In 2011 global oil production hit a new record at 87.4 million barrels per day. It comes after years of flat production rates, despite rising demand. This rally has caused many commentators and wishful thinkers to predict a new golden age of oil, and declare the theory of peak oil to be dead. The most explicit example I’ve come across is this report from CitiGroup, Resurging North American Oil Production and the Death of the Peak Oil Hypothesis.
According to CitiGroup, the boom in US shale oil has left the peak oil theory dead and buried. It echoes a general optimism around oil again, epitomised by certain American politicians promising cheap energy as part of their stump speeches.
Well let’s get one thing straight: conventional oil has already peaked. Global production managed an uptick in the last year due to unconventional oil and biofuels, but that’s more expensive than regular crude. No amount of unconventional oil production will see the return of cheap oil. It may even be a victim of its own success – shale or tar sands are only economically viable when the oil price is high, over $80-$85 or so. If there’s enough of a glut in supply to bring prices down, they won’t be profitable any more.
Second, many people are still confused over the difference between oil production and oil reserves. For anyone familiar with the vast reserves of Canada’s oil sands, the issue of peak oil seems laughable. Beneath Alberta’s boreal forest lies a stock of potential oil so unimaginably huge that it’s hard to imagine ever running out, and certainly not any time soon.
That’s true. Two hundred years from now, there will still be a massive stock of oil locked up in Alberta. But peak oil isn’t and never was about running out. It’s about a production peak – hence the name. The problem with tar sands is not one of quantity, but of production. The reason tar sands don’t solve the peak oil question is that because you have to shovel up the sand and process it, you can only get the oil out a little at a time.
For all those billions of barrels of reserves, the Canadian Association of Petroleum Producers only ever expects production to reach to 4.7 million barrels per day, and that’s by 2025. Canada itself uses over 2 million barrels a day, so that leaves 2.7 million for export onto the world market. That’s less than a third of what Saudi Arabia can produce at full capacity, and nowhere near enough to offset the declines elsewhere.
It’s a bit like having a billion dollars in the bank, but only being allowed to withdraw a dollar a day. Or having a milkshake the size of the Albert Hall but only having one drinking straw.
North Dakota is a similar situation. There is an estimated 11 billion barrels of recoverable oil there, but production is estimated to peak at 700,000 barrels a day. The US consumes 18 million barrels a day, so I fail to see how North Dakota is going to make the country energy independent.
It’s great for US energy prices that North Dakota production is helping out their trade deficit. But CitiGroup is wrong to declare the death of peak oil and Newt Gingrich is wrong to be talking up the idea of US oil independence. Volatile oil prices are here to stay, and a new wave of optimism only delays the changes in lifestyle and infrastructure that are already so long overdue.