Peak Oil and the Catastrophe in the Gulf of Mexico

Posted on May 3, 2010

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(The Swedish version in the blog below)

Deepwater Horizon burns

When the oil platform Deepwater Horizon exploded and sank to the bottom of the Gulf of Mexico, oil once again wound up at the top of the media’s news agenda. Of course, it also became a blog on Alekletts Energy Mix.

One can also see comments that couple together the catastrophe with our definition of Peak Oil, i.e. “The term Peak Oil refers to the maximum rate of the production of oil in any area under consideration, recognising that it is a finite natural resource, subject to depletion.”

Aftonbadet [literally “Evening page”] is Scandinavia’s largest newspaper and in the editorial of 30 April we can read the following (editorial in Swedish):

The oil companies need to drill deep to get hold of the world’s last accessible drops of oil. In reality, it is not oil that is running out, it is the easily accessible oil that is disappearing. In Canada another desperate attempt is underway to extract oil from tar sands. Tar sands are exactly as they sound – sand and mud that contain residues of crude oil. It requires enormous resources to extract oil from the sand. Huge areas of land must be dug up, all the forest chopped down and wetlands drained. If the sand lies near the surface the mining occurs in huge open pits. If the sand lies deeper than 100 metres then chemicals and steam are required to separate out the oil. This is not just some Canadian experiment but, rather, the world’s biggest energy project. It is dirty, energy-craving and desperate. As long as the oil companies can make money doing so they will extract oil, but the more difficult it gets the more expensive the oil will become.

Seven years ago the world’s first “peer-reviewed” article by Aleklett and Campbell was published in “Minerals and Energy”, The peak and decline of world oil and gas production.

Therein it is described very clearly that large volumes of production from “Deep Water” will be required if we are to reach 30 billion barrels per year of oil production in 2010, i.e. the production level that we have today. The importance of the oil sands is also described and they are included as “heavy” oil. It was this article that led the OECD to give me the task in 2007 of writing a report on the world’s future oil production.

The editorial in Aftonbladet concludes thus, “It is not only the climate that requires that we change our means of transport. The oil crisis will soon be the foremost reason for rearranging traffic flows. The researchers are discussing “The Oil Peak”, i.e. when the breaking point is reached and it becomes to expensive to extract oil. But it does not matter if this happens in 2020 or 2030. It is soon and before this we must change our method of being transported.”

First a little correction: We are not discussing “The oil peak” but, rather, “Peak Oil”. According to my viewpoint there is an important difference. The expression “the oil peak” is connected to the Hubbert model that is a method of distributing in mathematical terms – e.g. on a time axis a set amount of oil according to a statistical model. In 1956 M. King Hubbert used this model successfully to predict the USA’s future oil production but when he later attempted to do this for the entire world he was in error. The problem with the Hubbert model is that it does not include any parameters that give regard to the physical reality that exists in an oilfield or oil producing regions. Using the Hubbert model one can predict unrealistically high levels of “peak” production. In our models, in which we incorporate the “depletion” cited in our definition of “peak oil”, our predictions do not need to conform to statistical distributions. The Hubbert model can be useful when one has limited information on “depletion”, but one must then always note the limitations inherent in such calculations.

The day before the editorial in Aftonbladet I wrote my blog on Deepwater Horizon and the responsibility that BP’s chair Carl-Henric Svanberg should take. Aftonbladet called me for an interview. The headline became, “Obama puts pressure on Svanberg” (article in Swedish).

They also discuss Carl-Henric Svanberg’s childhood dream: “The position as chair of BP was a childhood dream for Carl-Henric Svanberg. But BP’s share price is falling as fast as the oil is gushing out into the Gulf of Mexico: The share price has fallen by 140 billion [Swedish] crowns”.

About the fact that he left Ericsson for BP they write, “Carl-Henric Svanberg came from a six year long period as head of Ericsson. The choice to change industry surprised Kjell Aleklett, the oil analyst and professor at Uppsala University – He left an industry of the future for one in decline. He had no real knowledge of the oil industry, and he has no chance at all of learning it in such a short time. I have worked on oil for ten years and still have much to learn, says Kjell Aleklett.”

We read further in the article that: Already millions of litres of oil have leaked out into the Gulf of Mexico. If the 1989 spillage by Exxon Valdez was equivalent to 50 days of leakage then we are already up to the seventh day now. There are some days left until the volumes spilled in Alaska are reached but the leakage continues. It will become a race against time, says Kjell Aleklett. The media the world over are now chasing Svanberg for comment. But so far he has chosen to remain silent.”

And they conclude with, “The Norwegian oil analyst Thina Saltvedt, that works for Nordea, believes that the Swedish chair’s silence is due to that they do not yet know how extensive the catastrophe will become. But it is clear that it would be good if they said something, not least since the shortage of information is creating uncertainty that is reflected in the stock market. Thina Saltveldt also wonders how BP will respond to Obama’s demand that the oil company pay for the clean-up following the leak – and I am not alone in that, she says. Now Svanberg must prove himself, says Kjell Aleklett – he must comment. He must show us what makes a great leader, he says”.

Yesterday on May 1 Dagens Nyheter (DN) rang and now instead they wanted to discuss what the catastrophe will mean for the company BP. The headline became, “BP will probably not be bankrupted”. (Article in Swedish)

“The question that many are asking is whether BP has sufficient economic muscle to cope with this oil catastrophe? – We are talking about a global oil giant and I believe that a great deal more than this would have to happen for the company to be forced into bankruptcy, says Kjell Alekeltt who is professor of physics at Uppsala University and, among other things, performs research into global energy systems.

Some others in the oil industry have the same opinion. Further, “A consequence that the accident with the oil platform “Deepwater Horizon” can lead to is tightened safety requirements on the company by authorities – but increased restrictions can, in their turn, limit choices and lead to higher oil prices, says Anne Gjøen. Today, oil is produced on land, in coastal regions and in deep water – when something happens in deep water it immediately becomes a very difficult situation. Now that this accident has happened we can see clearly the sorts of problems that can occur. All this is due to the fact that our way-of-life is driving demand at the same time as the oil on land has reached maximum production and is now steadily decreasing, says Kjell Aleklett”.

These are some examples of the media’s new interest in oil and where I personally have been involved. A search of the internet will give you many hours of reading. It is amazing that there always has to be a catastrophe before the media will take up an issue even though we researchers showed that there would be a problem already back in 2003. When ASPO, the Association for the Study of Peak Oil and Gas, was formed in 2002 our motive was to make Peak Oil an issue. The discussion is continuing around the world, (a search for “peak oil” just now gave 1,470,000 hits), but there are very few political initiatives and we can justifiably say that the politicians are not accepting their responsibility. The question is whether the opportunity now exists to make Peak Oil a global political question?

Posted in: Dagsaktuellt