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Gaurav Agnihotri

Gaurav Agnihotri

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai, is a result oriented and a business focused…

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Peak Oil: Myth Or Coming Reality?

Peak Oil: Myth Or Coming Reality?

In 1956, a geoscientist named M. King Hubbert formulated a theory which suggested that U.S. oil production would eventually reach a point at which the rate of oil production would stop growing. After production hit that peak, it would enter terminal decline. The resulting production profile would resemble a bell curve and the point of maximum production would be identified as Peak Oil, a point of no return.

The original peak oil curve
Image Source: Cornell University

Hubbert first predicted that U.S. oil production would peak in 1970 and then start declining rapidly. His prediction turned out to be partly true, as U.S. crude oil production peaked that same year, not to be eclipsed again until the shale boom began.

Annual crude oil production (in thousands of barrels per year) for entire United States, with contributions from individual regions as indicated.

“The end of the oil age is in sight, if present trends continue production will peak in 1995 -- the deadline for alternative forms of energy that must replace petroleum in the sharp drop-off that follows." This is what Hubbert had to say in 1974, based on 628 billion barrels of proven oil reserves. However, his prediction didn’t turn out to be true, as global oil production continues to surge, thanks to new oilfield discoveries and improved exploration and drilling technology.

World oil and other liquids supply, broken out into crude and condensate, natural gas plant liquids, other liquids (mostly ethanol), and processing gain (increase in volume from refining heavy oil), based on EIA data.

In fact, the below graph shows that even while U.S. production declined between the 1970s and the 2000s, global crude oil production has increased consistently from 1965 to 2015 and there isn’t any bell curve depicting the peak oil phenomenon.

Image created with data gathered from BP Statistical review2015.

In short, we have yet to see evidence that we are nearing a peak in oil production. On the contrary, agencies like EIA and IEA have predicted a stable increase in crude oil production for the next few years at least. Related: Oil Demand Weaker Than Many Expect

But supplies may not be the only, or even the most important factor when analyzing the end of the oil era. The world is making progress at moving beyond oil. So instead of discussing Peak Oil in terms of supply, perhaps it is now more useful to analyze ‘Peak Demand’.

A supply- demand curve showing the conventional law of demand

If oil prices followed the conventional law of demand, then low oil prices would result in a higher consumption rate. However, 2014 saw something remarkable happen. BP notes in its 2015 Statistical Review that energy consumption grew at just 0.9 percent in 2014, the slowest rate in almost twenty years. That came even as prices declined.

The 2014 Oil Price Shock did not improve the consumption rates in North America, Europe and Eurasia
Image Source: FT.com Related: The Dark Side Of The Shale Bust

What if demand growth keeps slowing? Does this trend indicate that global demand for crude oil will eventually hit a ceiling? "Global oil demand will peak within the next two decades”, said energy expert Amy Mayers Jaffe in a recent article for The Wall Street Journal.

What could make oil demand peak within the next two decades?

It is interesting to note that almost 50 percent of crude oil is used for producing gasoline which is mostly used in the automobile industry. So what happens when people stop driving cars that run on gasoline?

Image Source: Curious.org

Electric Vehicle

Global sales for electric vehicles (EVs) have risen at an amazing rate in the past few years. The market for electric vehicles in China, the U.S., and Japan, which have the highest number of conventional vehicles, are witnessing EV growth rates of 120%, 69% and 45% respectively. Although growing from a small base, EVs are steadily making progress at becoming a mainstream product.

Although EVs are priced higher than conventional cars, their lower operating costs would offset their initial purchase price in just few years. Ucsusa.org even concludes that EV owners can save as much as $1,200 annually when compared with a conventional vehicle (27mpg) running on gasoline at $3.50 per gallon.

If and when EVs become mainstream, demand for gasoline and crude oil will start declining.

Another noteworthy development comes from auto major Audi, which recently created a ‘blue crude’ which can be converted into a carbon neutral ‘e-diesel’ using a simple three step process. This new technology is getting the full support of the German government as it produces lesser CO2 emissions and could be a potential game changer in the near future.

Whether or not EVs become the most sought after technology in the future, it is clear that scientists and engineers are developing ways of moving beyond oil for transport.

Renewables

There are not a lot countries that still generate electricity using oil, but there are a few. Saudi Arabia stands out. But Saudi Arabia is reportedly planning to add around 54 GW of power by 2032 from renewables, out of the total power around 41 GW would be from solar energy. “In Saudi Arabia, we recognize that eventually, one of these days, we’re not going to need fossil fuels. I don’t know when - 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy. Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power,” oil minister Ali Al Naimi of Saudi Arabia said at a conference in May.

The biggest factor that supports renewables is their growing affordability. As costs of production continue to decline, renewables will continue to edge out fossil fuels in a variety of sectors. For the few countries that still use oil for electricity, renewables will slash oil demand. Related: Could This Renewable Fuel Kill The EV Market In One Fell Swoop?

China’s huge demand for oil – It can’t last forever

Bolstered by strong internal demand and robust economic growth rate, China is the world’s second biggest consumer of oil after the U.S.

China imported around 5.5 million barrels per day in month of May, a steep decline from the record 7.4 million barrels per day in April as its refineries were down for their annual maintenance. However, oil markets could be in for a shock from China soon, as the Asian giant is currently busy filling up its strategic petroleum reserves (SPR) thanks to low oil prices.

China already has more than 12 SPR sites and it plans to further increase its SPR capacity from 250 million barrels to 500 million barrels by 2020. So what happens once this target is achieved? “We need to understand the dilemma of hidden demand in China, where you have two types of demand - normal demand and strategic stockpiling. The latter won't last forever,” this is what Jamie Webster of IHS had to say in a recent interview with Reuters.

What happens when China’s huge appetite for oil starts reducing in the coming years? It would bring the world economy even closer to peak oil demand.

By Gaurav Agnihotri for Oilprice.com

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  • Roland on June 15 2015 said:
    Look at this touted new discovery in Mexico:
    http://oilprice.com/Latest-Energy-News/World-News/Could-This-Trigger-A-New-Oil-Boom-In-Mexico.html
    350 million barrels, that's not really much. They aren't finding any more billion-barrel fields. How long does it take for the world to use a billion barrels? Less than 11 days.

    Have you heard about the new high-efficiency electric tanks and combat aircraft? Me neither. Find a high-energy-density easy-to-handle fuel to beat petroleum, in billion-barrel quantities. Then we can forget petroleum. Holding my breath? No.
  • Jörg Dürre on June 16 2015 said:
    The only relevant question in my opinion is:
    How much does the kilowatt hour of usable energy cost in comparison?

    If fossile motors can squeeze a few more kwh on the road there is a temporary advantage for oil.
    If the production cost of photovoltaic and windpower falls further then the marginal cost of 0 for such renewables will kill any higher oil price.
    I assume the latter.
  • Steve on June 16 2015 said:
    This analysis neglects much of the recent work done by geologists and others around the concept of Peak Oil and its implications for our world. Here are a couple of articles that add much to the reality of Peak Oil:
    1) http://ourfiniteworld.com/2015/06/09/why-eia-iea-and-bp-oil-forecasts-are-too-high/
    2) http://resourceinsights.blogspot.ca/2015/06/no-bp-u-s-did-not-surpass-saudi-arabia.html
    3) http://peakoilbarrel.com/peak-oil-right-now/
    4) http://peakoilmatters.com/2014/11/04/peak-oil-new-paradigm-suggested1/

    http://olduvai.ca
  • Silber SHARK on June 16 2015 said:
    The peak Oil is Here !
  • Randy White on June 16 2015 said:
    Portland's Peak Oil response plan is still valid... but the city is still way behind on prepz.

    http://www.portlandoregon.gov/bps/42894
  • shepd on June 16 2015 said:
    I have heard of electric tanks and electric military aircraft. The Qinetiq Zephyr and Northrop Grumman Ground Combat Vehicle are two examples. Anything is possible given enough effort and given enough money, and those are two things the military tends to have in abundance.
  • Torsion on June 16 2015 said:
    I think "Peak Demand" will occur, as this article argues, but "Peak Oil" could not occur as it is beyond the capacity of humanity to deplete earth's supply of oil.
    Oil is only a "finite resource" if the term used in the same sense that the oceans or sand or air is a finite resource. For practical purposes, oil is inexhaustible. We could not use it all if we exerted maximum efforts to burn all of it as fast as possible for the next 100 million years. Carbon is a constituent component of earth. It almost certainly comes from methane captured at the time of earth's creation. Within the depths of the earth the amount of carbon is abundant beyond our ability to calculate at this time. This methane under great internal pressure over billions of years has compressed into the hydrocarbon forms we use today. These substances seep up to the surface of the earth and we access them. So the vast majority of "fossil fuels" are not "fossils" at all, though a bit of that process does occur. Ultra deep wells that access oil far below the biotic level essentially prove the case. Ultra deep wells tap into sources of oil flowing up from deep within the earth under immense pressure--these wells are for all intents a purposes unlimited and unending. The BP gulf disaster is most likely the result of the rig (which was drilling at a very deep, almost ultra-deep depth) bursting through into one of those highly pressurized access points to unlimited oil. I think BP knew exactly what, why and where it was drilling; the only surprise was that they broke into the pressurized zone at a much shallower depth than they were expecting and thus were not prepared to take the actions to prevent a blow-out. The bottom line is that there will be no "peak oil." Humanity will turn to other, less bothersome forms of energy long before we ever exhaust the world's supply of oil--a thing we could never do.
  • Palloy on June 16 2015 said:
    What a load of nonsense.
    The reason oil demand is falling is because the world economy is in a Depression.
    If shale oil was making money, why are they needing more capital all the time?
    Shale wells don't last 20 -50 years like it says in the video - that's an outright lie.
    They produce 75% of their oil in the first year, and by 4 years old it is no longer economic to keep the equipment in place.
    So drillers have to drill, drill, drill and keep on drilling an exponential numbers of wells if they want to grow as fast as the interest payments on their borrowings.
    The whole thing is a sham, supported by the banks, the politicians and the media, because the alternative is to admit that economic Peak Oil has been and gone.

    Solar panels are cheap because there is too much production for the demand, leading to dumping, in a desperate attempt to drive others out of the market.

    There is not now enough energy in the world to complete a transition to renewables, let alone enough to grow the economy at the same time.

    The next economic crash, which could come at any moment, will see the world descend into chaos as fuel gets scarcer, the lights go out, the internet stop working, and all those mobile phones fall silent.
  • monk on June 17 2015 said:
    For the 1970 peak, Hubbert was talking about conventional production.

    In 1976, he argued that global conventional production would peak in 1995 plus 10 years. The IEA confirmed that peak did start in 2005.

    According to several sources, oil production per capita peaked in the 1970s.

    Oil production is rising because of shale oil, and the EIA forecasts it will peak soon.

    Unconventional production has low energy returns.

    Energy and resource demand will probably not peak because the middle class is growing in developing countries, and these combined have a much larger portion of the world population.

    Most oil in these countries is not used for personal vehicles.

    Oil is needed to make electric vehicles, and it's difficult to use them for rough roads or to carry heavy loads.

    Renewables have low energy returns and also require oil to manufacture parts.

    Finally, there are dozens of countries besides China that have yet to industrialize significantly. They will need lots of resources, including oil, to meet their needs.
  • Raslela on October 06 2015 said:
    Hubbert pulled that Gauss graph and the data out of his ass, if you read Myths, lies and oil wars by F. William Engdahl..."Peak Oil" becomes unbelievably very clear. The world isn't running out of oil. Not yet anyway.
  • Neg0525 on November 19 2015 said:
    Peak oil is coming and i think its sooner than anyone has predicted. Its obvious larger oil companies are lying about the "vastness" of their fields as a business ploy to scare the competition away. We could make estimates like "only half of what the oil companies present" but we wouldn't know because WE CAN'T MEASURE. As citizens we cant measure the volume of an oil reserve because that information belongs to the oil company. The only time that information will be released is when the oil is all dried up and the banks and companies have made their profits. The question is can we find a renewable resource to replace oil and find it by the billions of barrels. as Poster- Roland mentioned the world goes through a billion barrels a day in less then 11 days. if that is correct the world will need to produce at least 33,180,000,000 barrels of this material per year IF it has the same efficiency rate as oil. As oil goes 1 barrel will produce 5.8 million Btu, it takes 75 Btu to boil a cup of water. As a substitute for oil I came to ethanol as a solution. if 1 barrel of oil produces 5.8 million BTU a barrel of ethanol will produce 3.5 million BTU. Ethanol could provide roughly 2/3 of the worlds energy. But $770000000000 for 11 days of world operation plus the additional 1/3 of energy needed to fill the oil void would cost MUCH more than oil. Ethanol is $70 per barrel VS Oil is $40 per barrel. Is the extra cost worth the renewablility. I dont think so.
  • Dan on June 24 2016 said:
    The Earth has a renewable source of oil. It is part of a geological process and has nothing to do with organic matter. Hydrocarbons are found on the moons of this planet and other planets that have not had life. These are facts.
    I wish we were out of oil so that we would not keep destroying our planet. It would have been better had we hit "peak oil" in the 1970's.

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