Why we do not have to worry about “peak oil”

Present day claimants for a near-future peak in global oil production fail to recognize the dynamics of the processes whereby oil reserves and production evolve. They equally avoid the central role played by both economics and politics in equilibrating the markets. Their irrational warning of an early 21st century oil scarcity should thus be ignored, particularly as one recalls the huge costs that were imposed on the world economy by the premature acceptance of the prognostications of oil scarcity in the 1970s by many policymakers and energy economists.

Oil production platform is being towed to its destination.
That epic, spun by the Club of Rome, was responsible in large part not only for the much higher oil prices and the economic and social problems that these caused, but also for the very large non-viable investments that were made in alternative energy production systems and in the exploitation of higher cost energy reserves. The world at the present time can ill afford an unnecessary repetition of that near disastrous set of events.

The world’s already proven and potential reserves of oil, as set out in my article published on 4 January on European Energy Review, totally eliminate any significant up-side restraint on the growth of production for the first quarter of the 21st century, and even beyond. On the contrary, up-side constraints on oil supply will, at least for the foreseeable future, be imposed by slow demand growth, which, as shown in my article, will be constrained by the increasing competition oil has to face from natural gas markets across much of the world.

Meanwhile, the continuation of the steadily increasing supply of oil required for global use can continue to be based on the creation and maintenance of a 40+ years reserves-to-production ratio. This clearly indicates that the normal economic process of stock renewal is working effectively. Indeed, any serious concern over the rate of conversion of the world’s oil resources-to-reserves would be justified only in the event of a consecutive run of five or six years in each of which annual production exceeds the gross additions to reserves.

Hindsight

Peak oilers argue that annual additions to reserves – comprising both new discoveries and the appreciation of reserves in previously discovered fields – should not be taken to indicate the replacement or replenishment of the reserves stock. These can only be calculated, the peak oilers claim, by the discoveries of entirely new reserves, while additions to reserves in earlier discoveries of fields must be dated back to the year of the initial discovery. But, as far as the oil economy is concerned, the why and wherefore of the development and evolution of oil fields are immaterial. It is the fact of their occurrence and of their utility at a later time to supply the market that constitutes the essence of balancing future supply against future demand.

The backdating of reserves with hindsight – in the context of newly developed technologies of assessments and recoverability – is simply inappropriate to the contemporaneous economic evaluation of oil exploitation. It makes the past look more attractive than it really was to the economic decision makers of the time, while the present is unjustly made to appear less attractive. Thus, the current declaration of proven reserves of 1354 billion barrels is likely to be declared upwards to 1750 billion barrels or more within a decade. This continuing re-evaluation procedure is a highly significant input to the interpretation of the future of the oil industry over the period to 2020. The most emphatic significance lies in the fact that, even without any further discoveries of oil (a near-zero probability), the peak of annual oil production will not occur before 2030. The only circumstances under which a premature peak in oil production could occur are, first, if the price of oil collapses, which would undermine the profitability of the oil industry, or, second, in the event of consistently falling demand. But these are entirely different issues of course than a lack of reserves.

Longer-term, as already shown in my earlier article, the now increasingly important exploitation of non-conventional oil is capable of sustaining overall annual increases in production through to 2060. But again, this will only happen if demand permits it! In fact, it is much more likely that the end of the ‘oil age’, like the end of the ‘coal age’, will leave a large unknown potential of oil unexploited.

Abiogenic oil

I should add an additional consideration in this context. An alternative theory of oil and gas futures is possible. This arises from the concept of oil and gas as renewable resources based on the “Russian-Ukrainian” theory of the origins of hydrocarbons. Let me explain this, based on the theory and practice developed by Dr. J.F. Kenny of the Gas Resources Corporation in Houston, US.

According to “standard” theory, oil is derived from biological material, i.e. from ancient fossilised organic materials. By contrast, the theory of abiogenic (abyssal, abiotic) petroleum holds that petroleum is a primordial material of deep origin which is transported at high pressure via ‘cold’ eruptive processes into the crust of the earth. This theory is derived from an extensive body of scientific knowledge covering the subjects of the chemical genesis of hydrocarbon molecules, the dynamical processes of the movement of that material into geological reservoirs of petroleum, and on the location of economically viable abiogenic petroleum. It is based not only upon extensive geological observations, but also upon rigorous and analytical physical reasoning. Much of the theory has developed from the sciences of chemistry and thermodynamics. Accordingly, the theory has steadfastly emerged as a central tenet in which the generation of hydrocarbons must conform to the general laws of chemical thermodynamics. With the exception of methane, petroleum has no intrinsic association with biological material.

In the context of the general lack of familiarity with this thesis outside the former Soviet Union, herewith are several immediate facts about the body of knowledge of abyssal, abiotic petroleum origins:

  • It is not new or recent. The theory was first annunciated by Professor N. Kudryavtsev in 1951 and it has since undergone extensive development, refinement and application. More than 4000 articles on the theory have been published.
  • It is not untested or speculative. Every year since 1955 important scientific conferences have been held to debate and evaluate the theory.
  • It is not a vague, qualitative hypothesis, but stands as a rigorous analytic theory within the mainstream of the modern physical sciences. One conclusion from the theory is that the hypothesis of the evolution of hydrocarbon molecules (except methane) from biogenic ones in the temperature and pressure regimes of the earth’s near-surface crust is glaringly in violation of the 2nd law of thermodynamics.
  • The abiogenic theory has been applied extensively across the former Soviet Union as the guiding perspective for petroleum exploration and development projects. The latter have revealed 80 oil and gas fields in the Caspian district with production from the crystalline basement rock. Other examples have been found in the western Siberian cratonic-rift sedimentary basin (also with 80 fields producing from the crystalline basement); and on the northern flanks of the Dneiper-Donotz basin; and elsewhere in Azerbaijan, Tatarstan and Asian Siberia.

As a consequence of the western world’s oil and gas companies (both state and private) largely ignoring the abiogenic theory of hydrocarbons’ formation in the earth’s mantle, extensive areas of the earth’s sub-surface have hardly been explored for its hydrocarbon potential.

Neither has very much attention been given to the fact that many of the western world’s oil and gas fields are being continuously recharged from deeper horizons with abiogenic hydrocarbons, so making the fields “effectively inexhaustible”. This phenomenon thereby negates the calculations of declining rates of production, which lead to under-statements of the potential future prospects for the recovery of oil and gas.

Needless to say, the constant renewal by the influx of new volumes of hydrocarbons to many reservoirs also comprehensively undermines the validity of the peak-oilers’ assertion for a near-future exhaustion of hydro-carbons’ availability. On the contrary, all “old” oil and gas fields, previously considered to be exhausted, should be thoroughly investigated to ascertain the quantities of oil and gas which will have accumulated since the fields were shut-in.

In view of all the above considerations, there is no reason to worry about any predicted demise of the petroleum industry. The prediction by peak oilers that the world is “running out of oil” is invalid. On the contrary, there is compelling evidence that the petroleum industry is only now “entering its adolescence”, as some have put it.


Peter Odell is Professor Emeritus of International Energy Studies, Erasmus University of Rotterdam.
This article is a follow-up to his article on why carbon fuels will continue to dominate global oil supplies in the 21st century, published on 4 January on European Energy Review online.