Re: [Marxism] Peak Oil

["rrubinelli" <rrubinelli@xxxxxxxxxxxxx>]

From: http://www.eia.doe.gov/emeu/perfpro/ch4sec1.html



Almost since oil was discovered in Pennsylvania in 1859, geologists,
energy economists, and corporate and government officials have debated
whether the supply of oil would be able to keep up with demand. For
example, in 1922 the U.S. Geological Survey (USGS) warned that America
was going to run out of oil within 20 years.a  In 1956, M. King Hubbert,
at the time a geophysicist with Shell Oil, predicted that U.S. oil
production would peak by 1970.b  While the USGS's 1922 prediction was
not realized, crude oil production in the United States did peak in 1970
at 9.6 million barrels per day (mmb/d). In 2003, U.S. oil (crude oil
plus natural gas liquids) production stood at 7.4 mmb/d, 34 percent
below its 1970 peak.c  In addition, conditions in the world oil market
at the end of 2004 were exacerbated by renewed arguments that worldwide
oil production would soon reach its peak.d  The concern has even been
extended to natural gas production.

One factor contributing to the current concern about the adequacy of the
supply of oil and gas was the January 2004 announcement by Royal
Dutch/Shell that it had overstated its reserves and reserve additions.
Although this case is an extreme example, several smaller reductions in
oil and gas reserves have since occurred at other companies, most
notably El Paso. But substantial companywide reserve reductions are the
exception. An oil or gas field's initial proved reserves estimate
typically understates its ultimate production capacity, and reserve
revisions are more frequently positive than negative. This article
provides an overview of how well FRS and other companies have replaced
production with reserve additions.

Replacing Production
Reserve reductions attract attention because one of the most closely
watched indicators of future production potential is the replacement of
production by reserve additions. As long as reserve additions exceed
production, continued production would seem to be assured, because
reserves (the capacity to produce oil or gas in the future) will
continue to increase. When production exceeds reserve additions, the
stock of reserves available for future production declines. If this
outcome persists over a long enough period of time, production of oil or
gas will eventually have to decline.

The replacement of worldwide oil production by reserve additions for the
Financial Reporting System (FRS) companies during the period 1981
through 2003 appears encouraging in this regard (Figure 37). The
replacement of oil production by reserve additions has improved in the
most recent decade, with reserve additions exceeding production in 7 of
the 10 years ending in 2003. In the decade before that, reserve
additions exceeded production only in 1 year. For natural gas, the
replacement of worldwide production by the FRS companies appears even
more heartening (Figure 38). Natural gas reserve additions exceeded
production in every year for the decade ending in 2003; in the previous
decade, gas production exceeded reserve additions only five times.

 Two limitations of the FRS data are that companies in the FRS group
change over time and the data do not include worldwide production by the
entire oil and gas industry. These problems can be avoided by examining
worldwide data on oil and gas replacement, which present even stronger
evidence for adequate production replacement than the FRS data. Figure
39 depicts these data for oil, excluding the Organization of Petroleum
Exporting Countries (OPEC).e  Only twice in the decade ending in 2003
did worldwide production exceed reserve additions. In 1997 the gap
between production and reserve additions was particularly large. That
year, Mexico released its first independently audited petroleum reserve
estimates, and its oil reserves fell by 20 billion barrels, almost
completely offsetting the reserve gains in the rest of the non-OPEC
world. In the previous decade, non-OPEC oil reserve additions failed to
replace production five times. The situation with gas reserves is very
clear: worldwide non-OPEC reserve additions have more than replaced
production, by up to a factor of eight, in every year from 1981 through
2003 (Figure 40).

However, the North American gas market, important in and of itself
because currently it is partially insulated from the rest of the world
by gas transportation limitations, presents a different picture than the
rest of the world regarding the replacement of oil and gas production
(Figure 41).f  For the FRS companies, gas reserve additions in North
America often fell short of production in the years from 1981 through
2003, with an average replacement rate of 85 percent during the period.
For the entire oil and gas industry in North America, gas reserve
additions have exceeded production more often than for the FRS
companies, but when they fell short, reserve additions sometimes lagged
production by large amounts, resulting in an average reserve replacement
ratio of 83 percent from 1981 through 2003 (Figure 42). This evidence
supports continued tightness in the North American gas market.

Reserve Additions and Production
The historical record on replacement of worldwide production by reserve
additions suggests that, until now, enough reserves have been added to
sustain production. However, a reserve replacement rate in excess of 100
percent does not guarantee that production levels will continue to
increase. Production could decline even with reserve replacement greater
than 100 percent, when, for example, the reserves being added have a low
extraction rate, as in the case of unconventional gas, or the reserves
being added are not producing because of infrastructure limitations or
because the reserves are located in a zone different from the one that
currently is being produced.g In this case, at some point, the oil or
gas supply will not be able to keep up with growing demand. Observers
have argued that this situation is now occurring at some major
investor-owned oil and gas producers and that it ". paint[s] a picture
of an industry that has depleted nearly all of the world's easily
exploited reserves outside the Middle East and that is now struggling to
sustain production, much less increase it."h

Figures 4-1 through 4-4 do not support the assertion that the world
petroleum industry is struggling to sustain production and indicate the
analytical danger in projecting the entire industry from just a few of
the largest oil and gas producers. For the FRS companies combined and
for the world as a whole, the production of oil and gas has not been
falling. The worldwide production of gas by the FRS companies and the
production of oil and gas by the entire industry have been increasing
since the mid-1980s.i  During the past 25 years, companies have found
more reserves than they have produced, indicating that the potential to
maintain, and probably increase, oil and gas production has not
diminished.


Endnotes


------------------------------------------------------------------------
--------


ahttp://www.energyquest.ca.gov/time_machine/1920ce-1930ce.html (November
15, 2004).

bM.K. Hubbert, "Nuclear Energy and the Fossil Fuels," Drilling and
Production Practice, American Petroleum Institute, Proceedings of the
Spring 1956 Meetings (San Antonio, Texas, 1956), pp. 7-25.

cNatural gas liquids are combined with crude oil to be consistent with
FRS definitions. Energy Information Administration, Monthly Energy
Review, DOE/EIA-0035(2004/10) (Washington, D.C., October 26, 2004),
Table 3.1a.

dKenneth S. Deffeyes, Hubbert's Peak: The Impending World Oil Shortage
(Princeton University Press, Princeton, New Jersey, 2001).

eOPEC is excluded because it regulates the production of crude oil by
its members, which may distort production-to-reserves ratios.

fThis isolation is expected to weaken as more facilities for the
regasification of liquefied natural gas are built in North America.

gAnother reason colud be that the cost of production is greater than the
market price.

hAlex Berenson, "An Oil Enigma: Production Falls Even as Reserves Rise,"
The New York Times (June 12, 2004), p. A1.

iWorldwide oil production by the FRS companies has been essentially flat
since the early 1990s. But this stagnant production level has masked
differing trends among the individual companies. While worldwide oil
production by several of the largest FRS companies (and a few of the
smaller ones) has declined, it has been offset by increased production
by several other of the largest FRS companies and by most of the smaller
ones.

_________________________




----- Original Message -----
From: "Joseph Callahan" <JOEANDCAROLINE@xxxxxxx>
To: "marxism list" <marxism@xxxxxxxxxxxxxxxxxxx>
Sent: Sunday, July 10, 2005 1:12 PM
Subject: [Marxism] Peak Oil





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