The Beginning of the End of Oil?

On Thursday, Prof. Goose told us about an extensive article in the 8/21 edition of the NY Times. Well, it's out. Peter Maass is sympathetic toward the peak oil idea. In fact, in the last sentence, Maass write, "When a crisis comes—whether in a year or 2 or 10—it will be all the more painful because we will have done little or nothing to prepare for it."

This post is an open thread about the article.

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A major American newspaper has actually made a serious effort to investigate the situation with Saudi Arabia.

For me, the money quote is this:  "I didn't need to ask about Simmons and his peak-oil theory; when I met Muhanna at the conference in Washington, he nearly broke off our conversation at the mention of Simmons's name. 'He does not know anything,' Muhanna said. 'The only thing he has is a big mouth. We should not pay attention to him. Either you believe us or you don't.'"

If there's one thing I've learned in business negotiations over the years, it's that if you ask a polite but frank question and you get an angry and defensive response, you have uncovered a major problem.  That guy is lying.  Even if Simmons isn't 100% right, he must be a lot more right than they are willing to admit.  I'd bet my civilization on it.


In my mind, the most groundbreaking part of this article is the interview Maass scored with Sadad al-Husseini, the recently retired head of E&P for Aramco. Husseini said that Simmons is wrong to say 12.5 mbd out of Saudi Arabia is impossible, but that 15 mbd is indeed impossible to sustain. Husseini knows more about Saudi production than anybody else, and he says that the world is heading for an oil shortage. Wow!  Meanwhile, Maass lays out all the numerous reasons why the Aramco officials like Naimi etc. must be so optimistic in their public pronouncements. All in all a tremendous article.
If SaudiArabia can boost its production to 12.5 million mpd by 2010 it only means they can increase their production by 0.5 mpd a year. But to keep up with the present growth rate of about 2% a year, we need like 1.7 - 2 mpd  more every year. But look what's going on in Russia: no more increase, production has started to decline. Until now the Russians have kept the supply growing. It seems that they cannot help any more. Even 15 mpd from the Saudis would not matter much. Middle East is no more the swing producer that can throw in extra supply to meet the demand.
I agree that al-Husseini came off as the most credible. Simmons sounds a bit loony and the official Saudi line is worthless. But the bottom line from al-Husseini is that trouble is about 10 years away. Sounds like we should be okay at least through 2010 or so, hitting the 12.5 mbpd level. But by 2015 when they try to get up to 15 mbpd, he sees real problems. And beyond that, to 18 or 20 mbpd by 2020 and later, he sees as impossible.

That's a credible story but I'm not sure how acceptable it will be to the PO true believers. And for skeptics, it's a lot easier to imagine new technologies coming into play by 2015 or 2020 than if the peak happens next year (or even sooner!) like we hear from the hard core faithful.

I could believe Saudi Arabia could get to 12.5mbpd by 2010.  However, even if so, that scenario seems very unlikely to be business-as-usual for the world economy.  I could also believe that al-Husseini is over-optimistic (very few producers to date have accurately predicted their own depletion), or is breaking the truth to us in stages.  Heading Out has discussed the issues in detail here

and here

To me, the largest question is this.  Given that the big fields are drilled with horizontal MRC wells into the oil layer, why wouldn't we expect the current depletion rate on the existing production to accelerate rather than stay the same?



Your right, al-Husseini does come off as the most credible person in the article.  However, even if the Saudi's do increase their production to 12.5 million barrels a day by 2009.  That is only an annual increase of 500,000 barrels.  

When we compare this new data, to the EIA numbers that state NON-OPEC production is declining 500,000 barrels per year.  We can see clearly that the increase in Saudi production, will be off set mostly, if not completely by the NON-OPEC decline.

I think these two figures say that we are entering a period where total production will plateau for the next five years, and when the Saudi's do begin to decline in 2009 - 2015 we will start the descent down the other side of the bell curve.  

I do not claim to know the Magic number at which we reach maximum production.  Perhaps, we are at peak now and 85 million barrels is it.  Or perhaps high oil prices, will cause a mad rush for oil and for a couple of years we will reach 90 million barrels.  Either way, I would say it is safe to predict that we are reaching "the end of spare capacity" and on the same token "the end of cheap oil", which is dependent on 2 to 5 million barrels of extra production capacity.

I'm not sure where you're getting your figures. The projections I have seen forecast non-OPEC production to continue to increase through the 2010 time frame. The EIA Short-Term Energy Outlook from August 9, 2005, , shows non-OPEC production forecast to increase about 2 mbpd from 2004 to 2006.
I would say that the author presents al-Husseini as the most credible viewpoint - not as immediately threatening as Simmons, but not dismissive like Naimi or Yergin.  

Naimi is obviously a mouthpiece; I give him zero points for credibility.  I can think of reasons to doubt Simmons, he admits that he is interpolating from limited data, but I don't think he is intentionally skewing that data, or loony.  al-Husseini may be in a position to know that we have a little more time before the world peak, but this is the first time I've heard of him, so I'm hesitant to place his opinion above Simmons based on one article.  

There are two separate issues (read: problems) within the Peak Oil concept: 1. Oil depletion that give us those nice production peaks and declines for individual oil fields, nations, and for the world as a whole, and; 2. Supply and demand issues where 84 million barrels per day is current supply and 84+ mbd is current demand. Demand has been increasing by 2 million barrels per day each year, so something now has to give. As I see it, we may not reach world peak oil production for a couple more years. Nobody really knows for sure except perhaps T. Boone Pickens. But if current maximum production capacity (supply) is limited to something less than what the world's nations are demanding at a given price point, then the price will rise -- and perhaps quite precipitously when production/delivery interruptions of just a percentage or two of world demand occurs. We're looking at huge price spikes, with large upward spikes and lessor downward relief, due to supply and demand "miscoordination". We're looking at the end of western civilization with true Peak Oil.

A silver lining either way as Wal-Mart is doomed.

WalMart should be able to keep their shelves full.  They use efficient forms of transportation, in container ships and tractor trailers.  Throw in some trains and they're sweet.  The other half of the equation is how much money their shoppers have in their pockets, and how far they are willing to drive.

... if you want to name someone for immediate trouble, think of people who rely on AIR transport.  How high does a fed-ex envelope have to go before it becomes a non-starter?  How long before trains again carry the bulk of our mail?

(reading a book about trains now, one footnote was that the dissapearance of the "airmail" stamp came when ALL mail started to go by AIR)

It was recently reported (about a week ago) that Wal-Mart's bottom line is being shaken by recent oil price increases. Wal-Mart's profit margins are already razor-thin, they rely on cheap oil (and cheap labor) by shipping their goods farther than anyone else, and they locate all their big box stores close to highways for their own restocking convenience (and because the land is usually cheaper in the boonies), demanding that their customers drive the extra distance. But heck, gas is soooo cheap that nobody cares to do the cost analysis. So you are right, odograph, to mention that higher gas prices will eventually discourage Wal-Mart customers to go the extra distance to save what used to be a couple of bucks on gummy bears and pickles. But I can't fathom your suggestion that energy prices rising quarterly by percentages in the double-digits still leaves Wal-Mart "sweet". Just watch Wal-Mart over the next six months. As they go, so goes America.

And yes, FedEx and UPS will be scrambling to survive as well. But shipping costs are what they are and will be paid. However, Wal-Mart is where Aunt Pearl goes to buy cheap mascara, and when it ain't cheap anymore, Pearl will look elsewhere... or horror of horror, go without. And that's when the American economy goes bust.

I don't want to extend the idea too far, but my basic thinking is that the products with the highest energy content will fall away first.  Thousand mile salads (or whatever they call greens flown across contenients) will go away.  Free range eggs flown to an upscale market will give way to local (is "battery" the right word?) producers.  Air travel will be reduced, probably giving way to more on-line "conferences."  And so on.

My guess (only a guess) is that the shoes or microwave at WalMart actually have a lower energy (specifically oil) content than the shoes or microwave at the corner store.  For one thing, they probably have at least one fewer "hops" in their transit from factory to store.

.. still guessing, I think that in a tight economy, with recession-bound frugal spenders ... WalMart and CostCo will do less buiness than they used to ... but they'll do more than the higher margin guys.

There have been numerous complaints, for years, in both news commentary and popular music, denouncing 'conspicuous consumption'.  For example, I read once that you could feed the world with what America spends on cosmetics alone. I wonder how many things we can really do without. I mean, do you really need that garlic chopper? That home theater? A second car? The McMansion?

Unfortunately, jobs are created with such consumption. The engineers, die makers, home builders, package designers, and delivery truck drivers, all trade their time making garlic choppers and home theater systems to you, which you trade for by doing something else. And this activity by millions of people creates an enormous variety of products available to us; millions of products, each attempting to distinguish themselves with one feature or another, each trying to fulfill a niche. Every physical need which you might have, and even some which you never knew existed, seems like it can be fulfilled by a product or service found in the global marketplace. Life is easy, routine, painless, and b-o-r-i-n-g for most people in modern industrial America. (Boring except for those moments of terror that are experienced when someone loses a job, goes broke, and suffers real deprivation and hardship.)

The point being that frivolous consumption creates not so frivolous production, which will of course disappear once buying habits change, necessitated by consumers not having enough money in their pockets for frivilous things due to high gas prices, and inflation.

Interesting post. And yes frivolous (or any other) consumption does require not so frivolous production. But where does that production occur? More and more it is occuring in China and other cheap labor markets. I'll be curious to see what happens to Mal Wart as transportation costs increase. Or when there's not enough bunker C to fill the freighter that's carrying all those useless plastic items to market.
Which leads ... where? The Chinese making all our stuff find their inventories getting bloated, layoff workers, slow down production. Unemployed city dwellers, unable to buy necessities, start home craft businesses, or try to grow survival gardens. The rural population has been moving into the cities pretty steadily over the past ten or twenty years. Making a living in the rural areas is not going to be that easy here on out, especially for an ex-city dweller!

In the U.S., there will be a huge crop of educated, or semi-educated city folk, hitting the job market en masse. The U.S. still is home to the corporations that guide the manufacture of most products; most of the managerial and support functions occur here - product design, manufacturing process design, logistics, finance, marketing, packaging, and distribution. When the plastic crap from overseas starts getting expensive, many of these people will also be laid off, meaning their buying power drops as well, contributing positive feedback to the equation. Less buying, means less production, which means more layoffs, which means less buying, and the cycle continues.

Of course, those who have steady work might find their situation improve a bit, as prices are pushed down and incredible bargains are offered to entice the rarer and rarer customer. In the coming global depression, the definition of "steady work" might get a little mangled.

These being educated folk getting laid off and fired, they will be in a position to think of socio-political "reforms", to change the rules of the game now that so many are losing. Whether they will be able to act upon their ideas remains to be seen. How far down can they go without upsetting the apple cart? Wherever it is, we're likely to get there, somewhere on the far side of Hubbert's peak.

The tipping point, where revolution or 'reform' is seen as so desirable that people risk their comfort for it, might occur when enough people who are still doing ok during the depression decide to take sides with the portion of the population that isn't, since they see that their situation isn't all that stable, and they are soon in the same boat. If the situation happens to get to be that the majority would do better with a new socio-political paradigm, it's a sure thing.

Meaning that the U.S. would probably drop free-market capitalism in a heartbeat.

At the moment it doesn't matter so much what al-Husseini says but what Saudi Arabia does. It would be wonderful if we did have another 5 years before peak but in the long-term we are still pretty stuffed. I don't see anything much happening governmentally to help us...Tony Blair/Gordon Brown are still rattling on about competition and economic growth and the young are still busy planning careers in the media, finance, business, fashion and blah-di-blah. Still it may give me five years to sort out my land and get all the useful technology for keeping warm. Go Saudi go! Yeh!
Maybe the truth of our situation lies not in the debate at the Saudi headend pipes, but at the other end of the pipeline, where "the system" (our "Labyrinth of Prosperity") is starting to cave in --I feel horrible for the working people of Fayetteville:
This article could mean a lot.  But, it only matters if it leads to more information and more questions being asked in the mainstream. The discourse must take place in local, state and national governments (and soon!) and so far it's been missing except in blogs like this and a few minor newspapers.  A piece in a major newspaper helps, especially if there has been groundwork done.  People I talk to have politely listened when ever I bring up the subject of peak oil and then go back to watching Fear Factor, and now I have already had one person call and say 'hey, did you see the NY Times is writing about that stuff you keep talking about?" - well yea, duh.   When the politicans are talking about PO as part of their quest for votes, then we may have turned the corner.  
Perhaps the most important audience for this article are the editors of other papers around the country.  For all of its recent faults, the NYT is still the gold standard of American journalism.  PO may be viewed as less of a whacky, obscure theory by other editors after this.  
Bummer: peak oil does not rate anywhere near the top for how the world will end:

"Rapture" (18%) is a close second to "not in my life time" denial (26%) among the polled responses.

Excellant article, and at the same time I don't feel like we can wait for the media to lead on this.  The most important thing we can do is spread the information personally to those we know.  Do screenings of EOS, form local discussion groups, talk to friends and family.  If a quarter of the world's oil is burned in the American auto fleet, then what we have to do to both mitigate peak and climate change is to let people know the seriousness of the situation, and find creative ways to drive less.  
Except it isn't.  US petroleum was about 20.5 million barrels per day in 2004, but only about 65% of that was usable for motor fuel.  (Some distillate fuel oil goes for heating.)  So it's not a quarter, it's a sixth.
I was wondering if anyone would like to comment on Freakonmics author Steven  Levitt's response to the NYT magazine article, the url is ...

I am starting to get a little annoyed with the pomposity of economists and (sometimes) geologists in their response to each other on this issue. Does anyone know of a REASONED debate between the two sides, where they agree to disagree? Or am I hopelessly naive?

p.s. I think the contributors to this site do a great job and I thank them for it!

It's easy enough to say what Leavitt is unaware of, or is purposely leaving out to "strengthen" his argument. First of all, he seems to think oil is used only for transportation; he doesn't take into account the effect that skyrocketing oil prices would have on the production of chemical fertilizers and pesticides used in agriculture. Second, he doesn't take into account the importance of cheap, ready supplies of oil-based energy in the production of those vaunted, "market-based" innovations that are supposed to replace plastics, fertilizers, cleaning agents, fuels, etc. Third, I guess, would be the fact that oil is a non-renewable resource, and thus is not subject to market forces in the same way as renewable commodities.

That's a start.

I stepped up and played Huckleberry in the freak-econ comments section. Who's next? This is your chance to practice at getting the message out to the "unbelievers". This is your chance to engage with the followers of the Adam Smith religion: "The markets will provide."
P.S. In hunting down some "if we can go to the moon, then ..." sites, I ran into this uninformed debate about oil prices (dated 8/11/05):

It is always fascinating to see how
"Those Who Are/Is Not ... Aware Of Hubbert"
(the TWAIN AOH's) model the world inside their heads.

A little knowledge can alter one's whole world view.

(You mean, you mean, it's not flat and oil is not going to be there at infinity and beyond?)

P.P.S. "They" are not stupid. They are uninformed. There's a difference.

Maass tossed out one comment near the beginning that made me wonder if he knew what he was talking about: "...assuming, of course, that climate-controlled habitats do not become just a fond memory."

Much climate control is electricity based, especially the air conditioning used in summertime. But only 3% of electricity generation in the U.S. is petroleum based. Peak Oil will have little or no impact on availability of electricity. Talk of climate-control becoming "just a fond memory" makes Maass look like an idiot. Luckily the rest of the article seemed much better grounded. I guess he just didn't think to check out where electricity comes from.

I took "climate-controlled" to be a colorful turn of phrase meaning "heat."

As a southwesterner I hear that you folks use oil ... but I've never actually seen it ;-)

Only 3%? Where does the rest come from? We're not doing too well on natural gas either, last I heard...
Here's the answer to your question.

I worked briefly with power plant operations.  Coal and Gas plants use other fuels during startup.  IIRC, gas plants tend to use oil, and coal plants tend to use gas (and maybe some oil).  It's about getting the burners up to temperature.  There ARE isolated communities (Catalina Island, California) that use diesel power generation as their mainstay.

AFAIK, no major power producers just burn oil.  The 3% comes from start-up in oil/gas plants, and in those small diesel roles.

... but again, I think "climate control" means heating oil delivered to the customer.

Well, in today's construction (USA) Climate Control is HVAC - Heating, Ventilation, Air Conditioning.  Your building's AC and ventilation are probably electrically powered.  Historically, those are very recent applications but without them, building configurations will have to change radically.  Same goes for electric lighting.
OK, I stopped being lazy (or making assumptions) and looked:

On a national basis we use 57% natural gas, 31.3% electricity, and only 8.6% oil.

I had this picture of the whole northeast using oil .. semi-accurate:

"About 75 percent of the households across the nation that use fuel oil to keep warm during the winter [that 8.5%] were in northeastern states and Alaska. Use was most common among households in the six New England states: Maine (79.2 percent), New Hampshire (57.3 percent), Vermont (57.0 percent), Connecticut (50.1 percent), Rhode Island (41.4 percent) and Massachusetts (38.3 percent)."

So, few home¤»|A a national basis, but concentrated in the northeast.

Oh, something I just thought of, but modern office buildings with their non-opening windows can get pretty hot. Hot enough that air conditioning isn't an option, but a necessity. I'm unsure how easy/difficult it would be to retrofit the building with windows that open.
The problem with the "where does electricity come from" issue is that there's a critical short/long term component that gets overlooked.  

True enough, right now the US generates only 3% of its electricity with oil, but what happens when plug-in hybrids and all-electric cars start hitting the market in just a couple of years?  That's when we'll see the beginning of the shift of transportation energy demand from oil to electricity.  It's also an excellent example of why I've been saying all along that we need to look at the whole energy picture and think long-term, and not focus on just oil issues and the next few years.

And, of course, this example is a very strong argument for increasing the generation of electricity from renewable sources as much as possible.

According to the chart posted by ianqui, 18% of the electricity produced comes from natural gas and 50% from coal. Natural gas is probably going to drop off within the early 21st century. Although there's abundant coal, it is mined using petroleum-powered equipment. That adds a constraint.

What I've just mentioned threatens about 68% of electric power generation. While only 3% of total energy produced directly 'comes from' petroleum, much of what is remaining is acquired using petroleum.

Maass may have been thinking about Peak Natural Gas when he wrote that sentence. But Peak Oil probably will have an impact on electricity generation.  For example, if people start using plug-n-go electric cars instead of gasoline-powered ones. The demand on the electricity grid would rise tremendously. Where would that energy come from in an environment with less (and more expensive) natural gas and oil?  It'd probably have to be nuclear fusion or coal.
There is much talk of producing transport fuel from coal.
if a sizeable partof coal production gets diverted in
this way it will drive up the price of coal

Nick Rouse

Yep, and coal prices are already going up.  A drop in oil supplies will mean higher prices for all fuels as the marketplace searches for substitutes (e.g., natural gas--while it lasts--or coal liquefication for transportation fuel).  
As an introduction for people new to peak oil, I thought this article was great.

The continuing emphasis on Saudi Arabia in this piece is misguided, because
  • According to al-Muhanna and Husseini, its going to be 12.5/mbd by 2010 and that's it. Husseini is clear that going beyond that risks major damage to their fields. Why would they do that? CERA gets their numbers from al-Muhanna, who is a mouthpiece for Aramco.
  • All in all, +3.0/mbd by 2010. So what? Given the exponential decline function that says we'll need 6 to 9/mbd/year just to stay even until 2010, I am not impressed with Saudi Arabia's new output.
  • I am impressed with the fact that West Africa (Nigeria and Angola) is supposed to supply an additional 2.62/mbd by 2010 (with proved reserves of about 33 bbo) according to Yergin. This is a paltry 380,000 bd less than the vaunted Kingdom.
Unconventional sources (Canadian oil sands, CTL, GTL, Venezuelan "heavy" oil) and new sources (ocean deep drilling) are only touched on because of the emphasis on Saudi Arabia. This is too bad because Maass is describing a power shift in which Middle Eastern sources and are less and less important in meeting overall demand as time goes on. There's much more to say, but I'll leave it at that.
This same article was discussed at The European Tribune blog.
Kenneth Deffeyes says that he finally knew that Hubbert was right
about the peaking of American oil production when, in 1972 the Texas Railroad Commission allowed 100% production quotas thus abolishing production restrictions.

What does it say about OPEC when Reuters reports in an article of Aug 23 2005 titled "Oil rises as Iraq spurs supply worries" :-

OPEC member Nigeria said any talk of raising cartel quotas at a September 19 policy meeting would be "academic" for now as producers are being enouraged to pump at full capacity. "We are so far from worrying about quotas," Edmund Daukoru, minister of state for petroleum told reporters on Tuesday. "I think for now OPEC will be happy for any member who has the capacity to produce."

Nick Rouse