In 1859, just after the Colonel Drake Well was drilled in Titusville, Pennsylvania, due to shortages of the illuminant camphene and shortages caused by the Civil War, the price of oil shot to US$15 per barrel, which, in today’s terms, would be over US$1,000. By autumn of 1861, following a race for production and the 3,000-barrel-per-day (bbp) Empire Well, the price plunged to 10 cents a barrel – US$7 in today’s terms. Four years later, newspapers in eastern US were printing stories about running out of oil.
Predictions of the future supply of petroleum have typically been far less veracious than those of demand. Flawed predictions have caused public bewilderment, distrust and, more importantly, government inaction or poorly conceived reactions. A constant theme, from the very infancy of the industry at the turn of the 19th century, has been that the world is running out of oil. This concerned governments in the 1930s and 1940s and became the focus of a giant public discourse following the energy crisis of 1973.
However, it has been predicted that the world will not run out of oil for at least the next three centuries.1 For natural gas, which will become the fuel of choice for the world economy within as little as 15 years, the scenario is even more optimistic. Natural gas, even without taking into account the enormous volume of gas hydrates, will last for several centuries.
An important question, therefore, is where this oil will come from. This will not be from continental US and Europe or from the Alaska National Wildlife Refuge. Massive quantities will come from deep to ultra-deep offshore production. There are enormous deposits in the deep offshore Gulf of Mexico plus many other parts of the world. This is a multitrillion-dollar energy opportunity, yet a profound technological challenge.
Hubbert’s peak theory of oil production is the subject of recent books but it is not just a theory, it is a fact. However, it may actually never come to fruition because it implies that all potential oil in place is, in fact, active. We know this is not true, and it has never been true in the US, the most mature petroleum environment of all and an obvious laboratory for such studies. Alaska, starting in 1976, managed to provide a huge upward trend from Hubbert’s presumed earlier decline. In Figure 1, the US oil production history is shown with a modelled prediction for the future with the obvious contribution from ultra-deep offshore production. The log-normal distribution (bell-shaped curve) of Hubbert’s theory becomes a series of prolonged peaks, a so-called ‘fractal’ distribution. It will take a very long time en route to the final decline as long as new areas (such as deep and ultra-deep offshore) are added.
Figure 1: The US Annual Oil Production in the last 50 years
and Forecast for the next 20 years
However, it is not only additions to oil reserves that will dull and dampen Hubbert’s peak for the world; there is the on-going, economy-shaping and technology-generating transition to natural gas that is a historical imperative and has little to do with environmentalist sloganeering. The decarbonisation of fuels is a process that began 200 years ago, from wood to coal, which fuelled the Industrial Revolution, to oil, unquestionably the fuel of the 20th century, and now, full throttle towards natural gas. The use of natural gas will be dictated by technological evolutions, perhaps revolutions, requiring more refined fuels, the miniaturisation of our engines and so-called ‘distributed energy’. Fuel cells are around the corner but, contrary to common misconception, hydrogen for fuel cells will have to come from hydrocarbons, first and foremost natural gas.
In spite of all the rhetoric on alternative energy sources, over the next 20 years, while world energy demand will increase by 50%, the contribution from oil and gas is expected to increase from 61% today to about 67%. Sunshine is free but solar energy is very expensive. Natural gas will command a market share that is practically unthinkable in today’s mindsets. It is anticipated to account for up to 50% of energy demand (see Figure 2).
Figure 2: The Future of World Energy Supply
One of the most important emerging issues is the burgeoning energy demand of China, now the thirdlargest oil consumer in the world, having experienced a 110% increase in the last decade and being poised to surpass Japan in three or so years. China’s energy future may become a very compelling influence on world energy geopolitics.
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