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Peak oil isn’t dead: An interview with Chris Nelder

Peak oil isn’t dead: An interview with Chris Nelder thumbnail


But after a worrisome series of price spikes starting in 2007, oil triumphalism is once again ascendant. Companies are now using new technologies to extract crude from hard-to-reach sources, from the tar sands of Alberta to shale formations in North Dakota. After decades of decline, U.S. oil production has risen to its highest levels since the 1990s. And that’s led many analysts and journalists to confidently declare that “peak oil is dead.”



Brad Plumer: Let’s start with the basics. How would you define “peak oil”?





Global Average Annual Crude Oil Production mbpd 2002 - 2012

Note: Chart only shows crude oil, not “total liquids.” (Credit: Gregor Macdonald)

BP: It looks to me like there was an uptick in 2012. Doesn’t that mean we’ve finally broken the plateau?

CN: Not necessarily. In 2005, we reached 73 million barrels per day. Then, to increase production beyond that, the world had to double spending on oil production. In 2012, we’re now spending $600 billion. The price of oil has tripled. And yet, for all that additional expenditure, we’ve only raised production 3 percent to 75 million barrels per day [since 2005].






(Credit: Gregor Macdonald)

BP: Now when you say “mature” oil fields are declining — these are older fields in places like Saudi Arabia or California that used to produce cheap, easy-to-extract oil. And we’re replacing them with fields that decline more quickly and are difficult to produce?

CN: Look at Ghawar in Saudi Arabia [the largest conventional oil field in the world]. We know that its water cut has been increasing — they’re getting more water with the oil that comes out, which is an indication that the field is in decline. That’s a field with a high flow rate and cheap production costs.


These are just low-quality oil resources, and we’re relying on them to compensate for the decline in cheap, high-quality stuff.

BP: One of the things peak-oil analysts often talk about is the “energy return on investment,” or EROI. The idea seems to be that we’re now spending more and more energy just to extract oil from difficult places like Alberta’s tar sands. Why is this important?




BP: Now what about prices? We’ve seen oil prices soar from around $40 per barrel in 2004 to $140 per barrel in 2008. And nowadays, prices in the $100 range are pretty much normal.

CN: One of the implications of peak oil is that as production starts to falter, we need much higher prices in order to sustain production. And that’s exactly what’s happened since 2005.


BP: It seems like one of the implications of peak oil is that prices will bounce around a narrow window. They can’t go too low, because then all those tight oil wells in North Dakota will be unprofitable. But they can’t go too high, because that will crush the global economy.

CN: A number of analysts have argued that the floor on oil prices is now around $85 per barrel. It might vary from place to place. An existing well in the Bakken might be profitable when oil’s at $70 or $75. For Arctic drilling, prices might have to rise to $110 per barrel. But the floor is around $85.


BP: The other interesting dynamic you’ve noted is that once oil production stagnates, we’re essentially in competition for oil with China and India.

CN: Right now, all of the new oil consumption in the world is coming from outside the OECD and the developed world. It’s largely coming from in China and India. And that new oil demand is now being met, almost exactly, by declining demand in North American and Europe:

Source: Samuel Foucher/Logi Energy LLC

Source: Samuel Foucher/Logi Energy LLC

Another consequence of hitting that plateau is that net global oil exports will continue to fall. Oil-exporting nations will make a lot of money thanks to higher prices, and they’ll grow as a result. But that means they’ll also start consuming more of their own oil. And this is exactly what’s happening worldwide — net global oil exports have declined since 2005. Countries like Saudi Arabia have seen enormous growth in oil consumption.


BP: I’m not sure I quite follow. If there’s only a limited amount of oil to go around in a growing world, why does that oil go to Saudi Arabia or China instead of the United States?


In China you’ve now got cars that get 50 miles per gallon. And I’ve done the math on how many of these new vehicles they’re building in China and how many new vehicles we’re buying per year. And it turns out we will never catch up with China on fuel economy, because we still have 240 million vehicles out there with low fuel economy.

BP: I see. As long as production plateaus, they’ll always be able to outbid us for oil — it’s worth more to them. So what’s the upshot of all this?

CN: The upshot is that we need to prepare for the day when oil is going to leave us. The sooner we commit to an energy transition, to renewable energy, the better off we’ll be in every respect. You can make that argument just on the basis of production rates and price. And that’s not even considering carbon emissions and climate change, which is another great reason. Let alone what oil is doing to the global economy.

And there are always going to be unforeseen developments. If you were a hard-core doomer 10 years ago, you might have said that when oil gets to $100 per barrel, our economy will simply shut down. But you would’ve missed the fact that a lot of Americans have quit driving and switched to public transportation. You would’ve missed a significant transition from 18-wheel trucking to rail over the past decade — a huge transformation of freight.

So you can’t always predict things perfectly. But likewise, it’s just not correct to say that because we’ve unlocked tight oil and we’re drilling in shale that everything is great, that we’re off to the races, that we can keep growing the global economy on this stuff.

Further reading:

–Colin Sullivan has an overview of the recent debate over “peak oil.”

–One of the most optimistic predictions about oil production has been a study (pdf) by  Leonardo Maugeri of the Harvard Kennedy School. Here’s Nelder’s essay disputing Maugeri’s optimism.

Washington Post

3 Comments on "Peak oil isn’t dead: An interview with Chris Nelder"

  1. BillT on Sun, 14th Apr 2013 3:03 am 

    “… we need to prepare for the day when oil is going to leave us….” BINGO!

    $100+ oil is killing the West. No amount of contraction there will make a difference until everyone is using the same amount of energy. At this point, the US uses 5 times the world average per capita use. 20 times that used in the Philippines. The West has a long way down before it even starts to level out as equal. And that includes Europe. Especially if the winters get colder due to climate change.

  2. Plantagenet on Sun, 14th Apr 2013 3:11 am 

    You can have all the oil you want…but it will cost you $100/bbl.

  3. shortonoil on Sun, 14th Apr 2013 2:12 pm 


    The Hill’s Group