Unrelated Thoughts

Wednesday, October 26, 2005

The Future of the Oil Industry: Part 4

Part 4: Hubbert Peak Critique

So far we've been talking about the Petroleum Industry, the Hubbert Peak Theory, and its possible implications (if proven right). Today we're going to review some of the arguments of those who oppose to the Hubbert Peak Theory.

Michael Lynch

First on the list is Michael Lynch, who analyzes the mathematical inconsistencies of the Hubbert Peak Model, declaring that they're actually so many that the complete model is wrong. He says that "the current school of Hubbert modelers have not discovered new, earth-shaking results but rather joined the large crowd of those who have found that large bodies of data often yield particular shapes, from which they attempt to divine physical laws". He also says that their work is "based heavily on assumptions that the available evidence shows to be wrong. They have repeatedly misinterpreted political and economic effects as reflecting geological constraints, and misunderstood the causality underlying exploration, discovery and production".

According to Lynch, the fact that the US petroleum production curve follows a bell-shaped curve, only shows that in a closed system, demand determines production, not geology. He explains that exponential growth and decline are completely normal behaviors, and that the fact that the US curve followed that famous bell curve is not proof of the existence of any immutable, natural or scientifically-determined law.

Mark Brandly

In his article Will We Run Out of Energy?, Brandly analyzes David Goodstein's book Out of Gas: The End of the Age of Oil and, with it, the Hubbert Peak Theory. "The problems with Goodstein's conclusions, and this applies to Hubbert's followers in general, begin with his reliance on empirical findings to generate the Hubbert curves. He projects decreases in the rate of growth of oil production into the future and then estimates the date of Hubbert's peak and the resulting decline in available oil. However, empirical findings do not always support this thesis".

According to Brandly, the fact that some countries' production curves had more than one pike, or that they didn't follow an exact bell-curve, makes the Hubbert's mathematical analysis a flaw.

On the other hand, Brandly explains why he thinks that Market Forces can solve the problem:

First, higher oil prices will lead to more exploration and the discovery of new oil fields.

Second, higher prices provide an incentive to improve production and exploration technology. Better exploration technology will make it easier to find more oil and improved production technology will increase the reserves in existing oil fields.

Third, rising oil prices increase oil reserves even without any additional exploration or changes in technology. Reserves are the estimated amounts of discovered economically viable oil production. At higher prices it's profitable to recover more of the oil available in previously discovered fields. We therefore have more oil reserves simply by having higher oil prices.

Sustainable Oil / Magma Oil

The Open Source Energy Network addresses "the theory in circulation that oil is not solely of organic origin, but that there may be another mode of origin as well from deeper in the crust, involving magma". According to this site, there's plenty of evidence that Petroleum may be a renewable resource:
  • Oil being discovered at 30,000 feet, far below the 18,000 feet where organic matter is no longer found
  • Wells pumped dry later replenished
  • Volume of oil pumped thus far not accountable from organic material alone according to present models
  • In Situ production of methane under the conditions that exist in the Earth's upper mantle


Marshall Brain thinks that there will not be a peak, because we will switch smoothly to other technologies as petroleum prices rise.

Chris Bennett says that the world has plenty of oil, and we're not running out of it, at least not soon.

Lee Raymond (CEO of ExxonMobil) believes that the world's supply of oil will rise (and that demand will slow and prices drop)

So, what shall we believe? Are we running out of petroleum anytime soon? Or aren't we? Are new technologies going to solve this problem on their own? Are we going to perceive the crisis? Are we going to live in a new Wild-West a la Blade Runner, fighting for fuel? Or is it going to be a smooth transition?

Well, that's a question I'm still trying to answer. I have some ideas that I'll explain on the last part of this series. But first, please, if you have any thoughts on the Hubbert Peak or in the future of petroleum, let me know about them. ___________________________________________

The data mentioned here was obtained from the following sources, and you're invited to visit their pages:
- Wikipedia (Hubbert Peak)
- Gas Resources Corporation
- Ludwig Von Mises Institute
- Open Source Energy Network
- Marshall Brain's Blog
- Peak Oil Debunked
- World Net Daily
- Times On Line

Thursday, October 06, 2005

The Future of the Oil Industry: Part 3

PART 3: The Scenarios

As we’ve discussed before (please refer to Part 1 and Part 2 on these series before continuing), the immediate consequence of an oil shortage would be an increase in its price and, therefore, serious economic problems. Let’s review the possible scenarios of the future we may be facing.


We’re talking of course of the worst case scenario. Here the consequences of reaching the Peak Oil would be tremendous. The shortage of the production of oil and the growing needs of it would clash into an economic and social nightmare. Petroleum price would skyrocket pulling along all the other prices. Our food production industries wouldn’t be able to cope the shortage of its main energy source (remember, we spend 10 calories of petroleum-based energy for every calorie of food eaten!), and therefore the decreasing supply of oil would cause modern industrial agriculture to collapse, leading to a drastic decline in food production, food shortages and possibly even mass starvation.

The suburbs living-concept would prove unsustainable, because of its high dependency on the automobile (and therefore petroleum) for everyday transportation. Suburbians would be unable to afford fuel for their cars, and would be forced to move to higher density, more walkable areas.

Of course the environment would be affected as well. Because of the lack of its most efficient energy source, people may turn into those less environmentally friendly energy sources that still have significant reserves on our planet (such as coal). This would increase global warming (who needs the Kyoto Protocol if there’s a major worldwide economic crisis?), as well as health and developmental problems.


The second scenario assumes: a) A slow petroleum depletion rate; b) Stable world energy needs (better yet, diminishing ones) and c) A smooth (but quick) transition to alternative energy sources.

There has always been a close correlation between oil price spikes and economic decline and so, recession due to higher energy process is likely to occur. Crisis of the early 1970s was associated with the OPEC embargo, which triggered higher petroleum prices in the USA. After the Peak Oil, however, since it would be impossible to increase petroleum supply, no fix would be found and petroleum prices would escalate.

Higher oil prices, however, would turn alternative energy sources (such as hydrogen, solar cells, tidal energy, biofuels, etc.) economically attractive, and studies and investigations on them would flourish. Unfortunately, it would take many years to develop these technologies for mass consumption, and they would be more expensive (per unit of energy) than today’s petroleum.

Smooth Transition

This is the most positivist scenario. Here, petroleum would deplete very slowly, leaving time for new technologies to develop. In this scenario people is aware of the problem from the very beginning, and Universities and Research Institutes are focusing on these new technologies, with a conscious backing of the industry and government.

Developed nations would be also analyzing how to help petroleum producing nations (such as Saudi Arabia, Iran, Libya, Venezuela and others) to live in a non-petroleum era. New industries would be established on those countries so that they can generate wealth from non-conventional sources.

Nevertheless the cheap energy era would be over, and we all would have to either consume less (changing our lifestyles), or pay more for it.

In Part 4 we’re going to review the arguments of people who oppose to the Hubbert Peak Theory so, please, don’t commit suicide until we finish this discussion. The end may be not that near…

See you again!
The data mentioned here was obtained from the following sources, and you’re invited to visit their pages:
- Wikipedia (Implications of Peak Oil)
- Life After the Oil Crash
- Association for the Study of Peak Oil and Gas
- Wolf at the Door
- World Energy Council
- Newsweek
- Slate