On oil, and peaks political, geographic and economic

October’s Oilwatch Monthly is out, and discussion can be found over at The Oil Drum. I found its introduction to be quite interesting:

As more months pass by, we shall see that Saudi Arabia will increase production, by 500,000 barrels per day, as announced, leading to higher conventional crude oil production. This is by itself insufficient to surpass the present maximum level of production reached in 2005. However in combination with increases from other supplies and/or more from Saudi Arabia the standing level of maximum production reached in 2005 will be surpassed.

Recently, on 8 October, Shell lifted it’s force majeure from the Forcados oil export terminal in Nigeria. The oil fields surrounding this facility that are currently shut-in normally produce 380,000 barrels per day. A large amount of conventional crude that can start flowing again over the coming months. Also, addition supply is to be expected from other countries amongst which are Brazil, Angola, China and Azerbaijan.

The bottom line is that it is too early to tell whether we have passed the peak in conventional crude oil production. A rebound, appears to be in the making.

The suggestion being that the peak observed since 2005 is/could be as much/more political than geographic. The economic peak argument remains, more or less as usual – the peak for the cheap stuff has been and gone, but a willingness to burn all our money on oil would get us what’s left in the ground: everything between here and there is up for discussion. The discussion that followed at The Oil Drum, regarding just that issue, is very interesting.

Following that line of thought: while I was there, I noticed a post concerning Canadian natural gas (needed for getting some of that non-cheap oil out of the ground, but also for things like keeping Canadian houses warm, etc.).

Since the year 2000, total Canadian production has been maintained at about 480 million cubic metres per day. This has been achieved only by a very considerable increase in the number of wells drilled each year … It is evident that such increases cannot be continued indefinitely. Under these circumstances, when drilling levels off, output begins to fall, and an actual decrease in drilling leads to even faster decline.

When gas prices were in the region of $15 per gigajoule in late 2005, there was considerable enthusiasm for drilling, but in the last year the price has wandered erratically in the range of $5 to $9 per gigajoule, and costs have been high. At $7 per gigajoule, drilling has been falling, and companies are laying workers off.

I can’t imagine that anyone downstream from these enterprises (tar sands, etc. which also use water – hurting water tables, hurting almost anything the vented water touches) is overly concerned about the loss of the opportunity to pump gas and water into the ground just to get evermore energy-intensive oil out. Cost is the typically metric applied to economic peaks, but – personally – I’d prefer to see either or both of

  • The return-on-energy used to get at, and extract oil from, shale, tar sands, and so forth;
  • The environmental cost, properly discounted (meaning hyperbolic, accounting properly for the increasing cost of cleaning up damaged ecosystems, and/or increasing value of such ecosystems, as fewer and fewer remain)

I won’t hold my breath. Back to this idea of more difficult catch-up, once you’ve slacked-off in the pursuit of gas or oil – at what cost is OPEC going to be expanding their output? The Saudis were flatlining their finds, despite throwing drills at the problem. For both gas and oil, of course, the size of the deposits found shrink – so search and extraction (fixed) costs per deposit will continually increase.

It seems that, as crude is accepted to be in decline, our interest in liquids (increasing) will intensify. The report is worth the read – if only to catch up with how much energy the OPEC countries are demanding themselves, how much motor gasoline the US has on hand – properly useful measures, going into Winter.

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