Peak Oil Matters

A few more thoughts on the heels of Monday’s post.

In a recent article on energy, climate change, and sports, Amanda Little shared an anecdote about an iconic National Football League team.

“The new Dallas Cowboy’s stadium, for instance, is an energy-guzzling Colossus averaging $200,000 in monthly utility bills and consuming about as much power as Santa Monica, California. (A conventional scoreboard, on its own, can devour as much electricity annually as 100 homes.)” [1]

Can we really continue to afford to think that this kind of energy excess can and will continue? Is that level of energy usage of greater priority or importance than powering neighborhoods? The truth we need to come to terms right about now is that absent some magnificent new discovery that comes into play very quickly and successfully, we may find ourselves having to make some painful determinations about energy consumption priorities that will have ripple effects in many aspects of everyday living—commercially and personally.

As has been noted by a number of bloggers and organizations, the International Energy Agency has now stopped dancing around the issue and finally admitted that Peak Oil was reached back in 2006. One of its prominent officials has once again indicated that “the era of cheap oil is over.”

Consider just a few more facts on the ground: exploration (deep water or tar sands, anyone?) and production has become more difficult and certainly more expensive, to say nothing of the resource quality. The primary exporters of oil are experiencing increasing domestic demand, and so naturally they are keeping more oil for their own national use. Hard not to understand that that just means less for everyone else. The majority of large producing oil fields are experiencing an inexorable decline in production. A poor worldwide economic environment has restricted investment in exploration and production, and there quite clearly will not be a ramp-up quickly or inexpensively. China is leading the way in higher demand for oil. On and on it goes….

These and many other frequently-discussed factors are going to have an impact soon if that process hasn’t already started. The situation simply is not going to get better, as disheartening as that may be. We’re all going to have to recognize a different set of rules about fossil fuel availability and consumption.

While alternative energy development is a primary source of hope, David Fridley’s excellent chapter in The Post Carbon Reader: Managing the 21st Century’s Sustainability Crises [2] has pointed out some very important limitations that need to be recognized and appreciated.

Mr. Fridley offers this important consideration:

“Alternative energy sources will need to form the backbone of a future energy system.
“That system, however, will not be a facsimile of the system we have today based on continuous uninterrupted supply growing to meet whatever demand is placed on it. As we move away from the energy bounty provided by fossil fuels, we will become increasingly reliant on tapping the current flow of energy from the sun (wind, solar) and on new energy manufacturing processes that will require ever larger consumption of resources (biofuels, other manufactured liquids, batteries). What kind of society we can build on this foundation is unclear, but it will most likely require us to pay more attention to controls on energy demand to accommodate the limitations of our future energy supply. Moreover, the modern focus on centralized production and distribution may be hard to maintain, since local conditions will become increasingly important in determining the feasibility of alternative energy production.” (p.13)

And a few more “for instances” from this terrific piece that we need to keep in mind about our supposed Alternative Energy Knight In Shining Armor:

“… —alternative energy depends heavily on specially engineered equipment and infrastructure for capture or conversion, essentially making it a high-tech manufacturing process. However, the full supply chain for alternative energy, from raw materials to manufacturing, is still very dependent on fossil-fuel energy for mining, transport, and materials production. Alternative energy faces the challenge of how to supplant a fossil-fuel-based supply chain with one driven by alternative energy forms themselves in order to break their reliance on a fossil-fuel foundation.” (p.3)

“Closely related to the issue of scalability and timing is commercialization, or the question of how far away a proposed alternative energy source stands from being fully commercialized. Often, newspaper reports of a scientific laboratory breakthrough are accompanied by suggestions that such a breakthrough represents a possible “solution” to our energy challenges. In reality, the average time frame between laboratory demonstration of feasibility and full large-scale commercialization is twenty to twenty-five years. Processes need to be perfected and optimized, patents developed, demonstration tests performed, pilot plants built and evaluated, environmental impacts assessed, and engineering, design, siting, financing, economic, and other studies undertaken.” (p.5)

When you add to that mix the fact that alternative energy supplies are currently inconsistent in terms of availability, and are much less efficienct than fossil fuels (i.e., we’ll need even more alternative energy to do what lesser quantities of oil provide)—among other factors Mr. Fridley takes great care to inform us of, we do not have adequate solutions/replacements in place.

There are no magic alternatives out there in Energy Solution Land that we can just drop in to our homes and industries and automobiles overnight and then just carry on without so much a single hiccup of interruption or inconvenience. (For all the good that electric vehicles offer, let’s not forget that we do not have the kind of infrastructure in place that will enable us to power an entire new generation of replacement vehicles—at least not without using considerable amounts of fossil fuel-burning power plants to power them up and keep them powered up.)

While our understandable preference may be to just bull our way forward on a blind assumption that something will come to the rescue, reality suggests otherwise. A broader understanding and awareness is called for—notably among and by our political leaders—but so too must the rest of us begin to recognize what looms on the horizon. Peak Oil does not mean our comfy little worlds are going to collapse next week or even soon (however we prefer to define that), but the reality that we’ve now maxed-out worldwide oil production and will never exceed those levels means we’re on the downside of availability.

Everything that we’ve come to rely upon oil for (in other words, pretty much everything), is going to be impacted. And that means we’re going to be impacted. The more of us who appreciate the challenges, the more intelligent our choices will be to plan for the needed adaptations.

We clearly cannot and must not be confident that a limited few will always act in the best interests of the majority. Congress has done a magnificent job of assuring us of that fact. But relying on our government is a necessity nonetheless.

“The Federal Government has many instruments that it can use to accelerate the creation and implementation of new energy technologies. These include research support, technology development, tax and other financial incentives, procurement, technology demonstration and deployment, regulation, standards development, knowledge dissemination, intellectual property protection, public-private partnerships, Federal-state coordination, support for education, immigration law, and international agreements. These instruments involve the responsibilities of many different Executive Branch agencies and Congressional committees. In the past, many actions taken by different administrations and congressional entities have been at cross-purposes with regard to their effects on energy technologies.” [3]

So while we face the daunting challenge of relying on national leaders to articulate our energy priorities and strategies as Peak Oil’s impact becomes more pronounced (leaders who by and large have demonstrated remarkable unanimity in failing to discuss the truths about what we face, by the way), another daunting truth is that much of what will actually be done to deal with the consumption changes will originate at the state, regional, and local levels. While I believe we must have some national objectives in mind, we cannot disregard the importance of bottom up input and expertise.

Soon enough it is not going to matter what your philosophy about governance is, or if deficit-spending is a greater burden than failure to spend, or if the Right is collectively more insane than the Left. We’re going to have to move above and beyond those ultimately petty ideological concerns and develop and deal with real-life implications of a society that it going to have its industrial design and production and transportation systems—and eventual consumption by end-users—all provided and sustained by something other than unlimited amounts of fossil fuels. It will indeed be a whole different kind of world we’ll live in.

While there are clearly some rather imposing challenges and issues, the question ultimately boils down to this: do we allow the challenges to defeat us, or do we recognize the magnitude of what faces us and rise up to seize the opportunities? We’re in due course going to have no choice but to restructure and revise and refine and re-create the industrial support system that has supplied us with our remarkable levels of prosperity for more than a hundred years, as well as doing the very same thing for the lifestyles we currently enjoy.

We must recognize that this will of course lead to different outcomes (we’ll have no choice in that), but that does not necessarily equate to “bad” outcomes. Life is going to be different, and the sooner we come to terms with that truth the better off we’ll be as we begin the process of adaptation and the creation of new strategies and new systems of production and usage. The most optimistic person on this planet cannot expect this to occur in anything less than many years—many years that will pass with less and less of the energy resources that brought us all to this moment. We do have our work cut out for us.

Are we up to the task?

Sources:

[1] http://blogs.forbes.com/amandalittle/2010/11/15/can-professional-sports-do-more-than-politics-to-save-the-planet/; Can Professional Sports Do More Than Politics to Save the Planet? November 15, 2010
[2] http://www.postcarbon.org/report/127153-energy-nine-challenges-of-alternative-energy; The Post Carbon Reader Series: Energy – Nine Challenges of Alternative Energy By David Fridley, p3-4 [Excerpted from The Post Carbon Reader: Managing the 21st Century’s Sustainability Crises, Richard Heinberg and Daniel Lerch, eds. (Healdsburg, CA: Watershed Media, 2010 - http://www.postcarbon.org/reader)
[2] http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-energy-tech-report.pdf; REPORT TO THE PRESIDENT ON ACCELERATING THE PACE OF CHANGE IN ENERGY TECHNOLOGIES THROUGH AN INTEGRATED FEDERAL ENERGY POLICY by the President’s Council of Advisors on Science and Technology, November 2010 (p19).

I haven’t touched on too many geopolitical issues (but see here and here for examples) as they bear upon Peak Oil, but that is a result of choices made, and not a determination that the subject is unimportant.

The recent publication of both German and Australian reports on Peak Oil (here and here—the subject of an upcoming post) have sparked a great deal of interest and chatter on the internet, and deservedly so. Coming on the heels of several other high profile reports this year, such as the United States Joint Forces Command’s Joint Operating Environment (JOE) report and a Lloyd’s/Chatham House white paper, keeping government concerns about Peak Oil away from public attention is becoming increasingly difficult.

The report from Germany cited above suggests that Peak Oil will happen this year, and it paints a disturbing picture of potential foreign relation and energy supply problems that will surely not be limited to Germany. The JOE report is not much more sanguine about future international challenges and potential conflicts, although it did not assert a specific date for Peak Oil (but did express serious reservations about the stability and availability of adequate supplies beyond the next few years).

As oil supplies diminish over time, the relative importance of oil-producing nations will likely increase, and with that added influence and power will be the likelihood that U.S. and other Western nations may find their preferences and “values” playing second fiddle to the preferences and values of those foreign suppliers—not all of whom share our ideals and objectives. It’s not at all far-fetched to consider the real possibility that active resistance to the growing political and economic might of these new international power players may result in a swift curtailment of oil supplies. That’s a powerful club for the Russias and Venezuelas and Saudi Arabias of the world to suddenly wield.

Seven of the fifteen largest suppliers of oil to the United States are on the State Department’s Travel Warning List, for their “long-term, protracted conditions that make a country dangerous or unstable.” [1] Who knows how the internal politics of those nations will play out in the years to come, and what the international/energy supply and security ramifications might be? Saudi Arabia, long-recognized as the leading oil exporter, has its own set of internal issues to contend with, as both Matthew Wild and this article make clear. We cannot passively assume that our primary suppliers of oil will remain so.

Relying on potentially unstable suppliers is not the most optimistic strategy, and we don’t have too many alternatives right now. Ignoring these geopolitical considerations is even less prudent.

Furthermore, the declining availability of fossil fuels will just as likely limit the opportunities we have to export our preferences and values to other nations in need of our assistance. Diminished influence in the international arena will carry its own set of consequences.

Coupled with the loss of political influence is the likelihood that our ability to project military might and protection will also be lessened. The military is the largest consumer of fossil fuels. If we continue to allocate the same percentages of energy supplies to our military, what happens to the rest of us? How will an even smaller pie be divided? And if we allocate fossil fuel supplies in the same proportions now, what happens to the comfort and security we derive from our then-decreased military capabilities? (The flip side, of course, is that proactively decreasing our dependence on fossil fuels lessens the need to project our military all over the world and at exorbitant costs—financial and otherwise.)

And let’s also not forget that diminishing supplies with the onset of peak oil production means that other nations will vie more aggressively for their fair share of oil supplies. The United States may find itself playing an international game it is not at all accustomed to playing—or prepared to play at all. Acceding to the types of political, economic or ideological “favors” that future suppliers may insist upon could prove a very difficult pill for this country’s leaders and citizens to swallow.

A sampling of headlines from just a few articles over the past few months about China’s aggressive acquisition of future oil supplies suggests another problem. They have the means to tie up a good chunk of future supply, and that behavior may be indicative of how future energy transactions take place, as the German report suggests.

“China Global Oil Shopping Spree” [2]

“China’s Global Shopping Spree” [3]

“Saudis Tighten China Energy Ties to Reduce U.S. Dependence” [4]

“China Looking To Make More Loan-For-Oil Deals – report” [5]

“China Now Controls Majority Of Canada’s Athabasca Oil Sands Corp” [6]

The longstanding practices of free market purchase and sale may not prove to be as enduring as we would expect. As the German report noted, “[b]ilateral, conditioned supply agreements and privileged partnerships, such as those seen prior to the oil crises of the 1970s, will once again come to the fore.” Suffering as we do from our arrogance and sense of entitlement because we’re Americans, the change in oil market practices in coming years will prove to be a distinct and unpleasant shock to our political and economic systems, with consequences spreading far and wide. We won’t be the only nation suffering, either, but that will be of little consolation.

Let’s also not ignore the fact that as supplier nations’ populations increase (Matthew Wild suggests that Saudi Arabia could have as many as 45 – 50 million people in twenty years’ time, more than double its 2000 population [7]), the needs of their own citizens will surely take precedence of those in other countries. Exports are usually derived from excess production after domestic usage is accounted for. (Mexico—one of our primary suppliers—has seen its oil exports to us decline by more than a third in just five years. That trend won’t be reversing course. That’s not encouraging.)

With hundreds of millions of citizens in less-developed parts of the world seeking their own version of the American Dream, where will that leave the gluttonous U.S. demand to be satisfied? (“Should China’s total per capita oil consumption reach the level of the United States, they will require basically all of the world’s current oil production. While it is highly unlikely that China’s per capita oil consumption will reach that level, even if it reaches half of the current U.S. level, they will require 40.7 million BOPD.” [8] That’s almost half of the world’s daily usage … not comforting.)

We’re beyond foolish and ignorant if we think that we’re always going to be first in line when oil is passed out just because we’re America.

Any sense that these are issues “out there” and not really affecting us in our daily, personal lives is a risk we should not be taking. What happens out in the real world oil markets has a direct impact on each and every one of us. The more information and understanding we possess, the better our chances of doing something to help mitigate the very real impact and consequences of declining oil production and supply. It’s understandably far more preferable to let “others” work on these issues, but we must give voice to our own concerns so that decisions and practices eventually implemented will have some marginal comfort and familiarity to us.

We are probably beyond the point where we can fully and properly prepare for effortless accommodations and transitions away from fossil fuel dependency, but having a say in how we all must deal with the effects of Peak Oil will help make those transitions more palatable.

Small consolations indeed.

Sources & References:

[1] http://www.energybulletin.net/stories/2010-09-03/exponentially-purpose-century-and-half-ignored-warnings – Exponentially on purpose: a century-and-a-half of ignored warnings – Published by Peak Generation on Fri, 09/03/2010 by Matthew Wild

[2] http://www.energytribune.com/articles.cfm?aid=3356; Posted on Mar. 02, 2010 By Michael Economides, ET editor in chief, and Xina Xie, ET China correspondent

[3] http://www.energybulletin.net/node/52256; 04/01/2010

[4] http://www.bloomberg.com/apps/news?pid=20601207&sid=afA7qKyLK44s

[5] http://www.forexyard.com/en/news/China-looking-to-make-more-loan-for-oil-deals-report-2010-05-17T101708Z

[6] http://www.treehugger.com/files/2010/01/china-now-controls-majority-canada-s-athabasca-oil-sands-corp.php

[7] http://www.energybulletin.net/stories/2010-09-03/exponentially-purpose-century-and-half-ignored-warnings (full cite above)

[8] http://oyetimes.com/views/columns/5880-have-we-passed-the-point-of-peak-oil – Have we passed the point of Peak Oil? by Glen Allen

I spent some time on Friday catching up on my readings for the week, and came across several terrific articles that just happened to tie in quite nicely with the themes discussed in a series of posts I recently concluded.

I think it’s worthwhile to give those articles a little extra publicity. They will help provide readers with a broader perspective on what will or has to happen with Peak Oil looming on the horizon.

First up is a very nice piece by David Roberts, addressing points recently made by Microsoft founder Bill Gates. For those who think technology is going to save the day, Roberts presents a thoughtful essay on why technological innovation alone is not the answer.

As I have discussed, the solutions are going to come about and succeed only if we all contribute. What will happen in the wake of Peak Oil is not a problem we can pass on to our business and political leaders and then wait patiently for them to decide and do for us.

This is about as succinct and accurate a statement of what will have to be as you’ll find (from David Roberts):

“The point is that the way we live together now, the way we govern ourselves, the way we arrange our physical spaces and our commerce, the way we do economics and measure prosperity—all these have to be changed in creative ways if we want to achieve the goal of sustainable prosperity. All these changes require … wait for it … innovation. Innovations in the way we think, interact, and structure our lives require just as much imagination, intelligence, persistence, and funding as innovations in technology.”

What also cannot be overlooked, despite the fact that events across the waters tend to be removed from our immediate consideration, are geopolitical factors that will indeed play a role in the continuing availability of oil to meet all our needs.

In the second part of his discussion, Professor Ferdinand E. Banks discusses not only some basic facts about decreasing oil production; of greater significance are the OPEC strategies he highlights. Like many other nations, countries in the Middle East have their own ambitions and economic objectives, many if not most of which will require oil to realize. The more oil the exporting nations decide to keep for themselves as they seek to meet their industrial and societal aims, the less the rest of us have to use.

It’s their oil, and if they decide they need it more than they need the petrodollars provided by exports, there won’t be a hell of a lot any of us can do about it. The shortsighted “drill, baby, drill” strategy isn’t going to help much over the next decade if that scenario plays out, as is likely.

A related political component is one raised in an informative article from The Economist.

Although most knowledgeable experts legitimately question the feasibility of Iraq’s stated goals of quintupling their oil production in these next few years, any successes that nation achieves by significantly expanding their production capabilities will have a measureable impact on OPEC politics and production quotas. If it influences or affects OPEC, it influences and affects us.

The article does a much better job of cogently explaining the prime issues than I could in attempting a summary. I’ll recommend that you read it to help you understand what impact successful Iraq oil production will have on the dicey politics of oil.

Last up: a warning from two major international investment institutions that oil prices are likely to rise soon; and a related piece from The Oil Drum’s Gail Tverberg on what happens to households and businesses in the wake of those higher prices.

Peak Oil is not just about the amount of oil in the ground. For those of us who hope to inform and educate others about the likely consequences of Peak Oil, these recommended articles offer vital details on the factors that do play just as important a role as do the billions (or trillions) of barrels of oil that may still lie beneath our feet.

We don’t have the luxury of cherry-picking which Peak Oil element we get to address. They’re all related, and the convergence of some or all of these factors (economic, geopolitical, technical, production, etc.) can only have adverse effects on our economy and living standards. We can pretend otherwise, but that accomplishes little here in the real world.

The more we incorporate these broader and related perspectives in our understanding of Peak Oil and the necessity for planning now on how to deal with its impact, the better served we’ll all be when reality intrudes

Sources:

http://www.grist.org/article/2010-02-17-why-bill-gates-is-wrong-on-energy-and-climate/ - Why Bill Gates is wrong by David Roberts (Published Feb 17 2010 by Grist)

http://www.oilprice.com/article-more-about-oil-part-2-opecs-strategy.html – More About Oil (Part 2): OPEC’S STRATEGY; Contributed By : Ferdinand E. Banks Published : 15th Feb 2010

http://www.economist.com/world/middleeast-africa/displaystory.cfm?story_id=15549365&fsrc=rss – Iraq, Iran and the politics of oil - Crude diplomacy; Feb 18th 2010 | BASRA AND UMM QASR From The Economist

http://www.theoildrum.com/node/6226#more – Peak Oil: Looking for the Wrong Symptoms? Posted by Gail the Actuary on February 18, 2010

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7266837/Barclays-and-Bank-of-America-see-looming-oil-crunch.html – Barclays and Bank of America see looming oil crunch By Ambrose Evans-Pritchard; February 18, 2010

It remains my hope that with the right level of effort, commitment, vision, understanding, and action (BIG “ifs” of course), we can effect a reasonably non-disruptive transition away from our excessive fossil fuel dependency. It won’t be perfect or struggle-free, but we can take steps to make it easier. At this point, “easier” may be the best we can hope for.

I recognize that there are criticisms and ridicule leveled against the “doomers”—Peak Oil proponents who assert that we are heading for catastrophe. It’s difficult to gain an appreciation for how much of our lives are predicated on the availability of easily obtained and relatively inexpensive oil and gas, and then consider with nothing but sunny optimism how much of our lives will thus of course be impacted when easy and inexpensive are no longer options. I admitted in my last post on this topic that it is a challenge. The fear that we as a society will choose to do nothing but hope for the best leaves us with little leeway to predict anything but ominous outcomes when Peak Oil’s full weight falls upon us.

I vehemently disagree with the snarky, uninformed deniers who smugly claim that this “doom scenario” is in some bizarre manner a source of enjoyment for us. Those kinds of comments do more to tell a tale about an author’s integrity and character than they do about people like me who are trying to inform. It’s almost unimaginable to consider that there are people who absolutely deny we’re going to face challenges of oil supply and production in the face of clearly articulated facts.

Output from the world’s oilfields is declining faster than had been anticipated; the oil industry itself is relying on fields past their prime, with less skilled help than is needed; more projects are being scuttled for economic reasons and lack of investment funding, and the industry’s own infrastructure is in need of great repair.

Finding oil and gas to replace the world’s fast dwindling reserves is increasingly risky as rigs probe areas once seen as too difficult or too dangerous, and costs are rocketing, which could imperil future supply.
The cost of discovering each new barrel of oil and gas has risen three-fold over the last decade as technology has pushed the frontiers of exploration into ever more remote areas.
As old fields run dry, oil companies are drilling wells in some of the most inhospitable regions, where political, physical, geological, geographical, technical and contractual risks are high…. [1]

(Although the article claims that such efforts are a “remarkable success”, the fact remains we are finding less than we are using every year, as has been the case for many years now.)

When Peak Oil will occur, or what specific factors bring it about, really won’t matter in the end. What does matter is the outcome: less availability, more expensive, more difficult to provide, with demand increasing significantly in developing parts of the world. Bad math….

I’m hard-pressed to understand what Peak Oil and global warming deniers hope to honorably achieve by sowing confusion and doubt where none clearly exists. What fear motivates them to do so, and how callous are they about consequences to all of us? Denial is a powerful tool, but to what end?

For all my optimism, I think we’re too late in the game to effect a completely trouble-free move away from dependency on oil. Changing our habits, our infrastructure, and our economic and industrial way of life is an immense undertaking—one that realistically requires at least a decade or two to have everything in place. We do not have that much time, but we have some.

The sooner we collectively agree on new courses of action (now there’s a gigantic “if” and hope!), the sooner we provide ourselves with the best chance of creating some measure of prosperity and success in a world no longer shaped and fed by unlimited amounts of oil. We have our work cut out for us as it is.

The biggest “if” is how soon we are all willing to engage. If the answer is anything other than “now”, then we will encounter tremendous difficulties as we move away from a fossil fuel resource that simply will not be available to us in the quantities, at the prices, and with the ease we have come to expect.

The vital components of this successful transition depend first and foremost on essential individual traits—characteristics that likewise define our culture and provide guideposts for our future. And in this regard, I am not as optimistic as I’d like to be, but I remain hopeful and still convinced of mankind’s ability to do the right things for the right reasons. We’ve adapted before, and in spectacular fashion. No reason to doubt our capabilities now, but we need to get moving.

The attitudes we bring to this process, the beliefs we’ll continue to hold (and perhaps of more critical importance, the ones we’ll change), will likely make the difference between a “successful” transition to fossil-free ways of life and one of great, unnecessary hardship. What we choose to do now will of course make a difference, as will choosing to do nothing—an admittedly easier path.

We are a nation that does not accept limits on what we can do and be and achieve. In many respects that may be our most beneficial characteristic. But so too can it serve to hamper us when change away from business and life as usual is mandated due to circumstances well beyond our control. Peak Oil is one of those circumstances. We can prepare for it, but we cannot control it.

Ultimately peak oil will not be a geological crisis, not an economic crisis, not a political crisis. Inevitably peak oil will be a global philosophical and psychological crisis. [2]

Our economy and society were first constructed and have been sustained on certain key assumptions and expectations. There is a sense of entitlement many of us carry, one that says that the gratifications we seek and successes we demand are to be fulfilled ceaselessly—preferably with little effort on our part. The “drill, baby, drill” knuckleheaded clamor is only one of many indications that our general approach to gratification is at times one of: “Do, get, have, and then think (maybe). Consequences be damned.” Not particularly admirable or beneficial….

If one were to choose a single word to characterize [what it means to be a 21st-century American], it would have to be more. For the majority of contemporary Americans, the essence of life, liberty, and the pursuit of happiness centers on a relentless personal quest to acquire, to consume, to indulge, and to shed whatever constraints might interfere with those endeavors. [3]

It’s a remarkably short-term focus that carries distressingly long-term implications.

The hard work of prior generations is not viewed with the same levels of respect it clearly deserves. It’s almost as though our attitude is that that’s what they should have done for us, so that we can now live lives of comfort, pleasure, and fulfillment for whatever needs we feel compelled to gratify in the moment. Prosperity is a reward for effort and commitment and skill and patience. It is not the right so many seem to think it is, and it is most definitely not a continuing guarantee. We are in some ways a lazy society getting lazier by the minute. We want everything fast, quick, cheap, and easy, and we have little appreciation for the hard work that was once our defining trait. That can change! I’m convinced of that; just as I am certain that it must change.

The risk is clear:

Generations that have been trained to want or expect easy, quick, automated abundance will find themselves having to adapt instead to a regime in which everything takes longer and requires more effort; in which there will often not be enough fuel or food to go around. [4]

What happens then? 

I’ll leave you with that thought for now.

To be continued….
Sources:

[1]: http://www.reuters.com/article/idUSTRE61A28X20100211 – Oil exploration costs rocket as risks rise; Thu, Feb 11 2010 By Christopher Johnson
[2]: http://oilbeseeingyou.blogspot.com/2010/01/what-will-peak-oil-really-mean.html
[3]: Andrew Bacevich from his book: The Limits of Power: The End Of American Exceptionalism, (Metropolitan Books, 2008) as quoted by columnist Rod Dreher: http://www.dallasnews.com/sharedcontent/dws/dn/opinion/points/stories/DN-dreher_17edi.ART.State.Edition1.adb331.html – Peak oil is coming, and we’re unready, August 17, 2008
[4]: Peak Everything: Waking Up to the Century of Declines by Richard Heinberg, p. 127; New Society Publishers, 2007

This morning, I came across an interesting online article from The Wall Street Journal.

The paper is reporting that Venezuela’s energy and oil minister is meeting in China with government and oil industry official there. The main topics of discussion will be a joint-venture refinery project and more Chinese government investment in the Venezuelan oil reserves. I discussed the heavy oil resources of Venezuela in yesterday’s post. (here)

In that post, I also noted that one of many geopolitical issues we need to be mindful of is that foreign oil producers are no longer falling all over themselves to seek relations with the United States, nor are they always anxious to make us their primary customer. Venezuela’s President, Hugo Chavez, is a notorious anti-American.

China and Venezuela have already entered into a number of oil and energy-related agreements, and other countries are also working out oil agreements with Chavez’s government (Italy being only the most recent one.)

Another recent article notes that Russia and Venezuela are likewise engaging in trade talks and oil cooperation.

Tellingly, after referencing several recent China-Venezuela oil deals, the Journal’s article notes that:

“These moves stem from Venezuelan efforts to fund development of its huge oil reserves and diversify sales away from its traditional main market, the U.S., including by boosting sales to China to 1 million barrels per day.”

Our blind dependence on foreign oil and a naïve assumption that going forward we will continue to import all the oil we need may crash head-first into political realities where those assumptions are by no means a given. Those realities carry with them real consequences, too.

Sources:

http://online.wsj.com/article/SB10001424052748704022804575040431689856008.html?mod=googlenews_wsj – Venezuela, China in Oil Talks By SIMON HALL

http://news.xinhuanet.com/english2010/world/2010-02/01/c_13158157.htm – Russia, Venezuela step up oil cooperation

Once more I’d like to detour away from my next planned post and discuss a news item that received a fair amount of media attention last week: the United States Geological Survey’s (USGS) assessment that Venezuela’s Orinoco Oil Belt now contains a bit more than 500 billion barrels of “technically recoverable” oil.

There’s certainly no question that if this report is true, the opinion enhances Venezuela’s status as a major player in the international oil market. (According to the Energy Information Agency—citing the Oil and Gas Journal—Venezuela had 99.0 billion barrels of proven oil reserves in 2009. That’s the largest amount in South America.)

The EIA reported that as recently as two years ago, the United States received more of Venezuela’s petroleum exports than any other nation. That amount continues to decline annually. (According to the EIA, we import more than a million barrels of crude oil and petroleum products from Venezuela per day.)

As is almost always the case, however, things are not as simple as they appear.

Unlike the light sweet crude oil produced by the U.S. and the light oil which has made Saudi Arabia such a force, the Orinoco oil is “heavy oil” found in oil sands—similar in characteristics to the tar sands bitumen found in Alberta, Canada. (See my prior post here.) The Venezuela oil is thus much harder to extract and refine, making it more costly. Significant investments of time and money are required to provide adequate refinery capabilities. Needless to say, extracting this heavy oil is a much more energy-and time-intensive effort than is the process for extracting the more familiar light crude. It is not anyone’s answer in the next few years.

Lead researcher and USGS geologist Chris Schenk admitted that their report is not asserting that the “technically recoverable” oil is in fact “economically recoverable.” That’s a significant distinction, and one that needs to be emphasized. All the presumed underground reserves in the world won’t mean much if it makes no sense to invest the time, effort, and money to try and extract them.

The USGS nonetheless estimates that a stunning 40 – 45% of that resource will be ultimately recoverable. One prominent geologist (and a former board member of Petroleos de Venezuela SA—Venezuela’s state oil company) is already on record as doubting anywhere near that amount can be recovered, and stated that much of what might actually be recoverable would in fact be too expensive to produce.

Merely stating that 40% or 45% is recoverable is not the answer. Those who dispute Peak Oil may fervently wish that merely uttering that remote possibility is enough to curtail discussions on the topic, but the optimism of “possibility” is insufficient in and of itself. The reality is that like with most other oil reserves, final production levels will be nowhere near that high a percentage. If experts already on record are correct, Venezuela simply does not have production capabilities or financial resources needed to meet that projection.

Aside from the political turmoil normally associated with President Hugo Chavez’s regime, Venezuela is suffering the effects of a poor investment environment. Rolling blackouts, drought, a high murder and crime rate and the social upheavals those factors spawn are all contributing to serious oil production challenges—among other political and economic difficulties.

Thousands of highly qualified oil company employees were fired by Chavez several years ago and many have left the country, so the state oil company is suffering a severe shortage of qualified personnel. Any outside oil company successfully bidding on these reserves will be called up to expend tens of billions of dollars to create infrastructure in the drilling/mining regions while simultaneously being obliged to deal with the political, industrial, and social problems unfolding in that nation. There is no easy or quick solution on the horizon.

Oil production has declined by about one-third in the last five years in that country, and exports continue their drop month after month. In the midst of its ongoing power crisis, Venezuela is being called upon to produce more energy in an economic climate that is hardly conducive to producing more of anything. (Many stores, malls, and businesses have been resorting to generators in order to stay in business, and the country’s infrastructure is in seemingly perpetual decline.)

And let’s not forget one key political factor about Venezuela and its oil production: it is no fan of the United States. By most accounts Chavez is pursuing agreements with other nations in no small part because it means less Venezuelan oil for America. The million or so barrels of Venezuelan oil we receive daily are amounts Chavez is no doubt hoping soon find their way elsewhere. That’s not an insignificant shortfall to make up. With Mexican production also crashing, we need to recognize the likelihood that past supplies of foreign oil are not guaranteed for the future. We receive an average of a couple of million barrels of oil every day from those two nations. If they are unavailable to us in just a few years, that’s an enormous energy hit for us to take.

Does all this mean we’re facing a catastrophe tomorrow? Of course not. But the problems within Venezuela and its precarious relationship with our nation are factors we must consider in any long-range energy planning or expectations about supply. Peak Oil is indeed about much more than just geologically-premised declining rates of production.

The sooner we pay attention to these vital issues and plan accordingly, the less disruption to our ways of life we’ll be obliged to endure.

Sources:

http://scitizen.com/future-energies/venezuela-may-yield-twice-as-much-oil-as-was-thought-_a-14-3350.html – Venezuela May Yield Twice as Much Oil as was Thought. 25 Jan, 2010

http://www.frumforum.com/chavez-strike-out – January 2010

http://www.frumforum.com/lights-out-in-chavez-land – January 2010

http://www.energybulletin.net/node/51298 – January 2010

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=332210&t=01003417101430356940 – Revisiting the 4 Horsemen of the Oil Boom – January 2010

http://english.eluniversal.com/2010/01/25/en_eco_esp_energy-crisis-threat_25A3336133.shtml – Energy crisis threatens Venezuelan exports of fuel oil and diesel. Energy

http://www.ogj.com/index/article-display/4235916720/articles/oil-gas-journal/exploration-development-2/reserves/2010/01/usgs-pegs_orinoco.html – USGS pegs Orinoco’s recoverable figure at 513 billion bbl. Jan 22, 2010. Alan Petzet. OGJ Chief Editor-Exploration

http://ca.news.finance.yahoo.com/s/22012010/2/biz-finance-venezuela-s-orinoco-area-holds-vast-supply-crude.html – Venezuela’s Orinoco area holds vast supply of crude, US Geological Survey says. Fri Jan 22 By Ian James, The Associated Press

http://www.aspousa.org/index.php/2010/01/top-ten-peak-oil-stories-of-2009/ – Top Ten Peak Oil Stories of 2009 By Tom Whipple • January 4, 2010

Recently, the always-wonderful New York Times columnist Bob Herbert raised some interesting questions about America’s future:

What will the United States be like in 20 years when today’s toddlers are in college or trying to land that first job or maybe  thinking about starting a family?

The answer will depend to a great extent on decisions we make now about the American infrastructure….

In 20 years, will today’s toddlers be traveling on bridges and roads that are in even worse shape than today’s? Will they endure  mammoth traffic jams that start earlier and end later? Will their water supplies be clean and safe? Will the promise of clean  energy visionaries be realized, or will we still be fouling the environment with carbon filth to the benefit of traditional energy  conglomerates and foreign regimes that in many cases wish us anything but good?

The answers to these and many other related questions will depend to a great extent on decisions we make now (even in the  midst of very tough economic times) about the American infrastructure. We’re trundling along in the infrastructure equivalent  of a jalopy, with bridges rotting and falling down, while other nations, our competitors in the global economy, are building  efficient, high-speed, high-performance infrastructure platforms to power their 21st-century economies. [1]

As uncomfortable as these questions may be; as difficult to ask as they appear to be; as unpleasant as they may be to consider, we are going to have to do the dirty work of asking and answering these and many related questions. Peak Oil’s challenges and the opportunities they will afford us to create a new framework for our future are not limited to ensuring we can fill the gas tanks of our Land Rovers and BMWs, or putting food on the table, or conducting “business as usual” (which is not to minimize the significance of those needs).

As I’ve discussed briefly in my prior posts and as will be detailed in a lengthy series of upcoming posts, there is very little in our everyday lives that does not originate from oil-based products. We are facing monumental changes when oil supplies begin their inexorable decline, and fascinating opportunities to address ways of meeting those changes!

What we give precious little consideration to, however, is that not just our lifestyles, our industries, our transportation, our health care, our businesses, and our entertainment rest on the fundamental availability of cheap oil. Our access to the basic utility services that sustain us likewise depends on that same cheap oil. How many sewer systems, power lines, natural gas and oil pipelines, water pipes, bridges, culverts, or roadways have been designed, built, maintained, repaired, or replaced without some necessary component of oil and the energy it provides?

We’ve spent decades creating an infrastructure in support of our phenomenal growth and successes because we’ve had access to inexpensive and plentiful oil that provided the energy and means to build it all. Does anyone really think that we’re not going to have to start addressing major repairs to our infrastructure soon? It’s no secret that we’ve neglected it far too long.

We have tens if not hundreds of thousands of miles (or more) of those very old pipes and power lines that need to be maintained and in many instances repaired and replaced. Reports and comments raised in just the past year alone suggest that we’ll need several trillion dollars here in the U.S. to bring our infrastructure back to some semblance of acceptable condition.

When the oil faucet starts flowing more slowly, what happens? Where do we prioritize, and at what cost?

We’re creating a dangerous precedent in thinking that this will all be fixed or replaced or reinvented any time soon. There are countless opportunities awaiting us, and countless problems looming if we don’t start thinking about how to deal with less oil.

The International Energy Agency (IEA) is on record estimating that more than $26 trillion will be needed worldwide in the next twenty-odd years to continue fossil fuel exploration (gas, coal, and oil) and to develop and utilize production technologies to meet increasing energy demands. But those resources aren’t replenishing themselves! So after we spend all that money (which will come from … where?), we’re still going to have diminishing resources.

There’s a choice to be made, and it is not an easy one: Do we summon the financial means to try and meet increasing energy needs with coal, gas, and oil (along with unconventional resources such as oil shale and oil sands), or do we begin the long and costly process of converting and redesigning our existing infrastructure into one capable of supporting continued growth by means of alternative energy sources? (And this is all predicated on a fervent hope that we will in fact develop alternative energies of sufficient capability, quantity and economic feasibility to fully replace what oil does for us—not an inconsiderable task! Trillions of dollars are going to be needed in this regard as well. Our level of research and development expenditures this past decade is abysmally low. We’re already way behind.)

Alternative energy success is by no means a guarantee, but I daresay we don’t have much choice. The issue is how to go about doing all of this….Opportunities.

There are other problems to be addressed if we decide that we must continue a steady march toward development of all available oil—both conventional and unconventional. These tend to get glossed over in the more popular discussions about oil finds and oil usage, but they are no less important to consider.

And in the face of Peak Oil’s challenges, we are going to have to fashion solutions without the same ready supply of cheap and easily-available crude oil as we have for these past few decades. With another billion and half or so people added to world population in the next fifteen years, which is predicted to nearly triple energy demand, we’ve got our work cut out for ourselves. (Throwing up our hands and crying “Uncle!” seems an appropriate response right about now.)

I have alluded to the fact that the existing oil fields now in production face an inevitable consequence: the amount of oil pumped from the ground today means less oil available for tomorrow’s production quota, and then less the day after that…. In 2008, the IEA projected that the natural decline from existing oil field production would exceed 10 percent per year by 2030.

I’ve previously noted that we’re finding smaller and smaller fields to replace what’s now declining, so that’s not helping. Offshore finds, apart from their costs and the monumental efforts needed to bring them online, also decline faster than land-based fields owing to their unique characteristics.

We’re going to have to throw a lot more money at harder-to-find and harder-to-produce oil fields, and we’ll have to do so in the face of yet another challenge: this worldwide recession has significantly curtailed investment and production in the past two years. In just a handful of years, we’re going to start feeling the pinch of lower supplies because investments haven’t kept pace with demand. Billions of dollars worth of oil projects have been scrapped or postponed in these last few years, and they won’t run back at full throttle overnight. It’s going to take years to recover.

IEA Director Nobuo Tanaka warned back in November that global investment-related spending dropped nearly $90 billion, or 19%, during 2009 vs. 2008. That all adds up to less oil during this next decade [2].

In its most recent world energy outlook, the IEA is also predicting that almost half of the oil we’ll need by 2030 (an extra 45 million barrels per day, or about 50% more than what we now consume!) will have to come from oil fields not yet developed or found! [3], [4] In energy terms, twenty years is not a long time.

Is anyone planning to retire on funds yet to be found? That’s what we’re being asked to hope for when it comes to oil supply.

We must also not forget political considerations. We’ve haven’t exactly bathed ourselves in international glory this past decade. There are not an inconsiderable number of countries (think Venezuela and Iran, among others) which aren’t inclined to do us any extra oil favors.

Back in the 1970s, the Mobils and Exxons of the world controlled more than three-fourths of the planet’s oil reserves. Today, 90% of that is controlled directly by the oil-producing countries. Big Oil is getting shut out, and we’re all being left at the mercy of geopolitical interests and oil-production capabilities by many countries that are neither favorably disposed toward us nor necessarily as technologically advanced as the oil corporation giants. And let’s not forget that as their populations grow and their productivity increases, the need for these countries to keep oil “at home” increases.

Those who deny the implications of Peak Oil tend to overlook these facts. We cannot afford to do so.

Furthermore, various reports in the last couple of years suggest that over the past two decades, more than half a million skilled oil and gas workers have lost their jobs. It’s going to take years to replace them. Oil engineering and related studies are not drawing the same numbers of students as in the past, so as older professionals retire, there’s a growing shortage of experts.

We scoff at these factors at our peril, for they are real-world considerations directly affecting oil supplies and production. That’s not a good thing for those hoping for “business as usual” once we all get back on our feet.

Next: More Considerations – Part II

Sources:

[1]: http://www.nytimes.com/2009/11/17/opinion/17herbert.html?_r=2&adxnnl=1&ref=opinion&adxnnlx=1258455637-lZ9f+84UVVV0xzhkak7qzg – What the Future May Hold By BOB HERBERT, November 17, 2009

[2]: http://www.aspousa.org/index.php/2010/01/top-ten-peak-oil-stories-of-2009/ – Top Ten Peak Oil Stories of 2009
By Tom Whipple, January 4, 2010

[3]: http://seekingalpha.com/article/176440-peak-oil-demand – Peak Oil Demand by: Hard Assets Investor December 03, 2009

[4]: http://www.business24-7.ae/Articles/2010/1/Pages/05012010/01062010_051f7226d8814fd1886f49052b75288a.aspx