Peak Oil, FTW

Six years of data show that global production of oil started to plateau in 2005. But there are other ways to measure the world’s faltering ability to increase oil supply. We can show the increase in cost structure, as the capital required to bring on the new barrel rises. We can show the decline rates from existing fields. We can quantify how much oil comes from expensive, technically challenging fields such as tar sands or global offshore. And, we can also show oil’s share as a percentage of total world energy consumption. Given that the annual BP Statistical Review was released today, I made up the following chart to show oil’s contribution to world energy use, on a BTU basis:

Oil still provides the largest share of primary energy, ahead of coal and natural gas. But as you can see from the chart, its share is not exactly in gentle decline. The deficit is not being made up by natural gas, or renewables, or hydro, or nuclear. Indeed, if you’re a regular reader of this blog, you’ll already know the deficit is being met by coal. I thought the Bloomberg.com writers described this well just today, upon the release of the BP Statistical Review:

Coal’s share of global energy consumption rose last year to its highest level since 1970 as use of natural gas fell the most on record, a tendency that may continue, BP Plc said in a report. Coal accounted for 29 percent of world energy use, BP said today in its annual Statistical Review of World Energy. The report measures consumption of oil, gas, coal, nuclear energy and hydroelectricity.

Subscribers to Gregor.us Monthly, readers of this blog, and attendees to my talk at the CFA Society of San Francisco in April were all keyed in earlier to the revelations in today’s data release. | Hat tip: I am pleased that Neil Reynold’s of The Toronto Globe and Mail cited my work in his excellent and thematic coal piece last week, which surveyed in conversant fashion the ideas of Warren Stanley Jevons. | As we can see, the inexorable advance of coal and the shrinking share of oil gives us another lens through which to understand peak oil. For a world that has enjoyed oil’s high energy-density for the past 70 years, the transition to lower energy-density sources presents “a problem” to say the least. The debate over whether the world has peaked in oil supply, however, can now be laid to rest.

-Gregor

  • Peaknik

    Considering how little oil is used for electricity generation, how you explain that coal is being used in substitution of oil?

  • gregor.us

    Coal is not being substituted for oil. It's being adopted, instead, in the developing world which is choosing a coal rather than an oil pathway.

    G

  • Zekeput

    I live in an area of the country where the average person's knowledge of the rest of the planet is limited to “I go to Texas/Arizona for the winter”. It continually amazes me how “America-centric” we are. Frankly, I see it in myself sometimes. Seems like it's hard wired into my brain to still think of much of the world as “primitive”. I work on it constantly.

  • Skeptic

    The bar chart makes the decline appear more rapid due to your choice of the y-axis intervals. Start at 0% and the graph doesn't look as menacing. Also, is it possible that your choice of starting point, 1999, is influencing the data? Oil prices were substantially lower in 1999, so naturally there would be substitution as oil prices rise faster than coal prices.

  • gregor.us

    My choice of 1999 as a start point would not influence the data, as I am sure you would agree though that was the phrasing you used. Also, the calibration of the y axis is quite appropriate because the scale we are addressing here is enormous. As for the 1999-2009 framing, that is when another historic shift started to occur. For example, I have used 1955-1965 framings in coal and oil to show the previous historic shift.

    Your hunch that the data presentation is over-selective is just that.

    G

  • Mstiller24

    What are the cultural/societal affects on a nation that decides to venture down the coal path rather than the oil pathway?

    Thanks

  • gregor.us

    A future health bomb that eventually comes due for society, either in the form of medical costs or degraded family and social life.

  • http://www.karlwaldman.com Karl Waldman

    Hmm – looks like the world is reversing the historical trend – wood to coal to oil now back to coal….

  • Peaknik

    Even for transport? Do you assume that the chinese are going to electrify its cars? Don't get me wrong, is very clear that they are betting on using more coal (I agree with the concept of coal being the energy of the poor), but I think China will suffer because peak oil (practical or geological), because it is not easy to switch to electric vehicles.

  • Pmcandrew

    Looking at the data from BP, it's interesting that natural gas's share also seems to have topped out over the past 8-10 years or so. why would that be?

  • gregor.us

    It's an infrastructure issue. In the aggregate, the world would be able to consume more NG (and would like to) if 1. More transport globally was electrified, and NG was needed to burn for that powergen. 2. If there was more NG fired powergen globally.

    If these two conditions were to change, then the global LNG industry to add more ships and export capacity.

    That's the short answer, at least.

    G

  • gregor.us

    You got it. We have entered another historic energy transition. The problem is that unlike the past 200+ years, we have no higher energy density source to go to next.

    G

  • Skeptic

    Naturally, the world's energy source would move slightly toward coal when the main energy demand driver, China, has large coal reserves. I am on the fence regarding peak oil, so I could go either way. But, that global supply fell 2.6% in 2009 when prices collapsed (down roughly 40% around the globe) doesn't prove peak oil. At the same time, global demand fell 1.7%. As a producer, I might just decide not to run the wells so hard at $60 oil.

  • Karl Waldman

    I'm looking into my town's (southern MA) energy supplychain – it seems New England has no ability to store NG, closest potential sites are in PA due to geographic constraints. We are dependent upon a pipeline and LNG ports. ( Everett MA and a potential in Fall River MA but that is about it.) It seems that constraint will limit NG growth, at least in this area.

  • Peaknik

    Even for transport? Do you assume that the chinese are going to electrify its cars? Don't get me wrong, is very clear that they are betting on using more coal (I agree with the concept of coal being the energy of the poor), but I think China will suffer because peak oil (practical or geological), because it is not easy to switch to electric vehicles.

  • Pmcandrew

    Looking at the data from BP, it's interesting that natural gas's share also seems to have topped out over the past 8-10 years or so. why would that be?

  • gregor.us

    It's an infrastructure issue. In the aggregate, the world would be able to consume more NG (and would like to) if 1. More transport globally was electrified, and NG was needed to burn for that powergen. 2. If there was more NG fired powergen globally.

    If these two conditions were to change, then the global LNG industry to add more ships and export capacity.

    That's the short answer, at least.

    G

  • gregor.us

    You got it. We have entered another historic energy transition. The problem is that unlike the past 200+ years, we have no higher energy density source to go to next.

    G

  • Skeptic

    Naturally, the world's energy source would move slightly toward coal when the main energy demand driver, China, has large coal reserves. I am on the fence regarding peak oil, so I could go either way. But, that global supply fell 2.6% in 2009 when prices collapsed (down roughly 40% around the globe) doesn't prove peak oil. At the same time, global demand fell 1.7%. As a producer, I might just decide not to run the wells so hard at $60 oil.

  • Karl Waldman

    I'm looking into my town's (southern MA) energy supplychain – it seems New England has no ability to store NG, closest potential sites are in PA due to geographic constraints. We are dependent upon a pipeline and LNG ports. ( Everett MA and a potential in Fall River MA but that is about it.) It seems that constraint will limit NG growth, at least in this area.

  • Ben

    China is emphasizing mass transit and electrified rail, which run predominantly on coal. Of course they will need petrol as well, but with much higher population densities than the US, electrified rail will work just fine for many uses.