 40 percent in yet clearly in decline, petroleum may not be as a single year (1984 to plentiful as it appears. 1985). Within a few Assumptions about the amount of oil years, several other available to be pumped are based Reserve Estimates: How Trustworthy nations (including oil largely on estimates of oil reserves Are They? giant Saudi Arabia) re- announced by petroleum producers. Assumptions about the amount of oil avail- sponded by dramati- But many observers suspect that able to be pumped are based largely on estimates cally increasing their producer estimates are inflated. of oil reserves announced by petroleum produc- officially stated re- ers. But many observers suspect that producer es- serves. These develop- timates are inflated.8 ments strongly suggest that the estimated re- These observers note that between 1980 and serves of many major oil-producing nations 1990, the “proven reserves” of many of the have been greatly exaggerated. largest oil-producing nations suddenly and Moreover, many OPEC members’ reserve es- mysteriously showed a dramatic increase. For timates are not declining appreciably from one example, Abu Dhabi’s declared reserves nearly year to the next. This means that OPEC mem- tripled in one year, from approximately 31 bil- bers are in effect claiming to discover “new” lion barrels in 1987 to 92 billion barrels in fields—year after year—that almost exactly 1988. That same year, Venezuela’s declared re- match (and replace) the quantities of oil they serves more than doubled, from 25 billion to are pumping out.9 over 56 billion barrels. If OPEC producers are in fact overstating What could account for such sharp and mas- their reserves, then the amount of oil yet to be sive increases in reserves? The answer may have extracted may actually be much smaller than of- little to do with the actual amount of oil in the ficial projections estimate. This means that the ground—but a lot to do with OPEC politics. world oil “day of reckoning” may be much closer Since 1985, OPEC has tied member coun- than previously thought. In fact, some peak oil tries’ production quotas to their oil reserves. critics believe that oil production by many OPEC Under this policy, members are allowed to members is already in the process of peaking. Climbing Hubbert’s Peak: The Looming World Oil Crisis Environmental Quality Management / DOI 10.1002/tqem / Spring 2008 / 27 03TQEM_17_3_eccleston.qxd 3/7/08 12:19 PM Page 28 Growing Oil Consumption and Lower Exports shortage. Higher prices cannot make oil appear if by Producers it does not exist. Moreover, feverish oil drilling in The problem is made worse by growing rates areas of mediocre potential and other “last- of oil consumption in many countries around minute” efforts are unlikely to provide a the world—including petroleum-producing na- “lifeboat” once worldwide peak oil arrives. tions themselves. A recent article in the New York Times noted, “The economies of many big oil- DOE’s Peak Oil Analysis exporting countries are growing so fast that their A study of the peak oil question commis- need for energy within their borders is crimping sioned by the U.S. Department of Energy (DOE) how much they can sell abroad, adding new paints a sobering picture of the problem—and strains to the global oil market.”10 The article the level of effort needed to address it. The study went on to add: resulted in a report entitled “Peaking of World Oil Production: Impacts, Mitigation, and Risk Experts say the sharp growth, if it contin- Management.”12 ues, means several of the world’s most im- The report’s executive summary opened with portant suppliers may need to start import- an ominous sentence: “The peaking of world oil ing oil within a decade to power all the new production presents the U.S.