Energy Reserves and Production Peaks
Most of the comparative discussion about energy resources has focused on “Proven, Probable and Possible Reserves”. These are economic concepts about what can be profitably extracted using current technology and prices. Banks lend massive amounts of money to develop energy projects over long periods with risks of price collapses that can reduce or eliminate profits. The Proven reserves represent assets that can be considered as collateral by the lender. There is a long history of “reserve growth” of Proven reserves. While some of this is due to technology improvement, and more recently price rises, very little is due to finding more oil. Most is simply due to shifting reserves from the Probable to the Proven category driven by reporting policies and regulations.
Nationalisation of oil reserves in the 1970’s allowed OPEC countries to report reserve growth with less scrutiny by western banks and in the 1980’s radical revision upward of reserve figures were made without finding any more oil. This hopeless corruption of reserve figures, of arguably the most important set of accounts in the world, was not exposed until the late 1990’s with the work of Campbell and Laherrere21See Colin Campbell & Jean Laherrere, The End of Cheap Oil, Scientific American 1998 (preview & pdf). beginning the current debate about peak oil. It is still yet to be accepted or acknowledged by governments or intergovernmental agencies such as the International Energy Agency,22In late 2007 the IEA Chief Economist Fatih Birol gave a presentation that marked a major turning point in the official position of the the IEA on future energy supplies. The presentation acknowledged peaking of oil production outside core OPEC countries and the likelihood that global demand will now grow faster than supply. See Oil Drum http://europe.theoildrum.com/node/3336#more charged with providing transparent and accurate information on energy resources.
The debate about Peak Oil has also highlighted the confusion in economic and political discourse about the importance of production rates and their potential to keep expanding. This collective myopia on the part of the intelligentsia is all the more stunning because it has been increasing rates of energy production (not reserve growth) that has underpinned economic growth. The orthodox view that healthy reserves, by themselves, can ensure expanding production has been show to be false.
The collective myopia on the part of the intelligentsia is all the more stunning because it has been increasing rates of energy production that has underpinned economic growth.
Similarly, the conventional wisdom that coal reserves are so great that we can expand coal based electricity with or without carbon sequestration, and make liquid fuel from coal is now being widely challenged23See Chris Vernon, COAL – The Roundup, which looks at five studies released in 2007 suggesting that there is less coal than previously thought, and the Energy Watch Group report (pdf) 2007.. As with oil, we see that reserve figures are of dubious reliability and large reserves do not mean that production rates can necessarily increase. The slow rate of increase in oil production from the Canadian tar sands, despite massive investment, heroic logistics (and massive environmental damage) proves that large reserves do not necessarily lead to high production rates. The fact that Canada, overnight, became the nation with the largest oil reserves in the world because it was allowed24By the International Energy Agency. to classify its tar sands as oil, highlights the arbitrary nature of the reserve concept. It is highly likely that nowhere near enough fossil fuels can be mined fast enough to generate the worst case emission scenarios of the IPCC. It is just unfortunate that climate change seems to be happening at much lower levels of atmospheric carbon dioxide than predicted in those same models.
The evidence on peak oil is gathering so fast that it is now certain that the world has already peaked in the production of cheap (conventional) oil
The evidence25See the Energy Watch Group’s Oil Report, 2007. on peak oil is gathering so fast that it is now certain that the world has already peaked in the production of cheap (conventional) oil and that the peak production of “crude plus condensate” (the standard measure of oil) may have already passed despite vigorous debunking of peak oil that continues in policy circles and the media. The steady climb in prices for eight years should have been enough to lift production if that were possible. The impacts of peak oil are unfolding all around us in the world but they are being regularly interpreted in the media as caused by more familiar (above ground) factors such as terrorism, oil nationalism, corporate greed or incompetence, speculators etc. The combination of rolling crises and obfuscation of the issues is leading to confusion and inappropriate responses (from oil wars to biofuels from agricultural crops) that are compounding the problems.
The debate amongst peak oil analysts has now shifted from when, to at what rate, the world will decline
The debate amongst peak oil analysts has now shifted from when, to at what rate, the world will decline after we move off the current plateau in production. The decline rates in the UK and Mexico have provided progressively stronger evidence that the application of modern management and technology in oil production, while delaying peak, ultimately leads to faster decline rates than had been expected (based on past rates of national decline). If these higher decline rates follow through into global decline, then mitigation and adaption strategies, without economic collapse will be very difficult. Given the accelerating consumption of natural gas and coal we should assume peak production of both will quickly follow oil peak.
Access to oil will likely decrease far more rapidly in importing nations as explored in the next section.