A Peak Oil Article That Does Not Mention Production Rates and Production Costs is Not an Article About Peak Oil

Dr. Sami Al-Nuaim

There's no need to dive too deeply into Dr. Sami Al-Nuaim's story in the Saudi Gazette, The falsehood of 'Peak Oil Theory' - you probably already know that Peak Oil isn't a theory, so that's strike one.

But this is a good example to mention something everyone should remember: A Peak Oil article that does not mention production rates and costs, is not an honest article about Peak Oil.

The one sentence gist of Dr. Al-Nauim's article is: "We have lots of oil, so Peak Oil is false."

Well, no. Understand that people like to throw big confusing numbers at their audience and say "Look at how much oil we have, case closed!"

ASPO did coin the term Peak Oil, pretty sure they're the authority on the definition.

But there are two classic analogies that explain why Dr. Al-Nauim misunderstands Peak Oil completely.

For the first analogy, picture a cubic mile of oil - a giant cube one mile wide, deep, and tall through the sky - it would seem endless. This is your oil supply. Now onto this cube let's attach a regular sized faucet like the one you have on your kitchen sink. To get the oil, we have to open the faucet and let the oil flow to our waiting containers.

Once you start thinking about the faucet, and how much oil you can get out of the faucet per day, week, or month - now we're talking about flow rates. Flow rates require both an amount and a unit of time for that amount. This is why we talk about oil production in terms of millions of barrels of oil produced per day. And worldwide Peak Oil is the specific number where the the worldwide production rate reaches its maximum, whatever that number is. That's why we say the peak of US oil production was in 1970, because in that year we produced nearly 10 million barrels per day, and although production has seen recent gains - it's still nowhere near the 1970s peak.

Remember the words of Chris Nelder from March:

 “Peak oil was never about ‘running out.’ That’s a strawman argument. The word “peak” in peak oil simply refers to the maximum production rate of oil… While oil producers constantly trumpet new discoveries and rising reserves, they tend to avoid talking about production rates.
But reserves are meaningless if they don’t amount to an increasing rate of production. If you had a billion dollars to your name, but could only withdraw $1,000 a year, would you be worried about running out of money or paying your bills?”

The second analogy is about water and the human body. The human body is made of mostly water, and moment by moment the body uses and loses water for its daily functions, you replace this lost water by drinking more.

Now if your body loses 2% of your normal water volume, you enter mild dehydration. You begin to get thirsty, maybe a mild headache, a little dry mouth. It's your body's warning system, telling you to get some water before you run into trouble.

If you lose 5-6% of your normal water volume, your respiration rates start to increase and your body begins to heat up because you are sweating less. At 10% loss, your vision begins to dim, skin starts to shrivel and wrinkle, and you enter the first stages of delirium.

Losses more than 15%, just 15%... will kill a person. Now keep in mind, at that moment, the person still has 85% of his water. But a lot of good it does them... they're still dead. The body doesn't care how much total water is there, all that matters is if there is enough water, moment-by-moment, for the body to operate at the desired level.

People often forget that the US oil challenges in the 1970s, were caused by just a 5% drop in supply.

It doesn't take a big drop to start causing trouble. This is why the governments of the world take very seriously any of Iran's threats to close the Strait of Hormuz. 17 million barrels of oil per day traveled through the Strait in 2011. While this is only about 20% of world supply, if those shipments were cut off for even a little while, it would cripple the world economy.

Peak Oil has nothing to do with how much oil there is in total. It has to do with our ability to continually increase daily oil production rates to keep up with increasing oil demand, even worse you still have to factor in increased production costs on top of this. So while we fight to produce more and more oil, conventional oil continues to decline and we have to attack more expensive unconventional sources such as deep offshore, shale oil, arctic, etc. - all much more difficult and expensive to produce than conventional oil.
Both of these factors: the supply+demand interaction, and the ever increasing cost of oil production, raises the global price of oil. The open question is how will the world economy respond to the stress of these price increases.