Oil Change International

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Is Iraq a “Game-Changer” for Peak Oil?

iraq-oil-wellThe Oil Drum is one of those great blogs that discusses energy and peak oil.

It has consistently and coherently been ahead of the curve, shall we say, when it comes to exploring the issue of peak oil and what we, as a society, should be doing about it.

But the New Year has brought an interesting perspective from one of the Oil Drum’s former staff writers, Stuart Staniford, about how Iraqi oil changes the peak oil equation.

The exploitation of Iraq’s oil industry is gathering pace. Just yesterday the country’s oil Ministry announced it had approved all pending deals with foreign oil companies in deals that could bring an estimated 100 billion dollars in investment.

Although we are now entering the realm of speculation and hype for which the oil industry is legendary, these deals could argues a wire report yesterday, increase Iraq’s projected oil output to 12 million barrels of oil per day from current production of around 2.5 million bpd.

No one believes that that kind of massive increase in production will be easy given the ongoing chronic security problems, dilapidated infrastructure and political in-fighting, and it is envisaged that it could take 6 to 7 years to reach such a figure.

But the fact that Iraq is set to increase production changes the peak oil debate, argues Staniford.

Writing on the Oil Drum yesterday, he noted that “I have been associated with the view that the stagnation of oil supply growth from late 2004 on was likely to be the onset of a “bumpy plateau” of oil production – that oil production would not go too much higher, although it wouldn’t decline quickly either.

Yesterday he conceded that “I think it’s important to note that a potential game-changer has developed recently that could render that point of view obsolete (which is a kinder, gentler way of saying “wrong” :-).”

He writes that we need to take “seriously” the thought that Iraq might actually succeed  in increasing its production  significantly.

“If it did succeed” argues Staniford, “that would act to delay the final plateau of oil production by a decade (ballpark), make that plateau be at a higher level (95-100mbd ballpark), and significantly moderate oil prices in the meantime, with even some possibility of causing a serious breakdown of OPEC discipline and a period of significantly lower prices akin to the 1980s-1990s lull (though probably not as long or as deep a lull as that).”

He continues: “If that were to occur, it would likely have profound consequences for alternative energy projects, biofuel companies, and automobile fuel efficiency. A period of lower oil prices will put adaptation projects on hold for the duration.”

Lower prices might also scupper investment in the tar sands – so you get a strange situation where Shell’s investment in Iraq undermines its investment in Canada. But whether the boys from Shell have thought of that one, I’m not sure. But maybe they ain’t that clever, either.

In the mean-time, Staniford’s concession that he might be wrong is grist to the mill for the business blogs: “We’ve never believed in peak oil as a even a likely long-term energy disaster for humanity. Every time oil prices spike, future oil demand is reduced, as consumers and governments panic, then shift towards other sources of energy,” argues Business Insider.

Comments (4)

  1. Sam Powrie says:

    I’m not an engineer or an economist but I’ve read Stuart’s article. I didn’t understand all of it but I’ve certainly made the effort to read it through. I agree with him that Iraq could certainly ramp up production and that this could certainly extend the projected plateau in overall world production. However I don’t see this as a ‘game changer’ simply because quantitatively I don’t see it as significant. The IEA predicts a 6.something% overall rate of decline in conventional oil production from 2012 onwards, with a multiplicity of factors involved, but with geological peak production as the root cause. This means that potentially and at present rates of consumption, around 80% of current production (the share that I understand is taken up by conventional oil) could be halved in around 10-11 years. I ask myself, how can any Iraq or Brazil or any other new fantasy land or killing field accommodate to this? I see no easy answer. Yes – it is highly unlikely that demand will continue in anything approaching a linear fashion. Demand in the west may well be curbed by higher prices, particularly in the import-dependent western countries (eg; the USA, Australia etc). But there are the realities of established infrastructure and existing transport systems to consider. The west is almost completely dependent on car and truck transport. Rail has been sidelines and the investments needed for rail to replace truck transport have not occurred. And the solutions often identified in the ‘invisible hand’ won’t work this time. I’ve read that prices cannot rise for ever as a stimulus for increased production. Once the EROEI ratio gets close to 1:1 (I understand somewhere below 5:1 is the cut-off) oil becomes uneconomic to produce – full-stop. I believe that this will be a major blow to those pinning their hopes on unconventional oil.
    As I’ve said, I am no expert, but nor am I a luddite or a techno-dreamer. I have 25 years experience working in the human sciences. I don’t believe that we in the west have the remotest notion of what awaits us in terms of social understanding or dialogue. Our political classes understand but keep silent because they don’t want to frighten the masses. The imminent prospect of a hundred years or so of grinding depression is not something they want to publicly advertise.

  2. Gale Whitaker says:

    This article doesn’t take into consideration that a huge majority of current oil fields are being pressured with steam and salt water. This means that the back half of the bell curve that has been predicted by the peak oil study will not apply. These over pressured oil wells will experience a cliff like drop in oil production.

    This article is another example of the fact that humans are very good avoiding dangerous trucks but very poor at avoiding tsunamis.

  3. Ernest Wilkerson says:

    I have to agree with Sam. I have done extensive reading about Peak Oil. The numbers seem to range between a decline rate of 2.5% and 6.5%. The US Joint Command even suggested we may need a Saudi Arabia in five years. The mean decline rate would be between 2-4 million barrels per year. The projects that are on the board to help fill the gap are counting on $70-$80 barrel oil. If Iraq starts pushing prices down those projects will be delayed and the decline rate per day will rise. There is also, the political, infrastructure, and other problems which have to be overcome. Look at the history of the area. Do you really expect stability when we leave, and they DO want us out.

  4. Ernest Wilkerson says:

    When I first read this article I did not read the comments on the Oil Drum. After I read those comments and did some research on my own it appears that Iraq will be lucky to get to 6 million barrels by 2020 (From the IEA which tends to be optimistic and political). I have, also, seen press reports that everything with the infrastructure is behind.

    The people who quoted the decline rates and other numbers such as Sam are absolutely right. Unfortunately we are falling off a cliff and the trillion dollars Bush and Cheney spent to get this oil is a bust. We should have spent it on our infrastructure.

    What is it with the author and the Oil Drum? I find the Oil Drum quite informative and careful with what they say.

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