Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

A discussion about finite oil

A commenter on my blog has asked a few questions. We have a pleasant discussion running.

Yesterday he asked if the amount of oil is finite.

As I started to reply, I just kept writing and writing. Decided to move my comment to a separate post so the conversation is more visible.

On December 9, Stig Helmer (self-identification) said:

There is oil in North America.

There is continually efficient ways to access oil in North America, break evens are between 40 dollars and 65 dollars a barrel in most places.

Fine. All points known and agreed upon by anyone observing the oil industry.

Every two seconds a human being is born.

Even, if oil is so abundant that it is 40 dollars a barrel (which by the way, would not be a painless transition – drastic commodity prices have widespread economic and market impacts), the rate at which oil is being discovered, the rate at which oil is being discovered (and I should mention created) does not outrun population growth.

Supply growth does not change the fact that it is a finite resource. I had asked this question on your prior post and you directed me to this post.

What is not answered, and cannot be refuted is that it is a finite resource. It may be a multi peak curve, but the principle is unchallenged – this fact does not qualify as “idiocy”, especially when there are so many religious people running around that deserve that distinction.

My reply:

 

Hello Stig:

Thanks for taking the time to comment.

Yes, the amount of oil under the ground is finite. So is the amount of gold, silver, platinum, diamonds, tin, and palladium.

That is the wrong question. A better question is how much is there? Another good question: how much is there we don’t even know about? Or, how much is there that we will be able to get out economically when some engineering whiz comes up with the next mind-boggling technique to pull out oil that we can’t touch today?

As the WSJ editorial mentioned in this post points out, we’ve been told we were going to run out of lots of different things for over 200 years. Yet we’ve not run out.

The same editorial cites Mr. Yergin pointing out a great quote from 1885 that all the oil on the planet would be gone in a generation.

1885.

A hundred thirty years later we can pull all the oil we need out of the ground, and the amount is a huge multiple of production back in the 1880s. In fact, we currently have a glut – the petroleum wizards are producing more oil than we can use.

(Production in the U.S. during 2013 was 7 times the amount produced from 1859 through 1889. From the same table, I calculated production in the U.S. from 1890 through 2013 is 511 times the production for 1859 to 1889. I’d say he was off a tiny, little bit on his prediction.)

If I had time and interest, I’d pull a detailed comparison of the area under the Hubert curve to the total production to date worldwide and in the U.S.  As a hypothesis to test, I wonder if we have already produced more oil that the total amount he calculated existed anywhere on the entire planet. My working, preliminary hypothesis: yes for U.S. production; getting close for world-wide. Preliminary WAGs on the analysis: Hubert curve 1,250B world-wide, 150B-200B U.S. / to date: around 1 trillion world-wide,  209B US through 2013.

There are so many reasons why asking if oil is finite is the wrong question. Off the top of my head here is an unorganized, incomplete, and hastily accumulated list.

At expected ultimate recovery rates of 5% or 10% in Bakken, there is a huge amount of known oil, just in North Dakota. Oil still in the ground is a vast multiple of what will ultimately be produced from currently operating wells.  It isn’t economically and technological feasible to get most of it today.

There are new fields discovered often.

There is more oil realized to be present as fields are explored.

Secondary and tertiary recovery methods yet to be used (or perhaps yet to be invented) in fracked wells will increase recovery rates.

First few tests described by Million Dollar Way hint that refracking a previously fracked well can produce new-well levels of production.

The upper bench of Three Forks is just now being explored. Second and third benches, as I understand, have barely been touched. No telling how much will be found there.

There is probably more oil still in the ground than we have yet used in all of history (Just saw a Chevron page that estimated 1T barrels produced to date and another 2T will be produced in next century). Only question is the multiple. Is there 5, 10, or 30 times more oil in the ground that the total amount we have used in the last 160 years?

I won’t go into the substitution effect or the impact of higher prices on motivation for research and innovation.

Human ingenuity will make more and more oil recoverable.

Even more important:  Human ingenuity will ultimately be the reason we stop using fossil fuels.

See my comments on this blog, along with a lot of posts over at Carpe Diem and elsewhere around the ‘net regarding the idea that we won’t ever use the last drop of oil. Substitution effect and new technologies neither you nor I can even imagine will eventually replace fossil fuels before we come close to running out.  But that is an additional discussion.

I’ll place my bets on the side of human ingenuity.

Jim

P.S. What does “multi peak curve” mean? Please enlighten me.

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2 thoughts on “A discussion about finite oil

  1. Let’s stick with one thing at a time. The humans are ingenious argument that will cause oil to be no longer used is fine, but it is a peripheral assertion.

    Crude oil as a finite resource is respectfully, not the wrong question. Comparisons to crude oil to elements or alloys is not apporpriate by any means. gold, silver, platinum, diamonds, tin, and palladium are not broken down into 15 different molecules and then burned, never to be used again. All the elements you described, can and often are reused.

    Keep in mind that oil is not only used for energy. It is the basis of all petrochemical plastics that have grown in use on a yearly basis. Comparisons from the 19th century are further irrelevant as these materials were not in common use, population was significantly lower, the second derivative of population growth was even lower and in general the economic standard of living was extremely low compared to the one enjoyed today by billions more people.

    Crude oil formation is a multi million year process, you cannot even synthentically recreate it the way you can by adding atoms to elements.

    I am familiar with Chevron’s projections (I am not a “peak oil person” by the way, I am portfolio manager that has invested in energy and MLPs actively since 2006.) One trillion barrels(which is an estimate not only of proven and probably reserves, but also of “possible”) of oil is 31 years worth of at current consumption rates keeping consumption stagnant, i.e. zero growth.

    At a five percent annual growth rate, that gets you twenty years.

    We are projected to add another 2 billion people to our over 7 million strong unremarkable species by 2040.

    It is not sustainable. You even admit this by counting on human ingenuity being the exit, because there needs to be an exit.

    All I mean by a multi peak, is that you never realize where you are on the curve, I will give you this. Production appears to peak out, and then in 10 years it increases based on technology. But this is as far as you can indict Hubbert. You cannot continually say that every time you think there is a peak, there is another peak coming 10 years from now. It is a fruitless argument. In reality, no one knows where we are but it is not hard to see that with the growth rate of humans versus the production amount – and not to mention the cost (have to you been to North Dakota recently? Breathed the air in Eagle Ford? Or Nigeria, one of the breeding grounds for terrorism based on corruption? Kazakhastan after they run a shale operation? It looks like a desert where there wasn’t one before. These are costs – not externalites – costs to people that get really pissed off and their communities ruined.)

    Fields are not discovered as often as you think and they are in places like the Kara Sea where the break even is well over 100 dollars a barrel to get to.

    • Stig:

      Thanks for taking the time to provide a lengthy comment.

      Yes, I have been to Williston. Twice. This past October and an year earlier, in October ’13. Quite a fascinating place. Didn’t write any posts after the ’13 trip but have put up several posts with my observations after the recent trip. Got lots and lots of photos for use on the blog. Enjoyed both trips.

      I haven’t been to either Nigeria or Kazakhstan. Have travelled a few places in Africa and taken a few trips to Asia.

      Perhaps it is time to dive deeper into a few issues. What are the implications of your unsustainable comments? What needs to be done?

      Jim

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