Peak Oil Overview

For those who are just starting to pay attention to the steep rise in energy costs over the past year, the term “Peak Oil” may not make much sense. The idea that we are near or maybe just passing the peak of global oil production seems contrary to news reports arguing that the present price increase is due to an economic decision by OPEC and other oil producers to cut back on crude production in an attempt to inflate prices and maximize their profits.

But that can only be true if they in fact are holding back some production capacity. Many people (including perhaps the US Government) do not believe that OPEC really has much more production capacity.

In a post on Oil Drum, the explanation for this situation is described thusly:

“[…]OPEC’s oil production is unreasonably low in relationship to its reserves, unless the countries are inept at production or are misstating their reserve amounts. I discuss this issue further in my post The Disconnect Between Oil Reserves and Production. ‘Ace’ has calculated some much lower reserve estimates, based on industry estimated recovery percentages.

Another insight can be gained by looking at Saudi oil reserves, when Americans were involved in setting reserves. According to Matt Simmons’ ‘Twilight in the Desert’, Saudi oil reserves were 110 Gigabarrels (Gb or billion barrels in US terminology) in 1979, back when Americans were still partial owners of Aramco. If we subtract the 81 Gb pumped out since then, this suggests remaining reserves of 29 Gb.

If is possible (even likely) that the 1979 American estimate was low. If, instead, we use the Saudi published estimate of 168 Gb in 1980, and subtract from it production of 81 Gb to date, we get an estimate of 87 Gb. This is less than a third of the 264.3 Gb that Saudi Arabia is currently reporting as reserves!

Kuwait is another country where we have an alternate estimate of the proven reserves available. An analysis by the Kuwait Oil Company as of December 31, 2001, showed proven reserves for the country of 24 Gb. Their published reserves were 96.5 as of December 31, 2001, moving up to 101.5 as of December 31, 2006!

President George W. Bush seems to be aware of Saudi Arabia’s production/reserve problems. In an interview on ABC’s Nightline, when asked why he didn’t pressure the king for more oil, George Bush said

If they don’t have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.

Somehow, US textbooks and newspapers have not figured out the problem with OPEC reserves. They continue to quote huge ‘proven reserves’ for most of the OPEC countries. The word proven adds credibility to the numbers, suggesting that somehow, the reserves have been proven to some authority, when nothing could be further from the truth.”

If there’s no additional capacity, there can be no reasonable expectation that present prices are going to drop. (Since they’re not due to price gouging but rather to basic interactions between flat supplies and rising demand.)

If you’re not familiar with the topic of Peak Oil, or would like to look at some hard data, you really should follow the link and read the full presentation over at the Oil Drum.

Read the full article here.

Author: Nick Knisely

Episcopal bishop, dad, astronomer, erstwhile dancer...