Ken Parish at Club Troppo draws attention to a new report that confounds the conventional wisdom on peak oil and, if correct, it has several important implications.
It’s published by Harvard University’s Belfer Centre for Science and International Affairs. It concludes that oil supply capacity is growing worldwide at such an unprecedented level, it might outpace consumption, potentially leading to a glut of overproduction and a steep dip in oil prices.
Country-by-country projected evolution of (gross) oil production capacity to 2020 (first 23 countries).
Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.
It’s estimated known projects could theoretically produce an additional 49 mbd by 2020, equivalent to about half existing world capacity. Taking into account various risk factors and depletion rates of existing fields, this could increase capacity by a net 17.6 mbd. If so, it would constitute the largest increase in any decade since the 1980s.
A key assumption underlying the analysis is oil remains above $70 a barrel out to 2020. Oil prices plunged this year but are still well above this level. Crude oil for September delivery is now $88.14 a barrel and Brent oil is $103.30.
The author of the report, former oil industry executive Leonardo Maugheri, told Reuters production capacity is expected to grow the most in Iraq, the United States, Canada, Brazil and Venezuela. It could decline in Norway, the United Kingdom, Mexico and Iran. He said much of the surge in US capacity is due to the boom in shale oil.
It might be tempting to imagine this is some sort of dastardly con perpetrated by vested interests. But Guardian columnist and environmental activist George Monbiot has read the report and concludes – regretfully – that it provides compelling evidence a new oil boom has begun.
Peak oil hasn’t happened, and it’s unlikely to happen for a very long time.…The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that….There is enough oil in the ground to deep-fry the lot of us, and no obvious means to prevail upon governments and industry to leave it in the ground.
The idea the peak oil might recede shouldn’t be a surprise. Higher prices encourage consumers to reduce demand and switch to substitutes like renewables and shale oil. They also encourage further exploration and make previously marginal reserves viable.
The era of really “cheap oil” that prevailed in the post-war period up to around 2000 is probably behind us, according to the report. But “it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.”
The reason George Monbiot is regretful is lower-than-feared oil supply could mean we’ll continue our profligate ways and set back progress on addressing climate change. As Ken Parish says, we can no longer expect that peak oil will “soon intervene and compel drastic reductions in human CO2 emissions through huge price increases driven by increasing resource shortage.”
That possibility is troubling given this new research by James Hansen and colleagues. It warns of the emergence of extreme weather events with temperatures more than three standard deviations above historical norms.
So far as cities are concerned, transport is a key area where peak oil is expected by many to have a dramatic effect, especially on petrol/diesel availability and fuel prices. I’ve long taken the view that, like it or not, cars will be with us for a long time yet.
If the report is right (and it has its critics), it reinforces that probability. The price of petrol might very well rise further in real terms but it now appears it probably won’t go permanently stratospheric. In the absence of an exogenous driver like peak oil, reducing transport-related emissions will require deliberate policy intervention.
But the report might not be right. Apart from what the critics say, there’s a range of factors acknowledged in the report that could complicate and undermine the projections. I’ve put a list of key points taken from the report under the fold:
-- Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.
-- Other things equal, any significant setback to additional production in Iraq, the United States, and Canada would have a strong impact on the global oil market, considering the contribution of these countries to the future growth of oil supply.
-- The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped. What’s more, the application of shale extraction key-technologies (horizontal drilling and hydraulic fracturing) to conventional oilfield could dramatically increase world’s oil production.
-- In the aggregate, conventional oil production is also growing throughout the world at an unexpected rate, although some areas of the world (Canada, the United States, the North Sea) are witnessing an apparently irreversible decline of the conventional production.
-- The age of “cheap oil is probably behind us, but it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.
-- The oil market will remain highly volatile until 2015 and prone to extreme movements in opposite directions, thus representing a major challenge for investors, in spite of its short and long term opportunities. After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade.
-- A revolution in environmental and emission-curbing technologies is required to sustain the development of most unconventional oils – along with strong enforcement of existing rules. Without such a revolution, a continuous clash between the industry and environmental groups will force the governments to delay or constrain the development of new projects.
-- Some of the major geopolitical consequences of the oil revolution include Asia becoming the reference market for the bulk of the Middle East oil, and China becoming a new protagonist in the political affairs of the whole region.
-- At the same time, the Western Hemisphere could return to a pre-World War II status of theoretical oil self-sufficiency, and the United States could dramatically reduce its oil import needs.
-- However, quasi oil self-sufficiency will neither insulate the United States from the rest of the global oil market (and world oil prices), nor diminish the critical importance of the Middle East to its foreign policy. At the same time, countries such as Canada, Venezuela and Brazil may decide to export their oil and gas production to markets other than the US for purely commercial reasons, making the notion of Western Hemisphere self-sufficiency irrelevant.
-- It’s also true, however, that over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.