Are oil reserves peaking and if so, when, what is the evidence for it, and what are the implications? Is this issue sufficiently serious so as to warrant immediate attention or will market dynamics alone adequately address the matter without intervention? What are the options on the table for dealing with this issue?
Dr. Anthony Socci, Senior Science Fellow, American Meteorological Society
Jack Zagar, Independent petroleum reservoir engineering consultant, a senior engineering associate of MHA Petroleum Consultants, Inc. of Golden, Colorado, and a director of ASPO (Association for the Study of Peak Oil) Ireland.
PowerPoint PDF Version
Matthew Simmons, Chairman and Chief Executive Officer of Simmons & Company International, a Houston TX-Based energy investment banking firm.
PowerPoint PDF Version
Dr. Herman Franssen, President of International Energy Associates, a Washington, DC-based energy consulting company.
PowerPoint PDF Version
Dr. Robert L. Hirsch, Senior Energy Program Advisor at SAIC in Alexandria, VA, and a consultant in energy, technology, and management.
PowerPoint PDF Version
Where are We on the Oil Depletion Curve (Hubbert’s Peak)?
When we recognize that oil and gas were formed in the geological past, we admit that they are subject to depletion. Production in any place has to start at zero on discovery and end at zero on exhaustion, reaching a peak in between. Yet, such an understanding confounds classical economics, which holds that there can be no shortage in an open market and that one resource is seamlessly replaced by a substitute as need arises.
With modern methods, engineers can estimate the size of an oilfield so there should be no particular technical difficulty in determining where we are on the depletion curve. The problem is in the reporting. In plain language, Proved Reserves, mean Proved-so-Far for financial purposes, not necessarily describing the full field. The consequential "Reserve Growth" gives the misleading impression that more is being found than is the case. To determine our position on the oil depletion curve we need the right numbers and the right dates of discovery, and we need to define carefully what to measure. Oil from a free flowing well is not the same as hydrocarbon extracted from a tar sand.
If we could hire detectives to smoke out the real data on what we can call cheap and easy Conventional Oil (defined in this instance as excluding tar sand and heavy oils, deepwater and polar oils, and NGL from gas fields), we would probably find that the World has found about 1720 billion barrels. Of that, about 780 are left. Extrapolating discovery shows about 130 more to find. We are therefore close to the half-way mark when production must begin to decline, reflecting the peak of discovery in the 1960s. Furthermore, what is left is most unevenly distributed. It is as simple as it is disturbing. The last Century was driven by a cheap and abundant supply of oil: this Century won't be.
Socio-Economic Considerations as Context for Exploring the Consequences of Peaking Oil
The consequences of oil peaking in the near future will, in particular, have a considerable impact on the needs and aspirations of developing economies, and on the already worrisome geopolitical developments in the Middle East, which coincide with growing dependence of the world on oil from that part of the world. The economies of China and India, with a joint population of 2.3 billion people are finally taking off as Japan did in the 1960's and the Asian Tiger economies (with a total population of 0.3 billion people) in the 1970's and 1980's. Providing China, India and other developing economies with affordable energy, in particular, for road transportation, will be a massive challenge under the best of circumstances. Under a peak oil scenario it could lead to a major struggle for access to global oil resources. Access to remaining oil resources is further complicated by the fact that 60 percent of global oil reserves and perhaps half of the remaining undiscovered recoverable oil resources are located in the Middle East. At a time when demand for Middle East oil is rising, in part due to oil production at or near-peaking in many non-OPEC and some OPEC countries, the Middle East is undergoing the biggest internal and external socio-economic and external challenges since the end of the Ottoman Empire after the First Word War. It is unclear how the development aspirations of two-thirds of the world can be reconciled with the slowing and eventual peaking of global conventional oil production.
Mitigation of the Peaking of World Oil Production:
The peaking of world oil production is likely to subject the world to its first ever discontinuity in energy -- a sudden, geologically dictated limit on the supply of a commodity essential to the functioning of the world economy. A number of knowledgeable experts project that peaking of conventional oil production will occur sometime in the next 15 years. Given today’s oil demand levels and usage patterns, such a disruption will likely result in a serious negative impact on the economies of all nations unless actions are taken well in advance of peaking.
Oil peaking represents a liquid fuels problem, not an “energy crisis” in the sense that term has often been used. Motor vehicles, aircraft, trains, and ships simply have no ready alternative to liquid fuels. Nonhydrocarbon- based energy sources, such as wind and nuclear power, produce electricity, not liquid fuels, so their widespread use in transportation is at best decades away. Accordingly, mitigation of declining world conventional oil production must be narrowly focused on liquid fuel conservation and alternate liquid fuel supplies, at least in the near-term.
Our research identified a number of currently viable mitigation options, including increased vehicle fuel efficiency, conservation of energy resources, enhanced recovery of conventional oil, liquid fuels from heavy oil/oil sands, coal, and remote natural gas. Our analysis indicates that these options would have to be implemented at least a decade prior to peaking, to avoid severe economic disruption. Such a massive, expensive program before obvious market signals are evident would require extensive intervention and support by governments worldwide.
A number of analyses indicate that waiting until world conventional oil production peaks would leave the world with a significant liquid fuel deficit for two decades or longer. Initiating a robust mitigation program 20 years before peaking occurs offers the possibility of completely avoiding a world liquid fuels shortfall. Since the Saudis recently indicated that OPEC will not be able to supply world demand beyond the next 10-15 years, time appears to be running out on effective mitigation.
Jack Zagar is an independent petroleum reservoir engineering consultant, a senior engineering associate of MHA Petroleum Consultants, Inc. of Golden, Colorado, a director of ASPO (Association for the Study of Peak Oil) Ireland, and partner with noted author and world oil reserve expert, Dr. Colin Campbell.
Jack has thirty years experience in the North Sea, onshore Europe, the Middle East (including 3 years with Aramco in Saudi Arabia), Australia, West Africa, the Gulf of Mexico and onshore U.S.A. operations in petroleum reservoir engineering and reservoir management; economic evaluations of projects, property trades, and asset sales; and corporate planning.
For the first twenty-two years of his career, Mr. Zagar was with Exxon Corporation and Exxon U.S.A. During the last eight years, Mr. Zagar has collaborated with geologist Dr. Colin Campbell to write and talk on the subject of world oil reserves.
Matthew Simmons is Chairman and Chief Executive Officer of Simmons & Company International, a specialized energy investment banking firm. The firm has completed approximately 600 investment banking projects for its worldwide energy clients at a combined dollar value in excess of $65 billion.
Mr. Simmons began a small investment bank/advisory firm in Boston. By 1973, almost all of his clients were oil service companies. Following the 1973 Oil Shock, Mr. Simmons created a Houston-based firm to focus on providing investment banking advice to the worldwide oil service industry. Over time, that specialization expanded into investment banking covering all aspects of the global energy industry. The firm is now one of the largest energy investment banking groups in the world with offices in Houston, Texas; London, England; Boston, Massachusetts and Aberdeen, Scotland. Mr. Simmons is a Trustee of The Farnsworth Art Museum papers for industry journals and is a frequent speaker at government forums, energy symposiums and in board rooms of many leading energy companies around the world.
Mr. Simmons was raised in Kaysville, Utah. He graduated cum laude from the University of Utah and received an MBA with Distinction from Harvard Business School. He served on the faculty of Harvard Business School as a Research Associate for two years and was a Doctoral Candidate.
Dr. Herman Franssen is President of International Energy Associates, a Washington-area-based energy consulting company. He is also a Senior Fellow at CSIS, an Adjunct Scholar at the Middle East Institute, a Visiting Fellow at the Yamani Center in London and a Senior Associate of MEC in London and GDP Associates of New York. Dr. Franssen started his energy professional career working for the US Congress during the energy crises of the 1970's. He was an office Director at the U.S. Department of Energy and Chief Economist at the International Energy Agency. Dr. Franssen also served as Senior Economic Advisor to the Oil Minister of Oman.
Dr. Robert L. Hirsch is a Senior Energy Program Advisor at SAIC and a consultant in energy, technology, and management. Previously, he was a senior staff member at RAND (energy policy analysis), Executive Advisor at Advanced Power Technologies, Inc. (environmental and defense R & D), Vice President of the Electric Power Research Institute, Vice President and Manager of Research and Technical Services for Atlantic Richfield Co. (oil and gas exploration and production), Founder and CEO of APTI (commercial & Defense Department technologies), Manager of Exxon’s synthetic fuels research laboratory, Manager of Petroleum Exploratory Research at Exxon (refining R & D), Assistant Administrator of the U.S. Energy Research and Development Administration responsible for renewables, fusion, geothermal and basic research (Presidential Appointment), and Director of fusion research at the U.S. Atomic Energy Commission and ERDA.
Dr. Hirsch has served on advisory committees for a number of U.S. Department of Energy programs and national laboratories, the General Accounting Office, the Office of Technology Assessment, the Gas Research Institute, and NASA. He holds 14 patents and has over 50 publications. He is the former Chairman of the Board on Energy and Environmental Systems of the National Research Council, the operating arm of the National Academy of Sciences, has served on a number of National Research Council committees and is a National Associate of the National Academies.
back to top