Peak oil is the point at which about half the oil reserves in the world have been produced. Peak oil is not the end of oil. It is the end of cheap oil.
After peak oil is reached the production will reverse the momentum and will start to slowdown. Estimates put this figure in the range of 4-6% per annum, where as the demand will still continue to grow amid the growing economy and industrialization. This will create an energy void throwing the oil prices further north and causing double sided damage to the growth - one due to high price of oil and other due to its gradual increase in scarcity.
When will the peak of world oil production come is much debated topic and various experts provide various dates ranging from the year 2000 to 2020. Currently most accepted date is in the vicinity of 2010.
|The Scenario||The Myths|
|Will Indian economy slip on oil?||India after Peak Oil|
|Indian Ethanol Story||Hope - The Canadian Oil Sand|
|References and External Links|
Mr. Simmons may be a much hated man in the Big Oil World but there is no denying that his views on the global oil scenario is increasingly gaining ground and this surely has got oilmen worried. He has been one of the key advisors on energy to the Bush administration which is now turning around to making "Powering Down" its mantra. Policy makers across the world are grudgingly coming around to Mr. Simmon's view that this time around the peak oil scare is for real.
But is the world ready to bite the bullet? Big Oil believes that there is enough oil going to meet the energy hungry nations. Says Sue Payne, planning manager (exploration), Exxon Mobil: "An estimated 2.2 trillion barrels of oil still remains as reserves worldwide, compared to the 1 trillion barrels already extracted. And this does not include shale oil, oil sands and extra heavy oils, which is pegged at another 1 trillion barrel." New technology - injecting water or carbon dioxide, horizontal drilling - should be able to siphon more oil out of old oil fields, amounting to 10-15% of what was initially recovered.
Frontier technologies are being employed to produce tar oil or shale oil even as gas to liquid are being considered as an option. Others like British Petroleum believe that the existing fields have more reserves than what is shown. In fact, advanced seismic technologies should yield better reserve results.
But this is exactly what Simmons questions. "I think the three groups together along with Exxon Mobil and BP have been responsible for a drumbeat of publicity that has basically convinced a lot of people in the world that we really don't have any energy problems. They basically have to live in the world they created which was an illusion."
The data available on oil productivity is sketchy as little is devolved on field by field production. There is no public information on the historical decline rates of most producing fields. Proven reserves are commingled on a company by company basis or lumped together under an entire country so breaking down the reserves into high quality light oil instead of low quality heavy oil is impossible to even guess at, analysts say.
Oil companies, however, have a completely different take. It is claimed that data collated over the years has only improved with better technology and they are now in a better position to assess the hydrocarbon reserves. Yergin had till recently quoted a comprehensive field by field study which projected an addition of 16.4 million barrels a day of new oil capacity being created. But Mr. Simmons counters that "it's not a very good piece of work and the odds of that happening are about as high as having a subdivision on Mars by 2010."
And even as the world at large continues to debate over whether we have reached peak oil, global oil prices have managed to remain northward bound for more than a year defying every economic logic. Blame it on the growing demand by China, US and India or the increasing geopolitical tensions in Iran, Asia Pacific region or Africa. There is no escaping the high oil prices and a global crude price of $100 a barrel is no longer an outrageous thought.
Energy guzzling economies like the US are beginning to feel the pinch of high oil prices. At pump prices moving to $3 a gallon, economists at IAEA feel demand elasticities would soon set in. A similar thought is echoed by Wang Zhonghong in the Development Research Centre in the state council of PRC. "Consumers are moving in for lower grades of fuel I would move onto grade 93 which is a cheaper fuel. And in the long run high fuel prices will impact car usage patterns." Retail prices were hiked by over 25% this year alone, although it is still 35% cheaper than US retail prices.
Demand drivers like India have opted for a more political option. In what may seem as a complete paradox, consumers in India pay the highest fuel price in the Asia Pacific region even though oil companies bleed. Simple, the government pockets almost 50% of the sale price as taxes even as it doles out huge subsidies in the federal budget.
But the truth on peak oil and its impact
on prices would probably be more in the grey than black and
white. Says Lane Sloane at the Global Energy Management Institute
at Houston: "Peak oil is certainly a raging debate which
happens every time crude oil prices rise rapidly because of
current low spare production capacity. We know for sure that
oil is a depletable resource and we know that oil has already
peaked in some countries such as the United States. The Hubert's
curve people are claiming it will peak globally within this
decade while others envision technology and man's innovation
will bring us to Robert Mabro's observation that "the
Stone Age did not end for lack of stones."
Bio-fuel, it's a bubble looking for the first prick. Yes, the world over, governments are doling out billions of dollars as subsidies to secure an alternative sustainable source of energy, but questions are already beginning to crop up on the cost effectiveness and the energy efficiency of these solutions.
While countries like Brazil have taken the lead and have brought in the ethanol revolution, others like US are looking at corn/soya solutions while India is banking upon its sugarcane-based ethanol for its gasoline doping program. And the search for alternatives is not just about cane or Soya British Petroleum recently launched tallow blended diesel oil for the Australian market. Although, on an experimental basis, the company has put in place facilities in one of its refineries in Australia to blend the tallow from Australian sheep with crude and produced blended fuel.
But even as this may come as a fancy innovative solution, this is at best a local answer to existing oil crisis. Bio-fuels are expected to play only a small part in substituting for oil, perhaps not more than 10% and possibly as high as 20% with major environmental impacts.
And myth-busters like David Fridley, scientist at the Lawrence Berkeley National Laboratory, have this to say on bio-fuels: "This will fulfill a market niche in the near-term, but long-term potential is low. Also large-scale bio-fuel production is environmentally destructive and more importantly bio fuel production impacts food security. Cellulosic technology creates the same problems as grain-based technology and most of all bio fuels will drain investment away from other appropriate alternatives."
Hydrogen & Fuel Cell
Here's Mr. Fridley on hydrogen: "Hydrogen is a myth. It is an energy carrier, not an energy source, and thus must be made from another form of energy." This may be highly contested by leading automakers like Toyota, Ford or Daimler Chrysler who have been pumping in huge investments, albeit with large doles from the US government, in collaboration with the big oil guys, to develop those fancy hydrogen cars.
Proponents say hydrogen can be made with
renewable energy, but since renewable energy is approximately
1% of world energy, and oil is about 1/3rd, you could end
up losing energy both in the production of hydrogen, in its
transport, and then in its use in vehicles.
The government appears to have divergent views on the fallout of high oil prices on the country's economic growth. The Planning Commission has opted for a cautious view and has warned that high oil price may have an impact on the growth rate, even as the finance ministry maintains that rising oil prices are unlikely to impact GDP.
"In a high oil price scenario, our growth rate could be lowered by between 0.5 and 1.0 percentage points below our normal potential," the Planning Commission said in the draft approach paper of the 11th Five-Year Plan. According to its assessment, oil prices are expected to remain high and it will "exert contractionary pressure on the economy, both directly and also through their impact on world economic growth".
The finance ministry, however, has a different view on the issue of fuel price hike and its impact on GDP growth. Commenting on the country's revised annual estimates on May 31, 2006, finance minister P Chidambaram said if oil prices rose and if it was reflected in domestic prices, it would have an impact on inflation. "Rise in oil prices worldwide need not affect growth rate," he had said.
The revised annual estimate records 8.4% GDP growth in 2005-06, surpassing the advance estimate of 8.1%. The growth has been significantly high compared to previous year's figure of 7.5%.
While the finance ministry's views may hold some ground given the demand elasticity of the product, countries across the world are now coming around to the view that it would impact GDP if global prices continue to be northward bound.
The Planning Commission has, however, suggested that the adverse impact of high oil prices on GDP growth can be substantially moderated in the medium term by "appropriate oil pricing policies, increased exports and appropriate fiscal and monetary policies.
The approach paper suggests a long-term solution: "The only viable policy to deal with high international oil prices is to rationalise the tax burden on oil products over time, remove fat which may exist in existing pricing mechanisms which give the oil companies as excessive margin, realise efficiency gains through competition at the refinery gate and retail prices of petroleum products, and pass on the rest of the international oil price increase to consumers, while compensating targeted groups below the poverty line as much as possible."
It has suggested that the government reconsider the current method of determining prices for petroleum products on the basis of import parity. "India is deficient in crude oil but has developed surplus capacity in products. Product price entitlement should, therefore, be based on export parity pricing, which would be much lower than import parity," it said.
It has suggested to further reduce the duty on petroleum produced by 5% to equate it with the duty on crude. The 10% duty on products has recently been reduced to 7.5%.
Stating that the increase in oil prices is
now expected to persist for some years, the paper said, "Although
prices of some petroleum products have been raised, the increase
still leaves a large uncovered gap." It has said that
the gap was partly being borne by the oil companies and partly
by the issue of bonds, which was equivalent to a government
subsidy. According to the draft approach paper, consumption
of petroleum products is likely to rise from 112 mt in 2005-06
to about 135 MT by the end of the 11th Plan, with net crude
oil imports reaching 110 Mt.
The Republic of India covers an area of some 3M sq km, making it the seventh largest country in the World. Topographically, it is divided into a mountainous north, flanking the Himalayan Range; the North Indian Plain, drained by the Indus and Ganges Rivers; and the Deccan Plateau in the south, which itself is flanked by the Western and East Ghat mountain ranges, locally rising to around 3000m. Its climate is characterised by three seasons: hot and wet from June to September; cool and dry from October to February; and hot and dry from February to June. But they are subject to marked annual variations, spelling famine if the rains are late or weak, or flooding in the opposite case. Much of the country is forested.
India (which included Pakistan prior to 1948) has had a very long history, with the earliest records of the Indus Civilisation going back more than 4000 years. That was followed by the so-called Aryans, so admired by the Nazis, who spread out from Central Asia to populate India as well as Europe and intervening territories. Later, came Greek, Roman, Arab and Turkish influences, and the growth of sundry kingdoms, whose fortunes waxed and waned with the passage of history. The people enjoyed an advanced culture embracing many religions, principally Buddhism, which itself evolved and split into diverse sects. Arab invasions and raids brought the Muslim faith particularly to northern and western India from the 12th Century onwards. The great Mughal Empire, lasting for 200 years from 1526, effectively unified the sub-continent, bringing an age of affluence and stability, as well as the growth of trade with Europe, but it finally disintegrated with conflicts between the nobility. The Portuguese navigator Vasco da Gama had landed in 1498, paving the way for the establishment of Goa as a Portuguese territory. The Dutch and French also had a presence, but it was the British who finally made India the jewel of their Empire. British influence started with the East India Company that secured a trade monopoly in 1600, and later demanded military and political support, becoming an early kleptocracy as its functionaries amassed great wealth. Tea plantations were established in the early 19th Century, especially in the hill country of Assam, becoming a major source of export earnings, as Europeans developed a taste for it. British control was achieved gradually by a series of alliances with the separate principalities making up the country as well as through military engagements (one notable General was named Sir Colin Campbell). The pinnacle of British power came in the latter part of the 19th Century, and seems to have enjoyed wide support from the people at large. Indian regiments under British officers were raised, playing heroic parts in the both World Wars. But stirrings of independence developed in the early 20th Century, receiving some sympathy in the mother country. The movement was led by Mahatma Gandhi (1869-1948), who preached tolerance and non-violence. The eclipse of the British Empire in the Second World War and the ensuing socialist regime paved the way for Indian independence, which was granted in 1947. It saw the partition of the country into mainly Hindu and Muslim territories, the latter becoming Pakistan, but it cost the lives of more than a million people in various factional massacres. The new government, led by Mr. Nehru, faced a continuation of communal conflict resulting from partition and economic dislocation, to be soon followed by the outbreak of an undeclared war with Pakistan over the status of Kashmir, with its predominantly Muslim population, which found itself on the other side of the dividing line.
India has not proved to be an easy place to govern. Nehru's daughter, Indira Gandhi, came to power after the death of her father. She proved to have an iron will and an autocratic style, taking a non-aligned position between the opposing powers in the Cold War, but was shot dead in 1984 by two Sikh guards following a dispute with the Sikh minority. She was succeeded by her son Rajiv, who was in turn assassinated by a Tamil suicide bomber in 1991. His Italian-born widow, Sonja (Sonia in India), might have come to power recently with adequate political support, but perhaps wisely stepped aside for the present incumbent, Manmohan Singh, a gentle economist, educated at both Oxford and Cambridge.
In geological terms, India forms a segment of the ancient southern continent of Gondwanaland that moved northwards to collide with the Eurasian Plate some 50 million years ago. In regional terms, this continent was deficient in oil prospects, primarily because the conditions for oil generation were restricted in high southern latitudes. It is not surprising, therefore, that India is not rich oil territory, although some marginal basins have delivered modest results. The largest of these, with some 2.5 Gb, is the Bombay High, off the west coast, which was found in 1974. The industry is dominated by the State Company, ONGC, although some small foreign private firms are also active. About 1300 wildcats have been drilled, finding 10.5 GB of oil, of which 6 GB have been produced. Exploration drilling peaked in 1991 when 88 wildcats were drilled, but is now down to about half that number. A fairly high level of activity is likely to continue, as the country is in desperate need of oil, but is unlikely to be rewarded by more than perhaps another billion barrels, mainly in small fields. Some interest is now being devoted to deepwater possibilities, but the outcome is far from assured.
Production stands at 685 kb/d, which is likely to be the peak, the midpoint of depletion having been passed in 2002. At the current Depletion Rate of 4.4%, production is set to fall to about 500 kb/d by 2010 and 330 kb/s by 2020. Consumption stands at 2.4 Mb/d, giving the country a large and growing need of imports, which will be increasingly difficult to obtain. This readily explains why State-backed Indian companies are taking up rights overseas in for example the Sudan, Libya, Iran and Venezuela (see also Items 511 and 513).
The country's gas potential is also limited.
Only 42 Tcf have been discovered, of which 13 Tcf have been
produced. Production stands at about 2 Tcf/a. The country
has substantial coal deposits, although some have a high arsenic
content which has caused serious environmental damage in the
past. India has recently enjoyed something of an economic
boom, based in part on services run through the Internet.
Western manufacturers have also set up to benefit from cheap
labour. It is however likely to be a short-lived chapter of
relative prosperity, as imported energy becomes at first expensive
and then in short supply. An economic downturn will likely
impinge on an already fragile political structure, rendered
even more difficult by the country's huge population of more
than a billion. How India will fare during the Second Half
of the Oil Age is hard to predict, but disintegration is a
possible outcome, as people revert to their old communal and
religious identities, a process which will probably be accompanied
by much bloodshed and suffering. Clearly, the present population
far exceeds the carrying capacity of the land, but the Indian
is blessed by a smiling, benign spirituality that helps.