Peak
Oil-The End Game Has Started
By Michael C.
Ruppert
30 March, 2004
From The Wilderness
Colin
Campbell is both an academic and a businessman. Educated at Oxford and
holding a Masters degree he has served as a geologist for Oxford University,
Texaco, British Petroleum and Amoco (prior to the BP Amoco merger).
He has served in executive positions with Shenandoah Oil, Amoco, Fina
and was Chairman of the Nordic American Oil Company. He has served as
a consultant on oil for the Bulgarian government as well as for Statoil,
Mobil, Amerada, Total, Shell, Esso and for the firm Petroconsultants
in Geneva. He is the Convener and Editor of the Association for the
Study of Peak Oil and a Trustee of the Oil Depletion Analysis Center
in London.
As a member of The
American Society of Petroleum Geologists, The Geological Society of
London, and the Petroleum Institute of London he has delivered more
than 35 lectures on oil depletion on three continents. His hosts have
included universities, governments, and auto manufacturers. He has been
published more than 150 times in the field including the 1997 book "The
Coming Oil Crisis" (Multi-Science Publishing Co. & Petroconsultants).
Before beginning
this interview it is necessary for the reader to understand several
critical factors about oil and oil production. All of these factors
affect how much you or industry pays for oil, how much is available,
and what this life-essential commodity can do. Almost every current
human endeavor from transportation, to manufacturing, to plastics, and
especially food production is inextricably intertwined with oil and
natural gas supplies. Commercial food production is oil powered. All
pesticides are petroleum based, and all commercial fertilizers are ammonia
based. Ammonia is produced from natural gas.
All oil production
follows a bell curve, whether in an individual field or on the planet
as a whole. On the upslope of the curve production costs are significantly
lower than on the downslope when extra effort (expense) is required
to extract oil from reservoirs that are emptying out. The best and easiest
to produce oil is always extracted first to maximize profits. In 100
years mankind has used half of all the oil on the planet, oil that took
billions of years to produce and is the result of climactic conditions
that have existed at only one time in the earth's 4.5 billion- year
history. Oil is a non-renewable resource.
The key event in
the Petroleum Era is not when the oil runs out, but when oil production
peaks, especially as demand and population are rising. World per capita
oil production peaked in 1979 and has been in decline since. The peak
in volume of total world oil production is upon us right now, even as
the demand or better said -- the need -- for oil is increasing rapidly.
Several things are
a given. First the total remaining conventional oil on the planet is
estimated to be around 1 trillion barrels. Second, at present rates
(not those of five or 10 years from now), the world is using close to
80 million barrels per day. At the current rate there would be only
enough oil to sustain the planet for another 35 years under the best
of scenarios. But the oil that remains is going to be increasingly expensive
to produce and it will tend to be of a lesser quality, necessitating
higher refining costs, than what has already been used. All of those
costs will have to be passed on in the form of price hikes or -- in
some cases -- spikes. Oil price spikes invariably lead to recession.
The world's economy is based upon the sale of products that are either
made from oil or which need hydrocarbon energy (including natural gas)
to operate, either via internal combustion or via electricity.
Different regions
of the world peak in oil production at different times. The U.S. peaked
in the early-1970s. Europe, Russia and the North Sea have also peaked.
However the OPEC nations of the Middle East peak last. Within a few
years they -- or whoever controls them -- will be in effective control
of the world oil economy, and, in essence, of human civilization as
a whole. Two of the nations that will peak last are Saudi Arabia and
Iraq, both of which will not peak until the middle of the next decade.
Saudi Arabia contains 25 percent of all the oil on the planet. Iraq
contains 11 percent of all the oil on the planet.
Science and the
oil industry have confirmed that there is very little oil left to be
found, certainly not enough to make a difference in this grim picture,
a picture which goes a long way toward explaining the events of 9-11
and since.
----------------------------
FTW: What will be
the likely effects of hitting the downslope of production?
Campbell: Big question.
Simply stated: war, starvation, economic recession, possibly even the
extinction of homo sapiens, insofar as the evolution of life on earth
has always been accomplished by the extinction of over-adapted species
(when their environmental niche changed for geologic or climatic reasons)
leaving simpler forms to continue, and eventually giving rise new more
adapted species. If Homo sapiens figures out how to move back to simplicity,
he will be the first to do so.
FTW: How soon before
we start to feel the effects of dwindling oil supplies?
Campbell: We already
are. The U.S. would be importing 90 percent of its oil by 2020 to hold
even current demand and access to foreign oil has long been officially
declared a vital national interest justifying military intervention.
Probable actual physical shortage of all liquid hydrocarbons worldwide
won't appear for about 20 years, especially if deepening recession holds
down demand. But people are coming to appreciate that peak is imminent
and what it means. Some places like the U.S. will face shortage sooner
than others. The price is likely to soar as shortage looms, which itself
may delay peak.
If the U.S. does
invade there will likely be a repeat of Vietnam with many years of fruitless
struggle in which the U.S. will be seen as a tyrant and an oppressor,
killing all those Arabs. It can't hope to subjugate the place in perpetuity
as the people don't surrender easily -- as the Palestinians have shown.
So when the U.S. has finally gone, Russia and China will likely be welcomed
there to produce whatever is left in the ruins.
FTW: Are the major
oil companies currently downsizing? If so why?
Campbell: The majors
are merging and downsizing and outsourcing and not investing in new
refineries because they know full well that production is set to decline
and that the exploration opportunities are getting less and less. Who
would drill in 10,000 feet of water if there were anywhere else easier
left? But the companies have to sing to the stock market, and merger
hides the collapse of the weaker brethren. The staff is purged on merger
and the combined budget ends up much less than the sum of the previous
components. Besides, a lot of the executives and bankers make a lot
of money from the merger.
FTW: How much oil
is really left?
Campbell: You have
to think of different categories of oil. Speaking of conventional, which
is the easy cheap stuff that has supplied most uses to date and will
dominate all supply far into the future, there is about 1 trillion barrels
left. To this you have to add:
A) Oil from coal,
"shale," tar sands, heavy oil -- the resource is very large,
but extraction rate is low and costly, sometimes giving negative net
energy.
B) Deepwater oil
-- (from a depth of greater than 500 meters) about 60 billion barrels
C) Polar -- about
30 billion, maybe.
D) Natural gas liquids
-- about 300 billion barrels
FTW: I take it that
it is a given that in any particular oil field, or globally, costs of
extraction increase as one progresses down the curve. What is the usual
nature of these increased costs? Do they usually require additional
investment of capital for infrastructure? Is there a chart which shows
how costs increase as production declines?
Campbell: Yes of
course costs go up and every situation is different. In Texas they can
still profitably use wells producing 5 b/d. But offshore the threshold
is higher. It is more complex because they have the sunk costs of the
platform and also face substantial abandonment costs. Furthermore tax
distorts the picture, with most operating cost being written off against
taxable income either in the host or home country or both. But reserves
are defined as recoverable under current or foreseen economics, so non-economic
tail-end theoretical production is not included anyway. I think the
key issue is not so much the economic cut off but when production of
even highly profitable oil heads into decline. The tail end, which is
susceptible to economic constraints, is small and not very relevant.
Oil has a polarity being either there in profitable abundance or not
there at all -- mainly because it is a liquid that flows to accumulate
somewhere, unlike coal where extraction is a matter of concentration
in seam thickness and access.
FTW: Is all oil
in the ground recoverable? If not, why not?
Campbell: Only a
fraction of the oil in the reservoir is recoverable because it does
not sit in one big cavern down there but in the very small pore spaces
between the grains of sand. These grains are coated in water and when
it coalesces, it blocks the pore spaces preventing the further movement
of oil. Also there are many nooks and crannies in the rocks that are
not in communication. Obviously light oil is easier to extract than
heavy. You can pump in steam etc. to try and move it, which is now routinely
done where feasible.
It is said that
recovery has increased from 30 percent to 40 percent thanks to technology
and is set to rise from more technology in the future. But most of this
improvement has nothing to do with technology. It is an artifact of
reporting. The industry has always made conservative initial estimates
(liking to build an inventory of unreported reserves to tide them over
bad years and also reduce taxes) so reserves naturally grow over time.
Besides, extracting
a bit more has a minimal impact on peak, which is the critical turning
point, much more important than eventually running [completely] out,
which we may never do as the tail end can drag on.
FTW: What would
you say to the people who insist that oil is created from magma, or
that there's really so much that we don't have to worry?
Campbell: Oil sometimes
does occur in fractured or weathered crystalline rocks, which may have
led people to accept this theory, but in all cases there is an easy
explanation of lateral migration from normal sources. Isotopic evidence
provides a clear link to the organic origins. No one in the industry
gives the slightest credence to these theories: after drilling for 150
years they know a bit about it. Another misleading idea is about oilfields
being refilled. Some are, but the oil simply is leaking in from a deeper
accumulation.
FTW: Will Central
Asian-Caspian pipelines have an impact on the crisis? How long will
it take them to come on line?
Campbell: There
was talk of the place holding over 200 Gb [billion barrels] (I think
emanating from the USGS [U.S. Geological Survey]), but the results after
10 years of work have been disappointing. The West came in with high
hopes. The Soviets found Tengiz onshore in 1979 with about 6 Gb of very
deep, high sulfur oil in a reef. Chevron took over and is now producing
it with difficulty. But offshore they found a huge prospect called Kashagan
in a similar geological setting to Tengiz. If it had been full, it could
have contained 200 Gb, but they have now drilled three deep wells at
huge cost, finding that instead of being a single reservoir it, like
Tengiz, is made up of reefs. Reserves are now quoted at between 9 Gb
and 13 Gb. BP-Statoil has pulled out. Caspian production won't make
any material difference to world supply. There is however a lot of gas
in the vicinity.
To put it in perspective
this would supply the world for a little over a year, but it is broadly
the same as U.S. potential
It is quite possible
that the Afghan war was about securing a strong point in this area.
But interest in it has now dwindled along with Caspian prospects as
the U.S. turns to Iraq, which does have some oil. It is curious that
these two U.S. military exercises had different pretexts
A) Afghanistan was
to find the supposed architect of Sept. 11 -- in which it failed; and
B) Iraq is about
a sudden and unexplained fear that it might develop some objectionable
weapons that might pose a threat to someone in the future. North Korea,
which already has nuclear weapons and long range missiles -- and isn't
exactly a friendly place -- is not deemed a threat. The cynic can be
forgiven for thinking there is some other motive for these military
moves: could it be oil?
FTW: When and how
was it discovered that the Central Asian reserves were much smaller
than anticipated?
Campbell: I guess
you could say over the past 24 months as the different pieces in the
jigsaw fell into place. There is no single event or date, but rather
an evolving picture
FTW: What about
replacement sources and alternative energy? Tar sands?
Campbell: Of course
there is a range of alternatives from wind, sun, tide, nuclear, etc.
but today they contribute only a very small percentage, and do not come
close to matching the oil of the past in terms of cost or convenience.
No doubt production from tar sands and heavy oils can be stepped up
in the future but it is painfully slow and expensive, carrying also
environmental costs. It will help ameliorate the decline but has minimal
impact on peak. The simple solution is to use less. We are extremely
wasteful energy users. But it involves a fundamental change of attitude
and the rejection of classical economic principles, which were built
on endless growth in a world of limitless resources. Those days are
over, exacerbated by the soaring population, itself now set to decline
partly from energy shortage.
FTW: Has anyone
determined what percentage of oil is used for military purposes worldwide?
If so, how much?
Campbell: I don't
know how much is used for military purposes, but it must be considerable.
The U.S. has built a huge stockpile in the Middle East for the war.
FTW: Is China the
end game of competition for oil?
Campbell: Yes, China
is in desperate need of imports as its own supply depletes. It has been
very thoroughly explored. It will be vying with the U.S. for access
to foreign oil. It is already well established in Iraq.
That is about how
I see it.
[© COPYRIGHT
2002, Michael C. Ruppert and FTW Publications, www.copvcia.com all rights
reserved. May be reprinted or distributed for non-profit purposes only.]