Hubbert's Peak, better known as Peak Oil, has become a subject much like politics and religion, not to be discussed at a dinner party. Since this is no dinner party, let's discuss it.
M. King Hubbert was a maverick in the field of geoscience. Besides Peak Oil, Hubbert explained the plasticity of large areas of the earths crust due to the immense pressures upon the rock layers, and that deformation of the Earth's crust was observable over time. No one disputes this theory today. Hubbert won several top awards for his field, served as President of The Geological Society, taught at both Stanford University and UC Berkeley, worked for Shell Oil Co. until his retirement, then worked for the USGS as senior research geophysicist. Yet, no one remembers him today for anything but Peak Oil.
In 1956, at an oil industry conference in Houston, Hubbert explained that peak oil production in the US would occur in the late 1960' or early 1970's based on current rates of usage, plus increasing rates of usage based on historical patterns. He was almost laughed out of the auditorium while giving his presentation. In 1970, his prediction became true. Every oil company, oil engineer and geophysicist agreed in 1970 that decreased production in the US was occurring, and no amount of new wells would change that. In 1975, The National Academy of Sciences confirmed their acceptance of Hubbert's calculations on oil and natural gas depletion, and acknowledged their previous estimates had been "overly optimistic." Hubbert became famous.
In 1974, Hubbert predicted global peak oil production would occur somewhere in the mid 1990's, again based on models of usage and increasing rates of usage. As before, cynicism dominated the responses. Other projections greatly contradict Hubbert's assertions; M. King Hubbert's calculations, and their implications for the world economy, remain controversial.
A little history
In 1980, the US had many issues facing it. Rising interest rates, fear of another oil embargo such as 1973, high unemployment, rising food prices and to add to that, our largest ally in the Middle East, Iran, had just deposed its leader, the Shah. To top it off, the students who made up the bulk of the rebels, stormed the US Embassy in Teheran and took everyone inside hostage. The Iranian students blamed the US for the 1953 overthrowing of a democratically elected leader, Mohammed Mossadegh, and the subsequent abusive reign of the Shah.
Poor Jimmy Carter just could not get anything going his way.
In the Presidential Campaign of 1980, Ronald Reagan offered a verbal assault on the Soviet Union, and a get tough stance with Iran. Veiled, and not so veiled, threats of military action against Iran were the norm during Reagans campaign speeches. The Carter administration was not making any progress in getting the hostages freed, and because of this failure, Reagan won by a very large margin.
In 1981, the total of US GDP spent on defense was around 8%. The Soviet Union, on the other hand, spent somewhere between 45% - 48% of their total GDP on defense, trying to keep up with America. The majority of their revenues came from the sale of oil, which they poured into defense. The USSR's infrastructure was lacking, food shortages existed, unemployment was high and the one element of pride all Soviet's could look to, their national hockey team, had lost to the lowly American amateurs the year before.
At the beginning of 1981, oil was around $40 per barrel. Oil has been the lifeblood of the US economy since WWI. The incoming Reagan administration was well aware that if they could get the price of oil lower, thus reducing transportation and production costs, it would provide a boost to the economy. The new leaders in the Reagan State Dept. also knew how much the Soviets relied on their oil revenues. Sometime in February or March of 1981, both the Saudis and Kuwaitis doubled their projections of known reserves of oil. There had not been any new studies done, nor any known miscalculations that were revised. Many believe that the Reagan administration was able to convince the Saudis and Kuwaitis to 'overproject', which in turn would bring down the global price of oil and ease economic pressures.
Many may disagree with this theory, but those that hold it point to the sale of five AWACS radar and intelligence planes to the Saudis, over the strong objections of Israel. They say that it was the Reagan administration's "Thank You" to the Saudis for doubling projections of known reserves, practically overnight.
The rest is history; the price of oil plummeted to $20 per barrel. The Soviet Union was denied half the revenue it was realizing from oil exports. Already underspent throughout its economy, the USSR was dealt the death knell with oil revenues plummeting. Thus, the decline of the Soviet Empire was achieved without firing a single shot. The Afghan invasion, and subsequent withdrawal of the Soviets, was merely a sideshow that allowed the Reagan administration to continue casting the Soviets in an ever increasing bad light.
Here's the problem; Saudi Arabia and Kuwait have never gotten off those numbers. They now even claim to have more, recently raising their projections, despite the fact that at Al-Ghawar, the largest oil field in the world, they began pumping in water in the late 1990's to force more oil out. The amount of water now coming out is close to 60%. That means 60% water, 40% oil. From what I have read, when the amount of water exceeds 85%, it becomes physically impossible to render the oil useful. That leaves me this question; If almost half of the oil left in the largest oil field in the world is not usable, does that mean the Saudis really only have half of the reserves they say they do?
The price of oil continues to go higher, even though both the Saudis and Kuwaitis have claimed they have more. Some of the rise in oil is speculation. Since December, large banks have exchanged their damaged MBS securities with Federal Reserve held US Treasuries through the TAF and other swap facilities to the tune of $240 Billion. It just so happens to be the amount of increase in futures trading in commodities since late December, but that is another story.
Besides, the amount of speculation has nothing to do with ramp up in usage by China, India, Brazil and Russia. What was not calculated by Hubbert or any one else in the 1980's was how much the increase in usage would be from Asia. It is almost 3 times what they used for their calculations back then.
There is also the problem with the value of the US Dollar. Oil has been, until recently, globally traded in US Dollars. Because of the rapid increase in our deficit, the value of the dollar versus all other currencies has gone from 120 to 73 over the last 6 years. That means the US Dollar will now buy 40% less than it would 6 years ago. The rise in such things as food and other goods is a direct consequence of the weakened dollar. The dollar has less value, so more dollars are needed to buy the same amount of goods.
It is easy to think that oil had to go up at least 40% in real terms. But, it has gone much higher. In 2001, oil traded at $20 or so per barrel. It closed Friday at $139 per barrel. That is somewhere around a 600% increase in 7 years. I am just waiting for the price at the pump to catch up.
Again, back to the problem; Hubbert predicted Global Peak Oil would occur in the mid 1990's. In the 1980's, some predicted Peak Oil between 2007/8 - 2015, as contrary positions to Hubbert. Well, we are here. Much of the hyperbole about drilling in ANWR and the Gulf of Mexico is superfluous. The projections for ANWR from the USGS would fuel the US, at current rates of consumption, for a period of 45 - 200 days. That's all. Why all the political wrangling? I'll leave that to you to decide. Just ask your congressperson this "If drilling in ANWR and other protected areas is so important, why is the majority of oil now produced in Alaska being sold to Japan?"
Yes, there are oil shales, vast amounts with as much oil as the middle east had 40 years ago. But the only processes to get it out are so environmentally damaging that the costs far outweigh the benefits.
The oil sands in Canada, and new technologies for retrieval, are very promising, and Canada will prosper greatly in the next decade or two. But they cannot extract it at the same rate the middle east has, thus, if the middle east production declines, so does the availability of oil.
Then there is the Williston Basin. It is within the contiguous US (and part of Canada). USGS gave projections last month of 4 Billion barrels, and that may be low. Other geophysicists put the reserves at 200 - 400 billion barrels. But that has yet to be seen.
I will, for the moment, go with Hubbert on this one. His track record with all of his work is pretty impressive. To end, I will leave you with a quote from M. King Hubbert;
"Our ignorance is not so vast as our failure to use what we know."
M. King Hubbert was a maverick in the field of geoscience. Besides Peak Oil, Hubbert explained the plasticity of large areas of the earths crust due to the immense pressures upon the rock layers, and that deformation of the Earth's crust was observable over time. No one disputes this theory today. Hubbert won several top awards for his field, served as President of The Geological Society, taught at both Stanford University and UC Berkeley, worked for Shell Oil Co. until his retirement, then worked for the USGS as senior research geophysicist. Yet, no one remembers him today for anything but Peak Oil.
In 1956, at an oil industry conference in Houston, Hubbert explained that peak oil production in the US would occur in the late 1960' or early 1970's based on current rates of usage, plus increasing rates of usage based on historical patterns. He was almost laughed out of the auditorium while giving his presentation. In 1970, his prediction became true. Every oil company, oil engineer and geophysicist agreed in 1970 that decreased production in the US was occurring, and no amount of new wells would change that. In 1975, The National Academy of Sciences confirmed their acceptance of Hubbert's calculations on oil and natural gas depletion, and acknowledged their previous estimates had been "overly optimistic." Hubbert became famous.
In 1974, Hubbert predicted global peak oil production would occur somewhere in the mid 1990's, again based on models of usage and increasing rates of usage. As before, cynicism dominated the responses. Other projections greatly contradict Hubbert's assertions; M. King Hubbert's calculations, and their implications for the world economy, remain controversial.
A little history
In 1980, the US had many issues facing it. Rising interest rates, fear of another oil embargo such as 1973, high unemployment, rising food prices and to add to that, our largest ally in the Middle East, Iran, had just deposed its leader, the Shah. To top it off, the students who made up the bulk of the rebels, stormed the US Embassy in Teheran and took everyone inside hostage. The Iranian students blamed the US for the 1953 overthrowing of a democratically elected leader, Mohammed Mossadegh, and the subsequent abusive reign of the Shah.
Poor Jimmy Carter just could not get anything going his way.
In the Presidential Campaign of 1980, Ronald Reagan offered a verbal assault on the Soviet Union, and a get tough stance with Iran. Veiled, and not so veiled, threats of military action against Iran were the norm during Reagans campaign speeches. The Carter administration was not making any progress in getting the hostages freed, and because of this failure, Reagan won by a very large margin.
In 1981, the total of US GDP spent on defense was around 8%. The Soviet Union, on the other hand, spent somewhere between 45% - 48% of their total GDP on defense, trying to keep up with America. The majority of their revenues came from the sale of oil, which they poured into defense. The USSR's infrastructure was lacking, food shortages existed, unemployment was high and the one element of pride all Soviet's could look to, their national hockey team, had lost to the lowly American amateurs the year before.
At the beginning of 1981, oil was around $40 per barrel. Oil has been the lifeblood of the US economy since WWI. The incoming Reagan administration was well aware that if they could get the price of oil lower, thus reducing transportation and production costs, it would provide a boost to the economy. The new leaders in the Reagan State Dept. also knew how much the Soviets relied on their oil revenues. Sometime in February or March of 1981, both the Saudis and Kuwaitis doubled their projections of known reserves of oil. There had not been any new studies done, nor any known miscalculations that were revised. Many believe that the Reagan administration was able to convince the Saudis and Kuwaitis to 'overproject', which in turn would bring down the global price of oil and ease economic pressures.
Many may disagree with this theory, but those that hold it point to the sale of five AWACS radar and intelligence planes to the Saudis, over the strong objections of Israel. They say that it was the Reagan administration's "Thank You" to the Saudis for doubling projections of known reserves, practically overnight.
The rest is history; the price of oil plummeted to $20 per barrel. The Soviet Union was denied half the revenue it was realizing from oil exports. Already underspent throughout its economy, the USSR was dealt the death knell with oil revenues plummeting. Thus, the decline of the Soviet Empire was achieved without firing a single shot. The Afghan invasion, and subsequent withdrawal of the Soviets, was merely a sideshow that allowed the Reagan administration to continue casting the Soviets in an ever increasing bad light.
Here's the problem; Saudi Arabia and Kuwait have never gotten off those numbers. They now even claim to have more, recently raising their projections, despite the fact that at Al-Ghawar, the largest oil field in the world, they began pumping in water in the late 1990's to force more oil out. The amount of water now coming out is close to 60%. That means 60% water, 40% oil. From what I have read, when the amount of water exceeds 85%, it becomes physically impossible to render the oil useful. That leaves me this question; If almost half of the oil left in the largest oil field in the world is not usable, does that mean the Saudis really only have half of the reserves they say they do?
The price of oil continues to go higher, even though both the Saudis and Kuwaitis have claimed they have more. Some of the rise in oil is speculation. Since December, large banks have exchanged their damaged MBS securities with Federal Reserve held US Treasuries through the TAF and other swap facilities to the tune of $240 Billion. It just so happens to be the amount of increase in futures trading in commodities since late December, but that is another story.
Besides, the amount of speculation has nothing to do with ramp up in usage by China, India, Brazil and Russia. What was not calculated by Hubbert or any one else in the 1980's was how much the increase in usage would be from Asia. It is almost 3 times what they used for their calculations back then.
There is also the problem with the value of the US Dollar. Oil has been, until recently, globally traded in US Dollars. Because of the rapid increase in our deficit, the value of the dollar versus all other currencies has gone from 120 to 73 over the last 6 years. That means the US Dollar will now buy 40% less than it would 6 years ago. The rise in such things as food and other goods is a direct consequence of the weakened dollar. The dollar has less value, so more dollars are needed to buy the same amount of goods.
It is easy to think that oil had to go up at least 40% in real terms. But, it has gone much higher. In 2001, oil traded at $20 or so per barrel. It closed Friday at $139 per barrel. That is somewhere around a 600% increase in 7 years. I am just waiting for the price at the pump to catch up.
Again, back to the problem; Hubbert predicted Global Peak Oil would occur in the mid 1990's. In the 1980's, some predicted Peak Oil between 2007/8 - 2015, as contrary positions to Hubbert. Well, we are here. Much of the hyperbole about drilling in ANWR and the Gulf of Mexico is superfluous. The projections for ANWR from the USGS would fuel the US, at current rates of consumption, for a period of 45 - 200 days. That's all. Why all the political wrangling? I'll leave that to you to decide. Just ask your congressperson this "If drilling in ANWR and other protected areas is so important, why is the majority of oil now produced in Alaska being sold to Japan?"
Yes, there are oil shales, vast amounts with as much oil as the middle east had 40 years ago. But the only processes to get it out are so environmentally damaging that the costs far outweigh the benefits.
The oil sands in Canada, and new technologies for retrieval, are very promising, and Canada will prosper greatly in the next decade or two. But they cannot extract it at the same rate the middle east has, thus, if the middle east production declines, so does the availability of oil.
Then there is the Williston Basin. It is within the contiguous US (and part of Canada). USGS gave projections last month of 4 Billion barrels, and that may be low. Other geophysicists put the reserves at 200 - 400 billion barrels. But that has yet to be seen.
I will, for the moment, go with Hubbert on this one. His track record with all of his work is pretty impressive. To end, I will leave you with a quote from M. King Hubbert;
"Our ignorance is not so vast as our failure to use what we know."
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