The History of Oil Since 1950

The History of OilSince 1950

Norman W. GarrickLecture 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 IPredicting 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 outSome 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 productionWhat 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 thatthe rate of discovery was exploding in other places

In 1948 the world’s reserve was 64 Billion BarrelsBy 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

1967 Testing the Embargo Card

The first attempt at using an oil embargo was attempted by Saudi ArabiaAfter the 6 day war in 1967

It did not workAmerica still had spare capacity and was able to just increase production

1970 The American Peak

In 1970 US production peakedNo one knew it at the time

In 1970 the US produced 11.3 million barrels/dayBy the mid-1980s the production was 9 million barrels/day

It was down to about 5 million barrels/dayNow it is back up to about 6 million barrels/day

After 1970, American oil imports sky rocketedAfter peak, imports went from 2.2 million barrels/day

To 6 million barrels/day in 1973

Hubbert had been rightAnd 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

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=A

US Energy Information Administration

1973 The First Oil Shock

By 1973, Saudi Arabia had tremendous surplus capacityAmerica had peaked and had lost it surplus

Also world wide demand was soaring19 million barrels/day in 196044 million barrels/day in 1972

When the 1973 Yom Kippur War precipitated an OPEC embargoThere was no surplus left to soften the effects

1973 The First Oil Shock

http://www.youtube.com/watch?feature=player_embedded&v=VCLRlVxOH-Q

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.heatingoil.com/articles/arab-oil-embargo-happened-happen/

http://automotivemileposts.com/garage/v5n2.html

1973The Impact of the Shock

In 1973 the Arab nations proposed an embargo on the USAand increased price 70% for Europe

This had a significant impact worldwide

Although the embargo did not shut down supply to the USAOil 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 pumpsOdd/even license plate system used to manage supplies

Daylight Savings Time was extendedNo Sunday Sales

Ration stamps printed but not used

1973The Economic Impact

Stock prices dropped 45%Inflation took off, accompanied by high interest rate

The economy suffered from stagflationThe 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

1973The Auto Industry

The US auto industry was devastatedEurope and Japan offered small fuel efficient cars

In contrast the US offerings looked like lumbering dinosaursThe US auto industry never fully recovered

Hubbert’s Curve IIThe 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 Barrels2,000,000,000,000

Peak

1 Trillion goneMostly since 1950

1 Trillion left

Current consumption: 80 million barrels/day = 29 billion barrels/year1,000,000,000,000/29,000,000,000 = 34 years

This calculation does not account for increase in consumption

1 Trillion left< 34 years

The Last Trillion

The last trillion will be much harder to recover than the first trillionMuch 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 goneMostly since 1950

1 Trillion left1 Trillion left< 34 years

http://www.worldalmanac.com/blog/2008/01/world_oil_reserves_and_consumption.html

1979The 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 pumpGas 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 1990sA Reprieve for the West

The Alaska North Shore fields were discovered in the 1960sThe 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 1970sBut all at tremendous cost

In the case of AlaskaIt required the building of a 800 mile pipeline costing $10b (1970 prices)

For the North Sea OilIt 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

1985A 15 Year Oil Glut

More SupplyBy the mid-1980s there was a glut in oil supply

The price increases led to more drilling and more explorationEspecially in deep sea locations

So in addition to the Alaska and North Sea fieldsWe also saw development of the fields in the Gulf of Mexico

At the same time the Soviets stepped up production

More DemandDemand fell during the recessions due to the higher prices

And there was a move to more fuel efficient (foreign made) cars

1985Cheap Oil: A Return of the Good Old Days

Many businesses benefited from the glut and low oil pricesUS 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 - 2000The Role of Saudi Arabia

During the glut, OPEC took on the role of stabilizing pricesBy maintaining a production quota

This system was successful in keeping prices at around $17 for a decade or so

Saudi Arabia played a key roleActing 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

1991The 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 affectedAnd in fact, fell to under $20 during the war

And stayed at that level into the 2000With a major assist by the Saudis

The 1990sGlobalization, SUVs, MacMansions, and Monica L.

Kunstler characterizes the 1990s as the era when weOutsourced industry to Asia

And focused on hypertrophic** suburban land development and consumerism

Leading to the need for more oil than everWith 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 1990sGlobalization, 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

2000-2010Crunch Time

According to Kunstler 9-11coincided 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 capacityProduction was not raising to meet the new demand!

Oil Prices in 2004 Dollars

2000-2010Do 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 reservesIncluding Saudi Arabia!

In fact, it was suspected that Saudi Arabia had peaked15 years early

2010Are 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 2005Based on events since then he might well have been right

We don’t know yet

Gasoline Prices in Real Dollars

Gasoline Prices in Real Dollars

2010Epilogue

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