• Ian Sutton

Peak Oil Once More

Updated: Mar 18

M. King Hubbert

My interest in ‘Age of Limits’ issues — including climate change—started when I first read about ‘Peak Oil’ about twelve years ago. The article The Hubbert Curve describes what the term Peak Oil means.

Hubbert and others predicted that the production of conventional oil would reach a peak and would then start a slow, but inexorable decline. This prediction was inaccurate because, in the last ten years or so the decline in oil production has been offset by the development of tight oil/shale oil resources in various parts of the United States, particularly Texas and North Dakota. These resources have been developed using hydraulic fracturing, or “fracking”.

Although the new wells have produced a lot of oil, the companies that developed them have, by and large, lost money. The wells are expensive and they have a very fast decline rate, so new wells have to be constantly drilled to replace the ones that are spent. Toward the end of the year 2019 it became apparent that many investors had lost interest in the continued funding of these ventures unless they could show a profit. This led to a decline in production. If tight oil production continues to decline then we could expect total production to decline, and it seems as if that is what is happening. In other words, we are back to Peak Oil. This does not mean that we will run out of oil (that will never happen) but that we will gradually run out of affordable oil.

Two Reports

Recently two of the oil majors acknowledged this reality. In separate reports the companies BP and Shell both suggest that peak oil occurred in the year 2019. The BP report — Energy Outlook 2020 edition — is discussed in a separate post on that topic. Here we look at some of the insights provided by the Shell report entitled Shell accelerates drive for net-zero emissions.

In their report Shell project that their carbon emissions will be down to zero by the year 2050. This target is for all the activities with which they are associated. They say,

This target covers the emissions from our operations and the emissions from the use of all the energy products we sell. And crucially, it includes emissions from the oil and gas that others produce and Shell then sells as products to customers, making the target comprehensive.

They aim to work toward achieving the Paris Agreement goal of 1.5°C. (In fact, we are close to that point already, and we will definitely overshoot that goal, regardless of any actions that are taken now.)

Carbon Capture

Like BP, the IPCC and virtually any other organization that takes a close look at the numbers, Shell recognizes that, in order to meet its goals, it will have to implement Carbon Capture and Storage (CCS) programs. Their goal is capture 25 million tonnes a year by the year 2035. This sounds like a lot, but it is a small fraction of the 40 gigatons of CO2 that is currently being emitted. It is also much less than the 4 gigatons (billion tons) that BP is aiming for by the year 2050.

Nature-Based Solutions

Shell and BP incorporate nature-based solutions into their programs. The basic idea is that large numbers of trees are planted. As they grow they take CO2 out of the atmosphere and turn it into wood. The numbers involved are quite small relative to the overall problem. BP talks about removing 2 gigatons a year of CO2 out of the atmosphere in this manner. The corresponding Shell figure is only 0.1 gigatons. Neither of these numbers will have a major impact on the climate, or even on matching current emissions. Moreover, these programs could use a lot of land needed for growing crops.

The Kodak Moment Challenge

Peak oil, climate change and all the other aspects of an Age of Limits pose a formidable challenge to the oil companies. Simply stated,

How do we maintain revenues and profits from an existing business while simultaneously moving out of that business?

Neither the Shell or BP reports describe how the transition is to be made. One reason for this reticence may be that such plans are company confidential — it is not in their best interest to share their business strategies with others.

The report says that the company will submit an Energy Transition Plan at the 2021 AGM to the shareholders.

Consequences of Peak Oil

Neither of the two reports describes the potential consequences of peak oil. Instead both companies pivot their focus to the management of climate change issues and how they propose to reach Net Zero by 2050.

An assumption is that the companies anticipate consequences that Gail Tverberg describes as “Collapse light”. Elements of this scenario include,

  • A peak in oil supply can occur without the whole economy collapsing;

  • The quantity of energy used by the economy is quite flexible;

  • The oil supply can decline, but other fuels will take its place;

  • Oil prices will rise, thus allowing for continued extraction, even after the peak;

  • Fossil fuel resources in the ground determine the future extraction rate;

  • Climate change may be a huge problem; and

  • The financial system is not terribly important because it is man-made.

Tverberg challenges this view, and points to the current low oil prices to back up her analysis.

The key point that she makes is that we cannot just declare that Peak Oil has been reached, and that we simply switch to alternative energy sources. Oil is fundamental to the nature of our economy. We cannot just stop using it without facing the most dire consequences.

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