Is Peak Oil here already ?

There’s been a lot of discussion about claims that world oil output is going to reach a peak some time soon. If you look at the recent numbers, there’s a pretty good case to be made that world all output has already reached its peak at about 73 million barrels a day, a level reached in mid-2004, and sustained for the past two years.

Now there are lots of local factors that explain weak output in particular countries. Still, if the claims made by those who think oil output can keep on growing were correct, I would have expected the massive increase in prices (from a brief low of $10/barrel and a medium-term price of $20/barrel in the late 1990s to $75/barrel today) to produce a substantial expansion in supply.

This argument is pretty robust to whether oil producers believe that there is plenty of oil (implying that prices will come down again) or not. If prices are going to come down, then there’s a strong incentive to pump more in the short term, use secondary recovery from depleted wells and so on. If prices are going to stay high, there’s a strong incentive to bring large new fields online, even if they are in high cost locations. As far as I can see, neither of these things is happening.

Supposing that oil output has peaked, the obvious point to be made is that Peak Oil isn’t so bad. Sales of Hummers are plummeting, apparently, and lots more people are using buses (at least in Brisbane). And of course, the less oil there is to burn, the easier it will be to stabilise CO2 emissions (though we can’t just rely on Peak Oil – apart from anything else, there’s almost unlimited coal in the ground, far more than we can burn without frying the planet in the process).

Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US. More importantly, demand is bound to respond more than it already has.

These graphs from the US DOE illustrate the long-run increase in oil output and the recent stagnation. (Looking at the data, I’m pretty confident that the time scale for the monthly data is out by a year – it should be 2004-6.)
Oil output long-term
Monthly oil output

93 thoughts on “Is Peak Oil here already ?

  1. Source:

    I’ve taken the liberty of editing out the advertisments.

    —– Forwarded message from Whiskey & Gunpowder —–

    From: Whiskey & Gunpowder
    Subject: Peak Oil and Bakhtiari’s 4 Phases of Transition

    Greg’s Note: In this article, our intrepid correspondent Byron
    King presents some heretofore unpublished comments by one of
    the world’s foremost experts on Peak Oil, Dr. Ali Morteza Samsam
    Bakhtiari. Dr. Bakhtiari is recently retired as a director of the
    National Iranian Oil Company (NIOC). This, in and of itself,
    makes his viewpoint important to the world’s energy industry. We
    at Agora Financial and Whiskey & Gunpowder are pleased and
    privileged to be able to present this important and newsworthy
    report. We thank Dr. Bakhtiari for his willingness to share his
    thoughts with Byron. And if you want to share your thoughts, send
    an e-mail to your traveling managing editor here:

    Whiskey & Gunpowder August 25, 2006
    by Byron W. King
    Pittsburgh, U.S.A.
    Peak Oil and Bakhtiari’s 4 Phases of Transition

    IN A RECENT ARTICLE entitled “Nothing Like Business as
    Usual,” published Aug. 11, 2006, in Whiskey & Gunpowder, I
    outlined the views on Peak Oil of a man named Ali Morteza
    Samsam Bakhtiari. Dr. Bakhtiari is a former senior energy expert
    who spent his long career, which started in 1971, employed by the
    National Iranian Oil Co. (NIOC) of Tehran, Iran. During the
    course of his employment with NIOC, he held many important
    positions of trust and responsibility.

    Dr. Bakhtiari is now fully retired from NIOC, in accordance with a
    mandatory age requirement. He has no current official link with
    the company. Still, and fortunately for us in the Western world, Dr.
    Bakhtiari is an independent energy consultant who writes and
    speaks to a worldwide audience on the subject of oil depletion in
    general, and Peak Oil in particular. He is among the pioneers of the
    global “Peak Oil” theory.

    What Are the 4 Phases of Transition?

    My recent article on Dr. Bakhtiari discussed in general his views
    and recent comments on Peak Oil and worldwide oil depletion. I noted his predictions of oil costing in the range of $100-150 per
    barrel in the not-too-distant future. And I referred to what Dr.
    Bakhtiari characterizes as the “Four Phases of Transition” (which
    he labels T1, T2, T3, and T4) in a world of declining conventional
    oil output. I received much e-mail from readers asking me to
    amplify what Dr. Bakhtiari means by these latter terms. That is,
    what are the “Four Phases of Transition”?

    I asked the good doctor this very question, and his reply was, “As
    for T1, T2, T3, and T4, they are still very vague concepts, but if
    you allow me a few days?I shall try to explain to you what I think
    about these four.” And good to his word, within a few days, Dr.
    Bakhtiari was kind enough to forward some amplifying thoughts
    on the matter. Here is what he sent to me, to share with the readers
    of this newsletter.

    Dr. Bakhtiari’s 4 Phases of Transition

    “The four Transition periods (T1, T2, T3, and T4) will
    roughly span the 2006-2020 era. Each Transition [will]
    cover, on average, three to four years.

    “The major palpable difference between the four Ts is their
    respective gradient of oil output decline — very small for
    T1, perceptible for T2, remarkable in T3, and rather steep for T4. In fact, this gradation in decline is a genuine
    blessing for those having to cope and adapt.

    “It should be borne in mind that these four Ts are only an
    overall theoretical structure for future global oil output.
    The structure is thus so orderly because [it is] predicted
    with ‘Pre-Peak’ methods, ‘Pre-Peak’ assumptions, and [a]
    ‘Pre-Peak’ set of rules.

    “The problem is that we now are in ‘Post-Peak’ mode, and
    that none of [the] above applies anymore.

    “The fact of being in ‘Post-Peak’ will bring about explosive
    disruptions we know little about, and which are extremely
    difficult to foresee. And the shock waves from these
    explosions rippling throughout the financial and industrial
    infrastructure could have myriad unintended consequences
    for which we have no precedent and little experience.

    “So the only Transition we can see rather clearly (or
    rather, we hope to be able to comprehend) is T1. It is clear
    that T1 will witness the tilting of the ‘Oil Demand’ and ‘Oil
    Supply’ scales — with the former dominant at the onset and
    the latter commanding toward the close (say, by 2009 or
    “But even during that rather benign T1, the unexpected might become the rule and the orderly ‘Pre-Peak’ rapidly
    give way to some chaotic ‘Post-Peak.’

    “In any instance, the overall structure of the ‘Four
    Transitions’ is a general guideline for the next 14 years or
    so — as far as global oil output is concerned. In practice,
    reality might prove to be worse than these theoretical
    Transitions; but certainly not better.”

    Analogy to Chemical Phase Transitions

    Dr. Bakhtiari has a background in chemistry. He holds a B.Sc. and
    Ph.D. in chemical engineering, granted by the Swiss Federal
    Institute of Technology in Zurich, Switzerland. He has worked in
    industry and taught at a university level in the fields of both
    chemistry and chemical engineering for about four decades.

    I asked Dr. Bakhtiari if it would be fair to say that he is using the
    term “Transitions” in a manner similar to what are known as
    “phase transitions” in physical chemistry? Of course, the analogy
    need not be an exact chemical description. But I asked him if that
    concept from chemistry would be a proper way of helping to
    explain his thinking process.

    By way of definition, in physics and physical chemistry, a “phase
    transition” (or “phase change”) is the transformation of a thermodynamic system from one phase to another. The
    distinguishing characteristic of a phase transition is an abrupt
    change in one or more physical properties; in particular, the heat
    capacity of a unit of matter coupled with a small change in a
    thermodynamic variable, such as the temperature.

    Common examples of phase transitions are the solid-to-liquid
    transition (melting) and liquid-to-solid transition (freezing). Or
    consider the liquid-to-gas transition (boiling/evaporation) and gas-
    to-liquid transition (condensation). Or consider the solid-to-gas
    transition (sublimation) and gas-to-solid transition (deposition). In
    each case, a small change in the temperature of the system leads to
    a major transformation of its phase or state of matter.

    The reason I asked the question of Dr. Bakhtiari, and used terms
    from physical chemistry, was his statement, “The major palpable
    difference between the four Ts is their respective gradient of oil
    output decline.” My interpretation of that comment is that at each
    “transition” point where the gradient changes, we might view that
    as the “phase change” analogous to, say, frozen water melting, or
    hot water boiling.

    And as for how much we do not know in a post-Peak Oil world, as
    Dr. Bakhtiari noted, that could be analogous to the phenomenon
    known as “flash evaporation.” That is, if you raise the temperature
    of water to something well below its standard boiling point, but then rapidly change some other condition, such as lowering the
    atmospheric pressure above the water, the water “boils” at a lower
    temperature and lower pressure regime. This might be considered
    similar to some abrupt, unanticipated event reducing the supply of
    oil; for example, warfare, natural disaster, or unexpectedly rapid
    depletion and decline in a major oil-producing region of the world.

    Dr. Bakhtiari replied as follows:

    “I certainly like your idea of ‘phase transition,’?especially
    the analogy from ice to water, which occurs gradually.
    Start with ice and end with water, while to the very last
    second there is some ice present.

    “I also agree that at the junction of two Ts, there should be
    some kind of a milestone. For example, at the close of T1,
    Supply should totally dominate Demand?I am toying with
    [the] idea, very preliminary, that close of T2 could be
    OPEC [oil production] surpassing non-OPEC [oil
    production], although OPEC died in 2004.”

    Other Thoughts on World Oil Production

    Dr. Bakhtiari’s statement that “OPEC died in 2004” is an
    interesting viewpoint, in light of his idea about the nature of T2,
    when OPEC production will surpass non-OPEC production. To explain this further, let me refer back to February 2006, in the
    ASPO-USA newsletter, in which Dr. Bakhtiari wrote:

    “It goes without saying that when assaying Middle Eastern oil
    reserves, one should tread carefully. Because, on the one hand, oil
    reserves’ estimation is both a science and an art; and on the other
    hand, seen from the point of view of most Middle Eastern
    countries, oil reserves are more political than geological. Thus,
    nonscientific views come to prime over science and further
    enhance the various types of shades that have led to an overall
    opaque situation in the Middle East.”

    Dr. Bakhtiari wrote this in the context of a discussion in which he
    estimated total oil reserves in the Middle Eastern group of major
    oil-producing nations (Iran, Iraq, Kuwait, Saudi Arabia, and the
    United Arab Emirates) as about half, or even less, than what the
    respective national governments claim. Here is a table, prepared by
    Dr. Bakhtiari, from that article:

    In a remarkable comment following this table of information, Dr.
    Bakhtiari noted in the article that:

    “As for Iran, the usually accepted official 132 billion
    barrels is almost 100 billion barrels over any realistic
    assay. If the higher figure was for real, its oil industry
    would not be struggling day in and day out to keep output at between 3.0-3.5 million barrels per day (inclusive of
    Persian Gulf offshore).”

    Coming from a former senior official of NIOC, this is an utterly
    astonishing comment with immense implications. It may explain
    much about the current Iranian government’s view of its options
    for setting future industrial, economic, political, and military
    policy, although Dr. Bakhtiari certainly did not say this, and I do
    not want to put words in his mouth.

    In February 2006, Dr. Bakhtiari further summarized his thinking
    on the subject of oil reserve estimates as follows:

    “Notwithstanding the importance of conventional oil
    reserves, their days might now be numbered (both in the
    Middle East and elsewhere).

    “Oil reserve estimates were useful in the era before ‘Peak
    Oil.’ But in the aftermath of the mighty Peak (as, for
    example, in the present ‘T1’ period), they tend to become
    stale and rather useless, as field-by-field analysis and
    prediction takes over (e.g., Ghawar, Cantarell).

    “So it will not be long now before we will have to say
    goodbye to all these mesmerizing oil reserve figures and
    dump the whole reserves file into the all-encompassing ‘dustbin of history.'”

    Irreversible Decline and the Need for Immediate Preparation
    In another recent statement, Dr. Bakhtiari has said this:

    “The decline of global oil production seems now
    irreversible. It is bound to occur over a number of
    transitions, the first of which I have called T1, which has
    just begun in 2006. T1 has a very benign gradient of
    decline, and it will take months before one notices it at all.
    But T2 will be far steeper?My World Oil Production
    Capacity model has predicted that over the next 14 years,
    present global production of 81 million barrels per day will
    decrease by roughly 32%, down to around 55 million
    barrels per day by the year 2020.

    “Thus, in the face of Peak Oil and its multiple
    consequences, which are bound to impact upon almost all
    aspects of our human standards of life, it seems imperative
    to get prepared to face all the inevitable shock waves
    resulting from that. Preparation should be carried out on
    individual, familial, societal, and national levels as soon as
    possible. Every preparative step taken today will prove far
    cheaper than any step taken tomorrow.”

    The Need to Cope and Adapt

    In his message to me, Dr. Bakhtiari stated that the “gradation in
    decline (between T1, T2, T3, and T4) is a genuine blessing for
    those having to cope and adapt.” Indeed, it is a blessing, but only if
    informed people and the industrial and political policymakers of
    the world will actually take Peak Oil as a serious matter and set
    policy accordingly.

    In this regard, when it comes to his efforts in explaining Peak Oil
    to a worldwide audience, Dr. Bakhtiari is a prophet. His efforts, his
    writings, and his work embody the old saying that “Time takes no
    holiday.” Simply allow me to end by expressing my deepest thanks
    to Dr. Bakhtiari for sharing his thoughts with me, and recalling the
    words of Dante Alighieri, who wrote in Purgatorio, Canto III, “It is
    the wisest who grieve most at the loss of time.”

    Until we meet again…
    Byron W. King

  2. taust – ‘My concern about doing something reducing climate change is magnified because I can see no set of actions that will have any reasonable prospect of reducing climate change.”

    No there are plenty of actions that will reduce climate change. What you are saying here is “My concern about doing something reducing climate change is magnified because I can see no set of actions” THAT WILL NOT COMPROMISE MY CUSHY WASTEFUL LIFESTYLE “that will have any reasonable prospect of reducing climate change”. If that is what you are really saying then this is true. The problem here is that without any supporting evidence you regard climate change as a problem that you can adapt to and have your lifestyle without change. However the 7 million ton elephant in the room is that you do not know this to be the case. Climate change could be so drastic so as to compromise the carrying capacity of the planet and lead to billions of deaths or it could be nothing at all. You or anyone else on this planet do not know which of these scenerios, or any scenerio in between, will come to pass. Yet you are prepared, just through your inability to compromise some wasteful luxuries, to bet the farm on climate change being adaptable to. Sounds like dinosaur thinking to me.

    “Certainly for Australia absolutly nothing we do will have the slightest effect on climate change. Therefore I am disinclined to support policies that will harm my fellow Australians for no practical purpose.”

    And this is where you are the most incorrect. At the moment Australia is a shining beacon for inaction. As one of the highest per capita greenhouse emitters in the world we serve as a model for countries wishing to resist action on climate change. In our government’s stubborn refusal to reduce emissions in any meaningful way we are a prime example of a resource rich country unable to find a way to reduce emissions without affecting the economy. We also had a leading role in nobbling Kyoto so it became almost ineffective. In these ways our contribution to climate change emissions are far beyond what we actually emit.

    This could be so different. With our abundant renewable resources and a visionary government we could instead be the beacon for how to transition an economy to renewable energy. In this way we could be selling billions of dollars worth of value added manufactured renewable products to Asia creating thousands of meaningful Australian jobs rather than selling low value primary products like coal and woodchips. We would also be contributing to lowering greenhouse emissions in these countries and allow us to punch well above our weight in reducing climate change.

    All that is lacking is vision.

  3. On the 4 Corners programme the other night, John Howard said that Australia would be silly to impose a domestic carbon tax as that would just allow China to buy our coal more cheaply. It is a very good point. The same amount of coal would still be burnt – but in China rather than here. The amount of C02 pollution in our shared atmosphere would be the same.

    John Howard understands economics very well.

    The lesson for us as individuals is that it is ridiculously naive to cut our personal electricity consumption. This will just lower the price and allow savvier consumers to get a nicer lifestyle at cheaper cost.

    John Howard says he will not be part of a global system where China and India do not have the same stringent requirements as us. Likewise I refuse to turn of my lights, computers, A/C at home because I can’t be sure that every other bugger in Australia isn’t doing the same thing.

  4. wbb – Simple answer: Stop exporting coal.

    You think I’m being irrational? What course of action is more rational? destroying the planet’s climate –OR– forgoing a few billion in export income?

    Australia is the biggest coal exporter in the world. Howard and others say we can’t make a difference to GHG emissions on a global scale. Bollocks! We could stop exporting coal tomorrow and make a HUGE difference.

    Re The implications that Biodiesel doesn’t make energy sense in terms of an unfavourable EROI, here is evidence

    NREL/SR-580-24089 UC Category 1503 Life Cycle Inventory of Biodiesel and Petroleum Diesel for Use in an Urban Bus
    Estimates EROI=3.2 for soy biodiesel

    An Overview of Biodiesel and Petroleum Diesel Life Cycles

    Pimentel, D. and T.W. Patzek, “Ethanol Production Using Corn, Switchgrass, and
    Wood; Biodiesel Production Using Soybean and Sunflower,� Natural Resources
    Research, 14(1): 65-75, 2005
    A contrary view to NREL

    Comparison of Pimentel and NREL finding, establishing NREL estimate of EROI=3.2 for so biodisel is realistic

    Biodiesel Energy Balance, Jon Van Gerpen and Dev Shrestha
    Department of Biological and Agricultural Engineering, University of Idaho

    NREL/SR-580-24089 UC Category 1503 Life Cycle Inventory Biodiesel Petroleum Diesel Urban Bus

    Its worth noting that Pimental’s conclusions on EROI for maize conversion to bioethanol are at variance with several other groups too, perhaps reflecting less detailed engineering expertise in his area. Or perhaps his co-author was an inexperienced student.

  6. detribe – “Re The implications that Biodiesel doesn’t make energy sense in terms of an unfavourable EROI, here is evidence”

    Just one question – where does the methanol come from?

  7. For those with the time here is failry conservative analysis of energy needs, coming supply problems and other scenarios, a very conservative paper but has some good basic work on alternatives and replacements. Source US Army (Engineers Corps) Could not past the link directly but here is the address:

  8. enders

    If Australia changed its policy of inaction; which other country in the world would change its actions ?

    We have a poor per capita greenhouse emissions because we are a high standard of living country without signifcant access to hydro (a fault of nature) and nuclear energy (political and economics).

    All the doomsday scenarios have a time scale over which humans can adapt. In the past adaption has always proven to be the least costly solution for human beings.

    Marxism was touted as how to prevent capitalism (forecast to be an absolute catastrophe) adaption to capitalism so far has proven to be less costly to humans.

    You are correct my belief in my lifestyle is such as I do not believe in wearing a hair shirt and covering myself with ashes without good evidence that it will address the challenges in my life style

    Currently the big challenges I would like my politicians to address are: how to speed up good governance in Africa and to a lesser extent the Arabian peninsular and; how to prevent obesity becoming the killer of poor people throughout the world.

    Both of these if not addressed will kill more people in a more immediate time frame than the worse scenarios for climate change.

    Both of these have solutions which are practical without the need world government or for me to change my lifestyle.

    I am proud of what western civilisation has achieved (without being unaware of the achievements of other civilisations) and I am pained by the mistakes of the past and try to avoid making the same mistakes again.

    The climate change issue has all the making of an elite generated industry complete with its own history. All past experience is that such industries have a negative impact on reaching real solutions to the issues they purport to address.

    However your values mean you value being on the losing side so you will be fully satisfied in the future.

  9. taust – the main point is that Australia could be a world leader in renewable power and lead by example rather than being the deputy sherriff. I would rather us be a leader rather than a follower. We export coal and woodchips and IMPORT the high tech lifestyle that you are so proud of. Western civilisation has done good things and bad things. To ignore the bad like environmental destruction is to ignore the ramifications of our technology. This no regrets strategy is OK as long as it lasts.

    I find in discussion with conservatives such as yourself (I hope you don’t mind being classified as this) is as a group you tend to be very black and white in your thinking. When someone like myself says that it would be a great ida to conserve energy and stop wasting so much and you respond with the hair shirt/live in a cave argument. Saving energy does not mean that you have to live in a cave. There is enormous potential for energy savings just by insulating houses and businesses better and investing in cooling and heating equipment that uses half the energy to do the same job. You can see it now with the difference between 6 star fridges and 3 star ones. Banning 3 star fridges and air conditioners and making 6 star the minimum has the potential to save massive amounts of power.

    Finally you do not know what will happen in the future. You do not know if you can adapt without massive loss of life. You do not have any plans for problems of energy supply. You only thought is to continue the way we are going because it seems to be working OK and hope for the best. Which is fine but why are you imposing this on the people that do not want it? You talk of communists etc is just a scare to the reds under the bed sort of stuff. None of what I say is communist or otherwise it is just common sense.

  10. how to prevent obesity becoming the killer of poor people throughout the world.

    Interesting how you seem happy to assert this claim, while being dismissive, indeed slanderous, about no less sound claims of climate change and its consequences. To wit:

    The climate change issue has all the making of an elite generated industry complete with its own history.

    And the obesity ‘industry’ doesn’t? Hasn’t already?

    Your use of the word ‘elite’, is also interesting, perhaps even deliberately provocative and divisive.

    Are you seriously suggesting we take a democratic vote to decide if the science of climate change is reliable, or if climate change is a very serious problem for humans? While we are at it, maybe we could solve the energy problem by democratic fiat too, and simply vote it away. Might even work for old age, as well.

    Can I suggest it is not smart to be using the word ‘elite’ in this manner. It is illegitimate and inflammatory rhetoric, and does your case no credit.

    If you think climate change is just some self-serving fad by foolish and/or unscrupulous scientists and environmentalists, then show us how it is done and rebut the science. Should be easy enough. Like to see you try.

    And why is obesity is only a problem for “poor people throughout the world”? Truly poor people the world over do not die from obesity. They die from mostly preventable disease, malnutrition, overwork, and violent conflict, often at the hands of their own governments.

  11. My dear taust, you can deny climate change for as long as you like, but if oil production peaks it will be undeniable. You won’t be able to pretend its not happening, and you will have to deal with the reality that your lifestyle is no longer sustainable.

    I invite you to poke holes in the idea of Peak Oil here: Peak Oil Primer

    I’ve tried and I can’t. There may be arguments about the timing of the peak but the basic premise is hard to deny.

  12. There is no way of rationally denying peak oil. It will happen sometime.
    However the countries with free markets will access the oil they need at the price reigning for oil given the demand at the reigning price

    The world goes through these periodic changes to energy sources wood to coal to whale oil to petroleum.

    Ask yourself who gains through these periodic peak oil panics.

    Is it Petroleum companies who run the line more subsidies for exploration a myriad alternative energy sources who need subsidies for something? Who subsidizes the wealthy consultants who give advice to all the movers and shakers?
    Trust the market; save the subsidies and worry about something that is worth an individual worrying about?

  13. taust – “However the countries with free markets will access the oil they need at the price reigning for oil given the demand at the reigning price”

    And if it is not available??

    “Trust the market; save the subsidies and worry about something that is worth an individual worrying about?”

    Why not just trust God? Your belief in the market is wonderous to behold. How come a simple thing like a market can solve any problem no matter how complex? To me it is just you surrendering to a higher power, the market, because you want to believe that it will solve all your problems.

  14. rog – “You are becoming hysterical Ender, no one is equating a free market with God.”

    And neither an I. However you are suggesting surrending control to a higher power. the market, that will miraculously fix everything. You do not specify how the market will fix everything or provide examples where the market has fixed everything. You just ask us to have faith.

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