Kjell Aleklett: Peak oil is more relevant than ever (part I)

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http://www.europeanenergyreview.eu/site/pagina.php?id=4257

Twelve years ago Kjell Aleklett, professor in Global Energy Systems at the Uppsala University in Sweden, got interested in oil and its future. Soon he and Colin Campbell created the term “peak oil”: they predicted that the top production for crude oil would not be far away and that it was time to look for alternative energy systems in order to replace oil. This theory has been heavily disputed. Aleklett has just returned from a visiting professorship at the University of Texas – Austin, where he specialised in the fracking industry. He is more convinced than ever that his arguments from 2002 are still valid. In a frank interview, the first part of which EER publishes today, Aleklett defends his position and attacks his opponents in sometimes harsh wording.

Will oil production peak in 2014?

First of all, oil production is a mixture of several things. There is conventional oil, which has peaked and is declining. According to the International Energy Agency (IEA) and others, in 2008 we had the maximum at around 70 million barrels per day (mb/d) and that decline will continue. Then we have the unconventional part of oil production with oil sand from Canada and Venezuela, and fracking in the USA. Furthermore, there is coal and gas to liquids and on top of that you have natural gas liquids, which are also called oil. Finally, the IEA also add ethanol to oil and call it all liquids. That makes it difficult to give exact estimates. The fact that today we have an oil price that compared to ten years ago is four to five times higher, proves that conventional oil production has peaked. The high price makes fracking possible. The price mentioned to make fracking profitable lies at 70 dollars (51.70 euro) per barrel. What we see now is that the oil sand production in Canada and in Venezuela is increasing with what we had expected. But what no-one discussed in the past is fracking. What we see in the US is that production is approaching 1.5 to 2 mb/d which means a tiny increase of normal stable global production level. That increase will continue until about 2016 and will compensate the decline in conventional oil production. If you take a production of 85 mb/d and a 4 percent fluctuation span, which means 3 mb/d, that is what we have today. Had we continued with the 1.5 percent annual production increase we had until 2003, we would today have had a much higher production level, around 93 mb/d. But then we also should have had an oil price of around 20 dollars (14.8 euro) per barrel. Now, since this trend is broken and we have a lower production, what it shows is that we have reached the peak which we predicted ten years ago, when the issue of fracking was not even on the agenda.

Right now you urge decision makers and other parties involved to wake up and face the reality of a drastically changing energy world in order to build up new energy systems. What are the reasons for this campaign-like action?

There is a correlation between the use of oil and the growth of the global GDP. Between 1950 and 1973 there was an increase in GDP of about 7 percent per year

we have reached the peak which we predicted ten years ago, when the issue of fracking was not even on the agenda

and there was the same increase in the use of oil. In 1973 that trend was broken. In the eighties industry and society had reshaped, which made it possible to have a 1.5 percent increase in oil consumption and a 3 percent increase in GDP. This we had for quite a long period, until 2003. That was followed by an increase in oil price, because the demand was there but was not met by a corresponding increase in oil production. Then we got the crisis in 2008 when the price was so high that the industry could not take it any longer.

Now there is another reshaping going on. The big player now is China. It has a system where the fluctuation in price is not affecting the people so much since the government takes care of the price differences.

Seeing the energy situation as a whole, now, we will not reach peak production in 2014. Because of fracking, we get some more years. What we are discussing now, is when the oil production in the US will peak for a second time.

You have just returned from a visiting professorship at the University of Texas, Austin. There you were much closer to the US fracking industry. Did this change your view on the global energy situation?

No, many thoughts I had before were just confirmed. Many reports and other things connected to oil coming from the US just come from the people that have the support of the oil industry. For instance, the US universities doing research on oil are absolutely dependent on the financial support from the oil industry, otherwise they could not function. It is the same thing with other agencies. Even though they are not lying in what they are saying, however you can say things in different ways. I may use another vocabulary than other people. Frankly, when I was in Austin I was free to speak. I could tell the Peak Oil story. But I must say that I thought that fracking would have a larger impact on the landscape than it had.

Do you have an optimistic view on the prospects the US shale gas and oil industry could have on the global energy situation?

It is clear that fracking affects the US very much. The US has 20 to 25 percent of the global energy market and everyone is looking to the US to see what is happening there. Out of that you can get the feeling that the US is the world, but this is not the case. When in Austin I studied especially the Eagle Ford shale south of Austin. And there they are drilling like crazy.

Many reports and other things connected to oil coming from the US just come from the people that have the support of the oil industry

I saw them drilling around 1,000 wells just in four months and about 3,300 wells per year. Regarding production, they have just passed 1.1 mb/d. 78 percent of the production is oil, the rest is natural gas liquids condensate, NGL. However, NGL fetches a much higher price than natural gas. If you look at Haynesville, one of the major gas fields, you do not see much drilling there, because it is a dry gas field, so they will not get NGL. Drilling a well now, you will never get your money back. The situation in the US now is that the gas market is flooded. When the US is discussing to export oil, it is not oil but NGL. The US still needs to import 4 to 5 mb/d of crude oil and they have to continue to do that.

Are you sceptical about the US contribution to the global energy supply? Given that the IEA writes in its World Report: “The North American requirement for crude oil imports all but disappears by 2035 and the region becomes a larger exporter of oil products.”

You should read the wording. First of all, oil products are refinery products like gasoline and diesel. The refinery capacity in the US is still the same and they had a decline in the consumption of oil products. So there is overcapacity and they are discussing an export of oil products. According to US law you cannot export oil and natural gas, but you can export oil products. What happens is that the US imports oil, sends it through the refinery and exports oil products. The US is self-supporting on products, but not on oil. Sometimes I do not understand what these agencies are saying. One should remember, the IEA is not an independent international organisation, even though they claim so very strongly. It is an organisation for the OECD members, it is a “political organisation”. Neither China nor Russia are members. They look at what way is the most profitable one for the OECD countries. Its World Report is a political document, and I stand for this very strongly.