Peak oil: postponed
What the oil companies don't tell you
Oil supplies will actually last for far longer than our politicians think, the scaremongers fear, and the oil companies tell us. So says Dr Richard Pike, head of the Royal Society of Chemistry, and someone who isn’t afraid to stir controversy. Whither, then, Peak Oil?
In a wide-ranging interview, Dr Pike talked about energy independence, Peak Oil, and how to educate our scientifically illiterate elites.
Before becoming chief executive of the RCS, Pike spent twenty five years in the oil industry. His background hasn’t prevented him from calling for alternative energy sources to fossil fuels, and making criticisms that have embarrassed industry executives, latterly over the amount of oil lost to leakages.
But the most intriguing argument is that we’re simply not told the truth about how long oil supplies will last. Conventional wisdom reports the oil reserves as 1.2 trillion barrels. There’s far more than the oil companies report. This is neither cock-up nor conspiracy, he says, but a combination of conservative reporting, a failure to understand probability theory, and consequently a lack of understanding of the figures actually mean. Oil engineers and planners have their own – these are figures we don’t see.
The figure quoted when oil companies declare their reserves is a “P90” figure, which means an oil reserve has been discovered, the oil in it is recoverable, and the estimate has a 90 per cent chance of being exceeded. This is always on the conservative side. Another figure, the P50 estimate refers to “proven but possible” oil reserves, and is rarely quoted. P50 can exceed P90 by a factor of two or three, and often reflects the output more accurately. So why don’t we hear P50, rather than P90?
“P90 is a lower bound, and companies have a duty to report what the lower bound is to statutory bodies, such as the Securities and Exchange Commission, and BERR in the UK,” says Pike. And that figure is conservative.
“Over time, ‘lower bound’ has come to mean ‘proven reserves’. But it’s actually the extreme left hand side of the probability curves.”
Pike illustrates this with the example of throwing dice.
The oil man's odds
“If you add together the estimates of thousands of reserves, you’re taking the lower bound each time. Say you throw a dice: The probability of throwing one is one in six. With two dice, you’ll be above one 97 per cent of the time. With three, it’s 99.4 per cent of the time. So if you throw thousands of dice, the chances of you getting all ones are infinitesimally small. But this is what oil companies are doing in their statutory reporting.
“The statutory bodies will effectively say, ‘We don’t want some complicated probability analysis on what P90 is, just give us the straight simple number.”
Then other bodies, such as the Peak Oil eschatologists (“the end of the world is nigh…”), take the number and use it for something else.
Pike blames the compartmentalisation of the industry – engineers rarely make it to executive level and the people at the top never get to understand probabilistic analysis.
Inside the oil companies themselves, he points out, they’ll often use the probabilistic approach – whether when estimating their own prospects, or eyeing up a rival in an M&A analysis.
So why do they do it, then?
“You could say it protects shareholders,” says Pike. “It opens up a whole range of information they feel uncomfortable with, opening up a range of secrets. But there’s a balance there to be struck.”
Pike first raised the issue in 2006, and the reaction has been intriguing.
“There’s a subterranean dialog going on on the internet – there are literally now thousands of websites carrying this discussion. On the blogs, there are a lot of engineers who agree.”
Yet the reaction is very different amongst the policy-making elite.
“I’ve talked to some senior civil servants who said they were completely unaware of this probabilistic effect - so we’re intrigued there’s all this stuff going on at the more intellectual level, but at the higher level there’s absolutely nothing at all.
“For the most part, it’s been seen as a mathematical or scientific story, not so much a business or or social, or socio-economic issue.”
Or maybe, we wondered, some people prefer the End Times thrill of discussing Peak Oil, with its undercurrents of cataclysmic social upheaval. A good time to head for the bunker, and see what Pike thought of the Peak Oil debate.
Oiling the Peak
Peak Oil refers to the moment when oil reserves “peak”, and from which point on, less will be extracted. Dr Pike isn’t impressed with the numerical calculations.
“There’s a lot of ill-informed discussion about it. You see books where people say the oil ‘has half gone’. There hasn’t been enough analysis to say where economically the Peak will be. There has to be Peak at some stage, but it’s ill informed.”
“Well, so far 1 trillion barrels has been produced in history, and using the conventional accounting of reserves, you have 1.2 trillion barrels left. So that’s the reason for saying it’s half gone. What I’m arguing is that there’s probably 2 to 2.5 trillion left, then there will be other reserves from things called “resources” which are probably not economic at this stage. So rather than being half gone it could be just a quarter gone.”
The Peak Oil doomsayers have underestimated the capacity constraints.
“You can relax the constraints. Oil is finite, but there’s this balance between how much you spend, and the flow.”
“You can buy your way out of capacity constraints. If you’ve got a big tank of oil, and you’ve got one tap, then the tap is the constraint. If you add more taps, then you slowly discover whether there’s something in that tank that’s a constraint. It’s the same with Peak Oil – if you buy your way out of the surface constraints – the number of wells you’ve got, or gas/oil separators, or pipelines, or storage tanks or jetties - all those are constraints and you can buy your way out of that problem.
“The rough rule of thumb that applied three or four years ago was that to get 1m barrels of oil a day extra, you needed to spend in the order of $10bn, very approximately.
“But the payback is extraordinarily quick. When oil is at $140 a barrel, the payback is 100 days. In terms of payback, it’s a no-brainer. Often you find that there would be bottlenecks, and you could find you spend a lot less”.
Another factor overlooked, he points out, is that Middle Eastern producers run their fields at much lower flow rates, to sustain the plateau of production for longer. Rather than plateau for five years, with a twenty year tail, the operator will sustain the plateau for ten or twenty years. This is so that effects of making geological wrong turns – drilling in the wrong place – are less catastrophic.
“Fields are very complex. If you can run things very slowly, and still make a lot of money by running a good field, it’s far better to really plan where you put your wells,” he explains.
Renewables and chemistry
So Pike thinks oil will last longer than most outsiders suppose, but doesn’t dispute that it’s a finite resource.
Long-term, I suggested, energy is probably the least of our problems – there’s so much of it about: Geothermal, fusion, and solar for example.
He agrees, but says a massive amount of international co-operation is needed. No economies are yet geared up for electricity as a direct heating source, or as automotive fuel, or for hydrogen storage.
So what, I wondered, were Pike’s bets for future energy sources?
“My own view - and it’s shared by a lot of people in chemistry - is that solar will eventually be the way ahead. Artificial photosynthesis hasn’t been cracked yet – it’s the idea you use sunlight, the CO2 in the atmosphere, and water, and you make simple molecules like alcohols that you can then burn as a fuel.”
“A lot of the science is there. . But a lot of the advances are going to be in putting things together on a grand scale which requires some very good leadership, because we’re in a position where some of these decisions are not made by individuals or individual companies. It's going to require a lot of collaboration.”
Is our children learning?
As big a problem, he suggested, was scientific ignorance – amongst politicians and the public.
“I have to admit, although the science is there, there aren’t enough people who readily appreciate the science.
“We’ve been out in the street here and discovered that two thirds of people think it’s smoke that comes out of a cooling tower. It’s steam! Only one per cent of people know what cooling towers are actually for. So you’ve got this terrible lack of scientific literacy amongst the public."
Only one percent of MPs have a scientific background. And it isn’t helped by what’s going on schools, he adds.
This summer, the Royal Society of Chemistry drew attention to the level of questions being set to 14 year olds on science courses. Pupils were set questions such as “what powers a solar powered snail?” and “what part of the anatomy does a riding hat protect?” There are more examples here.
The course material is often comprehensive, Pike notes, but the examinations barely skim it – and are almost fail-proof. “Kids need to know 16 things such as force and pressure, and how they interrelate. The exam only touched on four, and four of the simplest: Length, temperature, mass and volume. There’s no mention of speed, or amps and volts and power. I find that extraordinary.”
Without better education, the next generation of policy makers is as likely to be as scientifically illiterate as this one. The cycle needs to be broken. ®