PAID POST BY TOTAL
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Is peak oil looming?

Presented by: Total

Odd as it may seem, we have no precise, official, complete picture of global oil reserves. Figures vary depending on technological and economic factors — or stakeholder perspectives. Forecasting remains a difficult art for the energy that shaped the planet over last century, and probably will over this century too. Meanwhile, pessimists and optimists argue back and forth, as they await peak oil. But which peak oil — production or consumption?

Oil for 2 billion vehicles

Global energy demand rose 2.1 percent in 2017. That's more than double the increase in 2016, but also in the five previous years, when annual growth averaged 0.9 percent. Energy demand, driven 40 percent by Asia — India and China — is met by fossil fuels for 72 percent, renewables for 25 percent and nuclear power for the remaining 3 percent1.

So until renewables capture a bigger share, fossil fuels still provide most of the world's supply. Renewables offer the twin advantage of harnessing inexhaustible resources and emitting far less carbon. But they won't be a majority of the energy mix until the second half of the 21st century. The International Energy Agency (IEA) puts their share of the global energy mix at that time at just 40 percent2, based on its most optimistic scenario, "Sustainable Development"3. The world will have sit tight for technological advances and the right market conditions.

In the fossil fuel category, 95 million barrels of oil are consumed each day worldwide. That works out to more than 15 billion liters or 4.8 billion tons4 a day. Petrochemical production and growing ownership of cars — forecast at 2 billion in 20402 — and commercial vehicles are the main reasons oil demand rose 1.6 percent in 2017. Total, a principal player in the oil market, confirmed the trend when it published its Oil Product Demand study on September 25, 20175. The study's scenario tests hypothetical impacts caused by the various factors driving down future demand and reckons that global oil demand will jump 11 percent by 2040.

Meanwhile, the IEA estimates that "an extra China-plus-India [could be added] to global energy demand by 2040" and that "it is far too early to write the obituary of oil."

Given the perpetual growth in global demand for energy, and thus oil, can we really talk about oil depletion? When will we run out of oil reserves that can be developed? In other words, when will we be short of fuel for our vehicles, plastics for our everyday needs, energy for our factories, packaging for our food, pharmaceutical products for our health, insulation for our homes, asphalt for our roads, and clothing, adhesives, paint, detergents and agricultural inputs? Is the specter of the end of a society built on oil actually a real one?

A look, in pictures, at where oil reserves stand Local Production and Cogeneration

Technology and economics experts have been pondering the question of when reserves will run dry for 60 years. As far back as the 1950s, geologist Marion King Hubbert predicted that U.S. oil production would peak, which it did in 1970. So he was right — until the large-scale production that began in the mid-2000s of unconventional oil and gas, such as shale oil, made the U.S. market a global leader again, with 60 years of reserves according to the IEA.

It's a difficult art. Olivier Appert, Chairman and CEO of IFP Énergies nouvelles from 2003 to 2015, noted that "estimating an oil field's reserves is like trying to guess how much inventory a warehouse has by peering through the keyhole." Globally, the very real complexity involved has prompted the most pessimistic specialists to shift from "We'll run out of oil in 2000" to "We'll run out of it sooner or later." Like we said, it's tricky.

Even the way we define resources changes over time and as technology advances. Oil is classified in three categories:

  • 1P, or proved reserves à All known volumes of oil that have a 90 percent or better chance of being recovered profitably, given today's economic and technical environment.
  • 2P, or proved plus probable reserves à The volumes of oil in a known reservoir with a 50 percent or higher chance of being economically recoverable.
  • 3P, or proved plus probable plus possible reserves à The maximum volume of potentially recoverable oil in a reservoir. This category includes all resources with a greater than 10 percent chance of being economically recoverable.

To quote Etienne Anglès d'Auriac, Total's Vice President, Strategy in Exploration & Production, in an op-ed article on the planete-energies.com6 website in February 2018, "For decades now, there has been debate surrounding how much longer oil and gas reserves will last worldwide and the question continues to go unresolved, because it depends on many factors that evolve over time: exploration and extraction technologies and their costs, changes in global demand, the accessibility of deposits in light of global geopolitics and many other factors still."

Toward more intensive production and exploration

Techniques for exploring for and recovering the oil tapped by wells enable us to extract more and more crude. Current methods extract just 30 to 40 percent of the oil in a reservoir. Recovering just one extra percentage point more from every reservoir in the world would be like adding another year and a half of global consumption. In light of the potential upside, Total is developing a set of technologies and continuing to conduct enhanced oil recovery R&D. Depending on how EOR techniques are used over a well's life, they can improve a reservoir's recovery rate by as much as 20 percent. Pilot projects are being carried out at several sites worldwide through 2020. The potential outcome includes innovations, investments and partnerships to keep producing affordable energy for as many people as possible.

What's more, not every corner of our planet has yet been fully explored. But exploration requires investment. And the plunge in oil prices in late 2014 had a serious chilling effect on capital expenditure worldwide. "Between 2013 and 2014, the oil industry invested more than $700 billion per year, but today, this amount has dropped to just a little over $400 billion, which is not enough to replace reserves," stresses Total6.

Changes in technologies also have to be kept in mind. There was a time when producing oil meant extracting it on land or, at best, from offshore fields in water depths of less than 500 meters. Total, a pioneer in deep offshore innovation since the 1980s, expects 15 percent of its production to stem from deep offshore technology in 2019. It is estimated that global offshore reserves stand at 350 billion barrels7, or 8 percent of total resources, two-thirds of which have yet to be discovered. Forecasts for 2035 project that 18 million barrels will be extracted from deep offshore fields each day worldwide!

Then there are the exploration regions located either above the Arctic Circle, which is frozen most of the year, or in hard-to-reach, rugged terrain. Via projects such as Yamal LNG for gas and METIS® for exploring rough-terrain areas, Total has demonstrated that R&D spending and using disruptive technologies could provide access to oil and gas resources more safely, with a smaller environmental impact and at a competitive cost.

"It is estimated that 2,900 billion barrels worth of oil remain. Currently known conventional reserves should ensure more than 40 years of production. Further discoveries may increase this period to 60 years, while unconventional resources such as shale oil and heavy oil could translate into 90 years," says Etienne Anglès d'Auriac in conclusion.6

Between 1995 and 2015, the world's proved (1P) oil reserves grew by over 50 percent, to 1,697.6 billion barrels. Going back even farther, 1P reserves grew by a factor of 2.3 in 30 years. It is important to note that new technology developments made it possible to add unconventional oil and gas, so-called shale oil and gas in their source rock, bumping up forecasts. At the same time, shale production raises serious environmental issues. Total has no desire to further invest in it at this time. Its Chairman & CEO, Patrick Pouyanné, told Bloomberg last March that "Total doesn't need shale to thrive."

From peak oil to peak consumption

That leaves known oil reserves that are currently economically unrecoverable. In other words, too expensive to produce. "Before these resources can become reserves, they must be profitable and ready for production," Total6 points out. In fact, some fields are only economically viable with oil at $80 a barrel or more. The price today is just over $70. Below $80 a barrel, this oil will continue to stay in the ground, pending more favorable economic conditions. If it's ever produced at all.

As for much talked about peak oil, we may not really know whether it will ever happen, but peak consumption is even harder to define. That's because a dip in consumption would automatically send oil prices down, which would then spark renewed consumption, a yoyo effect better known as the "Jevons paradox"7. "This is where the climate change debate comes in," says Total.6 "Not all of these abundant resources will necessarily be produced. The highly ambitious scenario put forward by the IEA, which aims to keep the average global temperature from rising more than 2 degrees Celcius, predicts annual demand will decrease by 0.9 percent for oil."

Right now, growing demand for oil in air, marine and road transportation and in petrochemical manufacturing is pushing demand up. Will the greater use of electric vehicles, driven by sustainable mobility imperatives, be able to reverse the trend? Probably not, because it will be overwhelmingly limited to passenger cars. A drop in consumption would take 20 years. Anything sooner would need a very swift, broad-based penetration of electric vehicles. Or, failing that, slower growth in demand for air or marine transportation. Lower demand from the petrochemical sector is far less likely. As it happens, forecasts project an uptick in growth in the air transportation sector: the International Air Transport Association (IATA) expects the number of passengers to nearly double by 2036, to 7.8 billion.

Still, global energy more broadly is expected to go electric: 40 percent of the final consumption added will be electric in 2040, an amount equivalent to oil's share in the last 25 years3.

Finally, energy efficiency — smarter, more frugal consumers — could well become the leading energy resource. Or so argues Yamina Saheb, member of the planete-energies.com website's editorial committee and Senior Climate and Energy Policy Analyst at OpenEXP.

With more than one hypothesis to juggle, we're a long way from a simple, two-factor mathematical equation — reserves + consumption — that would automatically give us the volume of oil still available. Technologies, markets, behavior, regulations and incentives greatly complicate the calculation. As do politics. From that perspective, a carbon tax or a universal binding regulation could get everyone on the same page and drive demand down.

Given the continuously evolving situation, it will take an astute head to guess whether peak oil or peak consumption will happen first. At the 2015 COP21, the world pledged to keep the global temperature rise below 2 degrees Celcius. It is virtually certain that some oil will stay in the ground. How much and when, no one can say.

1 IEA, Global Energy and CO2 Status Report, released in March 2018.

2 World Energy Outlook 2017.

3 A scenario that assumes that low-carbon energy sources double as a share of the global energy mix (to 40% in 2040), that all avenues for improving energy efficiency are explored, that demand for coal starts declining soon and that oil consumption peaks shortly thereafter.

4 1 barrel = 158.987 liters. 1 ton = 7.3 barrels.

5 Presented at Total's Investor Day.

6 Oil Reserves in the World, Planète énergies

7 Named after British economist William Stanley Jevons, it says that as technological progress increases the efficiency with which a resource is used, the rate of consumption of that resource can rise instead of falling. In particular, the paradox implies that introducing more efficient energy technologies can, in the aggregate, increase total energy consumption. (Source: Wikipedia.)

This page was paid for by Total. The editorial staff of CNBC had no role in the creation of this page.
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