I came across an article that explains the concept of peak oil production much better than I ever could. The article was written by Jim Puplava who I’ve previously listened to on webcasts interviewing other Peak Oil Cassandras like Matt Simmons, Robert Hirsch and Jeff Rubin.
I think the key things to pay attention to in Puplava’s article are:
1) How much of the world’s daily oil production comes from the largest 100 oil fields
2) What the annual decline rates are on those large oil fields
3) How much additional production needs to be added every year just to maintain our current level or daily oil production
4) When we last discovered a super giant oil field
I think this issue is pretty simple, and it is incredibly important. Despite advanced technologies and $70 to $100 oil we still can’t find any additional super giant oil fields. Why ? Because there aren’t any more to find.
And if there are additional super giant oil fields they are in very remote, hard to find, expensive to extract locations.
As the existing super giant and giant oil fields continue to have production declines every year of 7% or more it becomes almost impossible just to replace that lost production with hundreds of smaller fields. Growing that production level in any meaningful way is impossible.
But enough of my writing about it. Puplava does a much better job and I think you should consider his message when you structure your investment portfolio:
http://www.financialsense.com/contributors/james-j-puplava/peak-oil-chronicles-when-giants-run-dry
The entire article is linked above, the points below are especially important:
“Our abundant and rich lifestyle is all made possible from cheap and abundant energy. Our farmers use fertilizers made from natural gas. The tractors and combines burn diesel fuel as do the trucks that transport our food to either processing plants or the grocery store. Our stores are stocked with goods that are either made here or abroad. The goods arrive by planes, trains, boats or trucks that also burn fossil fuels. Everything we eat, consume, or enjoy is made possible through the production of energy. Liquid fuels have created new landscapes of concrete and asphalt highways, parking lots, shopping centers and endless urban sprawl.
This is all made possible because of oil, the single most important source of primary energy in our world. Crude oil has changed the very tempo of modern life. Oil has increased the productivity of modern economies. It has accelerated as well as deepened the process of economic globalization. Refined fossil fuels power massive diesel engines, which has changed both freight, passenger, and waterborne transport from river barges, to transoceanic freight ships and oceanic liners. The current pace of globalization has been made possible through marine transport.”
“Oil has changed and transformed the landscape of the world. It is a world we have taken for granted. It is this very lifestyle that we enjoy that is about to change in immeasurable ways this decade. What is going to change this world is the peaking of world oil production. Conventional oil, depending how you define it, has already peaked between the years 2004-2006. According to the IEA’s latest estimates, of the roughly 86 million barrels a day of oil that we consumed in 2009, 85% came from crude oil, 10% from natural gas liquids, 3% from other liquids, and 3% from refinery processing gains. We are already using other liquid fuels from deep water oil, tar sands, to coal and gas liquids to help supplement what we are currently not producing from conventional oil. Despite a seven-fold increase in oil prices this decade, global oil production has remained flat since 2005.
The reason, I believe, is that we are no longer discovering or finding oil giants. As shown in the illustration below 20% of our oil comes from just 14 oil fields. Over 47 percent of our oil comes from just 116 oil fields. The rest comes from smaller oil fields. The simple reality is that a large portion of the world’s most important energy source, oil, comes from a small population of giant oil fields and we are simply not finding them anymore. Most of these giants were discovered 50 to 70 years ago. The biggest oil field in the world, Ghawar (Saudi Arabia), was discovered in 1948. Cantarell (Mexico) was discovered in 1976, Prudhoe Bay (Alaska) in 1969, and Burgan Greater (Kuwait) was discovered in 1938. “
“The definition of giants has changed over the decades. The world’s 19 largest “old giant fields” still produce an average over 500,000 barrels per day, in spite of an average age of almost 70 years1. Very few, if any oil fields currently under development are expected to have daily production in excess of 250,000 barrels per day. So when a giant oil field such as Ghawar, Cantarell, Burgan, Prudhoe Bay, or the North Sea goes into decline it has a major impact on global oil production. Current rates of discovery are fewer and smaller in size. In addition to being smaller their depletion occurs at a faster rate.”
“Since Simmons first looked into the matter others have now followed. The IEA did a major study in 2008 of the world’s 800 largest oil fields. Their study found that field-by-field declines in oil production were accelerating. “We estimate that the average production-weighted observed decline rate worldwide is currently 6.7% for fields that have passed their production peak. In our Reference Scenario, this rate increases to 8.6% in 2030. The current figure is derived from our analysis of production at 800 fields, including all 54 super-giants (holding more than 5 billion barrels) in production today. For this sample, the observed post-peak decline rate averaged across all fields, weighted by their production over their whole lives, was found to be 5.1%. Decline rates are lowest for the biggest fields: they average 3.4% for super-giant fields, 6.5% for giant fields and 10.4% for large fields. Observed decline rates vary markedly by region; they are lowest in the Middle East and highest in the North Sea3.””
“In their summary, the IEA wrote the following: “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on…Time is running out and the time to act is now.””
“If we are making fewer oil discoveries, and the discoveries we are making are smaller than the giants of the past, and world oil depletion is accelerating then “Houston we have a problem.” We better start spending more money on investment, accelerating existing projects, and working on alternative views or we will face another oil crunch in the not too distant future.”
I think the key things to pay attention to in Puplava’s article are:
1) How much of the world’s daily oil production comes from the largest 100 oil fields
2) What the annual decline rates are on those large oil fields
3) How much additional production needs to be added every year just to maintain our current level or daily oil production
4) When we last discovered a super giant oil field
I think this issue is pretty simple, and it is incredibly important. Despite advanced technologies and $70 to $100 oil we still can’t find any additional super giant oil fields. Why ? Because there aren’t any more to find.
And if there are additional super giant oil fields they are in very remote, hard to find, expensive to extract locations.
As the existing super giant and giant oil fields continue to have production declines every year of 7% or more it becomes almost impossible just to replace that lost production with hundreds of smaller fields. Growing that production level in any meaningful way is impossible.
But enough of my writing about it. Puplava does a much better job and I think you should consider his message when you structure your investment portfolio:
http://www.financialsense.com/contributors/james-j-puplava/peak-oil-chronicles-when-giants-run-dry
The entire article is linked above, the points below are especially important:
“Our abundant and rich lifestyle is all made possible from cheap and abundant energy. Our farmers use fertilizers made from natural gas. The tractors and combines burn diesel fuel as do the trucks that transport our food to either processing plants or the grocery store. Our stores are stocked with goods that are either made here or abroad. The goods arrive by planes, trains, boats or trucks that also burn fossil fuels. Everything we eat, consume, or enjoy is made possible through the production of energy. Liquid fuels have created new landscapes of concrete and asphalt highways, parking lots, shopping centers and endless urban sprawl.
This is all made possible because of oil, the single most important source of primary energy in our world. Crude oil has changed the very tempo of modern life. Oil has increased the productivity of modern economies. It has accelerated as well as deepened the process of economic globalization. Refined fossil fuels power massive diesel engines, which has changed both freight, passenger, and waterborne transport from river barges, to transoceanic freight ships and oceanic liners. The current pace of globalization has been made possible through marine transport.”
“Oil has changed and transformed the landscape of the world. It is a world we have taken for granted. It is this very lifestyle that we enjoy that is about to change in immeasurable ways this decade. What is going to change this world is the peaking of world oil production. Conventional oil, depending how you define it, has already peaked between the years 2004-2006. According to the IEA’s latest estimates, of the roughly 86 million barrels a day of oil that we consumed in 2009, 85% came from crude oil, 10% from natural gas liquids, 3% from other liquids, and 3% from refinery processing gains. We are already using other liquid fuels from deep water oil, tar sands, to coal and gas liquids to help supplement what we are currently not producing from conventional oil. Despite a seven-fold increase in oil prices this decade, global oil production has remained flat since 2005.
The reason, I believe, is that we are no longer discovering or finding oil giants. As shown in the illustration below 20% of our oil comes from just 14 oil fields. Over 47 percent of our oil comes from just 116 oil fields. The rest comes from smaller oil fields. The simple reality is that a large portion of the world’s most important energy source, oil, comes from a small population of giant oil fields and we are simply not finding them anymore. Most of these giants were discovered 50 to 70 years ago. The biggest oil field in the world, Ghawar (Saudi Arabia), was discovered in 1948. Cantarell (Mexico) was discovered in 1976, Prudhoe Bay (Alaska) in 1969, and Burgan Greater (Kuwait) was discovered in 1938. “
“The definition of giants has changed over the decades. The world’s 19 largest “old giant fields” still produce an average over 500,000 barrels per day, in spite of an average age of almost 70 years1. Very few, if any oil fields currently under development are expected to have daily production in excess of 250,000 barrels per day. So when a giant oil field such as Ghawar, Cantarell, Burgan, Prudhoe Bay, or the North Sea goes into decline it has a major impact on global oil production. Current rates of discovery are fewer and smaller in size. In addition to being smaller their depletion occurs at a faster rate.”
“Since Simmons first looked into the matter others have now followed. The IEA did a major study in 2008 of the world’s 800 largest oil fields. Their study found that field-by-field declines in oil production were accelerating. “We estimate that the average production-weighted observed decline rate worldwide is currently 6.7% for fields that have passed their production peak. In our Reference Scenario, this rate increases to 8.6% in 2030. The current figure is derived from our analysis of production at 800 fields, including all 54 super-giants (holding more than 5 billion barrels) in production today. For this sample, the observed post-peak decline rate averaged across all fields, weighted by their production over their whole lives, was found to be 5.1%. Decline rates are lowest for the biggest fields: they average 3.4% for super-giant fields, 6.5% for giant fields and 10.4% for large fields. Observed decline rates vary markedly by region; they are lowest in the Middle East and highest in the North Sea3.””
“In their summary, the IEA wrote the following: “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on…Time is running out and the time to act is now.””
“If we are making fewer oil discoveries, and the discoveries we are making are smaller than the giants of the past, and world oil depletion is accelerating then “Houston we have a problem.” We better start spending more money on investment, accelerating existing projects, and working on alternative views or we will face another oil crunch in the not too distant future.”
