On Peak Oil, NYT Fails Math Test

This Sunday’s NY Times Week in Review had a cover story on the future of oil. The newspaper is starting to grasp the extent of the situation, but fails several simple math problems.

NY Times: The Big Thirst

A small band of skeptics view today’s record prices as evidence that oil supplies have peaked — that half the globe’s oil supply has already been used up. But most experts believe that there are still enough oil reserves, both discovered and undiscovered, to last at least through the middle of the century.

That captures the position of the Peak Oil theorists (here described as a “small band of skeptics”). Here’s where the NY Times goes wrong:

Over the past century, the world burned through a trillion barrels of oil. Another 1.2 trillion barrels of known conventional oil reserves wait to tapped, according to BP, one of the world’s biggest oil companies. It sounds like a lot. But given the current rate of growth in demand, a trillion of those barrels will be used up in less than 30 years.

What then? Many analysts estimate another trillion barrels of yet-to-be-found oil remains, but in remote places like the Arctic Ocean where it will be expensive to extract, or in countries that might restrict access.

If you’re going to dismiss that small band of skeptics with the authority of most experts, you better check your math. The problem isn’t 30 years away, like Social Security; it’s now. If there are really 1.2 trillion barrels of oil left in the ground (not counting your trillion barrels of yet-to-be-found oil, which I suggest you don’t depend on) and we have already gone through a trillion barrels, then we’re pretty damn close to that point where “half the world’s oil supply is used up”—what the Peak Oil theorists are saying is the point where the trouble really starts. How close?

According to production forecasts and EIA oil production numbers from December 2007, the most oil we ever produced was 85.47 mbpd (million barrels per day) in July 2006. That translates to about 31 billion barrels per year. If we really had about 2.2 trillion barrels of oil in the ground, and have gone through one trillion already, then we will have gone through half of it—1.1 trillion barrels of oil—in three more years.

Not thirty; three. Because you can’t count on that trillion barrels of oil yet-to-be-found.

What then? Well, once you’ve gone through about 50% of the oil in the ground, the rest becomes harder to get out, and you get less of it out each year. That is exactly what is happening in many of the biggest oil fields around the world. It happened to the US domestic oil industry in 1970. Eventually you get to a point where it becomes prohibitively expensive to get a barrel of oil out of the ground.

In a world where demand is always increasing, and there are no viable alternatives, then once you pass that halfway point you will see dramatically increasing prices for oil and that will trigger other problems, because there are no real alternatives, and we have grown very dependent on the stuff. That sounds like the world we’re in right now.

But how much oil do we really know we have still in the ground? Do we really have three years? The truth is, that 1.2 trillion barrel figure is probably an overestimate. Back in the 1980s, OPEC decided to set national quotas for production based on reserves. Coincidentally, at the same time, just about every OPEC nation reported an increase to reserves—increasing OPEC reserves by 300 billion barrels—without a corresponding increase in discoveries.

The peak of oil production happened in July 2006. We probably passed the halfway point of oil extracted from the ground versus what’s left around the same time. That’s based on reserves that are only slightly less than what we think we have, and there’s no reason to believe that we’re being told the truth about that number to begin with (there’s also no reason for oil producing nations to announce that they have less reserves than they really have).

Next time someone tells you the high price of oil is caused by speculators, or a weak dollar, and that there’s plenty of capacity for increased production, ask them why the world has not produced more oil than that 85.47 mbpd that we produced in July 2006.

Then ask them why the US Strategic Petroleum Reserve, which is supposed to have a 90-day supply in the event a disruption in commercially available supplies threatens the US economy, was reported last week to have only a 55 day supply.

There are a couple of other mathematical misunderstandings in the NY Times article. I’ll try to get to those in the next couple of days.