Peak Oil Matters

[NOTE: Back in April, I followed-up on a series of posts which I first began a year ago and last discussed back in April ([links below*). In that series, I’ve discussed the apparently limitless ability of too many to either ignore facts about oil production entirely, or who instead resort to efforts where disingenuous arguments and/or half-truths serve as sole support for their positions. The net effect is that these attempts do little more than confuse their followers, who likely do not have the time, interest, or inclination to explore the truths on their own (perfectly understandable ... life tends to interfere with lots of options). This post is a second another follow-up.

For starters, I’ll offer some familiar and popular contrasting views on the topic of Peak Oil and oil supply (the misleading, incorrect claim made in the first sentence below was addressed in the first of my two prior posts):

“The theory known as ‘peak oil’ has at its core the belief that we are rapidly running out of oil....

“When it comes to our day, the philosophy of scarcity comes full circle in the peak oil theory.  At its heart this philosophy of scarcity utterly fails to take into account human ingenuity, economics, technology and other important factors.  In other words, long before oil actually ran out, the price would go up so much that people would cut back on its use, find alternatives and seek out new sources of supply.” [1]

“Our abundant and rich lifestyle is all made possible from cheap and abundant energy. Our farmers use fertilizers made from natural gas. The tractors and combines burn diesel fuel as do the trucks that transport our food to either processing plants or the grocery store. Our stores are stocked with goods that are either made here or abroad. The goods arrive by planes, trains, boats or trucks that also burn fossil fuels. Everything we eat, consume, or enjoy is made possible through the production of energy. Liquid fuels have created new landscapes of concrete and asphalt highways, parking lots, shopping centers and endless urbansprawl.

“This is all made possible because of oil, the single most important source of primary energy in our world. Crude oil has changed the very tempo of modern life. Oil has increased the productivity of modern economies. It has accelerated as well as deepened the process of economic globalization….

“Oil has changed and transformed the landscape of the world.” [2]

As to the comments offered in the first quote above, I’m always struck by the glib dismissal of any consequences of declining oil production because of some combination of “human ingenuity, economics, technology and other important factors.” Economics has no impact on geology, so no matter how diligent one is in expounding economic principles, they will not create more fossil fuels. That supply is finite … period!

Certainly human ingenuity can always be counted on. Civilization has advanced to this date and in the manner it has because of that remarkable capacity demonstrated since the very dawn of mankind. And we cannot rationally dismiss the tremendous impact of technology working hand-in-hand with human ingenuity to create the marvels of this day and age.

But it is the author’s follow-up comment, repeated by too many others who discount the reality of our finite supply of economically feasible fossil fuel resources, which continues to astound me. “In other words, long before oil actually ran out, the price would go up so much that people would cut back on its use, find alternatives and seek out new sources of supply.”

The statement or a close approximation thereof is almost always uttered with the same assurance one has in stating that the sun will rise in the East tomorrow morning. Basic economic theory is absolutely correct that when the price of something goes up, almost always demand decreases until some other price equilibrium is reached or a less expensive substitute is found to be adequate. That’s not the bone I’m picking.

It’s the same glib certainty that “… people would find alternatives and seek out new sources of supply.” Just like that? I’ve yet to see any person challenging the reality of Peak Oil make a similar if not identical pronouncement who then explains in any detail whatsoever just how we go about finding these alternatives in any manner such that a transition from fossil fuel usage to the “alternatives” is achieved without considerable disruptions to our ways of living and producing.

Given the truthfulness of the second quote I offered above, do these dissidents have any conception at all of what kind of massive, monumental, nearly-inconceivable (take your pick) effort will be required to even approximate a seamless transition away from fossil fuels? Costs? Time? Research? Production to scale? Testing? Marketability? Resources? Expertise? Public understanding? Infrastructure? Pricing? Supply? Demand considerations? Just a few of the many questions that must not just be asked, but answered, before we’re all comfortably making use of “alternatives” and “new sources of supply.” And let’s not forget one of our major political parties’ relentless, shortsighted, narrow-minded efforts to cut back on investments in our future and in those very alternatives. Apparently waiting until we’ve fallen over the cliff before addressing the problem on the scale needed is the strategy du jour for some of our “leaders.” Great!

This flippant assertion that we’ll just simply move on to something else just like that does as much disservice to the future well-being of our citizens as anything I can think of. And in a too-crowded field of nonsense, that’s quite a determination! Listeners who have neither the time, nor interest, nor awareness, nor inclination to examine the matter further are then left with the “comfort” of knowing there’s nothing to be concerned about now, or any foreseeable point in time because some combination of magic “out there” by “others” will take care of this challenge before we know it! Does anyone on that side of the Peak Oil fence have any concept about the necessity of long term planning, integrity, or honesty in dealing with a challenge that will take us decades to fully adjust to? Is “get-what-I-can-today-consequences-tomorrow-be-damned” the strategy?

One final observation on this author’s recent post: “Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added.” Wonderful, except that those are not the same issues. Produced oil is not replaced by an accounting adjustment. An explanation of that accounting “trick” which created the “new reserves” is conveniently omitted from discussion. Of course, if you are going to make an argument in which truth will disprove your points as soon as the words start flowing, it sounds better if you skip the facts entirely! (See this explanation and refutation of this misleading “new reserves” meme; and read Mason Inman’s entire series on the Daniel Yergin essay in the Wall Street Journal—links provided in the article I’ve just referenced—it is well worth the read.)

The real issue is much simpler:

“… our Peak Oil problem is a case of simple mathematics.

“We stopped finding large oil fields 40 years ago. The production from those fields decreases every year and we simply can’t bring enough smaller fields on fast enough to offset those declines and grow daily oil production….

“The demand side of the equation is no help either. Population grows every year. And the most populous countries in the world grow per capita oil production every year as well. When you consider how many people are in China, India and other emerging countries and then consider how little oil each of them uses, it isn’t hard to see that changes in their lifestyle to include more oil consumption will make a big difference.” [3]

And if that won’t convince you, here’s a bit more:

“Global oil production (crude + condensate + natural gas liquids: C+C+NGL) has been on an 82 million barrel per day plateau for 7 years despite record high oil price, deployment of technology such as horizontal wells and 3D seismic, the development of new oil provinces such as offshore Angola and unconventional play concepts such as the Bakken shale in North Dakota. Oil production rose during the great oil bear market from 1980 to 1998 but has largely stagnated during the great bull run ever since….

“Any discussion about peak oil should begin with decline rates. Yergin’s organisation CERA is well aware of this fact having produced an excellent report on the subject a few years ago.

“Decline is the natural process whereby production rates fall as a result of depressurisation of the reservoir combined with water ingress into the oil-bearing strata. Oil production companies go to great lengths to mitigate for decline by injecting water or gas to maintain pressure, well maintenance programs (work overs) and by drilling new wells. Observed declines are therefore much less than natural declines but nevertheless run at a globalised average of around 5% per annum.

“With global C+C+NGL production running at 82 mmbpd, 5% observed net declines will wipe out 4.1 mmbpd capacity every year. What this means is that the oil industry must add 4.1 mmbpd new capacity every year from new field developments just to stand still. And this new capacity has to be derived from a stock of second-tier assets such as deep water Gulf of Mexico, heavy sour oil in Saudi Arabia, Arctic oil or the Bakken Shale since most of the favoured tier-one assets have already been produced.”

Just when ya think you’ve got the “farce” of Peak Oil pinned down, more of those damned facts pop up at the most inconvenient time!

* http://peakoilmatters.com/2010/10/18/more-on-the-message/

http://peakoilmatters.com/2010/07/12/peak-oil-more-fuzzy-math/

http://peakoilmatters.com/2010/11/22/still-dealing-with-peak-oil-denying-nonsense/

http://peakoilmatters.com/2010/12/20/the-stubbornness-of-denial/

http://peakoilmatters.com/2011/02/03/the-never-ending-efforts-to-skate-past-the-facts-of-peak-oil/

http://peakoilmatters.com/2011/02/10/more-never-ending-efforts-to-skate-past-the-facts-of-peak-oil/

http://peakoilmatters.com/2011/04/27/even-more-never-ending-efforts-to-skate-past-the-facts-of-peak-oil/

http://peakoilmatters.com/2011/09/26/still-more-never-ending-efforts-to-skate-past-the-facts-of-peak-oil-pt-1/

http://peakoilmatters.com/2011/10/03/still-more-never-ending-efforts-to-skate-past-the-facts-of-peak-oil-pt-2/

~~~

Sources

[1] http://blogs.marketwatch.com/fundmastery/2011/09/19/peak-oil-daniel-yergin-impending-doom/; Peak Oil, Daniel Yergin & Impending Doom By Kurt Brouwer

[2] http://www.financialsense.com/contributors/james-j-puplava/peak-oil-chronicles-when-giants-run-dry; The Peak Oil Chronicles, Part I: When The Giants Run Dry by James J Puplava CFP 02/04/2011

[3] http://seekingalpha.com/article/295546-hess-ceo-an-oil-insider-not-willing-to-sugarcoat-our-peak-oil-problem; Hess CEO: An Oil Insider Not Willing To Sugarcoat Our Peak Oil Problem by Devon Shire, September 23, 2011

[4] http://www.theoildrum.com/node/8391; Peak Oil – Now or Later? A Response to Daniel Yergin – Posted by Euan Mearns on September 21, 2011

Continuing with my recent theme of getting readers to recognize more “I didn’t think of that” moments as they relate to Peak Oil (while avoiding any kind of structured or overly-detailed approach that might discourage readers from continuing on), today I’d like to discuss the ubiquitous laptop/personal computer.

These almost-mandatory-for-our-lifestyles products are in no small measure made out polycarbonates and synthetic plastics—petrochemicals … oil. Microchips and housings and keyboards and many of the assorted other elementary components essential to the manufacturing of one of our greatest inventions do not exist without fossil fuels.

How many hours a day do you use this marvel of ingenuity and vision and technology? How many different uses and applications do you employ in the normal course of your day without thinking even once about your computer’s ready availability and its relative affordability? Turning on our computers at home and/or at work has become as commonplace and as taken for granted as brushing our teeth.

Can you imagine what your work and personal life would be like without the computer you rely upon to simplify work and daily living a hundred different ways?

So when we soon enough begin the inevitable decline of oil production owing to geology, geopolitical events, economic factors, natural depletion rates, business investment decisions (take your pick)—while we’re simultaneously confronted with increasing demand from other parts of the world for an ever-decreasing supply—who loses out?

When we no longer have at the ready all of the oil each and every one of us needs to satisfy all the demands and preferences and expectations of industry as well as our own lifestyles, what are we prepared to sacrifice? What if you now had to share one computer with your entire family or with the co-workers in your office or department? Are you prepared for that kind of possibility?

What production limitations is Dell or IBM or Apple going to impose when they no longer have the needed quantity of petrochemical-based components they need to manufacture their products in amounts sufficient to match demand—let alone the fossil fuels needed to run the machinery that builds and delivers their products?

Who in the distribution chain is either going to be left out entirely or forced to make all kinds of accommodations to a decreased supply of fossil fuels they need to manufacture and transport their own pieces of the puzzle? When the quantity of component parts is curtailed because we simply no longer have enough oil to satisfy the industrial food chain and thus personal and business demands for all kinds of computers can no longer be met, how are we to decide which components, suppliers, transportation modes, manufacturers, marketers, stores, and consumers have priority in the supply and acquisition of computers?

Is the investment department of your financial services firm more deserving of a couple of computers than the business you run, or the emergency room of your local hospital? Multiply that scenario by the countless legitimate needs of your family members and friends and acquaintances and local and national and international businesses, and then imagine what happens when someone has decreed that the computer industry and the entire supply and distribution chain it relies upon will from now have to make do with 15% or 25% or 40% less of everything needed to meet demand because oil producers worldwide simply cannot meet demand any longer.

What happens then?

How is this all supposed to work itself out of we don’t start taking steps to recognize the limitations and challenges we’re going to face and begin doing something about it now?

Do we really want to wait until we are forced to try and implement last-minute plans and endure drastic changes? Keep in mind that I’m just presenting a casual overview of personal computers. Multiply the disruptions by the countless products we all use every day….

How are we going to even produce all of these items when we don’t have enough fossil fuels to meet the production and transportation and marketing and delivery processes? How many people lose their jobs along the entire distribution and production chain when Apple and Dell and all the others simply cannot manufacture enough laptops to meet demand because their suppliers can’t meet their own quotas?

Which businesses along the chain of computer manufacture and distribution have to revise their business practices because they no longer have a sufficient number of computers to match and meet the needs of their employees? Which departments get shortchanged? How do you undo the benefits of computer technology required to manufacture and distribute those very products—benefits we completely take for granted now?

How much re-configuration and re-invention of the entire computer manufacturing and distribution process will be needed to meet demand if suppliers and manufacturers and all the other necessary parties have to figure out how to make do with either less energy resources or alternative energy sources that simply do not match the efficiency and productivity of fossil fuels?

What kind of substitutions might then be available to these computer manufacturers? What cost increases would be associated with alternative components? What kind of restructuring would be needed up and down the supply and distribution chains? How quickly can this entire chain of revised production and distribution fall into place?

The reality is that in the not-too-distant—as oil supplies continue their decline and manufacturers everywhere and in all industries are obliged to re-configure the work they produce and the products they supply—we will have nowhere near the alternative sources of energy in place to effect seamless transitions for manufacturing and delivering computers.

What happens then?

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

I came across this very nice piece at The Oil Drum today, written by David Murphy (here). His discussion about energy transitions is well worth considering (and happens to be a nice corollary to issues I raised in my last post, among others). It’s a terrific summary of significant changes in the history of mankind’s progress, and offers meaningful objectives for all of us to contemplate as we move away from fossil fuel dependency.

Waiting for magic technology to save the day will guarantee a wait, but not necessarily anything else.

Hello again!

In my last post, I took a brief look at some of the facts suggesting that we are indeed at or very near the point when our planet’s maximum rate of oil production has been reached.

Today, I’ll point out some of the more popular arguments here in the U.S. disputing Peak Oil. As I’ll do with the information from my prior post, I’ll likewise expand my examination of this material in future discussions.

Four popular arguments against Peak Oil are discussed below (although they are not necessarily the primary debating points). In no particular order, these refutations are as follows:

• there are billions if not trillions of barrels of “unconventional” oil in the shale deposits of the western United States
• there are comparable amounts of unconventional oil in western Canada (the oil or “tar” sands of Alberta), and thus the  combination of these oil resources will supply us with all the oil we need for hundreds of years
• the Arctic region/Arctic National Wildlife Refuge (ANWR)/offshore areas here in the U.S hold billions of barrels of oil
• technology will be developed to boost oil production in existing fields or aid in the discovery of as-yet undiscovered fields

While reminding you that I lack the professional expertise of an engineer or geologist, I nonetheless do not challenge the range of estimated oil resources touted in the Alberta oil sands and America’s oil shale deposits.

Where I take issue is that the related facts and details about production and extraction of shale and sand are all too often conveniently omitted when these massive resources are hailed as the solution to any oil supply problems we might face. Just throwing out the phrase “trillions of barrels” is at best disingenuous. (Despite other arguments suggesting similar amounts of conventional oil reserves, most experts state with about 90% certainty that there are about 1.2 trillion barrels of crude oil reserves. [1]) Resources are not the same as reserves. There are no guarantees that “resources” can ever be successfully produced.

In more than thirty years of attempted production, about 110 million barrels of oil have been produced from oil shale (principally in the Bakken region of Montana and North Dakota). [2] That’s not per year. That’s a thirty-plus year total. (Our nation uses somewhere around 20 million barrels per day; worldwide the usage is approximately 85 million barrels per day). No one has yet managed a commercially viable method of production. One hundred and ten million barrels doesn’t sound quite that impressive when you stack that up against daily usage.

Most experts, even the most optimistic ones, suggest that it will be decades before oil production from oil shale reaches as much as 200,000 barrels per day. With demand expected to rise to over 100 million barrels per day in the next two decades (ignoring depletion rates in existing fields entirely, which the International Energy Association’s World Energy Outlook 2008 estimated at 6.7% a year and rising [3]), that’s not much of a dent.

Most underdeveloped nations aren’t especially inclined to wait a few more decades to improve their lot. Certainly China and India aren’t idling! Demand will increase, supplies will become more strained, and problems will ensue.

Similarly, most experts have pegged maximum lifetime production from the Alberta tar sands at a total of less than two hundred billion barrels. Not an insignificant amount to be sure, but it will take many decades to extract it all. Even the most optimistic supporters of oil sand production don’t expect production rates of more than a couple of million barrels per day—and that is many, many years down the road.

That won’t help much. It’s even less significant when you factor in the environmental degradation wrought by oil sands mining (as will be discussed in an upcoming post). The amounts of water and natural gas required in the process of extracting oil from the sands will cause its own set of problems in the not-too-distant future. Soil and water contamination issues are also prevalent.

As for the Arctic and offshore areas, there may indeed be “significant” finds, but … hello! Exactly how easily and efficiently is that going to be achieved? How many hundreds of billions of dollars and how many years and how much effort will it take if those areas do turn out to be a bit of a boon once again?

There are reportedly about 10.5 billion barrels of oil available in the ANWR, and tens of billions of barrels offshore. Natural topography and climate alone mean that herculean efforts would be needed … and none of that is free! Experts tell us that offshore fields (ignoring the immense difficulties of extraction/production) decline faster and sooner than fields on land.

If we have to go to those lengths and expenses to locate and produce oil, what does that tell you? No expertise required … just a bit of common sense.

Let’s not ignore the fact that as oil exploration becomes more challenging, expensive, and time-consuming, the energy required to locate and extract the oil increases as well, and thus the net energy gained is much less. Crude oil is a remarkably productive source of energy, and for all the talk about oil from the sands and shale, the return on those sources of energy is minimal in comparison. We’ll need a lot more of those resources to produce the same amount of work as crude oil.

As for technology, if one pays attention to the language used, there’s a lot of “potentially’s” and “maybe’s” and “could’s” and “might’s” liberally sprinkled through the optimistic declarations that peak oil is not an issue. My own favorite is “future discoveries of ‘superfields’ of conventional oil reservoirs could boost world production.” [4] Uh, well … ah, yes, I guess that’s true. Not exactly a solution we can count on, though. Future discoveries that indicate we can get oil from mattresses or hats could also boost world production, but….Need I say more?

The notion that higher gas prices will spur development of new technologies conveniently ignores the fact that there are not oodles of new technologies hiding in laboratory closets just waiting to be loosed on planet Earth next week. I have no doubt that technology will continue to improve the quality of our lives, but technology developed and perfected for commercial usage requires time, energy, effort, and money—among other things. What might prove economically or practically feasible 5, 10, 15, or 50 years from now isn’t of much help … now!

There are legitimate and not-so-legitimate arguments for and against peak oil, and like most complicated issues in this day and age, trying to figure out what is right and what is rightfully ignored is no easy task. I’ll do my best in future posts to help you sort through it all and assist you in coming to a better understanding of Peak Oil and its implications.

Next: Some Related Considerations About The Peak Oil Debate

Sources

[1] http://www.canada.com/montrealgazette/news/saturdayextra/story.html?id=153514b8-0a4f-47d8-a68f-24e779264fcd&p=3
        The age of oil is ending – WILLIAM MARSDEN
[2] http://www.theoildrum.com/node/3868
        The Bakken Formation: How Much Will It Help?
[3] http://www.aspousa.org/index.php/2008/11/a-peak-oiler-but-still-in-the-closet-iea/
       A Peak-Oiler, but still in the closet? IEA’s 2008 Report
       By Matt Simmons • on November 17, 2008
[4] Cambridge Energy Research Associates (CERA), as noted in http://science.howstuffworks.com/peak-oil2.htm
       Have we reached peak oil? – Josh Clark