When Will the Oil Run Out

If there are 3 trillion barrels left, we should have the time to find alternatives to oil. If there are only 1 trillion, then we are in trouble

A correspondence between Jeremy Leggett and David Jenkins.

Jeremy Leggett is CEO of Solarcentury.
David Jenkins is a former chief technology adviser to the BP group


Prospect
Issue 117 / December 2005

Dear David

23rd October 2005
There are two reasons why we must get out of oil, and at first sight they are contradictory. One: it is running out. Two: we cannot afford to burn it.
So when will it run out? Much rests on when the “topping-out point”—the peak of production-occurs. The US department of energy and most oil companies tell us it is a long way off. These “late toppers” believe that 2-2.7 trillion barrels of conventional oil are left in known deposits and predictable discoveries. At the other end of the spectrum are the “early toppers,” such as the Association for the Study of Peak Oil and Gas, who reckon on more like 1 trillion barrels. In societies dependent on growing supplies of cheap oil, the difference is seismic.
If there are 2-2.7 trillion barrels left, the topping-out point lies somewhere in the 2030s and we have time to prepare. If there are 1 trillion barrels left, the topping-out point is as close as 2008, plus or minus two years, and there is not enough time to make the transition from oil to alternatives without economic trauma.
This way of looking at oil, of course, assumes we can go on burning it for as long as we find and pump it, and many geologists, most economists, and almost all financial analysts assume this to be the case. They are wrong. We can’t. The reason is global warming. Unmitigated warming is capable of kicking us into a new depression, never mind its effect on ecosystems. The core question is: can we replace oil and the other fossil fuels at just the right pace to avoid economic calamity as a result of oil shock, climate shock or both?
Small-scale examples show what could have been done to displace fossil fuel use since the 1990s. Woking council has cut CO2 emissions by 77 per cent since 1990, using a hybrid strategy of local electricity generation, solar power and energy efficiency. The government view is that with this approach, “we could achieve a virtually zero-carbon energy system in the long term… this is technologically and economically feasible.” Just one member of the renewables family could contribute hugely to this goal: “Solar energy alone could meet world energy demand using less than 1 per cent of land now under crops and pasture.”

Based on examples like this, optimists in the renewable energy industries believe our technologies-in harness with energy efficiency-could fuel the whole world in ten to 20 years, given political will of the sort directed at the war against terrorism. (And why not? As David King, government chief scientist, says, the threat from global warming is greater than that from terrorism.)
But we cannot plug the gap in four years. If the early toppers are correct, the shortfall between expectation and availability of oil supply will be such that no combination of gas, renewables, coal or nuclear will be able to plug the gap in time to head off significant economic dislocation. We will be in big trouble, global warming or not.

Amid the ruins of the old energy infrastructure, the oil depletion and global warming issues will conflate, as many countries turn to the world’s vast coal reserves. Renewable energy, together with increased efficiency, will also begin to replace oil and gas, and will grow dramatically whatever happens. Whether this growth occurs instead of coal, rather than alongside it, will determine whether economies and ecosystems can survive the warming threat. Whatever happens, renewable energy will be central. If the early toppers are right, it will be called upon rather soon to lead the charge for damage limitation. I think they are right.
Yours

Jeremy

Dear Jeremy

24th October 2005
There is indeed a wide range of opinion on the question of just when the “global oilfield” will peak. This is because of the uncertainties involved in estimating the amount of oil that will be recovered from known deposits. Very roughly, the world has consumed 1 trillion barrels and has 1 trillion left. Whether an additional 1 or 3 trillion barrels will eventually be produced depends in part on technology. Most significant is the question of “additional recovery”: most fields are abandoned with more than half the oil left because it is uneconomic to extract, but new technologies could make it economic to extract closer to 60 or 70 per cent. It could also make it easier to extract heavy oil and tar and improve exploration methods in all the world’s prospective basins. But the producer nations will need political will to apply these technologies. Assuming this happens, analysts suggest a peak oil date—on current rates of consumption growth—between 2020 and 2040.
Production capacity—the daily extraction level from existing wells—is a different matter. Current global demand is about 80m barrels a day, while capacity is about 81-82m. This global “cushion” of only 1-2m barrels contributes to nervousness in the market and the current high prices. It reflects the recent rapid growth in demand, particularly from China, and the lack of investment in new capacity in the middle east. However, if development plans are carried out on time, supply will probably return this decade to the 5m-barrel cushion with which the market feels comfortable. But until then, prices are likely to remain high.

For at least the next ten years, any supply constraint will have less to do with geology or engineering than economics and politics. It is not necessarily in the interests of countries like Saudi Arabia-currently producing close to 11m barrels a day-to increase capacity sharply. However, it is also clear that in the longer term, there simply is not enough oil for countries like China and India to consume as much as America or Europe do at present. Over the next 30 years, a major adjustment in transport fuels and efficiencies will be required.

When the global oilfield does peak, the market impact will be progressive, not sudden. Demand will be scaled back in response to rising prices, as in the late 1970s. There will be a production plateau for a few years, during which consumers will focus on improving efficiency-for which there is immense scope especially in transport, the prime user of oil-and suppliers will respond with more drilling and more efficient production. The industry will also produce more oil from natural gas and possibly coal. The latter provides a route to emission-free hydrogen through the new generation of integrated gasification combined cycle (IGCC) power plants. Coal is also a route to emission-free transport, through conversion to hydrogen-and there is plenty of it left.

The very large scope for moderation of our profligate consumption gives us the opportunity to engineer a “soft landing” into a world of gradually declining oil production. Gloomy predictions of global warming are often brought up when the industry points out the scale of the remaining fossil fuels, particularly coal. This concern is misplaced. There is no technical problem in separating CO2 during the power combustion process and “putting the carbon back” as liquid CO2 in deep underground formations-a process known as sequestration. Geological formations under the central North sea provide northwest Europe with an immense sink that should be able to store liquid CO2 for the long term. If consumers will pay the additional costs (presently about 1.1 pence/KwH) and there is a clear legislative framework within which companies can operate, then emission-free energy from fossil fuels could easily become a reality in five to ten years. Renewable energy is not the only route available. Nuclear and fossil fuels with carbon capture and storage are equally valid.

If we want a low-emission energy environment, we must provide consumers with appropriate incentives. That does not mean penalising consumption. Consumers should be allowed to choose. These days there is a tendency to focus on proscribing the means rather than describing the aim and leaving the market to determine how to get there. On domestic energy the government could, for example, pay suppliers to offer a 20 per cent rebate for a consumption decrease of 20 per cent. That would attract consumers’ attention. But if consumers wish to maintain their current rates of consumption, they should be allowed to do so and pay the increased cost of emission-free power.
There are a number of ways to achieve the low-carbon future set out in the government’s 2003 energy white paper. None of them is likely to be accomplished without an increase in energy prices and some heavy investment. The tortuous nature of British decision-making and project execution, particularly planning approval, means we are quite capable of bringing shortages upon ourselves. But, major political disruption aside, there is no reason to worry unduly about future supply of the energy itself.
Yours

David Jenkins

Dear David

26th October 2005
Your optimism reflects the oil industry’s institutionalised denial. The geological uncertainties are not as great as the optimists believe. The industry has long known where all the strata suitable as oil “source rocks” are located. All major potential oil-trapping structures were mapped as long ago as the 1960s. Outside perhaps the Arctic, seismic reconnaissance has been conducted in all oil-bearing basins. Antarctica may be another exception, but that is out of bounds. Only 50 “supergiant” oilfields (those over 5bn barrels) have ever been found, and most are more than a quarter of a century old. Most of the “giant” fields (500m barrels, or less than one week’s global demand) were also found long ago: 80 per cent of the oil being produced today comes from fields discovered before 1973. All the big elephants have been found-the average oilfield discovery since 1980 is a pitiful 50m barrels in size. Despite all its fabulous technology, and billions in cash to finance exploration, the industry is finding the oilfield equivalent of mice these days.
Even if there were elephants left to find, production capacity is indeed a problem, as you say. Goldman Sachs thinks, like you, that there is plenty of oil left to find. But it has calculated that the investment needed to find it and bring it to market, if we are to reach projected demand ten years from now, is $2.4 trillion: $240bn every year for ten years. The oil industry has never in its history come close to investing at that level.
Oil traders and their clients still live in a world of growing supplies of generally cheap oil until the 2030s or beyond. Cheap oil is fundamental to the plans of business and industry in every sector of the stock market. Think of the food industry and how oil-dependent it is. All peaks in the price of oil since 1973 have been followed by recession. The worst one, in 1978-81, saw real fears of a global depression. (In today’s terms, the oil price peaked then at about $80 a barrel; it now stands at about $60.) That depression was averted by three things: Saudi “swing production” (opening of the taps to flood the market and bring the price down), new oil coming on stream from big finds up to ten years earlier, and oil released from government and corporate stockpiles. These three escape clauses are no longer on offer. First, there are grounds to believe that the Saudis are pumping at or near their peak. Second, the early toppers fear that there are no more giant oilfields left to find, much less wholly new oil provinces like the North sea. Third, there is not much oil in storage relative to current demand. The modern world works on the principle of just-in-time delivery. Our economies, overall, are more efficient in their use of oil than in the 1970s-a point much emphasised by optimists-but the sheer weight of demand is much higher today, and it is still growing.
Your optimism about carbon sequestration is also misplaced. There is a role for it in surviving global warming, but practical experience with it is in its infancy, and the oilfields into which the greenhouse gas must be pumped are far from places where coal or gas would be burned. It also cannot address emissions from the transport sector. The future promise of underground sequestration is held out by those who want to maintain the status quo.
Human beings are good at staying loyal to their theocracies, and 100 years of fossil fuel worship has created some impressive examples. But you cannot solve the world’s problems with the thinking that created them. That means giving renewable energy, alternative fuels, energy efficiency and storage technologies the space they need to grow rapidly.

Nuclear power is also not the answer. Even if there were no environmental problems associated with it, a new fleet of stations couldn’t come on stream in Britain much before 2020. And if we and the US use nuclear to solve the energy crisis, the world will follow our example. Serious as the terrorist threat is now, it would be compounded many times as a result. We would live with the much increased risk of losing whole cities to suitcase bombers.
Yours

Jeremy

Dear Jeremy

27th October 2005
Looking back on 30 years of observing global reserves, I am conscious of consistently underestimating the numbers. You are correct to point out the absence of discoveries in the 10bn-barrel range. However, since 1972, when the Club of Rome stated that the world would soon “run out” of hydrocarbons, remaining reserves of oil have almost doubled and those of gas more than tripled. New technologies played a large part in these increases and will continue to do so.

What you perceive as my optimism on resources is geological and technical, not political. There is a high risk of supply constraint caused by big producers deciding it is not in their interests to increase output.
As to investment, according to the International Energy Agency (IEA), the current global requirement for investment in all energy is $560bn a year, with hydrocarbon investment a third of this at about $200bn. This is a 20 per cent increase on the average 1990s level. Given confidence in future prices, investment itself is not a problem. The industry is, after all, awash with cash.
I disagree that the market still expects growing supplies of cheap oil. Over the past couple of years, it has adjusted to huge rises in the price of oil and gas, in part because the traders are indeed nervous about adequate future supply. We are perhaps experiencing a “dry run” for a future shortfall. So far the global economy is coping well, but that is no cause for complacency.

Following the last of the 1979 oil price “shocks,” production dropped in response to decreased demand. It took 14 years to recover fully, although the economic impact was much shorter. Saudi Arabia did not turn on the tap until 1985.
Perhaps we need to slay the dragon of the word “peak”? It gives an image of rapid growth followed by equally rapid decline. But what we experience today is an irregular plateau, with fluctuating production before the onset of steady decline. If we get early, politically induced constraints on supply growth, then we might expect a more extended production plateau. But it would be associated with higher prices and more economic stress. At least, though, we would be forced to embrace the efficiencies that the proponents of lower energy consumption extol.
Your comments on CO2 sequestration are curious. Separation, capture and storage involve established technology with which the oil and chemical industries are familiar. It could be a reality within ten years, if we wanted to make the investment. As a modest example, BP this year announced a 350MW plant in Scotland that will generate power from natural gas, with the CO2 being piped offshore. The most promising storage is in deep saline formations, rather than depleted oil and gas fields. And long-distance pipeline transmission is also a technology with which industry can cope. Incidentally, the fact that should really worry those concerned about global warming is this: the Chinese commission a new coal-fired power plant every week and plan to do so for years to come. Making coal emission-free should be high on everyone’s agenda, and if necessary we should pay the Chinese to put it on theirs.
Yours

David

Dear David

1st November 2005
I note that although you are a geological optimist, you are a political pessimist. But oil production depends on the interplay of geology and politics. Opec governments have exaggerated their reserves for political reasons. They have done so by at least 300bn barrels. Yet every year BP publishes a “Statistical Review of World Energy” that repeats Opec’s claims. That document is “political” too. Oil companies have reasons for exaggerating their own as well as others’ reserves: we saw this last year with Shell’s lies over its reserves. I am a political pessimist too. In my view, politics is one of the reasons that the topping point of production is near.
When oil supply peaks, the prospect of sequestration technologies will deepen the temptation to go all out for coal. But if there is even a slight mismatch between the amount of carbon burned in coal and the amount of carbon emitted instead of sequestered-as there surely would be given the scale of current demand and the embryonic state and riskiness of sequestration technologies-we would soon burst through the danger threshold of a 2 degrees Celsius increase in the global average temperature. Then, to put it decorously, we would find out if the climate scientists were right.
When it comes to geological sequestration, America is leading the way. The US department of energy’s sequestration programme has begun several research projects. The aim of the department is to start at least one large-scale demonstration of CO2 storage in a geological formation by 2009. The department professes that by 2050 this technique will save more emissions than renewables and efficiency combined, and herein lies my fear. Sequestration will be pursued as the main antidote to global warming, as opposed to renewables and efficiency with sequestration as a back-up.
Yours

Jeremy

Dear Jeremy

2nd November 2005
I too was sceptical of the increases in Opec’s reserves back in the late 1980s and early 1990s. Now, though, I feel much more comfortable with the numbers. What Opec refers to as “proven” is not the P1 (absolute proof) of the US Securities and Exchange Commission definition, but somewhere between P2 (probable) and P3 (possible). I am now more comfortable because technology can move these P2 and P3 resources into productive reserves. The IEA recently made a similar point, and also emphasised the impact of growing acceptance of prices above $30 a barrel. Given appropriate investment, Opec’s quoted reserves will be extracted. Whether that will happen fast enough to defer our global “peak” is the question.
Gas and coal are more dispersed than oil and constitute larger sources of future energy supply. For power generation in a carbon-constrained world, their use will need to be accompanied by technologies that prevent CO2 emissions. The industry has this technology, but awaits a legislative signal that governments are willing to expose consumers to the extra cost. This means fossil fuels will remain an option, but that their increased cost will lead both to conservation and the development of other low-carbon energy sources. Nuclear power remains controversial, but the economics and financial climate will change if fossil fuels find it harder to compete than they do at present. Similarly, the economic hurdles for renewables would be lowered and we might then see a serious effort to find technical improvements on today’s primitive approaches to capturing solar energy. Renewable energy is a perfectly valid option, but it is just one. Given the projections for global growth in energy demand, we shall require all sources.
Yours

David

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