The History of Oil
Since 1950
Norman W. Garrick
Lecture 6
Sustainable Transportation
Based mostly on
Kunstler, The Long Emergency, 2005, Atlantic Monthly Press, New York, pg. 73-87
(Chapter 2: Modernity and the Fossil Fuels Dilemma)
Hubbert’s Curve I
Predicting the American Peak
In the 1940s M. King Hubbert developed a model
for describing the geological limits of oil supply
In 1956 he predicted that the US Peak would occur between 1966 and 1972
Even though Hubbert was was a well respected, well connected geologist
(He was a geology professor at Columbia and had been chief of research at Shell Oil)
He was not believed
The Mythology and Science of Peak Oil
In the early years of oil, no one knew how much oil was on the planet
And how long it would last
Were locations with oil relatively rare?
Or were there untold reserves under the ground?
As the fields of the east in Pennsylvania, Ohio and Indiana played out
Some thought the petroleum era would be as transient as the whale oil era
However, the discovery of giant fields in Texas, Oklahoma
And then, California, Mexico, Venezuela and other places
calmed the fear
The Rise of Foreign Oil
Hubbert’s model was based on relating trends in discovery and production
What he realized was that discovery of oil in America peaked in the 1930s
One reason that no one paid attention to Hubbert’s prediction was that
the rate of discovery was exploding in other places
In 1948 the world’s reserve was 64 Billion Barrels
By 1972 it had expanded to 534 Billion Barrels
Almost all outside of the USA
This explosion in discovery led to a 28 year glut in supply
The US responded by using quotas to keep out foreign oil
Peak Discovery and Peak Production
http://www.grinningplanet.com/2005/06-14/peak-oil-article.htm
10.00
8.00
6.00
4.00
2.00
0.00
1900
1927
1954
1982
2009
1967
Testing the Embargo Card
The first attempt at using an oil embargo was attempted by Saudi Arabia
After the 6 day war in 1967
It did not work
America still had spare capacity and was able to just increase production
1970
The American Peak
In 1970 US production peaked
No one knew it at the time
In 1970 the US produced 11.3 million barrels/day
By the mid-1980s the production was 9 million barrels/day
It was down to about 5 million barrels/day
Now it is back up to about 6 million barrels/day
After 1970, American oil imports sky rocketed
After peak, imports went from 2.2 million barrels/day
To 6 million barrels/day in 1973
Hubbert had been right
And Saudi Arabia was now in charge
1970
The American Peak
http://www.grinningplanet.com/2005/06-14/peak-oil-article.htm
1970
The American Peak
http://gailtheactuary.wordpress.com/2007/03/16/oil-quiz-test-your-knowledge/
1970
The American Peak
http://ocho.uwaterloo.ca/~pfieguth/Personal/EnergyLimits/Figures/US_Oil_Production_and_Imports_1920_to_2005.png
Recent Upturn in Production
10.00
8.00
6.00
4.00
2.00
0.00
1900
1927
1954
1982
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=A
US Energy Information Administration
2009
1973
The First Oil Shock
By 1973, Saudi Arabia had tremendous surplus capacity
America had peaked and had lost it surplus
Also world wide demand was soaring
19 million barrels/day in 1960
44 million barrels/day in 1972
When the 1973 Yom Kippur War precipitated an OPEC embargo
There was no surplus left to soften the effects
1973
The First Oil Shock
NBC Nightly News coverage of OPEC's decision to cut exports of oil to the United States
along with other nations. Reported by John Chancellor of the evening of October, 17 1973.
http://www.youtube.com/watch?feature=player_embedded&v=VCLRlVxOH-Q
http://www.heatingoil.com/articles/arab-oil-embargo-happenedhappen/
http://automotivemileposts.com/garage/v5n2.html
1973
The Impact of the Shock
In 1973 the Arab nations proposed an embargo on the USA
and increased price 70% for Europe
This had a significant impact worldwide
Although the embargo did not shut down supply to the USA
Oil found its way to America but in circuitous way
The result was devastating
In six months:
Price quadrupled
Long lines formed at gas stations with fights at the pumps
Odd/even license plate system used to manage supplies
Daylight Savings Time was extended
No Sunday Sales
Ration stamps printed but not used
1973
The Economic Impact
Stock prices dropped 45%
Inflation took off, accompanied by high interest rate
The economy suffered from stagflation
The US recession was the worst since 1930s
“OPEC embargo and its aftershocks represented
a unique crisis of a fossil fuel-addicted industrial civilization”
The embargo lasted just 7 months, but the effects lingered for years
1973
The Auto Industry
The US auto industry was devastated
Europe and Japan offered small fuel efficient cars
In contrast the US offerings looked like lumbering dinosaurs
The US auto industry never fully recovered
Hubbert’s Curve II
The Worldwide Peak
Hubbert’s model showed that world oil discovery peaked in 1960
His initial model suggests a world wide peak between 1990 and 2000
That has been revised to between 2000 and 2010
All the Oil in the World
The total endowment of conventional liquid petroleum that ever existed on earth was
2 Trillion Barrels
2,000,000,000,000
Peak
1 Trillion left
1 Trillion gone
< 34 years
Mostly since 1950
Current consumption: 80 million barrels/day = 29 billion barrels/year
1,000,000,000,000/29,000,000,000 = 34 years
This calculation does not account for increase in consumption
The Last Trillion
The last trillion will be much harder to recover than the first trillion
Much of it may even require more energy to recover than it will yield
Also there is likely to be intense competition which will aggravate the cost
Peak
1 Trillion left
1 Trillion gone
Mostly since 1950
< 34 years
http://www.worldalmanac.com/blog/2008/01/world_oil_reserves_and_consumption.html
1979
The Second Oil Shock
This was precipitated by the Iran revolution
In 1979 Iran produced only 5% of the worlds supply
But with OPEC now controlling the oil market
The loss of this production sent shock waves around the world
Prices tripled at the gas pump
Gas lines returned
Inflation rekindled
This crisis went on longer than the 1973 OPEC embargo
The crisis was exacerbated by the Iran hostage crisis
and the Iran/Iraq war which took 8% of the worlds production offline
1980s and 1990s
A Reprieve for the West
The Alaska North Shore fields were discovered in the 1960s
The North Sea oil fields (controlled by the UK and Norway) were also discovered in the 1960s
These fields came on board in the mid to late 1970s
But all at tremendous cost
In the case of Alaska
It required the building of a 800 mile pipeline costing $10b (1970 prices)
For the North Sea Oil
It required the development of expensive deep sea drilling technology
The OPEC Oil Embargo was what made this extraordinary effort worthwhile
But the embargo also caused other changes
which led to more supply and less demand
1985
A 15 Year Oil Glut
More Supply
By the mid-1980s there was a glut in oil supply
The price increases led to more drilling and more exploration
Especially in deep sea locations
So in addition to the Alaska and North Sea fields
We also saw development of the fields in the Gulf of Mexico
At the same time the Soviets stepped up production
More Demand
Demand fell during the recessions due to the higher prices
And there was a move to more fuel efficient (foreign made) cars
1985
Cheap Oil: A Return of the Good Old Days
Many businesses benefited from the glut and low oil prices
US Oil company suffered and exploration was shut down
Houston and Tulsa went into a tailspin
Most importantly, the American public saw low prices as a return to normal
With President Reagan as the cheerleader in chief,
Energy was no longer a major US political issue
- Kunstler
The public saw 1973 and 1979 as anomalous manipulations by “them”
Mid 1980s - 2000
The Role of Saudi Arabia
During the glut, OPEC took on the role of stabilizing prices
By maintaining a production quota
This system was successful in keeping prices at around $17 for a decade or so
Saudi Arabia played a key role
Acting as a swing producer to moderate global supply
Saudi Arabia saw it in their interest to level out the peaks and valleys
Oil Prices in 2004 Dollars
$100
$80
$60
$40
$20
$0
1940 1950 1960 1970 1980 1990 2000 2010
1991
The First Gulf War
The war was precipitated by the Iraqi invasion
of Kuwait (10% of worlds reserve)
The US coalition quickly ejected Saddam
Oil prices were barely affected
And in fact, fell to under $20 during the war
And stayed at that level into the 2000
With a major assist by the Saudis
The 1990s
Globalization, SUVs, MacMansions, and Monica L.
Kunstler characterizes the 1990s as the era when we
Outsourced industry to Asia
And focused on hypertrophic** suburban land development
and consumerism
Leading to the need for more oil than ever
With proportionately more being used for transportation
SUVs took over with their exemption from fuel efficiency standards
** Hypertrophy is the increase in the volume of an organ or tissue due to the enlargement of its component cells
The 1990s
Globalization, SUVs, MacMansions, and Monica L.
If Bill Clinton had any reservation about the economy becoming hostage to the
creation of suburban sprawl he never voiced them.
Like a lot of sunbelters,
he might have viewed sprawl as good to live in and good for business
Relative calm lead the public to pre-occupation with trivialities
such as the public sex life of the president
-
Kunstler
2000-2010
Crunch Time
According to Kunstler 9-11
coincided with strange happenings in the oil market
Around this time crude price began to drift
Above the $20 per barrel that the Saudis desired
By 2003 price was ratcheting up
Also demand was raising especially from China
Although the Saudis claimed excess capacity
Production was not raising to meet the new demand!
Oil Prices in 2004 Dollars
$100
$80
$60
$40
$20
$0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2000-2010
Do we really know how much oil we have?
That same year, 2004, it was revealed that
reserves in Venezuela was inflated by 20%
This lead to suspicion that other countries had also inflated reserves
Including Saudi Arabia!
In fact, it was suspected that Saudi Arabia had peaked
15 years early
2010
Are We Past Peak?
In the early 2000s, a Princeton geologist, Ken Deffeyes
suggested that peak oil had occurred in 2001
He later revised this estimate to 2005
Based on events since then he might well have been right
We don’t know yet
Gasoline Prices in Real Dollars
USD 4.50
USD 4.00
USD 3.50
USD 3.00
USD 2.50
USD 2.00
USD 1.50
USD 1.00
USD 0.50
USD 0.00
May 07, 1990
Aug 14, 1994
Nov 21, 1998
Feb 28, 2003
Jun 07, 2007
Sep 14, 2011
Gasoline Prices in Real Dollars
USD 4.50
USD 4.00
USD 3.50
USD 3.00
USD 2.50
USD 2.00
USD 1.50
USD 1.00
USD 0.50
USD 0.00
Oct 10, 2006
Mar 13, 2008
Aug 15, 2009
Jan 17, 2011
Jun 20, 2012
2010
Epilogue
I think what Dr. Deffeyes may be trying to tell us is this:
Let us give thanks for this extraordinary period of human history we lived through.
Let’s recognize that we are moving into a new phase of history.
Let’s be brave and wise about it
and prepare to more on
-
Kunstler