(Dall-E still can’t spell!)
First of all, thank you to all my subscribers. Earlier today, the numbers of subscribers reached 500, up from 250 on July 15 of last year. Ever since last June, subscriber growth has been steady with a slight acceleration this year. I’m especially grateful to my 13 paid subscribers since (so far) they don’t get anything extra other than knowing that they are supporting and encouraging my writing. From now on, I’m going to restrict comments on most pieces to paid subscribers only, to give at least a little incentive.
I wrote the current essay in 2021 and present it here with minor revisions and updates. It was part of a series on how the world is “Getting Better”. The first of these was my January 20 piece examining the strange divergence between objective measures of the world and people’s beliefs about it. Soon to come: A close look at the battling frameworks of scarcity and abundance, and a critical analysis of The Limits to Growth – a book of enduring and baleful influence.
Life extensionists are battered with endless supposed reasons to avoid the future. One of the ever-popular reasons is the claim that we are rapidly running out of resources, especially energy. And if not energy, definitely oil. The peak oil discussion illustrates some of the points made in my Getting Better series, including the abundance of scarcity panics, excessively pessimistic forecasts, and the failure to allow for technological advance and the effects of incentives in the market.
My point here is not to argue that we will never reach a peak in oil production. At some point we probably will, and it will not be a problem. If you keep the predicting the same thing over and over again, after enough time you may hit the mark. Every year, some commentators make a fairly accurate prediction of the stock market’s performance for the year ahead. That doesn’t prove their models were right or that they are smarter than everyone else. No one gets those predictions right consistently.
When I wrote the original version of this in mid-October 2021, oil prices had risen to levels not seen since 2014 and continued to rise to almost $112/barrel in inflation adjusted dollars. This seemed high at the time but was well below the June 2008 peak of $126.33 (inflation-adjusted price of $177.26). The current price is very close to the average inflation-adjusted price since 2000 of $76.30. Whenever oil enters one of its higher periods, we start hearing a lot about “peak oil” and “the end of oil”.
What exactly is “peak oil”? It can refer to the maximum level of consumption in a country or in the world. It can refer to the maximum level of consumption or production of oil per person. Mostly it refers to a level of oil production higher than any in the past and higher than any to come in the future.
The production of a commodity can peak and then decline but never reach zero. In fact, that is typically the case.
Peak oil is sometimes used to mean or to imply two other things: The end of oil; and the end of fossil fuels. Pessimists may point to a supposed peak in oil production and take that to imply that we will run out of oil completely – and sooner rather than later. This does not follow. The production of a commodity can peak and then decline but never reach zero. In fact, that is typically the case. Like most commodities, certainly including oil, some reserves are relatively easy to exploit while others are increasingly difficult and expensive. As the price rises, the less accessible reserves will be tapped. At the same time, economic activity shifts away from the commodity – perhaps by reducing activities dependent on it, or by replacing it, or by recycling it, or by becoming more efficient.
Others take peak oil as a stand-in for the end of all fossil fuels. The demonization of fossil fuels comes out of an essentially religious belief in which human activity is evil and should be minimized, the Earth is all-good, and carbon resulting from human activity and carbon emissions are especially evil outcomes. (The devotees of this religion usually avoid the give-away word “evil” in favor of “greedy”, “rapacious”, or “destructive”.) This religion even shares with Catholicism the idea of buying “indulgences” but, in this case, they are called “carbon offsets”.
The only fossil fuel perhaps seen as worse than oil is coal. Just like oil, people have been declaring the end of coal for many decades – for even longer than oil. In 1865, Stanley Jevons predicted that England would run out of coal by 1900, and that England’s factories would grind to a halt. Jevons was not stupid. Far from it. He was a brilliant man with major achievements in economics (including founding the “marginal revolution”), logic and, geometry. He stated his gloomy conclusion in The Coal Question (1865).
Although he got that wrong, he also expressed the idea that is still known as the “Jevons paradox”: increases in energy production efficiency leads to more, not less, consumption. This has usually turned out to be correct, at least until recently. I will return to this idea in a later piece in the Getting Better series.
Failed predictions of peak oil
The claim that we have reached peak oil production and that production will fall has been around for over 135 years. 1885 got this tradition off to a strong start. In that year, the US Geological Survey declared that there was “little or no chance” of oil being discovered in California. The Pennsylvania State Geologist asserted that “the amazing exhibition of oil was only a ‘temporary and vanishing phenomenon – one which young men will live to see come to its natural end.” Also in 1885, John Archbold, original partner of John D. Rockefeller in Standard Oil boasted: “I’ll drink every gallon of oil found west of the Mississippi.”
1919, Oil and Gas News: “In meeting the world’s needs, however, the oil from the United States will continue to occupy a less and less dominant position, because within the next two to five years the oil fields of this country will reach their maximum production and from [then] on we will face an ever-increasing decline.”
1937: March 9, 1937, Brooklyn Daily Eagle reported that Capt. H. A. Stuart, director of the naval petroleum reserves, told the Senate Naval Affairs Committee: “We have been making estimates for the last 15 years. We always underestimate because of the possibility of discovering new oil fields. The best information is that the present [United States] supply will last only 15 years. That is a conservative estimate.”
1939: The US Department of the Interior said that American oil supplies would last only another 13 years.
1941: US Department of the Interior: “American oil supplies will last only another 13 years.”
1956: Hubbert: “M. King Hubbert of the Shell Development Co. predicted [one year ago] that peak oil production would be reached in the next 10 to 15 years and after that would gradually decline.”
1977, US Department of Energy Organization Act: “As a nation, Americans have been reluctant to accept the prospect of physical shortages. We must recognize that world oil production will likely peak in the early 1990’s, and from that point on will be on a declining curve. By the early part of the 21st century, we must face the prospect of running out of oil and natural gas.”
1980, Dr. Hans Bethe, winner of the 1967 Nobel Prize in Physics claimed that the world will reach peak oil production before the year 2000. Then production of oil worldwide will drop to zero over about 20 years.
1998: Scientific American stated: “Predicting when oil production will stop rising is relatively straightforward once one has a good estimate of how much oil there is left to produce.” (They predicted the peak within ten years; that was 20 years ago.)
Many of these predictions are from May, 2018, and Novak, 2014.
Note, in the above, the assumptions that a peak will be followed by “running out” and a “drop to zero”.
Actual oil production has defied all these forecasts and continued its climb. In 2023, the USA produced more oil than any nation in history. Production is Canada is also surging.
Hubbert’s Peak
Of the failed predictions above, by far the most discussed is the one by M. King Hubbert. Hubbert projected a bell curve for oil production in the United States. The peak of the curve was to be reached in 1970 at 3 billion barrels per year. He wasn’t too far off with this peak estimate, at least for a few decades. The actual (temporary) peak came 17% higher at 3.52 billion barrels per year or 6402 terawatt-hours (1971). After bottoming out at 3515 terawatt-hours in 2008, oil production returned to annoying peakers by moving up to new heights, with 8833 terawatt-hours in 2022.
Hubbert also projected future world oil production but didn’t achieve even a temporary hit. He expected world production to peak at 12.5 billion barrels per year in the year 2000 or close. As of 2023, world production was over 37 billion barrels per year.
In a 1989 interview shortly before his death, Hubbert acknowledged that his model was not only wrong but far from scientific. The only way his model came close was if restricted to the USA and to “conventional” oil production. His peak oil prediction assumed the total recoverable reserves in the US and our offshore came to only 150-200 billion barrels. (The recent Department of Energy estimate is 400 billion barrels.) That estimate was made before the shale boom beginning in 2006, such as the Bakken and Eagle Ford sources. These are conventional sources. But Hubbert also failed to allow for unconventional sources, and these are far larger than conventional.
The Bell curve that Hubbert used was the wrong function. The actual logistic curve has a long fat tail due to secondary and tertiary oil recovery. By limiting his projection to conventional oil, he missed all “heavy oil” such as the massive reserves in the Venezuelan Orinoco and the Canadian “tar” sands. His estimate also failed to factor in technological advancements such as fracked shale oil.
For purposes of usable energy, it doesn’t matter what is conventional or unconventional. The definition game is merely a way of making a prediction come out correct.
Universal agreement on the definition of “conventional oil” is lacking. ”Conventional oil” has been defined as viscosity API>10, produced from a reservoir with >5% porosity and permeability >10 millidarcies. That excludes all the heavy oils and fracked oils. Others define any it as oil less dense than water, or as oil from higher permeability rocks. Yet others count ultra-deep-water production as unconventional because of the associated high costs. For purposes of usable energy, it doesn’t matter what is conventional or unconventional. The definition game is merely a way of making a prediction come out correct.
Technology, ingenuity, and determination
Although the oil industry is often demonized today, its history illustrates the life-sustaining, energy-delivering effects of technology, ingenuity, and sheer determination.
The excessively pessimistic oil projections suffer from many of the same problems as other predictions of hard limits and “running out” of resources. They take currently proven reserves and assume that is all we have to work with. They may add up “economically feasible” reserves based on current exploration and extraction costs. More generously, they may estimate “total recoverable reserves”. Or they may add up proven reserves. None of these are the likely actual total resources.
Oil discovery and production has always been highly dependent on technical and procedural innovations. Exploration technologies have developed from ancient “spring poles,” to steam-powered percussion cable-tools, to modern rotary rigs with diamond bits that can drill miles deep into the earth. In 1802, drillers took 18 months to drill through rock to reach 58 feet using a spring pole. Today, the Z-44 Chayvo Well in the Russian Far East has a shaft 40,000 feet deep. This is the equivalent of 15 times the height of the world’s tallest skyscraper, the Burj Khalifa in Dubai. [Desjardins, 2017]
The history of the extraction of this resource stands as a stunning story of human achievement.
Engineers and entrepreneurs brought us from spring poles to cable-tool drilling and the wooden derrick. They added steam power and smart mechanical engineering to the mix, as well as rotary drilling, the tri-cone bit, wireline logging, coring and rock core analysis, surface mapping, reflection seismic mapping, horizontal drilling, water flooding, and the slick water frack and microseismic monitoring. The history of the extraction of this resource stands as a stunning story of human achievement. For more historical detail, see the article by the perfectly named Wells. [Wells & Wells, 2006; also, May 2021.]
Predicting the future of oil production is a risky business. Overall trends seem safer than short-term forecasts, but new discoveries can be of such a magnitude that they throw off the trajectory of a trend – and may completely derail it if the discovery is technical rather than geological. In 2016, the largest ever discovery of crude oil was made under parts of West Texas in the “Wolfcamp shale” formation. The US Geological Survey (USGS) estimated 20 billion barrels of accessible oil, as well as 16 trillion cubic feet of natural gas and 1.6 billion barrels of natural gas liquids.
“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more.” Those are the words of Walter Guidroz, program coordinator for the USGS Energy Resources Program. He attributed that potential to the introduction and refinement of hydraulic fracturing and horizontal drilling, and correctly noted that “Such advances can have significant effects on what resources are technically recoverable.” [Collier, 2016]
Beware of estimates by government agencies of what the oil industry will find and produce.
Beware of estimates by government agencies of what the oil industry will find and produce. They typically underestimate drastically. For instance, the government originally forecast that Alaska’s North Slope would yield 10 billion barrels. It had produced 16 billion barrels by 2016 and already developed areas are expected to produce around 30 billion barrels. Many areas of Alaska have not been explored for oil, including the Arctic National Wildlife Refuge (ANWR).
The 2016 USGS estimate for undiscovered oil in the Bakken play of Montana and North Dakota is 25 times larger than the same agency’s 1995 estimate. In 1987, the MMS (now the BOEM) undiscovered resource estimate for the Gulf of Mexico was 9 billion barrels. Today it is 45 billion barrels. [Middleton, 2016]
World oil production.
What are “reserves”?
The concept of “proven reserves” can be useful for corporate planning in the near-term. It is not an accurate way of understanding long-term availability of a commodity, and even less accurate in understanding the services we derive from a commodity. Proven reserves are defined as “the quantity of energy sources estimated with reasonable certainty, from the analysis of geologic and engineering data, to be recoverable from well-established or known reservoirs with the existing equipment and under the existing operating conditions.”
Proven reserves are classified as having a 90% or greater likelihood of being present and economically viable for extraction in current conditions. Within the oil industry, proven reserves are also referred to as P1 or P90. Contrast this with “probable reserves” which are crude oil reserves calculated to be at least 50 percent likely to be recovered through drilling. Then there are possible reserves, defined with misleading precision as those that “refer to oil reserves for which the estimated likelihood of successful extraction is between 10% and 50%—assuming that existing equipment is used and the extraction is carried out under typical conditions. [Chen, 2021]
Beyond all of these are total recoverable resources. This depends on what is considered recoverable – something that changes over time, just like the amount of time after clinical death before someone can be revived.
From Julian L. Simon, The Ultimate Resource 2
Here’s a simple way to think about it. The total amount of oil in the Earth changes little year-by-year. But three more relevant measures of oil do change:
How much oil we know about.
How much of that oil we can technically extract.
How much of that oil is economical to extract.
[Book, 2021]
Economics of discovery
Technology can affect what is economically recoverable. It is equally true that economic factors can affect what is technically feasible.
In a market system where prices are allowed to signal, suppliers constantly seek to increase supplies so they can sell more. At the same time, they are reducing prices so they are not undersold. Direct and indirect users of commodities are trying to reduce their consumption so as to reduce costs. The higher the price of a commodity rises, the stronger the response from suppliers. This may mean more intensive usage of existing technologies, or the creation of new technologies and methods to locate, extract, and refine the resource. Higher prices also stimulate the search for substitutes.
As conventional oil becomes less available, its price will tend to rise. (Price increases may be restrained by economizing or by substituting.) The rising price signals to firms that they should look more intensely into alternatives. Conventional oil can be replaced with production of liquids from unconventional sources such as tight oil, oil sands, ultra-heavy oils, gas-to-liquid technologies, coal-to-liquid technologies, biofuel technologies, and shale oil.
Peak oil forecasts are made using technical-material forecasting rather than economic forecasting.
Peak oil forecasts are made using technical-material forecasting rather than economic forecasting. Technical forecasts divide the ‘known reserves’ accessible by current methods by the current rate of use and derive the resulting ‘years of consumption left’. Technical forecasts fail to allow for the large effect of changing prices on supply – the supply that is economically viable. [Simon, 1998: 27; 45.]
When forecasts are based on material principles bounded by supplies of the resource available at current prices and using existing technology, the result is predictable: A projection of rapidly dwindling reserves. In reality, the long-term trend is decreasing scarcity due to heightened incentives to discover new reserves and to invent superior methods of extraction. Contrary to what most people believe or expect, the ratio of US reserves to US production has also generally increased. Look at historical charts and you will find that reserves go up rather than down. Furthermore, they go up not just in total but as a ratio of rising consumption.
When prices rise, more companies enter the market and increase supply. Existing companies deploy more expensive discovery and extraction methods and develop new techniques. When prices fall, the less efficient companies either go out of business, merge, or shut down until better times. The remaining companies are forced to become more efficient. When prices go back up, the efficient companies will be highly profitable.
Rising consumption and rising reserves
If we are currently at or close to peak oil, you would expect reserves (even conservatively measured “proved reserves”) to be falling. Are they? According to the latest BP Statistical Review of World Energy, proved U.S. reserves in 2000 were 30.4 billion barrels. In 2020, reserves had increased to 60.8 billion barrels. Globally, reserves increased from 1,300.1 to 1,732.4 billion barrels.
In 2000, we used 25.2 billion barrels of oil out of the proven reserves of the time. At that rate of consumption, a simple extrapolation would suggest that we had just under 52 years of proven oil left. In 2019, the closest pre-pandemic year, we used 31 billion barrels – a 23% increase over 2000. Based on proven reserves of 1,732.4 billion barrels, we now have 56 years of supply left. 7.7% more supply-years left while consuming 23% more! We have used more oil over the last two decades and yet oil has become more plentiful. [Book, 2021]
We have used more oil over the last two decades and yet oil has become more plentiful.
Looking beyond “proven reserves” to technically recoverable oil equivalent (at prices seen recently), conservative estimates come to over eight trillion barrels. History suggests this is too low an estimate. We are already seeing vast new prospective areas being opened up by advancing deep-water drilling and production technology. This doesn’t even count unconventional sources.
The peak oil contingent believed that the shift to unconventional oil sources such as shale and tar sands would be more costly, slower to come to market, and more environmentally damaging. This turned out to be backward. U.S. shale oil production ramped up with the fastest increase in a 3-year period ever – a startling and impressive outcome from the combination of price incentives and technological development.
In response to their predictions being falsified, peak oil advocates keep increasing their estimates of recoverable resources while shifting out the date of the peak. They also say that they are looking only at conventional sources. If we are interested in the services provided by a commodity rather than the material itself, this is not what matters. Even restricting the forecast and its evaluation to conventional sources, the peak claim is wrong. Much of the growth has been from natural gas liquids and shale, but conventional oil reserves have also expanded. You can see this in the graph from Lynch, 2018.
have to find oil before you can produce it” and if it’s there, it will be produced. Technology could not improve recovery because, in the words of Jean Laherrère, “Technology cannot change the geology of the reservoir, but technology (in particular horizontal drilling) can help to produce faster, but no more…” [Laherrère, 2012.]
Ultimately recoverable
We’ve seen that “proven reserves” isn’t a very useful long-term measure. It’s a far too restrictive and overly cautious concept. On the other hand, most people would say that the other extreme would be represented by total crustal abundance – the total amount of a material that exists in the Earth’s crust. As resource economist Julian L. Simon put it:
Proven reserves are a ridiculously pessimistic floor for forecasting. At the other end – a ridiculously optimistic ceiling – is the total amount of a material that exists in the Earth’s crust. The most economically relevant measure is that of ‘ultimately recoverable resources’.
What we consider “ultimately recoverable” depends both on how much of a commodity is physically present and on both the level of technology and relative prices. Simon noted that the US Geological Survey presently assumes that ultimately recoverable resources “is one hundredth of 1 percent of the amount in the top kilometer of the Earth’s surface… Even this ‘ultimately recoverable’ estimate will surely be enlarged in the future when there are improvements in mining techniques or if prices rise.” [Simon, 1998]
Former forecasts and subsequent diverging outcomes should teach us a little humility. (Should but will not.)
Former forecasts and subsequent diverging outcomes should teach us a little humility. (Should but will not.) Especially when confidence surrounds what can “never” happen. Looking at the giant fields in the Gulf of Mexico, operations that were not imagined a few decades ago, what might we find in the 85% of the US Outer Continental Shelf that has never been explored? We must also be cautious about confidently declaring that we can never extract more than, say 5% or 10% of oil in a reserve. In the mid-1990s, it was widely believed that the recovery factor in the Bakken formation would be no more than 1%. The USGS now assumes 10%.
No end to oil
We will never run out of oil. That’s my prediction.
A material peak in the production of oil will happen. (Peak oil production per capita probably occurred in 1979, as advanced economies became more efficient.) As we’ve seen, when it will happen is far more uncertain than the peak oil advocates believe. It’s also probably further away than they believe. And, much more certainly, production will not suddenly drop off a cliff once the peak arrives (and sticks). As it becomes harder to find, so long as governments allow markets to work, changing prices will encourage new discoveries, new technologies, economizing, and substitution.
Eventually, we will probably reach a point where the diminishing returns of technology at prices people are willing to pay will not keep up with oil-related energy demand. The market will have generated alternatives to oil for the services it renders. Oil will never run out; we will use less and less of it because we no longer need it. This was true of the forests in England in the early Industrial Revolution. It will be true of the USA and the world in the future. Oil will become obsolete before it can run out. As Dr. Christof Rühl, chief economist of BP, wrote:
Physical peak oil, which I have no reason to accept as a valid statement either on theoretical, scientific or ideological grounds, would be insensitive to prices… In fact, the whole hypothesis of peak oil – which is that there is a certain amount of oil in the ground, consumed at a certain rate, and then it’s finished – does not react to anything... Therefore there will never be a moment when the world runs out of oil because there will always be a price at which the last drop of oil can clear the market. And you can turn anything into oil if you are willing to pay the financial and environmental price. [BP, 2008]
Declining oil production can become a problem due to bad policy. We are seeing that in many Western countries right now, including the USA. In the US, the current administration has set about hindering fossil fuel production. This includes blocking new pipeline construction, ending fracking and drilling on federal lands, and various other regulations to make production more difficult and expensive.
Crude oil has enabled billions of people to emerge from poverty. We will move away from oil but let’s not demonize it in the meantime.
Policies that constrain “above ground” factors such as the availability of staff, expertise, technology, investment security, and funds can constrain supply. Avoiding such policies will allow oil to be exploited and to be moved away from without inflicting painful economic suffering – suffering which most strongly affects the poorest. Those trying to bring on peak oil sooner should understand that crude oils have provided human civilization with a stunning reserve of chemical energy. The energy density of oil is approximately 45 MJ/kg, nearly twice as much energy as coal for an equivalent mass. Crude oil has enabled billions of people to emerge from poverty. We will move away from oil but let’s not demonize it in the meantime.
The final word goes to Indur Goklany from his excellent book. [Goklany, 2007: 100]: “Perhaps the end of oil will come about sometime in the future but whenever it comes, it will only be a footnote to history, just as the end of blubber is today.”
Postscript: Peak oil spills
One area where we are far past peak oil is not one pessimists will mention: oil spills. Oil spills peaked decades ago and have been declining both in number and total amount of oil spilled. In the 1970s, the average was 24 oil spills per year. Since 2000, the average has been less than three. In the 15 years from 2000 to 2014, a total of 234,000 tonnes were spilled. That sounds bad. But it is far less than the annual amount spilled in the 1970s. In the period from 1970 to 2014, the quantity of oil spilled fell by 99%.
References
Book, Joakim, 2021. “In Defense of Cornucopianism.” HumanProgress, November 10, 2021
https://www.humanprogress.org/in-defense-of-cornucopianism/
BP, 2008. "BP: Preisschwankungen werden wahrscheinlich zunehmenen.” Interview (in English) mit Dr. Christoph Rühl, Mittwoch 1". Euractiv. October 2008.
Chen, James, 2021. “Proven Reserves.” Investopedia, May 24, 2021.
Collier, Kiah, 2016. “More recoverable oil in West Texas than previously thought.” Texas Tribune, November 15, 2016.
Desjardins, Jeff, 2017. “Visualizing the World’s Deepest Oil Well.” Visual Capitalist, March 20, 2017.
https://www.visualcapitalist.com/visualizing-worlds-deepest-oil-well/
Goklany, Indur M. (2007). The Improving State of the World. Cato Institute, 2007.
Hubbert, M. King, 1956. “Nuclear Energy and the Fossil Fuels.” Presented before the Spring Meeting of the Southern District, American Petroleum Institute, Plaza Hotel, San Antonio, Texas, March 7–8–9, 1956.
Jevons, William Stanley, 1965: The Coal Question; An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines. Macmillan & Co., 1965.
Laherrère, Jean, 2012. “Jean Maugeri part II.” Peakoil.com, October 16, 2012.
May, Andy, 2018. “The End of Oil and Gas.” Wattsupwiththat, July 7, 2018.
Novak, Matt, 2014. “We’ve Been Incorrectly Predicting Peak Oil For Over a Century.” Gizmodo, 12/11/14.
Simon, Julian L., 1998. The Ultimate Resource 2. Princeton University Press; Revised ed. Edition, July 1, 1998.
Wells, B.W., and K.L. Wells, 2006. “Making Hole – Drilling Technology.” American Oil & Gas Historical Society, September 1, 2006.
https://aoghs.org/technology/oil-well-drilling-technology/