Peak Oil: The World’s Greatest Challenge Presented by Community Solutions Yellow Springs, Ohio

What Is Peak Oil? The date an area’s oil production reaches its maximum Means that about half the oil has been produced  Does not mean “running out of oil”  Does mean a continuous decline in production When oil half gone, the flow of oil begins to fall  Not like a gas tank  Oil in the ground is not in a pool but in tiny droplets  Droplets move slowly through the earth due to pressure  At halfway point pressure drops – flow decreases

Peak Oil Discoverer: Dr. King Hubbert Shell Oil Geologist/ Petroleum Scientist 1949 – projected short historical oil period  Triggered by 1930 U.S. discovery peak 1956 – predicted 1970 as U.S. Peak Oil year  Came as predicted 1969 – predicted World Peak Oil year 2000  demand decline delayed it

Dr. Colin Campbell – King Hubbert 2006 Geologist/ Petroleum Scientist Worked for most major oil companies Founder, Association for Study of Peak Oil  Wrote “The Coming Oil Crisis” in 1997 Estimates World Peak for regular oil in 2010 Published two other books  “Essence of Oil and Gas Depletion”  “Oil Crisis”

Matthew Simmons Oil Investment Banker  Backed many oil and gas drilling projects Advisor to President Bush Challenges Saudi Reserve Estimates  Thinks Saudi oil may soon peak Author, “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy” Given 100s of talks to government and business

ASPO: Association for the Study of Peak Oil European scientists & oil geologists from 12 countries Formed to address world leaders lack of concern for peak oil Five Peak Oil conferences have been held  Sweden (2002)  Paris (2003)  Berlin (2004)  Lisbon (2005)  Pisa (2006) Source of the most objective depletion data ASPO meeting 2003 May 28, Paris, France

ASPO View Note plateau of conventional oil and U.S. Peak Heavy, deepwater, polar oil very expensive

Oil Discovery/Production Peaks – U.S – U.S. “lower 48” Oil Discovery Peak year 1970 – U.S. “lower 48” Oil Production Peak year Peak discovery/peak production lag time of 40 years

Oil Discovery/Production Peaks – World 1965 – the World Oil Discovery Peak year What do oil experts think  Dr. Ken Deffeyes: author “Hubbert’s Peak” – 2005  Dr. Colin Campbell: founder of ASPO – 2010  PFC Consulting – 2015 The argument is not “if” but “when” and “how fast?” 1 barrel of oil is found for every 5 barrels consumed.

When Do We Run Out? – The Reserves We know the world discovery rate We know the consumption rate is 5 times the discovery rate We have a buffer – the reserves  Popular misleading view – “We have reserves for 40 years” Reserves – estimates by different people with different methods Published reserve information is inaccurate  Political and financial reason exists to state high or low  OPEC – quotas are set at a % of reserves Kuwait’s suddenly increased in 1985 – others followed

Middle East Oil Jump No changes made to reserves since jump Source: Oil and Gas Journal

“Misleading” Reserves – Recent Events In 2002 Canada reserves increased from 4.8 Gb to 178 Gb  Defined tar sands as conventional oil  But tar sands is not oil – must be mined and “cooked” Jan. 12, 2004 – Shell Oil reduced their reserves 20%  Reduced three more times in 2004  Aug 25, 2004 – Shell Oil fined $151,000,000  Feb. 3, 2005 – Shell Oil reduced reserves for fifth time Feb – Russia declared all oil data a state secret Oil companies (and countries) hold reserve data confidential  Feb – G7 Meeting – “we need to know!”  Saudi Arabia – “We’re not partners – we’re suppliers” The shocker – no one knows!!! It’s all guesswork

Why Not Pump Faster to Offset Declines? Oil reservoirs can provide oil faster by injecting gas/liquids Forcing the oil is harmful  Injections may limit ultimate recovery  Depletion occurs suddenly Saudi Arabia is injecting 7 million barrels sea water daily That’s why when about half the oil is gone – production must decrease This is a major concern – can’t predict depletion as well

Oil – “Black Gold” Provides 40% of our primary energy  95% of all transportation fuel is from oil  Huge part of life – not just gas in the car Fossil fuels are the basis of Industrial Agriculture  Oil is feedstock for herbicides and pesticides  With natural gas fertilizers, there are 10 calories of fossil fuel inputs for each food calorie output Raw material for many plastics Basis of 300,000 manufactured products Cheap oil makes globalization possible  In U.S. average food product travels 1500 miles

Why Is Peak Oil So Important? Core assumptions  Our economy “runs on oil” – oil “fuels our economy”  We measure our material welfare (income) by the economy  To paraphrase – our income is based on oil consumption Economy grows when oil consumption increases Economy shrinks when oil consumption decreases Implies major societal change when demand exceeds supply  Oil prices will rise rapidly but shortages will still occur  Could have long-term recessions

The Money Implications of Peaking $40-$90+ oil lasted from early 1970s – mid-1980s Oil shortfall was approximately 3% North Sea, Alaska & Mexico discoveries increased supply There are no new regions to explore now Inflation Adjusted Monthly Crude Oil Prices 1946-Present

World Population – Billions in 2000 Years Invention of the steam engine – 1698 (Thomas Savery) First oil well – 1859 Earliest major fossil fuel was coal

World Population – Billions First half 1.5 Billion to 2.3 Billion – 150% increase Second half 2.5 billion to 6 Billion – 240% increase Spurt in growth correlates with switch from coal to oil

World Oil Usage – Billion Barrels/Year Production vs. Population

All Energy per Capita Projected Decline Slide/cliff – Declining fossil fuels meet growing population From 10.4 boe/c/yr to 3.3 boe/c/yr is 4.5% decline  3 % source decline, 1.5% population growth Remember population – and fuel – in 2030 =~4x 1930 Source: Richard C. Duncan, Ph.D. “The Olduvai Theory – Terminal Decline Imminent,” The Social Contract Quarterly, Spring 2007.

Government View 2005 – DOE Report As peaking is approached…the economic, social, and political costs will be unprecedented. …peaking will be extremely complex, involve literally trillions of dollars and require many years of intense effort. Peaking…will cause protracted economic hardship in the United States and the world. …the problem of the peaking of world conventional oil production is unlike any yet faced by modern industrial society.  Executive Summary from “Peaking of World Oil Production: Impacts, Mitigation & Risk Management, Dr. Robert Hirsch, February 2005

Government View 2005 – Department of Army Report “Uncertainty about future oil supply makes it important to develop a strategy for addressing a peak and decline in oil production” “Most studies estimate that oil production will peak sometime between now and 2040” “An imminent peak and sharp decline in oil production could have severe consequences, including a worldwide recession” “While the consequences of a peak would be felt globally, the United States, as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable”

Government View 2005 – GAO Report on Crude Oil (GAO ) March 29, 2007 “Uncertainty about future oil supply makes it important to develop a strategy for addressing a peak and decline in oil production” “Most studies estimate that oil production will peak sometime between now and 2040” “An imminent peak and sharp decline in oil production could have severe consequences, including a worldwide recession” “While the consequences of a peak would be felt globally, the United States, as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable”

Recent Comments President Bush: “We have a serious problem: America is addicted to oil.” Chevron “Will You Join Us” Ad: Oil production is in decline in 33 of the 48 largest oil producing countries, yet energy demand is increasing around the globe as economies grow and nations develop. Victor Khristenko, Russia’s energy minister: “One can say with certainty that the era of cheap hydrocarbons is over.” Chief economist of China’s state oil company said that he expects global oil production to peak at mb/day during the next five years. Bill Clinton: “We may be at a point of peak oil production. You may see $100 a barrel oil in the next two or three years.”

Peak Oil Summary Despite technology improvements and major investments, world oil discovery has declined steadily for 40 years Experts forecast a global oil peak in 5–15 years  Natural gas will follow a decade or so later No alternatives are clearly evident  Dozens of options are being evaluated  Huge investments are being made The essence of the problem – There is no ready substitute  Representative Roscoe Bartlett – ASPO USA – Nov. 2005