Fossil Fuel Fundamentals – Oil

by Mark Lovett on January 29, 2010

In my previous post, entitled Planet Earth Fundamentals,  I referenced the fact that all of our non-renewable resources were in a state of decline, and while each resource is important in its own right, fossil fuels are at the top of the list.

The subject of fossil fuels and global energy consumption is complex in many respects, especially as it relates to the topics of reserves vs. production vs. consumption. In this article we’ll take a look at the precarious nature of the world’s oil production to understand why we must purse renewable sources.

Energy sources vary from country to country, but from a global perspective, fossil fuels provide about 85% of the total. While oil, coal and natural gas are all significant in their contribution, oil is the single most critical element due to its liquid state and the vital role it plays as a feedstock for making many products ranging from gasoline and diesel fuel to asphalt and plastics.

World Energy Mix - Data From BP 2006 Statistical review

The basic fact for all non-renewable resources is that a fixed amount existed in the ground millions of years before humans came along, and although recycling is possible for a wide variety of materials – aluminum, copper, gold – that option does not exist for oil. It’s true that some amount of plastic can be recycled, but the overwhelming majority of oil products are consumed at the point of use.

When you use a gallon of gasoline, it’s gone forever,
and that dynamic defines the problem we now face.

Oil Discovery vs. Oil Production

Simple logic dictates that any resource of limited quantity, being consumed in increasing amounts, has a limited lifespan – at some point we will run out of oil – but before that time arrives we will experience a long period of decreasing oil production in the face of rising demand, dramatically effecting price.

“How much oil is left, how long will it last, and how much will it cost?”

In the past 50 years oil has gone from $3 to over $130 per barrel, and is currently in the $70+ range, but to understand what the future holds, we must examine the history of oil discovery vs. production.

Oil Discovery vs. Production

The two key points contained in this chart are:

  1. The age of discovering oil is largely behind us.
  2. The age of increased consumption is still ahead.

The Reality of Peak Oil

Peak Oil is a term that describes the life of every oil well that’s every been drilled. In basic terms, oil output increases until reaching a maximum level. This rate of production stays relatively constant for a period of time before beginning a gradual decline, and will eventually stop or become uneconomical to extract more crude. This is true for every oil well, every oil field, and every oil-producing country.

The main takeaway of this chart (click on the image to see the full size) is that most countries have already passed the point of maximum oil production and are now seeing lower output each year.

Did you know, the United States reached its peak oil production in 1970!

These countries have discovered the majority of their oil reserves, increased production rate to a high point, but now see output decline as their oil wells age. This is the essence of Peak Oil, and explains why our society will ultimately reach a point at which oil production, for the planet, begins to decline.

The availability of relatively cheap oil has built the economy we enjoy today, but fundamental market dynamics related to lower supplies and higher demand are in the process of changing that situation.

It’s important to note that we won’t wake up one day to discover that we’re out of oil, but instead we will find ourselves in a position whereby demand outstrips our ability to supply, and as we all know, anytime demand exceeds supply, prices increase. Add in the fact that there are hoards of speculators who will buy up available supplies in order to make obscene profits (that fact accounted for $30-$50 of the previous peak in oil prices) and $300-$500 per barrel oil prices are not out of the question.

Anacortes Oil Refinery

The time to shift toward a renewable energy society is now!

{ 1 comment… read it below or add one }

oil rig jobs July 17, 2010 at 8:30 am

Starting to understand a bit more now… Thanks for keeping it simple!


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