Next to global warming, the end of our ability to produce ever increasing amounts of oil is one of the most serious developments that humanity faces in this century. Ten years ago, many were concerned that global oil production was about to peak; however, just as oil reached $148 a barrel and gasoline climbed to $4 a gallon in 2008, a deux ex machina arrived in the form of “shale oil.” The technology of drilling horizontal wells in dense, oil-bearing rock and then fracturing the sides of the well with high-pressure water had been around for many years but was always deemed too expensive for commercial exploitation. When oil prices climbed from $20-$30 a barrel to over $100, the fracking of shale looked profitable and, 10 years later, the U.S. is producing some 8.5 million barrels of shale oil per day. The profitability of the extraction process is a very open question as billions of dollars have been lost producing shale oil already.
The financial press was delighted that American ingenuity and technology had conquered the threat of shrinking oil supplies and the theory of peak oil was relegated off to a future that was so far away that it could be ignored. Few noticed, however, that in the last 10 years, conventional (non-shale) oil production hardly grew and that continuing economic growth was fueled primarily from the shale oil fields. Today, it is starting to look like that when U.S. shale oil production peaks, world oil production will be at or very close to peaking.
When the modern notion of peak oil was conceived some 20 years ago, it was based on the geology of oil production, i.e., there was not enough oil left that could be economically extracted. The theory that oil was about to run short was not an altogether outlandish idea, for the world currently is consuming some 36 billion barrels of oil each year while finding less than five billion. This, of course, is not a sustainable situation. It is interesting that in recent years some oil companies have adopted the practice of lumping new oil and natural gas finds together as “barrels of oil equivalent” leaving the impression that natural gas finds are really more oil.
Keep in mind that the term “peak oil” means that world oil production reaches its peak; there could be many reasons for the peak. For example, someday, the climatic situation will become so bad that legislation and policies will be implemented to reduce the combustion of oil and other fossil fuels drastically. New technologies may be in the offing which could produce pollution-free energy at a cost far below that of fossil fuels, making our current sources of energy obsolete.
Then we have an array of geopolitical disputes, wars, trade wars, sanctions, etc. that could lead to significant reductions in oil production. An economic recession like we had 10 years would almost certainly lower demand for oil so much that new drilling would be curtailed. Shale oil wells deplete so rapidly that in three or four years they are effectively gone. A few years without new drilling for shale oil could see a reduction in oil production by millions of barrels per day.
Many of these factors which could lead to lower oil production are so intertwined with other factors that would tend to increase production that it is impossible to sort out an estimate of the future. The critical question we should be watching is whether the peaking of oil production is likely to come in the next decade or so, or whether we can keep growing oil production for the next few decades as optimists are predicting.
Several developing situations should be watched closely for clues as to when the peak will be reached. As noted above, U.S. shale oil production has carried the burden of allowing economic growth for the last 10 years. However, except for the Permian shale oil basin in Texas and New Mexico, it looks like there is little growth left in the other half dozen U.S. shale oil basins. For now, it seems likely that if production from the Permian goes into decline, then the world’s oil production stops growing.
Moreover, concerns are growing that electric cars might reduce the demand for oil significantly in 10 years or so. Should such vehicles start replacing internal combustion vehicles, either by fiat, as in some European countries, or because of their many advantages, demand for oil could drop significantly.
As we have learned from experience, however, it is possible that significant new sources of oil will be found in the decade ahead. Southern Argentina seems to have a lot of potential for extracting shale oil by fracking. China and Russia both say they have significant reserves of shale oil waiting to be produced. Moscow is enthusiastic about how much oil it will find below the Arctic ocean after the polar ice cap melts. All this says there is no guarantee that the oil we currently know about is all that we will ever discover. Even if new sources of oil are found, keep in mind that we are presently using some 36 billion barrels of oil each year, and this will increase if the global economy continues to grow at projected rates.
In addition to watching oil production from the Permian Basin we need to keep an eye on the perturbations in the Middle East. Should tanker traffic through the Straits of Hormuz be blocked by hostilities, or production be slowed by increased hostilities, we would see unaffordable gasoline very quickly and even a peak to world oil production.
Although the production of renewable energy, mostly wind and solar, is growing rapidly, the demand for energy is growing so fast that we are likely to be burning even more fossil fuels 20-30 years from now than we are today. The climate, of course, will be much worse.