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Oil Price

New Liberal leader Tony Abbott did not know what peak oil is

Does he know it now?

In July 2008, at the Writer’s Festival http://www.themonthly.com.au/taxonomy/term/176?page=1

Hardly noticed at the time, this is the video of the day in crikey http://www.crikey.com.au/2009/12/02/peak-oil after Tony Abbott has now become new leader of the opposition. Here is a transcript of an excerpt:

newliberalleadertonyabbott_doesnt_konw_peak_oil   Q: “Does the Liberal Party have a policy on peak oil?”

Tony Abbott:  “We like it to be cheaper, …. I suppose… look, look,….we like to see competition at every level in the oil industry both at the production level, the distribution level and the supply level and we think that that will give us the best possible price. ”

Q: “I’d like to ask if Tony Abbott understood the question about peak oil. Are you familiar with the concept of peak oil?”

Tony Abbott: “It’s not a term I have heard. Perhaps Robert has heard about peak oil. He is expert on arcane concepts…”

Robert Manne: “It’s a concept concerned with the point at which oil production is beginning to decline … where the exploration and production…. we realize we are over a point  and the production begins to decline. It’s actually an incredible complex notion. It’s one I am not  claiming to be an expert on. But I know it’s absolutely essential for the debate about energy”

Tony Abbott: “Ok, but the issue with oil is … supply is very much a  function of price and at a higher price all sort of things suddenly become possible. A whole lot of uneconomic deposits become accessible, turning all sorts of other things into oil become feasible. So this idea there is some fixed point, some fixed finitude I just find implausible.”

http://www.youtube.com/watch?v=tCiHFyLIfu8

Read this again: “we like oil to be cheaper….at higher oil prices additional oil becomes available”.  So much for the logic of these arguments.

fig_1d_2009_08_nymex So let’s have a look at what sorts of things happen when oil prices go up.

Up to around mid 2005, everything is fine, prices go up, production goes up. But then peak oil hits somewhere above 74 mb/d, prices go up, but production goes even down slightly. Then prices go down and production with it. Then prices skyrocket, Saudi Arabia pumps at maximum spare capacity and then the whole system crashes. There is clearly a singularity which means chaos for the economy. Right, “all sorts of things become suddenly possible”. Lehman Brothers and the rest of it. So much for the function supply=f(price). More oil price shocks will follow http://www.crudeoilpeak.com/?p=430 , if demand in China takes off http://www.crudeoilpeak.com/?p=525

And of course there is a delay between oil price signal, oil exploration and production, which makes it all so complex as Robert Manne is rightly saying.

And what happens with those previously uneconomic deposits? They stay in the ground because the oil price has come down as a result of the recession which was triggered by the financial crisis which in turn was triggered by peak oil.

Question: So what should be the oil price to unlock those deposits and to make other things turn miraculously into oil?

$100 a barrel?  $ 120? Certainly not $ 147 because then the economy would tank again.

Here is a case in point:

Griffin oil JV stops production

Resources: 27-October-09 by Rebecca Lawson

Japan’s Inpex Corporation says production will cease this month at its Griffin oil joint venture off the coast of Western Australia, 15 years after operations first started.

The Griffin operation, which includes the Scindian and Chinook oil fields, was the first Australian project Inpex has been participated in from exploration stage.

In a statement, Inpex said that after 15 years of production, the oil rate had reduced from 80,000 barrels a day to less than 4,000 barrels a day due to natural depletion.

“Considering the level of production and associated costs, the Joint Venture decided to cease the production this month prior to the commencement of the cyclone season,” Inpex said.

http://www.wabusinessnews.com.au/en-story.php?/1/76239/Griffin-oil-JV-stops-production/dba

griffin_oil_field Let’s have a look at the Griffin oil reserve history and cumulative production. Since 2000, P90 reserves have been in the order of 1-2 years production. In other words reserve growth was always just 1-2 years ahead of production. From hand into mouth. In 2008, high oil prices apparently led to a re-assessment in reserves, upwards. Which may have promptly been canceled with lower oil prices.  Cumulative production went indeed horizontal. But now oil prices are down and production has stopped – for good – because this is offshore and the platform is too costly to maintain.

So much for making uneconomic deposits accessible. with reserves equivalent to 14 years production left in the ground. Our politicians need to attend a training course on oil production just as they require training on global warming. They make untested assumptions which may be plausible but are factually wrong. This will have terrible consequences.

It is not uncommon that politicians don’t know enough about peak oil. For example, in October 2008,  NSW  Premier Rees frankly conceded:

Mr NATHAN REES: I would have to get some advice on peak oil. I am not going to pretend I have more than a rudimentary knowledge of the issues that will arise out of any answer to that question.

http://www.crudeoilpeak.com/?p=754

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