Oil Depletion Debate

Because petroleum has been so instrumental in the development of modern societies and because it is also a finite resource that will some day go into decline, supply needs will fall short of demand at some point. The main focus of this blog is on the arguments put forth by the pessimists. I believe geopolitics will play an equal part in causing a supply shortage before an absolute geological peak, governments will limit their oil production levels

At 88,000,000 Barrels Per Day....

As of today (5-11-2011) global oil consumption is around 88 million barrels per day. Those 42-gallon barrels could fill 67,200,000 steel drums. Since 55-gallon steel drums are 3 feet tall, how many miles long would those 67.2 million drums be if we laid them end to end? 38,182 miles. That enough 55-gallon steel drums to encircle the earth 1 1/2 times each day. The circumference of the earth at the equator is 24,901 miles. In one year you could encircle the earth 560 time. Here's how you do the math:

An oil barrel is 42 gallons
A 55 gallon steel drum is 3 feet tall by 22 inches wide
A mile is 5,280 feet
The circumference of the earth is 24,901 miles
The speed of sound (Mach 1) is 768mph

(88,000,000 x 42gal) / 55gal = 67,200,000 steel drums
(67,200,000 x 3ft) / 5,280 = 38,182 miles long
38,182 / 24,901 = 1.53 or 1 1/2 time around the earth each day
(38,182 miles x 365days) / 24,901 = 560 times around the earth each year.

The speed at which you'd have to lay those drums end to end to cover the 38,182 mile distance?
(38,182 miles per day / 24 hours) = 1,591mph
1,591mph / 768mph = 2.07 or Mach 2

The Rule of 70:
In finance we have what's called the "Rule of 70" that's used to calculate the doubling time for a principle's investment given an annual rate of return. To calculate how long it'll take for your investment to double divide 70 by your annual interest. For example, if you were to deposit $100 in a savings account earning 7% annualized rate of return, your $100 would grow to $200 within 10 years.

The Rule of 70 not only applies to investments but also applies to a country's gross domestic product, its GDP. It's claimed that, among developing countries, China is growing at an annualized rate of 7% (actually down from 9%). If that's true then within ten years China's need for commodities to fuel its manufacturing would need to double from its current demand. Imagine, within 10 years, China needing double the oil, coal, copper, aluminum, iron, etc. that its GDP currently consumes.

The Rule of 70 also works in reverse. For example, if you started with $100 in a non-interest bearing account and drew down that principle at 7% per year, within ten years you $100 would shrink to $50. Your investment would be cut in half.

Similarly, oilfields have an annualized percentage decline rate. This begs a critical question: Of all the world's oilfields currently in production, what is their aggregate rate? That is, what is the decline rate on the world's current oil supply?

Schlumberger CEO, Andrew Gould, has stated the decline rate could be 8%
The International Energy Agency (IEA) has calculated a decline rate of 6.7%
Cambridge Energy Associates (CERA) believes the global decline rate is 4.5%
It should be noted that of the recognized credible sources CERA's 4.5% is the most optimistic.

Applying the Rule of 70 to global oil declines. Given the above percentage decline rates, how many years would it take for the world's current oil capacity of 88-90 million barrels to be halved to 44-45 million barrels? Or to put it another way: How much time is there to put online 45 million barrels of new production to keep capacity at current levels?

Schlumberger: 70 / 8 = 8.75 years.
IEA: 70 / 6.7 = 10.44 years
CERA: 70 / 4.6 = 15.2 years

If Global Production Capacity is 90,000,000 bbl/day how much oil does the oil industry need to put online to offset the above decline rates?
Schlumberger: 7,920,000 bbl/day
IEA: 6,030,000 bbl/day
CERA: 4,140,000 bbl/day

If the most optimistic decline rate, CERA's 4.6%, is correct then the oil industry still needs to put on line the equivalent of Japan's daily oil consumption of 4,363,000 bbl/day each year just to keep oil production at current capacity and that is assuming Japan's oil demand did not increase with time.

Oil Consumption by Country
# 1 United States: 18,690,000 bbl/day 2009 Time series
# 3 China: 8,200,000 bbl/day 2009 Time series
# 4 Japan: 4,363,000 bbl/day 2009 Time series
# 5 India: 2,980,000 bbl/day 2009 Time series

Chris Nelder: Saudis approaching production limits
http://www.netcastdaily.com/broadcas...011-0512-1.mp3