The newspaper Svenska Dagbladet was very quick to accept our reply to Noreng’s article. I sent in our reply at 10 AM today and they gave it the green light at 1.20 PM. The article was then posted on SvD’s website at 5.08 PM. The comments began to stream in immediately. You can read the Swedish version at the link below and below that is an English translation:
Dr Fatih Birol is the Chief Economist of the International Energy Agency (IEA) that was established by the OECD. In the last three years he has very clearly stated that the global oil supply faces great challenges. Two years ago Dr Birol said that the world needed four new Saudi Arabias by 2030 but few noted this. Last November when he visited Stockholm and the Energy Department he had sharpened his warning further and said that the world needed two new Middle Easts. Dr Birol is primarily concerned that production form the world’s giant oilfields – that produce more than half of the world’s oil – is declining rapidly. The IEA calculates that the annual decline in the rate of production from fields currently being exploited is approximately 4 million barrels per day. The Global Energy Systems research group at Uppsala University has published scientific research that confirms this trend and similar decline rates have also been observed by a number of other groups.
There are around 70,000 oilfields in the world. However, their size varies greatly and most of the oil is concentrated in only a few large oilfields. Around 45% of the oil we use comes from only 100 fields and when production from these giant fields declines worldwide then yes – we will need two Middle Easts to make up the difference. When we analyse the databases available within the oil industry there is nothing that indicates we will be able to increase oil production by this amount in the foreseeable future. The necessary oil may exist underground but it is the rate of oil extraction/production that is crucial and that provides society’s oil supply. The size of the tank (oil reserves) and the size of the tap (the oil production rate) are actually two different things.
Our earlier studies from 2003 predicted it was possible to produce, at most, 85 million barrels of oil per day in 2010. With hindsight we can now see that we were correct (if not optimistic) and world production of oil has according to BP leveled off at 82 million barrels per day. (The US Energy Information Administration includes processing gains, the volume increase the products get when passing through the refineries, and uses the number 85 million barrels per day.) Delays in important projects, unrest in Iraq and other factors have slowed development of new oilfields while the oil production from existing fields continues its relentless decline. Peak Oil occurs when the rate of oil production from new fields can no longer replace the oil lost to production decline in old oilfields. The fact that the world’s rate of oil production has leveled off since 2004 shows that we have only been able to hold production constant (not increase it) despite a strongly rising oil price.
Peak Oil has been a topic of much debate in recent years. The Swedish Finance Department’s Expert Group for Environmental Studies decided in 2010 to commission a report on Peak Oil and, not unexpectedly, the Group’s 7 economist members appointed Øysten Noreng, (a professor of petroleum economics and one of those who established the Norwegian Oil Fund), to make this investigation. On Friday 30 March the report, “Peak Oil – An Economic Analysis” was presented at a symposium at Rosenbad. For the past few weeks we have had the opportunity to examine the report and we also presented our views on it at the symposium.
The first thing we must criticize is Professor Noreng’s definition of Peak Oil. What he describes is the method introduced in 1956 by the geologist, M. King Hubbert as a conceptual model for, in broad strokes, painting a picture of future American oil production south of Canada based on some simple assumptions. The most basic assumption was that one could not produce more oil than had been found and despite the fact that Hubbert made his calculations by hand he correctly predicted that the peak rate of oil production in the USA would occur in 1970. That model is now named the Hubbert Model. It was an important concept but, in subsequent decades, it has been replaced by better alternatives. Today there exists a broad family of Peak Oil models that have been developed from Hubbert’s original concept.
The international research organization, The Association for the Study of Peak Oil and Gas (ASPO) that coined the term Peak Oil no longer uses the Hubbert Model to any great extent. Indeed, the Peak Oil studies published by Kjell Aleklett and Colin Campbell in 2003 did not use the Hubbert Model but, instead, were based on a more generally applicable relationship between production and oil reserves in oilfields and in geographical regions. The methodology has since been developed further at Uppsala University and, among other things, has resulted in four doctoral theses and over 30 scientific articles. Outside of Sweden a great number of researchers have produced hundreds of scientific articles on Peak Oil. Professor Noreng has ignored these developments and asserts instead and quite incorrectly that “Hubbert’s theory is the central reference in the discussion around Peak Oil”. It is as though he has no knowledge of this entire scientific landscape outside his own limited area. Thus the portrait of Peak Oil that he paints is as outdated as predictions of today’s economy that were made in the 1950s.
An important detail in Professor Noreng’s critique of Peak Oil are the changes in oil reserves published in the “BP Statistical Review of World Energy”. If these changes in reserve numbers are taken at face value then it is easy to draw conclusions that are too simplistic. One reason that these changes in reserve numbers are misleading is that they only show those reserves being actively exploited (“commercially active”) whereas discovered but commercially inactive reserves are ignored. If, instead, one uses a more complete oil industry dataset it becomes evident that the rate of oil discoveries has been declining since the 1960s and that from the 1980s we began to produce more oil annually from discovered fields than we were discovering in new geological formations. To form conclusions from only an isolated form of data is questionable and shows a deficient understanding of the system’s characteristics and the complexities of the available statistics.
The Expert Group for Environmental Studies has noted that the report is Professor Noreng’s personal opinion. We very much hope that this report will not become the Group’s final assessment. We note that most of the past 10 year’s research on Peak Oil is missing from the report and we would refer the Expert Group instead to the world’s most detailed analysis of Peak Oil titled, “An assessment of the evidence for a near-term peak in global oil production”, that was released in August 2009 by the UK’s Energy Research Centre. The report summarised the results of over 500 scientific studies and found overwhelming evidence for a peak rate of oil production occurring before 2030 and a significant risk that the peak would occur before 2020. Theories that placed the peak after 2030 were judged to be optimistic or based on faith instead of fact. The development of alternative sources of energy and the conversion of our society to use of these requires long timeframes. Thus it is important that the risk that Peak Oil poses to modern society is regarded seriously and illuminated in its full complexity.
Kjell Aleklett, professor and Mikael Höök, university lecturer
Global Energy Systems, Department of Earth Sciences