Quiz: What will cause world oil supply to fall?
- Too little oil in the ground
- Oil prices are too low for oil producers
- Oil prices are too high for oil consumers leading to recession, debt defaults, and ultimately a cut back in credit availability and very low oil prices
- Oil exporters are subject to civil unrest and overthrow of governments, due to low prices and/or depleting reserves
- Lack of money (and physical resources that might be purchased with this money) to pull oil out of the ground.
- Pollution related issues–too much smog in China; too many problems with fracking; too many problems with CO2.
- The financial current system fails, and can only be replaced by one that allows much less debt. Oil prices remain too low under such a system.
In my view, any answer other that the first one is likely to be at least partially right. Ultimately, the issue is that to extract oil or any fossil fuel, we have to keep the financial and political systems together. These systems can be expected to fail, far before we run out of oil in the ground. Most oil in the ground (as well as most other fossil fuels in the ground) will be left in the ground, in my view.
Basing estimates of future oil production on oil reserves is likely to give far too high an indication with respect to actual future production. Even more absurd numbers come from using “resource” numbers (which are higher than reserve numbers) to make estimates of future oil production. Coal and natural gas production is likely to fall at exactly the same time as oil, because the problems are likely to be financial and political ones, not “resources in the ground” problems.
Direct Application of M. King Hubbert Theory is Incorrect
M. King Hubbert is known for his estimates of future oil production (1956, 1962, 1976) based on reserve amounts. There are two things of importance to notice about his estimates:
(a) The oil reserve estimates used are of free flowing oil reserves of the type that geologists currently were looking at. Thus, they were restricted to “cheap to extract” reserves, and
(b) When Hubbert showed graphs of world oil production following a generally symmetric curve (so downslope looks like a mirror image of upslope), Hubbert showed some other source of energy supply (nuclear in his early papers, solar in later ones) rising to high levels, before world oil production ever dropped. He even talked about making liquid fuels using a huge amount of energy plus carbon dioxide and water–in other words, reversing combustion (1962). In order to ramp nuclear or solar up to these very high levels, they would need to be extremely cheap.
The assumptions that M. King Hubbert makes are effectively ones that would allow the economy to continue to grow and the financial system to “hang together.” If a person looks at today’s situation, it is quite different. We do not have an alternate fuel supply that will allow the economy to continue to grow, regardless of fossil fuel consumption. The published reserves include large amounts of oil in the ground that are not of the very cheap to extract type. Extracting such oil will be impossible if oil prices are very low, or if credit availability is lacking. It is tempting for observers to look at oil reserves and assume that all is well, but this is definitely not the case.