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Ron Patterson

Ron Patterson

Ron Patterson is a retired computer engineer. He worked in Saudi Arabia for five years, two years at the Ghazlan Power Plant near Ras Tanura…

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Why Peak Oil Is Finally Here

Why Peak Oil Is Finally Here

In this life nothing is certain. Therefore I am not declaring, absolutely, that we are at peak oil, only that it is a near certainty. But I am putting my reputation on the line in making the claim that the period, September 2014 through August 2015 will be the year of Peak Oil. Below are my reasons for making this claim.

First of all, Peak Oil is not a theory. The claim that Peak Oil is a theory is more than a little absurd. Fossil hydrocarbons were created from buried alga millions of years ago and they are finite in quantity. And as long as we keep extracting them in the millions of barrels per day, it is only common sense that one day we will reach a point where their extraction starts to decline. In fact most countries where oil is extracted are already in decline. So obviously if individual countries can experience peak oil then the world as a whole can also experience peak oil.

All charts below are in thousand barrels per day of Crude + Condensate with the last data point September 2014.

WorldLessUSA&Canada

First I want to deal with the portion of the world that reached peak oil about four years ago, in January 2011. That is everywhere else in the world except the US and Canada. I am not saying that every country outside the US and Canada has reached peak oil, but combined they have reached peak oil. Related: Bearishness Continues Among Oil Industry Experts

The world outside the United States and Canada has been on a bumpy plateau for ten years and now, even with that last September 2014 surge, is still 1,670,000 barrels below the peak of January 2011. However only a few countries are responsible for this plateau.

The bumpy plateau actually began back in 2005 where the peak was in July. Since then, outside the USA and Canada, there have been 15 countries with production increases and 21 countries with production declines. Here is a look at the 15 winners outside the US and Canada.

ProductionWinners

Dealing with the winners one at a time:

Iraq: The EIA has data only through September but Iraq has actually increased production by about 300 kbd to December. But word is they are slightly down in January. That puts Iraq up almost 1.5 million barrels per day since they started their massive infill drilling program in 2009. Iraq still has some upside potential but their downside risk now even greater.

Russia: Russia has peaked, even according to Russian analysts. They will decline only slightly in 2015 but their decline will accelerate after that.

Brazil: Brazil has some upside potential and a lot of downside potential. The finances of Petrobras are a damn mess. Moody’s has downgraded them to Baa3, just one notch above junk status and further downgrades are expected soon. To increase their pre-salt production much more will require a lot more borrowed money. That is not very likely.

Qatar: The EIA says Qatar C+C production increased by 598,000 barrels per day between July 2005 and September 2014. The OPEC Monthly Oil Market Report says their crude only production declined by 78,000 barrels per day during that time span. The chart above was made with EIA data which counts condensate as oil. OPEC reports only crude. On the chart below the EIA data is through September, the OPEC data is through December 2014.

Qatar

The EIA says Qatar has increased condensate production from her massive natural gas fields. Qatar crude oil production is in decline and has been since 2008. Qatar crude will continue to decline and their condensate is likely at a peak also.

Angola: Angola peaked in 2009 and 2010 and is now in decline. However some of the decline is caused by political problems. Those problems will likely get worse.

Colombia: Colombia’s production has doubled in the last 8 years but they reached their peak in 2013 and have held almost flat for the last two years. Colombia has peaked and will decline, though that decline will likely be very slow. I have included Colombia in the chart below that shows four countries that have recently peaked.

Kazakhstan: Kazakhstan is at peak of currently producing fields. Production will likely decline until Kashagan comes on line sometime in 2017. This field that once promised to produce over a million barrels per day is now expected to barely produce 300,000 barrels per day… if it ever manages to come on line. But nothing spectacular is expected out of Kazakhstan, especially since its old fields are expected to start to decline soon.

China: China peaked in 2010 and has held pretty well steady since then. I expect China will start to decline soon.

Azerbaijan: Azerbaijan peaked in 2010 and has been in steady decline since.

UAE, Oman and Kuwait: All three of these Middle East countries have implemented massive infill drilling programs in the last decade or so. But all three have now peaked. These three nations, along with Colombia, show a beautiful increase in production then a rounding peak at the top.

YAEKuwaitOmanColombia

These four countries are responsible for 1.5 million barrels per day of the increase since 2005. They have all four now peaked, or at least very near their peak.

Saudi Arabia: Saudi has brought their last mothballed field on line, Manifa. Now they have none. Saudi is producing flat out. They might, with great effort, produce a few more barrels per day, but basically they are at peak right now.

And a look at the 21 losers.

ProductionLosers

I have changed the negative numbers to absolute numbers in order to make it easier to read. But basically these are the nations that have peaked and are now in decline. A couple, Iran and Libya, because of political problems, have declined a lot more than they would have without that conflict. However neither is likely to recover very soon. And even when they do, it will be to a point lower than they were before their problems. Syria and Sudan, including South Sudan, and Yemen are others that will not recover in this decade, or until long after we are on the down-slope of peak oil.

That brings us to the US and Canada.

USACanada

The USA and Canada are responsible for about 120% of the increase in world oil production since 2005, even though they did not begin their grand ascent until 2009. Canada’s over 400,000 bpd increase in September is responsible for that last spike upward. But can this continue?

In a word… no. The gain has been almost all LTO and oil sands. And low prices are killing both. If prices stay low both Canada and the USA will begin to decline by the second half of this year. But even if prices return to the $70 to $80 range, (it is not likely they are going higher than that), their production will still not increase fast enough to offset the decline in the rest of the world. Related: U.S. Crude Inventories Reach Highest Levels Since 1982

But what about those massive reserves still in the ground? Many say we have not yet produced half the URR, the Ultimate Recoverable reserves, and until we are at least that half-way point, we cannot be at peak oil. Well, there are a few really serious problems with that logic. First, what is meant by the word “recoverable”? And at what price? Let’s look at really important chart.

The 2014 data point on the chart below is the average January through November.

HistoricalOilPrices

Here is a chart of Historical Crude Oil Prices. The average price, the blue line, is the average price of oil for that year. The orange line is the average price from 1946 to any point on that line. For instance the average price of oil for the 34 years from 1946 through 1973 was $23.68. And that is in today’s dollars. From 1946 through 1973 oil companies were getting an average of $23.68 a barrel for their oil, and they were making a pile of money at that price. Today, the price is more than twice that amount, and many of them are losing a pile of money.

So let’s get back to reserves. The reserves produced in 1973 and prior years were very profitable at less than $24 a barrel. Then all hell broke loose in the Middle East and prices skyrocketed. Then for the next dozen years oil companies made windfall profits. But in 1986 oil prices came down to normal. Between 1986 and 2002 oil prices averaged $30.42 a barrel. (Not shown on the chart.) Even at that price oil companies still made huge profits. But today they are losing money at $50 a barrel.

The problem is with those “reserves”. Today’s reserves are just not the same as those earlier reserves. All the good cheap stuff has already been sucked up. We are now left with dregs at the bottom of the barrel. All today’s new oil is harder to find, depletes a whole lot faster, and costs many times as much to produce. None of the cheap stuff is left except in a few old super giant fields that are undergoing infill drilling like there is no tomorrow.

Once again, we are at peak oil right now. The peak will straddle the 2014 and 2015 time line. 2016 will be the first full post peak calendar year. It really doesn’t matter how many barrels of oil are left in the ground. The point is we will never again pull it out of the ground at the same rate we are pulling it out right now.

By Ron Patterson

Source - http://peakoilbarrel.com/ 

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  • len on February 03 2015 said:
    Not sure this article makes sense in that how does oil peak then at 80? If yr sayin 2016 we will have imbalance should oil rise more?
  • MC on February 03 2015 said:
    Look mom! Another peak oil prediction. I'll just put this article in the file next to the one about global warming and the one about how great the ACA is.
  • Alan on February 03 2015 said:
    This article can easily be rebuked by one simple fact. EOR technology is the next phase of production in these large production fields and will likely produce more than what has already been extracted. Oil producers have been using this for decades and it will only become more prominent in the future...
  • LF on February 03 2015 said:
    Alan, the peak in peal oil is how much can be extracted in a certain time period like a day or a month. It has little to do with what a field will produce over a lifetime using enhanced recovery. The tail may be long but it gets very thin.

    Hey MC, don't let your ideology trump logic and science.
  • J House on February 03 2015 said:
    "China: China peaked in 2010 and has held pretty well steady since then. I expect China will start to decline soon."

    What nonsense. China has more oil bearing shale than Canada and the U.S....none of it has been tapped yet.

    Alternative technologies will eventually replace fossil fuels, but at least not for several decades....so the point of 'peak oil' is mute anyway.
  • RGR on February 03 2015 said:
    As though we need the refugees from TOD proclaiming...again...that peak oil is here...there appears to be neither any understanding as to why they were wrong in 2008, and why those same mechanisms are still active today. Turns out that drill baby drill worked, and all it required was a price that everyone got pretty comfortable with, and as has happened some many times before, the industry is the victim of its own success. Turning once uneconomic resources into proven reserves and production to the point where the major players of the world become worried enough to try and put a squeeze on them is the purest form of an acknowledgement that drill baby drill worked really well, and disproving peak oil nonsense was just icing on the cake.
  • Robert Helbing on February 03 2015 said:
    The US and Canada are getting production bumps due to deploying advanced technology, such as fracking and hydraulic drilling. The technology footprint is still tiny within their own borders (the largest shale formation in North America, the Monterey Shale, hasn't even been explored, much less drilled). And then there's another planet's worth of nations where the technology could be put to use.

    Why can't Russia, Brazil or India benefit from these technologies? All have large mountain formations (like the Urals, Andes or Himalayas) that could overlay shale formations.

    Yes, there's a finite amount of hydrocarbon on the planet. But there's a finite amount of stone, and as Exxon's CEO once famously said "The Stone Age didn't end because we ran out of stone."
  • Dave on February 03 2015 said:
    Folks,

    The EIA says there are 335-345 billion barrels of tight oil worldwide.

    http://en.wikipedia.org/wiki/Tight_oil#Size_of_tight_oil_resources

    The revolution has already begun in the US and Canada, but it will spread to the rest of the world in due course. Developing countries are going to begin driving demand for oil, and when that happens, the answer isn't going to be "sorry guys, there's no more oil".

    The answer is going to be "Okay. That will be $200 a barrel".

    And when that happens, you bet your ass that shale operations are going to be going up in China, whose reserves rival those of the US, and in Russia and Libya and Argentina, which are all petrostates that will have [insert local currency] signs in their eyes.

    Peak oil my ass. Peak oil comes when oil demand stops going up.
  • Steven Manders on February 03 2015 said:
    According to the EIA who collect global oil data, production has only increased marginally in the last decade. That is history, not a prediction. World population increases by about 500,000,000 every 6.3 years, equal to the entire North American population. We need a new North America with all its resources every 6.3 years to house people on at the same density as today. Between 2002 and 2020 we will need 3 new North Americas. Oil production was essentially flat. Therefore, global oil production has decreased from a peak of 4.3 barrels per person per year in 1970 to 3.5 barrels a year today despite all the new users in Asia and Europe. That is history, not a prediction. The peak per capita oil production was passed 40 years ago. Peak discovery was in 1964, we use 5 barrels of oil for each new one being found. That is another peak that is now history. 54 of the world's 65 major oil producing countries have passed peak oil production. That is another peak that is now history. The only significant peak to pass now is world absolute production and all the data I see suggests we are there now.
    If you wish to dispute this, tell the whole story with data, simply dismissing things with a few unsupported statements are worthless. If I am wrong, show me where. Please show me where.
  • Greg on February 03 2015 said:
    No kidding we will reach peak oil sometime. As Jr Ewing once said "The world has been running out of oil since we drilled the first well"!
  • Junk on February 03 2015 said:
    The argument that oil is scarce so it will someday run out is like saying we will definitely experience peak sunlight because the sun will explode at some point. Trivially true, but not very helpful.

    Why can't current technology (e.g. fracking) eventually be applied worldwide, and why can't technology continue to improve?

    Answer that before getting too charged up about peak oil pls.
  • alex_80 on February 04 2015 said:
    'It is only common sense that one day we will reach a point where their extraction starts to decline.' I've heard this a few years before I was born, and I am so old, unfortunately.
  • James on February 04 2015 said:
    Strange how the peak oil deniers here always seem to forget that the "crazy" peak oilers predicted conventional oil production would peak sometime in the first decade of this century which it did, in 2008 ( confirmed by the EIA). They also predicted Mexico's peak, North Sea peak etc. and got the predictions correct almost right down to exact year they peaked. Also if you read most government studies like the one from Australia and the Hirsch report from 2004 they predicted peak total crude oil would occur between 2015 and 2020. Does anybody really believe these well researched government studies have all got it wrong?
  • James on February 04 2015 said:
    James, the only reason oil fracking is "profitable" is due to all the upfront investing by the land owners who own the land where the drilling takes place. It actually cost as much to drill the oil as the oil companies make from it in profit. This has been confirmed by independent oil geologists who have analyzed the fields and "crunched the numbers" on the eroi of fracked oil. It's basically nothing more than a scheme to keep oil production from going into decline, which will probably begin in the Next couple of years. Btw, most countries don't have the money or recourses to invest in expensive oil fracking. Also places like England and China and that are suitable for oil fracking are too densely populated for this kind of unconventional oil drilling. They would litteraly have to horizontally drill under people's homes!
  • James on February 04 2015 said:
    In my second post I was actually responding to Dave's comment on oil fracking. I don't know why I started it with "james" instead of Dave. Need to do more proof reading I guess :)
  • James on February 04 2015 said:
    Greg, Peak oil is the point of maximum oil production, it's the opposite of "running out". We won't "run out" of oil for many decades. Of course we'll run out of sufficient supply much sooner. Try at least to learn the definition of peak oil before posting a comment...geez! BTW Using a quote from an old episode of "Dallas" isn't exactly good recourse material when discussing a very important oil related topic such as peak...; )
  • wgm on February 06 2015 said:
    The only solution is vote Democrat, tax the hell out of Republicans and corporations, sign up for Obamacare and bow to the king in the White House as he will take care of all of our needs.
  • Junk on February 06 2015 said:
    Oil is produced in region A, region B and region C.

    Oil companies consider their investment options, and decide to invest heavily in region A. Oil production in region A dramatically increases, shatters all records and pushes down the global price of oil by more than 50%.

    Now how does a peak oil true believer view this situation??? "If you exclude region A, the world is suffering from PEAK OIL. I TOLD YOU SO!"

    Don't believe me? Read the article...
  • junk on February 06 2015 said:
    Steve Manders:

    Oil per capita? Really?

    I don't want to alarm you, but per capita annual sunlight hitting the earth has been declining each and every year for hundreds of years. Peak sunlight for sure. I admit though that I can't quite figure out why I should care...
  • Mark on May 16 2015 said:
    "Tight oil" production is fundamentally different from "conventional" in ways we are just starting to grasp. Conventional is about looking for those rare geological circumstances where oil has naturally pooled. Drilling conventionally is exploration. Once you actually hit such a pool production is relatively easy. Tight Oil isn't like that at all. It can be found over vast regions. It's not about exploration that works like gambling where you drill a lot of dry exploration holes to hit one that finally pays. Instead with tight oil, drilling is PRODUCTION. Every well produces, just not very much. So instead of gambling it's much more systematic. You get constant incremental productivity gains as you learn how to do it better. You drill constantly as a production process and get better constantly.

    One implication of this is that shale fields unlike conventional fields can be throttled to respond to price changes. You can drill and prep wells but not go through the final steps to get them producing, leaving them ready to come on line when prices go up. This makes the shale fields swing producers.

    The entire concept of Peak Oil is based on conventional production from pools of oil. Many people are confused by other sorts of oil production that also are higher cost like deep water drilling or arctic drilling. These are simply expensive conventional. Tar Sands production is also unconventional and expensive but by nature lacks the elements that lead to rapid innovation and productivity increase. Tar Sands production can't be throttled. It's either profitable at a given price point or you have to shut down the whole supply chain.
  • chris d on May 22 2015 said:
    This is nonsense, "Peak Oil" is supposed to be a point in time when it's not possible to produce as much oil as the world has before, this will happen eventually but we're not at that point.
    Reduced production around the world is due to financial reasons not the potential supply, the middle east has always throttled it's production.
  • David on June 08 2015 said:
    "The USA and Canada are responsible for about 120% of the increase in world oil production since 2005, even though they did not begin their grand ascent until 2009."

    How can this statement even make sense?
  • EmTee on July 18 2015 said:
    Very interesting prediction, will wait until 2017 to see if is right.
    Thank you for your work. mt
  • kundan on March 26 2016 said:
    I think Ron is right. He has presented a very good data. The peak oil will come before 2020.It was due to US and Canada peak oil got extended uptill now.
    After peak oil production will start falling and there will be total scacity of oil in coming years which will lead to Third World War.
  • T. Vijayendra on April 30 2016 said:
    The non US oil production has moved in a narrow band between 2005 to present. The US oil seems to have peaked on June 5, 2015. So may be the author is right.

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