Love the one you’re with
Posted September 28, 2009 at 12:59 pm 
Filed in: The debate about peak oil is not a new one. In fact, it’s been around for at least 100 years in one way or another. But the last few weeks seem to have brought an unusual barrage of coverage—probably related to the modern oil industry celebrating its 150th birthday in August.
The New York Times has just featured two skeptical pieces on the issue: this editorial by Michael Lynch and this article premised on the pace of new oil discoveries this year. Foreign Policy magazine carried this dismissive piece by CERA founder Dan Yergin; Foreign Affairs had this missive from Edward Morse; and Amy Meyers Jaffe added her thoughts here.
In one fell swoop, peak oil aficionado Matthew Simmons takes them all on here. And you can always find plenty of peakist platitudes at the Oil Drum.
As the debate about peak oil makes its way farther into the public consciousness, we thought a little perspective might be in order. For that, we turn to Stephen Stills (of Crosby, Stills, Nash and Young) who in 1970 penned the famous lyric: “If you can’t be with the one you love, love the one you’re with.”
That is to say, as we head into the closing months of 2009, two things remain very clear:
First, there is no supply-side competitor for oil that is ready for scale today. Hydrogen? Liquid Coal? Compressed natural gas? None of these fuels make up even 1 percent of vehicle fuel today. The transportation sector—which globally consumes about 60 percent of world daily oil production—gets 94 percent of its energy from oil. The closest thing to a challenger is biofuels. But the curtain was pulled back and biofuels were basically revealed for what they are in 2008: a mirage. They compete with food; have negligible climate benefits; and volatile oil prices often make them unprofitable. Second generation biofuels offer better outcomes, but they haven’t really been produced outside of a few laboratories to date.
Second, assuming it is available, there is going to be plenty of demand for oil as far out as the eye can see. One stat tells the whole story: today, there are less than 25 million light-duty vehicles on the road in China. By 2030, most analysts project that number to rise to nearly 250 million. World oil demand is expected to rise by about 25 percent over the next 20 years, and 100 percent of that incremental demand growth will come from developing countries with large populations and rising living standards. So, the critical question—for the global economy, international security, and a few billion poor people in India and China—is: will oil be available?
The answer is that oil will be available, but only if the right investments are made today. To understand why, take a look at this map from the just-released October 2009 edition of Scientific American:
The map illustrates the scale of the opportunity ahead as well as the challenge. As the caption notes, only one-third of the world’s surface has been explored for oil and natural gas using modern technology. Vast swaths of sedimentary basins remain completely unexplored, particularly in the Arctic, which is believed to hold substantial reserves. Of course, many of these reserves are located in remote, inhospitable areas where development will be challenging and expensive. This Bloomberg article from today discusses just some of the obstacles confronting Statoil as Norway turns farther north for oil and gas resources.
As a standalone measure, however, exploring new frontiers probably won’t be enough to satisfy the world’s growing thirst for oil. According to the IEA, by 2030 production from crude oil fields in operation today will fall from 70 million barrels per day to 27 million barrels per day. Replacing that lost production and expanding output to meet rising demand will also require the application of new—expensive—technologies.
In particular, enhanced oil recovery (EOR) techniques like steam injection, chemical flooding, and CO2-injection can dramatically increase the recoverable reserves of an oil reservoir. Today, the global average recovery rate using primary and secondary recovery techniques is about 35 percent of original oil in place. EOR is already improving that rate at selected projects, and the expectation is that appropriate investments could eventually raise the global average recovery rate to 50 percent. Such a gain in the recovery rate would add more than a trillion barrels of oil to world supplies.
Increasing exploration in frontier areas and applying better technology will allow for global oil supplies to remain adequate for several decades, but not without cost. These factors will add structural support for high oil prices, which will present a real problem for the global economy. How can we sustain growth while absorbing higher fuel prices?
The only answer is to aggressively invest in improved efficiency. The world blew through its first trillion barrels of oil in about 100 years. We will be hard-pressed to make sure the next trillion last even half as long. In short, we can’t be with the one(s) we love—alternative transportation fuels—at least not yet. So we had better learn to love the one we’re with.
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