CLIMATE SPECTATOR: Why Kohler is wrong on peak oil

Climate Spectator

In a recent piece for Business Spectator, Alan Kohler claimed that the boom in US shale oil and gas extraction meant the end of peak oil (The death of peak oil, February 29). In particular his article made the following claims:

1. We should forget declining oil production because there is a new oil boom coming, mainly from US shale formations.

2. The new oil will bring the US to oil self-sufficiency and therefore to a resurgence of the US as an economic superpower.

3. The underlying reserves are vast (2 trillion barrels), causing a global transformation of energy markets and in particular will trump Saudi Arabia's oil dominance by a factor of 8 in relation to reserves.

4. Shale oil loosens the stranglehold of Middle East dictatorships.

5. Shale gas will result in a rapid substitution of coal.

6. We are not running out of oil and gas anymore.

Alan doesn't do any number-crunching in his article so let us see what the statistical evidence suggests around these claims.

Shale oil will not overcome the ultimate decline in US oil production

The following graph shows that US oil production peaked in 1970 (with a second, but lower peak from developing the Alaska fields) and then declined. The decline, up until now, was reduced by offshore oil in the Gulf of Mexico. The projection for shale oil (dark brown) is taken from the US Energy Information Administration (EIA) at around 1.3 million barrels per day by 2030. Yes, the decline is reversed, but by 2020 there is another peak, also because offshore is peaking.

US Crude Oil Production – 1900 to 2035 (millions of barrels per day)



Source: US Energy Information Administration

To develop shale oil means to drill thousands of wells as each well produces only a small amount (around 0.5 million barrels) over its whole lifetime and decline rates are very steep in the first years. For comparison, Australia consumes 0.9 million barrels in just a single day.

Below is an example of the steep decline in oil production taken from the Bakken shale oil formation.

Typical Bakken Well Production



Source: North Dakota Department of Mineral Resources - Oil and Gas Division

Even if shale oil production increased above the EIA estimate this is not the death of peak oil in the US.

Shale oil will not make the US independent from oil imports

The graph below from the February 2012 EIA Monthly Energy Review illustrates the US dependence on imports. Net oil imports have declined but much more than field production has increased, which means high fuel prices have brought down demand as reflected in the red curve "products supplied”. Net imports in 2011 stood at 8.4 million barrels per day. Shale oil is only expected to produce 1.3 million barrels per day by 2030, so there's a big gap to replace imports by shale oil.

United States petroleum supply – domestic field production and imports, 1973-2011

(millions of barrels/day)



Source: US Energy Information Administration

The size of shale oil potential

Alan overstates shale oil's potential by confusing reserves versus resources. Reserves are economically recoverable (proven, probable and possible reserves) while resources may or may not be economically recoverable. Further, oil shale (kerogen) and shale oil (tight oil) are mixed up. The so-called "vast” oil reserves Alan is referring to is actually kerogen, which is not oil. It needs to be heated up to release crude oil (and gas) but this oil needs further processing (hydrotreating) before it can be used as feedstock in refineries. It is a highly energy intensive procedure with a low energy profit ratio. There are many different technologies (in-situ, ex-situ) but they are all at an experimental stage. The main current use for oil shale is in Estonia where the shale is burnt in power plants to generate electricity.

What we are interested in is shale oil (tight oil), which has recently gained importance because of technological advances in fracking of source rock. However, the reserves are definitely not 2 trillion barrels. The latest officially available figure for the US from the EIA is 24 billion barrels technically recoverable resource, not reserves. Total recoverable oil resources in the US stand at around 220 billion barrels, so shale oil is just a tenth of that. And neither is the shale oil resource even remotely comparable to Saudi Arabia with its 260 billion barrels based on official statistics (although this may in reality be closer to 120 billion barrels remaining). Either way, shale oil will barely loosen the dependence on Middle Eastern oil.

Unconventional oil and gas will not result in lower greenhouse gas emissions

Shale gas and also coal seam gas will not reduce emissions over the long-run even if they displace coal in the short-run. To the contrary, Australia, for example, is increasing both LNG and coal exports. This is because those LNG supply contracts have no clause which obliges the destination country to shut down old coal fired power plants equivalent in coal consumption to the energy content in the gas.

Alan Kohler makes a very important omission, namely his lack of calculations on how much CO2 would be pumped into the atmosphere when burning the "vast” amounts of unconventional oil and gas. NASA climatologist James Hansen has calculated that burning 50 per cent of unconventional oil and gas will increase CO2 concentration in the atmosphere by a whopping 250ppm. We simply cannot afford this.

Total potential carbon emissions from conventional (purple) and 50 per cent of unconventional fossil fuel resources



Source: James Hansen (2011)

As a result, none of Alan's statements can be supported by statistical evidence. Peak oil does not mean we are running out of oil. But it means we have run out of the cheap and easy oil. Peak oil is not dead. In fact, we are in year eight of peak oil with irreversible damage to the economy occurring since 2005 as a result of high oil prices.

What we have to be concerned about right now is the peaking of oil production in key countries like Egypt, Sudan, Yemen, Syria and Iran. This impacts on these countries' budgets and therefore on socio-economic cohesion in these countries. The resulting geo-strategic changes in the Middle East will be much more important to the world than shale oil in the US.

For more details, visit http://crudeoilpeak.info/ which contains an extended version of this article with further information.