"The steep ride up and down the energy curve is the most abnormal thing that has ever happened in human history."
M. King Hubbert
The issue of global oil depletion has been and remains the subject of an intense debate in the academic literature and increasingly amongst the general public and media. Broadly speaking, two main sides can be identified in this debate, often referred to as the ‘pessimists’ on the one hand, and the ‘optimists’ or ‘cornucopians’ on the other (Tilton, 2003; Heinberg, 2003). The former group is comprised mainly of natural scientists such as petroleum geologists, geophysicists and ecologists, who warn that we are near to (or already past) a peak and subsequent decline in global oil production (e.g. Campell & Laharrere, 1998; Duncan & Youngquist, 1999; Deffeyes, 2001; Bentley, 2002; Aleklett & Campbell, 2003; Goodstein, 2004; Leggett, 2005; Simmons, 2005; Aleklett et al., 2009). This event, they argue, poses a significant threat to oil-dependent industrial societies and should be managed proactively by governments and societies. The optimists, who are predominantly economists and engineers, argue that petroleum resources are still abundant and that there is no imminent global production peak (e.g. Adelman, 2003; Lynch, 2003; Maugeri, 2004, 2009; Watkins, 2006; Clark, 2007; Mills, 2008; Aguilera et al., 2009; Gorelick, 2010). In any event, they believe that market mechanisms and technology will solve any depletion issue and therefore they see no need for government-led mitigation programmes.
The aim of this chapter is to summarise and assess the primary issues in this debate, and to provide a synthesis of the physical science and economic perspectives. In order to do so, the chapter surveys the international literature dealing with theoretical arguments and empirical evidence concerning the nature of global oil depletion and its possible socioeconomic implications. Section 2.1 discusses the nature of global oil depletion, focusing on the possible future profile of annual world oil production and highlighting key issues such as net energy and world oil exports. Section 2.2 assesses the potential for declining oil supplies to be offset by alternative energy sources, conservation and efficiency at a global scale. Section 2.3 considers the major possible socioeconomic ramifications of oil depletion for the world economy, transport and trade, agriculture and geopolitics. The final section concludes.
2.1 The nature of global oil depletion
This section addresses three key questions, namely: (1) how much oil remains to be produced? (2) how long might it last?; and (3) what might the future profile of oil production look like? Section 2.1.1 discusses definitions and estimates of oil resources and reserves. Section 2.1.2 outlines the so-called Hubbert model and criticisms thereof. Section 2.1.3 surveys a range of estimates of when world oil production might reach its all-time maximum rate, and assesses their credibility. Section 2.1.4 addresses the possible shape of the global oil peak and the post-peak rate of decline in oil production. The following two subsections deal with net energy and energy return on investment, and world oil exports, respectively. Section 2.1.7 summarises the key issues.
51 2.1.1 Oil resources and reserves
Fossil fuels, including crude oil deposits, were formed through a combination of biological and geological processes that included the decaying, compressing and heating of plant and animal matter on a massive scale. Most oil was formed in two epochs, 100 and 150 million years ago, following episodes of global warming (Aleklett & Campbell, 2003). From a human time perspective, therefore, the total amount of oil existing in the Earth’s crust is finite (Hubbert, 1956).
Table 2-1: Definition and classification of types of oil and other liquid fuels
Resource Definition
Oil with viscosity above 200 API gravity - land-based
- < 500 metres deep - > 500 metres deep
- North of Arctic circle and south of Antarctic circle
Condensate Very light oil which condenses from natural gas at surface temperatures and pressures.
Heavy oil Crude oil with viscosity between 10-200 API gravity, requiring special extraction and refining methods.
Extra-heavy oil Crude oil with viscosity below 100 API gravity, requiring steam injection and special refining techniques.
Natural gas liquids (NGLs) Light hydrocarbons found in association with natural gas that are either liquid at normal temperatures and pressures, or can be relatively easily converted into a liquid with the application of moderate pressure.
Refinery processing gains The difference between the volumetric output of refinery products and the volumetric input of crude oil.
Oil (tar) sands Sandstone impregnated with heavy or extra-heavy oil that can be mined and processed to produce synthetic crude oil (‘syncrude’).
Oil shale Kerogen embedded in shale rock, requiring large amounts of energy for heating to derive synthetic crude oil.
Coal-to-liquids (CTLs) Synthetic liquid fuel derived through the gasification of coal followed by a Fischer-Tropsch process.
Gas-to-liquids (GTLs) Synthetic liquid fuel derived from the liquefaction of natural gas (methane) using the Fischer-Tropsch process.
Biofuels Synthetic fuels derived from biomass, including ethanol (e.g. produced from corn or sugar cane) and biodiesel (e.g. produced from soybeans, canola, Jatropha, etc.).
Conventional oil Crude oil, condensate, heavy oil & NGLs Unconventional oil Extra-heavy oil, oil sands, oil shale All oil Conventional + unconventional oil All liquids All oil + CTLs, GTLs and biofuels Source: Sorrell et al. (2009); EWG (2007); ASPO Ireland (2009)
There are a variety of types of oil and related fuels. In the absence of a universally accepted set of definitions in the literature (Castro, Miguel & Mediavilla, 2009), this dissertation adopts the terminology and definitions summarised in Table 2-1. Conventional oil refers to oil extracted from traditional oil wells located in onshore and offshore basins, and includes lease condensates, heavy oil and natural gas liquids (NGLs). Unconventional oil includes extra-heavy oil, oil derived from oil (tar) sands, and oil shale. Together, conventional and unconventional oil are termed ‘all oil’.
Synthetic fuels derived from coal (coal-to-liquids, CTL), gas (gas-to-liquids, GTL), and biomass
(bio-52
ethanol and biodiesel) are treated separately from oil, and are included under the label ‘all liquids’
(see IEA, 2008). Since various authors and agencies employ different definitions of oil and liquid fuels, the differences will be made explicit where necessary.39
ASPO Ireland (2009) reports that 1,054 billion barrels (gigabarrels, Gb) of ‘regular’ conventional oil (excluding deep water, polar and heavy oil, and NGLs) and 1,156 Gb of all oil (conventional and unconventional) had been extracted from the Earth as of December 2008. Thus more than 90% of the cumulative oil produced by 2008 was conventional. The quantity of oil that remains to be produced is more contentious. Geologists distinguish between resources, i.e. hypothetical estimates of all the oil existing in an area, and reserves, i.e. “the known quantity of oil that lies in fields and that can be produced with existing technologies, within a foreseeable time frame, at a commercially reasonable cost” (Rifkin, 2002: 15). The key concept from an economic perspective is therefore reserves, which is a flexible quantity that varies with technological progress and economic conditions, especially the price of oil. Despite the fact that as the price of oil rises, a higher proportion of resources become reserves (since it is economic to exploit them), reserves are always a subset of resources and consequently are also finite.
Figure 2-1: Published estimates of ultimately recoverable reserves of conventional crude oil
Source: Aleklett & Campbell (2003) Ultimately recoverable resources
Ultimately recoverable resources (URR) (or, alternatively, Estimated Ultimate Recovery, EUR) refer to the total amount of oil that can be economically extracted from a region or field over all time (Sorrell et al., 2009: xvii). The vast majority of historical estimates for global conventional URR fall in a range between 1.5 and 2.5 trillion barrels (see Figure 2-1). However, URR estimates have been on a rising trend and “[c]ontemporary estimates now fall within the range 2,000-4,300 billion barrels (Gb)” (Sorrell et al., 2009: ix). On the pessimistic side, Campbell (ASPO Ireland, 2009) estimates URR
39 For example, Campbell (ASPO, 2009) refers to ‘regular’ conventional oil, which excludes oil found in deep off-shore wells (i.e., greater than 500m depth) and polar regions, as well as natural gas liquids (NGLs). Most other authors include deep water and polar oil in ‘conventional oil’, but NGLs are often excluded. The US Energy Information Administration (EIA) includes CTLs and GTLs in its ‘all liquids’ category, but excludes biofuels.
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for ‘regular’ conventional oil of 1,900 Gb and all oil of 2,425 Gb. At the optimistic end of the spectrum, the USGS (2000) mean estimate for conventional oil is 3,003 GB, while Aguilera et al.
(2009) estimate 3,561 Gb for conventional oil. Estimates of remaining recoverable resources, i.e. oil contained in known reserves plus yet-to-be-discovered fields, lie between 870 and 3,170 Gb (Sorrell et al., 2009: 137), clearly a very wide range.
Proved reserves
‘Proved reserves’ of crude oil are defined by the EIA (2009: 31) as “the estimated quantities that geological and engineering data indicate can be recovered in future years from known reservoirs, assuming existing technology and current economic and operating conditions.” Despite rising production of oil for most of the past century, official proved reserves (comprised mostly of conventional oil) have been rising for decades and by the end of 2008 stood at approximately 1,258 Gb (see Figure 2-2). The upward trend is explained both by new discoveries and by the fact that historical reserves are frequently revised upward as new technologies allow more oil to be extracted from old wells. However, the trend is also partly a result of accounting practices by oil companies, which often initially report conservative values for reserve and discovery estimates for financial reasons (Aleklett & Campbell, 2003; Bentley, 2002).
Figure 2-2: Proved oil reserves, 1980-2008
Source: BP (2009)
Note: These figures refer to conventional crude oil except for the inclusion of Venezuelan extra-heavy oil; Canadian oil sands are excluded.
Unreliability of official reserve data
The reliability of official proved reserve estimates, as published annually in periodicals such as World Oil and Oil & Gas Journal, is contestable on several counts. First, these figures are aggregated estimates from individual oil-producing countries, which are not subject to independent audit, and are thus vulnerable to manipulation for political and economic reasons, such as bargaining power or collateral for loans (Campbell & Laherrère, 1998). Second, the data from individual countries “have not been evaluated according to consistent criteria” (Jakobsson et al., 2009: 4812). Third, official reserve estimates for many countries often reflect no changes from year to year, despite the fact that these nations were extracting oil and may or may not have been making any new discoveries (IEA, 2004: 92-3; Bentley et al., 2007). Thus “proved reserves” might refer to URR rather than
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Billion Barrels