Peak oil never went away. We simply masked it by printing trillions of dollars of fake money. Now the energy floor is falling out from under our economies.
Btw, I recall the late great Canadian geophysicist Tuzo Wilson’s thoughts on peak oil. He said we’d never run out of oil at some price. We have long since run out of 50 cent oil and two dollar and five dollar oil, but there’s still lots of hundred dollar oil. I’m also reminded of something I heard the Shah of Iran say in an interview once, about how there are something like fifty thousand different things that we can make out of oil, yet we burn most of it.
These are all valid observations, Harry. The perspective I find most useful is the one I mention in the essay - the energy price at which economic growth falls to zero. That used to equate to around $90/bbl and the advantage of that metric is that it adapts to whatever the strength of the economy is.
True, although it also fluctuates with the value of the increasingly debased currency, which I suspect is where the Magic Money Tree comes into the picture.
Thank you, Richard, for an illuminating and compelling statement of the medium to longer term energy problem. I think it's right to say that apart from the special geographic situations of hydro- and geothermal energy, hydrocarbons and nuclear fission are still to this day the only large-scale 24/7 sources of high-density high-gradient energy available to humanity?
Here's to "the other smarter people than me who are working on the solutions" (whom you allude to in response to an earlier comment). Let's hope ingenuity prevails.
Hello Robert - I agree with your assessment about hydrocarbons and nuclear.
Regarding hope - I think that is warranted, but also that we don't have the luxury of time. In my view, we need a "Goldilocks" emergency - one that is warm enough to wake everyone up to the extraordinary danger "Net Zero" is exposing us to and clear away the Dale Vincents and other parasites, but not so warm that it entails a mass casualty event. A grid-scale blackout lasting several days during a cold weather spell would suffice but, sadly, will still lead to the death of many of our most vulnerable citizens.
Thank you for taking the time to read the essay, and for your interesting comment.
I am from a mining family - dad was CEO of two high yield gold mines in South Africa - so can identify with the 'Cost to Surface' issue. The deeper the more expensive vs gold yield. Eventually it becomes unfeasible.
I also know that solar is not a reliable source. I have 6 panels with a 3Kw storage battery. During grey days (of which there are many) I maybe generate 0.45Kw. Return on investment is 10 years.
Jennifer - thank you for reading the essay, and for sharing your experience. Return on investment, and energy economics in general, is quite treacherous. For example, I built a Passive house, which maintains about 18 degrees internal temperature year round without a heating system, and runs on about 20% of the energy cost of a conventionally built house. The economics are not governed by how long it takes to recover the additional build costs from energy cost reductions, but how much you value being 18 degrees in a 10 day power outage in the depths of a hard winter.
I get your point. I haven't yet been in your position. However, I bought my 1933 semi on the South Coast UK 8 years ago. She was rather sad - new roof, wall insulation and double glazing her ambient temperature, without gas heating, is 17°.
Hello Edward - thanks for your excellent question. You'll recall I said that the projection of discovery volumes estimates ultimate resource *assuming no change in commercial conditions or technology*.
Commercial conditions have changed substantially. In 2008, the Securities and Exchange Commission significantly relaxed reserves regulations. This in turn led to the appearance of a very large increase in reserves. These included: broadening the definition of "reserves" to include uncommercial mining resources; allowing companies to reclassify some "probable" and "possible" reserves as "proven"; abandoning the requirement for physical flow tests as a condition of declaring proven reserves; relaxing pricing methodologies for establishing reserves valuations; allowing companies to classify reserves as proven without requiring them to have development plans to do so; and relaxing proximity requirements so that companies could claim as reserves resources that were not accessible.
It's beyond the scope of this essay to state whether these relaxations, introduced in response to the stress on the global financial system created by the peak in conventional reserves, produced additional physical reserves. It's worth noting for example, however, that included now in your "reserves" estimate are huge volumes of tar sand mining resource that have to be superheated then cut with solvents (so that they flow at room temperture) to create low grade refinery feedstock. Also included are significant volumes of so-called "tight" oil and gas, which are now showing signs of serious stress.
A similar situation ocurred in the 1980's when OPEC changed production quota rules. Originally production was allocated based on output capacity. Then they changed it so that it was based on each country's reported reserves. Over the next 10 years, OPEC reserves increased 80% as each member gamed the system by redefining and then inflating their reserves without any additional discoveries, production drilling, or technology advances. We call these "paper barrels" - oil that exists only on paper.
Not even an obscenely high price - just the price at which economic growth falls below zero. Since debt in an interest-based financial system continues to compound exponentially, this establishes the condition in which the financial and matter-energy systems diverge exponentially, inducing hyperinflation. Oil with an extraction price higher than that is indistinguishable from oil that does not exist.
Im confused here as you make the case eloquently that peak oil does exist and the consequences of it on economies which i entirely concur with but then say moving to renewables isn't the answer. However, surely the same problem will apply to gas and even the supply of uranium in the long run as well or are there peaks further into the future?
We can distinguish between problems and predicaments. With a problem, you prepare a solution. With a predicament, you get your affairs in order. It's not clear to me, with our energy system, which of these situations we are in. However, I do know that the very worst thing we could do right now is shutdown the lifeline hydrocarbon supplies we do have and print trillions of pounds of fake money to build self-evidently unviable unreliable substitutes. On that path there lies billions of deaths from starvation, cold, disease, poverty, and violence.
Nuclear is not my area of expertise and, even if it can be made to scale sustainably, we face enormous challenges adapting our global industrial manufacturing system and economy to run without hydrocarbon as both an energy source and as a material feedstock. However, I have seen proposals that we develop nuclear fusion to the point where it can economically manufacture fissionable fuel from abundant resources (a simpler challenge than the one of generating electricity), and nuclear fission so that it can safely and cheaply generate electricity.
Without a clear understanding of our predicament and the hard boundaries of the solution space, though, we can have no prospect of finding solutions. That is where I focus my attention. There are other smarter people than me who are working on the solutions.
Thank you for taking the time to read my essay, and for your thoughtful question.
For sure it was bad enough giving up on coal but for us not to continue to exploit our oil&gas resources as there is no other energy dense fuel available currently and unlikely ever to be is madness. Personally i favour a strategy that recognises that certain uses of FF have no alternative ie aviation so we need maintain supplies for that as long as possible so substituting other forms of energy where we can isn't a bad thing. Of course the flaw in that is kerosene is only one byproduct of distillation so we might as well use all the products!
Also the history books will record the folly of the UK from getting nuclear generation away so early then abandoning it but even now there is time to make up for lost ground albeit homegrown is a lost cause but experts favour the S.Korean APR1400 design as being far more cost effective and quicker to build.
1990: Global proved oil reserves were approximately 1.1 trillion barrels. 2023: Approximately 1.57 trillion barrels. So, reserves have increased over several decades. There is a lot of oil left but it requires continued technical advances. Fracking (stupidly banned in the UK) was a massive advance (for the USA), as is horizontal drilling. Your account seems to ignore technological innovation.
Max - you are trying to gauge the trajectory of oil discovery from "reserves", which is an accounting quantity that measures the arbitrary conversion of discovery volumes into commercial volumes. Oil companies regulate that number to create the impression of smooth and reliable (and therefore repeatable) business operations. The projection of that time series is physically meaningless.
Instead, in each year, each discovery must be plotted in the year that the pool it is associated with was first discovered. That yields a time series, the projection of which does yield a physically meaningful quantity - Ultimate Recoverable Reserve. That projection has been stable for decades now.
I hoped in my essay to show how technology has made no significant difference to the (properly constructed) peak of oil discovery. I also hoped to explain the difference between "affordable" and "unaffordable" oil volumes. Your number conflates the two. As you point out, fracking yielded significant volumes of oil post 2008, but of unaffordable oil. The technology has existed for decades. It was never developed previously because it is uneconomic, and is only developed now because of the availability of money tokens.
You claim I've ignored technological innovation, citing horizontal drilling and fraccing. May I suggest that you have overestimated its role. Horizontal drilling accelerated production but added relatively little additional resource. One of the biggest technology innovations that genuinely added new resource was deepwater technology. Its contribution is barely visible as the last of the "bumps" on the discovery downslope.
Thank you for reading the essay, and for your comment.
No, I'm not judging by reserves. They have been historically a lousy way of estimating what is left. My point is that estimated reserves have growth over time, which is contrary to the static limits view.
BTW, assuming that ChatGPT isn't hallucinating, it says this:
Early 2000s: In 2000, approximately 23,000 hydraulically fractured wells produced about 102,000 barrels per day (b/d) of oil, accounting for less than 2% of the national total.
U.S. ENERGY INFORMATION ADMINISTRATION
2015: The number of hydraulically fractured wells increased to an estimated 300,000, with production surpassing 4.3 million b/d, making up about 50% of the U.S. oil output.
U.S. ENERGY INFORMATION ADMINISTRATION
2018: Fracking from tight oil reserves contributed approximately 6.44 million b/d, representing 59% of total U.S. oil production.
AARDVARK PACKERS
2023: Fracking added roughly 3 billion barrels of crude oil, about 64% of the nation's total output.
I have no reason to suppose that these numbers are not indicative. As I stated in my essay, almost all global oil growth since 2006 has been sustained through these sources. The point to note is that the technology and capital to mobilise these volumes existed prior to 2006, yet the industry did not apply it because they are uneconomic. They have been mobilised because the debt required to finance them has been made easier to obtain through relaxation of the technical conditions imposed on obtaining it, and the increase in the availability and the reduction in cost of imaginary capital - analogous to how the sub-prime mortgage market was facilitated. As such, they are not "reserves" any more than sub-prime mortgages were "mortgages".
I agree that reserves are a lousy metric, and are growing. I'm not sure what you mean by "the static (reserve) limits view". Reserves are, by definition, a dynamic quantity that is a function of the initial quantity of recoverable oil, technology, and capital investment, and which increases from zero to some fraction at abandonment of the initial quantity. Setting aside the pseudoscientific abiotic oil hypothesis, which supposes that the initial quantity is not fixed, the "static limit" is, as far as I can tell, a meaningless term.
That initial quantity is unknowable and unmeasurable and so must be inferred from some extrapolation. At the risk of repeating myself, an extrapolation of a time series of reserves increases is physically meaningless. The projection is like the difference in the position of a laser pointer on a far wall between tilting your wrist, and holding the pointer level and raising your arm. Change in projection in the latter scenario is very much less sensitive to even very large variations of input.
And that is a consequence of the dynamics of a system exploited on an easy first/hard last basis, as described by the logistic function. Such systems are highly insensitive to errors in any estimate of the initial quantity of oil, technology, and capital. Again, as I noted in my essay, the discovery today of an entire new UAE resource pool would alter peak by less than a decade. It is easy to satisfy yourself of this property with a simple spreadsheet model, which you might like to investigate.
And that matters because it is the date of peak that is decisive in predicting the collapse of the financial system, not the amount of oil that is theoretically producible after peak. We drown in the first 6 inches of water. It doesn't matter at that point whether there is 10 feet or 10,000 feet of air above us.
I thought that MMT was an acronym for Magic Money Tree, judging by the logic of its adherents.
Indeed :)
Btw, I recall the late great Canadian geophysicist Tuzo Wilson’s thoughts on peak oil. He said we’d never run out of oil at some price. We have long since run out of 50 cent oil and two dollar and five dollar oil, but there’s still lots of hundred dollar oil. I’m also reminded of something I heard the Shah of Iran say in an interview once, about how there are something like fifty thousand different things that we can make out of oil, yet we burn most of it.
These are all valid observations, Harry. The perspective I find most useful is the one I mention in the essay - the energy price at which economic growth falls to zero. That used to equate to around $90/bbl and the advantage of that metric is that it adapts to whatever the strength of the economy is.
True, although it also fluctuates with the value of the increasingly debased currency, which I suspect is where the Magic Money Tree comes into the picture.
Thank you, Richard, for an illuminating and compelling statement of the medium to longer term energy problem. I think it's right to say that apart from the special geographic situations of hydro- and geothermal energy, hydrocarbons and nuclear fission are still to this day the only large-scale 24/7 sources of high-density high-gradient energy available to humanity?
Here's to "the other smarter people than me who are working on the solutions" (whom you allude to in response to an earlier comment). Let's hope ingenuity prevails.
Hello Robert - I agree with your assessment about hydrocarbons and nuclear.
Regarding hope - I think that is warranted, but also that we don't have the luxury of time. In my view, we need a "Goldilocks" emergency - one that is warm enough to wake everyone up to the extraordinary danger "Net Zero" is exposing us to and clear away the Dale Vincents and other parasites, but not so warm that it entails a mass casualty event. A grid-scale blackout lasting several days during a cold weather spell would suffice but, sadly, will still lead to the death of many of our most vulnerable citizens.
Thank you for taking the time to read the essay, and for your interesting comment.
Excellent article Richard.
I am from a mining family - dad was CEO of two high yield gold mines in South Africa - so can identify with the 'Cost to Surface' issue. The deeper the more expensive vs gold yield. Eventually it becomes unfeasible.
I also know that solar is not a reliable source. I have 6 panels with a 3Kw storage battery. During grey days (of which there are many) I maybe generate 0.45Kw. Return on investment is 10 years.
Jennifer - thank you for reading the essay, and for sharing your experience. Return on investment, and energy economics in general, is quite treacherous. For example, I built a Passive house, which maintains about 18 degrees internal temperature year round without a heating system, and runs on about 20% of the energy cost of a conventionally built house. The economics are not governed by how long it takes to recover the additional build costs from energy cost reductions, but how much you value being 18 degrees in a 10 day power outage in the depths of a hard winter.
I get your point. I haven't yet been in your position. However, I bought my 1933 semi on the South Coast UK 8 years ago. She was rather sad - new roof, wall insulation and double glazing her ambient temperature, without gas heating, is 17°.
We currently have 1.57tn Proved Reserves. And you say we’ve produced 1tn to date. Putting us at 2.57tn total minimum. What am I missing?
Hello Edward - thanks for your excellent question. You'll recall I said that the projection of discovery volumes estimates ultimate resource *assuming no change in commercial conditions or technology*.
Commercial conditions have changed substantially. In 2008, the Securities and Exchange Commission significantly relaxed reserves regulations. This in turn led to the appearance of a very large increase in reserves. These included: broadening the definition of "reserves" to include uncommercial mining resources; allowing companies to reclassify some "probable" and "possible" reserves as "proven"; abandoning the requirement for physical flow tests as a condition of declaring proven reserves; relaxing pricing methodologies for establishing reserves valuations; allowing companies to classify reserves as proven without requiring them to have development plans to do so; and relaxing proximity requirements so that companies could claim as reserves resources that were not accessible.
It's beyond the scope of this essay to state whether these relaxations, introduced in response to the stress on the global financial system created by the peak in conventional reserves, produced additional physical reserves. It's worth noting for example, however, that included now in your "reserves" estimate are huge volumes of tar sand mining resource that have to be superheated then cut with solvents (so that they flow at room temperture) to create low grade refinery feedstock. Also included are significant volumes of so-called "tight" oil and gas, which are now showing signs of serious stress.
A similar situation ocurred in the 1980's when OPEC changed production quota rules. Originally production was allocated based on output capacity. Then they changed it so that it was based on each country's reported reserves. Over the next 10 years, OPEC reserves increased 80% as each member gamed the system by redefining and then inflating their reserves without any additional discoveries, production drilling, or technology advances. We call these "paper barrels" - oil that exists only on paper.
Ok so they are barrels that exist in the ground technically but would require an obscenely high price to extract.
At at anything under a $200 barrel, there are only something like 1tn barrels left.
At 104mbpd (growing 1mbpd/year) that’s about 20 years, so 2045.
How are you getting 2030?
Not even an obscenely high price - just the price at which economic growth falls below zero. Since debt in an interest-based financial system continues to compound exponentially, this establishes the condition in which the financial and matter-energy systems diverge exponentially, inducing hyperinflation. Oil with an extraction price higher than that is indistinguishable from oil that does not exist.
Figuring out reserves is actually quite difficult, not least because most non-Western producers treat the number as state secrets. So they are inferred indirectly from metrics such as tonnage of drilling tubulars consumed, etc. Companies that do that are called Scouting companies, and one of the most well regarded is Rystad Energy in Oslo. In 2021, Rystad published analysis showing that "Big Oil" reserves would run out in less than 15 years unless very significant investments were made. The piece caused quite a stir, as you can imagine, and was pulled but it was captured on the wayback machine here: https://web.archive.org/web/20210511193735/https://www.rystadenergy.com/newsevents/news/press-releases/big-oil-could-see-proven-reserves-run-out-in-less-than-15-years-as-output-is-not-replaced-by-discoveries/
Im confused here as you make the case eloquently that peak oil does exist and the consequences of it on economies which i entirely concur with but then say moving to renewables isn't the answer. However, surely the same problem will apply to gas and even the supply of uranium in the long run as well or are there peaks further into the future?
Nickrl this is an excellent question.
We can distinguish between problems and predicaments. With a problem, you prepare a solution. With a predicament, you get your affairs in order. It's not clear to me, with our energy system, which of these situations we are in. However, I do know that the very worst thing we could do right now is shutdown the lifeline hydrocarbon supplies we do have and print trillions of pounds of fake money to build self-evidently unviable unreliable substitutes. On that path there lies billions of deaths from starvation, cold, disease, poverty, and violence.
Nuclear is not my area of expertise and, even if it can be made to scale sustainably, we face enormous challenges adapting our global industrial manufacturing system and economy to run without hydrocarbon as both an energy source and as a material feedstock. However, I have seen proposals that we develop nuclear fusion to the point where it can economically manufacture fissionable fuel from abundant resources (a simpler challenge than the one of generating electricity), and nuclear fission so that it can safely and cheaply generate electricity.
Without a clear understanding of our predicament and the hard boundaries of the solution space, though, we can have no prospect of finding solutions. That is where I focus my attention. There are other smarter people than me who are working on the solutions.
Thank you for taking the time to read my essay, and for your thoughtful question.
For sure it was bad enough giving up on coal but for us not to continue to exploit our oil&gas resources as there is no other energy dense fuel available currently and unlikely ever to be is madness. Personally i favour a strategy that recognises that certain uses of FF have no alternative ie aviation so we need maintain supplies for that as long as possible so substituting other forms of energy where we can isn't a bad thing. Of course the flaw in that is kerosene is only one byproduct of distillation so we might as well use all the products!
Also the history books will record the folly of the UK from getting nuclear generation away so early then abandoning it but even now there is time to make up for lost ground albeit homegrown is a lost cause but experts favour the S.Korean APR1400 design as being far more cost effective and quicker to build.
Anyhow pleased to have found this substack.
Thanks Richard, another great piece of informative work
1990: Global proved oil reserves were approximately 1.1 trillion barrels. 2023: Approximately 1.57 trillion barrels. So, reserves have increased over several decades. There is a lot of oil left but it requires continued technical advances. Fracking (stupidly banned in the UK) was a massive advance (for the USA), as is horizontal drilling. Your account seems to ignore technological innovation.
Max - you are trying to gauge the trajectory of oil discovery from "reserves", which is an accounting quantity that measures the arbitrary conversion of discovery volumes into commercial volumes. Oil companies regulate that number to create the impression of smooth and reliable (and therefore repeatable) business operations. The projection of that time series is physically meaningless.
Instead, in each year, each discovery must be plotted in the year that the pool it is associated with was first discovered. That yields a time series, the projection of which does yield a physically meaningful quantity - Ultimate Recoverable Reserve. That projection has been stable for decades now.
I hoped in my essay to show how technology has made no significant difference to the (properly constructed) peak of oil discovery. I also hoped to explain the difference between "affordable" and "unaffordable" oil volumes. Your number conflates the two. As you point out, fracking yielded significant volumes of oil post 2008, but of unaffordable oil. The technology has existed for decades. It was never developed previously because it is uneconomic, and is only developed now because of the availability of money tokens.
You claim I've ignored technological innovation, citing horizontal drilling and fraccing. May I suggest that you have overestimated its role. Horizontal drilling accelerated production but added relatively little additional resource. One of the biggest technology innovations that genuinely added new resource was deepwater technology. Its contribution is barely visible as the last of the "bumps" on the discovery downslope.
Thank you for reading the essay, and for your comment.
No, I'm not judging by reserves. They have been historically a lousy way of estimating what is left. My point is that estimated reserves have growth over time, which is contrary to the static limits view.
BTW, assuming that ChatGPT isn't hallucinating, it says this:
Early 2000s: In 2000, approximately 23,000 hydraulically fractured wells produced about 102,000 barrels per day (b/d) of oil, accounting for less than 2% of the national total.
U.S. ENERGY INFORMATION ADMINISTRATION
2015: The number of hydraulically fractured wells increased to an estimated 300,000, with production surpassing 4.3 million b/d, making up about 50% of the U.S. oil output.
U.S. ENERGY INFORMATION ADMINISTRATION
2018: Fracking from tight oil reserves contributed approximately 6.44 million b/d, representing 59% of total U.S. oil production.
AARDVARK PACKERS
2023: Fracking added roughly 3 billion barrels of crude oil, about 64% of the nation's total output.
I have no reason to suppose that these numbers are not indicative. As I stated in my essay, almost all global oil growth since 2006 has been sustained through these sources. The point to note is that the technology and capital to mobilise these volumes existed prior to 2006, yet the industry did not apply it because they are uneconomic. They have been mobilised because the debt required to finance them has been made easier to obtain through relaxation of the technical conditions imposed on obtaining it, and the increase in the availability and the reduction in cost of imaginary capital - analogous to how the sub-prime mortgage market was facilitated. As such, they are not "reserves" any more than sub-prime mortgages were "mortgages".
I agree that reserves are a lousy metric, and are growing. I'm not sure what you mean by "the static (reserve) limits view". Reserves are, by definition, a dynamic quantity that is a function of the initial quantity of recoverable oil, technology, and capital investment, and which increases from zero to some fraction at abandonment of the initial quantity. Setting aside the pseudoscientific abiotic oil hypothesis, which supposes that the initial quantity is not fixed, the "static limit" is, as far as I can tell, a meaningless term.
That initial quantity is unknowable and unmeasurable and so must be inferred from some extrapolation. At the risk of repeating myself, an extrapolation of a time series of reserves increases is physically meaningless. The projection is like the difference in the position of a laser pointer on a far wall between tilting your wrist, and holding the pointer level and raising your arm. Change in projection in the latter scenario is very much less sensitive to even very large variations of input.
And that is a consequence of the dynamics of a system exploited on an easy first/hard last basis, as described by the logistic function. Such systems are highly insensitive to errors in any estimate of the initial quantity of oil, technology, and capital. Again, as I noted in my essay, the discovery today of an entire new UAE resource pool would alter peak by less than a decade. It is easy to satisfy yourself of this property with a simple spreadsheet model, which you might like to investigate.
And that matters because it is the date of peak that is decisive in predicting the collapse of the financial system, not the amount of oil that is theoretically producible after peak. We drown in the first 6 inches of water. It doesn't matter at that point whether there is 10 feet or 10,000 feet of air above us.