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A Slippery Peak - The New Oil Equation

New discoveries have disproved the idea that the world is running out of oil

Published: Oct 12, 2011 06:59:30 AM IST
Updated: Oct 7, 2011 03:18:46 PM IST
A Slippery Peak - The New Oil Equation
Image: Vidyanand kamat

The idea of peak oil caught the world’s imagination a decade ago. Peak oil, the point in time when the maximum rate of global oil extraction is reached, after which the rate of production would get into terminal decline, was supposed to be sometime in 2007, 2008 or 2009 — depending on who you were talking to.

The most important fallout of the idea that the world was running out of oil was large investments in companies and technologies trying to make alternative energy sources viable. Oil was all but written off as a vestige of the last century.

Much of this has changed. Spectacular discoveries of conventional oil and gas in Brazil, Angola and Australia, and a huge growth in unconventional oil and gas have changed the equation on reserves. New studies released in the last two months reflect this.

Scottish oil research firm Wood Mackenzie, in a report, has valued the upstream (oil exploration and production) business globally at approximately $3.2 trillion, not including exploration acreage or assets owned by national oil companies and governments.

Iain Brown, Wood Mackenzie’s upstream manager, says the discussion has changed and expectations are that oil prices will stay high (over $70 a barrel). But Wood Mackenzie’s long-term oil supply forecast shows a slow, but steady shift towards heavier grades. This includes a major contribution from oil sands. Technology has also played a big role in adding to the reserves. This gives hope to energy-starved India, where exploration has been limited to a few basins. Unconventional gas, which made waves in the United States, is gaining in prominence in the rest of the world too.

Among those who still subscribe to the peak oil theory are geologist Colin Campbell and Jean Laherrère, a well-known petroleum engineer. In their book, The End of Cheap Oil, published in 1998, their main assertions were that no large oil provinces are left to be found and technology will not significantly increase the amount of oil ultimately recovered. Though Campbell’s prediction was off the mark, it is true that its extraction faces bigger challenges. Shale gas production is caught in litigation and the risks of taking oil out from deeper waters and unspoiled areas like the Arctic are yet to be addressed satisfactorily.

(This story appears in the 21 October, 2011 issue of Forbes India. To visit our Archives, click here.)

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  • Brian Morrissey

    What a disingenuous piece of writing. Of course Peak Oil doesn't mean we are running out of oil. All the skeptics neglect to factor in the impact of expensive oil on global demand. The peak of $147 in 2008 was down 500% in about 3 months. None of the new discoveries you mention are economically viable below $80 per barrel. The ration of energy return on energy invested is growing smaller and smaller. We'll constantly hitting the ceiling of price with demand and will curve lower and lower, and the majority of Canada's and Brazil's oil will stay in the ground as global GDP will continue to contract down to an equilibrium far below what we know today.

    on Oct 14, 2011
  • Shtf

    6 billion will soon become 1 or even less as oil fed food supply chains fail.

    on Oct 14, 2011
  • I

    What matters in the oil depletion debate are: 1) Price from well to tank. 2) Energy return from the oil we do get. 3) Viability of worldwide supply chains in light of items 1 and 2. Bottom line? When oil is expensive enough, and the energy return is low enough, the world can no longer effectively sustain "just-in-time" export-driven economies. While finding new energy sources is necessary, conservation and moving transportation technologies away from hydrocarbon based fuels will give us the most breathing room for an orderly transition. If neither happens, we are in for interesting times.

    on Oct 13, 2011
  • Rachit Sethi

    Just want you to read this-There will be oil but at what price??-Chris Nelder & Gregor Macdonald Harvard Business Review

    on Oct 12, 2011
  • Mike Black

    Every time the price of oil increases it makes once unprofitable oil profitable, the rising cost of crude is the real "spectacular discovery" which has increased "reserves". Much of the non-conventional oil now booked as reserves as been known about for decades, it simply wasn't profitable to extract until the end of "cheap oil" back in 2004. From 2004 to today, the average price for a barrel of crude has increased about $10 per year, about 500%. Today that trend line sits at about $100/bbl, right at the point studies have shown to be the upper limit to a growing economy. The spectacular discovery we really need is the one showing how the economy will be able to grow in the face of ever more costly oil.

    on Oct 12, 2011
  • Dean Holden

    Charles, I agree on all points. Thanks for adding your comments, and setting things straight!

    on Oct 12, 2011
  • Charles Monroe

    Like all of the other Peak Oil as theory or outright Peak Oil denial pieces that have been spewing from the mainstream media/propaganda machines recently, this piece misses several key points. First is that production of conventional oil peaked in 2005-6. What is now being counted at oil, in many cases, isn't oil - tar sands, shale, etc. Conventional oil has a very high energy returned on energy invested (ERoEI or ERoI) > 50:1 Whereas non-conventional oil - tar sand, deep sea, etc. have much much lower ERoEI. 10:1 down to 3:1 Furthermore, the flow rates from these non-conventional sources are for more difficult and expensive to bring on line. In a world of price volatility and credit contraction this is a problem. It would be much more prudent for investors and the general public to understand that Peak Oil is not a theory, but a fact. And, as such, will continue to impact our economy regardless of what we believe. The fact is that the kind of growth we expect (require) in the west is going to be near impossible given the lack of high net energy oil.

    on Oct 12, 2011