The first thing you should know about oil is that worldwide production has been on a plateau since 2005. This is despite record high prices and furious exploration and drilling efforts. There have been well-publicized finds here and there that may seem large. However, at the current worldwide rate of consumption, one billion barrels of oil lasts only 12 days. Thus, the multi-billion barrel finds announced in the last decade or so will have little impact on the longevity of world supplies.
Another key issue is one that oil companies do not want to emphasize: depletion. The worldwide average for production declines in existing oilfields has been estimated to be about 4 per cent per year. That means that each year just to stay even, the industry must develop new oil production capacity equivalent to the current capacity of the North Sea, one of the world's largest fields. To grow production, it must, of course, exceed this amount, and that hasn't been happening.
When you mention these hard facts in polite company, you will undoubtedly be met with skepticism. But the data are available to the public from the EIA website. The agency is the statistical arm of the U.S. Department of Energy and is widely considered the gold standard of energy information in the world.
Now, don't be deceived by shifting definitions of oil. When the petroleum glut long predicted by the optimists failed to appear, they started lumping in ethanol, biodiesel and natural gas liquids with petroleum and calling them all "oil." These other products are useful, but they are not as energy-rich, versatile or easily transported as oil. Our current infrastructure is heavily dependent on oil inputs with no real substitutes available in the quantities required.
You will also likely be met with protestations that we still have lots of oil: tar sands in Canada, heavy oil in Venezuela and even oil shale in the American West, primarily Colorado. Well, this represents the difficult-to-get oil. We extracted the easy stuff in the first 150 years of the oil age. And, while it is true that these resources and others like them represent an immense store of hydrocarbons, what matters is the rate at which we can produce them.
Because of the high-cost, capital-intensive nature of such production, the rate of production will be slow to ramp up and difficult to maintain. The hydrocarbons locked in the tar sands and the Orinoco oil belt in Venezuela aren't what we call oil and must be heavily processed at high cost using enormous amounts of energy. As for the oil shale in the America West, the amount of commercially produced oil we are currently getting from that oil shale is zero. No one has figured out how to extract it profitably. Partly this is because oil shale contains no oil. Instead, it contains a hydrocarbon-rich waxy substance called kerogen, which must be heavily processed to turn it into oil.
An analogy might be useful: If you inherit a million dollars with the stipulation that you can only take out $500 a month, you may be a millionaire, but you will never live like one. Increasingly, this is the situation we will find ourselves in when it comes to oil. The key issue is the rate of production, not the size of the resource. The hard-to-get oil resources are large, but they take a long time to develop and require strenuous, expensive and energy-intensive methods to extract. All this, when combined with the relentless depletion of existing fields, spells little or no growth in the worldwide rate of oil production in the coming years.
By now you've been told so many times in television ads and news articles that we have a 100-year supply of natural gas in the U.S. that you assume it must be true. While the claim itself is suspect, even if we accept it, there is a very serious omission. The claim in its entirety reads: a 100-year supply of natural gas at current rates of consumption. If natural gas is to be used as a so-called "bridge fuel"—a fuel that will power society with the least environmental cost while we deploy nonpolluting, renewable energy—then its rate of production will have to grow considerably if we expect it to displace coal and oil.
Simple spreadsheet calculations will tell you what happens to such long-term supply claims under the pressure of a little exponential growth. At just 2 per cent per year growth, the 100-year U.S. domestic natural gas supply is exhausted in 56 years. If we assume that production peaks when about 50 per cent of the resource is exhausted, this puts the peak within 35 years. Think about it. Even if the optimists are correct, with a production growth rate of just 2 per cent per year, the country reaches a peak within 35 years! What will we do after that?
The picture gets acutely worse as the rate of production growth rises. A 3 per cent growth rate implies exhaustion in 47 years and peak in 31 years. A 5 per cent growth rates means exhaustion in 37 years and a peak in just 26 years.
As it turns out, the EIA projects a growth rate of just 0.4 percent per year in U.S. natural gas supplies through 2035 with production jumping from about 24 trillion cubic feet (tcf) in 2010 to about 26.5 tcf in 2035, hardly a bonanza. Beyond this consider that the vast resources of natural gas from deep shale layers, commonly called shale gas, may not be so vast. A U.S. Geological Survey assessment pared the EIA's original estimate of "technically recoverable" natural gas in the largest of the shale deposits, the Marcellus Shale, from 410 tcf to just 84 tcf, an 80 percent reduction. And, this says nothing about whether the gas will be economically recoverable.