By Mike Jonas – Re-Blogged From http://www.WattsUpWihThat.com
In 2012, I said that it was getting ever more difficult to increase production, and that I suspected that we were already at or close to Peak Oil, but that it was still mathematically possible that Peak Oil was many years away. Do I still think that? In a way, yes, but … well, read on …
In this article, I look at the major factors affecting oil supply, look at past oil market behaviour and how the future may develop, see what lessons can be learned from Hubbert’s Peak, and speculate on when Peak Oil will occur and what it may feel like.
Some of the controversy generated by the 2012 article came from different interpretations of “Peak Oil”, so this time, I will start with the definition and a bit more background.
Definition of “Peak Oil”
The definition I am using is simply :When the rate of oil production reaches its maximum.
· In this definition:
Peak Oil is not : “when we run out of oil“.
This is not a useful definition, because we’re not going to wake up one morning and find that yesterday’s oil has all gone.
Peak Oil is not : “when we can’t increase the rate of oil production“.
This isn’t very useful either, because “can’t” is always open to argument.
· The period over which the maximum is determined is not specified, so this still isn’t a precise definition. Certainly, any period less than a year is irrelevant. We very likely won’t know when it was until several years afterwards.
· The reason for oil production reaching its maximum is not specified, and possible reasons will be discussed below.
· I am not talking about fossil fuels generally, and I am not talking about oil and gas. I am talking specifically about oil. That does include gas liquids and “unconventional” oil, but not biofuel. (“Unconventional” oil is described later.) s` qA
· Peak Oil is not necessarily a disaster, it could even be a positive. This also will be discussed below.
One idea which surely is not open to argument is the fact that oil production will peak. Here is a long term graph of past and predicted future fossil fuel production – peak production rate is defined as 1, and the red star represents where we are now (or were recently):
Even if those future estimates are very inaccurate, it is inconceivable that fossil fuel production can keep increasing for thousands of years. The graph for oil must fit inside the graph for fossil fuel.
But predicting Peak Oil has always been an unrewarding exercise. As critics love to point out, various people have predicted Peak Oil for over a century and have been wrong every time.
Factors affecting oil supply
The principal factors affecting oil supply are:
- Price “The solution to high prices is… high prices.” – T. Boone Pickens (h/t John Garrett)
Geology is obviously a factor – geology dictates much of where the oilfields are, how much oil is present, its quality, and how difficult it is to extract.
The other factors are all interdependent, so it is arguable how much impact each factor has.
· Many if not most oilfields now belong to nation states, not to oil companies. Consequently many of the decisions affecting oil supply are political. There are also involuntary political impacts such as wars.
· Demand has grown fairly steadily for many decades, due to living standards increasing in developed nations and many other countries accelerating their economic development.
· To the extent that supply is flexible, production tends to be driven by demand.
· Price is the major balancing factor. High oil prices increase the attractiveness of bringing new sources into production, but can also suppress demand. Low oil prices increase the attractiveness of using more, ie, they tend to increase demand, while discouraging high-cost sources of supply.
· Technology is a two-edged sword. Oil production technology has seen tremendous advances since the start of the oil era, allowing ever more oil to be found and produced, thus boosting supply. But technology also helps to make oil use more efficient and other energy sources more competitive, thus reducing demand.
Should I have listed Discovery as a major factor? Maybe I should, but I chose to regard it as a subset of Geology, perhaps with Politics, Demand, Price and Technology as modifying factors.
Most people are by now familiar with Hubbert’s Peak. M King Hubbert’s theory  says that for any given geographical area, from an individual oil-producing region to the planet as a whole, the rate of petroleum production tends to follow a bell-shaped curve. In 1956, Hubbert famously predicted that US oil production would peak in about 1970. His prediction was remarkably accurate over the next 50 years.
Figure 2. Hubbert 1956 prediction vs US Oil Production . 
Predictions that are that accurate over 50 years are quite rare.
For the global bell curve, the upward slope tends to be limited by demand, ie. as much as can be sold at a reasonable price. The downward slope, for regions and fields that have reached it, tends to be limited by geology, ie. the maximum production rate consistent with maintaining reservoir viability. [NB. I’m only referring to general tendency. There are many exceptions of course.]
The overall bell curve is the sum of its components, each of which is a bell curve. Thus a region’s bell curve is the sum of its fields’ bell curves, and each field’s bell curve is the sum of its individual wells’ bell curves. This pattern is demonstrated in, for example:
Note that the “bell curves” for the individual fields have a wide variety of shapes. Note also that once a peak has been passed, even a very large field like Johann Sverdrup (Norway’s 4th-largest discovery at 2.9bn barrels) may only produce a brief delay in the decline.
One notable exception is the USA, where very large quantities of “unconventional” oil have recently become viable thanks mainly to technological advances and high oil prices: This surge in “unconventional” oil production can be seen from around 2007 in Figure 4:
What is “unconventional” oil? A-simple definition is “oil collected by other means than simply drilling for it” . Willis Eschenbach put it differently:
The strange part is, when you open a barrel of unconventional oil to see what conventions were broken in its creation, you find it is indistinguishable from conventional oil. 
Both are right, in a sense, but I’ll stick loosely with the “unconventional” idea simply because it’s a useful word for the oil which even under current technology is much more difficult and expensive to produce than the oil we’re used to that satisfied all demand until recently. The definition is loose, but some pictures  might help:
“Unconventional” oil also includes shale oil, which can be drilled for rather than mined, but tends to be in very tight rock formations that are difficult and expensive to produce from, and tends to require techniques such as horizontal drilling and fracking .
Past Oil Production
Before I show the graph of past oil production, it will be helpful to show the graph of oil price. It’s from data in BP’s June 2014 report , so doesn’t show the recent fall back towards $40.
Figure 6. Oil Price from 1965. 
Looking at the first half of the graph –
· The first major disruption in this period occurred in 1973, when OPEC quadrupled the price of oil.
· The second was the Iranian revolution in 1979 and the Iran-Iraq war starting in 1980.
· These disruptions helped to bring on a massive recession in 1981-2, the most significant recession since the Great Depression.
· Reduced demand because of the recession resulted in the oil price fairly quickly returning to “normal”.
In the second half of the graph:-
· For a decade or so after the start of the 21st century, supply struggled to keep up with demand and the oil price went up …
· … apart from a short sharp dip at the time of the GFC.
· Not shown is the recent sharp price decline, caused by surging US “unconventional” oil production and exacerbated by Saudi Arabia’s decision to maintain high production.
But in spite of the economic booms and busts, it is clear that although the oil price has been volatile at times, oil demand and/or supply have been relatively inelastic:
Figure 7 – Oil Production.
Oil reserves are very much a function of technology and price. A generally-accepted definition  of Reserves, also called Proved Reserves or Proven Reserves, is:
the estimated quantities of oil which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under current economic and operating conditions
In my 2012 article, I paid too much attention to proved reserves. That was partly because I was responding to a Willis Eschenbach article about the R/P Ratio (Reserves / Production), but mainly because in my mind I overestimated the importance of Proved Reseserves. What really matters is the Technical Reserve (“TR”, the total amount of oil that might be able to be produced at some future time), rather than the more narrowly defined “Proved Reserves”.
So – how much oil is there? That number is surprisingly difficult to find (well for me it is, anyway). The USA is it seems the only country that tries to estimate it. The U.S. Geological Survey (USGS) puts it at 732 Bbbl excluding the USA (565 conventional, 167 gas liquids) , plus 42 Bbbl in the USA (32 conventional, 10 gas liquids) . But unfortunately USGS says “Unconventional oil and gas resources, such as shale gas, tight oil, tight gas, coalbed gas, heavy oil, oil sands, may be significant around the world, but are not included in these numbers.“.
Total USA shale oil is put at 2,175 Bbbl plus “significant volumes of heavy oil in the oil sands of northeast Utah” . Outside the USA, total unconventional