April 08, 2009

Causes and Consequences of the Oil Shock of 2007-2008

Economy  Energy  Peak Oil

James Hamilton at Econbrowser has two posts summarizing a paper he presented at Brookings dealing with causes and consequences of the oil price shock of 2007-2008. Interesting reading.

On causes, he calculates that the runup in price was consistent with reasonable assumptions about oil demand and its elasticity. Elasticity is a measure of how strongly demand responds as price changes. For a product like oil, which has no short-term substitute and which is used in ways (like driving to work, heating a home, generating power) that people are highly reluctant to forgo, the elasticity is quite small. Which is to say, it takes one hell of a price increase to get people to consume less, especially in the short term. (In the long term, people may switch to smaller cars, and so on. Hamilton says that kind of long term adjustment may even help explain why prices have fallen as far as they have.) Worldwide GDP growth between 2003 and 2007 was such that at existing prices worldwide demand would have been greater than worldwide production, which had flatlined. Rising prices were the result. They kept rising until enough people were priced out of the market to equalize supply and demand. A speculative bubble in oil futures may have contributed to the price spike, but Hamilton's calculations show that it could have easily just been (mostly) your basic supply-and-demand story.

On consequences, he calculates that the impact of sky-high oil prices on the global economy may have been a significant factor in starting the recession that has now become such a vicious downturn. There was a debt bubble for sure, but it may have been the oil shock that pricked the bubble.

People tend to take cheap energy for granted, so we routinely underestimate the extent of its role in the economic fortunes of the modern world. Now that oil prices have fallen so drastically, exploration and new drilling have ground to a halt. Without new sources of supply, depletion will soon erase whatever supply cushion may exist at the moment. So the world is setting itself up for another big price shock when the economy eventually picks up and demand starts to recover. The world economy may get another big kick in the head just when it is trying to get back onto its feet.

Posted by Jonathan at 10:16 PM | Comments (1) | Link to this  

May 29, 2008

Buy Wind

Energy  Peak Oil

Oil billionaire T. Boone Pickens just bought $2 billion worth of wind turbines from GE. Sign of the times. The Street (via Cryptogon):

Mesa Power, a company run by well-known energy investor T. Boone Pickens, has ordered nearly 700 wind turbines from GE as part of its plans for a giant wind farm in Texas.

The company placed a $2 billion order for 667 turbines for the Pampa Wind Project, which will ultimately provide more than 4,000 megawatts of electricity, or enough for more than 1 million homes. The project will be completed in four phases.

Mesa will start getting the turbines in 2010 and 2011.

Pickens, who became rich in the fossil fuels game, has been interested in alternative energy for some time, and with oil prices hitting record highs above $125 a barrel, the audience for his message is growing. [...]

Warren Buffett, the head of Berkshire Hathaway and another of the nation's wealthiest investors, has also been investing in wind.

Handwriting on the wall.

Posted by Jonathan at 10:39 PM | Comments (0) | Link to this  

May 06, 2008

Miscellany

Peak Oil  Politics

BookForum has a lengthy excerpt from Rick Perlstein's new book, Nixonland. For anyone who remembers 1972 and the McGovern campaign, it's a fascinating read.

Meanwhile, oil hit $122 a barrel today. It's remarkable how little talk there is in the mainstream, still, about the permanence of the trends that have brought this about. It's as if people think it's a temporary blip — a little gas tax holiday and it'll all blow over.

Posted by Jonathan at 05:31 PM | Comments (3) | Link to this  

April 22, 2008

Has Russian Oil Production Peaked?

Peak Oil

This is one of those stories that probably ought to be front page news all over the world. Oil production in Russia, the world's largest oil producer, declined in Q1 for the first time in a decade. WSJ, from last week:

Russian oil production, for years a vital source of new supplies for world markets, is showing signs of a slump, adding to uncertainties that have helped push oil prices to record highs.

Russian output fell for the first time in a decade in the first three months of this year, according to the International Energy Agency, which represents industrialized oil-consuming countries. It said Russian production averaged about 10 million barrels a day, a 1% drop from the first-quarter of 2007.

Declining production from the world's largest oil producer and one of its largest exporters puts further pressures on an already strained market and adds to the potential for higher prices for a global economy coping with a slowdown. Global production constraints -- along with surging demand, rising oil-field expenses and political instability in petroleum-rich regions -- already have sent oil to more than $110 a barrel from $30 in about four years. [...]

Industry watchers and Russian officials generally blame the country's production slowdown on a combination of weather and tight electricity supplies in some parts of the country. In a longer-term worry, they also point to aging Siberian fields that once fueled its production growth. [...]

The IEA predicts Russian oil production will resume growth this year. But it estimates an annual increase of only 0.8% over 2007, compared with an average 2.5% in the past three years and much faster growth before that.

Russia's energy ministry expects a rise of 1.8%. But earlier this month, Yuri Trutnev, the nation's natural-resources minister, said on Russian television that the country's full-year production may be lower than last year's.

Russia's stumbling production growth highlights a troubling reality: Despite soaring oil prices in the past five years, crude output from nations outside the Organization for Petroleum Exporting Countries has remained essentially flat since 2005, defying the normal link between high prices and increased production. [...]

The reasons for the non-OPEC plateau range from spiraling exploration costs to the increasingly remote climates where new oil pockets are being found. Also, many major sources are aging. Europe's North Sea, Alaska's Prudhoe Bay and Mexico's Cantarell field in the Gulf of Mexico have all seen declining output.

New oil pockets are being found in "increasingly remote climates" because that's all that's left. That's what peak oil looks like.

Various other news stories, like this one in the Financial Times, cite all sorts of temporary reasons why Russian output is slumping. But look at that graph. It looks like your basic Hubbert peak. Whether it is or not, time will tell.

As I write this, oil is at $118.35 a barrel.

Posted by Jonathan at 04:54 PM | Comments (2) | Link to this  

March 10, 2008

107

Peak Oil

As I write this, oil has climbed to $107.35 a barrel, and the dollar has fallen to 1.5336 against the euro (i.e., it now takes more than $1.53 to buy what a euro buys). No end in sight.

Posted by Jonathan at 12:22 PM | Comments (0) | Link to this  

February 26, 2008

Slip-Sliding Away

Economy  Peak Oil

The price of oil today set a new all-time record — again. It currently sits at $100.88 per barrel.

In related news, the dollar today fell to a new all-time record low against the euro — again. It currently sits at 1.5014 (i.e., it now costs more than a buck and a half to buy what a euro buys).

Oops.

Posted by Jonathan at 05:35 PM | Comments (0) | Link to this  

February 19, 2008

Oil Price Sets New Record

Peak Oil

AP:

Oil prices hit new record highs Tuesday as a Texas refinery fire and fears of an OPEC production cut pushed crude to settle at over $100 a barrel for the first time ever.

U.S. crude for March delivery jumped $4.51 to settle at $100.01 a barrel on the New York Mercantile Exchange, topping the previous settlement record of $99.62 set Jan. 2.

Oil also hit a new all-time trading high of $100.10 a barrel, besting the previous high of $100.09 set Jan. 3.

Posted by Jonathan at 02:54 PM | Comments (0) | Link to this  

February 08, 2008

With A Fountain Pen

Corporations, Globalization  Energy  Peak Oil

Richard Heinberg (via EnergyBulletin) calls attention to an extraordinary clause in the NAFTA agreement:

There is a strange clause in the North American Free Trade Agreement (NAFTA) that applies to only one country — Canada. The clause states that Canada must continue to supply the same proportion of its oil and gas resources to the US in future years as it does now. That's rather a good deal for the US: it formalizes Canada's status as a resource satellite of its imperial hub to the south.

From a Canadian perspective there are some problems with the arrangement, though. First is the fact that Canada's production of natural gas and conventional oil is declining. Second is that Canada uses lots of oil and gas domestically: 70 percent of Canadians heat their homes with gas, and Canadians drive cars more and further than just about anyone else. The problem is likely to come first with natural gas; as production declines, there will come a point when there isn't enough to fill domestic needs and continue to export (roughly 60 percent of Canada's gas now goes to the US).

That point is not decades in the future, it is fairly imminent.

What happens when Canadians can no longer drive their cars or heat their homes because NAFTA forces them to export the oil and gas they need for their own use? Will they say, hey, no problem, we'll just sit here in the dark and cold? Would you?

It's not often discussed, but a key subtext of the push for international trade agreements has been the "developed" nations' desire to lock in access to the rest of the world's natural resources. But sooner or later, push'll come to shove. People in countries that have their own energy resources are going to wonder how their leaders managed to sign away control.

One thinks of the Woody Guthrie song:

Yes, as through this world I've wandered
I've seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.

In this case, the guys with fountain pens have most of the world's guns, too.

Posted by Jonathan at 05:38 PM | Comments (0) | Link to this  

January 02, 2008

Fillin' 'Er Up With Other People's Food

Development  Energy  Environment  Ethics  Future  Peak Oil

$100 oil prices poor folks out of the market for energy. But worse than that, it prices them out of the market for food. It's already happening. IHT:

In an "unforeseen and unprecedented" shift, the world food supply is dwindling rapidly and food prices are soaring to historic levels, the top food and agriculture official of the United Nations warned [December 17].

The changes created "a very serious risk that fewer people will be able to get food," particularly in the developing world, said Jacques Diouf, head of the UN Food and Agriculture Organization.

The agency's food price index rose by more than 40 percent this year, compared with 9 percent the year before - a rate that was already unacceptable, he said. New figures show that the total cost of foodstuffs imported by the neediest countries rose 25 percent, to $107 million, in the last year.

At the same time, reserves of cereals are severely depleted, FAO records show. World wheat stores declined 11 percent this year, to the lowest level since 1980. That corresponds to 12 weeks of the world's total consumption - much less than the average of 18 weeks consumption in storage during the period 2000-2005. There are only 8 weeks of corn left, down from 11 weeks in the earlier period.

Prices of wheat and oilseeds are at record highs, Diouf said Monday. Wheat prices have risen by $130 per ton, or 52 percent, since a year ago. U.S. wheat futures broke $10 a bushel for the first time [December 17], the agricultural equivalent of $100 a barrel oil.

Diouf blamed a confluence of recent supply and demand factors for the crisis, and he predicted that those factors were here to stay. On the supply side, these include the early effects of global warming, which has decreased crop yields in some crucial places, and a shift away from farming for human consumption toward crops for biofuels and cattle feed. Demand for grain is increasing with the world population, and more is diverted to feed cattle as the population of upwardly mobile meat-eaters grows.

"We're concerned that we are facing the perfect storm for the world's hungry," said Josette Sheeran, executive director of the World Food Program, in a telephone interview. She said that her agency's food procurement costs had gone up 50 percent in the past 5 years and that some poor people are being "priced out of the food market."

To make matters worse, high oil prices have doubled shipping costs in the past year, putting enormous stress on poor nations that need to import food as well as the humanitarian agencies that provide it.

"You can debate why this is all happening, but what's most important to us is that it's a long-term trend, reversing decades of decreasing food prices," Sheeran said.

Climate specialists say that the vulnerability will only increase as further effects of climate change are felt. "If there's a significant change in climate in one of our high production areas, if there is a disease that effects a major crop, we are in a very risky situation," said Mark Howden of the Commonwealth Scientific and Industrial Research Organization in Canberra.

Already "unusual weather events," linked to climate change - such as droughts, floods and storms - have decreased production in important exporting countries like Australia and Ukraine, Diouf said. [...]

Sheeran said, that on a recent trip to Mali, she was told that food stocks were at an all time low. [...]

[R]ecent scientific papers concluded that farmers could adjust to 1 degree Celsius (1.8 degrees Fahrenheit) to 3 degrees Celsius (5.4 degrees) of warming by switching to more resilient species, changing planting times, or storing water for irrigation, for example.

But that after that, "all bets are off," said Francesco Tubiello, of Columbia University Earth Institute. "Many people assume that we will never have a problem with food production on a global scale, but there is a strong potential for negative surprises." [...]

Part of the current problem is an outgrowth of prosperity. More people in the world now eat meat, diverting grain from humans to livestock. A more complicated issue is the use of crops to make biofuels, which are often heavily subsidized. A major factor in rising corn prices globally is that many farmers in the United States are now selling their corn to make subsidized ethanol.

The world's food stocks are rapidly shrinking. Could anything be more fundamental? And yet there is almost no awareness of this situation in the world's wealthier nations.

By being energy hogs, we make other people go hungry. It's really that simple. Picture it next time you fill your tank: some of what's going in there is other people's food. Either directly, in the form of ethanol from corn, or indirectly, because our profligate energy use drives prices up and fuels global warming. This is a central moral issue of our time: will we in the world's wealthier nations continue to use our wealth to maintain a way of life that is increasingly deadly to everyone else on the planet? In other words, will we make other people starve so we can drive our SUV to the mall?

Posted by Jonathan at 05:04 PM | Comments (1) | Link to this  

$100

Peak Oil

To get the new year started, oil topped $100 a barrel today for the first time ever.

You gotta love all the rationales analysts come up with. CNN:

Oil prices kicked off the first trading day of 2008 by hitting a new high of $100 a barrel Wednesday on violence in oil-rich Nigeria, the prospect of more interest rate cuts, a halt in Mexican imports and the expectation of yet another drop in U.S. crude supplies.

Whatever. Or maybe it's the obvious: there's no longer enough oil to go around. Demand exceeds supply, so prices rise to the point where enough people are priced out of the market to make supply and demand equal again.

Someday soon we'll look back with nostalgia at the days when a barrel of oil was only $100.

Posted by Jonathan at 12:35 PM | Comments (3) | Link to this  

December 21, 2007

Plug-In Hybrids

Energy  Peak Oil  Science/Technology

Go here and click for a great little video on plug-in hybrids. The technology works. So Cal Edison has been running an all-electric fleet of big repair trucks and over 200 cars for 10 years or more. Batteries are rapidly getting smaller and more powerful. What's needed now are economies of scale.

What are we waiting for?

[Thanks, Miles]

Posted by Jonathan at 02:20 PM | Comments (1) | Link to this  

November 21, 2007

We're Doomed

Energy  Peak Oil

...if this is how we think:

(Source)

Posted by Jonathan at 06:32 PM | Comments (0) | Link to this  

November 15, 2007

Biofuels From Food: A Crime Against Humanity

Energy  Peak Oil

This is just the beginning. As fuel becomes more expensive and scarce, the world's rich will not only price the world's poor out of the fuel market, they'll price them out of the food market as well, as more and more food crops and agricultural land (and fresh water) are used to generate biofuels. George Monbiot summons up the appropriate level of outrage:

It doesn't get madder than this. Swaziland is in the grip of a famine and receiving emergency food aid. Forty per cent of its people are facing acute food shortages. So what has the government decided to export? Biofuel made from one of its staple crops, cassava. The government has allocated several thousand hectares of farmland to ethanol production in the county of Lavumisa, which happens to be the place worst hit by drought. It would surely be quicker and more humane to refine the Swazi people and put them in our tanks. Doubtless a team of development consultants is already doing the [math].

This is one of many examples of a trade described last month by Jean Ziegler, the UN's special rapporteur, as "a crime against humanity". Ziegler took up the call first made by this column for a five-year moratorium on all government targets and incentives for biofuel: the trade should be frozen until second-generation fuels - made from wood or straw or waste - become commercially available. Otherwise the superior purchasing power of drivers in the rich world means that they will snatch food from people's mouths. Run your car on virgin biofuel and other people will starve.

Even the International Monetary Fund, always ready to immolate the poor on the altar of business, now warns that using food to produce biofuels "might further strain already tight supplies of arable land and water all over the world, thereby pushing food prices up even further." This week the UN Food and Agriculture Organisation will announce the lowest global food reserves in 25 years, threatening what it calls "a very serious crisis". Even when the price of food was low, 850 million people went hungry because they could not afford to buy it. With every increment in the price of flour or grain, several million more are pushed below the breadline.

The cost of rice has risen by 20% over the past year, maize by 50%, wheat by 100%. Biofuels aren't entirely to blame - by taking land out of food production they exacerbate the effects of bad harvests and rising demand - but almost all the major agencies are now warning against expansion. And almost all the major governments are ignoring them.

They turn away because biofuels offer a means of avoiding hard political choices. They create the impression that governments can cut carbon emissions and - as Ruth Kelly, the British transport secretary, announced last week - keep expanding the transport networks. New figures show that British drivers puttered past the 500 billion kilometre mark for the first time last year. But it doesn't matter: we just have to change the fuel we use. No one has to be confronted. The demands of the motoring lobby and the business groups clamouring for new infrastructure can be met. The people being pushed off their land remain unheard.

In principle, burning biofuels merely releases the carbon they accumulated when they were growing. Even when you take into account the energy costs of harvesting, refining and transporting the fuel, they produce less net carbon than petroleum products....If you count only the immediate carbon costs of planting and processing biofuels, they appear to reduce greenhouse gases. When you look at the total impacts, you find that they cause more [global] warming than petroleum.

A recent study by the Nobel laureate Paul Crutzen shows that the official estimates have ignored the contribution of nitrogen fertilisers. They generate a greenhouse gas - nitrous oxide - which is 296 times as powerful as CO2. These emissions alone ensure that ethanol from maize causes between 0.9 and 1.5 times as much warming as petrol, while rapeseed oil (the source of over 80% of the world's biodiesel) generates 1-1.7 times the impact of diesel. This is before you account for the changes in land use.

A paper published in Science three months ago suggests that protecting uncultivated land saves, over 30 years, between two and nine times the carbon emissions you might avoid by ploughing it and planting biofuels. Last year the research group LMC International estimated that if the British and European target of a 5% contribution from biofuels were to be adopted by the rest of the world, the global acreage of cultivated land would expand by 15%. That means the end of most tropical forests. It might also cause runaway climate change. [...]

The only sustainable biofuel is recycled waste oil, but the available volumes are tiny.

At this point the biofuels industry starts shouting "jatropha!" It is not yet a swear word, but it soon will be. Jatropha is a tough weed with oily seeds that grows in the tropics. This summer Bob Geldof, who never misses an opportunity to promote simplistic solutions to complex problems, arrived in Swaziland in the role of "special adviser" to a biofuels firm. Because it can grow on marginal land, jatropha, he claimed, is a "life-changing" plant, which will offer jobs, cash crops and economic power to African smallholders.

Yes, it can grow on poor land and be cultivated by smallholders. But it can also grow on fertile land and be cultivated by largeholders. If there is one blindingly obvious fact about biofuel it's that it is not a smallholder crop. It is an internationally-traded commodity which travels well and can be stored indefinitely, with no premium for local or organic produce. Already the Indian government is planning 14m hectares of jatropha plantations. In August the first riots took place among the peasant farmers being driven off the land to make way for them.

If the governments promoting biofuels do not reverse their policies, the humanitarian impact will be greater than that of the Iraq war. Millions will be displaced, hundreds of millions more could go hungry. This crime against humanity is a complex one, but that neither lessens nor excuses it. If people starve because of biofuels, Ruth Kelly and her peers will have killed them. Like all such crimes it is perpetrated by cowards, attacking the weak to avoid confronting the strong.

It will be a crime of unimaginable proportions, but it is hard to see what will avert it. People who can afford cars won't voluntarily give them up because of unseen side effects a world away. Rationalization will be easier than changing one's way of life. The resulting famine and war in faraway countries will be blamed on other causes — extremism, religious conflict, tribalism, backwardness — if it is even noticed at all. And even the minority of people who make the connections will find it hard not to take the path of least resistance: what good will it do really if I stop driving? I'm just one small drop in a very large bucket. I've got to get to work somehow, and to the mall, and my kids' soccer practice. And so millions will die.

Posted by Jonathan at 10:12 PM | Comments (4) | Link to this  

October 30, 2007

Al-Huseini: World Oil Production Has Peaked

Peak Oil

David Strahan, author of The Last Oil Shock, has a new interview with Sadad al-Huseini, former head of exploration and production at Saudi Aramco. Strahan:

Sadad al-Huseini says that global [oil] production has reached its maximum sustainable plateau and that output will start to fall within 15 years, by which time the world's oil resources will be "very severely depleted".

Strahan has a number of other articles and podcasts here.

Posted by Jonathan at 05:52 PM | Comments (1) | Link to this  

October 29, 2007

Do I Hear 94?

Peak Oil

As I write this, oil is up $1.67 on the day to $93.53.

Posted by Jonathan at 04:22 PM | Comments (0) | Link to this  

October 26, 2007

Do I Hear 92?

Peak Oil

Another day, another record oil price. Up $1.40 to $91.86.

Posted by Jonathan at 04:23 PM | Comments (0) | Link to this  

October 25, 2007

Do I Hear 90?

Peak Oil

As I write this, oil is up $2.40 on the day to $89.50.

Update: Now up $3.36 to $90.46.

Posted by Jonathan at 01:05 PM | Comments (0) | Link to this  

October 16, 2007

Do I Hear 88?

Peak Oil

As I write this, oil is up another $1.34 to $87.47 a barrel, after flirting with $88 a barrel earlier in the day.

Update: Now $87.82.

Posted by Jonathan at 11:18 AM | Comments (0) | Link to this  

October 15, 2007

Oil Smashes Price Record

Peak Oil

As I write this, oil is up almost 3% on the day to a whopping $86.13. 86 bucks a barrel. Not a typo.

Posted by Jonathan at 03:05 PM | Comments (0) | Link to this  

October 11, 2007

Oil Top $83 A Barrel

Peak Oil

As I write this, oil is up more than $2 for the day, to $83.33 a barrel.

Posted by Jonathan at 12:00 PM | Comments (0) | Link to this  

Past Peak

Peak Oil

A very interesting post on yesterday's Oil Drum summarizes world oil production over the last seven years. First, a graph:

Each band shows, for a country or group of countries, the difference between its production level and its minimum production level over the period covered by the graph. The authors call this "incremental" production. The baseline is the thin grey bar at the bottom. Taking the baseline and stacking the incremental production bands on top gives total production.

There's a thick black line about two-thirds of the way up. The countries below the line are in decline (or at least not growing). Notice how steeply the black line begins to fall starting in 2005: the declining countries are declining rapidly. (Production in those countries is 3.8 million barrels per day less than it was just 2.5 years ago.) That decline needs to be offset by growth elsewhere just to maintain the status quo. The countries below the black line include: US, Indonesia, Australia, Denmark, Argentina, Oman, Colombia, Gabon, Egypt, Syria, Yemen, UK, Norway, Iran, Malaysia, Mexico, Ecuador, Vietnam, Qatar, India, Kuwait, UAE, Saudi Arabia, Nigeria, Iraq, and some others.

The bands above the black line are areas where production is still growing. These include: China, Russia, Algeria, Libya, Sudan, Eq. Guinea, Brazil, Canada, Kazakhstan, Angola, Azerbaijan. Some, like China and Russia, are expected to peak in the next few years. Others, like Kazakhstan and Azerbaijan, are likely to hit a plateau because of pipeline constraints. Hence, the ability of these growth regions to continue making up for decline elsewhere is doubtful.

The bottom, maroon band is the US. Notice the sharp dip in late 2005. That's when Katrina hit, taking out a lot of production in the Gulf. The authors adjusted their figures by extrapolating what US production would have looked like were it not for Katrina and got this:

Without the dip caused by Katrina, it looks like world production peaked in the latter half of 2005. I.e., Katrina obscured that fact that we're already past peak.

Posted by Jonathan at 10:15 AM | Comments (0) | Link to this  

October 05, 2007

The End Of Cheap Oil

Peak Oil

The chief economist at the Canadian Imperial Bank of Commerce says we should expect $100 a barrel oil by the end of next year, and it's likely to be three-digit prices from then on out. AP (via John Robb):

Oil prices could top $100 a barrel by the end of next year and remain above that point for years to come, the chief economist of Canadian investment bank CIBC World Markets said Tuesday.

Jeffrey Rubin said rising demand within oil-rich nations such as Mexico, Venezuela and Saudi Arabia will put pressure on global oil prices in the coming years. That, combined with the increased cost of pulling petroleum from reserves deep under the sea or wringing it out of oil sands in Canada, will keep oil prices high even if demand in the Western world remains constant.

"We're in a world of triple digit oil prices for the foreseeable future," Rubin said during a speech to investors here.

Rubin said oil exports from OPEC countries, Russia and Mexico will likely decline by about 3 million barrels per day over the next five years. The biggest drop, he expects, will come from Mexico, a key U.S. supplier.

"Of the 3 million barrels, we're probably talking about 2 million barrels are going to come directly out of U.S. supplies," he said.

Rubin expects Mexican oil imports to the U.S. will dry up by about 2012. Some of that decline will be made up by imports from other parts of the world, but the lions' share — nearly a third of all U.S. oil imports — will come from Canadian oil sands, he predicted.

But replacing relatively easy-to-refine liquid crude with petroleum from oil sands is certain to increase costs, he said. By the end of the decade, Canadian oil sands are likely to represent the world's largest source of new oil supplies, he said.

"We're basically replacing low-cost oil with high-cost oil," he said.

Looking ahead, Rubin expects crude oil prices to average as much as $90 a barrel next year, rising to around $100 by the end of 2008. That would represent an increase of nearly 25 percent over Tuesday's settlement price of $80.05 a barrel for light, sweet crude on the New York Mercantile Exchange.

"Triple digit prices is not a spike," he said. "Triple digit oil prices is what is going to be required to maintain, let alone grow, world oil supplies." [Emphasis added]

What does this mean? John Robb summarizes nicely:

Over the past one hundred years, we have been able to plow through obstacles and limits to growth by throwing cheap energy at them (which makes even inefficient increases in social/economic complexity viable). What happens when energy isn't cheap anymore, but rather moderately expensive? Do those past increases in complexity come back to haunt us? Yes.

It would be hard to overstate the extent to which life in the developed world is organized around the availability of cheap energy. Mega-cities, sprawling suburbs, globalization itself. Most of what we consume comes to us from hundreds or thousands of miles away. And it's not just a question of energy. Oil is the raw material from which plastics, fertilizers, and pharmaceuticals are manufactured.

We're like the dinosaurs, just before the asteroid hit. Not that we're doomed, but we're about to experience rapid, nonlinear changes in an environment we depend on for our very survival. Our adaptation to that environment has been cultural and technological rather than biological, a crucial advantage over the dinosaurs. But the challenge will be substantial, and we don't have a lot of time. Given the rate at which oil is consumed, most of us are going to be surprised by how quickly we burn through what's left.

Posted by Jonathan at 03:34 PM | Comments (2) | Link to this  

September 27, 2007

Dollar Hits All-Time Low

Economy  Peak Oil

The dollar continued its slide, falling to 1.4189 against the euro today, the dollar's all-time lowest point since the euro was invented. The dollar's set a new low each of the last six trading days.

Meanwhile, oil prices rose $2.58 (3.21%) for the day, to close at $82.88 a barrel, after topping $83 a barrel in intraday trading.

But stocks? They're up. Who says markets are rational?

Posted by Jonathan at 05:13 PM | Comments (1) | Link to this  

September 18, 2007

Oil Tops $82 A Barrel

Peak Oil

Oil jumped $1.81 today to close at another new record: $82.38 per barrel.

Posted by Jonathan at 05:02 PM | Comments (0) | Link to this  

September 17, 2007

Oil Price Sets New Record — Again

Peak Oil

Oil rose $1.47 today, closing at $80.57 a barrel, another new record.

Posted by Jonathan at 03:01 PM | Comments (0) | Link to this  

September 13, 2007

Oil Closes Above $80 For First Time

Peak Oil

Another day, another record oil price. Bloomberg:

Crude oil rose, closing above $80 a barrel in New York for the first time, after Hurricane Humberto shut three refineries in Texas.

Gasoline gained, pulling oil higher, as the storm knocked out power at plants in Port Arthur, Texas, owned by Total SA, Valero Energy Corp. and Royal Dutch Shell Plc. The plants can process a combined 850,000 barrels of crude oil a day.

"We don't have the ability to lose any refining capacity, especially since refineries are shutting for maintenance ahead of heating-oil season," said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. [...]

Crude oil for October delivery advanced 18 cents to settle at $80.09 a barrel at 2:59 p.m. on the New York Mercantile Exchange, a record close. Futures touched $80.20, the highest intraday price since trading began in 1983. Prices are up 25 percent from a year ago. [Emphasis added]

Something of a non sequitir there: loss of refineries could contribute to higher gasoline prices, but it's hard to see why it would cause crude oil prices to climb. It might actually have the opposite effect, as reduced refining capacity would tend to allow inventories of unrefined crude oil to grow in the backlog. As usual, analysts reach for something in the day's news to explain the day's trading, ignoring the fact that larger forces are at work.

Posted by Jonathan at 05:07 PM | Comments (0) | Link to this  

September 12, 2007

Atlantic: Ghawar In Decline

Peak Oil

An article in The Atlantic based on Stuart Staniford's work at The Oil Drum pretty much concludes that Saudi Arabia's oil production has peaked and is now in decline. That would mean the world's in decline: Peak Oil is here. Excerpts:

No country is more important to oil markets than Saudi Arabia. The kingdom produced roughly 9.2 million barrels of crude a day in 2006, and accounted for 19 percent of world oil exports. Many analysts expect it to supply a quarter of the world’s added production over the next few years. And as the only producer with significant excess capacity, it has played a crucial role [in the past] in alleviating temporary supply disruptions, increasing daily production by 3.1 million barrels during the first Gulf War, for example, when oil production in Iraq and Kuwait dropped by 5.3 million barrels.

The Ghawar oil field is the kingdom’s crown jewel. Stretching for more than 150 miles beneath the desert, it is the largest known deposit in the world. It produces perhaps twice as much oil as any other field, and has doubtless accounted for more than half of Saudi Arabia’s oil production. Yet the Saudis have been removing oil from this reservoir for half a century. Sooner or later, its production must fall.

The Saudis do not release data on how much oil they are extracting from individual wells, or on the remaining reserves of individual oil fields. But the total amount that the kingdom produces has been declining, down a million barrels a day over the last two years of data.

The Saudis have claimed these cuts have been in response to weak demand. However, the big drop in production began in the spring of 2006, when the price of oil was rising from $60 to $74 a barrel; the claim that no one wanted to buy Saudi Arabia’s light crude strains credulity. The drop in production has also coincided with a huge new Saudi effort to find and pump more oil: The number of active oil rigs in Saudi Arabia has tripled over the past three years.

Frustrated by the lack of hard data on Ghawar, Stuart Staniford, a computer scientist with a doctorate in physics, has conducted a painstaking study of publicly available information. His research has been reported at theoildrum.com, a Web site that analyzes energy markets. [...]

Staniford has also built a detailed computer simulation of the Ghawar reser­voir, based on its size and shape, the porosity and permeability of its rock, and the assumed oil-extraction rates. The results of this simulation line up remarkably well with Staniford's other calculations. Oil production from northern Ghawar has likely peaked.

Southern Ghawar still holds a lot of oil, and perhaps the kingdom's push to find new fields will bear fruit. But northern Ghawar was developed first because it was by far the most promising field. Its production cannot be easily replaced. At about the same time that Saudi production began its decline, the new Haradh project in southern Ghawar began producing perhaps an additional 300,000 barrels a day. The Saudis have also made a huge investment to reopen the Qatif field on the eastern coast, which they had abandoned in 1995; it is now producing an estimated half-million barrels a day. With Saudi production falling despite these new contributions, the situation could be serious.

At a bare minimum, the era when excess Saudi capacity could cushion geopolitical disruptions in oil supplies may well be over, even though the threat of such disruptions is greater than ever. And if Saudi production continues to decline even as world demand keeps growing, in a few years we will look back at the summer of 2007 as the last of the days when gasoline — even at $3.50 a gallon — was still plentiful and cheap. [Emphasis added]

Saudi output down a million barrels a day while they triple the number of active oil rigs. If that doesn't say depletion, I don't know what does.

Posted by Jonathan at 05:17 PM | Comments (0) | Link to this  

Oil Tops $80 A Barrel

Peak Oil

Earlier today, oil rose to $80.18 a barrel.

As I write this, it's up $1.68 to $79.91 a barrel.

Yesterday's all-time record of $78.23 sure didn't last long.

Posted by Jonathan at 04:59 PM | Comments (0) | Link to this  

September 11, 2007

Shell May Use Nuclear To Power Tar Sands Operation

Energy  Peak Oil

As Kevin says at Cryptogon, this reads like something from The Onion. Independent:

Shell is considering using nuclear power to operate its controversial tar sands programme in Canada.

Tar sands extraction – mining oil from a mixture of sand or clay, water and very heavy crude oil – uses a huge amount of energy and water. Environmentalists say it results in more than three times as many emissions of carbon dioxide compared to conventional oil production.

Now Canadian firms AECL and Energy Alberta have proposed building a nuclear reactor near the site of Shell's vast Athabasca tar sands development. The boss of Energy Alberta has said the C$6bn (£2.8bn) reactor has the backing of a large unnamed copany that would take 70 per cent of the reactor's energy.

A spokeswoman for Shell Canada refused to confirm that the company would take electricity from the reactor but said: "We have had a number of power options presented to us. Yes, it includes nuclear.

"If a nuclear facility proceeds, we would look at it based on a wide range of factors such as economics, sustainability and the energy [required]."

She added that the company was also looking at building biomass, renewable or co-generation plants.

Analysts estimate that Canada's huge tar sands give it the world's second-largest oil reserves after Saudi Arabia.

However, Walt Patterson, associate fellow at think-tank Chatham House, said: "Extracting oil from tar scares the pants off me. The whole idea is fundamentally perverse in the context of our present environmental situation. To then power it with nuclear, it seems to be the worst of all worlds."

The Independent on Sunday has also been told that, earlier this year, Shell Canada contacted French nuclear firm Areva to find out how much it would cost to build a reactor for the oil sands project, but did not pursue this option because of the cost. The Shell Canada spokeswoman could not confirm this discussion took place.

Shell and its Athabasca partners currently pump over 155,000 barrels of oil per day from the tar sands but want to increase this by five times over the next 20 years. This would need more than an extra 1,000MW of generating capacity. Most of the project's existing power comes from a gas-fired plant, but gas production in North America is declining.

We're addicted to oil, and this is the way addicts behave. No scheme is too self-destructive, no idea too crazy, if it lets the addict get his fix. What's frightening is not so much the insanity of this particular idea — crazy though it is — but the glimpse it provides of the desperation to come. When world oil production starts to decline in earnest, people are going to get reckless.

Update: Oil closed today at $78.23, an all-time record.

Posted by Jonathan at 05:24 PM | Comments (0) | Link to this  

July 05, 2007

Oil Back Above $70 Per Barrel

Peak Oil

As I write this, crude oil is at $71.73 a barrel.

Posted by Jonathan at 12:58 PM | Comments (0) | Link to this  

June 28, 2007

"We Have A Very Big Problem"

Peak Oil

Jerome-a-Paris links to an unusually frank interview in Le Monde (in French) with Fatih Birol, chief economist of the International Energy Agency. Birol (Jerome's translation):

If Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there's no need to be an expert.

Iraqi production rises exponentially? Saudi Arabia fulfills all its promises? What are the chances?

Jerome says:

The whole interview is amazingly frank and free of diplomatic obfuscation. He blasts biofuels ("not based on any kind of economic rationality"), he notes that Africa is suffering the most already from expensive oil, he points out that even a slowing of China's growth will not reduce oil demand, and he talks pretty explicitly about production peaks and depletion:

Within 5 to 10 years, non-OPEP production will reach a peak and begin to decline, as reserves run out. There are new proofs of that fact every day. At the same we'll see the peak of China's economic growth. The two events will coincide: the explosion of Chinese growth, and the fall in non-OPEP oil production. Will the oil world manage to face that twin shock is an open question.

He says it again twice in the interview: the gap between demand and supply will widen, and he blasts our governments for doing so little:

Unfortunately, there's a lot of talk, but very little action. I really hope that consuming nations will understand the gravity of the situation and put in place radical and extremely tough policies to curb oil demand growth.

Of course, we might need to curb more than "demand growth", and actually move to curb "demand" itself, but his words are at least quite direct and explicit. Even more interestingly, he puts the finger on two important but rarely discussed items: field depletion (he mentions an 8% decline rate for mature fields, but indicates that even a 1% difference in the actual number would mean huge volumes by 2020), and Saudi reserves:

I understand the Saudi government claims 230 billion barrels of reserves, and I have no official reason not to believe these numbers. Nevertheless, Saudi Arabia - as well as other producing countries and oil companies - should be more transparent in their numbers. Oil is a crucial good for all of us and we have the right to know how much oil, as per international standards, is left.

While not a direct attack on Saudi numbers, this is by far the most explicit voicing of doubt about their reserves from any official of a major organisation that I have ever read. "No official reason to doubt"??? That's a pretty gaping hole there to sneak other kinds of doubts... He notes that he believes Saudi Arabian promises to be able to bring its capacity from 12mb/d today to 15mb/d in 2015, but notes at the same time that (i) it's the only place in the world (other, potentially, than Iraq) where production can grow and (ii) it's less than the expected demand growth by then from China alone. [Emphasis in the original]

Birol is an expert, but even he says, "the numbers are very simple, there's no need to be an expert." It's coming, and probably sooner than you think.

Posted by Jonathan at 05:52 PM | Comments (4) | Link to this  

April 28, 2007

Oil Depletion Atlas

Peak Oil

An interesting (if overly optimistic) interactive oil depletion atlas of the world. Why optimistic? E.g., it's got Saudi Arabia peaking in 2018 at almost 15 million barrels/day. Don't bet on it.

But even if we accept the optimistic figures, the overall picture is of a world for which peak is no more than a decade away. And the band plays on.

Posted by Jonathan at 05:14 PM | Comments (0) | Link to this  

March 31, 2007

The Post-Peak Path Of Least Resistance

Energy  Environment  Peak Oil

I don't think the end of cheap oil will mean that things completely grind to a halt à la James Kunstler. But what seems like good news may actually be bad news. Very bad news. Why?

Humans, like other organisms, generally take the path of least (short-term) resistance. It's our nature. In the Peak Oil context, the path of least resistance won't be to change how we organize cities and suburbs; or to switch to public transportation; or even to drive significantly smaller, more efficient vehicles. Nor will it be most of the other alternatives that could meaningfully reduce the demand for liquid fuels.

Instead, the path of least resistance will be to substitute other liquid fuels for gasoline and diesel, those other fuels probably being ethanol made from plant matter and, most alarmingly, synthetic fuel made from coal. There is an enormous amount of coal remaining, and if we put all of that carbon in the atmosphere the results will be deadly.

As people flail about for ways to cope with increasing shortfalls in oil production, they will act hurriedly, thoughtlessly, and they will almost certainly exacerbate global warming, perhaps catastrophically. That will be the path of least resistance.

In a BBC op-ed, author David Strahan makes a similar point. Excerpts:

[I]t is quite possible to run out of oil and pollute the planet to destruction simultaneously.

In fact peak oil could even make emissions worse if it drives us to exploit the wrong kinds of fuel.

Burning rainforest and peatlands to create palm oil plantations for biofuels releases vast amounts of CO2, and has already made Indonesia, according to some ways of calculating it, the world's third biggest emitter after the US and China.

Synthetic transport fuels made from natural gas using the Fischer-Tropsch process emit even more carbon on a well-to-wheels basis than conventional crude; and when the feedstock is coal, the emissions double.

None of these alternatives are likely to fill the gap left by conventional crude — at least, not in time.

But because they are so much more carbon intensive, it is quite easy to conjure scenarios in which we still suffer fuel shortages while emitting even more CO2 than in the current business-as-usual forecast — the worst of all possible worlds.

Although these fuels are likely to prove inadequate, we may be driven to use them because cleaner alternatives are even more inadequate, for a variety of reasons.

Biofuels can be produced sustainably and with real CO2 reductions, but in the industrialised world there simply isn't the land.

In the developing world, however, there are vast swathes of land which could be put to sugar cane in a sustainable fashion; but the scale of the task of replacing crude oil would still be monumental.

I calculate that to substitute the fuel lost through a post-peak oil production annual decline of 3% would mean planting about 200,000 sq km — equivalent to the land area of Cuba, Sri Lanka and Papua New Guinea — every year.

Alternatively, if we decided to run Britain's road transport system, say, on cleanly produced hydrogen — electrolysing water using non-CO2-emitting forms of generation — our options would be:

67 Sizewell B nuclear power stations

a solar array covering every inch of Norfolk and Derbyshire combined

or a wind farm bigger than the entire southwest region of England.

When oil production starts to fall, the economic impacts could well be devastating.

Soaring crude prices could tip the world into a depression deeper than that of the 1930s, and collapsing stock markets cripple our ability to finance the expensive clean energy infrastructure we need.

As the unemployment lines grow, the political will to tackle climate change may be sapped by the need to keep the lights burning as cheaply as possible.

Many environmentalists seem to dismiss or ignore peak oil because they simply cannot see it as significant when compared to climate change.

But this is to miss the point.

Oil depletion is deadly serious in its own right, but it also has the capacity both to worsen emissions and destroy the wealth needed to fight global warming.

For this reason - among others - it too has the power to destroy our civilisation. [Emphasis added]

Desperate people do desperate things. Fuel shortages will be an immediate, concrete problem staring people in the face. Global warming will seem, by comparison, an abstraction somewhere off in the future. And it will be easy for people to rationalize that their little contribution to global warming is an insignificant drop in a very big bucket; meanwhile, they need a way to get to work, to shop, to heat their homes. They are going to want fuel; they're not going to care much where it comes from.

Of course, there are significant wild cards in any attempts to project the future. Biotechnology and nanotechnology, especially, have the potential to radically transform the equation. (And also to create their own brand of havoc.) But the next couple of decades are pivotal, and the sheer scale of the problem means that new technologies may arrive too late. Enormous damage is already being done, right now, in the race to produce biofuels. The colossal scale of the world's thirst for fuel pretty much guarantees that in the race for profits all sorts of bad ideas will be pushed into large-scale use without due regard for the consequences. We suffer from a kind of technological monoculture and a monoculture of the mind that causes us to risk way too much on a few throws of the dice.

If we act without thinking, we're guaranteed to follow the path of least (short-term) resistance. But it's the wrong path. It remains to be seen if humans are smart enough to forego short-term convenience to gain long-term survival. Are we?

[Thanks, Jason]

Posted by Jonathan at 05:55 PM | Comments (0) | Link to this  

March 03, 2007

Saudi Arabia In Decline?

Peak Oil

This is one of those stories that ought to be front page news all over the world: recent trends appear to show that Saudi Arabia's oil production is now in decline — rather steep decline, at that. This would have to mean that Ghawar, the big daddy among the world's oil fields, is in decline. And if Ghawar and Saudi Arabia are in decline, then the world's in decline. It's that simple. Peak oil is here.

Analysis by Stuart Staniford at The Oil Drum:

What I did in this post was to look in more detail at what happened from the beginning of 2006 on, which is when the apparent decline begins. I added data from a fourth source (the OPEC Monthly Oil Market Review), and for each of the four sources of data, I fit a linear trend:

The resulting graph is extremely striking, I think. The four different sources all estimate Saudi production slightly differently - they fluctuate in different ways month to month, and disagree over the absolute level (that last may be differences in exactly what is defined as oil). However, the regressions make clear that all four sources are in strong agreement about the nature of the decline. The slopes of the lines are very similar.

The implied decline rate through the year is 8% ± 0.1%. (Note that the year on year decline from 2005 to 2006 will only be about half that, as the decline only began at the beginning of 2006). As far as I know, there are no known accidents or problems that would explain any restrictions on oil supply, and the Saudis themselves have maintained publicly that their production is unproblematic and they intend to increase it.

It's interesting to note the pattern in the underlying data where declines start, are interrupted in the middle of the year, and then resume. I take this to be due to the coming onstream of the 300kbpd of liquids from the Haradh III megaproject. [...]

It seems this did not do more than briefly interrupt the declines. We can get a clearer picture as follows. What I did was average the EIA, IEA, and JODI series for 2005 and 2006 into a single estimate. Onto that, I've hand drawn a couple of guidelines that are 300 kbpd apart vertically:

My intepretation is that the bump in the middle of the year that separates the two lines is due to the impact of Haradh III coming on stream. So that tells us that, given some extra production capacity, Saudi Aramco immediately threw it into the production mix. And the effect of that? It lifted the plummeting production curve up by 300kbpd, but did nothing to change the gradient of the plummet. That suggests that the Saudis had nothing else to throw at the problem.

It also suggests that last year's underlying Type II decline rate, before megaprojects like Haradh III, was 14%.

Overall, I feel this data is clear enough that I'm willing to go out on a limb and conclude the following:

Saudi Arabian oil production is now in decline.

The decline rate during the first year is very high (8%), akin to decline rates in other places developed with modern horizontal drilling techniques such as the North Sea.

Declines are rather unlikely to be arrested, and may well accelerate. [...]

I suggest that this is likely to place severe political strains on Saudi Arabia within a year or two at most. [Emphasis added]

To drive the point home, Staniford ends with this:

I'll bet $1000 with the first person who cares to take me up on it that the international oil agencies will never report sustained Saudi production of crude+condensate of 10.7 million barrels or more.

As we've noted a number of times in the past, modern production technology does such a good job of extracting oil from the ground that production doesn't fall off much until the end is near, and then the fall-off tends to be precipitous. The good news is that we're really good at getting the toothpaste out of the tube. The bad news is that we're so good at it that we don't get much warning that the tube is approaching empty.

Staniford's analysis says that the underlying rate of Saudi decline over the past year was 14%. This is potentially earth-shaking news. Recall that production at Mexico's Cantarell, the world's second largest producing oil field, peaked and fell 25% last year. If Ghawar follows suit, the shit has officially hit the fan.

Don't expect to see coverage of this on your tv. There's nothing to film, no celebrity angle, no rehabs, no funerals. Just what may turn out to be one of the biggest stories of our lifetimes.

Posted by Jonathan at 03:37 PM | Comments (2) | Link to this  

January 30, 2007

Cantarell Collapsing Faster Than Expected

Peak Oil

As we've noted several times over the past year, Mexico's largest oil field (and the world's second largest), Cantarell, has peaked and is in sharp decline. The decline is turning out to be more drastic than even the most pessimistic projections. WSJ (via Rigzone):

Daily output at Mexico's biggest oil field tumbled by half a million barrels last year, according to figures released Friday by the Mexican government. The ongoing decline at the Cantarell field could pressure prices on the global oil market, complicate U.S. efforts to diversify its oil imports away from the Middle East, and threaten Mexico's financial stability.

The virtual collapse at Cantarell — the world's second-biggest oil field in terms of output at the start of last year — is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos, or Pemex. Cantarell's daily output fell to 1.5 million barrels in December compared to 1.99 million barrels in January, according to figures from the Mexican Energy Ministry.

Mexico made up for some of the field's decline. Mexico's overall oil output fell to just below three million barrels a day in December, down from almost 3.4 million barrels at the start of the year. It marked Mexico's lowest rate of oil output since 2000.

Mexico's troubles at Cantarell mirror the larger problems in the global oil market. Many of the world's biggest fields are old and face decline, which can be sharp and sudden. Like other big producers, Mexico is struggling to make up the difference because new big fields are in harder-to-reach places like the deep waters of the Gulf of Mexico.

The field's decline is expected to continue, if not worsen, this year, according to most estimates. That will subtract valuable oil from the world market, which is under pressure from rising demand by growing economies like China and India. It also means less oil headed to the U.S. from Mexico, which has long relied on Mexico as one of its top-three oil suppliers.

"This is bad news for Mexico. The field is declining faster than even the government's pessimistic scenarios," says David Shields, an oil industry consultant in Mexico City who has been warning about Cantarell's collapse for the past two years. [...]

Mexico's growing economy is demanding more fuel each year, which is expected to translate to even lower oil exports. Last year, Mexico's daily average oil exports fell to 1.79 million barrels a day from 1.82 million the previous year. Pemex says it expects daily exports to fall to an average 1.65 million barrels this year.

But some analysts say that is too optimistic. December's daily exports were a meager 1.53 million barrels. While that figure may have been affected by bad weather that closed some ports, it was already well below Pemex's estimates for this year.

Based on the state company's track record so far at Cantarell, including its current rates of recovering the oil that remains in the field, Mr. Shields expects the field's output to drop another 600,000 barrels a day by the end of this year. He says that Pemex will likely increase output by 200,000 barrels a day at other fields — leaving the country with a net decline of 400,000 barrels a day by year's end and daily exports of less than 1.4 million barrels. [Emphasis added]

Technology is a two-edged sword. Advanced techniques are very good at squeezing the toothpaste out of the tube. Unfortunately, they are so good at it that when the end comes, it comes suddenly. (Remember this picture.) A number of oil fields are showing alarmingly steep decline rates as a result. Cantarell's production has fallen by 25% in a single year. And Cantarell is not alone.

Posted by Jonathan at 11:04 AM | Comments (0) | Link to this  

January 07, 2007

Mission Accomplished

Energy  Iraq  Peak Oil

"Respectable" opinion has it that only naive ex-hippies are so simple-minded as to believe that the US attacked Iraq for its oil. Whatever. But read this. The Independent:

Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.

The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big [US and British] oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil. They point to statements such as one from Vice-President Dick Cheney, who said in 1999, while he was still chief executive of the oil services company Halliburton, that the world would need an additional 50 million barrels of oil a day by 2010. "So where is the oil going to come from?... The Middle East, with two-thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," he said.

Oil industry executives and analysts say the law, which would permit Western companies to pocket up to three-quarters of profits in the early years, is the only way to get Iraq's oil industry back on its feet after years of sanctions, war and loss of expertise. But it will operate through "production-sharing agreements" (or PSAs) which are highly unusual in the Middle East, where the oil industry in Saudi Arabia and Iran, the world's two largest producers, is state controlled.

Opponents say Iraq, where oil accounts for 95 per cent of the economy, is being forced to surrender an unacceptable degree of sovereignty.

Proposing the parliamentary motion for war in 2003, Tony Blair denied the "false claim" that "we want to seize" Iraq's oil revenues. He said the money should be put into a trust fund, run by the UN, for the Iraqis, but the idea came to nothing. The same year Colin Powell, then Secretary of State, said: "It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil."

Supporters say the provision allowing oil companies to take up to 75 per cent of the profits will last until they have recouped initial drilling costs. After that, they would collect about 20 per cent of all profits, according to industry sources in Iraq. But that is twice the industry average for such deals.

Greg Muttitt, a researcher for Platform, a human rights and environmental group which monitors the oil industry, said Iraq was being asked to pay an enormous price over the next 30 years for its present instability. "They would lose out massively," he said, "because they don't have the capacity at the moment to strike a good deal."

Iraq's Deputy Prime Minister, Barham Salih, who chairs the country's oil committee, is expected to unveil the legislation as early as today...The Iraqi government hopes to have the law on the books by March.

Several major oil companies are said to have sent teams into the country in recent months to lobby for deals ahead of the law, though the big names are considered unlikely to invest until the violence in Iraq abates.

James Paul, executive director at the Global Policy Forum, the international government watchdog, said: "It is not an exaggeration to say that the overwhelming majority of the population would be opposed to this. To do it anyway, with minimal discussion within the [Iraqi] parliament is really just pouring more oil on the fire." [Emphasis added]

Iraq's reserves are one of the last great untapped sources of inexpensive conventional oil left on Earth. The profits involved will be almost unimaginable, especially as world oil production peaks, driving prices skyward.

Pop quiz. Now that US and British oil majors are getting a 30-year lock on those profits, what are the chances that the US and Britain will walk away and leave all that money lying on the table? Or will they, as Big Gav put it, "fight on in Iraq until the end of the oil age"? It doesn't take a naive ex-hippie to know the answer to that one.

Posted by Jonathan at 07:02 PM | Comments (1) | Link to this  

October 05, 2006

The Human Algae Bloom

Environment  Essays  Peak Oil

[Another blast from the past, along the same lines as the pieces on exponential growth reposted Tuesday and Wednesday. This one's also a couple of years old, but I think it's worth repeating.]

Life requires energy. Without a continual input of energy, without a continual flow of energy through them, organisms die.

This is a consequence of a general natural law (the 2nd Law of Thermodynamics) that says that if you don't put energy into a system it becomes more and more disordered. Put another way, things fall apart if you don't keep after them. Anybody who's ever tended a garden or maintained a house, a car, or a lawn — or, God forbid, a sailboat — knows this principle first-hand. The same principle applies to the maintenance of the internal order required by living organisms to sustain life.

For green plants, the energy input is sunlight. For the rest of us, it's food. We eat green plants directly, or we eat things that eat green plants, or we eat things that eat things that eat green plants. We humans also use energy that we don't consume directly as food. Such energy, however, we use indirectly to produce or acquire the necessities of life — more food, for example, or warmth, shelter, water, etc. It all takes energy.

Now, a given environment has a specific "carrying capacity" for a given kind of organism. I.e., there's a maximum size population of that organism that can be sustained in that environment. The carrying capacity is determined by whatever necessity is in shortest supply. In a desert, for example, the limiting factor might be water. Typically, the limiting factor is energy in one of its forms (e.g., food). Suddenly introducing a new source of energy can change things in a hurry, however.

There's a lake near my house. Every summer, fertilizers from surrounding lawns and farms find their way into the lake, creating an environment artificially rich in energy (from a plant's perspective, fertilizer = energy). As a result, every summer there is an explosion in the algae population, turning parts of the lake into a thick green goo. The algae experience a giddy period of runaway growth fueled by the influx of energy, but this growth increases the algae population to a level that's completely unsustainable once the fertilizers are used up. When that happens the algae population crashes, and there's a huge die-off until the population returns to a level that can be sustained without fertilizers — i.e., back to more or less its original level.

For the past two hundred years, human beings have been in the position of algae in a fertilizer-rich lake. For us, the artificial energy infusion has been in the form of an incredibly concentrated and easily acquired energy source: hydrocarbon fuels (coal, oil, and natural gas). In the 19th century, the key fuel was coal. In the 20th, it was oil. During this period, humanity has experienced a giddy population bloom like the algae's.

Hydrocarbon fuels are a one-time gift to humanity, however, and we're burning through them as fast as we can get them out of the ground. We in the industrialized nations — the US most of all — have been like a person who comes into a huge inheritance and proceeds to spend it as quickly as possible. The time comes when the inheritance runs out and one is forced to go back to living on what one can earn.

Most people, I think, attribute the "success" of the human population during the last two centuries to advances in technology, medicine, and knowledge generally. Of course, these have been contributing factors (to a large extent enabled by the energy surplus), but the most important factor has been the sudden infusion of an enormous supply of cheap, portable energy. Without this energy, or an equivalent substitute, the human population simply cannot be sustained at current levels.

Am I exaggerating energy's importance? Think of a modern city, with people stacked in high-rise buildings whose windows don't even open, utterly dependent on modern transportation/distribution systems to bring them the food they no longer grow or gather. Imagine New York City, or London, or Mexico City, or Los Angeles or any other modern metropolis if someone pulled the plug. Every so often we get a tiny glimpse of what this would mean when there's a blackout, but that only scratches the surface. Imagine that not only is electricity gone, but also gasoline, heating oil, natural gas, coal — and permanently.

The next time you're watching a film that has an aerial shot of a large city, especially one taken at night, think about the enormous flow of energy through that system — and the system's utter dependence on that energy flow. If you live in a large city, just look out your window. And then reflect on the fact that the majority of the world's people now live in cities and towns.

Moreover, the importance of hydrocarbons goes far beyond just their use as a source of energy. They are the raw material from which plastics and synthetic materials of all kinds are made, as well as pharmaceuticals, fertilizers, pesticides, etc. The last thing we should be doing is setting fire to them.

I'll have more to say about the specifics of our usage of and dependence on hydrocarbons — and the possibilities, if any, for a successor energy source to replace hydrocarbons — in future posts.

For now, I just want to leave you with the mental image of the algae bloom. Pump fertilizers into the algae's environment, and the algae undergo a giddy period of explosive growth, culminating in their turning what had been a stable, balanced equilibrium into a green goo. That's what living organisms do. Give them a source of surplus energy and they gobble it up and reproduce like crazy. It's the path of least resistance.

Pump hydrocarbons into the human environment and the same thing happens. We've spent the last two centuries creating our equivalent of the green goo. And the hydrocarbons are about to start running out.

Posted by Jonathan at 07:14 PM | Comments (2) | Link to this  

September 14, 2006

Reality Check On Chevron's Find In The Gulf

Peak Oil

Ex-CIA analyst Tom Whipple weighs in on the Chevron find in the Gulf of Mexico, discussed here earlier. Excerpts (via EnergyBulletin):

The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska's Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great "discovery" naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world's economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won't. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for one of these fields may cost on the order of $1.5 billion, or more, as the cost of oil production equipment is inflating rapidly.

Add to this the problem of what to do with very hot oil and the associated natural gas as it comes flowing to the top of a well 7,000 feet under the Gulf and 175 miles from shore. The decision to attempt production from these ultra-deep fields will not be taken lightly by the oil companies involved.

Although there are no geopolitical problems or nationalistic governments involved in producing oil from the Gulf of Mexico, the fields are right in its center — out where the Category 4 and 5 hurricanes really get wound up. On top of this there are questions of how much oil can be extracted from an ultra-deep field with extreme pressures. Although the recent test produced 6,000 barrels a day, for a month, a knowledgeable old geologist opined that he would like to see a test run for a year or more before committing billions to a whole new regime of oil production.

Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible, will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO.

Knowledgeable observers who have commented on the issue agree that even if all goes well, it is unlikely that more than 300-500,000 b/d of production could come into production from all the possible fields in the Lower Tertiary over the next five to seven years. In the meantime, the world will have burned another 150 to 200 billion barrels of oil and US production from existing fields will decline from the current 5 million b/d to somewhere around 4 million b/d.

This suggests that it will take some spectacular and unlikely gains from new production to offset the natural decline currently underway in the US. Of still greater concern is production from Mexico's giant 2 million b/d Cantarell oilfield, most of which is exported to the US. Creditable reports suggest that Cantarell is entering very rapid depletion and may be producing at a fraction of its current level five years from now. It would be virtually impossible for this level of new production from the Lower Tertiary to come online in the next five years.

So long as the world continues to consume some 31 billion barrels of oil a year, there is still nothing in sight that can forestall imminent peak oil. [Emphasis added]

The human capacity for denial should never be underestimated. And whenever a major new energy find is ballyhooed in the financial press, wait to read the fine print. Nowadays, it seems, the initial euphoria always turns out to have been exaggerated, usually extremely so.

Posted by Jonathan at 06:02 PM | Comments (0) | Link to this  

September 11, 2006

Dean Of Energy Analysts On Our Oil Future

Peak Oil

80-year-old Henry Groppe, Jr., an "elder statesman" of the oil industry and one of its most successful forecasters of oil price trends, on our near-term energy future (Houston Chronicle, via OilDrum):

Houston was rocking and rolling in 1980, with oil at $40 a barrel and some people in the industry predicting it would soar to $100.

One of the few dissenting voices, Henry Groppe Jr., forecasted that by 1985 oil would fall to $15.

"This guy's a nut," Houston energy analyst Matt Simmons recalled an oil executive telling him then. "He ought to be locked up in a straitjacket." [...]

After oil plunged to $14 in 1986, Groppe was "treated like a prophet with a crystal ball," Simmons recalled.

Groppe, whose name rhymes with copy, has no crystal ball but does claim to see the future and has, in fact, an excellent record on long-term energy forecasts, according to people in the industry.

"We are entering an unprecedented event in world economic history," he said. Oil production is straining to meet demand at a time when China and India are developing huge consumer classes relatively overnight, and hundreds of millions more people will have vastly increased demands for energy.

In the future, he said, "perhaps the biggest geopolitical conflicts will involve the U.S. against the rest of the developing world, including China and India, over oil."

Groppe sees oil hovering in a range of no less than $55 to $65 a barrel for the next 10 years and likely much more because unforeseeable political unrest and weather will drive prices up.

He has hung his hat — he always wears a hat when outdoors — for more than 50 years at Groppe, Long & Littell, a firm that has, he says, "successfully forecasted every change of direction [in the oil markets] in the last 30 to 40 years."

His clients have included Shell Oil Co., Chevron Corp. and Apache Corp.

"He has as deep and broad an understanding of the global energy picture as anybody on the planet," said Donald Evans, former secretary of commerce under President George W. Bush and CEO of the trade association Financial Services Forum. "He has been directionally correct on energy prices since I have known him."

"Historically, he's been very accurate," said Gary Petersen, a partner at EnCap Investments, a firm that manages money for major U.S. institutions with investments earmarked for the oil and gas business.

Peterson described Groppe as "a senior statesman for the industry." [...]

Working with others, he is playing a key role in establishing the Energy Institute at the University of Texas, which will have a mission of fostering research to develop a sustainable energy supply. The institute is in the formative stage, pending final approval. [...]

He and his partners at Groppe, Long & Littell rely on research they've gathered since 1955.

His energy views are not shared by the U.S. Department of Energy, which forecasts that production will continue to rise during the next 24 years.

To avoid a global crisis, Groppe thinks that Americans should use the next 10 years, a time in which production output is expected to peak, to transition into new energy-usage habits.

"We must rely more on nuclear power and alternative energy supplies and use all energy more efficiently," he said.

He is no fan of ethanol, which he calls "pure farm-bloc subsidy." The energy spent on producing it is greater than the output, he said, "not to mention depletion of the topsoil."

Some analysts said that after U.S. military action, oil production in Iraq would rise, but Groppe predicted instability, disruption and lower oil production for at least eight years.

Groppe, who sat with Bush on the board of directors of the Tom Brown oil company headed by Evans, has strong misgivings about the president's decision to invade Iraq.

Until the invasion, said Groppe, who describes himself as politically independent, the U.S. had an energy policy based on the notion that the West could not do without Middle Eastern oil, and the U.S. would maintain absolute control over the Gulf: "Make it our lake. Never allow any of the five major powers — Israel, Syria, Egypt, Iraq and Iran — to get too strong or weak.

"That was an energy policy that worked. The invasion of Iraq was one of the most damaging moves anybody could make because he took out one of those five powers. You set in motion a series of cascading events that will unfold in uncontrollable ways for decades, including the strengthening of Iran's hand." [Emphasis added]

Groppe's an interesting guy, not at all what you think of when you think of a world-class energy markets analyst. At age 80, he eats brown rice and tofu, and for decades he's been involved in a variety of progressive causes, from civil rights, to preventive medicine, to the use of biofeedback in the treatment of addictions. See the article cited.

When it comes to analyzing oil markets, thought, he's not some amateur trying to sell books. He's a pro whose clients are pros. They pay him to provide an accurate assessment of what lies in store, and he's been very, very good at it.

Posted by Jonathan at 06:19 PM | Comments (0) | Link to this  

September 07, 2006

Chevron's Find In The Gulf

Peak Oil

A reader emailed to complain that I haven't posted anything on Chevron's announced discovery of a significant deepwater oil/gas field in the Gulf of Mexico. So let's look at it.

Some skepticism is called for. In March, Mexico announced discovery of a Gulf of Mexico oil field with the potential to yield 10 billion barrels. By July, it turned out that the field was a modest natural gas find equivalent to less than 1% of the original 10 billion barrel figure. Oops.

According to Energy Bulletin, Mexico's original announcement may have been politically motivated to pressure Mexico's parliament, which was soon to vote on the budget for PEMEX (the Mexican national oil company) and possible expansion of its drilling rights.

Here in the US, coincidentally enough, Congress is about to take up a bill that would "end a 25-year bipartisan moratorium on coastal drilling". (Newsday) Coincidentally or not, the timing of Chevron's announcement is great news for the people who want offshore drilling opened up.

But let's assume the announcement turns out to be on the level. And let's assume it comes in at the midpoint of their announced potential — i.e., at 9 billion barrels. How much oil is that? Enough to supply the world for 3 to 4 months. Nothing to sneeze at, but not the answer to our problems. Best case, it will be years before the newly discovered field is producing at a substantial rate. The world's not going to stand still in the meantime. Demand will continue its exponential growth as long as there's enough supply available. Meanwhile, most of the world's important oil fields are already in decline.

Peak oil is not the end of oil. It's the beginning of the end of oil. It's the end of cheap oil. Deepwater oil isn't cheap. World oil discoveries peaked over 40 years ago, but oil will continue to be discovered. It just won't be discovered quickly enough to offset decline.

Or look at it another way. It's great that Chevron found oil five miles below the surface of the Gulf. But why are they even looking for oil five miles below the surface of the Gulf, considering the enormous additional cost involved? It's because all the easy oil was discovered long ago. This is exactly what peak oil looks like: increasingly expensive scrambling for the last remaining reservoirs of oil on the planet.

Posted by Jonathan at 10:02 PM | Comments (7) | Link to this  

September 01, 2006

Human Activities As Environmental Feedback Loops

Environment  Peak Oil

A few weeks back, I linked to an article at RealClimate about the impact of drought on the Amazon rainforest. Kent points out an interesting observation made by the first commenter to that RealClimate story:

I wonder...if areas of relative dryness might become attractive to farmers and loggers, since the drier forests would be more easily accessed by heavy equipment for more days during the year. If these rainfall patterns persist long enough for people on the ground to take advantage, it could well direct human activity toward those areas and accelerate their demise via exploitation, just as if the rainfall had actually stopped and the trees had died in place for that reason. The overlap [between] climate and economic models might be more important than either acting alone.

Good point. We have seen a number of examples of feedback loops that tend to make global warming self-reinforcing. The comment above points to another kind of feedback loop, consisting of changes in human activities as the environmental crisis deepens.

A similar sort of example, this time in the Peak Oil arena: as Peak Oil begins to really take hold and it becomes clear to everyone that the price of oil is only going to increase, and quickly, producers may begin to hoard the oil they've still got in the ground. Why sell it today when it could be worth twice as much in a few years? This kind of reaction by producers would exacerbate the production decline, causing prices to rise even faster, making hoarding even more attractive, etc., etc., etc.

Posted by Jonathan at 01:03 PM | Comments (2) | Link to this  

August 25, 2006

On Chavez

Energy  Peak Oil

Policy Pete on Hugo Chavez:

So he likes Fidel, so what? This is business, not personal, as the Corleones used to like to say. The US just lost half a million barrels a day forever to the Chinese. Having managed to tick off every Muslim on the planet, it would have been expecting too much for an unsophisticated presidency to try to mend fences in the southern hemisphere. Why not anger everyone who will be supplying the marginal oil that the US will need pretty desperately in less than a decade? "We're imperious; you're the third world. We get to give you little lectures on Freedom and The Free Market, you get to ship us your crude."

While it is not impossible that this may be the right strategy for a secure US, more than a few foreign offices must be watching Washington with genuine puzzlement. Do the Americans really think that a policy aimed (unsuccessfully) at eradicating terrorists means the rest of the world will supply the US with its petroleum in gratitude?

It's going to be painful to live through, but the US is giving the world a pretty good object lesson on the futility of trying to dictate terms through intimidation and military force in a world that's becoming ever more fragmented, fluid, unconquerable and ungovernable, at an ever-accelerating pace. Bullies get what's coming to them, in the end.

The White House thought the US was the new Rome. They thought they could dominate the world's oil producers by purely military means. Ain't working out too well. For the near term, world oil markets will stay open to the highest bidder and oil will continue to be fungible. But who is to say markets won't begin to break down when the oil picture gets more desperate. Oil producers will have opportunities to exert leverage beyond just getting a good price. We're giving a lot of people a lot of reasons to look for payback.

Posted by Jonathan at 04:49 PM | Comments (1) | Link to this  

August 06, 2006

Peak Oil, Lebanon, and Iran

Iran  Palestine/Middle East  Peak Oil

I have always thought that Peak Oil is the Rosetta Stone of Bush/Cheney foreign policy. As I wrote a year and a half ago:

They believe Peak Oil's coming, and they mean to control the world's oil-producing regions before oil shortages get underway in earnest. Examine it from a Peak Oil perspective, and suddenly everything they're doing looks like part of a coherent (if misguided) overall game plan.

Juan Cole has a long post up today making the case (or at least examining its plausibility) that Israel's destruction of Lebanon is part of that Peak Oil game plan. Having occupied Iraq, the big prize that remains is Iran. Excerpts:

The wholesale destruction of all of Lebanon by Israel and the US Pentagon does not make any sense. Why bomb roads, roads, bridges, ports, fuel depots in Sunni and Christian areas that have nothing to do with Shiite Hizbullah in the deep south? And, why was Hizbullah's rocket capability so crucial that it provoked Israel to this orgy of destruction? [...]

Moreover, the Lebanese government elected last year was pro-American! Why risk causing it to fall by hitting the whole country so hard?

And, why was Condi Rice's reaction to the capture of two Israeli soldiers and Israel's wholesale destruction of little Lebanon that these were the "birth pangs" of the "New Middle East"?

Cole quotes a European reader of his who wrote:

When I was in Portugal I also watched a presentation by a guy who works for the ministry of energy in that country, a certain [JFR].

He started his presentation with the growing need for oil in China and India. He stressed that China wants to become the 'workshop' of the world and India the 'office' of the world. both economies contributed combined some 44% to world economy growth during 2001-2004. He compared the USA, Japan, India and China to giant whales constantly eating fish. They had no fish near them so they started to move. He explained that the Persian Gulf is the 'fish ground', the 'gas station' of the world. [...]

JFR explained to the astonished audience that Iran was the most valuable country on the planet. They have one of the biggest holdings of gas and oil reserves in the world. second in gas, second in oil. On top of that they have direct access to the Persian Gulf, the Arabian Sea and the Caspian Sea what makes them a potential platform for the distribution of oil and gas to South Asia, Europe and East Asia. JRF called Iran 'the prize'...

The disaster in Lebanon actually was also part of JFR's presentation. He explained that the US government is 100% convinced, fanatically and completely convinced, that both, Hamas and Hizballah are creatures of Iran and that Iran uses them to undermine US goals in the region...

The presentation got kind of freaky then. He said the US government wanted to stop state-controlled Iranian or Chinese (or Indian) companies from controlling the oil. JFR says the US Government is convinced that this battle will decide the future of the world. It sounded like he was talking about 'the one ring' in lord of the rings. he who controls Iran controls them all.' [Emphasis added]

It's often said that actually controlling the oil-producing countries is unnecessary since oil is a fungible commodity. Why do you need to control the oil fields if you can just buy oil on the open market? Cole:

[T]he "fungibility" (easy exchange) of oil is less important in the new environment than it used to be. US petroleum companies would like to go back to actually owning fields in the Middle East, since there are big profits to be made if you get to decide when you take it out of the ground. As Chinese and Indian competition for the increasingly scarce resource heats up, exclusive contracts will be struck. When I floated the fungibility of petroleum as a reason for which the Iraq War could not be only about oil, at a talk at Columbia's Earth Institute last year, Jeffrey Sachs surprised me by disagreeing with me. In our new environment, oil is becoming a commodity over which it really does make sense to fight for control. [...]

Jeffrey Sachs is right. Oil is fungible only after its out of the ground. The name of today's game is control of reserves, not markets. Example: china's deals in Latin America, US development of non-Nigerian African resource, etc." [Emphasis added]

I would add that the fungibility argument assumes orderly markets in a peaceful world. My guess is that Bush/Cheney et al have looked into their crystal ball and concluded that the oil-importing nations of the world are going to end up in a fight to the death for the oil that remains. When the world's at war, oil's fungibility doesn't count for much. (During WWII, for example, Germany couldn't just go out and buy the oil it needed. Lack of oil, as much as anything else, insured Germany's defeat.) Bush/Cheney may well have concluded that the US and China are on a collision course. Should it come to that, control of the world's oil will be decisive.

So Iran is the prize, and Lebanon is a preliminary bout. As I've noted before, Israel's pounding of Lebanon can be viewed as an effort to secure the Americans' flank in preparation for an attack on Iran. The threat on the flank was and is Hezbollah. Cole:

In the short term, Iran was protected by [an] ace in the hole. It had a client in the Levant, Lebanon's Hizbullah, and had given it a few silkworm rockets, which could theoretically hit Israeli nuclear and chemical facilities. Hizbullah increasingly organizes the Lebanese Shiites, and the Lebanese Shiites will in the next ten to twenty years emerge as a majority in Lebanon, giving Iran a commercial hub on the Mediterranean.

Cole doesn't seem to anticipate a US attack on Iran in the near term. Let's hope he's right, but the ferocity of Israel's assault certainly suggests that the US may already be starting to move. Cf. Condi's comments about "birth pangs" of a "New Middle East".

Some observers (see, for example, Xymphora) look at all this and say it's got nothing to do with oil: the Israelis, and their American neocon supporters, are pursuing their own agenda, trying to safeguard or enlarge Israeli power. But nothing is ever about just one thing. The Israelis have their own axe to grind; that doesn't mean it's only about Israel. Similarly, lots of private companies are making a fortune off of war; that doesn't mean it's only about profits. And so on.

How seriously you take the oil motivation ultimately depends on how seriously you take the implications of Peak Oil. Or, rather, it depends on how seriously you think Bush/Cheney (and the Pentagon, the CIA, etc.) take the implications of Peak Oil (and the likelihood of an eventual conflict with China). My guess is they take it very seriously indeed. Everything they've done, everything they're doing, points that way.

Posted by Jonathan at 05:45 PM | Comments (0) | Link to this  

August 05, 2006

Cantarell's Free Fall

Peak Oil

More on the sharp decline in output from Mexico's Cantarell oil field, the world's second largest producer. Bloomberg:

Mexican crude oil output at the nation's largest field, Cantarell, fell in June to the lowest in more than four years.

Cantarell, which accounts for half of Mexico's oil production, yielded 1.74 million barrels a day in June, a 13 percent decline from a year ago, according to data on the Energy Ministry's web site.

Petroleos Mexicanos, the country's oil monopoly, estimated this year Cantarell output would decline 6 percent this year to average 1.9 million barrels per day. [Emphasis added]

Sign of the times. Modern technology makes for efficient extraction, getting most of the toothpaste out of the tube, but it does such a good job of maintaining pressure that when the end comes, it comes suddenly. Remember this picture.

The US imports more oil from Mexico than from any other country but Canada. More than from Saudi Arabia.

Posted by Jonathan at 11:01 AM | Comments (0) | Link to this  

August 02, 2006

Will Carbon Sequestration Save Us?

Energy  Environment  Peak Oil

Oil's about to peak, but we've still got lots of coal, and coal, unfortunately, will become the path of least resistance. All that coal means lots more carbon in the atmosphere. Unless we can bury the CO2, permanently — so-called carbon sequestration.

Is carbon sequestration the answer? TreeHugger quotes Tim Flannery's book The Weather Makers:

For every tonne of anthracite [coal] burned, 3.7 tonnes of CO2 is generated. If this voluminous waste could be pumped back into the ground below the power station it would not matter as much, but the rocks that produce coal are not often useful for storing CO2, which means that the gas much be transported. In the case of Australia's Hunter Valley coal mines, for example, it needs to be conveyed over Australia's Great Dividing Range and hundreds of kilometres to the west.

Once the CO2 arrives at its destination it must be compressed into a liquid so it can be injected into the ground — a step that typically consumes 20 per cent of the energy yielded by burning coal in the first place. Then a kilometre-deep hole must be drilled and the CO2 injected. From that day on, the geological formation must be closely monitored; should the gas ever escape, it has the potential to kill.

The largest recent disaster caused by CO2 occurred in 1986, in Cameroon, central Africa. A volcanic crater-lake known as Nyos belched bubbles of CO2 into the still night air and the gas settled around the lake's shore, where it killed 1800 people and countless thousands of animals.

Earth's crust is not a purpose-built vessel for holding CO2, and the storage must last thousands of years so the risk of leak must be taken seriously.

Even the volume of CO2 generated by a sparsely populated country such as Australia beggars belief. Imagine a pile of 200-litre drums, ten kilometres long and five across, stacked ten drums high. Even when compressed to liquid form, that daily output would take up a cubic kilometre, and Australia accounts for less than 2 per cent of global emissions! Imagine injecting 50 cubic kilometre of liquid CO2 into the Earth's crust every day of the year for the next century or two.

If geosequestration were to be practised on the scale needed to offset all the emissions from coal, the world would very quickly run out of A-grade reservoirs near power stations and, especially if the power companies are not liable for damages resulting from leaks, pressure would be on to utilise B, C, D and E grade reservoirs.

As always when it comes to world energy usage, the fundamental issue is a question of scale. 50 cubic kilometers a day, every day, 'til the coal runs out. And it's got to stay buried. What are the chances?

Posted by Jonathan at 11:34 PM | Comments (0) | Link to this  

July 31, 2006

Chicago Trib: Twilight Of The Oil Age

Peak Oil

Chicago Tribune reporter Paul Salopek has put together a monumental special report and documentary video on the "twilight of the oil age."

I watched some of the documentary over the weekend and liked it. Salopek has done his homework. Check it out.

Posted by Jonathan at 09:55 PM | Comments (1) | Link to this  

July 24, 2006

Cantarell's Steep Decline

Peak Oil

Grim news. Mexico's Cantarell oil field, the world's second largest producer, is apparently in free fall. LA Times:

Output at Mexico's most important oil field has fallen steeply this year, raising fears that wells there that generate 60% of the country's petroleum are in the throes of a major decline.

Production at Cantarell, the world's second-largest oil complex, in the shallow gulf waters off the shore of Mexico's southern Campeche state, averaged just over 1.8 million barrels a day in May, according to the most recent government figures. That's a 7% drop from the first of the year and the lowest monthly output since July 2005, when Hurricane Emily forced the evacuation of thousands of oil workers from the region.

Though analysts have long forecast the withering of this mature field, a rapid demise would pose serious challenges for the world's No. 5 oil producer. The oil field has supplied the bulk of Mexico's oil riches for the last quarter of a century, and petroleum revenue funds more than a third of federal spending.

"Cantarell is going to fall a lot, and quickly," said independent consultant Guillermo Cruz Dominguez Vargas, a former executive with Mexico's state-owned oil monopoly, Petroleos Mexicanos, known as Pemex. "I can't imagine the strain on this society if there is nothing to replace it."

It would also be bad news for the United States, for which Mexico is the No. 2 petroleum supplier, behind Canada. And it could exacerbate tight global supplies that have kept oil at record prices. [...]

Exceeded in size only by Saudi Arabia's leviathan Ghawar field, Cantarell is a prolific giant that is past its prime. Monthly production peaked in late 2004 at just over 2.1 million barrels a day and has fallen more than 15% since then. Experts agree it has nowhere to go but down. [...]

Seawater is threatening to swamp the wells of Cantarell as the field's pressure diminishes, a debilitating symptom of old age that makes it tougher to extract the remaining oil. Leaked internal reports of Pemex's own worst-case scenarios published in Mexican newspapers show production plummeting to about 520,000 barrels a day by the end of 2008 — a 71% free-fall from May levels in less than three years.

Mexico City energy analyst David Shields said the swift drop over the first five months of 2006, and conversations with Pemex insiders have convinced him that prospects at Cantarell are worse than officials will admit publicly. June figures for the field won't be available until later this month. But Mexico's overall crude production fell in June, the third straight monthly decline, making it unlikely that Cantarell staged a revival.

"It's doing very badly," said Shields, general manager of Energia a Debate, an industry trade publication, and the author of two books on Pemex. "My reading of the situation is that it's dire." [Emphasis added]

Sign of the times. Producers have every incentive to hide their problems until they cannot be hidden any longer. As a result, declines, when they come, will tend to come suddenly and precipitously. In other words, we are almost certainly in worse trouble than we know. How long before we get similar news from Ghawar?

Posted by Jonathan at 10:42 PM | Comments (0) | Link to this  

Oil Back Above $75

Energy  Peak Oil

Oil's back above $75 a barrel — $75.16 as I write this.

Posted by Jonathan at 03:45 PM | Comments (0) | Link to this  

July 22, 2006

Not A Domino

9/11, "War On Terror"  Iraq  Palestine/Middle East  Peak Oil

The following was written a year and a half ago, but it is, if anything, more timely today with the war widening. Jeff Wells:

The Mosul bombing likely has some Americans thinking, as they do only when the media reports a mass US casualty event, that Iraq could be Vietnam redux. I wish they'd stop that; this is no time for vainglorious optimism. Iraq is much worse.

It's not just about the clicking of the casualty counter, though it did take the better part of a decade for American casualties in Vietnam to reach the level of "sustainable losses" the US military is now taking in Iraq. [...]

We need to remember that Vietnam was a "domino." It was a piece in a geopolitical game, and not a very important one at that. Vietnam [lay] on the fringe of America's sphere of interest. And still it took 58,000 American and millions of Vietnamese lives before it was over. [...]

Iraq will never be over, because it's not a domino. Dominating the diminishing oil reserves of the Middle East is not a sideshow; it is the essence of US strategic interest. We're talking about the centerpiece of empire in the New American Century. So this war — and it will not be contained to Iraq — will not be over until the American Empire falls.

Iraq is not Vietnam, because the war won't end with a dash for the helicopter on the roof of the Baghdad embassy. It will end with a dash for Marine One on the grounds of the White House. [Emphasis added]

Dick Cheney, yesterday:

This conflict is a long way from over. It's going to be a battle that will last for a very long time. It is absolutely essential that we stay the course.

I didn't sign up for this. Did you?

Posted by Jonathan at 06:07 PM | Comments (0) | Link to this  

July 21, 2006

1500 Days

Peak Oil

ASPO, the Association for the Study of Peak Oil and Gas, is holding its annual conference. Here's an account of remarks by Chris Skrebowski, editor of Petroleum Review, former editor of Petroleum Economics. Skrebowski used to argue against Peak Oil. No longer. From the ASPO-5 blog:

"We have 1,500 days until peak and tomorrow we'll have one day less," Chris Skrebowski, the editor of Petroleum Review, told the ASPO-5 crowd today. Skrebowski's projections, which focus on oil flows instead of reserves, has the world peaking at between 92 and 94 million barrels per day. Unfortunately, he said, "collectively we're still in denial."

It's a tricky job to work up reliable projections, Skrebowski explained. "Decoding IEA statistics is like decoding the Da Vinci code." Complicating the matter is the overwhelming tendency among industry and government officials to propagate optimistic scenarios. "We've deceived ourselves, albeit with good intentions, but with disastrous results." The key he said is to examine what oil producers "are doing, not what the chairmen and CEOs are saying."

Skrebowski said the idea of peak oil is straightforward: "It's real, it's imminent and it's going to be unpleasant." Known for his detailed "Megaprojects" report that looks at new oil fields coming on line, Skrebowski emphasized the importance of focusing on oil "flows" rather than underground stocks or reserves. "If you go down to fill up your car and were told to come back six hours later — or a month later — you get a sense for the problem. Reserves are only important when we can turn them into flows. Otherwise they are just an academic concept. The fact that huge amounts can be produced over time doesn't mean it can meet the flow needs today."

Skrebowski joins a growing group that sees the peak occurring earlier than later. "It can't be far off," he said. And the consequences couldn't be more profound. "We've built are entire society around oil. Everything depends on cheap and plentiful oil. We will have to change everything we do."

The massive jump of oil prices since 2002 corroborates the emerging reality of tightening supplies, Skrebowski said. "What is the price telling us? Desperately it's saying 'send us more oil.' That's what economics does."

But new supplies aren't coming forth, he said. Nor is demand being appreciatively destroyed. "Neither is working. New supplies are not coming on line and demand is not falling, with the exception of the third world, which is getting priced out of the market. It just hasn't hit us yet."

Ultimately, though, demand destruction will hit the industrial economies because hopes for boosting production are long gone. "We're not finding it fast enough, the fields are old and weary, we've fired too many people in the industry, and costs are going through the roof," he said. [...]

He dismisses optimistic projections from organizations such as Cambridge Energy Associates (CERA) as "utter tosh."

Skrebowski says that mitigation efforts won't affect the peak date by much — a few months or a year at the most. Oil-producing countries, for example, could decide to divert more supplies to domestic consumption, tightening the price noose on industrialized nations. "It's an exquisite form of torturing us." And the result could lead to an interesting sight: "SUVs on the streets of Mexico and Smart Cars in Houston." [Emphasis added]

Skrebowski's point about flows is crucial. All the reserves in the world won't do you any good if you can't get it out of the ground fast enough. That's the mistake the people who think Canadian oil sands will save us make.

1500 days is not a lot of time. Tomorrow it'll be one day less. There's nothing that can happen in that kind of time frame that will postpone peak enough to matter. We can't postpone peak, but we can mitigate the post-peak impact. We need to do what we can. We'll be living in a post-peak world for a long, long time.

We have a choice to make. We can fight over the oil that's left; we can sell it to the highest bidder; or the nations of the world can voluntarily agree to reduce consumption by at least the worldwide depletion rate, roughly 2.5% per year. The latter approach is called the Oil Depletion Protocol. More on that in a future post.

Posted by Jonathan at 12:33 AM | Comments (0) | Link to this  

July 13, 2006

Oil Price Sets Another Record

Peak Oil

As I write this, oil has soared to $76.30 a barrel — a price we will someday soon look back on with nostalgia.

Update [2:23 PM CDT] - Make that $76.65.

Update [4:55 PM] - $77.40.

Update [5:06 PM] - $77.50.

Update [5:13 PM] - $77.90. Yikes.

Update [5:29 PM] - $78.12.

Posted by Jonathan at 10:21 AM | Comments (1) | Link to this  

July 11, 2006

Bio Jet Fuel

Peak Oil

DARPA sees which way the wind's blowing. They've put out a request for R&D proposals to try to find a way to produce military jet fuel from non-petroleum sources. Excerpt from the RFP:

The Defense Advanced Research Projects Agencys (DARPA) Advanced Technology Office (ATO) is soliciting proposals...for BioFuels.

The Defense Department has been directed to explore a wide range of energy alternatives and fuel efficiency efforts in a bid to reduce the military's reliance on oil to power its aircraft, ground vehicles and non-nuclear ships. DARPA is interested in proposals for research and development efforts to develop a process that efficiently produces a surrogate for petroleum based military jet fuel (JP-8) from oil-rich crops produced by either agriculture or aquaculture (including but not limited to plants, algae, fungi, and bacteria) and which ultimately can be an affordable alternative to petroleum-derived JP-8. Current commercial processes for producing biodiesel yield a fuel that is unsuitable for military applications, which require higher energy density and a wide operating temperature range. [...]

The goal of the BioFuels program is to enable an affordable alternative to petroleum-derived JP-8. The primary technical objective of the BioFuels program is to achieve a 60% (or greater) conversion efficiency, by energy content, of crop oil to JP-8 surrogate and elucidate a path to 90% conversion. Proposers are encouraged to consider process paths that minimize the use of external energy sources, which are adaptable to a range or blend of feedstock crop oils, and which produce process by-products that have ancillary manufacturing or industrial value. Current biodiesel alternative fuels are produced by transesterification of triglycerides extracted from agricultural crop oils. This process, while highly efficient, yields a blend of methyl esters (biodiesel) that is 25% lower in energy density than JP-8 and exhibits unacceptable cold-flow features at the lower extreme of the required JP-8 operating regime (-50F). The focus of this program is to develop alternative or additional process technologies to efficiently produce an acceptable JP-8 surrogate fuel. Potential approaches may include thermal, catalytic, or enzymatic technologies or combinations of these. It is anticipated that the key technology developments needed to obtain the program goal will result from a cross-disciplinary approach spanning the fields of process chemistry and engineering, materials engineering, biotechnology, and propulsion system engineering. The key challenges are to develop and optimize process technologies to obtain a maximum conversion of crop oil to fuel. The resulting product should comply with current aviation fuel specifications and standards. [Emphasis added]

When push comes to shove and oil shortages get underway in earnest, the military will surely be in a position to push its way to the front of the line. Evidently, they anticipate that being first in line may not be good enough.

Handwriting on the wall.

Posted by Jonathan at 09:39 PM | Comments (1) | Link to this  

July 10, 2006

Noxal Not A Major Find After All

Peak Oil

In March, there were reports that Mexico had discovered an offshore oil field with a potential yield of 10 billion barrels. Finds of that size are very rare these days. But what's that they say about things that seem too good to be true?

Oil & Gas Journal reports (via Oil Drum) that the supposed major oil find has turned out to be a "modest" natural gas find instead:

Noxal-1, a deepwater Gulf of Mexico well trumpeted in March by Mexican President Vicente Fox as being a major oil discovery, appears [instead] to be a modest gas find.

Speaking on Mar. 14 from the drilling rig in 935 m of water 63 miles off Coatzacoalcos, Fox said the then as-yet-untested well had the potential to produce 10 billion bbl of oil.

However, after the well operated by state-owned Petroleos Mexicanos reached a total depth of 4,000 m, the fourth interval tested has flowed 9 MMcfd of gas from a reserve estimated at 245 bcf, said IHS Energy, Houston. [Emphasis added]

One of the facts of life in a Peak Oil world is that the big oil fields have all been discovered. What remains are small fields in places where the oil is more expensive to extract. Get used to it.

Posted by Jonathan at 10:49 PM | Comments (0) | Link to this  

July 08, 2006

Oil Sands Production Costs Skyrocket

Peak Oil

One of the facts of life in a Peak Oil world is that the cheap oil has mostly all been pumped. What's left is oil that's going to be increasingly expensive to extract. Take Canadian oil sands. People who see our salvation there don't understand what it's going to cost.

Al Gore puts it starkly in an interview with Rolling Stone:

For every barrel of oil they extract there, they have to use enough natural gas to heat a family's home for four days.

And they have to tear up four tons of landscape, all for one barrel of oil. It is truly nuts. But you know, junkies find veins in their toes. It seems reasonable, to them, because they've lost sight of the rest of their lives.

Now it looks like oil sands are going to be a whole lot more expensive than people thought. Edmonton Journal (via Oil Drum):

Fears that cost pressures have spiralled out of control in the northern Alberta oilsands spooked investors Thursday in the wake of news that Shell Canada's Athabasca oilsands project could potentially pay upwards of $11 billion to generate an extra 100,000 barrels of oil a day.

Even in an industry that has seen its share of multibillion-dollar cost overruns to build megaprojects, word that Athabasca's first major expansion could cost 50 per cent higher than the current $7.3 billion pricetag hit oilsands producers hard on the stock market.

Bob Gillon, an energy analyst with John S Herold in Connecticut, said the Athabasca expansion would now cost six times what the original project did, on a daily flowing barrel basis.

"It's not a knock on Shell or this project, everybody's facing it," Gillon said in an interview Thursday.

"But my Lord in heaven. If you're talking about something that cost you six times as much as it did six or eight years ago, even with the move we've had in oil prices, we're getting these things back to where the economics...are going to get skinny in a hurry." [...]

Gillon said at $11 billion, the company is paying twice as much for 100,000 barrels of oilsands crude as it would by buying conventional production.

"Now, it lasts forever and it doesn't decline, and supposedly once you get it running you don't have the maintenance capital to stay in position. But that's not so sure either — sometimes they break, they catch fire."

Gillon said the dramatic cost escalations could ultimately put an end to oilsands companies drawing the largest investment dollars in the energy industry.

A long list of new projects that have not yet begun development might be dropped off the list, said Gillon. [...]

The Athabasca announcement sent shock waves through the market Thursday, affecting other oilsands producers and those currently involved in building new projects. [Emphasis added]

Oil sands production will continue. We addicts need our fix. But this is an early indication that rosy projections about technological supply-side fixes to what is at bottom a demand-side problem need to be treated skeptically. Junkies are experts at denial. And they get everything wrong.

On the bright side, higher oil prices may help us on the global warming front, pushing people to conserve and move to non-carbon-based energy alternatives. One can hope, anyway. Or is that just more denial?

Posted by Jonathan at 05:18 PM | Comments (0) | Link to this  

July 05, 2006

Oil Price Sets Another New Record

Peak Oil

Oil topped $75 a barrel today, setting a new record. Reuters:

Oil closed at a record high above $75 a barrel Wednesday on strong U.S. demand and ongoing tensions over Iran's nuclear program.

U.S. crude closed $1.26 higher at $75.19 a barrel after hitting a record $75.40 a barrel trading high earlier Wednesday. The market was was closed Monday and Tuesday for the Independence Day holiday. London Brent crude was up $1.52 at $74.03.

The previous record close was on April 21, 2006.

Prices will continue to zig-zag higher. Demand is growing, supply isn't. Econ 101.

Posted by Jonathan at 08:06 PM | Comments (0) | Link to this  

June 24, 2006

Bill Clinton On Peak Oil

Peak Oil

From Straight Talk, via Oil Drum, a warning from Bill Clinton on Peak Oil:

Former U.S. president Bill Clinton has urged newspaper editors to focus more attention on the depletion of the world's oil reserves. In a June 17 speech to the Association of Alternative Newsweeklies convention in Little Rock, Arkansas, Clinton said a "significant number of petroleum geologists" have warned that the world could be nearing the peak in oil production.

Clinton suggested that at current consumption rates (now more than 30 billion barrels per year, according to the International Energy Agency), the world could be out of "recoverable oil" in 35 to 50 years, elevating the risk of "resource-based wars of all kinds."

During a question-and-answer period, the Georgia Straight asked Clinton if he believed that Saudi Arabia, Iran, Kuwait, and United Arab Emirates had exaggerated claims about their proven oil reserves. The four Persian Gulf states are among the six nations with the greatest listed proven reserves. (Canada and Iraq are the other two.)

"I don’t know if they're overstating their reserves," Clinton replied. He added that he expects oil prices will reach US$100 per barrel "in five years or less." [...]

At the AAN convention, Clinton delivered a detailed scientific explanation of some of the problems with the Ghawar oil reservoir [in Saudi Arabia, the world's largest]. Clinton echoed [Matthew] Simmons's claim that massive amounts of water have been injected into Ghawar to maintain oil pressure. "It implies less oil than we previously thought," Clinton said.

Clinton also recommended that everyone at the convention read The Empty Tank: Oil, Gas, Hot Air, and the Coming Global Financial Catastrophe, by Jeremy Leggett, a petroleum geologist and international campaigner for Greenpeace...Clinton also emphasized the importance of developing the alternative-energy industry and weaning his country off its dependence on imported oil. He claimed that promoting renewable power would also stimulate the American economy.

"Unlike us, the U.K. has found a source of new jobs in this decade," he said, referring to the Blair government's efforts in this area. "The implications are dire if we don't do something." [Emhpasis added]

Somebody tell Dubya.

Posted by Jonathan at 08:36 PM | Comments (0) | Link to this  

June 10, 2006

Oil Sands To The Rescue — Not

Peak Oil

Peak Oil optimists often point to Canadian oil sands as the deus ex machina that will save us. A new academic study from Uppsala University, Sweden, however, concludes that even a crash program to develop Canadian oil sands will cover only a few percent of the world's oil needs. Here's the abstract from the full paper:

The report Peaking of World Oil Production: Impacts, Mitigation and Risk Management, by Robert L. Hirsch et al., concludes that Peak Oil is going to happen and that worldwide large-scale mitigation efforts are necessary to avoid its possible devastating effects for the world economy. These efforts include accelerated production, referred to as crash program production, from Canada's oil sands. The objective of this article is to investigate and analyse what production levels that might be reasonable to expect from a crash program for the Canadian oil sands industry, within the time frame 2006-2018 and 2006-2050. The implementation of a crash program for the Canadian oil sands industry is associated with serious difficulties. There is not a large enough supply of natural gas to support a future Canadian oil sands industry with today's dependence on natural gas. It is possible to use bitumen as fuel and for upgrading, although it seems to be incompatible with Canada's obligations under the Kyoto treaty. For practical long-term high production, Canada must construct nuclear facilities to generate energy for the in situ projects. Even in a very optimistic scenario Canada's oil sands will not prevent Peak Oil. A short-term crash program from the Canadian oil sands industry achieves about 3.6 mb/d by 2018. A long-term Crash program results in a production of approximately 5 mb/d by 2030. [Emphasis added]

People read estimates of the total amount of oil contained in Canadian oil sands and say, wow, it's another Saudi Arabia. The important question, though, is not how much total oil the oil sands contain, but how quickly it can be turned into usable oil. Answer: nowhere near quickly enough to offset declines in conventional production elsewhere or the rapid growth in worldwide demand. The fundamental problem is the colossal scale of the world's appetite for oil. Next to that, non-conventional oil is a drop in the bucket. Instead of hoping for new sources of supply, we need to concentrate on reducing demand. We have to learn to use less oil — much less.

Posted by Jonathan at 08:38 PM | Comments (0) | Link to this  

May 28, 2006

The Suburban Fantasy

Peak Oil

James Howard Kunstler on TomPaine.com:

It's actually kind of funny to hear Americans complain these days about the cost of gasoline and how it is affecting their lives. What did they expect after setting up an easy-motoring utopia of suburban metroplexes that make incessant driving inevitable? And how did they fail to register the basic facts of the world oil situation, which have been available to us for decades?

Those facts are as follows: oil fields follow a simple pattern of production and depletion along a bell curve. Universally, when an oil field gets close to half the amount of oil it originally possessed, production peaks and then declines. This is true for all oil fields in the aggregate, for a nation and even the world.

In the United States, oil production peaked in 1970 and has been declining ever since. We extracted about 10 million barrels a day in 1970 and just under 5 million barrels a day now. Because our consumption has only increased steadily, we’ve made up for the shortfall by importing oil from other countries.

There is now powerful evidence in the production figures worldwide that we have reached global peak oil production. The collective nations of the earth will not make up for this by importing oil from other planets.

Contrary to a faction of wishful thinkers, the earth does not have a creamy nougat center of oil. Oil fields do not replenish themselves. Also contrary to the prevailing wish, no combination of alternative fuels will allow us to keep running the interstate highway system, Wal-Mart, Walt Disney World and the other furnishings of what Dick Cheney called our "non-negotiable way of life."

People who refuse to negotiate with the circumstances that the world throws at them automatically get assigned a new negotiating partner: reality. Reality then requires you to change your behavior, whether you like it or not. With global oil production peaking, we are now subject to rising oil prices, as markets are forced to contend with allocating a resource heading in the direction of scarcity. Oil prices are only likely to go higher — though there is apt to be a ratcheting effect as high oil prices depress economic activity and thus dampen demand for oil which will depress prices leading to increased consumption which will then kick prices back up, and so on. The prospects for more geopolitical friction over oil also self-evidently increase, as industrial nations desperately maneuver for supplies.

Mainly though, the danger lies in the resulting instability of the super-sized complex systems that we depend on daily.

Trouble with oil will spell huge problems with how we grow our food, how we conduct trade, how we move around and how we inhabit the terrain of North America. These systems are going to wobble and eventually fail unless some effort is made to reform their scale and their procedures. For example, Wal-Mart's profit margins will disappear as higher diesel fuel prices hit its "warehouse-on-wheels."

Now, in the face of this, you'd think that the national leadership in politics, business and science would prepare the public for substantial necessary changes in the way we do things. What we are seeing across the board, though, is merely a desperate wish to keep the cars running by any conceivable means, at all costs. That is the sole target of our focus. Our leaders don't get it. We citizens have to make other arrangements.

We simply cannot face the fact that time has run out — that our lease is expiring — for the easy-motoring utopia. But we must. We have to live differently. We're going to have to re-inhabit and reconstruct our civic places — especially our small towns — and we're going to have to use the remaining rural places for growing food locally, wherever possible. Our big cities will probably contract, while they densify at their centers and along their waterfronts. Our suburbs will enter a shocking state of economic and practical failure.

We cannot imagine this scenario because we have invested so much of our collective wealth the past 50 years in the infrastructure for a way of life that simply has no future.

We'd better start paying attention to the signals that reality is sending or we will be living in a very violent, impoverished and demoralized nation. And we have to begin somewhere, which is why I suggest we start by rebuilding the national passenger railroad system. It would have a significant impact on our oil use. It would put a lot of people to work on something meaningful and beneficial to all ranks of American society. The equipment is lying out there rusting in the rain, waiting to be fixed. We don't have to re-invent anything to do it.

The fact that we are not even talking about such solutions shows how unserious we are. [Emphasis added]

It really is remarkable how little grownup discussion there is of these issues by our national leadership. Are we a nation of children, after all?

Posted by Jonathan at 11:43 AM | Comments (2) | Link to this  

May 20, 2006

Peak Food

Environment  Future  Peak Oil

The world is eating grains faster than farmers can grow them, and the problem is only going to get worse, with rising oil prices and global climate change both playing a significant part. CommonDreams:

The world is now eating more food than farmers grow, pushing global grain stocks to their lowest level in 30 years. Rising population, water shortages, climate change, and the growing costs of fossil fuel-based fertilisers point to a calamitous shortfall in the world's grain supplies in the near future, according to Canada's National Farmers Union (NFU).

Thirty years ago, the oceans were teeming with fish, but today more people rely on farmers to produce their food than ever before, says Stewart Wells, NFU's president.

In five of the last six years, global population ate significantly more grains than farmers produced.

And with the world's farmers unable to increase food production, policymakers must address the "massive challenges to the ability of humanity to continue to feed its growing numbers", Wells said in a statement.

There isn't much land left on the planet that can be converted into new food-producing areas, notes Lester Brown, president of the Earth Policy Institute, a Washington-based non-governmental organisation. And what is left is of generally poor quality or likely to turn into dust bowls if heavily exploited, Brown told IPS.

Unlike the Green Revolution in the 1960s, when improved strains of wheat, rice, maize and other cereals dramatically boosted global food production, there are no technological magic bullets waiting in the wings.

"Biotechnology has made little difference so far," he said.

Even if the long-promised biotech advances in drought, cold, and disease-resistance come about in the next decade, they will boost yields little more than five percent globally, Brown said.

"There's not nearly enough discussion about how people will be fed 20 years from now," he said.

Hunger is already a stark and painful reality for more than 850 million people, including 300 million children. How can the number of hungry not explode when one, two and possibly three billion more people are added to the global population?

The global food system needs fixing and fast, says Darrin Qualman, NFU's research director.

"Many Canadian and U.S. farmers are going out of business because crop prices are at their lowest in nearly 100 years," Qualman said in an interview. "Farmers are told overproduction is to blame for the low prices they've been forced to accept in recent years."

However, most North American agribusiness corporations posted record profits in 2004. With only five major companies controlling the global grain market, there is a massive imbalance of power, he said.

"The food production system is designed to generate profits, not produce food or nutrition for people," Qualman told IPS. [...]

Shifting from a global food production system to local food for local people would go a long way towards addressing inequity, Qualman believes.

"The 100-mile diet, where people obtain their food from within a 100-mile radius of their homes, makes good sense for most of the world," he said.

The whole fabric of the food production system needs to change, or hunger and malnutrition will only get much worse.

"North America's industrial-style agricultural system is a really bad idea and maybe the worst on the planet," Qualman concluded. [Emphasis added]

And people want to take a big chunk of the grain harvest and burn it (turning it into ethanol for that purpose). What's wrong with this picture?

Posted by Jonathan at 06:18 PM | Comments (1) | Link to this  

May 18, 2006

Good News, Bad News

Future  Peak Oil  Science/Technology

On Point radio had an interesting show yesterday about tiny, high-mileage cars, some electric, some not. If you go to their page, you can see a gallery of photos. Some of them are concept cars, but others are already on the road.

The stackable cars are especially cool. The idea is that people would use them kind of like you use luggage carts at the airport. You use it, then put it back in the queue for someone else. The cars are electric, and recharge while they're waiting in the queue. A car is returned at the end of the queue (these queues would be positioned at strategic places around the city), and by the time it reaches the front it's had a chance to charge up. If you go look at the photo, it'll be clearer what I'm talking about. To deal with the fact that people like their cars to have some individuality, the inventors are thinking of giving the car a means of recognizing you, so it could set up various features the way you like them. The car could have your radio station settings, for example, or your iTunes. They're for city use, obviously, but it shows people are thinking innovatively.

Cause for some optimism, but this post at the Oil Drum puts things in a rather bleaker perspective. It describes the author's ongoing car trip cross country from Boulder to Pittsburgh. Everybody's speeding (which of course kills their fuel efficiency), there's exurban and suburban sprawl and traffic jams surrounding every city, the highways themselves are in rough shape. All in all, no signs yet of meaningful change out there on America's highways. And given the long lead times needed to make changes on the required scale, it's not looking good.

Posted by Jonathan at 11:40 PM | Comments (0) | Link to this  

May 17, 2006

The Inelasticity Of Supply

Peak Oil

The cornucopian economists assure us that when oil prices rise, more oil will get pumped out of the ground. Policy Pete begs to differ. Consider the following graph:

Policy Pete explains:

OK, superimpose over the above a second mental chart showing crude oil prices. (Hint, two spikes on either side centered on 1980 and 2005 and a deep valley in the middle). Now go back to the long production slide and decide whether the dual peaks, which made a tremendous difference to lots of non-petroleum things in the world, made any difference at all to US oil production. Answer: they didn't. The market was willing to reward marginal increments in domestic production up the wazoo, but no amount of revenue and profit, big or small, made any perceptible difference in US production. [...]

Message to Congress: with near zero supply elasticity, it makes no sense to let the domestic oil patch capture all the oil rents. Those funds are needed elsewhere: no, not as a sop to the people to pay for a couple of fill-ups just before the election...They should be recaptured and redirected in a massive way toward the first phase of The Transition Away From Petroleum. [Emphasis added]

That's quite a graph. Remember it. The price spike around 1980 was huge — prices were actually much higher then, adjusted for inflation, than prices today — and it lasted for several years. As you can see from the graph above, the effect on US output was negligible: no amount of money will put more oil in the ground.

People want to believe that rising prices will magically cause supply to increase so they can keep doing what they're doing now, painlessly. It's not going to happen. We have to learn to use less oil. Period.

Posted by Jonathan at 10:10 PM | Comments (0) | Link to this  

May 15, 2006

Big-System Hysteresis

Environment  Essays  Peak Oil

I've just started reading Elizabeth Kolbert's global warming book Field Notes From a Catastrophe (excellent so far), and I came across this arresting passage:

The effect of adding CO2 to the atmosphere is to throw the earth out of "energy balance." In order for the balance to be restored — as, according to the laws of physics, it eventually must be — the entire planet has to heat up, including the oceans, a process, [a panel of scientists from the National Academy of Sciences] noted, that could take "several decades." Thus, what might seem like the most conservative approach — waiting for evidence of warming to make sure the models were accurate — actually amounted to the riskiest possible strategy: "We may not be given a warning until the CO2 loading is such that an appreciable climate change is inevitable." [Emphasis added]

The fundamental problem is the scale of the Earth's global climate system. Because it's huge, it moves slowly. It has built-in time lags — what scientists and engineers call hysteresis — that mean that by the time global warming effects become pronounced the system is already in a critical phase. Effects are delayed, but when they begin, the transition to a new equilibrium is likely to be quite sudden. This is especially true of the climate system because of the suddenness of phase changes — e.g., ice to water.

It has taken a long time to get this enormous ocean liner moving on its current course, and it will take a long time to turn it around. The time to start easing off the throttle is long before the icebergs come into view. When Bush et al talk about the jury still being out on global warming and about the need to wait until it's obvious to everyone that the problem is serious and human activity is the cause (as if we don't know that already), he is like the captain of the Titanic, barreling full tilt through the icy North Atlantic. The downside of slowing down would have been nothing compared to the downside of hitting an iceberg and sinking. And we know how that turned out.

Roughly analogous considerations apply to peak oil. Many of the same people who downplay the seriousness and urgency of the global warming threat blithely assert that when oil gets scarce, rising prices will naturally prompt people to conserve and develop alternatives.

But again the problem is the scale of the system and its built-in time lags. Shrinking below-ground reserves don't cause oil prices to go higher. Prices depend on how much oil is coming out of the spigot. Prices won't go substantially higher until the below-ground situation has become so critical that oil can no longer be pumped out of the ground fast enough: i.e., price signals, when they come, will come too late. Switching to new energy technologies in transportation will take years, no matter what. The time to ease off the throttle is now. As with global warming, the seemingly conservative wait-and-see approach is actually the riskiest strategy possible. The cost of showing some self-restraint now will be nothing compared to the cost of letting the system crash.

Posted by Jonathan at 09:46 PM | Comments (1) | Link to this  

May 13, 2006

A Plug For Big Gav

Peak Oil

Just a short note to plug the blog Peak Energy by an Australian who goes by the nom de web "Big Gav." He links to all kinds of stuff, not just peak energy related material, and I never fail to learn something interesting when I go there. Check it out.

Posted by Jonathan at 07:24 PM | Comments (0) | Link to this  

May 01, 2006

Peak Means Peak

Peak Oil

People always get fooled by peaks (stock market peaks, for example) because peaks are, by definition, the points when things look the rosiest. Peak oil is no exception. At the peak in world oil production, the world will have more oil than ever before — or ever again. By the standards of other eras, the world will be swimming in oil, and all that oil will translate into an enormous amount of economic activity. Everyone will be bullish, and when the downhill slide begins, everyone will be surprised. James Kunstler:

[I]t seems to me that what we are seeing now in financial and commodity markets, and in the greater economic system itself, is exactly what we ought to expect of peak oil conditions: peak activity.

After all, peak is the point where the world is producing the most oil it will ever produce, even while it is also the inflection point where big trouble is apt to begin. And this massive quantity of oil induces a massive amount of work, land development, industrial activity, commercial production, and motor transport. So we shouldn't be surprised that there is a lot happening, that houses and highways are still being built, that TVs are pouring out of the Chinese factories, commuters are still whizzing around the DC Beltway, that obese children still have plenty of microwavable melted cheese pockets to zap for their exhausting sessions with Grand Theft Auto.

But in the peak oil situation the world is like a banquet just before the tablecloth is pulled out from under it. There is plenty on the table, but it is about to be overturned, spilled, lost, and broken. There's more oil available then ever before, but also so many people at the banquet table clamoring for it that there is barely enough to go around, and the people may knock some things over trying to get it.

A correspondent in Texas writes: "On a four week running average basis, total US petroleum imports (crude + products) have been falling since 2/24/06, until last week, when we finally showed an increase of 1.3 percent, after bidding the price of oil up by about 20 percent. IMO, we bid the price up enough to (temporarily) increase our imports. We will see what subsequent weeks show, but I think that we are in the early stages of a bidding war for remaining net export capacity. The interesting question is what countries may not be importing because they can't afford the oil." [Emphasis added]

Obviously, oil production cannot increase forever. Peak is not a question of if, it's a question of when. Oil production will grow until it can't any more, and then it will shrink. We're like the Titanic's passengers, who thought their ship was unsinkable, right up until the moment when it sank.

Posted by Jonathan at 11:38 AM | Comments (0) | Link to this  

April 27, 2006

Oil Drum To Politicians: Get A Clue

Peak Oil  Politics

The political posturing — on both sides of the aisle — in response to rising oil/gas prices is both disheartening and disgusting. Politicians of both parties seem to think the answer is to scapegoat oil companies with a lot of blather about price gouging and oil company profits. Yes, oil profits are obscenely large, but they are effect, not cause, of high oil prices. American oil companies control neither the futures markets nor the rate of oil production in Saudi Arabia and elsewhere. Apparently, almost no one in Washington understands where oil comes from.

The Oil Drum has written an important press release on this topic. It's so good I'm just going to quote it at length:

We strongly feel that the leaders of both political parties are not only headed in the wrong direction with respect to gas prices, but we also worry that they fundamentally misunderstand the factors behind the current situation at gasoline stations around the US. Public statements by political figures over the past several days would seem to suggest that oil companies and their record profits are the sole factor determining the price of gasoline. Not only is this untrue, but it is dangerous to give the American people the impression that only oil companies are to blame. The American people need to understand that the phenomenon of high gas prices cannot be attributed to a single source. They also need to understand that no one political party will be able to fix our current woes.

The major factor that determines gas prices is the price of crude oil from which gasoline is derived. When crude oil prices are high, so are gas prices. The following are just a few factors that affect the price of a barrel of oil:

1. Oil companies do not single-handedly determine the price of oil. The price of oil is set on the crude oil futures market. Simply put, these prices are affected by supply and demand because, at present, oil trades in a global commodity market where increased demand or reduced supply in one place instantly translates into price shifts everywhere. A variety of publicly available information sources show that supply is relatively static at the moment, while world demand continues to grow as economies grow.
   
2. We have provided evidence many times at The Oil Drum that the output of major oilfields is declining and that we may now have reached a peak or plateau in global oil supply. Oil companies have not been able to increase production for a number of years, and it is unclear that OPEC is accurately reporting their reserves. Even if there were significant sources of high quality oil remaining, it is getting increasingly difficult and expensive to drill. These factors, along with aging infrastructure for oil exploration and a retiring workforce are also contributing to high oil prices.
   
3. The geopolitical situation is volatile, and...every time there is news from Nigeria or Iran, the price of oil goes up because of the potential and real effects of these situations on world oil supply. Again, oil traders are fearful that the supply will not remain stable forever.
   
4. Countries like China and India are industrializing at a great pace...China is working furiously to secure new oil supplies...
   

These points demonstrate that disruptions in the supply of oil that affect the price of gasoline at the pump are not just a temporary glitch. For various reasons — decreased discoveries of new oilfields, geopolitical instability, international competition for oil supply — we can no longer assume that we will be able to consume as much oil as possible, or ever get it again for $1.50 a gallon.

Demagoguery and grandstanding are not strategies for addressing our energy problems. As an alternative, the editors of The Oil Drum put forth the following recommendations:

1. It is nonsensical for political leaders of both parties to eliminate the gas tax temporarily or permanently as this will only worsen our dependence on oil by disincentivizing the innovation of oil alternatives and oil conservation efforts.
   
2. Both mainstream American political parties are doing their country a disservice by accusing convenient scapegoats of price gouging or price fixing instead of educating the public about how the price of gas is actually set.
   
3. Right now, governments should be focused on helping us cure our "addiction to oil." The answer does not lie in lowering gas prices, which will only encourage people to drive more and further waste our valuable resources. As the Department of Energy funded Hirsch Report on Peak Oil laid out, the consequences of not taking steps to transition away from oil could be dramatic to our economic system. Appropriate solutions include large-scale research, development, and implementation programs to improve the scalability of alternative sources of energy, other projects geared towards improving mass transit and carpooling programs across the country, providing incentives to buy smaller and more fuel efficient vehicles, and promoting a campaign to increase awareness about conservation.
   

The political discourse on this topic is simply so devoid of fact, and constructive discourse so buried and out of the mainstream, that we felt we needed to raise a voice of reason. Public officials will continue to misinform and obfuscate if we allow it.

The only solution is to educate the public about the most important problem we face as a generation. We, the citizens of the US and the world, must move our attention to this the issue of energy more than any other. We must hold our representative governments accountable for having an open and honest debate on the subject.

Simply put, we must learn more about where our energy comes from. [Emphasis added]

Last summer, I had the opportunity to talk with Senator Feingold for a few minutes, and I quickly outlined for him the evidence on peak oil. I was somewhat taken aback that it seemed like news to him. And he's one of the good guys.

All the price gouging posturing is worse than useless, it's harmful. It perpetuates myths about what are the causes and what, therefore, are the cures. It's time for politicians to get a clue, start acting like grownups, and tell people the honest truth. The world energy situation is not a temporary hiccup. We are faced with an extraordinarily serious long-term problem. Given the sheer scale of world energy use, solutions will require a long lead time. When the crisis hits in full force, it will already be too late.

If you ask me, there's a real opportunity here for Progressives, Greens, and Democrats. People are hungry for some politicians who actually speak the unvarnished truth. And we never needed the truth more than we do now.

Posted by Jonathan at 09:56 PM | Comments (2) | Link to this  

April 25, 2006

Political Instability And The Price Of Gas

Energy  Peak Oil  Politics

As gas prices move higher, Republican politicians are sweating. With good reason. The graph below (from Professor Pollkatz, whom we first linked to back in 2004) plots Bush's approval rating in blue and the price of gasoline (inverted — i.e., lower on the graph means higher in price) in red (click to enlarge). Talk about correlation.

And so we're treated to Republican Bush today posed in front of a backdrop more befitting a granola-eating, Birkenstock-wearing Green, speaking about investigating Big Oil for price-gouging.

Republicans in both houses of Congress are jumping on the bandwagon. WaPo:

Sen. Arlen Specter (R-Pa.) said this week that a windfall-profits tax on oil companies is "worth considering."

Rep. Joe Barton (R-Tex.), chairman of the House Energy and Commerce Committee, joined other lawmakers yesterday in condemning high oil prices by taking aim at oil companies. Barton said his committee will hold hearings into the imbalance of supply and demand. He added that "it troubles me" that Exxon Mobil Corp.'s chief executive received a large pay and retirement package "while refinery capacity continues to lag behind demand in this country."

Republicans talking about taxing profits, of all things.

It would be nice if the Dems would use the opportunity to take the high ground via straight talk about the world supply future and the urgent need to take serious steps on fuel efficiency and development of alternatives. But, as usual, their proposals are mostly Republican Lite. (Although Bill Clinton, at least, did recently acknowledge Peak Oil in a speech in London.)

Meanwhile, the inverse correlation between gas prices and political fortunes bodes ill for our political future. So long as Americans are addicted to oil, the US political picture is going to be increasingly unstable. Billmon has a good post on this. Excerpt:

It's a little disconcerting to think that gas prices — not Iraq, not Katrina, not the extra-constitutional power grabs — could decide whether Shrub's presidency recovers or collapses into complete irrelevancy for the next three years. [...]

[The inverse correlation between gas prices and political fortunes] should be enough to make any would-be president (Demopublican or Republicrat) extremely nervous, since it seems high energy prices are likely to be a major fact of life for years to come — and maybe forever. If that turns out to be the case, then an absolutely necessary condition for future presidential success, or even survival, might be making sure the go juice keeps flowing at prices that won't drive the average American SUV owner onto the war path.

But that isn't going to be easy — not in a world in which everybody and their Chinese cousin is scrambling to lock up the available supply, where a number of major oil producing countries are a coup away from becoming failed states (if they're not there already), and that is already producing about as much of the light, sweet cheap stuff as it ever will.

Given the political incentives, it's possible to look a ways down the road — not a long ways — and see a U.S. military policy (formerly known as a foreign policy) that begins and ends with the protection of the oil lifeline. [...]

America's oil lifeline spans the earth...All of it has to be watched and guarded, stabilized and supervised. Even a partial loss of control could turn into a disaster, since in a global market supply disruptions anywhere can send prices soaring everywhere. And yet some of the most serious threats — like the separatist movement in the Niger delta — are outside the U.S. security "umbrella," traditionally defined.

What this implies, of course, is a terrible case of imperial overstretch, one which technology, firepower and Special Forces mojo may not be able to cure, no matter how much money gets thrown at the Pentagon. When the objective is to protect vital economic infrastructures, rather than blow them up, the U.S. military machine clearly lacks many of the right tools — like an adequate number of combat boots with soldiers' feet inside them.

For those who fear above all else the threat of hostile Middle Eastern regimes armed with WMD, this is potentially very bad news, at least in the long run. Unless stopping the (insert nationality here) Hitler can be done in a way that doesn't jack up the price of a gallon of regular, future U.S. administrations may be unwilling, or politically unable, to risk it.

Unfortunately, in the short run this could be even worse news for those of us who fear a wider war in the Middle East more than the future possibility of a nuclear Iran. Having seen what high gas prices have done to his popularity ratings, Bush may feel confirmed in his reported conviction that no future president will have the guts to take down Tehran. And having fallen into Jimmy Carter territory, he may also feel he has nothing left to lose, at least politically, by doing it himself. [Emphasis added]

Billmon goes on to suggest that Bush's failure may lead future administrations to return to a more cautious and prudent posture. I wonder.

At the end of the film 1975 Three Days of the Condor, Robert Redford's character, a CIA analyst, confronts his superior, played by Cliff Robertson. Remember, this was 1975:

Turner (Robert Redford): "Do we have plans to invade the Middle East?"

Higgins (Cliff Robertson): "Are you crazy?"

Turner: "Am I?"

Higgins: "Look, Turner..."

Turner: "Do we have plans?"

Higgins: "No. Absolutely not. We have games. That's all. We play games. What if? How many men? What would it take? Is there a cheaper way to destabilize a régime? That's what we're paid to do."

Turner: "Go on. So Atwood just took the game too seriously. He was really going to do it, wasn't he?”

Higgins: "It was a renegade operation. Atwood knew 54-12 would never authorize it. There was no way, not with the heat on the Company.”

Turner: "What if there hadn't been any heat? Supposing I hadn't stumbled on a plan? Say nobody had?"

Higgins: "Different ball game. The fact is there was nothing wrong with the plan. Oh, the plan was alright. The plan would have worked."

Turner: "Boy, what is it with you people? You think not getting caught in a lie is the same thing as telling the truth?"

Higgins: "No. It's simple economics. Today it's oil, right? In 10 or 15 years - food, Plutonium. And maybe even sooner. Now what do you think the people are gonna want us to do then?

Turner: "Ask them."

Higgins: "Not now - then. Ask them when they're running out. Ask them when there's no heat in their homes and they're cold. Ask them when their engines stop. Ask them when people who've never known hunger start going hungry. Do you want to know something? They won't want us to ask them. They'll just want us to get it for them." [Emphasis added]

The correlation between oil prices and political fortunes will, as prices inevitably climb higher, open the door to opportunistic demagogues and hardliners, here in the US and throughout the world. Reason number 1,001 why we need to conserve — now.

Posted by Jonathan at 09:02 PM | Comments (1) | Link to this  

April 23, 2006

Peak Tires

Economy  Energy  Peak Oil

Economists look at peak oil (and peak copper, peak nickel, and peak everything else) and say the market will provide. As commodity prices rise, producers will be able to make a profit extracting resources from places that previously were unprofitable, in effect increasing the supply.

But it's not that simple. The fundamental problem is the sheer scale of world resource use. It takes more than money. There are physical constraints on how quickly some things can be done. There's a lot of oil in Canadian tar sands, for example, but no amount of investment capital is going to make it possible to extract more than a few million barrels a day in the foreseeable future. Likewise, producers of conventional oil (i.e., oil from wells, not from tar sands or shale) may want to drill lots more wells, but all of the world's oil rigs are already in use. Building more will take time. And there are only a finite number of people with the needed expertise to make these things happen. Training more will take even more time.

Part of the problem is that price signals arrive too late. What causes prices to rise is a shortage in current production. Draining the world's reservoirs doesn't get reflected in prices until the situation has become so dire that producers can no longer pump oil fast enough. By then, it's too late. Investment in alternatives has a long lead time, so it should have started long before shortages show up in prices.

All of which is preamble to the following NYT story (via EuroTrib):

The worldwide thirst for stuff from the ground — materials as diverse as copper and coal, gold and oil — has set off a stunning boom in just about every commodity market. But there is one item that lately has dealers in the global mining industry really scrambling: the supersize tire.

Mining companies are complaining about a shortfall in the supply of the giant tires that go on large dump trucks and other heavy equipment. These outsize tires stand as tall as 12 feet tall and can spread 4 feet wide.

They are used prominently everywhere from the Canadian tar sands to open-air coal mines in the United States and China, but lately they have become almost as precious as gold and silver: prices have quadrupled for some of them in the last year to more than $40,000 a tire.

"This has never happened in the 35 years I've been in this business," said Michael Hickman, 63, who, together with his son, owns H & H Industries in Oak Hill, Ohio, one of the nation's largest retreaders of used mining tires.

"Right now the entire mining industry is going berserk, and we're feeding into it," said Mr. Hickman, whose company has tripled its work force to 160 in the last two years. [...]

[M]ining companies and tire manufacturers say the biggest reason is the rapid industrialization of China, India and other developing countries, which is expanding the appetite for basic commodities. [...]

Given the stress the commodities boom has unexpectedly created in an arcane area of the mining supply chain, some experts suggest that the tire shortage may keep prices higher longer than expected by limiting the ability of mining companies to meet the explosive demand for their products. But in the end, they say, there is little to worry about.

"This tire issue is, I believe, more a symptom of the mining industry's strength than its weakness," said Tibor Rozgonyi, head of the mining engineering department at the Colorado School of Mines. "It may be an acute concern at this moment, but the market has a way of taking care of these imbalances." [Emphasis added]

Eventually, the market will take care of the imbalances, it's true, but not necessarily by continuing to provide more of everything, forever. It may do it via ever-rising prices, which will price a lot of people out of the market. Demand destruction, as it's called. Meanwhile, we plow full steam ahead, as if the current way of doing things can continue indefinitely.

Posted by Jonathan at 05:34 PM | Comments (0) | Link to this  

April 21, 2006

Oil Tops $74 $75

Peak Oil

As I write this, oil's at $74.10 a barrel on the NY Mercantile Exchange. First time it's hit $74.

Update: [12:27 PM] — $74.25

Update: [12:54 PM] — $74.80

Update: [ 1:43 PM] — $74.95

Update: [ 1:55 PM] — $75.10

Update: [ 2:15 PM] — $75.21

Posted by Jonathan at 11:30 AM | Comments (0) | Link to this  

April 20, 2006

Newsweek Does Peak Oil

Peak Oil

A regular reader alerted me to this opinion piece in Newsweek. It's a remarkably frank look at peak oil, without ever using that term. Excerpts:

The U.S. lives in an energy trap. We fell into it gladly, dug it deeper and sit fat and happy, with blinders on. We're fed daily meals of imported oil, from countries we pay in IOUs and think we can push around. [...]

For years to come, we'll be in the hands of some of the most dysfunctional governments in the world....We'll be paying in both treasure and blood, as we fight and parley to keep ever-tighter supplies of world oil flowing our way.

What has changed in the world? We're running out of the capacity to produce surpluses of oil. Demand for crude is expected to rise much faster than new supplies....[M]ost producer nations can't find enough new oil, or drill out more from their reserves, to replace what we're using up. Production from most of the large, older fields is in irreversible decline. [...]

That puts the oil-dependent countries in a serious bind. We're all jockeying for control of oilfields, in a vast game that runs the risk of turning mean. China and Japan are running warships near disputed oil and natural-gas deposits in the East China Sea. China is doing deals in Sudan, Venezuela and Iran (our "bad guys"). Russia looks less friendly as we continue to invest in the oil countries around the Caspian Sea — Azerbaijan, Kazakhstan, Turkmenistan.

Nobody really knows how much oil there is. State-run companies don't disclose their true reserves. But clearly there's not enough to cover long supply disruptions, and that puts future economic development at increasing risk. "Terrorists have identified oil as the Achilles' heel of the West," says Gal Luft, head of the Institute for the Analysis of Global Security. The world market is losing maybe 1.5 million barrels a day to political sabotage. In February, the Saudis foiled an attack on one of their major oil installations. Had it succeeded, it could have been an "energy Pearl Harbor," Luft says. [...]

This throws our Iraq wars into a different light. To an extent that most Americans don't yet understand, the U.S. military has become a "global oil-protection force," says Michael Klare, an expert on natural-resource wars and author of the book "Blood and Oil."...Today, we patrol tanker routes not only in the gulf, but in the Indian Ocean and South China Sea. Troops and advisers help protect pipelines in chaotic countries such as Colombia and the Republic of Georgia. We're planting military bases near oil supplies in Asia and Africa. Gulf War I was billed as a war to save Saudi oilfields from Saddam Hussein. Gulf War II was elevated to a "war against terror." But it's arguably still about oil...One of the prizes in Iraq was to have been British and American access to its huge and unexploited oil reserves, Klare says. [...]

On paper, we have alternatives, such as liquefied coal, oil sands from Canada and ethanol. But they're not anywhere close to production on a massive scale. For a smooth transition, mega-energy projects need to get started at least 20 years before oil supplies decline, writes Robert Hirsch of the consulting firm SAIC in a study prepared for the U.S. Department of Energy. If we don't get a running start on the problem, he says, "the economic consequences will be dire." We're probably already behind. It takes leadership to address a potential crisis in advance.

Unfortunately, we're investing in war, not in crash projects to develop new energy sources. Maybe there's time to spare. But some events, like true civil war and collapse in Iraq, could change everything in a day. We're running a faith-based energy policy — still addicted to oil. If something goes wrong, it will go wrong big. [Emphasis added]

The good news: awareness is increasing and going mainstream. The bad news: it has yet to find its way into rational, forward-looking policy. But, as Newsweek says, that takes leadership.

[Thanks, Michael]

Posted by Jonathan at 04:22 PM | Comments (0) | Link to this  

April 18, 2006

Oil Price Jumps To New High

Peak Oil

The price of oil set a new record today, surpassing the post-Katrina spike.

Get ready for $3 gas.

Posted by Jonathan at 11:21 AM | Comments (2) | Link to this  

April 09, 2006

World Oil Production Cannot Grow Fast Enough

Peak Oil

The reason peak oil — the point at which world production peaks and begins to decline — matters is that it is self-evidently a point at which world production will no longer satisfy global demand. But there is no reason we cannot reach a point of insufficient production prior to peak: i.e., with production still growing, just not growing fast enough. Times Online:

The world lacks the means to produce enough oil to meet rising projections of demand for fuel over the next decade, according to Christophe de Margerie, head of exploration for Total and heir presumptive to the leadership of the French energy multinational.

The world is mistakenly focusing on oil reserves when the problem is capacity to produce oil, M de Margerie said in an interview with The Times. Forecasters, such as the International Energy Agency (IEA), have failed to consider the speed at which new resources can be brought into production, he believes.

"Numbers like 120 million barrels per day will never be reached, never," he said.

The IEA predicted in its World Energy Outlook that global demand for crude oil would reach 121 million barrels per day by 2030, of which more than half would be supplied by Opec. The agency predicted that more than $3 trillion (£1.72 trillion) of investment in wells, pipelines and refineries would be needed to raise output to such levels.

However, Total’s exploration chief reckons the output rise is impossible, given available resources and geopolitical constraints on gaining access to reserves in Opec countries.

M de Margerie argued that the resources were simply not available. He said: "Take Qatar. How many projects can you have at the same time? You have more than 100,000 people working on sites. It's a big city of contractors. Now they have the problem of having to build a new power plant to supply a city of contractors."

The IEA was mistaken in using recovery factors that failed to consider the timing of new resources coming on stream. M De Margerie said. The world was confusing the issue of reserves with the scale of the problem in producing those reserves. He said: "The oil reserves are there, that is the good news, but what we can bring on today to meet demand is limited by factors other than what scientists see in a lab or think-tanks." [Emphasis added]

As reserves dwindle, it will take more wells to produce a given amount of oil, but all existing rigs are already in use. It will take time and a lot of money to add more. And then there's the problem of refining capacity. It's not just a question of money; building the infrastructure takes time. But world production is already maxed out. There's no slack left in the system, no breathing room, which means the needed time just isn't available.

Posted by Jonathan at 10:04 PM | Comments (0) | Link to this  

March 29, 2006

Chomsky On Iraq And Oil

9/11, "War On Terror"  Iraq  Peak Oil

On Friday, the Washington Post hosted an online chat with Noam Chomsky. The first Q&A went right to the connection between Iraq and oil:

Q: Why do you think the US went to war against Iraq?

Noam Chomsky: Iraq has the second largest oil reserves in the world, it is right in the midst of the major energy reserves in the world. Its been a primary goal of US policy since World War II (like Britain before it) to control what the State Department called "a stupendous source of strategic power" and one of the greatest material prizes in history. Establishing a client state in Iraq would significantly enhance that strategic power, a matter of great significance for the future. As Zbigniew Brzezinski observed, it would provide the US with "critical leverage" [over] its European and Asian rivals, a conception with roots in early post-war planning. These are substantial reasons for aggression — not unlike those of the British when they invaded and occupied Iraq over 80 years earlier, at the dawn of the oil age.

Reading this statement, one is struck by how rare such candor is in US public discourse. Pretty much everybody in the mainstream avoids stating the obvious: Iraq is about oil. Yes, other interests are served, but oil is the driver behind US foreign policy today and into the future. It's obvious, yet no one will say it.

Talk about the Emperor's New Clothes.

Posted by Jonathan at 05:07 PM | Comments (0) | Link to this  

March 28, 2006

The Long War

9/11, "War On Terror"  Energy  Iraq  Peak Oil

James Kunstler loves to go overboard, but in his latest missive, he's got a point: the Iraq debate is grounded in delusion. Kunstler:

This is how deluded the American public is now: Various polls are showing that the war in Iraq has reached new lows of unpopularity. The dumb bunnies in the news media are implying that when the numbers get low enough, we will pull our troops out and go home.

This is not going to happen. Our inordinate hubris has led us to believe that this conflict is optional.

Notice, too, that the war-weary public has done, and continues to do, nothing to change its habits of profligate oil use which have driven us to project our military into the Middle East. We have not even begun a discussion of what we might do. We just expect to keep running American society exactly the way it has been set up to run — as a nonstop demolition derby, with hamburgers and fries between laps around the freeway.

At the highest level of public discourse, the cluelessness is shocking. The New York Times Sunday Book Review ran a front-page piece yesterday on Francis Fukuyama's latest salvo, America at the Crossroads, which is largely about our Middle East war policy, without once using the word "oil." [...]

The plain truth is, if anything happens to upset the current management and allocation system of the the global oil markets, the industrial economies of the world will collapse, and America's will collapse hardest and worst because of the way we have arranged things for ourselves. The global oil markets currently revolve around Middle East oil production. If the region is overcome by instability, than it's simply GAME OVER. [...]

Our denial runs deep and hard. Even the educated minority (including the tech wonks) believe that we can run the freeways and the WalMarts on alternative fuels. They flatter themselves listening to the morning yammer about "renewables" on NPR as they make the daily commute from, say, the suburban asteroid belts of Northern Virginia into Washington, DC. They bethink themselves progressive, cutting edge, morally superior in their Priuses. [...]

What can we do? Oil man Jeffrey Brown of Dallas has made the interesting suggestion that we replace some or all of the national income tax with a substantial national gasoline tax. A congressional debate over that would be worth hearing. It would be a good start in concentrating our minds in the right direction: that is, toward the problems we have created for ourselves at home. There are many other things we could do also, from rebuilding our railroads to removing incentives for suburban development. They would all require major shifts in our behavior. We can either begin them voluntarily or wait for events to compel us to live differently. In the absence of that, our presence in Iraq is not optional. [Emphasis added]

Iraq is about oil. Obviously. And the oil problem isn't going away. We should understand, therefore, that the architects of the war — Bush, Cheney, Rumsfeld, Rice — have absolutely no intention of withdrawing US forces. Not till the oil runs out.

They have lied about everything else, and they will lie about this, too, but actions speak louder than words. We just need to look at the bases US forces are building in Iraq. AP (link via Deep Blade):

Balad Air Base, Iraq - The concrete goes on forever, vanishing into the noonday glare, 2 million cubic feet of it, a mile-long slab that's now the home of up to 120 U.S. helicopters, a "heli-park" as good as any back in the States.

At another giant base, al-Asad in Iraq’s western desert, the 17,000 troops and workers come and go in a kind of bustling American town, with a Burger King, Pizza Hut and a car dealership, stop signs, traffic regulations and young bikers clogging the roads.

At a third hub down south, Tallil, they're planning a new mess hall, one that will seat 6,000 hungry airmen and soldiers for chow.

Are the Americans here to stay? Air Force mechanic Josh Remy is sure of it as he looks around Balad.

"I think we'll be here forever," the 19-year-old airman from Wilkes-Barre, Pa., told a visitor to his base. [...]

The U.S. ambassador to Iraq, Zalmay Khalilzad, and other U.S. officials disavow any desire for permanent bases. But long-term access, as at other U.S. bases abroad, is different from "permanent," and the official U.S. position is carefully worded. [...]

U.S. Defense Secretary Donald Rumsfeld, asked about "permanent duty stations" by a Marine during an Iraq visit in December, allowed that it was "an interesting question." He said it would have to be raised by the incoming Baghdad government, if "they have an interest in our assisting them for some period over time."

In Washington, Iraq scholar Phebe Marr finds the language intriguing. "If they aren't planning for bases, they ought to say so," she said. "I would expect to hear 'No bases.'"

Right now what is heard is the pouring of concrete.

In 2005-06, Washington has authorized or proposed almost $1 billion for U.S. military construction in Iraq, as American forces consolidate at Balad, known as Anaconda, and a handful of other installations, big bases under the old regime. [...]

"The coalition forces are moving outside the cities while continuing to provide security support to the Iraqi security forces," [Major Lee] English said.

The move away from cities, perhaps eventually accompanied by U.S. force reductions, will lower the profile of U.S. troops, frequent targets of roadside bombs on city streets. [...]

Al-Asad will become even more isolated. The proposed 2006 supplemental budget for Iraq operations would provide $7.4 million to extend the no-man’s-land and build new security fencing around the base, which at 19 square miles is so large that many assigned there take the Yellow or Blue bus routes to get around the base, or buy bicycles at a PX jammed with customers.

The latest budget also allots $39 million for new airfield lighting, air traffic control systems and upgrades allowing al-Asad to plug into the Iraqi electricity grid — a typical sign of a long-term base. [...]

Here at Balad, the former Iraqi air force academy 40 miles north of Baghdad, the two 12,000-foot runways have become the logistics hub for all U.S. military operations in Iraq, and major upgrades began last year.

Army engineers say 31,000 truckloads of sand and gravel fed nine concrete-mixing plants on Balad, as contractors laid a $16 million ramp to park the Air Force's huge C-5 cargo planes; an $18 million ramp for workhorse C-130 transports; and the vast, $28 million main helicopter ramp, the length of 13 football fields, filled with attack, transport and reconnaissance helicopters. [...]

"[W]e're good for as long as we need to run it," [Lt. Col. Scott] Hoover said. Ten years? he was asked. "I'd say so." [...]

In the counterinsurgency fight, Balad's central location enables strike aircraft to reach targets in minutes. And in the broader context of reinforcing the U.S. presence in the oil-rich Mideast, Iraq bases are preferable to aircraft carriers in the Persian Gulf, said a longtime defense analyst.

"Carriers don't have the punch," said Gordon Adams of Washington's George Washington University. "There's a huge advantage to land-based infrastructure. At the level of strategy it makes total sense to have Iraq bases." [...]

"It's a stupid idea and clearly politically unacceptable," [Anthony] Zinni, a former Central Command chief, said in a Washington interview. "It would damage our image in the region, where people would decide that this" — seizing bases — "was our original intent." [...]

If long-term basing is, indeed, on the horizon, "the politics back here and the politics in the region say, 'Don't announce it,'" Adams said in Washington. That's what's done elsewhere, as with the quiet U.S. basing of spy planes and other aircraft in the United Arab Emirates. [...]

From the start, in 2003, the first Army engineers rolling into Balad took the long view, laying out a 10-year plan envisioning a move from tents to today's living quarters in air-conditioned trailers, to concrete-and-brick barracks by 2008. [Emphasis added]

In its latest Quadrennial Defense Review, the Pentagon stopped talking about a war on terror. Instead, they're talking about "the long war". They're not kidding.

It's all one big Gordian Knot: Iraq, peak oil, global warming. We need to understand that and not forget it. If we don't deal with energy, we will be stuck with war and catastrophic climate change. It's all one problem.

Posted by Jonathan at 12:31 AM | Comments (0) | Link to this  

March 22, 2006

Net Oil Available For Consumption

Peak Oil

Norwegian Jan Herdal of oljekrisa.no (via EnergyBulletin) raises an essential point regarding Peak Oil.

We're all watching for the global peak in overall oil production, but another very important peak will come sooner — maybe it already has. That's the peak in what Herdal calls "net oil for consumption" — the amount of oil that's being produced minus the oil-equivalent of the energy used to find, extract, transport, and refine that oil.

The giant fields of light sweet crude were discovered long ago. What's left are the much smaller and harder to reach fields containing oil that's harder to refine. So the energy cost of each new barrel keeps going up. Which means the net energy value of each new barrel keeps going down. At the end of the day, it's not a question of how much oil is pumped out of the ground. It's a question of the net energy available for consumption. Excerpt:

Peak Oil is the buzzword among oil critics today, describing the point when global gross oil production peaks and starts on its irreversible decline. Although this is an important turn of the tide, we should not forget that net oil for consumption will peak long before peak oil. Possibly it already has.

There are two aspects of the law of diminishing returns related to oil production to consider.

The more important aspect is the gradually worsening energy net return on energy invested (ENROI). More oil and other forms of energy are expended in finding, producing and delivering the same amount of oil to the market. The industry must turn to smaller sources of oil that are costlier to exploit.

The few fields still being discovered on the Norwegian shelf are dwarfs compared to the big fields still in production (and that by now have been emptied for roughly three fourths of their extractable oil). [...]

In the Gulf of Mexico, oil companies are now drilling down to 30,000 feet. According to US Congressman Roscoe Bartlett, there are 530,000 producing oil wells in the US today (averaging less than 10 barrels production a day); still production is slowly declining.

Estimates differ, but it seems likely that between 3 and 5 barrels are now required to produce 10 barrels of oil in the US. Of 5 million barrels produced a day, perhaps only 3 million reach consumers.

This trend is global. Even in the Middle East, where this ratio for decades has been estimated to be 1:10, billions of dollars must now be spent just to keep production going.

New techniques, like horizontal drilling, seem to increase the oil output of a field, but they also require more energy. Production drilling takes a lot of energy. You have to drill more and longer wells to get the same amount of oil. Injection of water and gas also takes a lot of energy. Deeper and deeper offshore wells — the same.

When the global energy costs increase by 10 percent of the total production, practically the whole Saudi-Arabian oil production is down the drain.

The second factor to consider is oil quality, actually another side of the same issue. Oil on the world market is gradually becoming heavier (and increasingly sour, which is an environmental problem). Heavy oil is more difficult, more expensive and more energy intensive to refine into the lighter products demanded by the market, such as gasoline, diesel and airplane fuel.

The situation in the US is now a perfect illustration of the consequences of this trend. Refineries are flooded with heavy oil that they are not able to process. Oil reserves are up, while US imports of gasoline are also up 20 percent from February 2005 compared to the same month this year.

We will seriously misjudge our situation if we only focus on gross production Peak Oil and neglect the worsening quality of oil and worsening energy net return on energy invested (ENROI). [Emphasis added]

Oil spent getting other oil is like oil we never had.

Which is an enormously important point. It's not just Peak Oil that matters. It's the peak in net oil available for consumption. And as Herdal says, that peak may already be behind us.

Posted by Jonathan at 09:25 PM | Comments (0) | Link to this  

March 16, 2006

We Were Warned

Peak Oil

This weekend, CNN Presents will broadcast a special called "We Were Warned: Tomorrow's Oil Crisis." 8PM and 11PM Eastern time, both Saturday and Sunday. It will air on CNN International as well. Check times in your area.

Awareness is increasing.

Posted by Jonathan at 08:42 PM | Comments (0) | Link to this  

Malaysian Leader: Era Of Cheap Oil Is Over

Peak Oil

A Malaysian reader of Past Peak emailed from Singapore to point out the following article. It's a small world and getting smaller. AP:

Deputy Prime Minister Najib Razak has urged Malaysians to brace for further hikes in fuel prices, warning that the era of cheap oil was over. Malaysia, a net oil importer, heavily subsidizes fuel prices but the growing subsidy bill has taken a toll on state budget.

The government on Feb. 28 sharply raised retail prices of gasoline, diesel and liquefied petroleum gas by as much as 23 percent. Despite the hike, Malaysia's fuel prices remain among the lowest in Southeast Asia.

Najib, who heads the Cabinet committee on fuel, warned late Wednesday that global oil prices — currently hovering at $63 a barrel — could surge to $100 a barrel due to tight supply and strong demand, especially from rising economic giants China and India.

The possibility of U.N. sanctions against Iran, the No. 2 producer within OPEC, for its nuclear ambitions, will worsen the situation, he said, adding that some analysts had predicted oil prices to soar as high as $200 a barrel and this was not far-fetched.

"The cheap oil price era has ended. This is the reality that Malaysians and the world as a whole must accept. We can no longer hide from the fact that the price of oil [will] continue to rise," Najib was quoted as saying by the national Bernama news agency. [Emphasis added]

With the single exception of Roscoe Bartlett in the House, US politicians have been afraid to speak this frankly about what we're facing. It's pathetic.

[Thanks, Thanneer]

Posted by Jonathan at 08:35 PM | Comments (0) | Link to this  

March 15, 2006

Mexico Announces New Deep-Water Oil Field

Environment  Peak Oil

Mexico's President Vicente Fox has announced the discovery of a significant new deep-water oil field in the Gulf of Mexico. AP:

President Vicente Fox climbed aboard a drilling platform in the Gulf of Mexico on Tuesday to formally announce a new deep-water oil discovery [called Noxal] he said could eventually yield 10 billion barrels of crude oil. [...]

Government estimates say the find could exceed reserves at the giant offshore field Cantarell, Mexico's largest oil field, which has seen its production decline but is still expected to yield 1.9 million barrels a day this year.

Luis Ramirez, chief executive of Mexico's government-run oil monopoly Petroleos Mexicanos, or Pemex, said Noxal is the fourth deep-water well explored by Pemex.

Ramirez said that while production tests will be conducted in coming weeks, "evidence found is sufficient to infer potential reserves to be discovered that could reach 10 billion barrels of crude oil equivalent."

"This number, compared with annual production of 1.6 billion barrels of crude, shows its strategic importance," Ramirez said, adding that crude oil production at Noxal likely won't begin for eight to 10 years. [Emphasis added]

10 billion barrels is a significant find, but here are some things to bear in mind:

10 billion barrels is being cited as a best-case number. It remains to be seen if 10 billion barrels can actually be recovered.

The world currently uses 10 billion barrels of oil every four months.

Production at Noxal is 8-10 years away. By that time, other Mexican production will have declined significantly. As we saw a month ago, Mexico's Cantarell field, the world's second largest producer, is facing precipitous decline. Noxal will simply plug part of the hole left by declines in other fields.

According to an industry insider quoted at The Oil Drum, the new find "is supposed to be nearly as big as Cantarell, but is a lot heavier." That's what we would expect in a peak oil world: the light, sweet crude has mostly all been discovered. Now we're on to the harder-to-find, harder-to-produce, harder-to-refine oil.

All that being said, this discovery may indicate that Mexico's deep-water exploration has been spottier than previously thought. It's possible they'll find more. Which is good news on the peak oil front (though not wildly good news — as noted above, it just postpones peak by a few months).

But every new find is bad news on the global warming front, and that is likely to turn out to be the bigger problem in the long run. Every new find is that much more carbon that will be pumped into the atmosphere, and it's that much longer that people will delay doing what has to be done to reduce carbon emissions and start to get a handle on the accelerating rate of increase in atmospheric CO2.

People tend to follow the path of least resistance. As long as we've got relatively cheap oil, the path of least resistance will be to continue to burn it.

[Thanks, Scott]

Posted by Jonathan at 05:24 PM | Comments (0) | Link to this  

March 13, 2006

Army Corps Of Engineers On Peak Oil

Peak Oil

What does the Army Corps of Engineers think about peak oil? Energy Bulletin links to an Army Corps of Engineers report titled Energy Trends and Their Implications for U.S. Army Installations. Sounds like they've been reading Past Peak. Excerpt:

The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close. Domestic natural gas production peaked in 1973. The proved domestic reserve lifetime for natural gas at current consumption rates is about 8.4 yrs. The proved world reserve lifetime for natural gas is about 40 years, but will follow a traditional rise to a peak and then a rapid decline. Domestic oil production peaked in 1970 and continues to decline. Proved domestic reserve lifetime for oil is about 3.4 yrs. World oil production is at or near its peak and current world demand exceeds the supply. Saudi Arabia is considered the bellwether nation for oil production and has not increased production since April 2003. After peak production, supply no longer meets demand, prices and competition increase. World proved reserve lifetime for oil is about 41 years, most of this at a declining availability. Our current throw-away nuclear cycle will consume the world reserve of low-cost uranium in about 20 years....Coal supplies may last into the next century depending on technology and consumption trends as it starts to replace oil and natural gas.

We must act now to develop the technology and infrastructure necessary to transition to other energy sources. Policy changes, leap ahead technology breakthroughs, cultural changes, and significant investment is requisite for this new energy future.

Time is essential to enact these changes. The process should begin now. Our best options for meeting future energy requirements are energy efficiency and renewable sources. Energy efficiency is the least expensive, most readily available, and environmentally friendly way to stretch our current energy supplies. This ensures that we get the most benefit from every Btu used. It involves optimizing operations and controls to minimize waste and infusing state of the art technology and techniques where appropriate. The potential savings for the Army is about 30 per cent of current and future consumption. Energy efficiency measures usually pay for itself over the life cycle of the application, even when only face value costs are considered.

Renewable options make use of Earth's resources that are not depleted by our energy consumption practices: namely solar, wind, geothermal, geoexchange, hydrology, tidal movements, agricultural products, and municipal wastes. Renewable options also make use of the large stretches of land in America, much of which is owned by the government. These options are available, sustainable, and secure. The affordability of renewable technologies is improving steadily and if the market is pulled by large Army application the cost reductions could be dramatic. [Emphasis added]

So, whatever else is true, we know the Army knows about peak oil. We also know they realize that energy efficiency — i.e., conservation — is the most effective action to take near term. If only the White House would get that message.

Posted by Jonathan at 11:12 AM | Comments (0) | Link to this  

March 08, 2006

Switchgrass To Ethanol

Energy  Peak Oil

In his State of the Union speech, President Bush made a point of mentioning switchgrass as a promising biomass input for ethanol production. The Oil Drum yesterday carried an illuminating post that looked at the hype vs. the reality regarding switchgrass. Excerpts:

Switchgrass is a perennial grass native to the great plains, suitable for marginal lands because it grows well with relatively moderate inputs and can effectively protect soil against erosion. So far so good - one of the major attractions to switchgrass is that it is more environmentally friendly than corn....Best [yield] estimates [from switchgrass are] roughly 1000 gallons of ethanol per acre. Corn, by comparison, offers about...350 gallons per acre. This is why so many folks are beating their drums over switchgrass - in theory, it can be grown on marginal lands with ethanol yields 3 times that of corn with "minimal inputs." From this description, one gets the sense of legends in the making. Let's take a critical look at some of them.

Legend 1: Switchgrass does not require fertilizer or irrigation...

Fact: Switchgrass is a perennial grass, just like the grass in people's lawns. If you bag all your lawn clippings from your lawn, very quickly you will notice that your lawn will start to become yellow, and your "yield" (the number of times you have to mow) will decrease. This is because of the lack of fertilizer. Each time you remove biomass from an environment, you remove nutrients, and future yields will suffer. Switchgrass is exactly the same - if you harvest switchgrass for biomass, fertilizer must be applied in levels very similar to those applied if corn is the primary crop....In addition, phosphorous and potassium (potash) must be applied in amounts consistent to the amount of biomass removed, which actually exceed that necessary for corn.

Regarding irrigation, it is true that you don't need to irrigate switchgrass, just like you never "need" to water your lawn. However, just like your lawn, switchgrass won't yield nearly as well if it doesn't have adequate moisture....Switchgrass yields vary strongly with precipitation - planting the dry plains, New Mexico, or Arizona with switchgrass will not yield much biomass.

Legend 2: It is estimated that 15 percent of the North American continent consists of land that is unsuitable for food farming but workable for switchgrass cultivation. If all that land was planted with switchgrass, we could replace every single gallon of gas consumed in the United States with ethanol.

Fact: There certainly is a significant amount of land that is non-productive for agriculture but could be planted with switchgrass....Switchgrass would certainly grow on [non-agricultural] land, but yields would not approach the 6-8 tons/acre on good agricultural land.

Legend 3: Switchgrass yields a certain amount now, but in the future, with selective breeding, etc., it will yield much more.

Fact: Switchgrass is a perennial, and needs to be seeded only once every decade. Is it reasonable to think that Monsanto is going to spend much research effort on seeds that they will only sell to farmers once a decade? Certainly one can select varieties of switchgrass that are more prolific..., but it is difficult to see that there will be much yield improvement beyond that, certainly not on timescales of a decade or so. For a wide variety of annually varying weather conditions, soil quality, etc., it is hard to argue that switchgrass yields will exceed the 6-8 ton/acre range. We've been growing alfalfa for many years for biomass with a very high incentive to increase yields per acre, without much success. Switchgrass probably won't be much different.

Legend 4: Switchgrass is substantially cheaper as a feedstock than corn for producing ethanol.

Fact: This is the big one. [...] Switchgrass must be cut, allowed to dry, raked, and then bailed for transport. For large, round bales of switchgrass (the cheapest method), estimated costs are $74/ton for 4 tons/acre yield, and $66/ton for 6 tons/acre yield. Presumably, that can be extended to $58/ton for 8 tons/acre yield, and so on. Note that these costs will generally be higher for smaller fields, another black mark against the use of [non-agricultural] land for growing switchgrass.

On top of those costs, there will be transportation, which currently is about $0.25/ton per mile. How far will the switchgrass have to be transported? That's a bit more involved. A reasonable sized bioreactor facility would be 10,000 bbl/d, as 200 such facilities in the US would produce about 15% of the daily gasoline usage. Such a facility would use roughly 2 million tons of biomass feedstock per year, which is the output of 250,000 acres at 8 tons/acre. That is an area of roughly 400 square miles, or about 20 miles on a side. Given that rural roads don't run straight, that 20 miles is a fair figure for the average load to travel, leaving travel costs of $5/ton. So, we are talking something in the $60-70/ton range delivered to the bio-reactor. However, that is assuming 100% of the land around the bioreactor is switchgrass. If we instead only plant marginal land, the transportation distance would go up by a factor of 3 (due to the sparseness of the switchgrass fields) to $15/ton, leaving the total cost $70-80/ton. At 70 gallons of ethanol per ton of biomass, this suggests a minimum cost of $1/gallon ethanol simply to get the switchgrass to the facility. Yields less than 8 tons/acre will lead to proportionally higher costs.

How does that compare to corn? That's a bit more dicey, as corn is heavily subsidized. Wholesale corn currently costs about $1.90/bushel, while the Iowa 2006 Crop Production Cost is $3.40 per bushel (if the difference between those numbers seems incredible, remember that you, the US taxpayer, are picking up the tab). Corn is much more dense than switchgrass biomass in terms of energy per unit mass, so transportation costs are much less, certainly under $0.10/bushel. At retail, this suggests a cost of $0.80 per gallon to get the corn to the ethanol facility based upon wholesale, and $1.40/gallon based upon the Iowa Crop Production cost of $3.40/bushel.

Given that the switchgrass costs more to make into ethanol once at the bioreactor due to need for enzymes ($5-10/barrel or $0.20-$0.40/gallon plus extra energy used), there doesn't appear to be any advantage to switchgrass over corn for ethanol. [...]

As a final note, there is sensitivity to energy prices in this analysis. However, it appears to go the wrong way for switchgrass....This suggests that corn may become more competitive with switchgrass as time moves forward and energy costs rise, exactly the opposite interpretation most people would have anticipated. [...]

What's the moral in all of this? If corn ethanol is marginal on an energy returned on energy invested (EROEI) basis, it is very difficult to argue that biomass grown to make ethanol will be any better. To be blunt, if there are concentrated stocks of waste biomass in place, such as at lumber mills, then biomass ethanol probably makes sense. Otherwise, it appears to be more or less equivalent to corn based ethanol - in other words, a wash. [Emphasis added]

The analysis seems plausible, and it appears to make the case that if switchgrass is better than corn for making ethanol, it's not by much. Which means that ethanol from switchgrass won't be a net energy winner any more than corn is. Ouch.

One caveat: this analysis may be applicable in the near term only. Before long, currently unanticipated developments in bioengineering and nanotechnology may lead to entirely new ways of processing biomass, for example. The pace of technological change in bioengineering and nanotechnology (as in computer technology) is currently exponential, so we are likely to be fooled if we simply extrapolate the current pace of change linearly into the future — thinking, for example, that the next twenty years will lead to about as much change as the last twenty years. In fact, barring a catastrophic disruption in world systems, the amount of technological change over the next twenty years is likely to be orders of magnitude greater (possibly many orders of magnitude greater) than over the last twenty years.

That's the (potentially) good news. The bad news is that we are faced with a near term problem right now — assuming world oil production is already peaking, as it appears to be. Technology may provide answers in time, but there is likely to be significant turmoil and hardship in the interim.

Posted by Jonathan at 11:14 PM | Comments (4) | Link to this  

March 03, 2006

Matthew Simmons: Outlook For 2006

Peak Oil

World Oil, one of the two major oil industry trade journals, each year asks Matthew Simmons to write a column giving his outlook for the coming year in oil. Simmons is head of the oil industry's largest investment bank and author of Twilight in the Desert. He's also an outspoken proponent of the view that world oil production is peaking.

Here's an extended excerpt from his outlook for 2006:

Had deepwater oil not come of age in the last decade, conventional oil would have passed peak output. Even as deepwater drilling created several million bpd of added oil, non-OPEC supply outside the FSU has struggled for half a decade to stay flat, and now seems clearly in decline. The North Sea is in steep decline, and Mexico, China, Argentina, Oman, Syria, Egypt, Yemen and Colombia seem to be experiencing irreversible declines.

Non-conventional oil from Canada's oil sands and Venezuela's Orinoco region makes up about half of both producers' output. Non-conventional oil is now commercial, but it remains extremely energy-intensive to turn into usable form. Most new oil found globally is either heavy or sour, or both. What seems to have passed peak supply is light, sweet oil — the easiest oil to produce and the simplest to refine into light, finished product.

Until 2005, OPEC had risen to the occasion and supplied constant surges in unexpected demand. Now it is clear — for anyone closely studying OPEC production announcements and other data on the true status of OPEC oil output — that the countries comprising OPEC membership are all producing at maximum levels. Over a dozen giant oilfield upgrades are underway throughout OPEC, but few will add significant new supplies before 2009.

Moreover, all these "new" projects are complex oil fields that were found years ago and lacked the ingredients to be key producing fields. Some of these projects' performance risks are high enough that nobody should assume that they will happen on schedule, on budget or at projected output targets.

The global lack of spare capacity now extends far beyond wellhead capabilities. By late summer 2005, every capable drilling rig in the world was in use...The backlog of planned, new wells that awaits an available rig is growing monthly. In the offshore market, the rig deficit by the start of 2005 was about 250 drilling months before Hurricanes Katrina and Rita took another 20 rigs out of commission; some permanently, some for just a matter of months. The resultant offshore drilling deficit compared to planned activities might now exceed 400 to 500 drilling months. Every key oil pipeline and processing facility is also at 100% capacity, as is global refining capacity. The oil system has never been so tight.

Also, 2005 will go down in history books as perhaps the poorest year for exploration success for both oil and gas since World War II. This dismal success was not for lack of effort. Record amounts of funds are being plowed into E&P [exploration & production] capital spending, which is why all the world's rigs are now in use. [...]

For oil markets, 2006 will be challenging, unless global economies quickly enter a steep recession. This is about the only event that will moderate demand growth before it outpaces supply. Already, some markets show signs of little demand growth, not because demand is low, but due to the physical limit of oil use having to stay within supply limits. One big "head fake" of 2006 will be when apparent demand seems stalled by lack of demand instead of lack of supply. The two are extremely different events, and hard to judge by a quick glance at weekly changes in EIA's oil inventory reports.

As the rig shortage worsens and rates rise to dramatic levels, many newly planned projects will not materialize. There will also be a slowdown in deepwater exploration wells or drilling of necessary deepwater development wells. Rigs are insufficient for both to happen. The lack of rigs is also an easy proxy for all other key services needed to drill and complete complex wells that comprise most new projects.

The industry is in the early stages of a people crisis. This people shortage will worsen throughout 2006. There is already widespread "stealing" of competitors' key people, or oil companies raiding the scarce personnel of their key service providers. New drilling assets coming onstream during the year will further strain the people shortage. For instance, when both land and marine rigs are added together, there are about 250 rigs on order for delivery in the next 12 to 18 months...Since an average drilling operation needs 35 to 50 people on-site on a 24/7 basis, this equates to a need to recruit and train 26,000 to 37,000 new drilling hands in a very short period. This figure assumes prompt delivery of new equipment and that the industry puts these units to use as added rigs instead of replacing worn-out, old rigs.

Adding as many as 250 new drilling rigs might sound like a big expansion until it is put in perspective. There are about 3,000 drilling rigs in the world, so this "expansion" is only a little over 8%. Because most of the 3,000 existing rigs are about 25 years old, the industry soon needs to gear up for the challenge of how to replace the entire fleet over the next decade or two. The wear-and-tear of land and offshore rigs is like running a car in a demolition derby. If the industry leadership fails to address how to renew the drilling fleet, it will ensure a serious oil supply crisis. [...]

Like it or not, 2006 will be eventful for oil. It will also be the year when the Peak Oil topic intensifies into a debate on the scale of climate change/global warming. So far, this Peak Oil debate has been muted to a very separate, small group of "extreme optimists" battling a small group of geologists, petro-physists and, on occasion, energy analysts or economists.

Optimists often do not properly understand what "peak oil" means. They dismiss any worries by saying the world is unlikely to run out of oil in the next 30 to 75 years. Instead, these optimists need to grasp the simple fact that peaking does not mean running out. It means that supply no longer can grow, and it generally means the pending arrival of a production decline.

Depending on the oil field type and the manner in which it has been produced, this decline can be either gentle or so steep that it resembles a production collapse. Optimists who scoff at peak oil also argue that new oilfield technologies will come to the rescue and make new supplies easy to create without realizing that there are few new technologies being invented today. This "embrace technology" group fails to appreciate that this same technology created the steep decline curves occurring in most oil provinces.

Many leading peak oil advocates assume that this event is still a decade away, but they argue that steps to mitigate peak oil's arrival take so long to implement that the world must create a mitigation plan today. In my opinion, the most important peak oil aspect is defining peak as "a level of oil output that can safely be produced for at least a half-a-decade or more." Whenever an oil-producing field or region begins to approach this sustained peak productivity level, the safest formula to avoid a pending steep decline is to lower field production rates. Based on this definition, the world might now have exceeded sustained safe production. [Emphasis added]

A few things to take away. People who dismiss peak oil concerns say that higher prices will naturally encourage more exploration and drilling and the problem will take care of itself. As Simmons stresses, however, the world is completely maxed out right now. There are no idle rigs. There is no idle pipeline or refining capacity. There is a serious shortage of experienced workers. There are definite limits to how quickly these shortages can be overcome.

The other thing that peak oil optimists say is that rising prices will encourage the development of new technologies that will make it possible to drain oil fields more efficiently. That's a two-edged sword, however. Advanced technologies are already in use. They are very good at squeezing most of the toothpaste out of the tube. Unfortunately, they are so good at it that when the end comes, it comes suddenly. A number of oil fields are showing alarmingly steep decline rates as a result.

Finally, as Simmons notes, when oil fields near peak the best thing to do is to ease off, slow production down. The amount of oil ultimately recovered will be greater, even if it will take longer. Unfortunately, everything today militates against such prudence. Oil producers everywhere are pumping flat out. That's why Simmons says we may already have "exceeded sustained safe production." We're pumping too fast, but we can't slow down. We're between a rock and a hard place.

Posted by Jonathan at 06:18 PM | Comments (1) | Link to this  

March 02, 2006

Evidence That Peak Oil Is Here

Peak Oil

The Oil Drum has a good capsule summary of evidence that peak oil (the peak in world oil production, after which it's all downhill) is either happening right now or will in the next year or two. Check it out.

Posted by Jonathan at 10:52 AM | Comments (0) | Link to this  

March 01, 2006

How Much Oil?

Peak Oil

The world has approximately 1 trillion barrels of conventional oil left in the ground, and the nations of the world consume about 85 million barrels of that oil every day.

Here's a way to think about those numbers. 1 trillion barrels (at 42 gallons per barrel) works out to about 38 cubic miles, which is the volume of a cube about 3.4 miles on a side. That's enough to cover New York City's 300 sq. mi. land area to a depth of an eighth of a mile (a little more than the length of two football fields). That's it. That's what's left. In the world.

At present, the world's consuming almost 1.2 cubic miles per year, and demand is growing by several percent a year.

If all of that 38 cubic miles of oil could be pumped out of the ground at today's rate, and if consumption stayed constant at today's rate, the very last drop of conventional oil would be consumed 32 years from now. (If consumption were to continue to grow at current rates, the last drop of conventional oil would be consumed roughly a decade sooner.)

But 32 years from now isn't the only date that matters. Other dates that matter are 1) when the world runs out of spare oil production capacity, and 2) when world oil production passes its peak and begins its inevitable and irreversible decline. The first of those dates has already arrived, as signalled by rising prices. Many analysts believe the second date, peak oil, is either already here, too, or is imminent.

When it becomes clear that production has peaked and is on an irreversible downhill slope, when people wake up to the fact that each year the world's going to produce less oil than it did the year before — forever — it's suddenly going to feel like a very different world.

Posted by Jonathan at 11:28 PM | Comments (0) | Link to this  

February 25, 2006

Honda To Launch Hybrid Under $12,000

Energy  Peak Oil

A Japanese paper reports Honda will launch a gas-electric hybrid version of its Fit subcompact with a price tag under $12,000, as early as next year. Reuters:

Honda Motor Co. plans to sell a low-cost hybrid car, a version of its popular Fit subcompact, a Japanese daily reported, signaling the auto maker's long-term commitment to the fuel-sipping powertrain.

Japan's third-biggest auto maker aims to sell the Fit hybrid as early as next year for around ¥1.4 million ($11,790), or about ¥200,000 more than the gasoline-only version, likely making it the world's first hybrid to cost less than ¥2 million ($16,840), the leading Japanese business daily said Wednesday.

The model could be launched in the business year starting April 2007 and would be sold globally, the paper said. [...]

A decision to offer a hybrid version of the mass-volume Fit — Honda's best-selling model in Japan and due to debut in the United States soon — would suggest the auto maker is a step closer to committing to the powertrain longer-term.

Good news. Hybrids aren't the ultimate answer, but anything that helps us conserve fuel helps us buy a little time. Considering the colossal scale and urgency of the transition confronting humanity, time is in desperately short supply. Conservation is the only thing that can buy us time, and every little bit helps.

Posted by Jonathan at 08:28 PM | Comments (0) | Link to this  

February 19, 2006

Dude, What Were You Thinking?

Peak Oil

Scott Adams is a smart guy. His novels were interesting, and his Dilbert is a smart comic. Usually. Today's Dilbert, however, is just dumb.

Posted by Jonathan at 06:04 PM | Comments (6) | Link to this  

February 14, 2006

Holy Sh*t

Peak Oil

[Originally posted 2/13, 11:12 PM]

Kenneth Deffeyes, Princeton emeritus professor of geology, author of Hubbert's Peak and Beyond Oil, has worked in and studied the oil industry his whole life. This weekend he wrote the following (excerpt):

In the January 2004 Current Events on this web site, I predicted that world oil production would peak on Thanksgiving Day, November 24, 2005. In hindsight, that prediction was in error by three weeks. An update using the 2005 data shows that we passed the peak on December 16, 2005. [...]

Compared to 2004, world oil production was up 0.8 percent in 2005, nowhere near enough to compensate for a demand rise of roughly 3 percent. The high prices did not bring much additional oil out of the ground. Most oil-producing countries are in decline. The rise in production was largely from Saudi Arabia, Russia, and Angola. The Saudi production for 2005 was 9.155 million barrels per day. On March 6, 2003 Saudi Aramco and the government of Saudi Arabia announced by way of the Dow Jones newswire that they were maxed out at 9.2 barrels per day. [...]

Could some new discovery come along and reverse the global oil decline? The world oil industry is a huge system: Annual production worth 1.7 trillion dollars. I don't see anything on the horizon large enough to turn it around.

So what are the policy implications? Numerous critics are claiming that the present world economic situation is a house of cards: built on trade deficits, housing price bubbles, and barely-adequate natural gas supplies. Pulling any one card out from the bottom of the pile might collapse the whole structure.

There are calls for embargoing Iranian oil because of the nuclear weapons situation. Pulling four million barrels per day out from under the world energy supply might trigger a severe worldwide recession. In the post-peak era, we're playing a new ball game and we don't yet know the rules.

Ghawar, the supergiant Saudi oilfield, is producing increasing amounts of water along with the oil. When Simmons sent Twilight in the Desert to the printer, the water cut at Ghawar was around 30 percent. There are later reports on the Internet (home.entouch.net/dmd/ghawar.htm) of water cuts as high as 55 percent. Ghawar has been producing 4 million barrels per day; when the Ghawar field waters out, you can kiss your lifestyle goodbye.

Since we have passed the peak without initiating major corrective measures, we now have to rely primarily on methods that we have already engineered. Long-term research and development projects, no matter how noble their objectives, have to take a back seat while we deal with the short-term problems. Long-term examples in the proposed 2007 US budget...include a 65 percent increase in the programs to produce ethanol from corn, a 25.8 percent increase for developing hydrogen fuel cell cars, and a 78.5 percent increase in spending on solar energy research...[S]olar energy today supplies one percent of US electricity; the hope is to double that to 2 percent by the year 2025. By 2025, we're going to be back in the Stone Age.

By 2025, we're going to be back in the Stone Age.

Ethanol, fuel cells, and solar cells are not the only shimmering dreams. Methane hydrates, oil shale, and the Yucca Mountain radioactive waste depository would be better off forgotten. There are plenty of solid opportunities. Energy conservation is by far the most important. Initiatives that are already engineered and ready to go are biodiesel from palm oil, coal gasification (for both gaseous and liquid fuels), high-efficiency diesel automobiles, and revamping our food supply. Every little bit helps, but even if wind energy continues its success it will still be a little bit.

That's it. I can now refer to the world oil peak in the past tense. My career as a prophet is over. I'm now an historian. [Emphasis added]

Deffeyes is as solid as they come. He's an academic, but he grew up in the oil fields. If you've read him or heard him speak, you know he's a supremely down-to-earth, practical, hands-on guy with the kind of wisdom (and self-deprecating humor) that comes from long experience.

Given the exponential rate of technological change (at least, in information technology, biotechnology, and nanotechnology), I'm not sure we know what solutions may present themselves (when the pace of change is exponential, stuff seems to come out of nowhere, practically overnight — cf., the World Wide Web), but still, this statement from Deffeyes scares me more than a hundred statements from James Kunstler.

An enormous transformation has to happen, and in an impossibly short amount of time. Starting now.

Meanwhile, conservation is the low-hanging fruit. Conservation we can do today. Conservation can buy us time, and there is nothing we need, at this point, more than time.

Posted by Jonathan at 01:30 PM | Comments (3) | Link to this  

February 10, 2006

Cantarell Facing "Precipitous" Decline

Peak Oil

We noted a few weeks back that Cantarell, Mexico's largest oil field and the second most productive oil field in the world, is in decline. Further confirmation comes in an AFX report (via John Robb) that suggests the production decline may be "precipitous." Excerpt:

Mexico's huge state-owned oil company, Petroleos Mexicanos, or Pemex, may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices, the online edition of the Wall Street Journal reported.

The potential decline faced by Pemex, also could undermine US efforts to reduce dependence on Middle East oil, and complicate Mexican politics and financial stability.

An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico's biggest oil field, and might cause output to drop precipitously over the next few years.

Currently, Cantarell produces 2 mln barrels of oil a day, or six of every 10 barrels produced by Mexico, and is the world's second-biggest-producing field after Saudi Arabia's Ghawar.

Pemex says it is confident it can make up for any decline at Cantarell by squeezing more output from other fields, but some analysts outside the company are far less sanguine. The study was carried out last year by Pemex experts. [Emphasis added]

Technology lets producers empty a reservoir more efficiently, keeping the pressure up and pushing the oil out, even as the reservoir empties. Everything seems fine, and then suddenly you're in free fall. Remember this amazing picture.

Posted by Jonathan at 06:58 PM | Comments (0) | Link to this  

February 09, 2006

Don Evans Acknowledges Peak Oil

Peak Oil

Here's Don Evans, Secretary of Commerce during Bush's first term, campaign chair for Bush's 2000 election campaign, and a long-time Bush friend, on Hardball last week:

EVANS: The world is producing oil, the Middle East, every country at its full capacity and it's very unlikely that we're going to be able to see supply in the world grow from the levels where we are right now. There's a debate about that. I'm one that falls in the camp that says it's going to be very, very hard to do that. But what I do know is China needs to continue to grow, India needs to continue to grow, America needs to continue to grow. So what that simply says is we've got to develop new forms of energy for the United States and the world. [Emphasis added]

Well, there you have it. The world's never going to produce more oil than it is right now. Which is to say, peak oil is happening. Right now. This is as good as it's going to get, and it won't ever get this good again.

And Bush knows it.

Posted by Jonathan at 07:12 PM | Comments (0) | Link to this  

February 08, 2006

Record Warmth In US

Environment  Peak Oil

There's good news and bad news. The good news is that the US has had a very unusually warm winter. Otherwise, natural gas and heating oil prices would have risen far more than they have, with significant economic consequences.

How warm has it been? January was the warmest January ever recorded in the US. National average temperature was 39.5°F (4.2°C), a rather startling 8.5°F (4.7°C) warmer than average.

The past three months were the third warmest November-January on record, 3.8°F (2.1°C) warmer than average.

The past six months were the warmest August-January ever recorded in the US, 2.8°F (1.6°C) warmer than average.

So the good news is that the US dodged a bullet this winter. The (post-Katrina) natural gas situation, in particular, would have been very dicey if the winter had just been normal, let alone colder than normal.

The bad news, of course, is that these record temperatures didn't occur in a vacuum. The world is changing, and the pace of change is quickening.

Posted by Jonathan at 08:21 PM | Comments (0) | Link to this  

February 01, 2006

On Reducing US Dependence On Middle East Oil

Energy  Peak Oil  Politics

Bush has gotten a lot of press today for his SOTU vow to reduce America's dependence on Middle East oil by 75% by 2025. Except, the White House now hastens to add, he didn't really mean it. Knight-Ridder:

One day after President Bush vowed to reduce America's dependence on Middle East oil by cutting imports from there 75 percent by 2025, his energy secretary and national economic adviser said Wednesday that the president didn't mean it literally.

What the president meant, they said in a conference call with reporters, was that alternative fuels could displace an amount of oil imports equivalent to most of what America is expected to import from the Middle East in 2025.

But America still would import oil from the Middle East, because that's where the greatest oil supplies are.

The president's State of the Union reference to Mideast oil made headlines nationwide Wednesday because of his assertion that "America is addicted to oil" and his call to "break this addiction."

Bush vowed to fund research into better batteries for hybrid vehicles and more production of the alternative fuel ethanol, setting a lofty goal of replacing "more than 75 percent of our oil imports from the Middle East by 2025."

He pledged to "move beyond a petroleum-based economy and make our dependence on Middle Eastern oil a thing of the past."

Not exactly, though, it turns out.

"This was purely an example," Energy Secretary Samuel Bodman said.

He said the broad goal was to displace foreign oil imports, from anywhere, with domestic alternatives. He acknowledged that oil is a freely traded commodity bought and sold globally by private firms. Consequently, it would be very difficult to reduce imports from any single region, especially the most oil-rich region on Earth.

Asked why the president used the words "the Middle East" when he didn't really mean them, one administration official said Bush wanted to dramatize the issue in a way that "every American sitting out there listening to the speech understands." The official spoke only on condition of anonymity because he feared that his remarks might get him in trouble.

Presidential adviser Dan Bartlett made a similar point in a briefing before the speech. "I think one of the biggest concerns the American people have is oil coming from the Middle East. It is a very volatile region," he said. [Emphasis added]

So it was bull, and they knew it was bull, but they said it anyway because it was something "every American sitting out there listening to the speech understands". How you "understand" something that's not true is left as an exercise for the reader.

On the other hand, oil geologist Byron King notes, a 75% reduction in US oil imports from the Middle East is really a prophesy, not a goal. It's going to happen, but not for the reasons Bush cited:

Replace 75% of US oil imports from the Mideast by 2025? Viewed in another way, this is not a "goal," it is a prophesy. There is no way that the US will be importing as much oil from the Mideast in 2025 as it imports today. And there is no way that the nations of the Mideast will be exporting as much oil in 2025 as they are exporting today.

Whether or not the Bush statement is a "goal," in 2025 the US will not be importing much in the way of petroleum from the Mideast, nor from anyplace else. The oil just will not be there for one side to export, nor for the other side to import. Welcome to the future. [Emphasis added]

Bush had nothing to say about coal other than a mention of "zero-emission coal-fired plants" — the idea here is to store carbon dioxide emissions below ground. No mention at all of natural gas, which is likely to become a critical problem even sooner than oil.

Posted by Jonathan at 08:27 PM | Comments (1) | Link to this  

January 30, 2006

Skiing In The Desert

Peak Oil

A reader sent me a set of photos that are, I think, a pretty near-perfect metaphor for where humanity stands at present. And we need all the metaphors we can get.

The photos depict an indoor ski slope built in the middle of the desert in the oil kingdom of Dubai — yes, it's for real. Click on any of the images to see a page of the full-size versions.

Dubai is swimming in oil — for now — so they can afford to build this thing in the middle of a 120-degree desert. But it doesn't take a lot of imagination to see what a crazy, doomed, obscenely wasteful project it is. How long before it's just an abandoned, rusting hulk? How long before the children and grandchildren of Dubai curse their forebears for pissing away their irreplaceable inheritance?

We have no trouble seeing the craziness of this thing. But how different is it, really, from building air-conditioned cities in the Arizona desert? Cities filled with high-rises whose windows cannot be opened? Suburbs with 50-mile commutes?

Skiing in the desert.

[Thanks, Clay]

Posted by Jonathan at 09:52 PM | Comments (2) | Link to this  

January 29, 2006

A Truly Stunning Graph

Energy  Peak Oil

As the Oil Drum says, this graph is a mind-blower:

Cement, of course, is used to make concrete, which in turn is used to make things like highways, factories, cities. All of which require enormous quantities of energy, both now (in their construction) and in the future (in their maintenance and use). If you think things are headed in a sustainable direction, look at that graph once more.

Posted by Jonathan at 06:07 PM | Comments (0) | Link to this  

January 27, 2006

World's Four Largest Oilfields Now In Decline

Peak Oil

Via Jerome-a-Paris, an update on where we stand: the kind of thing that ought to be front-page news all over the world, but isn't.

You can't pump oil you haven't discovered. If discoveries have dried up and already-discovered oilfields have peaked, the handwriting's on the wall. So where do we stand?

Jeremy Leggett reminds us that so-called "super giant" oilfields are rare, and almost all were discovered decades ago:

Only around 50 super-giant oilfields have ever been found, and the most recent, in 2000, was the first in 25 years: the problematically acidic 9-12 billion barrel Kashagan field in Kazakhstan. [...]

In 2000 there were 16 discoveries of 500 million barrels of oil equivalent or bigger. In 2001 there were nine. In 2002 there were just two. In 2003 there were none. [Emphasis added]

So we stopped finding super-giant fields long ago. What about the super-giants currently in production?

Mexico — Mexico's Cantarrell, the third largest oilfield ever discovered, is now in decline. FT:

The Cantarell oil field, in the shallow waters of Campeche Bay, is regarded by Mexicans as their crown jewel. It is the second largest oil field in the world by production, behind Saudi Arabia's mammoth Ghawar oil field, pumping 2.2m barrels a day, the same amount as all the Kuwaiti fields together.

For that reason, Mexicans were recently dismayed when Petróleos Mexicanos, the state oil company, said that the field's production would decline this year, signalling a trend towards its depletion. [Emphasis added]

Russia — Russia's Samotlor, Russia's largest and the world's second largest, is also in decline. Jerome:

Next, we can talk about Samotlor, the largest Russia oil field, and the second largest ever found. From a peak of close to 2mb/d, its production is now down to less than 0.5mb/d. [According to BP's own data,] more than two thirds of the oil to be recovered, in the most optimistic scenarios, already has. [...]

In case you've never heard it, as most news in recent years talk about rapidly growing oil production in Russia, Russia's oil production peaked in the first half of the 1980s — what we witnessed in recent years was simply some catching up after the collapse of the early 90s which was not due to technical reasons but to the chaos in the early post-Sovier years. Russia is about to know a second, lower peak as its production is now stagnating again. [Emphasis added]

Kuwait — Kuwait's Burgan, one of the five largest oilfields in the world and until recently the world's number two in production, is in decline as well. See this post from a couple of months ago.

Saudi Arabia — Which leaves Saudi Arabia's Ghawar, the world's heavyweight champ. The Saudis haven't admitted it yet, but Ghawar, too, is almost certainly in decline. Here, for example, is Matthew Simmons, the oil industry's foremost investment banker, who has studied the Saudi situation in great detail:

Saudi's "king" of oil fields, Ghawar, is the world's largest oil field. Wildcat discoveries there from 1948 to 1952 proved reserves estimated at 170 billion barrels of oil in place and 60 billion barrels recoverable. Those numbers remained unchanged in Aramco's 1975 reserve estimates. Ghawar has accounted for 55 percent to 60 percent of all Saudi oil produced. If these numbers are correct, Ghawar's oil is 90 percent gone. [Emphasis added]

As Jerome concludes:

No super giant fields have been found in the past 25 years, and all the rock structures on the planet where such fields could be found are known.

We will not find more oil. We will squeeze more out of the existing fields, thus generating new "reserves" (in their economic definition), but we are already running out of the cheap and easy to produce stuff.

Peak oil is very real.

Nobody in authority wants to be the bearer of bad news. Nobody wants to get out ahead of the herd. But most people won't believe something until they hear it from authority figures. So, hand in hand, we're sleep-walking over a cliff.

Posted by Jonathan at 07:59 PM | Comments (1) | Link to this  

January 24, 2006

Nigerian Attacks On Oil Infrastructure Continue

Global Guerrillas  Peak Oil  War and Peace

Following up on two earlier posts about the ability of global guerrillas to significantly impact the world-wide price of oil via attacks on oil infrastructure — now that the world has no spare oil production capacity to speak of — here's an item on the ongoing guerrilla campaign against Nigerian oil exports. AP:

Camouflage-clad attackers raided an Italian oil company's riverside offices in Nigeria on Tuesday, sparking a gunfight that left nine people dead before assailants fled by speedboat into the oil-rich delta's waterways.

The attack on Agip's offices in the southern oil center of Port Harcourt is the latest in a recent rash of violence across the restive Niger Delta that has killed nearly two dozen people, cut petroleum production in Africa's largest oil exporter and helped push up prices of crude worldwide. [Emphasis added]

They know exactly what they're doing and why: hitting the West where it's most vulnerable. We have to assume this is only the beginning.

Posted by Jonathan at 02:24 PM | Comments (0) | Link to this  

January 23, 2006

The Thumb On The World's Jugular

Future  Peak Oil  War and Peace

World oil production is barely keeping up with demand. There's no spare capacity, no slack in the system. John Robb points out an enormously significant consequence: from here on out, global guerrillas can control the price of oil via relatively minor disruptions in the supply system. This puts one hell of a weapon into their hands. Excerpt:

The control over the price of oil is in now in the hands of global guerrillas — the open source, system disrupting, transnational crime fueled, sons of global fragmentation covered by this author. These actors can now, at will, curtail the supply of oil through low tech attacks on facilities in Iraq, Nigeria, central Asia, and India. The amount of oil effectively under their control exceeds five million barrels a day, more than Saudi Arabia's two million barrels a day of swing production.

It's important to note that this capacity to disrupt production is substantially different than any terrorist threat we have faced in the past. With terrorism, the potential of damage has always been from single large attack on a major facility or node (extremely difficult to accomplish and relatively easy to recover from). Today's threat is based on sustainable disruption — ongoing, easy, low-tech attacks that are nearly impossible to defend against (everything from pipeline destruction to employee kidnapping). [...]

This situation is merely the first stage in the larger epochal war between non-state groups and nation-states. It is by no means the worst of what we will need to deal with...In the meantime, given that the demand for oil continues to increase (due to the growth of China and India primarily) combined with the inability to bring new supplies to market, the price of oil will continue to climb. $100+ a barrel oil is not unforeseeable. [...]

The success of guerrillas to control production in Iraq and Nigeria will spawn similar developments in other locations. High on that list is Russia, the world's largest oil producer, and the Caspian Sea producers. [Emphasis added]

Guerrillas are already significantly curtailing oil exports from Iraq and Nigeria. And as Robb says, there's no stopping them. How are you going to guard thousands of miles of pipeline? Decentralized, freelance, non-state actors with their thumb on the jugular of the industrialized world. Welcome to the twenty-first century.

Posted by Jonathan at 12:25 AM | Comments (0) | Link to this  

January 21, 2006

Kuwait's Oil Reserve Figures Cut In Half

Peak Oil

Two months ago, it was reported that Kuwait's Burgan oil field, the world's 2nd largest, has peaked and gone into decline. Now it is being reported that Kuwait's remaining reserves are at most half what they have been claiming publicly. Reuters:

OPEC producer Kuwait's oil reserves are only half those officially stated, according to internal Kuwaiti records seen by industry newsletter Petroleum Intelligence Weekly (PIW).

"PIW learns from sources that Kuwait's actual oil reserves, which are officially stated at around 99 billion barrels, or close to 10 percent of the global total, are a good deal lower, according to internal Kuwaiti records," the weekly PIW reported on Friday.

It said that according to data circulated in Kuwait Oil Co (KOC), the upstream arm of state Kuwait Petroleum Corp, Kuwait's remaining proven and non-proven oil reserves are about 48 billion barrels. [...]

PIW said the official public Kuwaiti figures do not distinguish between proven, probable and possible reserves.

But it said the data it had seen show that of the current remaining 48 billion barrels of proven and non-proven reserves, only about 24 billion barrels are so far fully proven — 15 billion in its biggest oilfield Burgan. [Emphasis added]

OPEC countries have every incentive to exaggerate their reserves because their share of the OPEC quota is proportional to stated reserves. So Kuwait is almost certainly not the only country that's been lying about how much oil it has left.

Posted by Jonathan at 05:56 PM | Comments (1) | Link to this  

January 19, 2006

Bracing The World For Peak Oil

Peak Oil

The Independent reports on a Peak Oil conference Tuesday in London. Excerpt:

Chris Skrebowski, the editor of the Energy Institute's Petroleum Review, believes peak oil will occur in 2008, at which point the world will move into "a land without maps where we are all likely to be poorer".

For oil is essential to almost everything we do — 90 per cent of world transport is oil-dependent; all petrochemicals are produced from oil; 99 per cent of our food relies on oil in some way, either to grow it or get the produce to market; and 95 per cent of lubricants are oil-based. And, in many cases, oil is not easily replaceable. There are no realistic alternatives to oil for fuelling aircraft and ships, producing petrochemicals or powering cars, without massive investments in technology such as hydrogen. [...]

The peak oil debate tends to divide into two camps. On the one hand there are geologists who argue it is almost upon us or shortly will be, based on analysing past production and discovery rates and field exhaustion and extrapolating into the future. On the other there are economists, political scientists and the oil majors who believe that oil producers — be they governments or companies — will always find a way to meet demand, whether through cleverer ways of finding and extracting oil or greater fiscal incentives to discover and produce more.

Yesterday's conference in London, organised by the Dutch investment bank Insinger de Beaufort, represented both strands of opinion. Mr Skrebowski says that the world's big five oil majors all produced less in 2005 than they did in 2004, while North Sea oil production is declining so rapidly that it will halve in the next seven years.

According to the University of Reading's Dr Roger Bentley, the secretary of the Association for the Study of Peak Oil & Gas, the evidence is irrefutable. He points out that 64 of the world's 100 or so oil-producing countries are already past the point of peak production and on the downward slope. Although there may be a "mini-glut" as output is stepped up from Russia, the Caspian and Iraq and new sources come on stream such as deepwater oil and oilsands, the trend, he says is unmistakable. Dr Bentley believes that non-Opec production will reach a peak within the next 30 months while global output will start to decline between 2010 and 2015 or 2020 at the latest depending on the contribution from non-conventional sources such as oilsands. "Alongside global warming, this is one of the two extraordinary challenges facing mankind," he says. "The numbers may slip a little but the fundamental underlying direction does not change."

Dr Jeremy Leggett, an oil industry geologist turned environmental campaigner turned chief executive of a solar energy company, paints an even more apocalyptic scene. He believes that peak oil will occur some time this decade. That will not only produce "horrible economic pain" as oil prices rise to choke off demand but it will also precipitate environmental disaster as oil-consuming countries switch to coal and hasten global warming. "The shortfall between current expectations of oil supply and actual availability will be such that neither gas, nor renewables, nor liquids from gas and coal, nor nuclear, nor any combination thereof will be able to plug the gap in time to head off economic trauma," he warns. [...]

Despite the ingenuity of the oil industry in extracting oil from ever more hostile environments, it is, adds Dr Leggett, a quarter of a century since the world discovered more oil in one year than it produced. In 2000 there were 16 discoveries of giant fields containing 500 million barrels or more — in 2003 there were none. [Emphasis added]

I love the paragraph about the peak oil debate being divided into two camps. On the one side, the article says, there are petroleum geologists — i.e., people who actually know something about finding and extracting oil. On the other side, there are economists, political scientists and the oil majors — i.e., people who don't know anything about finding and extracting oil (economists and political scientists) and people who have a vested interest in reassuring markets, propping up their stock price, etc. (the oil majors). Who you gonna believe?

Posted by Jonathan at 12:30 PM | Comments (1) | Link to this  

January 08, 2006

IEA: UK Oil Production To Fall Short Of Demand

9/11, "War On Terror"  Iraq  Peak Oil

More on the worsening energy situation in the UK. As reported Friday, soaring natural gas prices have caused many British power stations and other gas users to switch to oil, and oil is now in short supply:

The Association of United Kingdom Oil Independents has told the government that its members had never experienced such protracted and widespread problems...Meanwhile, the Buncefield oil depot fire, the run on oil and other fuels due to cold weather, and a faster than expected rundown of North Sea supplies have caused chaos across the energy sector.

The underlying problem for the UK is that North Sea production has peaked and gone into steep decline (declining 10% in 2004 alone).

Now the International Energy Agency (IEA) estimates that starting next spring British production will no longer be able to satisfy British demand. The UK will become a net importer of oil for the first time since 1992, and as bad as their oil & gas situation is now, it's all downhill from here. The Scotsman (via Oil Drum):

The world's top energy watchdog has warned that the UK economy will become a net importer of oil this year for the first time in more than a decade — three years earlier than the government has predicted. [...]

The IEA sees UK oil demand for 2007 of more than 1.8m barrels per day, which it expects North Sea production will only be able to match for the first three months of the year.

Output is projected to fall to 1.65m barrels per day between March and June, and to 1.55m barrels per day between July and September, before rebounding slightly to 1.66m barrels per day in the last three months.

The government's more optimistic forecasts do not see the UK becoming a net importer until 2010.

Fyfe said: "In the last three years production has declined every year more than 200,000 barrels per day or more. We are looking at the slate of projects coming up and we are not factoring in any of the unexpected outages which have happened in the past few years."

The IEA's warnings raise the prospect that the government may turn out to be as badly wrong-footed by the decline of UK oil production as it was by the decline of UK gas — a failure which has put the UK on the edge of a gas crisis this winter.

A couple of things to note. First, crunch time came quicker than anyone expected — i.e., it doesn't pay to rely on rosy government projections. Second, if you were wondering why the UK — even though British public opinion overwhelmingly opposed the war — followed the US into the Middle East, the above provides a clue.

Posted by Jonathan at 09:29 PM | Comments (0) | Link to this  

Matt Simmons On Natural Gas

Peak Oil

Future generations will think we were nuts. Matt Simmons (author of Twilight in the Desert):

[Natural gas is] the single best energy source we've ever had. It's too bad we didn't understand it. We've used up probably two thirds of the finest natural gas in the world through one of two reasons — we either flared it because we didn't have any idea what to do with it, or we sold it for 1/10th the amount we sold oil for — and we [were giving] oil away. It's not the emissions aspect of natural gas that makes it so unbelievably precious. It's the only source we have of instant heat.

I thought of this quote today when I heated water for tea. Turn a dial on a gas stove: instant heat. We take it for granted. We won't for much longer.

Posted by Jonathan at 04:02 PM | Comments (0) | Link to this  

January 07, 2006

The New Red, White, and Blue

Energy  Environment  Peak Oil

I'm not a Thomas Friedman fan ordinarily, but this is good — and the guy does have clout. From WattHead, via WorldChanging, here's an excerpt from a stirring new Friedman piece that calls energy independence and environmental sustainability the top issue facing America today:

What's so disturbing about President Bush and Dick Cheney is that they talk tough about the necessity of invading Iraq, torturing terror suspects and engaging in domestic spying — all to defend our way of life and promote democracy around the globe.

But when it comes to what is actually the most important issue in U.S. foreign and domestic policy today — making ourselves energy efficient and independent, and environmentally green — they ridicule it as something only liberals, tree-huggers and sissies believe is possible or necessary.

Sorry, but being green, focusing the nation on greater energy efficiency and conservation, is not some girlie-man issue. It is actually the most tough-minded, geostrategic, pro-growth and patriotic thing we can do. Living green is not for sissies. Sticking with oil, and basically saying that a country that can double the speed of microchips every 18 months is somehow incapable of innovating its way to energy independence — that is for sissies, defeatists and people who are ready to see American values eroded at home and abroad.

Living green is not just a "personal virtue," as Mr. Cheney says. It's a national security imperative.

The biggest threat to America and its values today is not communism, authoritarianism or Islamism. Its petrolism. [...]

We need a persident and a Congress with the guts not just to invade Iraq, but to impose a gasoline tax and inspire conservation at home. That takes a real energy policy with longterm incentives for renewable energies — wind, solar, biofuels — rather than the welfare-for-oil-companies-and-special-interests that masqueraded last year as an energy bill.

Enough of this Bush-Cheney nonsense that conservation, energy efficiency and environmentalism are some hobby we can't afford. I can't think of anything more cowardly or un-American. Real patriots, real advocates of spreading democracy around the world, live green.

Green is the new red, white and blue. [Emphasis added]

Hoo-ah!

Posted by Jonathan at 08:43 PM | Comments (2) | Link to this  

January 06, 2006

Trouble In Britain

Peak Oil

Since the 80s, the UK has been the beneficiary of its North Sea oil and gas holdings, but North Sea fields are now in steep decline — North Sea oil declined 10% in 2004 alone — and the Brits are having a rough winter. So rough, in fact, that you have to wonder why so little attention is being paid on this side of the Atlantic. Guardian:

The Major Energy Users' Council (MEUC) urged utilities such as British Gas to hold back plans to further increase bills and instead work cooperatively with "shell-shocked" customers.

Andrew Bainbridge, director general of the MEUC, said: "We need a moratorium because our members are already shell-shocked by a series of price rises and there is no way they are going to be able to claw back the extra costs.

"Further price increases will force companies out of business and suppliers must work in partnership with their customers through this difficult period."

More than 100 NHS hospitals are on interruptible gas contracts, which mean supplies can be switched off with only four hours' notice. [...]

As independent suppliers warned that they were themselves low on capacity, the Department of Health refused to give details of how long hospitals could survive without further deliveries of oil.

The Association of United Kingdom Oil Independents has told the government that its members had never experienced such protracted and widespread problems. The Russian gas stand-off with Ukraine and other factors leading to soaring prices have encouraged power stations and other gas users to switch to oil.

Meanwhile, the Buncefield oil depot fire, the run on oil and other fuels due to cold weather, and a faster than expected rundown of North Sea supplies have caused chaos across the energy sector. [...]

The price of gas has fallen in recent days on the back of a resolution of the row between Russia and Ukraine, plus warmer weather. But only last week British Gas's parent company, Centrica, warned that surging wholesale prices would force all suppliers to raise their bills during 2006 following double-digit increases last year. [...]

Industrial users have started to close facilities for extended winter breaks to save money.

Statistics released by the Department of Trade and Industry yesterday underlined the fast rundown of local energy supplies, with imports of gas up by 80% in the third quarter, compared with the same period in 2004. [Emphasis added]

Modern technology means that oil and gas can be extracted more quickly and efficiently, so depletion, when it comes, is precipitous. The British experience is a preview of our own future.

Conservatives credit Margaret Thatcher with rejuvenating the British economy during the 80s. Never considered, though, is the fact that the 80s are when North Sea oil production came online, creating an enormous windfall for the UK. Now that the North Sea is past peak and declining rapidly, the UK has tough times ahead.

Posted by Jonathan at 08:51 PM | Comments (0) | Link to this  

January 03, 2006

Kunstler On 2006

Economy  Energy  Peak Oil

James Kunstler starts 2006 cheerful as ever. He's got a very long post, full of alarming predictions. The following is a scattering of highlights:

From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit — incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth — foremost its infrastructure for making things besides suburban houses. [...]

The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. Oil coming into new production was not making up for signs of depletion showing among virtually all the world's major producers. Iran, Russia, Mexico, Venezuela, the North Sea, and, of course, the USA, were all past peak. The big mystery was Saudi Arabia, but their inability to boost production from the 50-year-old fields that comprised their main reserves suggested that they were topping out, too. Which left an energy-hungry world with the need to either A.) make other arrangements for powering industrial economies, or B.) contesting for control of the remaining oil reserves, which were substantially concentrated in the Middle East and Central Asia.

Here, I hasten to remind the reader that peak is peak, meaning right now we are all operating on the basis of a lot of oil flowing around the world. The comfort level is still high. The factories are still humming in China, and the six-lane commuting corridors are still full of big cars around Atlanta, Dallas, Denver, and Minneapolis. The problem is that the oil supply will soon steadily diminish at a rate of at least three percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil. The US entered into the military phase of this turbulence before any other nation. We used our superpower status to set up a centrally-located Middle East garrison in Iraq, under the idealistic cover story that we were removing a dangerous head-of-state and helping to set up a model democracy that would invite us to stick around the vicinity indefinitely, and thus retain some control over the deportment of other oil-rich states in the region. [...]

High gasoline, heating oil, and methane gas prices will absolutely kill the housing bubble...The production home builders will be idle, stuck with huge inventories in places that never should have been suburbanized in the first place. A lot of Americans holding "creative" mortgages — no money down, interest only, adjustable rate, what-have-you — will be crushed by the expense of their obligations. Many of them will go bankrupt under new bankruptcy laws that leave no wiggle room for escaping partial repayment. Their houses will flood the real estate markets in an orgy of distress selling. [...]

With the cratering of the housing bubble, the US economy has to fall on its ass. [...]

The sheer falloff in new mortgages will send a tsunami through financial markets addicted to continuous supplies of new "money" to preserve the illusion of expansion. I'd called for a Dow-4000 late in 2005. I think that was just an error in timing, and still call for the Dow to sink into that range, or worse, in 2006. This will represent a moment of painful clarity for market professionals, as they realize that an industrial economy and the finance that serves it must be based on the expectation of generating real future wealth, not on zero-sum rackets, games of monetery musical chairs, or casino legerdemain. Hedge funds, which depend on predictable stability, will be especially vulnerable. They will certainly take some large banks down with them when they go. I'll call for the so-called government sponsored entities of Fannie Mae and Freddie Mac to groan under and then drown in a sea of non-performing loans, probably with overtones of criminal irresponsibility.

If these things occur, ugly things would happen to the dollar. [...]

The commercial airline industry is already whirling around the drain. 2006 will send it decisively down that drain. [...]

By similar reasoning, I see an excellent chance for General Motors and Ford to go out of business in 2006. Sales of their stupid SUVs were already tailing off in the second half of last year, and they are not positioned to offer much of anything else. [...]

As America roils in economic pain, factory workers in China will be thrown out of work. They will be extremely pissed off, and as their appeals go unappeased, they might start making political trouble in their country. That could easily stimulate Chinese leaders to divert their nation's attention with a compelling military project...Sooner or later, China eventually will go cuckoo from a shortage of fossil fuels. It only remains to be seen how this will express itself. [...]

Which brings us to the extremely sore subject of Iraq. I maintain that our reasons for being there have not changed one bit, namely to make sure that we don't lose access to Middle East oil in any shape or form. Now my stating that does not mean I think we will necessarily succeed...I predict that circumstances will impel us to withdraw from the Iraqi cities but that we will not give up large bases near the oil production areas of the north and south. [...]

Generally, I predict 2006 will see a shift in power to the big energy bear, Russia. [...]

Japan has nearly been forgotten. It now imports 95 percent of the fossil fuel it needs to run itself. God knows what they will do if geopolitical turmoil shuts down the shipping lanes that bring a steady stream of oil tankers to the islands. [...]

Meanwhile, Mexico's premier oil field, Canterall, has entered depletion. They depend on imports of natural gas from us, and under the rather insane terms of NAFTA, we in the US depend on imports of gas from Canada to make up for the stuff we have to sell to Mexico. [...]

Here in USA, I predict that we will be diverted by a fantastic circus of congressional hearings and court proceedings. It will be scandal-o-rama for the Bush administration and the Republican party. [Emphasis added]

There's lots more at the post, including predictions of $100/barrel oil, $4/gallon gasoline, and $20/million BTU natural gas at some point during 2006.

Kunstler seems to revel in making dire pronouncements, but his basic points are, I think, well taken. US economic growth truly has become something of a mirage, based on consumer spending and the housing bubble, financed by debt. The trade deficit tells the story. We no longer make what we need, we buy it from foreigners and pay for it with money loaned us by foreigners. Kunstler's stock market predictions may not pan out — there is a glut of capital worldwide, and it has to go somewhere — but the US can't go on forever with a negative savings rate and a living standard financed by going further and further into debt.

Posted by Jonathan at 05:20 PM | Comments (0) | Link to this  

Oil Price Spike

Peak Oil

Oil prices finished 2005 above $61, an increase of 40% for the year. Natural gas prices surged an astonishing 80% on the year.

And oil prices have spiked sharply higher today. BusinessWeek:

Light sweet crude oil for February delivery was up $2.46, or 4 percent, to $63.50 a barrel in afternoon trade on the New York Mercantile Exchange. [Emphasis added]

Short-term fluctuations like today's spike prove nothing, but the longer-term trend is clear. High prices are here to stay, and price volatility is a new fact of life.

Posted by Jonathan at 02:40 PM | Comments (0) | Link to this  

Iraq's Oil Exports Hit New Low

Iraq  Peak Oil

As noted earlier, Iraq's oil industry's in crisis. Oil exports in December were the lowest since the war began. AP:

Iraq's exports of oil hit their lowest level in December since the war, as the country's oil minister resigned in the wake of protests and riots over soaring gas prices and lengthening lines at the pump.

Only 34.4 million barrels were exported in December, or about 1.1 million barrels per day, the lowest average since Iraq resumed exports after the US-led invasion in March 2003, according to figures released Monday.

Almost all the oil was exported from Iraq's southern oil terminals because of continuing sabotage of the country's northern oil facilities. [Emphasis added]

Not exactly a sign of progress. Not unless the plan is to hang onto as much of Iraq's oil as possible as a hole card to be played when world oil shortages hit in earnest.

Posted by Jonathan at 01:27 PM | Comments (0) | Link to this  

January 02, 2006

Sweden's PM: Fossil Fuel Independence By 2020

Peak Oil

Sweden's prime minister has declared his belief that peak oil is imminent and has initiated a project aimed at taking Sweden completely off of fossil fuels by 2020. Energy Bulletin:

The Swedish Prime Minister, Göran Persson, has founded a non-political committee with the intent of making Sweden fossil fuel-independent by 2020. [...]

[A December 13th] hearing began with a speech [by] the Prime Minister stating that we are about to experience the oil peak and so need to assess measures to mitigate its effects and to transform society to adapt to this, including looking on how transport and car use will look in the future. PM Persson underscored that Sweden is very fortunate to have vast agricultural and forestry resources, and to have excellent access to fresh water and no need for irrigation. [...]

The general theme of the hearing was one of Swedish style consensus and non-confrontation, and one can but assume that biofuels, both for transport and electricity generation and heating will be the focus of the committee's work.

Today Sweden gets almost all of its electricity from nuclear and hydroelectric power, and mostly relies on fossil fuels only for transport; most of the heating has been converted to electric space heating, biofuels and waste recycling, with a small percentage remains fossil fuelled. A 1980 referendum decided that nuclear power is to be phased out, although this has been severely delayed...

Recently there has been trend in Sweden towards increased sales of flexifuel E85 (ethanol) vehicles and fuel, and there are projects underway increase native production of ethanol and synthetic fuels from forest industry waste. [Emphasis added]

Fossil fuel independence by 2020 is obviously an extraordinarily agressive goal, but Sweden does have a headstart over other industrialized nations. In any case, it's encouraging to see a head of state acting like a grown-up and voluntarily taking action to accommodate the inevitable. A bit of good news.

Posted by Jonathan at 01:16 PM | Comments (0) | Link to this  

Living In A Pre-War Era

Energy  Iran  Iraq  Peak Oil

A chilling note from diarist Stirling Newberry at dKos:

On this, the first working day of the New Year, we are already getting a good stiff taste of the running theme of 2006. If 2004 and 2005 saw resource inflation, 2006 is the year when resource rich countries begin using those resources as weapons, and resource poor countries begin taking aggressive steps to secure resources. The current world market approach to energy is going to break down, as more and more nations are forced to jostle for position.

Somewhere in the next two years it will dawn on the American public that we live in the pre-war, not post-war, era, and that Iraq was a foreshock. [Emphasis added]

With Iran in the crosshairs, Russia withholding natural gas shipments to the Ukraine, and Iraq facing an oil supply crisis, 2006 is off to an ominous start. Horrifying to contemplate: Iraq may be just the beginning.

Posted by Jonathan at 01:05 PM | Comments (1) | Link to this  

December 31, 2005

A Picture Worth A Thousand Words

Energy  Peak Oil

Modern techniques do such a good job of extracting oil from the ground that when production falls off, the fall-off is likely to be precipitous. The following picture (source, via Oil Drum) says it all:

Here's Oil Drum's description:

[The diagram] shows a vertical slice taken through the Abqaiq oilfield in Saudi Arabia, using an instrument that measures the relative fluid densities at different levels in the field.

The shape is that of the carbonate rock which is the oil reservoir, although the vertical scale has been exaggerated considerably to show the current contents of the field. By using different colors the authors have shown the different fluid densities, and these can simply be translated into four zones. Over time the field has been injected with water (the blue zone) and this has pushed up the oil (the green zone) into the wells. The red is the overlying gas cap. When the reservoir was untapped it was likely all red and green. Ater all these years of pumping you can see how little of the green - the oil - remains....If there is a picture that speaks to depletion this to me, is it. [Emphasis added]

The injected water keeps the pressure up, keeps pushing oil out, so at the well-head everything looks peachy, until suddenly there's nothing left.

The good news is that modern methods squeeze most of the toothpaste out of the tube. The bad news is that they do it so well that when the end comes, it comes suddenly. We'll think the big oilfields (like Saudi Arabia's Ghawar) are doing fine — and then we'll be in free-fall.

Posted by Jonathan at 01:12 PM | Comments (0) | Link to this  

December 30, 2005

Energy Illiteracy And Jevon's Paradox

Economy  Energy  Peak Oil

American affluence hides from us the kind of intuitive, experience-based knowledge we're going to need if we are to move toward a more sustainable energy future. Where does electricity come from? How much do we really use? Who knows. We just flip a switch. Ditto for gasoline, heating oil, natural gas. We have no idea how much energy we use, or what it took to bring it to us.

For the world's poor, the situation is very different. Monte Myers:

[R]esidents of poor nations are acutely aware of every aspect of their energy use; every stick of wood (sometimes carried for miles) and every gallon of cooking fuel is closely watched.

Few Americans ever get close to this kind of awareness, except dimly, perhaps, when camping.

Our obliviousness — our "energy illiteracy," Myers calls it — will work against us as we increase the efficiency of energy use in an effort to conserve. We're likely to encounter a form of unintended consequences known as Jevon's Paradox: increased efficiency can lead to increased, rather than decreased, use of a resource. A more efficient car, for example, costs less per mile to drive, which prompts people to drive more miles, or drive a bigger vehicle, than before. They may — and historically generally do — end up using even more gas than previously, not less.

If we had to carry our own wood, dig our own coal, etc., we'd understand conservation in our bones. But so long as energy is just effortless magic that happens when we flip a switch, so long as the cost of energy is just a number that appears on a monthly bill, it's almost a given that if the cost is reduced, usage will increase. Too bad for us.

Posted by Jonathan at 08:01 PM | Comments (0) | Link to this  

December 15, 2005

Sleepwalking Into Winter

Energy  Peak Oil

An alarming article in US News details what the US is facing this winter in the way of sharply higher fuel costs and potential shortages. It's not a pretty picture. The article's long, but I've cut it down substantially. I think you'll want to read it in any case. It's important. Excerpts:

Falling gasoline prices make it easy to believe the nation has seen the last of the energy woes that swept in behind this year's Gulf Coast hurricanes. [...]

With the season's first snowfall hitting the Northeast last week, it is becoming apparent that Hurricanes Katrina and Rita did far more to the nation's energy equation than spoil Labor Day vacation drives. The storms upset the already precarious balance of the nation's supply and demand for fuel. So much Gulf of Mexico oil and natural gas production remains in disarray that even with a mild winter, Americans face a Big Chill: astronomical heating bills — on average, 38 percent higher than last year's record costs for natural gas and 21 percent higher for oil.

That means hundreds of closed factories and enormous hardship for low-income and working poor families, who can expect scant federal government help. And if bitter cold rides in on Mother Nature's coattails, extraordinary measures will be needed to keep energy flowing, particularly in the Northeast, as natural-gas shortages spill over into oil and electricity supplies...."People are talking not just about high prices but actual shortages."

Adds Matthew Simmons, a prominent Houston energy investment banker, who has warned of a new era of scarcity: "We're headed into a winter that could be a real winter of discontent." [...]

The simple economic rule of supply and demand is now at work: The market price of natural gas hit $15 per million British thermal units (Btu) last week, well over double what traders paid last year. [...]

Hundreds of factories will be...forced to lay off workers or freeze or cut wages because of high natural gas prices this winter, says the National Association of Manufacturers. Many large companies, like chemical giant Dow, have moved major operations overseas near cheaper fuel. But smaller domestic companies don't have that option. "In manufacturing, there's just one way to use less energy, and that's to make less widgets," says Paul Cicio, executive director of the Industrial Energy Consumers of America.

Industrial shutdowns are actually vital to the current energy market because they curb demand. Without them, prices would be even higher for consumers trying to heat homes. [...]

[S]ays Jerry McKim, chief of Iowa's Bureau of Energy Assistance: "[Many] households are carrying significant debt from last winter into this winter — that's something people aren't catching," he says. In Iowa, one of the few states that keep such statistics, overdue utility accounts in October reached a record 221,558, up 5 percent over the previous year. [...]

While the Big Chill will hit low-income households the hardest, no one may be immune if the weather turns foul. New England and perhaps all of the Northeast, including New York City, are a special worry. Gas companies grant big price breaks to customers year-round if they agree to have their service cut when supplies are short. Chances are great these discount customers will be shut down this winter, and they include manufacturers, some schools and hospitals, and, ominously, about 77 percent of New England's gas-fired electric power generation, which requires large quantities of fuel.

The curtailment of "interruptible" customers will trigger a double squeeze on consumers throughout the Northeast. First, costs for home heating oil will skyrocket, as scores of power plants and other interruptible gas customers switch fuels and make a grab for all the oil on the market. Even though heating oil is a major fuel source in the Northeast, there are no oil pipelines from refineries into New England, which relies on deliveries by tanker or barge. And in recent years, the oil industry — following the U.S. industrial trend — has been keeping inventories low to promote efficiency...[I]n the most recent severe cold snap, January 2004, the industry simply could not ship in sufficient supplies. "The just-in-time inventory system, when put together with the utility policy of having interruptible gas customers, creates a very volatile situation where literally in a week, New York harbor went dry [of heating oil shipments] because utility customers went on line...Your middle American ends up paying more to support this situation."

The second threat is a severe electricity shortage in the Northeast — with possible brownouts or blackouts. Deregulated natural-gas-fired power generators, under no legal obligation to serve customers as the old monopoly electric companies were, can simply stop generating power. Some plants will be interruptible customers with no backup fuel source. But in other cases, power plants that have firm natural gas contracts will stop generating electricity anyway and sell their fuel at enormous profit. That is precisely what happened during the three-day January 2004 cold snap, when more than 25 percent of New England's generating capacity went off line and the reserve margin was near zero. The market weathered that storm, but ISO New England, the organization responsible for managing the electric grid, says that even under normal weather conditions, electricity demand this winter most likely will set a new record surpassing that of the perilous 2004 cold snap....[A]s long as power generators are allowed to shut down and sell natural gas during a weather crisis, there is a risk of the kind of market chaos, as well as manipulation, that roiled California in 2000 and 2001. "The result could be a calamity." [...]

"New England clearly has a looming energy crisis, not just this winter," due to overreliance on natural gas for electricity.

Unstable electricity in one region can cascade into another, as New York City learned...Also, much of Manhattan relies on a 123-year-old steam power system, the largest in the world, for both heating and cooling. Although it proved robust during the 1965 and 1977 blackouts and the Sept. 11, 2001, terrorist attacks, it failed during the 2003 outage. [...]

A winter failure could prove catastrophic, because any extended loss of heat could cause water pipes to burst in residential and commercial buildings alike. Also, the thousands of "traps" where steam escapes (and billows from manhole covers) could freeze and fail, causing distribution pipes to crack or lose pressure. Former Central Intelligence Agency chief Jim Woolsey, now active on energy issues, argues that parts of the city "could resemble a frozen New Orleans." Also, repressurizing the system could prove laborious and hazardous, because of the power of steam escaping from cracks. [...]

Whether because of cost or cold, officials are bracing for human suffering across America this winter. "Forces can come together that turn crisis for some into disaster — that's really what I think we could be looking at this winter," says Iowa energy assistance director McKim. "I hate to sound like the voice of doom, but somebody has to say this stuff. It's just like Hurricane Katrina. They knew it was coming, but little was done to prepare an effective response. And the same thing is happening here."

In case you didn't catch it: because of deregulation, electricity-generating plants that have a contract to buy natural gas at a fixed price can, if the price shoots up, decide it's more profitable to shut down and resell their natural gas to someone else. This is not hypothetical; it happened the winter before last. The joys of deregulation.

The comments about Katrina are more than a little chilling. You think: surely the experts and the government see this coming. Surely they've got a plan. But then you remember New Orleans.

Posted by Jonathan at 06:25 PM | Comments (0) | Link to this  

December 14, 2005

US Natural Gas Prices Sets Record

Economy  Energy  Peak Oil

Natural gas prices hit a record high yesterday as winter demand kicks in. AP:

Natural gas prices surged to an all-time high Tuesday, as cold weather in the U.S. and disrupted production in the Gulf of Mexico caused traders to worry that supplies of home-heating fuels will be tight this winter.

Natural gas for January rose as high as $15.78 per 1,000 cubic feet, then settled at $15.378 on the New York Mercantile Exchange, up 53.7 cents from Monday's settlement price. The previous record close was $14.994 on Dec. 8.

"The last thing consumers needed to have happen is a cold snap early in the season," said John Kilduff, analyst at Fimat USA, noting that temperatures have been well below normal in many parts of the country.

"With a quarter of natural gas offline in the gulf, it's just stoking the winter supply fears."

By Wednesday, a storm will bring snow to the upper Midwest, while an ice storm will move up the East Coast by Thursday, according to Accuweather forecasters. December has been colder than usual, and many forecasters are saying below-average temperatures will persist throughout the winter.

Natural gas is most commonly used to heat homes in the Midwest, while heating oil is most commonly used in the Northeast.

Kilduff predicted that the price of natural gas could rise as high as $20 per 1,000 cubic feet by the middle of January. [Emphasis added]

If gas does go to $20, a lot of people are going to have a tough time paying their heating bills. $15 is bad enough. The effect will spill over to the economy as a whole, as money spent paying for heating is money not spent elsewhere.

Posted by Jonathan at 02:43 PM | Comments (0) | Link to this  

Record US Oil Demand Last Week

Energy  Peak Oil

US oil demand last week was the highest weekly total ever. Schlumberger (via OilDrum):

U.S. oil demand surged 1.1 million barrels a day to 21.642 million barrels a day in the week ended Dec. 9, the highest weekly level on record, data from the Energy Information Administration show.

The 5.4% gain in the latest week comes amid extremely cold temperatures across much of the U.S.

The latest figure is up 3.4%, or 714,000 b/d above the 20.928 million b/d reported for this week last year by EIA.

The jump in apparent demand - measuring movements out of primary storage, not actual consumption of oil - comes as gasoline use averaged 9.268 million b/d, its highest level since Aug. 26, around the time Hurricane Katrina struck the U.S. Gulf Coast. [...]

Demand for propane, used as heating fuel, rose 26.5% in the latest week... [Emphasis added]

Average temperatures were unusually warm this fall, letting us off easy after Gulf of Mexico production took a hit from hurricanes Katrina and Rita. Temperatures have turned colder lately, however, and furnaces have switched on over much of the country. Winter demand is kicking in in earnest.

Posted by Jonathan at 02:35 PM | Comments (0) | Link to this  

November 28, 2005

Biotech, Nanotech, And The Transition Ahead

Energy  Peak Oil  Science/Technology

From time to time, I've suggested that the wildcards in our energy future may be genetic engineering and nanotechnology. Before too long, we may be able to create genetically-engineered organisms or nanomachines that synthesize fuels or that can efficiently extract fuels from the environment.

Now CNet reports that Craig Venter, whose company Celera Genomics first mapped the human genome, is starting a company to genetically engineer organisms to produce fuels:

J. Craig Venter, who gained worldwide fame in 2000 when he mapped the human genetic code, is behind a new start-up called Synthetic Genomics, which plans to create new types of organisms that, ideally, would produce hydrogen, secrete nonpolluting heating oil or be able to break down greenhouse gases.

The initial focus will be on creating "biofactories" for hydrogen and ethanol, two fuels seen as playing an increasing role in powering cars in the future. Hydrogen also holds promise for heating homes and putting juice into electronic devices.

The raw genetic material for these synthetic micro-organisms will come from a diverse set of genes from a variety of species, according to the company. While many of the genes will come from some of the aquatic micro-organisms that Venter and his colleagues discovered during extensive ocean voyages in the last two years, the company will also experiment with genes from large mammals such as dogs.

"Rapid advances in high throughput DNA sequencing and synthesis, as well as high performance computing and bioinformatics, now enable us to synthesize novel photosynthetic and metabolic pathways," Venter said in a statement earlier this year. "We are in an era of rapid advances in science and are beginning the transition from being able to not only read genetic code, but are now moving to the early stages of being able to write code."

A small but growing number of researchers are examining ways to tap the power of biology. At Stanford University, for instance, professor James Swartz has been conducting experiments on a soil micro-organism that uses energy absorbed from light to split water molecules, a chemical reaction that produces hydrogen. Typically, organisms that derive energy from the sun — look no farther than the oak tree or the grass in your backyard — exploit that energy to grow.

In Cambridge, Mass., GreenFuel Technologies has created "bioreactors" filled with algae. The algae are fed with sunlight, water and carbon-carrying emissions from power plants. The algae are then harvested and turned into biodiesel fuel.

Engineering organisms for the benefit of humanity creates obvious risks. Both Stanford and Synthetic Genomics have said they are aware of the potential ethical and environmental issues of their work and will take actions to prevent unwanted consequences. Lab-created species could escape into the wild and unpredictably alter the local habitat. [Emphasis added]

Since genetic engineering and nanotechnology are both, to a great extent, applications of information technology (computation, data management, networking), and since information technology continues to advance at an exponential rate, we may well be surprised by the apparent suddenness of energy-related advances in genetic engineering and nanotech. They may one day seem to appear out of the blue.

But worldwide energy use and fossil fuel depletion are also increasing at exponential rates. I.e., we have exponential depletion working against us, and the exponential advance of technology working for us. The race is on.

Energy pessimists like James Kunstler think nothing will ever really replace oil, so we're headed into a "long emergency". Energy pollyannas think new technologies will automatically come online as rapidly as they are needed, making for a smooth and relatively painless transition. The pessimists make the mistake of assuming future technology won't be qualitatively different from current technology. The pollyannas make the mistake of failing to grasp the colossal scale and urgency of the transition that has to occur.

My own view is somewhere in between: fossil fuel production is indeed peaking and we are in for a difficult, turbulent couple of decades as we transition out of our current way of doing things. But if we make it through the needle's eye (without, for example, blowing ourselves up in a world war over oil) genetic engineering and nanotechnology will almost certainly open up new sources of energy — or, rather, new ways of capturing the energy of the sun. The world isn't going to go dark. Genetic engineering and/or nanotechnology on the scale required to satisfy the world's energy appetite are likely to introduce dangerous new problems, but one way or the other we are likely to find ways to capture the sun's energy and make it available for human use. It's just not going to happen overnight, so there's rough sledding ahead in the near term, and success is far from guaranteed.

Unfortunately, current US policy seems to combine the worst extremes of the positions of the pessimists and the pollyannas. On the pessimistic side, the administration appears to assume that the nations of the world teeter on the brink of a grim and deadly struggle for the oil that remains, so the solution is the military occupation of the world's oil-producing regions. Hence, Iraq. On the pollyanna side, the administration seems to assume that it has no responsibility to raise public awareness and foster the development of alternative energy sources and increased efficiency: the market will provide, all by itself. But the price signals that move the market will arrive too late. If we wait for a crisis, we will have waited too long.

Better to take the middle path: cooperate with other nations in equitably distributing the fossil fuels that remain, while putting public resources to work in a crash program to develop solutions for tomorrow. Like grownups.

Posted by Jonathan at 07:45 PM | Comments (1) | Link to this  

November 24, 2005

Happy Peak Oil Day

Peak Oil

A few years back, Princeton emeritus geologist and former oilman Kenneth Deffeyes, author of Hubbert's Peak and Beyond Oil, predicted that today, Thanksgiving Day, 2005, would be the day world oil production peaks.

The prediction was a bit tongue-in-cheek, in that there's no way to pick a specific day, even after the fact, as the day production peaked, but his prediction that the peak is imminent was definitely no joke.

Here's a graph from The Oil Drum, based on data from Oil and Gas Journal, shows recent world oil production (exclusive of natural gas liquids, not zero-scaled):

The highest production to date occurred in May, 2005. Stay tuned.

Posted by Jonathan at 01:36 PM | Comments (0) | Link to this  

November 21, 2005

Natural Gas

Peak Oil

Natural gas (methane) is different from oil in several important respects.

Because it's a gas, the only practical way to ship it overseas is to cool it to -160 deg C (-256 deg F) in order to condense it into its liquid form (Liquid Natural Gas, or LNG). Shipping and storage of LNG requires special cryogenic ships, ports, and storage tanks. Such facilities are in short supply, and the US imports only about 1% of its natural gas supply as LNG (Natural Gas Supply Association). In other words, if we can't get it via pipeline, we can't get it, so we're stuck with whatever natural gas is available on the North American continent. But Exxon CEO Lee Raymond has said that North American natural gas production has already peaked.

Also because it's a gas, natural gas is much easier to get out of the ground than oil is. To get oil out of the ground, producers have to resort to a variety of technologies and techniques, such as pumping sea water into the reservoir to displace the oil. Natural gas is typically under pressure, so it's more like letting the air out of a balloon: the trick isn't getting it to the surface, it's keeping it from coming up more quickly than the pipeline can handle. As a result, natural gas wells empty very quickly. After they peak, their production fall-off is precipitous.

OilCrisis.com summarizes a 1999 article in Oil & Gas Journal:

Texas, which produces one-third of the nation's gas, must drill 6,400 new wells each year to keep its production from plummeting. That's 17 wells each day. [A year earlier], the state only needed to drill 4,000 wells to keep annual production steady. The reason for the change? As drillers target ever-smaller pools, new wells experience steeper depletion rates. Indeed, a typical new well has an astounding first-year decline of 56%...Half the gas from [a new Texas well] will be produced in the first two years. 75% is gone by year four. [Emphasis added]

The big, longer-lasting gas pools were tapped long ago. What's left are small, short-lived pools. Jerome-a-Paris reproduces a chart that show this trend quite dramatically:

North American producers are racing like mad just to stay in place; forget about increasing production to meet new demand. Meanwhile, a quarter of US energy comes from natural gas, and more than half of the nation's homes are heated by natural gas, including nearly 100% of all new construction.

So, here in North America we've peaked, and peak will lead to very rapid depletion. What kind of trouble can this cause? New Zealand is about to find out:

The Maui gas field has been responsible for 25% of New Zealand's electricity generation. When it runs out in a year or two, not only will a multibillion dollar infrastructure become essentially obsolete overnight but New Zealand will have lost 25% of it's electricity generation capacity. [Emphasis added]

Imagine that: losing a quarter of your electricity in a year or two. That's what it's like with natural gas. The end comes very, very suddenly.

Meanwhile, the Independent reports that the UK will have enough energy this winter only if it's not cold. Welcome to the future, which is already in progress.

Posted by Jonathan at 08:34 PM | Comments (0) | Link to this