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1. WORLD IS “RUNNING OUT OF OIL”

1. WORLD IS “RUNNING OUT OF OIL”. In one sense, this is correct , because oil is a finite resource that we started to deplete when we extracted the first barrel. However, if “running out” is interpreted as the world not having any oil in the near future, we are not.

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1. WORLD IS “RUNNING OUT OF OIL”

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  1. 1. WORLD IS “RUNNING OUT OF OIL” • In one sense, this is correct, because oil is a finite resource that we started to deplete when we extracted the first barrel. • However, if “running out” is interpreted as the world not having any oil in the near future, we are not. • Estimates of remaining oil are in range of 1 – 2 trillion barrels. • There will never be a shortage of oil: At appropriate price supply will always equal demand. • However, world oil demand is huge & growing. • Worldwide production of conventional oil (>95% of current use) will not be able to keep up with demand and will peak – reach a maximum and then go into decline. • This could happen relatively soon, possibly within next decade. • Peaking is maximum production of conventional oil, not “running out;” beware of red herrings.

  2. Production Production U.S Lower 48 States 2000 1945 Time - Decades Year WHY WILL CONVENTIONALOIL PRODUCTION PEAK? Regions Peak (Many oil fields) Oil Fields Peak The world will peak (All regions)

  3. 60 60 Past 50 50 Future Production 40 40 30 30 Billions of Barrels Past discovery by ExxonMobil 20 20 “Growing Gap” 10 10 0 0 1930 1950 1970 1990 2010 2030 2050 WORLD IS CONSUMING MORE OILAND FINDING LESS

  4. WORLD OIL DISCOVERY HISTORY & THREE PATHS FOR USGS RESERVES ESTIMATES

  5. WHEN DISCOVERY DECLINES, PRODUCTION ALWAYS DECLINES LATER -- NORWAY

  6. Texas North America 3.5 15.6 100% 100% 3.4 15.4 3.3 15.2 95% Daily Production - MM b/d 98% Percent of Maximum 3.2 Daily Production - MM b/d 15.0 Percent of Maximum Peak in 1972 Peak in 1985 96% 90% 3.1 14.8 3.0 14.6 94% O 85% 2.9 14.4 1977 1971 1967 1969 1973 1975 1980 1982 1984 1986 1988 1990 United Kingdom Norway 3.5 3.0 100% 100% 3.4 2.9 2.8 3.3 95% Daily Production - MM b/d 95% Percent of Maximum Daily Production - MM b/d Percent of Maximum 2.7 3.2 Peak in 1999 90% Peak in 2001 2.6 3.1 90% 2.5 85% 3.0 2.4 85% 2.9 1994 1996 1998 2000 2002 2004 1994 1996 1998 2000 2002 2004 PEAK PRODUCTION CAN BE SUDDEN & SHARP Will the world behave like this?

  7. 2006 A CHINESE VIEW OF PEAK OIL Gb/year 50 50 Demand Growth WORLD OIL 40 40 GAP 30 30 Past Production 20 Forecast Production 20 10 10 0 1930 1950 1970 1990 2010 2030 2050 0 Peak ~ 2012 China aggressively securing oil supplies worldwide

  8. 2. OIL SHORTAGES WRONGLY PREDICTED FOR 100 YEARS – NO NEED TO WORRY NOW • Wrong • “Oil shortages” predicted for past 100 years, and repeated erroneous predictions may have given false assurance and led to discounting recent predictions • Most past peaking predictions were wrong. - Hubbert was right on the U.S. Lower 48 - Recent predictions may be right -- Wrong isn’t forever • Many countries have past peak production & are now in decline • Why reconsider peaking now? • World oil consumption outstripping new discoveries • CAPEX for new energy projects is large and growing • Extensive drilling worldwide - large database • Advanced technology: Modern geology, 3D seismic, etc. • Many experts are pessimistic • The economic consequences are huge

  9. WHEN MIGHT PEAKING OCCUR? Different Approximations Lead to Different Forecasts • ForecastSource • December 2005 Deffeyes (U.S.) • 2006-2007 Bakhitari (Iran) • 2006-2007 Simmons (U.S.) • 2010 +/- Skrebowski (U.K.) • 2010 Campbell (Ireland) • Before 2010 Goodstein (U.S.) • After 2010 World Energy Council 2012 Weng (China) 2016 Doug-Westwood (U.K.) • After 2020 CERA (U.S.) • 2030 or later EIA (U.S) / Exxon Mobil Already 5 years 5-15 years > 20 years

  10. PEAKING FORECAST RELATIVELY INSENSITIVE TO RESOURCE ESTIMATES Already consumed worldwide: ~ One Trillion Barrels Some estimates of remaining world reserves = One Trillion Barrels If so, world oil peaking is about now. [50% of total] EIA:“(Our) results areremarkably insensitive to … alternative resource base estimates… adding 900 Bbbl more oil …only delays the estimated production peak by 10 years.” Others estimate remaining world reserves = Two Trillion Barrels

  11. ADDING ALMOST A TRILLION BARRELS GAINS ONLY 10 YEARS EIA: Add 900 Million barrels, Gain 10 years. Production Some Forecasters: 1 Trillion barrels already consumed peaking about now History : 1 Trillion barrels already consumed Time

  12. 3. HIGHER PRICES WILL CREATE MORE OIL? • Not true • “Economists are better at finding oil on paper than geologists are at finding it in the ground” • Oil is found in discrete packages (reservoirs), as opposed to the varying concentrations characteristic of many minerals. • Thus, at some price, world reserves of recoverable conventional oil will reach a maximum because of geological fundamentals. • Beyond that point, insufficient additional conventional oil will be recoverable at any realistic price. • This is a geological fact often misunderstood by people accustomed to dealing with hard minerals, whose geology is fundamentally different. • Norway, UK, other oil producing nations have peaked within past several years with very high oil prices. • Indonesia, a long standing OPEC member, is now a net oil importer.

  13. TECHNOLOGY & PRICE MAY NOT SAVE USU. S. Lower 48 Oil Production Dramatic Improvement in Oil Field Technology 3.5 Production 3.0 2.5 80 PRODUCTION (Billions of Barrels per Year) 2.0 PRICE (2003 $ per barrels) 1.5 Price 1.0 0.5 0 0 • 1950 1960 1970 1980 1990 2000 Trends were not reversed, and continued decline is forecast

  14. NOT TO WORRY, WORLD WILL MUDDLE THROUGH? • Not true • We should be very worried. • The problem of the peaking of world conventional oil production is unlike any yet faced by modern industrial society. • Previous energy transitions, from wood to coal and from coal to oil, were gradual and evolutionary. • World may be facing an imminent energy discontinuity that will be abrupt and painful. • World has yet to grasp this or its implications.

  15. WHAT MIGHT HAPPEN AT PEAKING? WORLD OIL DEMAND grows each year in a healthy world economy • PRICES INCREASE • SHORTAGES DEVELOP Supply cannot meet demand WORLD OIL PRODUCTION reaches a maximum & then declines Time

  16. REMEMBER THE 1970S? STAGFLATION, RECESSION -- That was only a short-term disruption _______________________________________________________________________________________________________________

  17. 80 70 60 50 40 30 20 10 0 OIL PRICE INCREASES HAVECAUSED U.S. RECESSIONS 1 0.9 0.8 0.7 OIL PRICE (2003 $ per barrel) 0.6 0.5 0.4 0.3 0.2 0.1 0 1973 1979 1991 1969 1971 1975 1977 1981 1983 1985 1987 1989 1993 1995 1997 1999 2001 2003 Recession Over 30 years, four recessions followed oil price spikes.

  18. GROWING OIL SHORTAGES WILL INDUCE GROWING WORLD “DEMAND DESTRUCTION” Demand Destruction Supply Minimal Disruption Recession Depression Supply & Demand in Balance

  19. WHAT ABOUT “DEMAND DESTRUCTION” • Is demand destruction the solution or the problem? • It is always the “default solution:” Absent mitigation initiatives, it will always equate oil supply with demand • However, demand destruction is an euphemism for recession, depression, mass unemployment, etc. • People – & governments – will not passively accept massive demand destruction and may opt for desperate alternatives • Therefore, objective is to use mitigation initiatives to minimize and control demand destruction

  20. www.ASPO-Australia.org.au Association for the Study of Peak Oil and Gas International Australia LOCAL CONTACT INFORMATION While in Australia through July 6, Dr. Bezdek can be contacted via ASPO Australia 0427-398-708 Bruce.Robinson@ASPO-Australia.org.au

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