Peak Oil vol. 1

This page combines all of the “Peak Oil” posts in one place. Enjoy!

This is a large enough group of posts that the compilation of Peak Oil discussion continues in Peak Oil vol 2.

We will never run out of oil. Peak oil #1

I’ve come across a term that struck me as silly as soon as I read it – peak oil – That’s the idea that we’ve hit the maximum production and we will soon see production levels fall and then run out of oil.

The definition of proven reserves and a minimal knowledge of supply and demand makes it so obvious that we will never run out of oil. A glance at this blog or the blogs I cite should make the concept of peak oil laughable.

I need to explain this across several posts.

The whole concept of peak oil becomes more astoundingly ignorant with every additional paragraph I read on the issue. Conceptually, there is a big problem. Practically, developments in the last couple of years should kill off the concept permanently. Daniel Yergin explains the issue in great detail at his WSJ article There Will Be Oil.

Here is the concept: We have already hit the maximum production level and will run out of oil very soon. Here are a few of Mr. Yergin’s comments:

{Peak oil} advocates argue that the world is fast approaching (or has already reached) a point of maximum oil output. They warn that “an unprecedented crisis is just over the horizon.” The result, it is said, will be “chaos,” to say nothing of “war, starvation, economic recession, possibly even the extinction of homo sapiens.”

The date of the predicted peak has moved over the years. It was once supposed to arrive by Thanksgiving 2005. Then the “unbridgeable supply demand gap” was expected “after 2007.” Then it was to arrive in 2011. Now “there is a significant risk of a peak before 2020.”

This sound like the alarmism of some Christians who declare with absolute certainty that the world will end on a specific date. When the sun rises the following morning, they run their calculations again to find their previously unknown math error and then calculate the next date that the world will certainly end. Only they are absolutely, positively sure this time. In spite of clear biblical instruction that no one knows the date, such folks are allowed two, three, or four tries.

So the concept is we are about to see production peak and then fall off. Only production just keeps rising, more fields are found where there wasn’t any oil before, and technology makes unrecoverable oil recoverable.

Check this out:

This is actually the fifth time in modern history that we’ve seen widespread fear that the world was running out of oil. The first was in the 1880s, when production was concentrated in Pennsylvania and it was said that no oil would be found west of the Mississippi. Then oil was found in Texas and Oklahoma. Similar fears emerged after the two world wars. And in the 1970s, it was said that the world was going to fall off the “oil mountain.” But since 1978, world oil output has increased by 30%.

Ooooooookay. There will never be oil west of the Mississippi. Not too far off other than those few little spots down there in Texas a few decades ago. And North Dakota. And Green River. Oh, and Eagle Ford.

It’s sort of like saying that I’m going to die of starvation in 10 days because I will consume all the food in my home in three days and then will linger for another week or so. Or that all the people in my city will starve because there is only a 1 1/2 day supply of food on all the shelves of all the stores in my area. After that’s gone, we go home and wait to die.

Next post: Who came up with this idea of peak oil? Then, what are proven reserves?

Published May 17, 2012

 

Where did this peak oil concept come from? Peak oil #2

I started a discussion of the silly concept of ‘peak oil’ here.

That is the concept that we will soon hit a peak of oil production at which point production will fall. Furthermore, we will run out of oil very soon.

I’ve started off with a recap of a superb article by Daniel Yergin in a Wall Street Journal article There Will Be Oil.

Where did this idea come from?

Mr. Yergin identifies M. King Hubbert, Ph.D., as the culprit.

The idea owes its inspiration, and indeed its articulation, to a geologist who, though long since passed from the scene, continues to shape the debate, M. King Hubbert. Indeed, his name is inextricably linked to that perspective—immortalized in “Hubbert’s Peak.”

A friendly page, here, describes:

His prediction in 1956 that U.S. oil production would peak in about 1970 and decline thereafter was scoffed at then but his analysis has since proved to be remarkably accurate.

He did not limit his prediction to U.S. production. The broader and more serious prediction is that the use of fossil fuel in general would soon run out. From the same article:

He was probably the best known geophysicist in the world to the general public because of his startling prediction, first made public in 1949, that the fossil fuel era would be of very short duration. “Energy from Fossil Fuels, Science” ” [scanned, 260 kb]

Check out his original writings. I’ll have several things to say about it.

A brief browse through his 1949 article contains many comments indicated that geologists know the amount of oil, coal, and oil shale that is recoverable. The ability to calculate recoverable oil is not limited to the U.S. Dr. Hubbert can also make precise estimates of the worldwide energy that is in the ground.

Here from page 105 is one of many entertaining comments showing the absolute certainty of his knowledge:

While the quantities of fuels upon the earth are not known precisely, their order of magnitude is pretty definitely circumscribed.

He then cites the amount of coal on the earth at 6.3 x 10^12 metric tons.

Later on the same page he claims:

For petroleum the estimation is considerably less accurate than that for coal but still it is probably reliable as to the order of magnitude.

You can see the Doctor explain himself in this video from 1976. Watch for the reference to ‘proven reserves’ as he explains the peak of oil production.

The fallacies abound.

The production of oil in the U.S. did hit a peak in about that time frame.

The fallacy? That the only productive oil fields in the world are in the U.S. That ignores fields that were unknown at the time. The mere possibility of vast oil reserves that has since come on line, like the Middle East, isn’t a possibility in his worldview.

The major fallacy is found in the video, specifically that reference to proven reserves. His core prediction is based on how fast we will use the then-known proven reserves. He assumes that there will never be any additional reserves. Ever. The only oil we can recover is what we know about today and what is feasible to recover today. Thus, there is a finite, upper-bounded, never-to-be-expanded amount of oil, and that amount is what we know about at this instant. Oh, and he can calculate the exact amount.

Another fallacy is that we will never find another productive field in the U.S.

Another fallacy is that oil technology will never, ever improve.

The ultimate fallacy is to ignore human creativity and ingenuity. (That criticism is from Mark Perry at Carpe Diem.)

Next post: Dr. Hubbert’s solutions, or, is quoting someone an ad hominem attack?

Published May 18, 2012

  

Solutions to peak oil – dial back our population and standard of living to pre-1949. Peak oil #3

Is quoting someone and explaining his position an ad hominem attack? That means attacking someone personally instead of criticizing their ideas.

I don’t think so.

Check out the solution to our energy problems according to the founder of the ‘peak oil’ concept, Dr. M. King Hubbert, PhD. Also, I’m not sure if Dr. Hubbert’s solutions are technically in the fascist or communist camp. You decide.

I’ve introduced the peak oil concept here and here.

This is from Daniel Yergin in a Wall Street Journal article There Will Be Oil.

In the 1930s, while teaching at Columbia University, Hubbert became active in a movement called Technocracy and served as its educational director. Holding politicians and economists responsible for the debacle of the Great Depression, Technocracy promoted the idea that democracy was a sham and that scientists and engineers should take over the reins of government and impose rationality on the economy.

Technocracy envisioned a no-growth society and the elimination of the price system, to be replaced by the wise administration of the Technocrats. Hubbert believed that a “pecuniary” system, guided by the “hieroglyphics” of economists, was the road to ruin.

I’m not sure from Mr. Yergin’s short description whether Dr. Hubbert would have left ownership of the resources in the hands of private citizens (fascism) or have the government take over ownership (communism). Since he wrote in the ’30s it could go either way.

In the ‘30s he might have thought fascism was the solution. On the other hand, Amity Shlaes has provided exquisite detail in her book The Forgotten Man that lots of intellectuals in the 1930s were infatuated with communism. Since Dr. Hubbert continued forming the foundation of his ideas into the ’40s, he probably would have preferred communism.

Whichever it is, he preferred totalitarianism to capitalism at the time.

Perhaps that is an ad hominem attack, but I don’t think so. When someone is proposing ideas that would cripple the U.S. economy, I believe it is worthwhile to understand the person’s perspective. At a fundamental level, Dr. Hubbert’s perspective in the ’30s and ’40s was totalitarianism.

On to the corrosive solutions.

You can see one of Dr. Hubbert’s key writings from 1949 in Science magazine at “Energy from Fossil Fuels“.

The doctor’s conclusion on page 108 and 109 of his Science article is that unless we adjust from the soon-ending supply of fossil fuel to solar or water power, the world-wide population will collapse due to catastrophe. We will not be able to sustain the worldwide population and wealth that existed in 1949 more that a short period of time. We need to transition to a more enlightened pattern of cultural thinking. The wrong path would be for us to

.. continue to react to the fundamentally simple physical, chemical, biological needs of our social complex with the sacred-cow behavior patterns of our agrarian and prescientific past.

We obviously need to adjust our standard of living to something lower than it was in 1949. Our existence depends on it:

However, it is upon our ability to eliminate this lag {a slow adjustment to the end of fossil fuels} to evolve a culture more nearly in conformity with the limitations imposed upon us by the basic properties of matter and energy that the future of our civilization largely depends.

Please, read his writing.

Please. Don’t take my word for it. There’s more poison like those two comments I quoted.

Next discussion – proven reserves.

Published May 25, 2012

 

Amount of proven reserves varies depending on available technology and prices. Peak Oil #4

Here is the Wikipedia definition of proven reserves, which is the same definition I’ve read elsewhere:

Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with a high degree of confidence to be commercially recoverable from a given date forward, from known reservoirs and under current economic conditions.

Here’s a short definition, from Hard Facts – An Energy Primer provided by the Institute for Energy Research.

They are the estimated reserves that are easily accessible and recoverable with today’s technology and today’s oil prices.

I’ve been using Daniel Yergin’s Wall Street Journal article There Will Be Oil as the jumping off point to explain that the concept of ‘peak oil’ is invalid. See previous posts here, here, and here.

Here is the crux of the issue, from Mr. Yergin:

The idea of “proved reserves” of oil isn’t just a physical concept, accounting for a fixed amount in the “storehouse.” It’s also an economic concept: how much can be recovered at prevailing prices. And it’s a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.

Here are at least four ideas from the definition of proved reserves that thoroughly discredit the peak oil silliness:

• Rising prices make more oil feasible to recover.
• Discovery of fields today that we didn’t know about yesterday means there’s more oil.
• New technology makes it possible to recover oil that we could not have touched before.
• Mr. Yergin points out that as a new field is developed, the geologists regularly realize there is far more oil in the field than they thought.

And that ignores the demand side.

Could anything actually cause oil production to drop? Sure.

Mr. Yergin provides a few possibilities:

Wars and civil wars, social turmoil and political upheavals, regional conflict, corruption and crime, mismanagement of resources—all of these can affect not only current production but also investment and future prospects. Environmental and climate policies can alter the timing and scale of development, as can geopolitics and politics within oil-producing countries.

What’s the common thread of all the things that could disrupt oil production? Political and social leaders inside countries and across borders. Our cultural leadership collectively can drive down oil production, not because there’s no oil there, or it’s not technically possible to get it, or it’s not economical to pull out. They can limit oil production because of decisions they make. It is a choice.

Apart from political and cultural leaders choosing to shut down energy production, the amount of proven reserves depends on what technology we have today and what the prices are.

Better and more creative technology? More oil.

Higher prices? Lots more oil.

The available oil is not fixed. It is not declining.

Published June 1, 2012

 

Bakken illustrates flexibility of proven reserves and breaks the ‘peak idiocy’ concept – peak oil #5

I’ve been using Daniel Yergin’s Wall Street Journal article There Will Be Oil as the jumping off point to explain that the concept of ‘peak oil’ is invalid. The posts have been combined into a page. You can link here or click on the “Peak Oil” page at the top of this blog.

Mr. Yergin comments on the Bakken field. Look at the appearance of unknown oil:

In 2003, the Bakken formation in North Dakota was producing a mere 10,000 barrels a day. Today, it is over 400,000 barrels, and North Dakota has become the fourth-largest oil-producing state in the country. Such “tight” oil could add as much as two million barrels a day to U.S. oil production after 2020—something that would not have been in any forecast five years ago.

(I think the stat for 2003 production is far too low, but the underlying point stands strong.)

Notice the unexpected growth in Bakken production? The huge amount of oil behind that 400k per day output wasn’t anywhere in the proven reserve list in 2003. Wasn’t even an idea in anyone’s head.

Mark Perry points out the North Dakota production is 575,490 per day in March. That’s 43% higher than just last September.

In April production was 609,373 barrels per day.

With Bakken and Eagle Ford heading toward 1M bbl per day in the next two years, at least that’s my guess, we could hit that 2M/day number by 2014 instead of 8 years from now. Furthermore, that would be from just two fields, not including several others that are in development.

And if the Bakken field is going to hit 30,000+/- wells instead of the current 6,000+/-, we could blow out that 2M bopd projection from just one field.

By the way, I have not seen one long-term estimate for Bakken or Eagle Ford from the last few years that was not severely understated when compared to actual production a year or two later.

Peak Idiocy

That’s the phrase from Mike Munger at Kids Prefer Cheese way back in December 2009.

He points out the impact of the price signal. If prices rise, people would cut back usage, industry would explore more, pull oil out of the ground that wasn’t economical before, and encourage substitutes.

If we did start to use up the oil we have…(though, counting shale oil, we still haven’t used even 10% of the total KNOWN reserves on earth, and there are lots of places we haven’t looked)…but suppose we were on our way to using it up. Three things would happen.

1. Prices would rise, causing people to cut back on use. More fuel efficient cars, better insulation on houses, etc. Quantity demanded goes down.

2. Prices would rise, causing people to look for more. And they would find more oil, and more ways to get at it. Quantity supplied goes up.

3. Prices of oil would rise, making the search for substitutes more profitable. At that point (though not now!) alternative fuels and energy sources would be economical, and would not require gubmint subsidies, because they would pay for themselves. The supply curve for substitutes shifts downward and to the right.

New technology

Again, here is one of the problems with peak idiocy: Peak oil assumes that there will never, ever be any improvements in technology.

None of the Bakken or Eagle Ford oil counted in proven reserves even as recently as 2003. It was not technically possible to get that oil out. It didn’t enter the equation even 5 years ago.

Then new technology arrived.

• Horizontal drilling.
• Hydraulic fracturing.

Throw those on the table and all of a sudden there is over half a million barrels a day from Bakken and the same from Eagle Ford. That’s today’s production. Right now. Every day of the week. I’ll make a wild guess that production in Bakken could increase by a factor of 4 or 5 and sustain at that level for several decades.

There’s huge amounts of oil that couldn’t be pulled out of the ground a decade ago.

New technology from human creativity. New fields we didn’t know about. Increased exploration because of rising prices. More oil that we realized in existing fields. More oil economically recoverable as prices rise.

Can we finally drop that ‘peak oil’ concept that we are going to run out of oil the day after tomorrow?

Fossil fuels will give us all the power we need until there is a breakthrough in energy that we can not even see today.

Published June 14, 2012

 

“Peak Oil” assumes we will never find a new field, so what just happened in Liard Basin can’t happen – peak oil #6

The Peak Oil concept is that production has peaked, production levels will soon decline in the U.S. & worldwide, and we will soon run out of oil.  At a fundamental level that assumes there isn’t any more oil than what we know about right now and that we can’t get to anything that we don’t know how to reach now.

Today I provide two illustrations of the fallacy of Peak Oil.

First, a new field means that tomorrow we can get to energy we didn’t know about yesterday.

Apache Corp. has announced a huge find in Canada. An article from the Calgary Herald provides the story:  Apache discover huge shale gas reservoir in northern B.C.

This is a big find:

One of three companies planning a $4.5-billion liquefied natural gas terminal at Kitimat on Thursday announced an “outstanding” new shale gas discovery in British Columbia’s remote and largely unexplored Liard Basin.

The find by Apache Corp. is estimated to contain enough gas in itself to justify doubling the size of the Kitimat terminal it’s proposing with partners Encana Corp. and EOG Resources. The company is calling it the best and highest quality shale gas reservoir in North America, based on the volume of gas three test wells are producing.

Here’s more detail on the location. Notice there has been little exploration in this area.

The Liard Basin is in northeastern B.C., west of the Horn River basin. Most drilling activity is taking place in the central part of the basin, 110 kilometres northwest of Fort Nelson, B.C.

According to a B.C. ministry of energy and mines report on shale gas activity in that province, it remains a relatively unexplored area covering 1.25 million hectares.

Translation: That means the engineers didn’t know about that huge amount of natural gas a few years ago. That gas was not a part of proven reserves. It was not even a part of the known reserves. I’m guessing it was just on the mind of some geologists as a possible energy source.

Here is the fallacy of peak oil – we can calculate the amount of all mineral resources we can ever get out of the ground and that amount will always go down, never up. We won’t ever find a new field.

This new find breaks that concept.

Second point, new technology means we can get to energy today we couldn’t touch yesterday

Here is a comment I read in Hard Facts – An Energy Primer provided by the Institute for Energy Research:

To understand the difference that hydraulic fracturing makes, in 1995 the U.S. Geological Survey (USGS) estimated that the Bakken formation held 151 million barrels of technically recoverable oil. But in 2008, after the impact of hydraulic fracturing and direction drilling were included in the USGS’s assessment, the estimate of recoverable oil in the Bakken jumped 25 fold.

One of many things I enjoy about Hard Facts is the extensive documentation. That comment  I quoted has a footnote linking to the USGS news release, which you can find here.

The USGS report says:

North Dakota and Montana have an estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in an area known as the Bakken Formation.

A U.S. Geological Survey assessment, released April 10, shows a 25-fold increase in the amount of oil that can be recovered compared to the agency’s 1995 estimate of 151 million barrels of oil.

Technically recoverable oil resources are those producible using currently available technology and industry practices. USGS is the only provider of publicly available estimates of undiscovered technically recoverable oil and gas resources.

New geologic models applied to the Bakken Formation, advances in drilling and production technologies, and recent oil discoveries have resulted in these substantially larger technically recoverable oil volumes. About 105 million barrels of oil were produced from the Bakken Formation by the end of 2007.

Estimated technically recoverable oil in Bakken soared from 151M barrels in 1995 to 3,650M in 2008 (which is the mean of the range).

Not all of that is economically recoverable and the engineers don’t know exactly where it is (which only means nobody knows which specific farmers get eventually get the royalty check), but it is technically possible to reach that oil.

Putting that into perspective of total production, the technically recoverable oil in 1995 was estimated to be equal to 1.4 times all of the oil ever produced from Bakken through 2007.  In 2008 the technically recoverable oil is equal to 34 times all the oil produced through 2007.

Let me describe the technically recoverable reserves in relation to production in North Dakota. That’s not a correct comparison for several reasons, but it allows me to put another nail in the coffin of Peak Oil.

Based on stats from the North Dakota Department of Mineral Resources found here, I calculated that 2011 oil production in North Dakota was 152.9M barrels.

That means the technically recoverable oil in the entire Bakken field in 1995 was equal to 360 days of production just in the state of North Dakota.  Technically recoverable oil in Bakken from the 2008 estimate is equal to 23.8 years at the rate of North Dakota’s production in 2011.

Let me rephrase that – 2011 production just from the state of North Dakota was greater than the 1985 technically recoverable oil in the entire Bakken field which is spread across the entire region of North Dakota, eastern Wyoming, and south-central Canada.

What happened? 

New technology was developed. Specifically, directional horizontal drilling and hydraulic fracturing.

Add new technology and the oil we can get to increases by a factor of 25!

Here’s the fallacy of peak oil this illustrates – Peak oil assumes we will never figure out a way to get to more oil than we know how to get to this afternoon.

Human ingenuity and creativity means today we can get to oil we couldn’t touch yesterday.

Can we bury Peak Oil?

published June 20, 2012.

Did you know the U.S. drilled the last drop of its oil two years ago? – peak oil #7

Seriously.

We don’t have any more oil to drill.  Let me prove it to you.

In 2000, we had 21 billion barrels of proved oil reserves. Proved reserves are the amount that is economically and technically feasible to produce.

In 1999 we produced 5.9M barrels a day. Prediction for production in 2000 was 5.8M bopd. That latter number is equal to 2.11B barrels a year.

That means as of January 1, 2000 we had 9.92 years of oil that we could economically and technically get to. In other words, we ran out of oil back in November 2009 or earlier.

Since then we’ve obviously been importing 100% of our oil after shutting down the entire oil production industry.  There is no more exploration, drilling, production, or refining anywhere inside the 50 states. None. Nada. Zip. All the oil is gone.

That is the mathematical conclusion from this discussion –Oil Consumption in North America.

Let me explain my math by quoting from the article:

The oil production for 2000 is expected to average 5.8 million barrels per day of crude oil. The production for 1999 was 5.9 million barrels per day.

and

According to the EIA, the United States has 21 billion barrels of proved oil reserves as of January 1, 2000.

Here’s the calculation:  we run out of oil in 21B / (5.8M * 365) = 9.92 years.

Leaving aside my ridicule which is so easy to apply, what this article illustrates is the fallacy of Peak Oil. The only oil that we will ever pull out of the ground is what we know about today and can technically recover today and can economically produce at today’s market prices.

The peak oil concept does not allow for new discoveries, new technology, impact of changing prices, or finding out there’s more oil in existing fields than we realized, or any other aspect of reserve growth.

Think I’m putting words in people’s mouths when I say that Peak Oil claims we will run out of oil?  Check out these two comments from the article:

If the natural resources of the world continue to be exploited at such a staggering rate, there will be nothing left to exploit.

And

Unfortunately, conserving resources at this point will only temporarily postpone the inevitable, which is total energy resource exhaustion.

Check that out again. Nothing left to exploit. Total energy exhaustion.

Still don’t believe that’s the concept? Do you wonder if I’m setting up a straw man argument? Check out these comments from the article.

We won’t find any new oil:

There is little to no chance of discovering any significant new onshore oil fields in the U.S. There is a good possibility of discovering major deposits of oil offshore, but offshore drilling has been banned in many areas.

We will use up all our oil:

That is only enough oil to last the U.S. about three and a half years without importing oil from other countries.

What was known about oilsands at the time? The article says:

Oilsands, which is another kind of oil deposit, are found in large quantities in Canada. … The strip mining process now being used takes the energy equivalent of two barrels of oil to produce one barrel. In other words, the price to produce it is double the price for which it can be sold. … Canada’s oilsands will probably not be produced in large amounts until the world’s supply of conventional oil is nearly depleted.

Technology has radically changed the situation. Where are things now?

Oil production from oil sands is 1.25M bopd in Canada, according to Oil sands from Wikipedia.  Not quite what the author was predicting in 2000.  I think over a million barrels a day counts as a large amount.

The biggest change is the amount of input to get a unit of output.  I will stipulate that 2 barrels of input to get 1 barrel of output that is mentioned in the above article was true at the time. Look what’s happened since then, according to the Wikipedia article:

Approximately 1.0–1.25 gigajoules (280–350 kWh) of energy is needed to extract a barrel of bitumen and upgrade it to synthetic crude. As of 2006, most of this is produced by burning natural gas.  Since a barrel of oil equivalent is about 6.117 gigajoules (1,699 kWh), its EROEI is 5–6. That means this extracts about 5 or 6 times as much energy as is consumed.

Going from an input:output ratio of 2:1 in 2000 to 1:5 or 1:6 now is an improvement by a factor of 10 or 12. Cool.

Since 2000, we have found more onshore energy fields, technology has made more energy feasible to recover, and economics have made it worthwhile to extract more resources.

To be fair to the author of the article I cite above, way back in 2000 nobody anywhere on the planet had any clue about all the new technology.

And yet, that is the whole point. In 2000, or 1974, or the 1940s, nobody had any idea of what changes would take place in energy technology. Those totally unforeseeable breakthroughs mean today we can get to huge amounts of energy that in the past nobody ever had any idea how we could ever possibly touch.

We are not running out of oil.

published July 11, 2012

Bakken as an illustration of reserve growth – how we find more oil in known fields that appear to be in decline.  Peak Oil #8

Does oil just magically appear in a tapped out field or do the oil people learn how large the field really is, locate more oil, and develop new ways to get the oil out of the ground?

If you’ve read this blog for long, you know what I think the answer is.

Look at the monthly production data for the Bakken field, exclusive of wells elsewhere in North Dakota. You can find the data here. This data is for the Bakken, Sanish, Three Forks, and Bakken/Three Forks pools only.

• December 1953 – One well is online producing 5,429 barrels. That’s for the month. A mere 175 barrels of oil per day (bopd).

• September 1957 – four years later – There are 10 producing wells, with 13,649 barrels for the month, which is 455 bopd.
• October 1966 – This appears to be the peak of the decade – 34 wells are producing 109,243 barrels, which is 3,524 bopd.
• December 1978 – 25 years after opening the field – There are only 13 producing wells bringing up 11,122 barrels, or 359 bopd. Since October 1966 that is a drop of 21 wells and a decline of 3,165 bopd.
• March 2007 – First month that jumped out at me showing a large increase – increase of 18 producing wells for the month. – The 321 wells produce 412,355 barrels, or 13,302 bopd. 54 years after the field is open there’s only 13K bopd.
• May 2009 – number of producing wells crosses the 1,000 mark. With 1,033 wells there’s 3,826,224 barrels for the month, or 123,427 bopd. That is 10 times the daily production two years earlier.
• May 2012 – almost 4,000 producing wells. Monthly production 17,794,820 barrels. That is 574,026 bopd. That is as much oil in 33 minutes as was produced in a day back in 2007, a mere 5 years ago.

In the 1960s production started the decade around 2,500 bopd, hit a peak of about 3,500 bopd, and then slowly declined to around 800 bopd at the end of the decade. That obviously proves the peak oil concept, right?

Not so fast.

Let’s assume that is an average of 2,000 bopd for the decade.

That is equal to 5 minutes of production in May 2012.

In the first 12 months of production starting with December 1953, there was about 70,000 barrels for a year. In the last 12 months, the Bakken field has produced 2,354 times more oil than that. Production increased by a factor of about 2,400.

All of that oil was there back in the ’50s, ’60s, and ’70s.  When production declined in the last half of the ‘60s, enough oil to allow 600K bopd was already in the ground.  It did not just magically appear in the last five years.

What changed to bring all that oil out of the ground? The economics of oil and new technology. Can we please bury the Peak Oil concept?

published July 26, 2012

Must be magic. Proven reserves mysteriously increasing. Peak Oil #9

Proved U.S. oil reserves, without condensate, increased to 23.3 billion barrels at the end of 2010, according to a new report from the Energy Information Administration. The full report is here. The report and discussion on the ‘net is focused on 25.2 billion, which includes crude oil and lease condensate.

In 2009, proven reserves increased by twice the amount of oil we pulled out of the ground. In 2010, proven reserves increased by 2.5 times what we produced.

How can this be?

It is a mystery. Or magic must be involved. Or the oil fields are having babies, breeding like rabbits.

Those are the only possible explanations according to Peak Oil concepts. Doctrine from that school of thought is that the only oil we will ever see is what we know about and can produce at this moment. We will never find any more oil than what we have this afternoon.  So, the info from EIA must be a mystery. Or magic.

Okay, I’ll stop the sarcasm. I really don’t enjoy using that.  It’s just so easy to use ridicule when discussing Peak Oil.

Now I’ll get serious.

I think the biggest fallacy in the concept of Peak Oil is that the only energy we will ever get is what we can economically produce today using technology of today.

What the Peak Oil concept considers an upper limit of everything we can ever reach is actually the definition of proven reserves.  That is what we know about today, is economical to produce with today’s prices, and we can get to with technology that we have on hand. Here is EIA’s explanation:

Proved reserves are those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserves estimates change from year to year as new discoveries are made, existing fields are more thoroughly appraised, existing reserves are produced, and as prices and technologies change.

That definition contains at least three incredibly huge assumptions: what we know about, economically feasible, and technically feasible.  All three of those assumptions change constantly.

What has happened in the last two years?

Here’s the data from table 7 of the EIA report.  I will look at oil reserves only, excluding lease condensate. In the last two years, proved reserves have increased 7.6 billion barrels at the same time as we have produced 3.5 billion barrels.

Why the increase? New fields are a very small part of it. The biggest factor is revised estimates as drilling proceeds along with finding out the field is really bigger than what the engineers thought.

Here’s the data for two years:

• 19,121 – Proven reserves in billions for oil only, end of 2008
•   3,518 – production in 2009 and 2010
•   7,664 – increasing reserves for all reasons
• 23,267 – proven reserves in billions, end of 2010

Expect more of the same in 2011.

Proved reserves for 2011 should also increase dramatically due to the boom in Bakken and Eagle Ford drilling.  Both Bruce Oksol at Million Dollar Way blog and Walter Russell Mead at Via Media mentioned this.

Oh no! We are RUNNING OUT OF OIL!!!!!

The Wall Street Journal covers this news in their article U.S. Oil Reserves Jumped in 2010.

Just in case you thought the peak oil concept was dead, which it really should be, consider the following comment posted on the WSJ article. Just to be clear, this was from a commenter, not the reporter:

Great. We’ll have a three-and-a-half year head start on our nuclear program when the reserves actually peak, and if we really need to we can supplement with natural gas and Canadian tar sands.

Where did the commenter get that 3.5 year number? I think he applied Peak Oil doctrine.

The WSJ article says US consumption is about 7B a year. Proved reserves are 25.2B, including lease condensate. Divide proved reserves of 25.2B by 7B consumption, and we have reserves equal to 3.6 years of consumption. Thus, we have 3½ years before all our oil runs out.

That means the writer believes we won’t ever find any more oil after what happened in 2010. I guess I need to find some more sarcasm and ridicule.

posted August 4, 2012

“Peak Oil” = “Peak Idiocy” – #10 in a series

The ‘Peak Idiocy’ comment is at least three years old.  Let’s visited a couple of dusty articles.

Mike Munger brings the concept into play in his December 5, 2009 post Peak Idiocy where he says:

Of all the idiotic things that people believe, the whole “peak oil” thing has to be right up there. It is literally impossible for us to run out of oil. We have never run out of anything, and we never will.

If we did start to use up the oil we have…(though, counting shale oil, we still haven’t used even 10% of the total KNOWN reserves on earth, and there are lots of places we haven’t looked)…but suppose we were on our way to using it up. Three things would happen.

Some other day we can expand his list of three reasons why peak oil will never happen.  I’ll throw out a few ideas at the end of this post. Topping the list would be human ingenuity.

Mark Perry picked up on that idea the next day in his December 6, 2009 post Econ 101: Why Peak Oil is Peak Idiocy.

On November 13, 2010, Mark Perry explained the dramatic change created by fracking in Successful Bakken Drilling Technology May Start to Go Global: That’s Why “Peak Oil” is “Peak Idiocy”.

He explains the Bakken field wasn’t expected to produce much oil

because the dense, nonporous rock in the Bakken region makes extraction extremely difficult and costly.

There’s lots of oil there, an estimated 4.3 billion barrels, but the thought was we could never get to it. Too hard to reach. Too difficult. Too expensive.  Sorry.  Not gonna’ happen.

Then horizontal drilling and fracking arrived on the scene.

Consider the North Dakota statewide December 2011 production stats of 535,035 barrels per day (bopd) and July 2012 production of 674,066 bopd as you read this ancient history from 22 months ago:

the original estimates were for peak Bakken production of only 220,000 to 280,000 barrels per day, but daily production went above 280,000 in April this year by September had reached 341,384 barrels. Oil production is expected to hit 400,000 barrels per day by next year, and remain at that level or higher for the next 10-15 years.

Bakken only production was 470k bopd in December 2011 and 609k bopd in July 2012.

Actual Bakken production in December 2011 (470k) blew out that estimate of one year earlier (400k). Today there is something in the range of 190 or 200 rigs going full steam ahead.

Way back in 2010, other companies were noticing the success with fracking and pondering the impact elsewhere:

“Know-how gained from North Dakota’s once-perplexing Bakken shale formation is being used to exploit other onerous oil plays across the globe. Oil companies and countries a world away have taken notice of North Dakota’s success, said Lynn Helms, director of the state Department of Mineral Resources.

Companies say they are aiming to apply technology learned from the Bakken to geologically similar shales in China, France, Poland, Canada and in some U.S. states, including Wyoming, Utah and Colorado.

That is why Eagle Ford is a booming area, surpassing Bakken in rigs and rivaling Bakken in production.

Look at the radical change that took place in 2010.  Again from Dr. Perry:

New, advanced techniques for drilling oil have revolutionized the domestic oil industry in North Dakota in ways that couldn’t have even been predicted just a few years ago, and will likely also open up new oil production in other parts of the world in the near future (like the Alberta Bakken in Canada) that also would have been unimaginable before this year.

Those “advanced techniques”?  Horizontal drilling and hydraulic fracturing.

I’ve only been writing on peak oil silliness for a few months.  Since I’m late to the party it’s fun to look at some older discussions.

By the way, here is a short, unsorted, incomplete list of reasons peak oil is really peak idiocy:

• Human ingenuity and creativity – the power behind the new technology
• New technology makes it possible to recover oil that we could not have touched before.
• Rising prices make more oil feasible to recover.
• Discovery of fields today that we didn’t know about yesterday means there’s more recoverable oil.
• As new fields are developed, geologists find out there is more oil in the field than they thought.
• Rising prices drive more exploration.

posted 9-19-12

We can cause a peak in oil production followed by a perpetual decline in output – Peak Oil #11

Contrary to what I have been saying, it actually is possible for us to hit a peak in oil production followed by a dramatic drop in output leading to a perpetual decline in the available energy we have.

How?

We as a society can decide that’s what we want.  Or our politicians can choose that for us.  Or regulators can impose their choice.

I’ve noticed a number of articles in recent months that make that point. Consider the following.

France has gas under the ground equal to something in the range of a century of usage. Yet the government has decided not to allow fracking to get that out of the ground, according to an editorial in the Wall Street Journal – No Fracking, We’re French.

For perspective on the need and potential, consider:

France imports 98% of the natural gas it uses each year. Yet according to U.S. Department of Energy data, the country’s technically recoverable shale gas is second only to Poland’s in Europe, and equal to more than a century’s worth of French gas consumption. Those numbers are still tentative, but the short history of shale-gas exploration suggests preliminary estimates often prove low.

Matthew Hulbert discusses a number of reasons that international exploration is slow in Has Unconventional Oil Production Peaked?

He surveys the political risk of working in countries with volatile, undemocratic governments. The political and economic pushback if anything ever goes wrong can be very harsh in democracies. Some governments rewrite the contracts for productive fields under threat of expropriation after production is well underway.

All of those make exploration more risky and dangerous, thus reducing the amount of exploration.

This attitude can carry over into policies at the state level, even in the U.S.

In Missing the Black Gold Rush, Bradley Anderson explores the reasons that oil production in Montana lags so far behind North Dakota and their coal production lags behind Montana.

A major cause?  Intentional policies at the state level.

There are some geological reasons, such as the Bakken field is richer and thicker in North Dakota, but that doesn’t explain why…

North Dakota’s proven oil reserves are only about 3 times that of Montana’s, but it has 10 times the drilling and production.

Here is the core of the issue:

Those matters aside, Montana’s business, regulatory, and legal climate is still unfavorable compared to neighboring states like North Dakota.

As a result, there is less oil and coal production that there could be.

His solutions? He has five:

First, Montana’s business equipment tax … is antiquated and needs to go. …

Second, the state must bring workers’ compensation premiums under control. …

Third, state legislators should work toward a bipartisan commitment to keep oil and gas taxes competitive. …

Fourth, the state should improve its unfavorable litigation climate. …

Fifth, Montana should make its regulatory culture less adversarial. …

If you want to see what seems to be the major cause for production, and state tax revenue, and jobs, and overall economic health of the state being lower than it could be, ponder the intentional policies and decisions behind Mr. Anderson’s recommendations.

Read through the list again.  Behind every one of those suggestions are conscious choices of the state government.

While in the geological world Peak Oil is imaginary, in the political world it is a very real possibility.

P.S. For possible future reference, please note the date and time this post is published.

posted 11-6-12

We don’t have to prosper, California edition

Update: This is part 12 of my Peak Oil series.)

An article in Business Insider suggests There Is A Shale Oil Field Under Santa Barbara Four-Times Bigger Than The Bakken.

The article cites without linking (and I don’t want to spend the time finding the source) an EIA analysis:

According to the EIA, the Monterrey Formation, which covers an enormous chunk of Southern California and terminates near Santa Barbara, has 15.4 billion barrels of recoverable crude — four times as much as the Bakken formation in North Dakota.

Read more: http://www.businessinsider.com/shale-oil-field-santa-barbara-bigger-than-bakken-2012-11#ixzz2CgZucWVH

That four-times number relies on an old estimate, which I think is generally considered obsolete.

Million Dollar Way says:

It is pretty much agreed that the USGS 2008 estimate of 3.65 billion bbls of recoverable Bakken oil is way too conservative. Most agree that Bakken recoverable oil is easily 24 billion bbls.

So maybe the Monterrey formation is only about half (15B / 24B = 62.5%) of Bakken.

Have you noticed that the new unit of measure for huge oil reserves is the amount of Bakken reserves?

So whether the Monterrey formation is four-times or one-half of Bakken, it is still huge.

That could mean 10,000 or 20,000 jobs for the next decade or three.

What does the North Dakota state budget look like because of oil?

Their state budget is estimated at a surplus of $1.6B (that’s billion) for the two-year budget cycle. I’ve seen that number mentioned several times.  Another report suggests a $2.0B surplus.

Both of those numbers are for the current budget cycle. They both exclude about $1.2B in four different reserve accounts. I can’t tell how long it has taken to build those reserves, but am guessing it has been in the last three or four years.

So let’s round that down to a billion a year ($1.6B or $2B over two years plus $1.2B over three or four years would give point estimates of $1.1B to $1.4B per year) Let’s ignore the amount of revenue that is within the budget and not a part of that surplus.

Do you suppose we Californians have the wisdom to generate a huge amount of energy, tens of thousands of decent jobs, and an extra billion or more a year into the state general fund, with all of the energy, jobs, & tax revenue extending out into the future as far as the eye can see?

My guess?  Probably not.

Can someone explain to me the morality of leaving 10,000 people unemployed and forgoing over a billion a year into the state general fund?

posted 11-20-12

Three of the six biggest oil fields ever found cannot exist – Peak Oil #13

I make it a high priority to avoid corrosive humor, such as sarcasm or ridicule, in my writing. But when it comes to the foolish Peak Oil concept, laughter seems to be the only appropriate response.

factual background

In a 1949 article, Dr. M. King Hubbert was able to calculate the total amount of oil that exists on the earth.  Don’t take my word for it.  See page 105 of “Energy from Fossil Fuels, Science” [scanned, 260 kb]. Won’t link to any specifics, but the ability he had to calculate the total amount of oil that will ever be known is a skill still present today.

In a previous post, I mentioned a Reuters article by Mr. John Kemp – Is Bakken Set to Rival Ghawar?

In the article, Mr. Kemp says:

Ghawar [in Saudi Arabia] is one of only six super-giant oil fields that have produced more than 1 million barrels per day at their peak. Others are Burgan (Kuwait), Cantarell (Mexico), Daqing (China) and in the 1970s and 1980s Samotlor (Russia) and Kirkuk (Iraq).

As I also mentioned in that post, I did a bit of research and found that Wikipedia provides the discovery date of the above six superstars. Sorted by date they are:

• Kirkuk (Iraq) 1927
• Burgan (Kuwait) – 1938
• Ghawar 1948 on stream 1951
• Daqing (China) 1959
• Samotlor (Russia) discovered 1965
• Cantarell (Mexico) 1976

/ridicule on/

That means that of the six largest oil fields ever known in terms of daily output, three had not been discovered in 1949. They could not have been included in the good doctor’s calculations.  That means we must of necessity put the word alleged in front of their supposed existence.

The alleged output of 1M bopd in each of those fields is obviously something that never happened.

The Ghawar field was discovered in 1948, before his 1949 article. However, it doesn’t appear to have been online until 1951. So it is unclear whether that would have been included in his calculation. Let’s give him the benefit of a small amount of doubt and assume it was included in the finite amount of total oil that he calculated would ever be recovered.

So that means that three of the allegedly six largest oil fields in the world, Daqing, Samotlor, and Cantarell, along with the entire alleged Bakken field cannot possibly exist.

Dr. Hubbert said so.

/ridicule off/

With a straight face, the reason for this particular post is to point out the foolishness of saying that we can know how much oil there is in the ground.

Why?

• Once in a while there is a new field discovered that the geologists did not know was there.
• New technology comes along to allow extraction of what was previously impossible to recover.
• Development of a field often leads the geologists to conclude there is more oil present than was known before.

Thus to say that the amount of recoverable oil is fixed & knowable and that total output will soon decline is foolishness.

It was foolish to say so in 1949 and it is foolish to say so today.

posted 11-26-12

700,000 barrels of oil a day out of North Dakota is no big deal. It’s all hype. – Peak Oil #14

Bruce Oskol, writing at Million Dollar Way, gives some background why he started that blog:

Again, one of several reasons for starting the blog a couple years ago was to counter the naysayers.

The original naysayers doubted the Bakken even existed — hard to believe, I know; and then, when the numbers started coming out of the Bakken, the naysayers said the Bakken was good for North Dakota but that was about it.

I particularly enjoy citing this post from another blog as an example: “Don’t believe it. There’s some oil to be gotten out of Bakken, and it’s going to be exploited. But the “bonanza” is nothing but hype.” — June 25, 2010.

“Some oil to be gotten out of the Bakken … Nothing but hype.” Wow.

I checked on the link and found Bakken Oil Hype at The American West at Risk blog.

Wow is right.

The USGS had a forecast in 2008 on the amount of oil in Bakken. The above blog post gave this info:

5% chance of finding a total of 4.3 billion barrels,

95% chance of finding a total of 3.1 billion barrels, and

50% chance of finding a total of 3.6 billion barrels (the famous USGS “mean” estimate).

The ‘Bakken is all hype’ discussion

The linked post is dated June 25, 2010, which is 2½ years ago. In terms of Bakken developments, that is a long time ago.

Let’s see the article’s description from this distant time.

First, the straw man.  Referring to conversations circulating at the time…

The emails and websites say that Bakken would solve all our petroleum “needs.”

I hadn’t tuned in to the Bakken story then, but I rather doubt anyone was claiming that oil from North Dakota would “solve” our oil needs let alone “all” of them.

Next paragraph:

Don’t believe it. There’s some oil to be gotten out of Bakken, and it’s going to be exploited. But the “bonanza” is nothing but hype.

About at the end of the article:

Last word: It takes a long time and thousands of expensive (~$4-8 million each) wells to fully develop a field the size of the Bakken, which means that the Bakken can have only a barely discernible impact on daily US oil supply throughout the life of the field.

Now let’s take a look at developments in the North Dakota Bakken field

You can find lots of data from the North Dakota Industrial Commission here.

Data for the Bakken-only drilling can be found here. The data from about 3,000 additional wells outside Bakken are excluded from that info.

Let’s look at May 2010, the month before the above article was posted.  There were 1,593 wells in the Bakken field. They produced 6.9M barrels that month, an average of 223,759 per day.

That is a large jump from two years earlier. In May 2008, there were 1.8M barrels for the month or 58,890 per day from 582 wells.

Now let’s look at September 2012.  Last month there were 19.9M barrels of oil produced, or 662,428 per day from Bakken-only wells. There were 4,629 producing wells.

Here’s the numbers again:

• 5-08  / 5-10  / 9-12
• 1.8M / 6.9M / 19.9M – total barrels for month
• 59K / 224K / 662K – barrels per day
• 582 / 1,593 / 4,629 – producing wells

If you want a really rough trend line, that looks to me like something in the range of tripling from 5-08 to 5-10 and tripling again by 9-12.

‘Hype’, no ‘bonanza’, and ‘barely discernible impact’ are subjective words. Maybe it’s just my perspective, but I don’t think those phrases can possibly describe 662K barrels a day from 4,600 wells.

What about cumulative production?

From June 1996 through May 2010, production in the Bakken field of North Dakota was 124.1M barrels. From June 2010 through September 2012, production in Bakken was 340.6M barrels. (I haven’t bothered to input the data before June ’96 into the spreadsheets I’m using. Production in 6-96 was 91K per month, so it won’t change the analysis much.)

Current guesses that I’m tracking are suggesting North Dakota production will hit 1M bopd sometime in the next year or two.  That would be about 365M barrels a year.

How’s that compare to USGS’s 2008 estimate that the Bakken Oil Hype post is so dismissive of?

The mid-point is 3.6B barrels.

Production from 5-10 to 9-12, about 2 ½ years, was 340M barrels, or about 9.4% of the 2008 estimate.  Daily production of 1M bopd expected in the next few years would be 365M per year, or 10.1% of the field.

An oil field that is produced 9% of the estimated field size in 2½ years is a big deal. For annual production to draw close to 10% of the estimated field is amazing.

Current production from Bakken is about 12% of total U.S. production. (Bakken 662K bopd from above divided by 5,647K bopd for the US in 2011 from EIA = 11.7%).

12%.

From one field.

Can we all agree that is more than a discernible impact?

Final point to discuss.  The post mentions that developing the field will take a long time, involve thousands of wells, with costs of $4M to $8M each.

Yup. That’s what it would take.

And that is exactly what has happened.

There’s already 3,036 more producing wells in Bakken than when the post was written. The cost per well is running in the range of $6M to $8M or even higher (don’t have a convenient link for that – sorry).

For the last two quarters, the well count has increased about 470 wells each quarter. That pace would increase the well count about 1,800 per year.

Full development of the field could take another decade or more. Another 10 or more years of the same high intensity drilling pace we’ve seen the last couple of years.

Four lessons I draw from this:

• Bakken potential is not hype, the field is a bonanza, and it is already having far more than a “barely discernable impact” on U.S. production.
• The 2008 forecast is probably understated. (Yeah, yeah, I’m really late to the party on that conclusion.)
• Naysayers missed the boat on Bakken.
• Peak Oil is foolishness because nobody knows what oil fields are yet to be discovered or how much oil will eventually be found in the fields we already know about.

posted 12-3-12

Continued at Peak Oil vol 2.

By the way, in case it isn’t obvious, the above is: Copyright © 2012 James L. Ulvog