Another very significant influence on my early education was the theory of Peak Oil. The Peak Oil theory is that the world’s oil reservoirs will eventually reach a maximum peak in oil production and then enter a prolonged downward decline in the rate of production. The production follows a classic bell-shaped curve and the time after the peak in production is reached is the most significant. The subject of Peak Oil is very simple and there is extensive data and facts written that is recommended for further analysis. For this blog, I will state some simple truths that will provide you a more informed understanding of the many actions taken by governments around the world. For starters, let me give my laymen’s description of how oil fields are produced for the basis of understanding. You may recall the photo of the Spindletop oil well with oil gushing out of the wooden derrick, which was one of America’s first oil producing wells in Texas at the turn of the 20th century. This oilfield was under so much pressure within the ground that the black gold oil came gushing out by essentially poking a hole in the ground. Like all oil wells, over time this great pressure diminishes and so too does the amount of oil produced from that individual well. The secondary and tertiary methods of production involve water flooding and steam flooding to push the stagnant and viscous oil to the wellhead. The concern there is that now the wellhead is producing increasing quantities of water with the oil. So, the oil production from that well continues to decrease as the amount of water increases. This process of declining production occurs for every oilfield on Planet Earth. By mathematical law, if one oilfield hits a maximum production rate and then enters terminal decline, then by definition a collection of all the oil fields on Planet Earth will do the same, i.e. Peak Oil.
I hope several readers are asking what if we keep discovering more oil fields, or what about the US shale oil. At least if you recognize and accept the facts in the opening paragraph, the only remaining questions would be related to how much oil supply remains, or what technological advancements can allow oilfields to be more prolifically produced. I’ll leave it up to your research about where the future supplies of oil may lie, but I will say that there have been many frontiers and oil producing nations that have long past their peak production rates. Please check out the long list of nations and frontiers that are past their peaks. As for the second question about technology delaying the onset of Peak Oil, it is true that hydraulic fracking and horizontal drilling have temporarily (and briefly) unleashed the dramatic surge in US oil production from its shale oil fields. The great challenge with these shale oil deposits is that once their production peaks, the subsequent decline rates are over 50% annually. These massive decline rates mean that oil production will be halved year after year after year. Within only several years, each oil field will produce only a small fraction of what it produced at its peak. Some optimists look at the Arctic region and the pre-salt layers in the waters of Brazil. There are many logistical, geological, technological, infrastructure and environmental challenges associated with these remaining oil reservoirs but they are viable “at a price” in the future. Setting up the remainder of this blog, let’s assume that the world has or is very close to hitting its maximum production rate and then will enter a terminal decline in production, i.e. Peak Oil. The consequences are world changing and significant beyond belief.
One more key element to understanding oil is about how critically important it is to the great advancements of modern society over the last century. Oil’s energy density is unmatched and is transportable to facilitate land, sea and air travel around the globe. So many consumer end products around the world are petroleum based that the list is too long to list. Suffice it to say that oil is a gift from the heavens. So here is where things get very interesting. Take a look back at recent history and ask yourselves the following questions.
· Why is Henry Kissinger’s quote at the top of my blog that controlling the energy (i.e. oil
energy) can control continents so important?
· Why did the United States invade and conquer Iraq? Note that Iraq’s massive and relatively
untapped oil reservoirs are known as the “Oil Prize”. These massive reservoirs will be one
of the last great collections of oilfields that will reach peak production on Planet Earth.
· Why does the United States give Saudi Arabia preferential treatment when their acts of
terror and brutality are obvious?
· When did the United States hit their original peak oil production? Is the modern shale oil
miracle and resultant oil (and gas) production surge sustainable?
· Can a modern society maintain its extravagant lifestyles if oil production and the resultant
petroleum based end products become too costly or are no longer sustainable?
· Does the geopolitical chessboard and strategy look different now considering the giant
oilfield locations and international relationships?
· What investment opportunities now exist?
I want to pre-empt the media misinformation that has been developing about “Peak Demand” for oil, rather than a “Peak Supply/Peak Oil” conversation about declining oil production. Essentially, the narrative is being shifted from peak supply to peak demand. Peak Demand is a Red Herring!! Do not be deceived. The demand for oil is insatiable, yet there is economic, environmental and other reasons why human beings may consume less oil in the future. However, as is so often the case, the critical information that is NOT being said is most important. What is not being said is that the world is likely to reach its maximum Peak Oil production rate within the imminent future and enter into terminal decline. The impacts to human existence if that is the case is too profound and for perhaps a future blog. Regarding the imminent (or already past) peak for the US shale oil miracle, I actually forecasted about one year ago that an oil price crash would occur to give the oil companies cover to say, “the oil price is too low for profitable drilling so we are going to voluntarilycease production in the shale oil wells”. In other words, the oil companies now have a convenient excuse for why their shale oil production volumes are perpetually decreasing. Importantly again, what is not mentioned is that these shale oil wells were going to naturally reach their peak production rates in the very near future (and many shale oil wells already surpassed their peaks) due to natural geologic reasons when the 50%+ annual decline rates can no longer be offset by increased drilling elsewhere.
In conclusion dear readers, if you do not understand the theory and facts behind Peak Oil then many of the global events, conflicts, policies and alliances will be confusing to understand. Conversely, if you look at historical and future global events through the optics of Peak Oil, all will be crystal clear! The empire’s great challenges to securing the remaining oil treasures around the world will become more apparent in the coming years and decades. Do not be deceived, bribed or intimidated any longer.
P.S. I would like to thank the late Matthew Simmons for writing his insightful book “Twilight in the Desert”, which was one of my early readings that truly educated me.