Published in Catalyst Magazine, October 2006

ANOTHER INCONVENIENT TRUTH: PEAK OIL

The rise and fall of oil production

“The glory of the twentieth century is now the burden.” – Kevin Phillips, American Theocracy, 2006

Fossil fuels are involved in nearly all we own, wear, do, and everywhere we go. Rising oil prices, from a growing gap between supply and demand, are rippling through the economy.

As the demand for oil grows, pundits quibble over how many decades of oil remain. But even the most cheerful forecaster does not see a long future for the liquid that fuels our lives. The more crucial question is: How will the depletion play out?

Our plate is already loaded with plenty of reasons to end our addiction to oil – global warming, air pollution, geopolitical tensions, oil spills, trade deficit. The event known as “peak oil” is the biggest reason yet.

In a paragraph, here it is: When about half the world’s oil supply is used up, production reaches a peak and then declines an estimated 2-3% a year, even as demand continues to grow. Relentlessly, year after year the world has to make do with less oil, even as there are more and more of us. Developing nations and the poor will likely suffer the worst.

Growing numbers of leading petroleum geologists and analysts believe we are at global “Peak Oil” now, or will be within a few years.

No one knows when world peak will arrive, or what sort of "peak" it will be, whether a sharp peak, a double-peak, or an undulating plateau. Calling the peak can happen only after the fact. According to the Energy Information Agency (the information arm of the U.S. Department of Energy), world production has been fairly flat since autumn 2004. Oil producers are running at maximum and now barely meet soaring demand. With no spare capacity, any slight disruption drives oil prices higher.

Oil-powered America
The U.S. should know about peak oil, as production in the lower-48 peaked in 1970, but we avoided this significant truth as we began importing ever more oil to replace our waning flow. Vastly endowed with the black riches, America was second only to Saudi Arabia in conventional reserves.

America’s rise to become a leading world power in the twentieth century is almost synonymous with the rising power of oil in agriculture, manufacturing, transportation, and globalization. The U.S. was the leading world oil producer from the early twentieth century up through the 1940’s, and today we are still the third largest producer; even so, we import about 60% of the oil we use. We have now burned through a higher percentage of our reserves than any other country, and in the process we have gone from being the world’s largest creditor to largest debtor nation.

Oil-powered America emerged as the new dominant player during World War I, eclipsing coal-powered Britain. With that war, petro-powered fighter planes, trucks, tanks, and boats overtook cavalries, wagons, and horses. In both World Wars, strategies largely involved control of resources, and the Allies largely controlled oil supplies – a huge factor for their victories. After WWI, British War Cabinet member Lord Curzon exulted, “The Allies floated to victory on a wave of oil.”

In 1930, the great East Texas Oil Field was discovered, and after WWII, America rose higher and higher on a grand wave of cheap energy. Chemists had a field day developing a myriad of plastics, new fabrics, synthetic rubber, detergents, paints, solvents, medicines, cosmetics – all derived from oil and gas – to expand our mass-production, exports, and standard of living. Fossil fuel-based fertilizers and insecticides, and diesel-powered farm equipment revolutionized agriculture – filling supermarkets with food and freeing millions from farming to pursue other vocations. Car-culture was born and its landscape of freeways, suburbs, gas stations, drive-ins, malls, theaters, and motels sprawled across the land – fulfilling our desires for freedom, mobility, convenience, and instant gratification. Cheap transport has sped people and goods around the globe. Many of us have lived more opulently than kings and queens of yore.

But all was not well in the land of abundance. In the 1950’s, a top Shell geophysicist, M. King Hubbert discovered that oil production followed a roughly bell-shaped curve of rising production to a peak when about half was extracted, with an irreversible decline thereafter. The effect holds true at all levels: single oil fields, whole nations, even the entire world. He predicted that U.S. oil production would peak between 1966-72; then it would descend inexorably.

Shell tried to suppress his warning; still he spoke out. Most dismissed him, as the U.S’s ever-climbing production seemed unstoppable. But as Hubbert predicted, in 1970 America’s continental production topped out and has declined since – output now at just half its peak. Alaska’s Prudhoe Bay came online later, creating a smaller peak in 1988, with output now at one fifth its peak.

Texas provides a great example. Its production climbed 40% over the decade before its 1972 peak. As oil prices surged in the late 70’s, Texan producers fully expected to increase production with the biggest drilling boom in its history. Yet to their astonishment, production fell, in spite of higher oil prices, frantic drilling, and improved technology. By 1982, the 40% gain had been lost, and now today Texas output is at a quarter of its former glory. In a Fortune magazine December 26, 2005 interview, billionaire Richard Rainwater said, “I believe in Hubbert’s Peak. I came out of Texas. I watched oil fields reach peak and go over, and I’ve watched how people would do all they could, put whatever amount of money into the field, and they couldn’t do anything about it.” More wells were drilled in the lower-48 than in all other countries combined, with the most advanced technology. If more oil existed in quantities to offset declines, it would have been found.

In decline worldwide
Discovery of new oil fields peaked in 1964, and nowadays consumption outpaces discovery about 5 to 1. The last time drillers found more oil than consumers used was 1981. Two of the three largest oil fields in the world, Cantarell in Mexico and Bergen in Kuwait, are now declining. The North Sea region is in steep decline, at just one-fourth its 1999 peak. Fifty-four of 65 oil-producing nations have entered depletion mode, leaving fewer nations to carry the weight.

Oil companies now find that money invested in exploration yields little return – they cannot find enough smaller new fields to replace the large fields now declining. Increasingly, companies find themselves drilling in deep seas to extraordinary depths and in other challenging locales or amid hostile peoples, such as in Nigeria. From the October 2005 issue of Petroleum Review: “Quite remarkably, in the first half of 2005 the top … 22 publicly quoted oil companies all produced less crude and NGL’s [gas] than they did in 2004 … Clearly, it is no exaggeration to say that the world’s largest publicly quoted oil companies are now really struggling to hold production levels …“

More and more effort, less and less oil
Petroleum geologist Jeffrey J. Brown provides some valuable insights about the nature of fossil fuels. “Conventional” oil flows readily when pumped; whereas “unconventional” sources such as heavy oil must be heated in the ground first; also the tar sands and oil shale must be mined and heated. It is also helpful to view fossil fuels as a spectrum from gas to liquid to solid: starting with natural gas (the cleanest), and ranging through natural gas liquids, condensate, light sweet crude oil, heavy sour crude oil, and bitumen to coal (the dirtiest.) The world craves Liquid Transportation Fuels (LTF's) – gasoline, diesel and jet fuel, which are most cheaply made from easy-to-extract light sweet crude oil. Being in highest demand, light crude may have already peaked. Brown notes that we are now turning to both ends of the range (the lightest: natural gas and the heaviest: heavy oil, tar sands, and coal) in an attempt to maintain and increase our supply of LTF's. The trouble is, LTF’s from the light/heavy stuff are terribly expensive and energy-intensive to produce; their production rates are low; and they are horrible for the environment. If you think drilling for oil and gas is bad, pillaging the planet for these non-conventional hydrocarbons is much worse.

The oil shale of eastern Utah/western Colorado, Venezuela’s heavy oil, and Alberta’s tar sands hold vast unconventional deposits that dwarf Saudi Arabia’s deposits. Eastern Utah also has some tar sands and heavy oil. In Canada, current oil production from tar sands is about 1 million barrels daily. Canadian tar sands are heated with enormous amounts of natural gas, even though North American gas production has now peaked. But producing just one barrel of tar sand “syncrude” burns enough natural gas to heat a home for four days, moves four tons earth, pollutes between two and five barrels water, and releases huge amounts of greenhouse gases.

Several companies are now testing extraction methods on Utah and Colorado’s oil shale. Shell’s idea is particularly audacious – proposing to superheat a 2000 foot underground segment 700 degrees for three years, with a surrounding frost-wall to protect the aquifer below from contaminants. This would require the energy of one large coal-fired plant (consuming 5 million tons coal per year) to extract a mere 100,000 barrels daily (a few minutes of U.S. consumption).

Turning to these sources is not a sign of technological innovation. It is a sign of desperation.

Some fossil fuels will always remain in the ground, too costly to extract. A ratio, EROEI (Energy Returned on Energy Invested) refers to the the amount of oil extracted to the energy used to get that oil. The higher the ratio, the better. Decades ago, many wells returned an EROEI of 100; little energy was required to draw out the black gold. Think of the “Beverly Hillbillies” when Jed’s bullet hits the ground and the oil spurts out effortlessly, and you sort of get the idea. But the oil companies have mostly taken the easy pickings, leaving the hard-to-get-stuff for later.

Well, “later” has arrived. Now fields might average an EROEI of around 20. Deep-sea wells have an EROEI of less than 5. At the low end, the tar sands score dismally, about 3, and oil shale is even worse. Hopes ride high for ethanol, yet its EROEI is nearly nil, given all the fossil fuel inputs of fertilizer and equipment operation. Hydrogen is a net energy loser. When it takes the energy of a barrel of oil to extract a barrel of oil, it is just not worth it.

Soaring fuel costs hit energy-intensive processes especially hard, for example, tar sands projects are now experiencing major cost overruns. Difficult-to-extract oil stays put until extraction techniques are developed, or as the price of oil goes up, it becomes more economical to extract. Peak Oil is all about running out of $20/barrel oil…then $40/barrel oil…then $60/barrel oil. We are already at the end of cheap oil.

Differences of opinion
Not all energy experts believe Peak Oil is imminent and some totally dismiss the theory. But most optimistic energy consultants’ predictions still leave us facing the dilemma in just a few decades. They believe that as oil prices rise, producers will find cost-effective ways to extract unconventional oil and to recover more from depleted fields. A double-peak is possible, as the ability to massively scale up production of the non-conventional sources is still years away. However, with their inherent challenges, this may not be achievable. Oil “cornocopian,” Michael Lynch, an energy consultant, emphasizes that numerous earlier predictions of oil depletion went unfulfilled when new oilfield discoveries and advancements in oil extraction were made, as if to imply that oil supply is infinite and such a forecast will always be wrong.

Many nations’ peak graphs reveal not so much a bell-shaped curve as a general jagged pattern, influenced by political and economic factors. Economist Mark Brandly asks how one knows which peak is final or which decline is final. He states that one needs to know this to know the start of the crises. Yet if peak production forms a bumpy plateau, unable to meet skyrocketing demand – this alone could wreak tremendous economic havoc.

Lack of accurate and transparent reserve data further muddies the waters and make true analysis impossible. In the 1980’s, many OPEC nations suddenly boosted (nearly doubled) proven reserve numbers, which allowed them to boost production quotas and export more (production was required to be proportional to proved reserves.)

Government agencies, such as the U.S. Geologic Survey, the Energy Information Agency, and watchdog International Energy Agency, use these doubled-reserve numbers and issue rosy interpretations of data in their reports. These highly respected agencies mutually reinforce one another in believing that OPEC reserve data is accurate, that the Saudis will be capable of doubling output in 15 years, and that unconventional production will be ramped up – all meeting soaring demand. The EIA’s International Energy Outlook 2006 projects global demand at 118 million barrels a day (mbpd) in 2030, up from 85 mbpd currently (a 38% increase in 24 years), and forecasts that output will meet demand.

Oil companies, the United Nations, analysts, economists, and even environmental groups quote these reports and uphold their conclusions. Governments and corporations base their planning on them. However, many leading energy experts say these projections are delusional -- such production levels are unattainable. They doubt OPEC’s reserve numbers, and Saudi Arabia’s claim they can double output (even though the Saudis refuse to be audited). Assessing the same data, they starkly conclude that we are trapped on a runaway train.

Matthew Simmons, a top energy investment banker and advisor to President Bush, has extensively reviewed over 200 Saudi reserve reports and argues that Saudi fields are now in decline. In the Institute for the Analysis of Global Security’s March 2004 report he says, "The entire world assumes Saudi Arabia can carry everyone's energy needs on its back cheaply. If this turns out not to work there is no 'plan B.' Global spare capacity is now 'all Saudi Arabia.' This is the world's insurance policy and no third party inspector has examined it for years. Conventional wisdom says 'Don't worry. Trust today,' but if conventional wisdom is wrong, the world faces a giant energy crisis." Last fall, Saudi Arabia shocked the world when it announced it could not boost production to offset losses sustained by hurricane damage to Gulf of Mexico producers.

Too little, too late?
Free-market advocates proclaim that rising fuel prices will signal the market to develop alternative technologies just as we need them, yet these alternatives are still decades from viably replacing energy-dense fossil fuels. A recent U.S. Department of Energy report, “The Mitigation of the Peaking of World Oil Production,” by energy analyst Robert Hirsch, strongly recommends intense actions beginning 20 years prior to Peak, to transition smoothly away from traditional petroleum. It states that government intervention will be required – market signals in the form of higher oil prices alone will be insufficient and will come too late to induce the dramatic actions needed. The report’s proposed mitigations call on a mix of unconventional sources (heavy oil, tar sands, oil shale), enhanced recovery from older fields, efficiencies, and conservation. These large-scale measures will take years to enact, for example, converting the nation to a more efficient fleet of vehicles will take about 15 years.

Hirsch believes that if we are on the brink of Peak, we are in no way prepared, and at this late stage we would be in for a rough ride. The executive report summary warns: “As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.”

All currently viable renewables combined –wind, solar, tidal, geothermal – will not replace oil’s concentrated energy. Most of these provide electricity – they will only replace oil if we convert our vehicle fleet to plug-in hybrids. We still don’t have other fuel options for aircraft. Fuel cells are not fuel sources, but energy converters that must be produced by using energy. Hydrogen and corn ethanol are unviable as a broad-based solution. Producing ethanol is already stealing from food production. Some developments show promise, such as thermal conversion and cellulosic ethanol – but are not market ready. Peak guru Richard Heinberg notes that using fossil fuels are like spending an enormous inheritance, whereas using renewables are like working hard and living from paycheck to paycheck.

Natural gas, coal, nuclear
Some suggest natural gas and coal liquefaction as a bridge towards the renewables. Others propose more reliance upon nuclear power and natural gas in response to global warming. Many Americans believe we still have abundant stores of natural gas – few realize that North American production has peaked, and much of the world’s gas is stranded far from infrastructure. U.S. companies here must drill record numbers of wells only to see total production stay flat or fall, which is partially why we are seeing such a drilling frenzy here in the West. Increasingly they turn to unconventional gas, such as coal methane beds, common in Utah – with higher environmental impact.

In coming years, we will rely on liquefied natural gas (LNG) transported from overseas sources such as politically volatile Central Asia and Africa (more reliance on foreign fuel!). Building the vast and costly global LNG infrastructure will take time, and is now being delayed. Transporting and storing LNG is risky, burdensome to the environment, and a potential terrorist target. On the coasts, LNG port placement battles rage on. In the meantime, we could see the harsh realities of localized peak gas shortages in both North America. We have already had a couple close calls. World peak gas is predicted for 2020 - 2030, following with a steeper decline than oil. North America’s gas peak will go unheeded as a warning sign, while the world invests deeply in the globalized infrastructure. Gas has many uses: heating buildings, an ingredient in plastics, and as the main source of hydrogen and fertilizer. Gas-powered plants generate over 20% of our nation’s electricity.

Pressures mount to rely more on coal, the dirtiest hydrocarbon, for both electricity and for liquid fuel. Coal industry ads tell us we have 50 years of coal left at current consumption rates. In reality, much of the easy-to-get coal has been mined … sound familiar? Appalachian miners are moving closer to towns and going deeper. A large percentage included in outdated reserve quotes is too dirty to burn, too remote, or is buried under places like towns or national parks. What will “America the Beautiful” look like after we’ve dug up the coal from all these places?

Montana’s governor Brian Schweitzer proposes his state’s coal for coal liquefaction as an oil substitute. This process would create solid waste, CO2 emissions requiring sequesterization, and polluted water. Even so, this will likely be an important source of transportation fuel. If we go this route, Gregson Vaux, engineer at Science Application International Corporation, calculated that we could have peak coal in thirty years.

Increasing natural gas prices and global warming have also brought more pressure to boost our nuclear power. After several decades, its faults are still unresolved: safety, security, cost, and nuclear waste disposal. Moreover, uranium is another finite resource, and also will peak. Is civilization’s destiny bound up with finite energy resources from within the Earth – oil, gas, coal – or can we make a shift to renewables? This could be humanity’s most challenging transition.

Other energy woes
Peak oil is not the only problem. Oil and gas prices are going up for other reasons. We increasingly rely on oil from political hotspots. Others in the world want to live like us, so demand from developing countries, especially China and India, is surging. Aging infrastructure, shortages of drilling equipment and workers, and lack of refining capacity (especially for heavy oil) are delaying projects and driving costs up. Soaring oil company profits are only icing on the corporate cake – a secondary result of higher prices. These other factors contribute to the energy malaise and are easier to identify and blame, only obscuring the truth about Hubbert’s Peak. Our fossil-fuel-based energy industry can no longer be relied on as a steady elixir for our economic engine.

Does Bush get it?
Where are Bush and Cheney (former oilmen themselves) in all this? Why is the Administration not preparing us for the possibility of an imminent Peak, as they warn us of the possibility of terrorism? Why is President Bush not going much, much further in weaning us from our “addiction to oil?”

In a 1999 speech to a London Institute of Petroleum luncheon, Cheney revealed that he understands what is at stake: “By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day … Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy.”

Energy banker Matthew Simmons and Maryland Rep. Rosco Barlett have explicitly warned Bush about Peak Oil. Whether he doesn’t get it, doesn’t believe it, doesn’t want us to know, or just doesn’t care – it preparing us is not on his agenda. What would we expect from a president who said, “We need an energy policy that encourages consumption”? Bush’s comments on energy reveals his ignorance – he champions ethanol and hydrogen, calls nuclear power clean and renewable, and proclaims we have 250 million years of coal! Clinton and Gore are now publicly stating they think we are about at Peak, and that we must now get going.

The Army is particularly concerned, and is beginning preparations – after all, militaries and war are enormous gas-guzzlers. Were it a country, our Department of Defense would be the 31st largest oil consumer in the world!

Food = oil
Food security may be the largest concern of all. For every calorie we eat, we also “consume” at least ten calories of fossil fuel – used in raising, processing, and transporting. In America, food travels an average of 1500 miles to reach our plate. Garlic from China, lamb from Australia, apples from Chile, olive oil from Italy – eating food from far-flung places is now commonplace. Industrial agriculture, AKA the “Green Revolution” – built on cheap fuel with gas-derived fertilizer, oil-derived pesticides, and diesel-powered equipment – has fed billions. Never in history have so few fed so many. Perhaps, as Bill McKibben puts it, a “greener counterrevolution,” is in order.

After the fall of the Soviet Union, both North Korea and Cuba’s oil imports plummeted – their industrial agriculture soon collapsed. In response, Cuba virtually transformed its food system with organic, localized small-scale urban farming, permaculture, and animal power, and is now feeding its people on very limited quantities of oil. North Korea, on the other hand, tried to maintain the status quo, and has food shortages to this day.

Predictions galore
Post-Peak predictions abound, from the apocalyptic (fascism…endless resource wars…abandoned suburbs…economic collapse…famine…Mad Max “man-feeding-on-man” breakdown) to the visionary (urban farming…a “powerdown” path of cooperation, rationing, and economic sacrifice…re-emphasis on the local). Others believe market forces will unleash a flurry of innovations to rescue us, enabling us to maintain perpetual growth.

Some peakers are moving to self-sufficient, sustainable communities, called “lifeboats.” Richard Heinberg is calling for an “Oil Depletion Protocol” – a cooperative, managed sharing by which nations reduce and ration energy consumption in step with the global depletion rate – as a way to head off oil wars. Some peakers advocate restructuring our debt-based monetary system, which is based on unlimited growth – incompatible with a finite planet. Julian Darley, founder of the think tank Post Carbon Institute, says we are headed for “relocalization,” a reversal of energy-hungry globalization. San Francisco and Portland have passed Peak Oil Resolutions and Denver is taking concrete steps, such as reducing fleet size, using hybrids, and expanding mass transit.

A functioning democracy requires its citizens to understand their real situation. Had Americans grasped our 1970 peak’s foretelling of the global peak, what path would we have taken? It’s time for Americans to become “energy literate” and realize the enormous challenges now facing the energy industry in delivering gasoline to our SUV’s, heat to our McMansions, and maintaining what we call “normal.” Peak Oil needs to become a part of our vocabulary, yet many have not heard the phrase nor know the concept.

Peakers can relate to Al Gore’s musings in his film “An Inconvenient Truth” -- he keeps searching in vain for signs that society is waking up to the imminent need to change course drastically, and soon. Indeed, the prescriptions for both global warming and peak oil are nearly one and the same.