Hubberts Peak

The theory that is cited most often to explain (or at least to illustrate) the challenges facing the oil industry originated with an American geophysicist named Marion King Hubbert. After observing a career 's worth of oil wells, Hubbert sketched out some calculations that depicted the life cycle of a typical oil field. The idea, in a nutshell, is that the amount of oil in a given field is finite, and its productive life follows a bell-shaped curve, with output increasing rapidly at first, then peaking, and then declining at about the same rate that it increased. The oil industry's reaction was a big yawn, since Hubbert 's calculations looked rather arbitrary. Any given field might contain a lot more oil than originally thought, said the skeptics. And what if some new technology lets drillers suck the last drop from fields that currently yield just a fraction of their oil?

But as the years went by, Hubbert 's calculations turned out to fit the data startlingly well. In 1956, he predicted that production of oil from conventional sources would peak in the continental United States between 1965 and 1970. It peaked in 1970 and has since declined by about 3 percent a year—despite the application of state-of-the-art drilling and exploration techniques. The United States is the most heavily explored piece of land on earth, and American oil companies are the best in the world at squeezing the last drop from their wells. Yet the United States now produces just 5 million barrels a day, about half of its 1970 peak (see Figure 3.1).

The story is the same for most of the world 's other great oil fields. Production in Europe ' s North Sea basin peaked in the early 1990s and has since declined at an annual rate of around 10 percent. Alaska's Prudhoe Bay peaked in 1998 at about 2 million barrels a day and now produces less than half that amount. The output of Mexico's giant Cantarell Field is plunging by nearly 20 percent per year. Hubbert, it appears, got it right.

1900

Thousands of barrels per day

Thousands of barrels per day

1900

1915

1930

1945

1960

1975

1990

2007

Figure 3.1 U.S. Crude Oil Production

Source: U.S. Energy Information Administration

1915

1930

1945

1960

1975

1990

2007

Figure 3.1 U.S. Crude Oil Production

Source: U.S. Energy Information Administration

But the key to the peak oil thesis is Saudi Arabia. Under the vast Arabian Peninsula sit the world's most impressive oil fields, the Abqaiq and Berri, and the granddaddy of them all, Ghawar. For over half a century, these fields have been pumping out cheap, high-quality ("light sweet," in oil field parlance) crude in immense quantities. And Saudi Arabia would like the world to keep believing its resources to be limitless, periodically announcing that it has the ability to ramp up production from the current 9 million or so barrels a day to twice that or more. Even today, most energy experts seem to buy this line despite the Saudis' refusal to allow independent verification of their operations or reserves. Enter Matthew Simmons, a Houston-based oil investment banker who decided to test the Saudis' unlimited oil claims by painstakingly reviewing the obscure technical papers written by engineers working for Saudi Aramco, the state oil company. His findings, which he presents in exhaustive detail in his unlikely best seller Twilight in the Desert, are stark, but not surprising when you think about it: Saudi Arabia 's great oil fields are aging according to the typical Hubbert' s peak script. Early on, the oil flowed without much effort, production soared, and then—exacerbated by overproduction for political reasons during the Cold War—the fields began to need the usual help. The Saudis pumped water into the surrounding rocks and deployed sophisticated horizontal drills. The result, according to

Simmons, is that oil production has held up, but the proportion of water extracted along with the oil is growing steadily. This is a sign that the main Saudi fields are entering the steep downslope to oblivion, and are destined to go the way of the North Sea and Prudhoe Bay. Meanwhile, despite intensive exploration by the world's top geologists armed with the latest instruments, no new fields of consequence have been found under the desert sands.

If even Saudi Arabia is subject to the law of oilfield depletion, what does that imply for global oil supplies? Hubbert weighed in on this, too, predicting back in 1956 that global production would peak in "about half a century" and then begin a terminal decline. Not bad, considering the time frame. Fifty years later, global oil production is about 85 million barrels a day, and its rate of growth is slowing dramatically. And the major global oil companies are generally failing to discover enough oil to replace what they pump. If Simmons is right about the imminent decline of the Saudi super-giant fields, peak oil might indeed be upon us.

One crucial qualification to the peak oil discussion is the definition of oil. Hubbert and Simmons define oil as relatively high-quality crude that can easily be run through today' s refineries to produce gasoline. This kind of oil does seem to be in limited supply. But there's plenty of low-grade oil available from things like tar sands and oil shale—much of it in North America—that can be turned into useable oil for a price. In other words, we ' ve found the easy oil, and we are now working through progressively harder-to-get-and-use layers. One way to measure this process is to calculate the energy required to bring a barrel of oil to market: When oil production first began in the mid-nineteenth century, the largest oil fields recovered 50 barrels of oil for every barrel-equivalent of energy used in extraction, transportation, and refining, a statistic called energy return on energy investment. Currently, between one and five barrels of oil are recovered for each barrel-equivalent of energy used in the recovery process. For the really nasty oil shale and tar sands, the ratio is less than one, which means oil prices will have to keep rising—or technology will have to improve dramatically— to make them viable. Hubbert summed it up nicely in his congressional testimony in 1974:

What is most strikingly shown by these complete-cycle curves is the brevity of the period during which petroleum can serve as a major source of energy . . . For the world, the period required to produce the middle 80 percent of the estimated 2100 billion barrels will be about 64 years from 1968 to 2032. Hence, a child born in the mid-1930s, if he lives a normal life expectancy, will see the United States consume most of its oil during his lifetime. Similarly, a child born within the last 5 years will see the world consume most of its oil during his lifetime.

Was this article helpful?

0 0

Post a comment