Beyond Oil The View from Hubbert's Peak

One

Why Look Beyond Oil?

The supply of oil in the ground is not infinite. Someday, annual world crude oil production has to reach a peak and start to decline. It is my opinion that the peak will occur in late 2005 or in the first few months of 2006. I nominate Thanksgiving Day, November 24, 2005, as World Oil Peak Day. There is a reason for selecting Thanksgiving. We can pause and give thanks for the years from 1901 to 2005 when abundant oil and natural gas fueled enormous changes in our society. At the same time, we have to face up to reality: World oil production is going to decline, slowly at first and then more rapidly.

My late-2005 prediction is a statement about the smoothed average of annual oil production. As we go over the top of the smoothed average, individual years, like wine vintages, have their ups and downs. At the time of this writing (in the middle of 2004), the year 2003 had the largest oil production.1 However, production in 2003 was only 3 percent larger than the production in 1998. That’s not 3 percent per year; it is only 0.6 percent growth per year. World oil production has now ceased to grow. Decline is the next step. The picnic’s over.

My prediction of the world oil production peak is based on the methods that M. King Hubbert used in 1956 to predict the 1970 peak of U.S. oil production.2 (Hubbert’s method is explained in detail in Chapter 3). Even before I published my 2001 book Hubbert’s Peak: The Impending World Oil Shortage, half a dozen petroleum geologists had already published similar conclusions.3 Hubbert published his own world oil prediction in 1969; the more optimistic of his two scenarios placed the peak in the year 2000. On the other side of the debate, the U.S. Geological Survey published enormously more optimistic estimates for U.S. and world oil potential.4 Other analysts, using the USGS results, have predicted that world oil production will not peak until 2036.5

Thanksgiving

Between 1901 and 2005, oil and natural gas transformed our society. In 1901, the Spindletop well, near Beaumont, Texas, changed the basis of the petroleum industry. It opened the enormously productive area of the Gulf Coast, pushed U.S. oil production to first place in the world, displacing Russia, and introduced the rotary drilling rig, which is still the standard today. Moreover, the flow of water, oil, or gas into the well bore could be controlled. The last point, control of subsurface flow, removed the "gusher" scene from the routine oil business, except for accidental failures of the system.

M. King Hubbert was well known among geologists for several innovative ideas, usually backed by mathematical analysis. After his prediction of the U.S. oil production peak came true, conservationists considered Hubbert to be a folk hero. (© George Tames, The New York Times)

My parents, born in 1903 and 1904, grew up on farms in two different parts of Oklahoma. My mother claimed that the automobile was the major element of change, introducing social as well as personal mobility. Before the automobile, there were weekly trips in a horse-drawn wagon to the nearest small town to sell farm produce and buy supplies. The Ford Model T enabled my parents to find their way to Oklahoma A&M, now renamed Oklahoma State University. One of my aunts claimed that the major motivation for higher education was to get off of those farms.

The automobile and the oil business were made for each other. From 1859 through 1908, the major petroleum product was kerosene for lanterns. After that, automobiles and trucks became a rapidly expanding market. Oil refineries were gradually improved to turn a bigger fraction of the crude oil into gasoline. Oil exploration and production was a worldwide enterprise.

The year 1903 saw the Wright brothers’ first flight. The high energy content per unit weight of gasoline was even more important for airplanes than for cars. High-grade aviation gasoline became a profitable product, even though aviation was a smaller market than automobiles. With the 1945 introduction of the jet aircraft engine, a kerosenelike product known as JP-4 became important. Mobility is now global. It is possible today to travel door-to-door from a street address in any city in the world to any other city in less than twenty-four hours. It’s not just people: Mail, computer components, mangoes, and asparagus move by air freight.

Meanwhile, back on the farm, agriculture was transformed. Tractors replaced horses, produce was trucked to wider markets, and mineral fertilizers became widely available. The Green Revolution of the 1960s used improved seeds, pesticides, and mineral fertilizers to make famine obsolete. It wasn’t "organic," but it sure beat death from starvation. A measure of the importance of oil and gas: 80 percent of an Iowa corn farmer’s costs is, directly and indirectly, the cost of fuels.

A whole industry emerged for making products derived from oil: petrochemicals. An astonishing range of plastics, fibers, solvents, pesticides, and coatings are made from oil and natural gas. My guess is that petrochemicals will be the last, best use of petroleum as it becomes scarce. Using oil as premade building blocks for organic chemistry is better than burning it for fuel. When I am offered an unnecessary plastic bag at the grocery store, I reply, "No, save an oil well."

I visited England in 1967 and again in 1985, and I was amazed at the changes that had occurred in the meantime. The legendary poorly heated housing became warmed by gas newly discovered in the North Sea. A feeling close to hopelessness had been replaced by a whiff of prosperity. The wealth from oil and gas is very irregularly distributed throughout the world, both among countries and among individuals. That’s partly geology and partly politics. Big oilfields occur wherever all of the several required geological conditions are "just right." Our subdivision of the world into ever-smaller sovereign countries and the success of private-property systems concentrated much of the oil wealth into a few hands. An example: During my stay at the University of Cambridge in 1985, I needed a book in their main library. As I entered the building, I had the weird feeling that I wasn’t in England anymore. The Cambridge main library looked American. I found a hallway display that explained it. The library had been built during the Great Depression, with Rockefeller money. Oil money.

I’m not claiming that oil and gas generated all the goodies of the twentieth century. Computers and telecommunications succeeded in part because they used diminishing amounts of energy. Silicon is the second most abundant element in the earth’s crust, so the supply of materials was never a problem. Well, there was some help from the oil industry. The patent rights for the integrated-circuit chip were shared by Texas Instruments and by Intel. At the time of the invention, Texas Instruments was a service company, conducting seismic surveys in the search for petroleum.6

Because I am a geologist, I have my own narrow reasons to give thanks for the growth of the oil industry. Well-staffed and well-funded research laboratories were developed by the major oil companies. To a geologist, the miracle was having top-grade physicists, chemists, and mathematicians on the staff, willing and eager to discuss geological problems. Two technological innovations were important because both of them generated objective, noninterpretive, data:

• Sensors were sent down wells, at the ends of electrical cables, to measure rock properties. Known as "wireline logs," they were run on virtually every well and are a rich source of data.

• Sound waves generated at the surface and reflected back from subsurface rock layers produced cross sections similar to the sonograms used in physicians’ offices.

In addition to the research results generated internally by the oil companies, important work was done by national and state geological surveys. Because geologists were being hired by oil companies, geology departments in colleges and universities thrived. In addition to the major universities, excellent geology departments developed at colleges like Macalester, Bryn Mawr, Smith, Beloit, and Williams. The overall effort moved petroleum geology into first place intellectually among the earth sciences, with the most complete understanding of any geological resource.

What Happens Next?

So the big news is: World oil production has ceased growing, and by the year 2019 production will be down to 90 percent of the peak level. This is not your standard news story. Reporters, editors, and most readers expect that any news story goes away within days, occasionally months. The peak-oil story not only stays around; each time that we adapt to a lower level of production, the production falls again. We may have fallen short on oil, but we are doing great with lead and zinc, which are abundant and cheap—if you happen to want them.

On a fifteen-year time scale, I have no doubt that human ingenuity will find adequate energy sources with nice adjectives like "renewable," "nonpolluting," "sustainable," "alternative," "organic," and "natural." For the five-year time scale, we have a shortage of good adjectives. "Diesel," "coal," "nuclear" don’t sound warm and fuzzy. There has been plenty of warning. Some predictions were issued more than thirty years ago. Why wasn’t there a strong effort toward developing a new energy economy? My own feeling is that editors and news directors thought that their audiences weren’t interested in yet another Chicken Little story. No politician was going to run on a platform promising "blood, sweat, and tears."

Am I now promising war, famine, pestilence, and death? If we can keep the petrochemicals industry healthy, we might avoid the pestilence part. The other three are serious possibilities. While a new energy economy is being implemented, there will have to be some sort of regulation of scarcity. Virtually all economists visualize it as price increases that bring supply and demand into a new equilibrium. That outlook is widespread; it must be something that Gerber puts in baby food. Historically, President Nixon regulated the oil price. President Roosevelt had us carrying little red and blue gasoline ration coupons. When the situation gets serious, there will be immense political pressure to "do something."

What can we expect on the five-year time scale?

• In winter, carrots, potatoes, cabbage, turnips, onions, and beets: local produce that does not have to be flown up from the southern hemisphere. Get acquainted with parsnips and rutabaga.7

• A premium on getting out of a long daily automobile commute: relocating jobs and housing, mass transportation, teleconferencing.

• Trade in your Hummer or Porsche Cayenne; find some other way of publicizing your testosterone.

• Agriculture in the Third World will suffer greatly with too little diesel fuel and mineral fertilizers; starvation is on the agenda.

• A scramble for high-efficiency diesel engines, for wind farms, and for any undeveloped hydroelectric sites.

• Agony over opening new nuclear or coal plants for generating electric power.

• Concerns over ethanol and hydrogen as net losers: technologies that consume more energy than they produce.

Within the oil industry, technological leadership has largely passed from the major oil companies to service companies like Schlumberger and Halliburton.8 The major oil companies are coming to resemble large service companies with attached merchant banks. Ownership of the oil production is a diminishing component of their income.

Again, in my narrow view as a geologist, I have a concern about the talent pool for finding the remainder of the oil. Colleges and universities responded to student interests and to availability of research funds by putting the word "environmental" on many of their courses. Environment has become a higher calling, much less grubby than completing an oil well. About six schools in North America currently offer training adequate for obtaining an entry-level job in the oil industry.9 Further, senior geologists in the industry have traditionally helped new employees learn the profession. In one sense, the oil industry is relatively young. My father was among the first generation of petroleum engineers; I’m only a second-generation oilman. A break in the continuity equates to a tremendous loss of practical knowledge. Matthew Simmons, an energy banker in Houston, calls it "no freshman class."10

And what about war, the first horseman of the apocalypse? At a petroleum-supply meeting in Europe during the spring of 2003, I was startled to learn that virtually all the Europeans believed that the Iraq war was simply for the control of oil. At the time, I was evaluating several different reasons for the invasion of Iraq (all of them bad, but I’m a registered Democrat). The major oilfields of the Middle East are located in several countries, but the entire producing area is only a fraction of the size of the United States. If the world oil shortage becomes sufficiently painful, there could be a temptation for a military seizure of the oilfields and the establishment of a "world protectorate." Some bureaucrat, even now, might be gathering euphemisms to justify an ugly scene.

My bottom-line conclusion says that the biggest missing ingredient is political leadership. Leadership does not necessarily imply a wise philosopher-king. Here are two examples. During World War II, Winston Churchill might have been a major daily consumer of brandy. He may not have been facing reality. Ignoring reality was precisely what England needed. I was in Rice Stadium in 1962 when John Kennedy proposed the manned lunar missions. It seemed like a tremendously good idea at the time. In retrospect, unmanned exploration might have been better. Also, rumor has it that Kennedy was on methamphetamine.

Almost all of the oilfields in the Middle East would fit into the north-central region of the United States. More than a quarter of the world’s oil production comes from this limited area. (Jeffrey L. Ward)

I’m not saying that a chemically boosted head of state is desirable. What we desperately need is a leader who can put words together and convince us that we better get moving.

In short, a small but growing number of petroleum geologists agree that world oil production will reach its peak sometime during this decade. There are plenty of geologists, economists, social scientists, and statisticians who disagree, and some who vehemently disagree. Unkind words have been exchanged. In polite society, I prefer calling them "cornucopians." They feel that human cleverness or the invisible hand of the marketplace will push the peak out twenty or more years in the future. My colleagues and I, indirectly or directly, are followers of M. King Hubbert, who predicted the U.S. oil production peak fourteen years before it happened. More about Hubbert later; for now, the people on my side are "Hubbertians."

Alan Greenspan, chairman of the Federal Reserve Board, has been warning us of a potential natural gas shortage in North America.11 It won’t be fun. There are some options on natural gas: liquefied gas imports, Arctic pipelines, moving some chemical operations—and the associated jobs—overseas, replacing natural gas electric generating plants with coal or (gasp) nuclear plants, and especially conservation. Oil is a bigger and uglier problem than natural gas.

Almost all authors, in their introductions, try to convince readers that their books are important. Despite the risk of traveling that well-worn path, let’s try this multiple-choice question:

Who gets credit for causing the collapse of the Soviet Union?

a. Ronald Reagan, for promoting Star Wars

b. the pope, for being Polish

c. Mikhail Gorbachev, for allowing dissention

d. the KGB, for abusing the people

e. Saudi Aramco, for lowering oil prices

Stephen Kotin points out that the Soviet Union, up to 1985, was exporting two million barrels of oil per day.12 The hard currency from oil allowed the Soviets to import items that were internally in short supply, from electronics to soap. At that time, Soviet oil production was larger than Saudi production by a factor of three, but Saudi Aramco had much lower production costs. Saudi Aramco resorted to a familiar tactic: a price war. They flooded the world with oil and drove the world price of crude oil below the Soviet cost of production and transportation. The severe shortages of everything that developed within the Soviet bloc are illustrated by this story:

A Polish businessman is going on a trip to Moscow and his wife asks him to bring back notes about the shortages in Russia. He goes into a butcher shop, and there are only a few little scraps of salt pork, so he writes in his notebook: NO MEAT. He then goes into a greengrocer and writes NO VEGETABLES. A shoe store: NO SHOES. After several more shops, a man stops him on the street and asks, "Are you spying for the CIA?" The businessman explains that his wife asked him to take notes. "Don’t you know that ten years ago you would have been shot for doing this?" He writes: NO BULLETS.

After six years without hard currency, the Soviet Union collapsed. Control of the world’s dominant energy source carries enormous power.

Oil is already a global market. Supertankers move oil to the far side of the world for two dollars per barrel. Our transportation system is almost totally driven by products from oil. As we learned in the late 1970s, an oil shortage can ripple through the economy, lowering our standard of living. My concern is not about our long-term adaptation to a world beyond oil. Through our inattention, we have wasted the years that we might have used to prepare for lessened oil supplies. The next ten years are critical. It’s going to be on-the-job training. Learn while doing: not always the most orderly way of adapting.

As noted above, this book is about the fuels, in addition to oil, that come from the earth. I’m a geologist; I don’t have any wisdom to share about solar cells, biofuels, or tidal energy. As a preface to the other fuels, the next chapter explains why crude oil production is likely to diminish. If oil were abundant and cheap, there would be no need to develop the other fuels.

Excerpted from Beyond Oil by Kenneth S. Deffeyes.
Copyright 2005 by Kenneth S. Deffeyes.
Published in 2006 by Hill and Wang.
All rights reserved. This work is protected under copyright laws and reproduction is strictly prohibited. Permission to reproduce the material in any manner or medium must be secured from the Publisher.