Desmond Smith posted a comment after my previous blog: “The crash in the price of oil may change the oil market – a look at the IEA’s “Oil Medium-Term Market Report 2015” and it requires a lengthy response. Therefore, I am giving it in this separate blog.
17 years ago, in March 1998, Colin Campbell and Jean Laherrère published their now classic article, “The End of Cheap Oil” in the journal Scientific American. The figure above is copied from the 1998 article and shows curves fitted to oil production with the source of this information given as Jean Laherrère.
It has been quite a long time since I read Colin and Jean’s article but after a comment by Desmond Smith below my blog, “The crash in the price of oil may change the oil market – a look at the IEA’s “Oil Medium-Term Market Report 2015”, I have now re-read it.
Desmond objected to my statement that, “We can see now that Colin and Jean’s 1998 predictions have proven completely correct.” He commented:
“No, definitely not. I have the 1998 predictions in front of me now. On page 81 there is a chart showing all oil (including unconventional) beginning a terminal decline around 2004-2005. By now, the supply of all oil (including unconventional) was supposed to have declined absolutely by about 14% relative to 2004, and still declining. That has not happened.”
I was surprised because Jean has always said that the scenario concerned conventional oil (crude oil). In the article, Colin and Jean discuss only crude oil. However, confusion arises when examining the blue explanatory text to the left of the figure in the paper:
“GLOBAL PRODUCTION OF OIL both conventional and unconventional (red), recovered after falling in 1973 and 1979. But a more permanent decline is less than 10 years away, according to the authors’ model, based in part on multiple Hubbert curves (lighter lines). U.S. and Canadian oil (brown) topped out in 1972; production in the former Soviet Union (yellow) has fallen 45 percent since 1987. A crest in the oil produced outside the Persian Gulf region (purple) now appears imminent.”
When reading other comments in blue text in the article it is obvious that those were written by a Scientific American editor and I suspect this is also the case for the blue explanatory text next to this figure. Since Colin and Jean do not describe any calculations of unconventional oil I began to suspect that the word “unconventional” had been inserted erroneously. So I wrote an email to Jean to sort out the situation. Here is his reply:
In the joint 1998 article we were rather shy on defining unconventional. At this time and even now there is no consensus on what is conventional or not. For me conventional was primary and secondary recovery production where only pressure was changed with water or gas injection. My 1998 red curve is crude oil less extra-heavy which for me is conventional.
Thus Jean has confirmed that the word “unconventional” in the blue text is inappropriate and that the phrase “both conventional and unconventional” should have read only “conventional”. At this current, critical phase in the history of global Peak Oil I feel it is very important to correct this error in the text of the 1998 article.
To Desmond Smith I would say that his comment was correct. His criticism would be completely justified if the curves in the 1998 figure did actually depict conventional plus unconventional oil. I hope that all readers of this blog will take the opportunity to read Colin and Jean’s article to see how insertion of the word “unconventional” is clearly in error. I thank Desmond for the opportunity that his comment gave me to correct an error of 17 years standing.
Regarding their method of “Predicting the Inevitable” in the 1998 paper Colin and Jean write:
“Predicting the Inevitable Predicting when oil production will stop rising is relatively straightforward once one has a good estimate of how much oil there is left to produce.”
In this part of the article Jean introduces what are today called “creaming curves”. In the article there is a figure featuring creaming curves for “Africa and the Former Soviet Union”. The figure shows the cumulative amount of discovered oil as a function of the number of wells drilled to find that oil, “wildcats”. To make such a graph one must have access to detailed data. Jean and Colin had such access because they were consultants for the firm Petroconsultants in Geneva. The figure shows that smaller oilfields were being found as the number of wells drilled increased. By extrapolation, Colin and Jean estimated how much more crude oil would be found in various geographical regions in the future. It was these values that they used to estimate the time-point of maximal crude oil production (peak conventional oil). When Jean answered my email inquiry regarding the text in the 1998 Scientific American article, he also sent me an updated version of a figure in the paper.
The light green curve represents the values used in 1998 and the dark green is Jean’s revised curve. Colin and Jean down-corrected the extremely high upward reserve revisions that Saudi Arabia made during the 1980s but we know now that the world’s largest conventional oilfield, Ghawar, is larger than they then believed. Another important revision in oil accounting that Colin and Jean introduced in their paper was called “backdating”. This was to correct for the common practice by oil companies of regarding revisions to the estimated recoverable reserves in old oilfields as new discoveries of oil in the year that the revision is made. Backdating corrects this by translating revisions in estimates of recoverable oil from oilfields back to the original date of oilfield discovery (since the oil was there all along, it is only oil companies’ awareness of it that changed). Without backdating one sees the red curve rather than the dark green one and the impression given of discoveries of oil is entirely different. We can see that new backdating that includes revisions made since 1998 increases the peak of oil reserves by 80 billion barrels. This additional oil amounts to a little less than three years of world oil consumption. If it had been accounted for in 1998 then the estimated date of the peak of world oil production would have shifted from 2003 to 2005.
In Jean’s figure, production is given in billions of barrels per year and when we express this as production per day we obtain the following values: 2000 – 70.7 Mb/d, 2003 – 71.5 Mb/d, 2005 – 71.0 Mb/d, 2010 – 67.5 Mb/d, 2015 62.5 Mb/d and 2020 – 54.8 Mb/d. In the figure above you can see that the IEA gave the maximum of “crude oil” production as 70.0 Mb/d in 2005. Jean and Colin had predicted maximal production of 71.5 Mb/d in 2003. In 2011 the IEA stated production at 69.9 Mb/d while Jean and Colin had predicted a production rate of 66. 8 Mb/d. The increase in reserves that Jean showed in his revised figure has the effect that the decline in production rate after the peak of oil production is not as rapid as predicted in the 1998 article. Another important point to note is that if one uses the Hubbert method for estimating Peak Oil then the estimated peak is commonly higher than occurs in reality and the predicted decline is usually faster than actually seen. This is what Jean’s revised figure shows. However, I think it is still justified to state that, “We can see now that Colin and Jean’s 1998 predictions have proven completely correct.” That a prognosis made 17 years ago could come so near to describing future reality is truly remarkable.
Regarding the assertion that cheap oil would run out in 2003 one can see that during the 1990s we experienced an oil price that even dropped below $20 per barrel. However, after 2002 the price began to rise markedly and it was, indeed, the end of cheap oil. Although the oil price is currently around $50 per barrel it is still relatively expensive compared to the price during the 1990s. Some are now arguing that the price will be $40 for an extended period.
In their 1998 article Colin and Jean did also discuss unconventional oil. They wrote:
“Last, economists like to point out that the world contains enormous caches of unconventional oil that can substitute for crude oil as soon as the price rises high enough to make them profitable. There is no question that the resources are ample: the Orinoco oil belt in Venezuela has been assessed to contain a staggering 1.2 trillion barrels of the sludge known as heavy oil. Tar sands and shale deposits in Canada and the former Soviet Union may contain the equivalent of more than 300 billion barrels of oil [see “Mining for Oil,” by Richard L. George, on page 84]. Theoretically, these unconventional oil reserves could quench the world’s thirst for liquid fuels as conventional oil passes its prime. But the industry will be hard-pressed for the time and money needed to ramp up production of unconventional oil quickly enough
Such substitutes for crude oil might also exact a high environmental price. Tar sands typically emerge from strip mines. Extracting oil from these sands and shales creates air pollution. The Orinoco sludge contains heavy metals and sulfur that must be removed. So governments may restrict these industries from growing as fast as they could. In view of these potential obstacles, our skeptical estimate is that only 700 Gbo will be produced from unconventional reserves over the next 60 years.”
Finally, regarding the price of oil, Colin and Jean wrote:
“The switch from growth to decline in (crude) oil production will thus almost certainly create economic and political tension. Unless alternatives to crude oil quickly prove themselves, the market share of the OPEC states in the Middle East will rise rapidly. Within two years, these nations’ share of the global oil business will pass 30 percent, nearing the level reached during the oil-price shocks of the 1970s. By 2010 their share will quite probably hit 50 percent.
The world could thus see radical increases in oil prices. That alone might be sufficient to curb demand, flattening production for perhaps 10 years. (Demand fell more than 10 percent after the 1979 shock and took 17 years to recover.) But by 2010 or so, many Middle Eastern nations will themselves be past the midpoint. World production will then have to fall.
With sufficient preparation, however, the transition to the post-oil economy need not be traumatic. If advanced methods of producing liquid fuels from natural gas can be made profitable and scaled up quickly, gas could become the next source of transportation fuel [see “Liquid Fuels from Natural Gas,” by Safaa A. Fouda, on page 92]. Safer nuclear power, cheaper renewable energy, and oil conservation programs could all help postpone the inevitable decline of conventional oil.”
Fracking is delaying the moment when global production of liquid fuels begins to decline. In 1998, Colin and Jean gave the peak of all liquid fuels as 2010 but, at the same time, noted that some responses could delay this date. The most important lesson that we can now take from the 1998 article was that the world was warned that the days of inexpensive oil were numbered and that many nations that import large quantities of oil, not least those of the EU, should have listened to this advice and responded more appropriately.