Sunday, June 28, 2009

"The Net Hubbert Curve: What Does It Mean?" By David Murphy, The Oil Drum, June 22, 2009

A recent post on this blog reviewed Tony Eriksen's study of declining oil production, which is summarized in this Figure. These data show a slow decline in global crude oil production currently and then accelerating after December 2010.

Because oil is used to produce oil, we should focus on net oil production, which is what we have left after oil is consumed to extract, refine, and deliver oil products to market. The rate of decline in net oil production is much steeper than for all oil produced, as shown in Murphy's Figure 3.

The drop in net oil production will probably be steeper than Murphy forecasts. Matthew Simmons estimates that 100 trillion dollars of investment is need to replace the globe's rusting infrastructure of pipelines, drilling rigs, platforms, and refineries. Much of this investment will consume oil to manufacture, transport, and assemble this infrastructure. And everyone who works on these 100 trillion dollars of projects will use their pay to buy products made out of oil or transported by oil. Currency is a ticket to buy oil. Thus less net oil will be produced than shown in Murhpy's Figure 3.

Also, as oil exporting nations consume more oil domestically they export less to the developed nations; hence, the oil supply available to developed countries will be considerably less than shown in Murphy's Figure 3.

This analysis indicates that oil supplies for the developed world will decline precipitously beginning in the next two years and the decline will accelerate over time.

This suggests that a rapid economic global collapse will occur in less than 10 years.

8 comments:

Susan Dvorak said...

Hi Clifford,
This is pretty frightening information and I'm getting very concerned for my family. When you say oil production is going to decline precipitously in the next few years, how great of a decline are you talking about? I know that here in the US we are using about 20 million b/d. How far do you think that will drop in say the next 2 years, or 5 years? Can you give us some numbers so we can plan better?
Thank you so much for your wonderful blog!!!!!

Clifford J. Wirth, Ph.D., Professor Emeritus, University of New Hampshire said...

Thanks Susan,

For more specific information on declining supplies from exports, see Westexas' (Jeffrey Brown's) comments here:

http://europe.theoildrum.com/node/5489

If the U.S. had a strong economy, it could continue to buy oil on the open market. But the U.S. economy and the dollar appear headed for a steep decline.

I can't give any more precise information than what you can discern from the graphs and the data. The summation of declines from the 3 decline sources appears significant.

For years an ongoing study by the National Academy of Sciences has been needed. This would provide more reliable information.

The other unknown is what policymakers will do with this catastrophe. So far there is no sign of acknowledging the problem.

If you read earlier blog entries, you will see that the Achilles's heel is power grid failure, which will occur at some time, I guesstimate within 10 years, but it could happen tomorrow, as noted in the blog comment in this post:

http://survivingpeakoil.blogspot.com/2009/05/power-blackout-in-winter-comment-by-rc.html

Best regards,

Cliff Wirth

Susan Dvorak said...

Thanks for the response Clifford, but I'm not very good with figures and I couldn't make heads or tails of that link. I hate to be a pest, but can't you just give us a ballpark forecast to work with, like oil in the U.S. will be down by 50% in 5 years or something like that? You say it's going to decline precipitously in two years, but I don't know exactly what you mean? I'm really worried about my children. Can you please put this in layman's terms?

Clifford J. Wirth, Ph.D., Professor Emeritus, University of New Hampshire said...

Hi Susan,

By 2015 global oil production will be down 15% using Tony Eriksen's study, plus a guesstimated 1% for increased oil consumed in production, processing, and renovation of oil infrastructure. In addition, the reduction in exports from oil exporting countries will be large, although Jeffrey J. Brown and Samuel Foucher have not calculated this as a percentage of total oil production. I will guesstimate conservatively a 20% decline in exports by 2015. See

http://www.theoildrum.com/node/2767

for Brown's analysis.

A 35% decline in oil available to the developed nations will cause prices to skyrocket. One can only guesstimate the cost of oil under these conditions. Also, the U.S. economy and dollar will decline, making it difficult to buy oil on the international market.

This is why the highways and power grid are a major concern, as the states will lack funds for highway maintenance, and when the highways fail the power grid will fail also.
Read more here:

http://survivingpeakoil.blogspot.com/2009/03/peak-oil-economic-depression-has.html

http://survivingpeakoil.blogspot.com/2009/05/power-blackout-in-winter-comment-by-rc.html

You should be concerned about your family now and more as time goes on.

Jeff said...

I can accept your comments on declining oil - but you do not consider alternative energy replacements. There are massive amounts of Natural Gas now accessible in Shale and Shipments of LNG ramping up from Mid East and Russia. This should act as a stop gap till Renewable energy sources can be ramped up in large enough scale - which will take years and cost more than current oil but possibly less than future oil. Additonally we have to go in the renewable direction to begin to reduce climate change. Your comments on these points plse.
Jeff Reed

Clifford J. Wirth, Ph.D., Professor Emeritus, University of New Hampshire said...

Jeff,

Regarding the future potential for natural gas as a replacement for gasoline and diesel:

http://www.theoildrum.com/node/5615#comment-524089

and the EIA concludes much the same, see the section "Substitution of Natural Gas for Petroleum Consumption" a little more than half way down the page:

http://www.eia.doe.gov/oiaf/aeo/issues.html

and then these data about how fast oil supply reduction is occurring for the U.S:

http://survivingpeakoil.blogspot.com/2009/06/net-hubbert-curve-what-does-it-mean-by.html

The capital for natural gas conversions and supply infrastructure will disappear as oil supply reduction impacts the U.S. economy.

And these article do not even take into account declining oil supplies and how that will impact the economy:

http://seekingalpha.com/instablog/439656-arbitrary-vote/11018-economic-fragility-underestimated-collapse-may-be-imminent

http://www.commodityonline.com/futures-trading/currency/Why-you-should-get-out-of-the-US-dollar-now!-734-1.html

http://www.guardian.co.uk/world/2009/jul/08/g8-recession-plan-global-economy

And the IEA indicates that "the oil crisis begins to grip after 2010:"

http://survivingpeakoil.blogspot.com/2009/08/indendent-london-warns-about-peak-oil.html

Best regards,

Cliff Wirth

John Mack said...

I disagree with Murphy's graph of net energy from oil production because a substantial amount of the world's oil reserves are in the Middle East where extraction costs are very low -- $10/bbl, maybe lower. While declining production at these fields will require more financial resources, it will not significantly increase costs, in my opinion. That being said, the terminal decline of oil production is very bad news indeed.

Clifford J. Wirth, Ph.D., Professor Emeritus, University of New Hampshire said...

John Mack,

Good point, but don't forget the $100 trillion dollars in renovation of existing infrastructure that is required, according to Matthew Simmons. That is an enormous use of oil and nature gas in manufacturing and transportation. And in the Middle East, the amount of oil exported will shrink, see Jeffrey Brown on the Land Export Model.