The End of Cheap Oil? CSCI 1210 Fall 2003

Oil prices: past and future Oil is the single most critical resource of today's economy. Sudden oil price rises in 1973 and 1979 led to severe consequences in the US economy. These price spikes resulted from an oil cartel, OPEC, not limited amounts of oil. Since that time the price of oil has fallen significantly, but recently has risen again. In the article "The End of Cheap Oil" (Scientific American, March 1998), Colin Campbell and Jean Laherre argue that true oil scarcity will be upon us soon.

How much oil is left? Oil Reserves are known deposits of oil. Oil Resources are reserves plus oil that has not been discovered yet. At present rates of consumption, world oil reserves amount to about 43 years' supply. Interestingly, this number has actually gone up since 1970.

M King Hubbert Geologist M. King Hubbert developed the model of oilfield depletion. In 1956 Hubbert correctly predicted that oil production in the continental US would peak in Oil production peaks when about half the oil from a field has been extracted.

Theory of the Hubbert curve The Hubbert method predicts total undiscovered oil on the basis of the rate of new discoveries. This is similar to estimating how many undiscovered Easter eggs are in your back yard by observing how often you find more eggs.

Suspect “increases” in reserves The authors suspect that these increases in reported reserves were politically motivated.

The Rate of New Oil Discoveries The “backdated” curve includes increases in the estimates of the amount of oil in existing fields. For example: if a field was listed at having 50 million barrels in 1950 but increased to 100 million bbl later, Lahere and Campbell list it at 100 million bbl from the time of discovery.

Cumulative total Norwegian oil production Cumulative production is the total produced since the beginning. This number can only go up! In well-explored regions such as Norway and the US, the curve flattens out. This indicates that most of the original oil resources have already been found.

Ultimate world oil production The “swing” case assumes a sudden rise in oil prices when OPEC production reaches 30% of world total, giving OPEC equivalent monopoly power as in 1973 Effect of Iraq war on this scenario???

Including non-conventional sources This graph adds possible contributions from non-conventional sources such as tar sands and synthetic oil made from coal. The extra oil pushes the peak back to 2010 or so.

Where is the Oil?

The “OPEC Crossover”

Acknowlegements Illustrations on slides 3, 4, 6, 7, and 8 from The End of Cheap Oil by Campbell and Lahere. Scientific American, March 1998 Graphics on slides 9,10 and 12 from Graphic on slide 12 from Oil & Gas Journal, 12/28/00, reproduced by US Department of Energy, _market_basics/Sup_image_Reserves.htm