[A-List] Hubbert's Peak: The Impending World Oil Shortage

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

by Kenneth S Deffeyes

Chapter 1 of his book by the same name (Princeton University Press, 2001)


Global oil production will probably reach a peak sometime during this decade.
After the peak, the world's production of crude oil will fall, never to rise
again. The world will not run out of energy, but developing alternative energy
sources on a large scale will take at least ten years. The slowdown in oil
production may already be beginning; the current price fluctuations for crude
oil and natural gas may be the preamble to a major crisis.

In 1956, the geologist M King Hubbert predicted that US oil production would
peak in the early 1970s. <1> Almost everyone, inside and outside the oil
industry, rejected Hubbert's analysis. The controversy raged until 1970,
when the US production of crude oil started to fall. Hubbert was right.

[M King Hubbert, 1903-1989, was an American geophysicist who made important
contributions to understanding fluid flow and the strength and behavior of rock
bodies. Hubbert was at the Shell research lab in Houston when he made his
original estimates of future oil production; he continued the work at the US
Geological Survey.]

Around 1995, several analysts began applying Hubbert's method to world oil
production, and most of them estimate that the peak year for world oil will be
between 2004 and 2008. These analyses were reported in some of the most widely
circulated sources: Nature, Science, and Scientific American. <2> None of our
political leaders seem to be paying attention. If the predictions are correct
there will be enormous effects on the world economy. Even the poorest nations
need fuel to run irrigation pumps. The industrialized nations will be bidding
against one another for the dwindling oil supply. The good news is that we will
put less carbon dioxide into the atmosphere. The bad news is that my pickup
truck has a 25-gallon tank.

The experts are making their 2004-8 predictions by building on Hubbert's
pioneering work. Hubbert made his 1956 prediction at a meeting of the American
Petroleum Institute in San Antonio, where he predicted that US oil production
would peak in the early 1970s. He said later that the Shell Oil head office was
on the phone right down to the last five minutes before the talk, asking Hubbert
to withdraw his prediction. Hubbert had an exceedingly combative personality,
and he went through with his announcement.

I went to work in 1958 at the Shell research lab in Houston, where Hubbert was
the star of the show. He had extensive scientific accomplishments in addition to
his oil prediction. His belligerence during technical arguments gave rise to a
saying around the lab, "That Hubbert is a bastard, but at least he's our bastard".
Luckily, I got off to a good start with Hubbert; he remained a good friend for
the rest of his life.

Critics had many different reasons for rejecting Hubbert's oil prediction. Some
were simply emotional; the oil business was highly profitable, and many people
did not want to hear that the party would soon be over. A deeper reason was that
many false prophets had appeared before. From 1900 onward, several of these
people had divided the then known US oil reserves by the annual rate of
production. (Barrels of reserves divided by barrels per year gives an answer
in years.) The typical answer was ten years. Each of these forecasters started
screaming that the US petroleum industry would die in ten years. They cried
"wolf" During each ensuing ten years, more oil reserves were added, and the
industry actually grew instead of drying up. In 1956, many critics thought that
Hubbert was yet another false prophet. Up through 1970, those who were following
the story divided into pro-Hubbert and anti-Hubbert factions. One pro-Hubbert
publication had the wonderful title "This Time the Wolf Really Is at the Door".
<3>

Hubbert's 1956 analysis tried out two different educated guesses for the amount
of US oil that would eventually be discovered and produced by conventional
means: 150 billion and 200 billion barrels. He then made plausible estimates
of future oil production rates for each of the two guesses. Even the more
optimistic estimate, 200 billion barrels, led to a predicted peak of US oil
production in the early 1970s. The actual peak year turned out to be 1970.

Today, we can do something similar for world oil production. One educated
guess of ultimate world recovery, 1.8 trillion barrels, comes from a 1997
country-by-country evaluation by Colin J Campbell, an independent oil-industry
consultant. <4>  In 1982, Hubbert's last published paper contained a world
estimate of 2.1 trillion barrels. <5>  Hubbert's 1956 method leads to a peak
year of 2001 for the 1.8-trillion-barrel estimate and a peak year of 2003 or
2004 for 2.1 trillion barrels. The prediction based on 1.8 trillion barrels
makes a better match to the most recent ten years of world production.

In 1962, I became concerned that the US oil business might not be healthy by the
time I was scheduled to retire. I was in no mood to move to Libya. My reaction
was to get a photocopy of Hubbert's raw numbers; I made my own analysis using
different mathematics. In my analysis, and in Hubbert's, the domestic oil
industry would be down to half its peak size by 1998. Fortunately, universities
were expanding rapidly in the post-Sputnik era, and I had no trouble moving into
academe.

Hubbert's prediction was fully confirmed in the spring of 1971. The announcement
was made publicly, but it was almost an encoded message. The San Francisco
Chronicle contained this one-sentence item: "The Texas Railroad Commission
announced a 100 percent allowable for next month". I went home and said, "Old
Hubbert was right". It still strikes me as odd that understanding the newspaper
item required knowing that the Texas Railroad Commission, many years earlier,
had been assigned the task of matching oil production to demand. In essence,
it was a government-sanctioned cartel. Texas oil production so dominated the
industry that regulating each Texas oil well to a percentage of its capacity was
enough to maintain oil prices. The Organization of Petroleum Exporting Countries
(OPEC) was modeled after the Texas Railroad Commission. <6> Just substitute
Saudi Arabia for Texas.

With Texas, and every other state, producing at full capacity from 1971 onward,
the United States had no way to increase production in an emergency. During the
first Middle East oil crisis in 1967, it was possible to open up the valves in
Ward and Winkler Counties in west Texas and partially make up for lost imports.
Since 1971, we have been dependent on OPEC.

After his prediction was confirmed, Hubbert became something of a folk hero for
conservationists. In contrast to the hundreds of millions of years it took for
the world's oil endowment to accumulate, most of the oil is being produced in
100 years. The short bump of oil exploitation on the geologic time line became
known as "Hubbert's peak".

In Chapter 7, I explain how Hubbert used oil production and oil reserves to
predict the future. We scientists don't like to admit it, but we often guess at
the answer and then gather up some numbers to support the guess. A certain level
of honesty is required; if the numbers do not justify my guess, I don't fake the
numbers. I generate another guess. Hubbert's oil prediction was just barely
within the envelope of acceptable scientific methods. It was as much an inspired
guess as it was hard-core science.

This cautionary note is needed here: in the late 1980s there were huge and
abrupt increases in the announced oil reserves for several OPEC nations. <7>
Oil reserves are a vital ingredient in Hubbert's analysis. Earlier, each OPEC
nation was assigned a share of the oil market based on the country's annual
production capacity. OPEC changed the rule in the 1980s to consider also the
oil reserves of each country. Most OPEC countries promptly increased their
reserve estimates. These increases are not necessarily wrong; they are not
necessarily fraudulent.  "Reserves" exist in the eye of the beholder.

Oil reserves are defined as future production, using existing technolology,
from wells that have already been drilled (not to be confused with the US
"strategic petroleum reserve", which is a storage facility for oil that has
already been produced). Typically, young petroleum engineers unconsciously
tend to underestimate reserves. It's a lot more fun to go into the boss's
office next year and announce that there is actually a little more oil than
last year's estimate. Engineers who have to downsize their previous reserve
estimates are the first to leave in the next corporate downsizing.

The abrupt increase in announced OPEC reserves in the late 1980s was probably
a mixture of updating old underestimates and some wishful thinking. A Hubbert
prediction requires inserting some hard, cold reserve numbers into the
calculation. The warm fuzzy numbers from OPEC probably give an overly
optimistic veiw of future oil production. So who is supposed to know?

A firm in Geneva, Switzerland, called Petroconsultants, maintained a huge
private database. One long-standing rumor said that the US Central Intelligence
Agency was Petroconsultants' largest client. I would hope that between them,
the CIA and Petroconsultants had inside information on the real OPEC reserves.
This much is known: the loudest warnings about the predicted peak of world oil
production came from Petroconsultants. <8>  My guess is that they were using
data not available to the rest of us.

A permanent and irreversible decline in world oil production would have both
economic and psychological effects. So who is paying attention? The news media
tell us that the recent increases in energy prices are caused by an assortment
of regulations, taxes, and distribution problems. During the election campaign
of 2000, none of the presidential candidates told us that the sky was about to
fall. The public attention to the predicted oil shortfall is essentially zero.

In private, the OPEC oil ministers probably know about the articles in Science,
Nature, and Scientific American. Detailed articles, with contrasting opinions,
have been published frequently in the Oil and Gas Journal <9>  Crude oil prices
have doubled in the past year. I suspect that OPEC knows that a global oil
shortage may be only a few years away. The OPEC countries can trickle out
just enough oil to keep the world economies functioning until that glorious
day when they can market their remaining oil at mind-boggling prices.

It is not clear whether the major oil companies are facing up to the problem.
Most of them display a business-as-usual facade. My limited attempts at spying
turned up nothing useful. A company taking the 2004-8 hypothesis seriously would
be willing to pay top dollar for existing oil fields. There does not seem to be
an orgy of reserve acquisitions in progress.

Internally, the oil industry has an unusual psychology. Exploring for oil is
an inherently discouraging activity. Nine out of ten exploration wells are dry
holes. Only one in a hundred exploration wells discovers an important oil field.
Darwinian selection is involved: only the incurable optimists stay. They tell
each other stories bout a Texas county that started with thirty dry holes yet
the next well was a major discovery. "Never is heard a discouraging word".
A permanent drop in world oil production beginning in this decade is definitely
a discouraging word.

Is there any way out? Is there some way the crisis could be averted?

NEW TECHNOLOGY. One of the responses in the 1980s was to ask for a double
helping of new technology. Here is the problem: before 1995 (when the dot.com
era began), the oil industry earned a higher rate of return on invested capital
than any other industry. When oil companies tried to use some of their earnings
to diversify, they discovered that everything else was less profitable than oil.
Their only investment option was doing research to make their own exploration
and production operations even more profitable. Billions of dollars went into
petroleum technology development, and much of the work was successful. That
makes it difficult to ask today for new technology. Most of those wheels have
already been invented.

DRILL DEEPER. The next chapter of this book explains that there is an "oil
window" that depends on subsurface temperatures. The rule of thumb says that
temperatures 7,500 feet down are hot enough to "crack" organic-rich sediments
into oil molecules. However, beyond 15,000 feet the rocks are so hot that the
oil molecules are further cracked into natural gas. The range from 7,000 to
15,000 feet is called the "oil window". If you drill deeper than 15,000 feet,
you can find natural gas but little oil. Drilling rigs capable of penetrating
to 15,000 feet became available in 1938.

DRILL SOMEPLACE ELSE. Geologists have gone to the ends of the Earth in their
search for oil. The only rock outcrops in the jungle are in the banks of rivers
and streams; geologists waded up the streams picking leeches off their legs. A
typical field geologist's comment about jungle, desert, or tundra was: "She's
medium-tough country". As an example, at the very northernmost tip of Alaska,
at Point Barrow, the United States set up Naval Petroleum Reserve #4 in 1923.
<10> As early as 1923, somebody knew that the Arctic Slope of Alaska would be
a major oil producer.

Today, about the only promising petroleum province that remains unexplored is
part of the South China Sea, where exploration has been delayed by a political
problem. International law divides oil ownership at sea along lines halfway
between the adjacent coastlines. A valid claim to an island in the ocean
pushes the boundary out to halfway between the island and the farther coast.
It apparently does not matter whether the island is just a protruding rock
with every third wave washing over the rock. Ownership of that rock can confer
title to billions of barrels of oil. You guessed it: several islands stick up
in the middle of the South China Sea, and the drilling rights are claimed by
six different countries. Although the South China Sea is an attractive prospect,
there is little likelihood that it is another Middle East.

SPEED UP EXPLORATION. It takes a minimum of ten years to go from a cold start on
a new province to delivery of the first oil. One of the legendary oil finders,
Hollis Hedberg, explained it in terms of "the story".  When you start out in a
new area, you want to know whether the oil is trapped in folds, in reefs, in
sand lenses, or along faults. You want to know which are the good reservoir
rocks and which are the good cap rocks. The answers to those questions are
"the story".  After you spend a few years in exploration work and drilling holes,
you figure out "the story".  For instance, the oil is in fossil patch reefs.
Then pow, pow, pow - you bring in discovery after discovery in patch reefs.
Even then, there are development wells to drill and pipelines to install.
It works, but it takes ten years. Nothing we initiate now will produce
significant oil before the 2004-8 shortage begins.


To summarize: it looks as if an unprecedented crisis is just over the horizon.
There will be chaos in the oil industry, in governments, and in national
economies. Even if governments and industries were to recognize the problems,
it is too late to reverse the trend. Oil production is going to shrink. In an
earlier, politically incorrect era the scene would be described as a "Chinese
fire drill".

What will happen to the rest of us?  In a sense, the oil crises of the 1970s and
1980s were a laboratory test. We were the lab rats in that experiment. Gasoline
was rationed both by price and by the inconvenience of long lines at the gas
stations. The increased price of gasoline and diesel fuel raised the cost of
transporting food to the grocery store. We were told that ninety percent of an
Iowa corn farmer's costs were, directly and indirectly, fossil fuel costs. As
price rises rippled through the economy, there were many unpleasant disruptions.

Everyone was affected. One might guess that professors at Ivy League
universities would be highly insulated from the rough-and-tumble world. I taught
at Princeton from 1967 to 1997; faculty morale was at its lowest in the years
around 1980. Inflation was raising the cost of living far faster than salaries
increased. Many of us lived in university-owned apartments, and the university
was raising our apartment rents in step with an imaginary outside "market" price.
Our real standard of living went progressively lower for several years in a
row. That was life (with tenure) inside the sheltered ivory tower; outside it
was much tougher.

What should we do?  Doing nothing is essentially betting against Hubbert.
Ignoring the problem is equivalent to wagering that world oil production will
continue to increase forever. My recommendation is for us to bet that the
prediction is roughly correct. Planning for increased energy conservation
and designing alternative energy sources should begin now to make good use
of the few years before the crisis actually happens.

One possible stance, which I am not taking, says that we are despoiling the
Earth, raping the resources, fouling the air, and that we should eat only
organic food and ride bicycles. Guilt feelings will not prevent the chaos that
threatens us. I ride a bicycle and walk a lot, but I confess that part of my
motivation is the miserable parking situation in Princeton. Organic farming
can feed only a small part of the world population; the global supply of cow
dung is limited. A better civilization is not likely to arise spontaneously
out of a pile of guilty consciences. We need to face the problem cheerfully
and try to cope with it in a way that minimizes problems in the future.

The substance of this book is an explanation of the origin, exploration,
production, and marketing of oil. This background about the industry is
important because it sets geologic constraints on our future options. I
describe the strengths and weaknesses of Hubbert's prediction methods and
end with some suggestions about preparing for the inevitable. My intention
is to give the reader some expertise in evaluating the problems. The experts'
scenario for 2004-8 reads like the opening passage of a horror movie. You
have to make up your own mind about whether to accept their scary account.

My own opinion is that the peak in world oil production may even occur before
2004. What happens if I am wrong? I would be delighted to be proved wrong. It
would mean that we have a few additional years to reduce our consumption of
crude oil. However, it would take a lot of unexpectedly good news to postpone
the peak to 2010. My message would remain much the same: crude oil is much too
valuable to be burned as a fuel.

Stephen Jay Gould is fond of pointing out that we all have difficulty rising
above our cultural biases. ("All" in that sentence includes Gould.)  It helps
if I identify the roots of my biases. Here is my confession:

I was born in the middle of the Oklahoma City oil field. I grew up in the oil
patch. My father, J A "Dee" Deffeyes, was a pioneering petroleum engineer. In
those days, companies moved employees around wherever they were needed. I went
to nine different grade schools getting through the first eight grades. During
high school and college, each summer I had a different job in the oil industry:
laboratory assistant, pipeyard worker, roustabout, seismic crew.

After I graduated from the Colorado School of Mines, I worked for the
exploration department of Shell Oil. Right at the end of the Korean War,
everybody my age got drafted. There weren't many of us. I was one of the
few born right in the pit bottom of the Great Depression. I wanted to have
my revenge on the army by using up my GI Bill at the most expensive school
I could find. The geology department at Princeton turned out to be fabulous.

After graduate school, I was delighted to be asked to rejoin Shell at its
research lab in Houston. Scientific progress happened very rapidly at the
Shell lab. Jerry Wasserburg of Cal Tech, not known for passing out compliments
freely, said that the Shell research lab in that era was the best Earth science
research organization in the world. As I mentioned, it was Hubbert's prediction
that caused me to get out of the oil business.

I taught briefly at Minnesota and Oregon State, and in 1967 I joined the
Princeton faculty. In addition to teaching, I had the pleasure of cooperating
with John McPhee as he wrote his books on geology. <11>  The "oil boom" of the
1970s and early 1980s gave me a chance to participate in the industry again.
As a consultant, I advised programs that drilled for natural gas across western
New York and northern Pennsylvania. My programs drilled 100 successful gas wells
without a dry hole; one of them was the largest gas well in the history of New
York State. <12>  I also served as an expert witness in oil litigation.

You don't outgrow your roots. As I drive by those smelty refineries on the New
Jersey Turnpike, I want to roll the windows down and inhale deeply. But in all
the years that I worked in the petroleum industry, I never came to identify
with the management. I'm a worker bee, not a drone.

A couple of years ago, I was testing a new treatment on an oil well in northern
Pennsylvania. I picked up a pipe wrench with a 36-inch handle and helped revise
the plumbing around the wellhead. I was home again; I loved it.

NOTES

1. Hubbert, M K (1956), "Nuclear Energy and the Fossil Fuels", American
Petroleum Institute Drilling and Production Practice, Proceedings of Spring
Meeting, San Antonio, 1956, pages 7-25; also Shell Development  Company
Publication 95, June 1956.

2. Hatfield, C B (1997), "Oil Back on the Global Agenda", Nature 387:121;
Kerr, R A (1998), "The Next Oil Crisis Looms Large-And Perhaps Close", Science
281:1128-31; Campbell, C A, and Laherrere J H (1998), "The End of Cheap Oil",
Scientific American, March: 78-83.

3. Akins, J E (1973), "The Oil Crisis: This Time the Wolf Is Here",
Foreign Affairs, April 1973.

4. Campbell, C J (1997), The Coming Oil Crisis, Multi-Science Publishing Company
and Petroconsultants. His world scenario is on page 201.

5. Hubbert, M K  (1981), "The World's Evolving Energy System",
American Journal of Physics 49:1007-29.

6. Yergin, Daniel (1991), The Prize, New York: Simon & Schuster.
The founding of OPEC is described beginning on page 522.

7. In this book, the reserves and production data are those reported by the Oil
and Gas Journal in its last issue of each year. Campbell's evaluation of OPEC
reserve increases is on page 73 in his Coming Oil Crisis.

8. Colin Campbell and Sam Carmalt have worked for, or with, Petroconsultants. In
1998, Petroconsultants was merged into the IHS Energy Group, www.ihsenergy.com.

9. One of the best critical rejections of Hubbert's approach is Adelman, M A,
and Lynch M C (1997), "Fixed View of Resource Limits Creates Undue Pessimism",
Oil and Gas Journal, April 7:56-60. Other comments are in Oil and Gas Journal,
February 23 1998:77, and November 2 1998:94.

10. As explained in the next chapter, David White of the US Geological Survey
was a pioneer in interpreting the origins of oil. In 1929, White published
"Description of Fossil Plants Found in Some 'Mother Rocks' of Petroleum from
Northern Alaska", American Association of Petroleum Geologists Bulletin
13:841-48.

11. McPhee, John (1998), Annals of the Former World, New York: Farrar, Straus,
and Giroux. This is a revised printing of four earlier books.

12. McCaslin, J C (1984), "Well Completions Boost Impact in New York Area",
Oil and Gas Journal, March 5:121-22.


Please also see "Charts of the Coming Global Oil Crisis" at Hubberpeak.com
(September 06 2004) http://www.hubbertpeak.com/curves.htm


Bill Totten     http://www.ashisuto.co.jp/english/