The Energy Blog

FYI: Double Digit Oil Price is History

The Economic Times has an article "Double-digit oil price is history: R S Sharma" that gives a perspective on where we stand on oil supply and consumption and some comments on what we need to do:

Oilonomics has gone haywire. The rise in oil prices has now started to hurt. Crude oil price increased five-fold in five years (from $22 per barrel in 2003); doubling in just fourteen months (from $54 per barrel in January 2007 to $110 per barrel in March 2008). . . .

During the last quarter century, primary energy consumption increased by about 64% (oil by 31%; gas by a spectacular 97%), primarily driven by growing demand from the developing world. CRISIL in a recent report has pointed out that non-OECD countries, particularly China and other Asian countries, have been the largest contributors to the 3.2 million bpd incremental world oil demand over the period 2004-07. Most forecasts for the next quarter century project more than a 60% increase in energy demand, mainly from emerging consumption centres. India’s demand for primary energy in 2030 is projected to be four times what we are consuming today (423 million tonnes of oil equivalent).

On the supply side, the emerging scenario is even more complex. Oil and gas resources are concentrated in a few countries. OPEC has around 73% of the world’s proven oil reserves. One-third of the world’s oil production comes from just three countries: Saudi Arabia, the Russian Federation and the US. Half of the world’s oil production comes from the 100 largest fields, almost all more than 25 years old. Discoveries of new giant fields are becoming rarer. Out of 85 million bpd oil production today, only 15 million bpd come from new finds and day-by-day incremental demand is outstripping incremental supply. . . .

Against these hard facts, ‘Peak Oil’ theory has kept every one guessing. Have we reached the peak or not quite yet? We may not have a definite answer as of now, but its effect is quite visible on the dynamics of the oil market. Now, many oil geologists believe that 90% of the globe’s oil fields have already been tapped and many are already exhausted. . . . Reserve replacement ratios (RRR) for most, if not all, is less than one. . . .

I believe we do not have any options other than recognising the long-term devastating effects of flared-up oil prices. We need to bite the bullet and go for energy demand management with a vengeance. Increasing efficiency of transportation, residential, commercial, and industrial uses is a must. Further, we need to ease the pressure on oil and gas by expansion and diversification of other energy resources.

Why Exxon Won't Produce More

From Business Week online March 20, 2008:

. . . If you want to understand why Exxon won't produce more, it helps to listen in to ExxonMobil's  presentation to analysts in New York City in early March. Halfway through the three-hour meeting, Exxon management flashed a chart that showed the company's worldwide oil production staying flat through 2012. . . .

Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year. That means the company's oil output won't even keep pace with its own projections of worldwide oil demand growth of 1.2% a year.  . . .

"We don't start with a volume target and then work backwards," Instead, he said, his team examines the available investment opportunities, figures out what prices they'll likely get for that output down the road, and places their bets accordingly. "It really goes back to what is an acceptable investment return for us."

-- Exxon Chairman Rex Tillerson

. . . Since 2000, Exxon's oil output from two of its largest regions, the U.S. and Europe, declined a startling 37%. That's 500,000 fewer barrels a day in just seven years. . . .

Exxon plans on bringing new fields online in Russia, the Middle East, and Africa over the next four years but they won't be enough to generate growth beyond what the company is losing due to the maturation of its fields in the North Sea and Alaska, the nationalization of its fields in Venezuela, and volumes lost due to production sharing agreements with other countries.  . . .

Big oil companies can continually miss their targets or even target no growth and still shine on Wall Street due to the peculiar nature of commodity businesses. Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies. Exxon shares have risen 21% in the past year—and even closed a bit higher on Mar. 5, the day of its analysts meeting.

Oil Shortages Start in 2010; Peak Oil Hits 2012-2015

EnergyTechStocks.com had a very interesting post on peak oil based on an interview with Charles T. Maxwell.

Maxwell spent 40 years on Wall Street, plus 12 years before that working for a major oil company, a lifetime of experience. Now a senior energy analyst at Weeden & Co., Maxwell is known as the “dean of energy analysts.”  Princeton and Oxford-educated Maxwell has laid out in stark, uncomplicated terms what might be called the “Nightmare on Main Street.”

Some key points from the first of four posts in EnergyTechStock.Com:

• There is only about 1.2% more oil available each year, not enough to keep up with 1.5% annual demand growth.
• Between now and 2010, this supply shortfall will be made up through a drawdown in inventories, helped out by a slowdown in demand in 2008 and 2009 due to a recession or near-recession in the U.S.
• In 2010, the shortfall will become greater than can be made up by what’s still in inventory, thus beginning a period of global oil scarcity that will lead to a “peak” in conventional oil production in 2012 or 2013.
• It gets even worse in 2015, which is when he expects a peak in the production of all liquids, a category that includes condensates, tar sands oil and biodiesel.
• By 2025, “We can create some answers.” He explained that both plug-in electric vehicles and cellulosic biofuel are “wonderful ideas”; however, given that it takes 10 to 15 years or longer to turn over the world’s vehicular fleet, such technological breakthroughs won’t happen quickly enough to prevent the nightmare from happening.

In part 2 he forecasts $12 to $15 dollars a gallon gasoline "in a few years" with oil at $180 a barrel in 2015 and $300 a barrel in 2020.

Not too far from what I expect, based on a "virtual" consensus that I have created in my mind. I don't have any idea whether his price forecasts are anywhere near reality, as few will stick there neck out that far on prices.  I know the long term trend is up and any short term decreases are just a blip in the trend.

Peak Oil - How Will You Ride the Slide

New UK Heavy Oil Recovery System Could Unleash Generations of Production of Inexpensive Oil

Is the THAI™ system (below) or any other process that comes along for economically recovering heavy oil and bitumen the answer to our dependence on oil for the majority of our transportation fuels?  This does not appear to be pie in the sky, as they already have a 3,000 bpd pilot plant in operation. Since oil for transportation systems is becoming very expensive (relatively, especially in the US and other dollar denominated countries) and our current development of alternative liquid fuels and/or electrically fueled vehicles is not currently moving ahead fast enough to have a significant impact on oil prices in the near future, (nor would this process in the short term) should we celebrate such a process as a possible constraint on oil prices?  There is much heavy oil in the Western Hemisphere other than Canada, including Venezuela and western parts of the US, the use of which would greatly reduce our dependence on oil from the Mideast and Africa.  It certainly would be a big boost to the Canadian economy.  If widely adopted what does this do to further development of renewable energy and the accompanying reductions in CO2 emissions?

University of Bath press release:

A new method developed in Britain over the past 17 years for extracting oil is now at the forefront of plans to exploit a massive heavy oilfield in Canada.

Duvernay Petroleum is to use the revolutionary Toe-to-Heel Air Injection (THAI™) system developed at the University of Bath at its site at Peace River in Alberta, Canada.

Although heavy oil extraction has steadily increased over the last ten years, the processes used are very energy intensive, especially of natural gas and water. But the THAI™ system is more efficient, and this, and the increasing cost of conventional light oil, could lead to the widespread exploitation of heavy oil.

Total Chief Warns of Peak Oil

I was going to write a post on this, but the Biopact post will suffice.

The world’s capacity to produce oil will fall well short of official forecasts, the chief executive of oil major Total warned. In an unusually stark prediction for the head of one of the world’s biggest oil companies, Christophe de Margerie, CEO of the French group, said it would be difficult to reach even 100 million barrels a day.  . . . more

Report Finds Unconventional Fuels and Efficiency Gains Could Make a Significant Impact on required Oil Imports

In a three volume report that a DOE Task Force prepared it was concluded that "the domestic and global fuels supply situation and outlook is urgent. Increasing global oil demand, declining reserve additions, and our increasing reliance on oil and product imports from unstable foreign sources require the Nation to take immediate action to catalyze a domestic unconventional fuels industry." It further went on to say "Aggressive development by private industry, and encouraged by government, could supply all of the Department of Defense’s domestic fuels demand by 2016, and supply upwards of 7 million barrels per day of domestically produced liquid fuels to domestic markets by 2035." Their most aggressive scenario concluded that oil imports would decrease if significant efficiency gains were made.  The following is a shortened summary of the report from EV World. (click to enlarge graph)

The United States' Task Force on Strategic Unconventional Fuels (www.unconventionalfuels.org) has made public its findings and recommendations on the future role to be played by five non-petroleum energy sources found in America: shale oil, heavy crude, tar sands, coal-to-liquids and enhanced oil recovery (EOR) using captured carbon dioxide.. . .

The Task Force . . . takes a comprehensive look at the potential contribution these, heretofore under-utilized resources can make in supplementing the nation's declining petroleum production. They conclude that even under the most aggressive development scenario, these resources could produce about 7.6 million barrels a day of synthetic liquid fuel by 2035. And under current, business-as-usual, conditions -- and assuming a whole host of issues from socioeconomic to technical can be resolved -- unconventional fuels might add 2.3 mbld by 2035, about one-tenth of what America currently consumes. . . .

The contributions made by the various unconventional energy sources under three different utilization scenarios shows America continuing to be largely dependent on imported oil with energy conservation and efficiency making greater contributions then unconventional fuels put together.

Peak-oil - The Turning Point

Peak Oil - The Turning Point, a poster, is available as a pdf download from the Department of Energy.  It is an interesting commentary on peak oil, including a very brief explanation of Hubbert's theory and the various predictions of when the peak might occur. They also have several other posters available, here, that trace the origin of oil and gas, the means to get it to market, the U.S. and global disposition of oil and gas, as well as unconventional sources of oil.

Thanks to vox mundi on Peak oil and Message Boards

Updated World Oil Forecasts

ace has posted a comprehensive article on The Oil Drum that details his  highly documented views on the supply, demand and prices, for total liquids, crude oil and oil discovery rates which paints a rather bleak picture for our liquid supply. 

This figure (click to enlarge) summarizes it all for me.

I know some of you will disagree with this analysis, but I challenge you to document a more optimistic scenario. Please read the whole post if you are interested.

Oil to hit $100 in 2008, Predicts Bank

A "steady ascent" of crude oil prices toward $100 (U.S.) a barrel continues, but the predicted date when that level will be hit remains a moving target, according to a CIBC World Markets report Wednesday.

The investment banking division of the Canadian Imperial Bank of Commerce (TSX: CM) predicts "new record highs of $80 a barrel this year and reaching as high as $100 a barrel by the end of 2008 as soaring oil demand outpaces growth in global supply." . . . more

U.S. crude price could top $90 a barrel this autumn and hit $95 by the end of the year if OPEC keeps oil production capped at current levels, Goldman Sachs said in a report issued on Monday.

U.S. oil prices have risen to near $74 per barrel, driven this month by higher demand and lower supplies, the report said, pointed out that such fundamentals could tighten further unless key OPEC members hike output. . . . more

We are in an era where the general trend in crude prices is upward.  It is not that we have a lack of energy supplies, but we lack the infrastructure for harvesting and processing our energy supplies.  I am increasingly convinced that the integrated oil companies will not build more refining capacity refineries in the U.S. until we have a shortage or severe crunch in refined products due to their perceived view that they 1) cannot take the risk that crude prices will go down and 2) that they are making record profits now and do not have much incentive to expand right now. While I agree that crude will reach $100 in the not too far distant future, 2008 seems too soon to me.

IEA Predicts Oil Supply Crunch

Tom Konrad of Alt Energy Stocks posted this information which I wish to pass on.

The International Energy Agency (IEA), issued a new report July 9, which, while it still does not acknowledge peak oil, predicts a supply crunch in the 2010-12 time range.

Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012,'' the IEA said in its Medium-Term Oil Market Report, which is published every six months. ``Low OPEC spare capacity and slow non-OPEC production growth are of significant concern.

Links: Bloomberg, Reuters

No Question Oil has Peaked

Glenn Hunter, Houston Business Journal via MSNBC -T. Boone Pickens in an interview said: I think you'll see $80 oil before the end of the year. There's no question in my mind that oil has peaked. If you've already peaked, you'll start to decline. Can you replace it? Probably not. What happens then? The supply goes down, demand goes up, and price goes up. It will be a case of, how much does the consumer want to pay to get gasoline?

I don't know whether $4 chokes them. Three dollars didn't. But, you know, Europe has seen $5, $6 for gasoline. So I have the feeling that you're going to see the price go up in the U.S. I think cars will get smaller over time. ... read more

Oil Supply Analysis by Bill Butler

Bill Butler moderates The Suncor Energy and Canadian Oil Sands Resources Group on Yahoo. The group is primarily composed of members that probably should be classified as peak oilers, which I know will turn many of you off.  I hope you will read his analysis and take it for what its worth. This week he presented his analysis of our oil supply.  It is very simplistic, but probably as accurate as most of the more analytical studies. There certainly will be projects added and perhaps a few not included in the database, but it takes an average 7 years from the announcement of a project until it is brought online. Oil companies are becoming more active in exploration, but that also takes a lot of time. It certainly should give you pause for thought.

Chris Skrebowski's Megaprojects report (and here), a tabulation of new oil production projects includes everything from 40,000 bbl/day on up. ...

The 3.5 to 5 million bbl/day per year of new oil production coming online sounds encouraging until you take depletion of old fields into account. For the purpose of the following calculations we will assume that everything goes according to Skrebowski's tables - everything comes online on time, there will be no hurricanes, no political/military problems, etc. (If we are going to get into trouble with everything going right, then having things go wrong certainly isn't going to help things - and Murphy's Law is still very much alive.)

Historically, oil production from existing fields has decreased at about 4% per year due to depletion. If we take 4% of current world oil production of 84.5 million barrels per year (current EIA data - presumably all liquids), then we would need 3.38 million barrels of new production per year just for total production to stay constant. If we assume world population is increasing at 1% per year then we would need 5% of 84.5 = 4.23 million barrels of new production per year just to keep oil production per capita even. On this basis, if you use Skrebowski's everything-goes-right numbers, the peak in oil production per capita is in 2009, and it's downhill after that.

T. Boone Says Oil has Peaked, Alternative Sources Will Begin to Replace Petoleum

T. Boone Pickens says global oil production has reached its peak
Jim Krane, Associated Press, March 1, 2007

Legendary Texas oilman T. Boone Pickens sees today's stubbornly high oil price as evidence that daily global production capacity is at — or very near — its peak.

If demand for crude oil rises beyond the current global output of roughly 85 million barrels per day, Pickens told The Associated Press, prices will rise to compensate and alternative sources of energy will begin to replace petroleum. ...

Pickens predicted oil prices will rise this year to an annual average of around $70 per barrel. On Wednesday, prices settled at $61.79 on the New York Mercantile Exchange. ...

Everything from nuclear, coal, wind, solar, hydrogen and biofuels stands a chance to assuage growing demand for energy, Pickens said.

I have found T. Boone to be quite accurate, but not this time.  We are at a peak of conventional oil, not all oil.  I agree with everything else he said.

Bartlett, Udall Respond to CERA Report

Representatives Roscoe Bartlett and Tom Udall were quick to respond to the CERA report on the future supply of oil. (see immediately preceding post)  The cofounders and cochairmen of the Congressional Peak Oil Caucus, said that a new report released today by CERA confirms the urgency for the United States government to adopt a crash program to mitigate the devastating consequences of peak oil.

Congressman Bartlett said that, "The CERA report agrees that world oil production will peak and projects it will occur within 20-25 years. However, world demand is growing exponentially - faster than production so the CERA report confirms the likelihood of future shortages of liquid fuel and much higher and volatile prices. A major flaw in the CERA report is its reliance upon questionable assessments of global reserves by the USGS. USGS estimates of future world reserves equate a 50 percent probability with a 50th percentile or mean. That is a bizarre and totally inaccurate use of statistics. It almost doubles the amount of projected reserves compared to the 95 percent probable estimate. Actual discoveries are tracking the 95 percent probable trend. That means world oil production will peak much sooner than CERA projects in this report."

Read the entire press release here.

Somewhat the opposite reaction that I might have expected, I guess these congressmen are smarter than I gave them credit for.  As I said, who cares what the theory is, oil will get more expensive as conventional oil resources are depleted and we are forced to find alternate supplies. I think that CERA's assessment of reserves is probably incorrect for the short term, but there projections may be more accurate in the long term as we have to use more of our harder to use reserves.  This is reflected in Canada's adding some oil sands reserves to its official reserves and Venezuela and China considering adding more of its heavy oil to reserves.

CERA: The Undulating Plateau Theory of Oil Supplies

Cambridge Energy Research Associates (CERA) headed by the sometimes controversial chairman Daniel Yergin, released a new analysis of future oil supplies. They claim that rather than oil peaking and then rapidly declining the correct Model for Post-2030 Oil Supply is an undulating plateau.

In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by CERA finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future. ....

Global production will eventually follow an “undulating plateau” for one or more decades before declining slowly.  The global production profile will not be a simple logistic or bell curve postulated by geologist M. King Hubbert, but it will be asymmetrical – with the slope of decline more gradual and not mirroring the rapid rate of increase -- and strongly skewed past the geometric peak. It will be an undulating plateau that may well last for decades.

Peak Oil Headlines 10/26/06

Simmons: World oil production may have peaked
World production of crude oil may have already peaked, setting the stage for declining output that could lag demand, Matthew Simmons, chairman of Simmons & Co. International, a top advocate of the "peak oil" theory said on Thursday.

Heinberg: days of 'no oil' are nearing
If New College of California Professor Richard Heinberg is right, we'll be dealing with "no gasoline" as early as 2010 and definitely by 2030.

Nigeria Veering Towards Instability
Nigeria's federal system is so deeply flawed and its politics so corrupt as to risk destabilizing Africa's most populous country and largest oil producer, according to an International Crisis Group

Production in Saskatchewan Oil Sands Years Away
It will likely be a decade before any oil is recovered from a huge oil sands deposit in Northern Saskatchewan. But a Calgary based exploration company says its excited about the potential.

.

The Oil Drum on Jack-2

The Oil Drum has an excellent in-depth article, as usual, that takes a closer look at the prospectivity, geology, economics, technology, reservoirs, hydrocarbons and logistics of the Lower Tertiary play in the Gulf of Mexico (LTGOM), the whole region, not just the Jack-2 discovery (earlier post).

With the successful test drilling of Jack-2 in the ultra deepwater Gulf of Mexico, there has been a media blitz proclaiming the good news. The "peak oil" theory is under attack. Business Week's September 7, 2006 article Plenty of Oil--Just Drill Deeper The discovery of reserves in the Gulf of Mexico means supply isn't topping out, is one of the most blatant attacks which the OD refutes point by point with the following conclusion: Business Week's assertion that really, really ultra-deepwater production from offshore regions like the LTGOM will "tip the balance of supply and demand in the long term" globally is unwarranted speculation.

Three of of their points that are consistent with my views and which I consider very important are :

1) US petroleum production averaged 5.093/mbd in the first 7 months of 2006. Assuming a generous future decline rate of about 5% for the US as a whole, production will be 4.149/mbd in 2010, a net decline of 0.944/mbd. Future production from the LTGOM might be 0.500/mbd sometime after that. If we add production from fields like Chevron's Tahiti, which is expected "to have a maximum daily production of 125,000 barrels", then it is reasonable to expect that Gulf of Mexico production will be a wash—declines will be offset six to eight years from now in the best case.

CERA: Global Oil Capacity Will Continue to Grow

A well known Cambridge research firm challenges the notion that the world is running out of oil:

Global oil and liquids supply capacity could increase as much as 25% by 2015, with unconventional sources, including  gas-related liquids and extra-heavy oils accounting for a major proportion of  net capacity growth, according to Cambridge Energy Research Associates’ (CERA) July, 2006 benchmark field-by-field analysis of worldwide hydrocarbon liquids production capacity.

CERA’s examination of actual activity and production data covered existing fields and 360 new projects -- 250 new non-OPEC and 110 new OPEC development projects -- expected to start production by 2010. The analysis points to global productive capacity rising from 88.7 mbd in 2006 to 110 mbd in 2015

Global Energy Summit

Rueters conducted a global energy summit earlier this week and had several interesting topics, here are links to a few.  I could have written a post on each one, but that would have been too much on the same theme and left you with no digging to do:

Boost in oil spending not seen as magic wand

Oil economists and regulators this week expressed doubt over the wisdom of throwing more money at the problem, warning it may only drive costs even higher, not relieve prices at the pump.

Oil boom has a few years to run: experts

Oil industry investments to boost crude oil supply and refining capacity could combine with an economic downturn, due in part to high energy costs, to bring current lofty prices to an end in two to four years.

Refining boom has some years left: Tesoro

The refining business will continue to enjoy soaring profit margins until at least 2010, when new refinery expansion projects start to kick in, Tesoro Petroleum Corp.'s chief financial officer said on Wednesday.

Jean Laherrere's Latest on Peak Oil

I have reproduced in its entirety a post by Bill Butler from his Suncor Digest of April 9. Although I might disagree with the numbers on "all liquids", they are not consistent with forecasts for liquids from biomass and coal-to-liquids and I think it is too much of a stretch for him Laherrere to include biomass and coal-to-liquids in this context. That being said I believe it is the best forecast I have seen from the peak oil community.(10:36PM)  His expectations for heavy oil and possibly shale oil are also below what I would expect. Please let me know your opinions.

If you like numbers and graphs regarding where we are going with "Peak Oil", Jean Laherrere is probably the best source that is available. His latest contribution can be seen at:
http://www.hubbertpeak.com/laherrere/EGUVienna2006.pdf

The chart on page 4 is a good summary for crude oil. Discovery peaked around 1960/1965, and the world has been consistently using more oil than new discoveries since 1980. The production graph also distinguishes between the midpoint of oil use (which is now history) and his estimate for peak production which he estimates at 2012. The graph on page 5 shows the "all liquids" peak which is expected late next decade. "All liquids" includes oil sands, natural gas/coal to liquids, and biomass. These will be frantic, last-chance sources of liquid fuels that will be significantly more expensive than current petroleum sources. Note that the "all liquids" peak only gets to ~91 million bbl. per day and we are already at ~85 million bbl. per day.

Peak Oil: A Shattered Myth?

Rigzone had an article this week regarding a suggestion in The Wall Street Journal that:

"The surging interest in Canadian oil sands is stark evidence that the world isn't about to run out of oil. Instead, it is running low on readily accessible light, sweet crude -- oil that flows like water, has few impurities and can be easily turned into gasoline. As the good stuff gets scarce, Big Oil is turning its attention and pouring money into extra-heavy crude, such as the giant deposits near Fort McMurray and another similar one in Venezuela."

For example, according to the Journal, if you include the tar sands and other low grade oil deposits:

"has vaulted Venezuela and Canada to first and third in global reserves rankings, although Venezuela's holdings in extra-heavy crude are a rough guess. Saudi Arabia is No. 2. Not including the oil sands, Canada would fall to No. 22."

Rate of Increase of Chinese Oil Consumption Slows

Some good news from China on their oil consumption, which did not grow nearly as fast as it did last year; as reported in this XINHUA news item:

China's refined oil consumption increased only by 5.6 percent year-on-year in the first nine months on stable coal supply, sharply lower than the 19.7 percent growth in the same period last year, a government report said Tuesday.

The country's coal production increased by 10.2 percent to 1.3 billion tons during this period, said the report from the National Development and Reform Commission.

China produced 136 million tons of crude oil in the first three quarters, a year-on-year increase of 4.2 percent. The crude oil import increased 10.6 percent to 94.86 million tons.

Their imports still increased significantly, they will still have a large impact on world oil production. They are the second largest consumer of oil in the world, consuming about 1/3 the quantity of the U.S.  They may have substituted some coal for oil, although they are building power plants at a very rapid pace.  There internal supplies of oil are close to peaking, so they will not be able to increase production much longer, thus their imports will increase.

Via the Energy Bulletin, "Oil consumption growth drops 14% Jan-Sept", XINHUA online, October 25, 2005

More blogs about oil, fossil fuels, energy

Doubts About Saudi Production Capability

A New York Times article questioned Saudi Arabia's ability to produce as much oil as they had claimed they would. The main points were:

Given:

The Saudi's pump about 9.5 million barrels, leaving a cushion of about 1.5 million barrels, mostly of heavier grades not very usable in the West. There is virtually no other global spare capacity.

Our official policy:

The administration has endorsed the Saudis plans to increase its oil production capacity. They rely on a few producers, especially Saudi Arabia, to adjust their production to keep prices within reason. In April, Prince Abdullah reaffirmed President Bush that they could meet previously announced expansion plans.

Concerns raised:

There are now doubts raised as to whether they can still fulfill their function of stabilizing prices and meeting production requirements or meet their expansion plans.

Oil Production Shortage Likely Sooner Than Expected

Petroleum Review regularly updates its listing of megaprojects, i.e., large projects, generally over 75,000 bpd, of oil production capacity. This can be used to quantify whether enough projects are being developed to meet projected demand.  Their latest update identifies 16.65 mbd of new capacity due to onstream by 2010.  This is made up of 6.34 mbd of OPEC capacity and 10.31 mbd of non-OPEC capacity.  In a long article in Global Public media (GPM), Chris Skrebowski, editor of Petroleum Review, one of the founders of the Association for the Studly of Peak Oil (ASPO) and member of the board of directors of the Oil Depletion Analysis Centre (ODAC), uses this data to give his opinion on the balance between supply and demand.  If the author is right, oil peak occurred in 2004.  This in turn implies that prices will remain high and will increase even more in the future.

Five items are relevant to this analysis:

1. Another organization the Cambridge Energy Research Associates (CERA) has made an independent analysis of oil production, which gives a similar result for the total new capacity, but as pointed out by Econbrowser differs in many of the details, which his critique points out could influence the conclusions.
2. According to Skrebowski, experience has shown that between 10% and 20% of projects slip from one year to the next.
3. The small projects that Petroleum Review does not include could be significant.
4. Skrebowski's assumption of a 5% rate of depletion in countries that have passed the peak oil production is a very critical assumption.  His model of depletion was described as weak in the comments on the Oil Drum.
5. Note that the International Energy Associations projections that were used for oil demand were calculated based on a growth of 2% per year.  This is the historic growth rate, but demand has spiked recently.  Demand could also decrease if the price of oil remains high or increases even more due to a shortage.

His conclusions:

Peak Oil Comments

Prediction of peak oil is not an exact science.  C.J. Campbell, one of the leading experts on the subject, made a few comments on the vagaries of the science which I would like to pass on to you.  He points out that the date of the peak is not nearly as important as the long decline that follows. The following is taken from the September 2005 ASPO newsletter.  Campbell has compiled a database and prepared the graphics for the past 15 years.  His comments follow the graphics. I thought it would be interesting for some of you who are not so involved with peak oil to see his opinion of where we are and his explanation of some of the difficulties in predicting when peak oil would occur.  His peak date is slowly drifting to the right.  When he started doing this, nearly all of the oil being produced was, by his definition, regular oil (lowest curve).  As you can see we have passed that date.  The changes in technology to enable production from other sources plays a large part in this shift.  My opinion has been that the peak that I considered "peak oil" was the peak of regular oil, which is really not the case - but where do we stop counting liquids as "oil"?   Should oil made from natural gas (GTL), or from any gasification/Fischer-Tropsch process be it coal-to-liquids or biomass-to-liquids be counted.  I don't think so, but they could, depending on what you are trying to prove.

"It is a summary of a depletion model and database that have been maintained for about 15 years, being subject to continual revision and refinement. It will be readily understood that public reserve and production data are grossly unreliable, and that even the industry databases show widely different estimates. Accordingly, it is necessary to look for trends and relationships, as well as apply common sense and geological knowledge, to try to come up with realistic assessments. The next revision may well see a reduction in the Yet-to-Find, based on extrapolating the falling trend. Furthermore, modeling depletion involves not only the calculation of natural depletion rates as imposed by the immutable physics of the reservoirs, but also relies on assessing politico-economic factors, especially in relation to critical Middle East supply. Each country is evaluated individually and then summed to give regional and world totals. It is well said that all numbers are wrong: the challenge being to determine by how much.

Much interest devolves on the date of peak, but this really misses the point. It is not an isolated or high peak, merely the indicated maximum on a fairly gentle production curve. Small changes in the estimates and modeling can shift it by a few years one way or the other. The Middle East Gulf is a particularly sensitive case. Production reached an historic peak in 1974 of 21.2 Mb/d. As currently modeled, production will rise from 19.4 Mb/d in 2004 to 20.5 Mb/d this year before declining gently to 19 Mb/d by 2030. It might indeed make sense to slightly modify the model and reserve estimates in, for example, Iraq, where there is a wide range of possible scenarios, so as to shift overall regional peak from 1974 to some date over the next few years. However, the importance is not so much in the date of peak itself but in recognition of the long, remorseless decline that follows."

Technocrati tag: peak oil

Venezuela's New Refineries One Bright Spot in Oil price Crises

High oil prices, declining oil production - these subjects seem to monopolize thepetroleum/peak oil headlines.  One small piece of good news is Venezuela's recent announcement that they plan on building three new oil refineries. 

Venezuela president Chavez said the state oil company, PDVSA, plans on building three new oil refineries in coming years and that his government would be willing to discuss establishing a new OPEC price band for world oil prices.  Two new refineries will have a capacity of 50,000 barrels a day each, and a third would process as much as 400,000 barrels a day.  "We also plan to expand other refineries such as the ones in Puerto La Cruz, and El Palito so they can process heavy crude," Chavez said.

These refineries will not make up for the loss of oil from depletion, in other parts of the world, during the time that they are built, but at least it is some slowing of the decline of oil production.  What will the refineries, already built, do to maintain their supply of oil?  Many of them couldn't handle the heavy oil that these refineries will use, a growing problem in many refineries, so maybe they just operate at lower capacity since they will have trouble finding crude.  And what is this about a new price band?  It surely can't be lower than the $50.00 - $60.00 price range that I last heard from OPEC.

The press certainly has caught on to the high prices of oil, and in some cases its relationship to declining oil production, as is evidenced by these headlines.  Read a few of these articles if you have missed them or just want to gain some insight into the current price crises.

Why Oil Prices Will Stay High
OPEC Reveals Global Light Sweet Crude Peaked
How much oil do we really have?
The twilight era of petroleum
Is Oil Heading for $100 a barrel
Wall Street giants see oil rising
En route to $75 oil
What keeps driving oil prices higher?
2005 oil outlook: Is this the year when demand outstrips supply?
How serious is peak oil?
5 bucks a gallon for gas? Expert sees it coming in 2006
Why are gas prices so high?

Reference:
"Venezuela will build three new oil refineries, President Chavez says", Canada.com, National Post, 8/19/05

Technocrati tags: oil refineries, peak oil, oil price crises

Where Does The Energy Revolution Stand?

The Energy Revolution has met some major milestones In the six months since I have been writing this blog, in that there there have been several key developments relating to energy technology and policy which I would like to review and comment on. 

Transportation Fuels

My focus immediately became on transportation fuels, as I soon found out it was our most immediate concern. The development of technology and “roadmaps” that could lead to independence from foreign oil imports for the US and other countries have made significant progress in the last six months.  Although funding to accelerate usage of biofuels is totally inadequate, further evidence of the availability of potential resources is a major step.

• The refusal of congress to institute new mileage standards for passenger vehicles and light weight trucks is a major disappointment. Causes of this complacency include: 1) Congress is unconvinced of the urgency of the problem 2) Lobbyists that are opposed to these standards are much too influential and 3) Congress would rather let market forces create a demand for biofuels and hybrid vehicles rather than getting involved.
• Release of the Hirsch report which presented three scenarios for mitigating a decline in oil production. This report clearly indicates that if aggressive action to mitigate peak oil is not taken at least 10 years before it occurs we will face grave economic impact.  A must reading for all concerned about peak oil and the mitigation thereof.
• Record quantities of ethanol are being produced in Brazil with 40% of new cars sold capable of burning 100% ethanol and all gasoline sold contains at least 25% ethanol. The country is nearly independent of oil imports and is becoming a major exporter of ethanol. Brazil is a model in the use of renewable fuels for the rest of the world.  Please take note!
• Release of the Oak Ridge report stating that up to 30% of our liquid fuels could be produced from cellulosic materials.
• Announcement by DOE that enzymes have been developed that permit using any cellulosic material as a feedstock to the production of ethanol. This development makes possible meeting goals for producing 30% of our liquid fuels from cellulosic materials. This occurance was anticipated in the previously item and makes biofuels a major, realistic alternative.
• Announcement by CleanFuels that it was in the process of commercializing production of biodiesel from algae using smokestack emissions as fuel. This is significant in that it complementary, not competitive with other biodiesel production routes. At the same time the process also reduces CO2 and NOX emissions from power plants.  Though not nearly as far along in development as ethanol, algae biodiesel would make it possible to be the major biofuel.
• Increasing sales and announcement of hybrid vehicles, which is our main means of conservation of gasoline.
• Announcement by scientists at the University of Wisconsin that they had developed a process for producing Alkane based biodiesel from any carbonaceous material.
• A new Renewable Fuels Standard in the new Energy Bill requiring a doubling in the use of biofuels to 7.5 billion gallons a year by 2012.  Biomass was redefined to include any organic material grown for the purpose of being converted to energy.  This is not nearly a large enough program to allow ethanol and biodiesel to replace our oil imports in a timely manor, but it is a step in the right direction.

The Hirsch Report is Back

Much to my surprise I read that the Hirsch report was missing.  A post in Global Public Media reported on July 30 that the Hirsch report was missing, no longer available on the internet.  I, and a few others, believe that the Hirsch report is the most important, comprehensive and authoritative message on the mitigation of the peaking of oil.

No one in government appears to have read it. I have heard no government official mention the report.  The new energy bill continues to give the majority of its money to oil, gas, hydrogen and nuclear.  Only a marginal amount more, compared to what is needed, is authorized for the alternative fuels that could be use to mitigate declining oil production.

The report is back at the original site that posted it - http://www.hilltoplancers.org/stories/hirsch0502.pdf.    I highly recommend that anyone interested in peak oil or the technologies that could mitigate peak oil read the report.

Technocrati tags: energy policy, peak oil, Technocrati tag: Hirsch Report

$100/bbl Oil

Two more reports of sky high oil prices surfaced in the last few days.  In a Guardian story Matt Simmons warned that oil prices would reach $100/bbl within six months.  A Bloomberg article indicated that options trading contracts show that $80/bbl oil is possible by year end.  These two reports follow crude oil reaching a record $60.95/bbl in New York on June 27 and increased concern over expansion of the Mideastern conflict.  An earlier report that OPEC may not be able to meet Q4 demand and that Goldman Sachs had predicted a super spike of $105/bbl were previous indications that oil prices are going to continue to rise.

I am beginning to sound like a broken record.  Is anyone in government paying attention to this?  I certainly don't know when and how high oil prices are going to go, but it certainly has me worried.  If the permanent outstripping of demand over supply were to occur this year, we are so unprepared that the economic effect would likely be catastrophic, possibly sending the world into the worst depression ever.  I have never been an alarmist, but the apathy towards peak oil has made me one.

Technocrati tag: peak oil

The Countdown for the Peak of Oil Production has Begun – but what are the Views of the Most Important International Energy Agencies

In a lengthy article appearing in the Energy Bulletin, W. Zittel, Et Al, discredit the forecasts by USGS, EIA and IEA in what may be the final blow to these peak oil optimists -- "those who believe that rising prices will induce a fast increase of oil exploration and production."  The article gives a well thought out critique of the optimists forecasts.  For those of you who are new to the subject of peak oil it is worth reading.

The authors do not conclude a certain date at which peak oil will occur or has occurred, but rather indicate that it is a mute point whether production has peaked or that it is barely keeping up with demand.

The only glimmer of hope that I see for more oil is, that as oil prices continue to escalate, the quantity of heavy oil from Venezuela, tar sands oil from Canada and shale oil from the U.S. might start to make a slight dent in the rate of decline petroleum oil.  I hope so, because the means of mitigation of the decline are not in place and we could easily face a "great depression".

Technocrati tag: peak oil

No Silver Bullet for Solving Gas Supply/Demand Problem

Rigzone reported that higher energy efficiencies, renewables, liquefied natural gas (LNG) and the eventual construction of the Alaska pipeline can all help resolve the current gas supply/demand dilemma in the U.S., but there is no single silver bullet that can dramatically lower natural gas prices from their high levels today, a broad cross-section of energy and environmental officials agreed at a conference on Tuesday.

Alan Nogee of the Union of Concerned Scientists noted that energy efficiency and renewable energy "can be ramped up very quickly to produce very significant gas savings and gas price reduction -- as high as 20% gas price reductions in a fairly short period of time."

I hope congress takes note of that last remark.

Two Profound Articles

I try not to focus primarily on Peak Oil, but rather on the technologies that replace oil. However because peak oil is so near, my belief that we have entered "The Energy Revolution" is reinforced by these two items, relating to peak oil, that were referenced in the Energy Bulletin today.  They stand on there own without further comment.

A 'Peak' Behind the Curtain At The EIA In the blog Searching for Truth discusses "the startling disconnect that exists between the long term global oil supply and demand projections that are released each year by the U.S. Energy Information Agency (EIA) and those that are offered by oil depletion experts such as Matthew Simmons, Kenneth Deffeyes and Colin Campbell ... The "technology assumptions" included in the EIA reference case have the the utility of permitting the very real physical and geologic constraints that threaten to curtail future oil production to be demphasized or ignored altogether."  This relatively new blog has several other posts on Peak Oil which you might find worth reading.

End of the Age of Oil, part one, in AMIN (Arabic Media Internet Network) leads off with "Humanity is facing, now-a-days, the beginning of the biggest and the most severe global crisis in its history. This crisis will touch the lives of all nations and will change the course of their history. It will destroy the economies of nations, overhaul global politics, incite extreme competitions, provoke power struggles, and break out devastating wars among nations."  The story goes on to suggest that the war for oil between the U.S and China.  "No body has any doubt that American invasion of Afghanistan and of Iraq was for oil ... United States are not the only aggressive seeker after oil. China had recently followed suit."

Technocrati tag: peak oil

Anyone Have Any Oil?

OPEC may not meet Q4 need

May 9, The Algerian Oil mister was quoted as saying "Even if OPEC pumps at full capacity it may not be able to meet strong fourth quarter demand without sufficient inventories being built up beforehand. ... People are still worried that despite that we will be producing at full (capacity) we are not going to meet (demand), that’s what people are worried about and they are also worried about what will come next year ... They have to be concerned because we are not going to have any surplus capacity available ... What’s the use of having a lot of oil if you can’t refine it or cannot stock enough products to be used in the winter time ... Saudi Arabia, and others, including Libya and ourselves have taken decisions so you are going to see a lot of new refinery capacity but not within the next two to three years"

More proof of the continuing saga.

Technocrati tag: peak oil

Peak Oil is Real

Bartlett: It' time to do something about peak oil

Congressman Bartlett, Republican, Maryland, gave the third of four planned speeches on peak oil and potential remedies to congress today.  He is getting a modest amount of coverage in the press and does not have seemed to aroused any action by his fellow congressmen.  He does have several good points 1) even if we are not at peak oil now, our demand is growing so fast that we may not have enough supply 2) that ANWR is but a blip and not going to make much difference 3) the Chinese are securing oil contracts around the world 4) that our coal reserves could deplete in 40 years if we don't find alternatives.  The first three speeches seem pretty repetitive, he really doesn't have much to say about remedies.

Bartlett voted no on the energy bill: "I voted no because the energy bill falls far short of President Bush's strategy to respond to the reality of threats to America's economic and national security from our dependence upon cheap imported oil. Oil isn't forever." 

Does Bush have any strategy except to support big oil and push hydrogen?

Technocrati tags: peak oil

The Long Emergency

I heard James Howard Kunstler last night explaining his views on the consequences of peak oil as contained in his book, The Long Emergency..  It was his version of my "The Energy Revolution."  Although I am a couple of weeks late I thought it was worth mentioning.  His views are much more pessimistic than mine.  But who is too say that they are not a realistic view of what is yet to come.  The following are some (sometimes paraphrased) views as he wrote in a recent "Rolling Stone" article.

Americans are complacent about the price of gasoline ... Most immediately we face the end of the cheap-fossil-fuel era ... The few Americans who are even aware that there is a gathering global-energy predicament usually misunderstand the core of the argument ... The best estimates of when the "global oil-production peak" would occur had been between now and 2010 ... the most knowledgeable experts revised their predictions and now concur that 2005 is apt to be the year of all-time global peak production ... We know that our national leaders are hardly uninformed about this predicament (he quoted Hirsch and Bush and Chaney are well aquantied with Simmon's views) ... No combination of alternative fuels will allow us to run American life the way we have been used to running it ... The widely touted "hydrogen economy" is a particularly cruel hoax ... Wishful notions about rescuing our way of life with "renewables" are also unrealistic ... If we wish to keep the lights on in America after 2020, we may indeed have to resort to nuclear power ... The upshot of all this is that we are entering a historical period of potentially great instability, turbulence and hardship ... there is the problem of China ... The Long Emergency will require us to downscale and re-scale virtually everything we do and how we do it ... The American economy of the mid-twenty-first century may actually center on agriculture, not information, not high tech, not "services" ... WalMart's "warehouse on wheels" won't be such a bargain in a non-cheap-oil economy ... ordinary goods will probably be made on a "cottage industry" basis ... The automobile will be a diminished presence in our lives, to say the least ... America today has a railroad system that the Bulgarians would be ashamed of ... The commercial aviation industry, already on its knees financially, is likely to vanish ... These are daunting and even dreadful prospects ... The survivors will have to cultivate a religion of hope.

In a January speech he echoed a similar commentary.  The global peak oil production event will change everything about how we live ... As of the past 12 months, Saudi Arabia seems to have lost the ability to function as swing producer ...  Long before the oil actually depletes we will endure world-shaking political disturbances and economic disruptions ... We believe that if you wish for something, it will come true ... Cars will be a diminished presence in our lives ... The implications are clear: we will have to downscale and re-scale virtually everything we do ... We are going to have to live a lot more locally ... many types of corporations and governments will function very poorly in the post-cheap oil world ... All indications are that American life will have to be reconstituted along the lines of traditional towns, villages, and cities much reduced in their current scale ... We are entering a period of economic hardship and declining incomes ... Change is coming whether we like it or not; whether we are prepared for it or not.

While I disagree with many of his statements, the consequences of the end of cheap oil are going to be significant.  We need an energy policy that more aggressively addresses these problems.  We need mandated energy efficient cars and much more aggressive development of alternate liquid fuels. We need to reassign our priorities, away from hydrogen, to nearer term, realistic solutions.

Dr Koonin speaks out

A 5/30 post by Odograph, referred to a 5/29 post at Green Car Congress regarding a lecture, A Physicist's View of the World's Energy Situation, given to the Colloquium at Fermilab, by BP’s Chief Scientist Dr Steven Koonin.  Koonin has impeccable credentials which are articulated by Odograph.  This is a very good presentation which should be viewed by all who have any interest in energy.  The presentation evaluates the future of various sources of energy and the global warming implications of energy use. 

The first part of the presentation deals with energy. "OPEC's spare capacity is gone ... Small perturbations affect the market."  He strikes a balance between geologists ("Hubbert's and all that") and economists view of supply, saying that both are probably right.  The future includes deep water drilling, large reserves of heavy oil in Venezuela, 1.3 trillion barrels, and  gasification/Fischer-Tropsch conversion to FT diesel, all of which are more expensive than conventional oil.  His largest sources of energy in the future included, oil from enhanced recovery, heavy oil, nuclear power, hydrogen for power and biofuels. At some point fuel substitution will be attractive.

The presentation on global warming is the best I have seen , presenting what appeared to me to be a very realistic approach to the subject.  He covered all aspects of global warming, where greenhouse gases (GG) come from, how fast GG emissions are increasing and where they could be sequestered.    He appeared not to be totally convinced that global warming was coming, but said we had no choice but to take precautionary actions.  His approach was to concentrate on the CO2 aspect, considering it the primary indicator of global warming and assuming a critical concentration in the atmosphere of 550 ppm. 

His outlook was as to be expected from a representative of the oil and gas industry, implying that oil would be available for quite some time, although expensive.  He used R/P ratios (reserves/production) to imply duration of reserves which are misleading.  His solution, other than petroleum, for future liquid fuel supplies was biofuels and Fischer-Tropsch liquids.  He did not seem to think hydrogen for transportation was likely.

Boone Speaks Out

Boone Pickens was on CNBC again today.  Here are a few sound-bytes:

• Crude oil will be $55-$60 in the fourth quarter.
• Gasoline will be $3.00 per gallon in fourth quarter.(I assume he means national average, it is somewhere around $2.15 now.)
• Oil will never see $40 per barrel again.
• Demand will be 86-87 million gpd in fourth quarter.
• Production is limited to 84 million gpd.
• Expansion of existing refineries could handle any increase in supply.
• We don't need any new refineries because their is no production to supply them.
• The economy may be slowing down, but gasoline sales are not slowing.

He has been an accurate forecaster more often than not.  I assume he means that we can draw off of our reserves to tide us over in the 4th quarter, otherwise peak oil is here. He did say something about peak oil, but I didn't catch it. While looking to see if they had anything about his comments on the CNBC site, I didn't find any, but I came across this tidbit:

Including Iraqi production, OPEC's current output would beat levels of over 30 million bpd pumped late last year that took OPEC supply to 25-year highs.

I don't think they have much more than that and they are near peak, despite their claims otherwise.

Follow the Money

As reported in the April 24 Washington Post, the largest energy deal in history was a $12.8 billion joint venture announced in February between state-owned Qatargas and oil majors Exxon Mobil and Total.  A single $7 billion plant to be built by Exxon Mobil to turn natural gas into diesel (GTL) is the largest investment ever by America's largest company.  Other companies are investing more billions into Qatar's natural gas resources.  According to some economists, per capita income in Qatar will be the highest in the world.

While this is not earth-shaking news to most, it make the point very well -- big oil is interested in doing what they know best.  Tar sands, heavy oil, renewables, etc do not have the ROI of natural gas and more conventional oil projects as long as their is something more profitable to do.  The gas to oil facility uses fairly new technology (maybe not really, but it is new to big oil), but it has been well researched and working with a clean feedstock, like natural gas, is far easier than gasification and liquefaction of biomass or even coal.  They will and perhaps they should (from their investors point of view) follow this road.  It is up to governments to develop and demonstrate emerging technologies.  Since the U.S. government does not seem to believe that we have as an urgent need, it is up to us to convince them that oil is running out soon and that we need to be working much harder to mitigate the coming crises.  I have a minority belief that big oil does not have a much greater influence on the federal government than most other lobbyists do, rather it is not politically wise for the administration to solve any problems that are not immediately threatening. As long as EIA maintains that we do not have an immediate problem, they can hide their heads in the sands and ignore any other sources of information, including Bush's former advisor Simmons.  The Hirsch report and the ORNL report are noble cries from the wilderness, but are they having any impact?  In the final analysis the only ones they will listen to are the voters.

Conference Warns: Peak Oil Imminent with Severe Economic Consequences

A Peak Oil Conference, Entering the Age of Oil Depletion, organized by Depletion Scotland and the Oil Depletion Analysis Center (ODAC), held in Edinburgh Scotland is generating a lot of publicity. Most of the speakers are familiar to peak oil aficionados.  A complete summary of the proceedings is too lengthy for me to enumerate, but I will give a few and references to all of the articles I have found.

Nothing really new, but for neophytes, in alphabetical order, the dates when peak oil will occur as reported at the meeting.

• Kyjell Aleklett of ASPO, "Association for the Study of Peak Oil & Gas", in a presentation called "The oil supply tsunami alert" said the peak was 2008 in 2004.  Now it might be that the peak will come even earlier. ... we will not know when have peaked until we have passed the threshold.
• Colin Campbell was quoted by John Vidal of the Guardian as saying "The real  issue is not the actual date of peak production - which I believe is next year (2006) - but what happens during the decline of production.
• Also in the Guardian, Vidal referred to the International Energy Agency (IEA) ... as saying that peak oil will arrive "sometime between 2013 and 2037", with production thereafter expected to decline by about 3% a year.  Reuters reported that IEA says that world oil oil output should not peak before 2030.
• Dr Jeremy Leggett, a member of the UK government's Renewables Advisory Board and a former oil geologist was quoted by the BBC as saying "Most of us who are worried about this issue would say definitely it will happen some time this decade. ... 2008 might be the best guess, plus or minus two years. It's certainly a lot earlier than almost all the world is assuming at the moment. ... We need to take this issue as seriously as we take the war on terrorism - more so.  In a very good article "The twilight zone" that appeared in The Independent, he previewed his presentation saying "But no one can agree when we'll reach the point at which half our oil reserves are used up."
• Matthew Simmons, chairman of a Wall Street energy investment company, was reported by Vidal as saying that peak Oil was rapidly approaching even as demand was increasing.
• Chris Skrebowski, of the the Energy Institute in London told Vidal, I estimate that we have, at best, 32 months before (the crisis) hits."
• According to Vidal "Analysts increasingly say that official US Geological Survey (USGS)estimates that it (peak oil) will not happen for 35 years are over-optimistic."
• Brian Wilson, former UK energy minister  "my working assumption is both global oil and gas reserves continue to be significantly underestimated."

Several comments were made on the economic implications of peak oil.

• Aleklett said that "The fact that the price of crude oil is approaching $60 per barrel and the production costs for the barrel fluctuates between $1 and $10 shows that common economical theories are not valid any longer, something new is in the air and the question how to interpret today's vibrations."
• Hirsch in his recent report to DOE was quoted by Aleklett as claiming that "World oil peaking represents a problem like none other.  The political, economic, and social stakes are enormous.  Prudent risk management demands urgent attention and early action. If you start a serious program today it will take 20 years before completion.
• Campbell said "Oil companies are moving from denial to confession ... I think we are in for an extended period of restricted economic activity.  I do not think we will adjust very smoothly."
• Jim Meyer of ODAC was reported by Reuters as saying said "There's definitely a role for government intervention -- I don't think the markets can take care of it. ... Oil is not running out, but growth in oil is, and we need to talk about it"
• Chris Skrebowskie, of the Energy Institute in London said that a major financial crises could occur as soon as 2008.
• Simmons in the Reuters article said "Prices are going way higher -- $100 isn't very expensive. ... It could be catastrophic if we do not anticipate when peak comes."

Other noteworthy comments were:

• The world's top exporter Saudi Arabia said last week it is ready to increase its output capacity to 15 Million barrels per day, from around 11 million now, and sustain that level for 50 years. Earlier reports said they plan to have a capacity of 12.5 mbd by 2009 and 15 mbd at a later date.
• Leggett lists six shocking reasons that define "why we have to act now."  He is very concerned that no alternatives reduce greenhouse emissions to an acceptable level.  "For environmentalists this will be the final battleground."
• Wilson said "the biggest global challenge in energy terms was persuading the United States to reduce its own oil consumption"  ... He attacked America's "ever-increasing and ever-more profligate application"

My position on when peak oil will occur has not been firmly established, I am a "early topper", my current guess being between 1 and 5 years.  The conference had very little to say about what to do about peak oil. This seems more important, at this time, then trying to figure out who is the best forecaster and procrastinating on the economic implications, which I think are fairly obvious.  The conferences most useful purpose, hopefully was to help make people aware of the problem and the urgency to do something about it.  My post "Proven Technologies for the Next 20 Years" sums up what I think we have to do.  Unconventional oil may play an increasing role, but energy usage in production may limit the ability to sustain production.  Biofuels will have to take Brazil's model of becoming totally independent of imported oils through the use of biofuels, ethanol and biodiesel.  New breakthroughs in enzyme technology should allow widespread production of ethanol, at more economical prices, within a few years.  Huge investments will have to be made in coal liquefaction and Fischer-Tropsch diesel to fill the gap that biofuels cannot meet.  Higher fuel efficiency standards, more light vehicle diesels, hybrid cars and plug in hybrid cars will conserve substantial quantities of petroleum fuel.  Fuel cells and the hydrogen economy will not play a significant role in the next 20-30 years, if ever.

News 5/25/05, China Concerned About its Energy Supplies

A recent article in Yahoo News discussed China's plans regarding energy usage.  Several Chinese leaders were reported as saying that China intended to avoid over-dependence on imported energy by 2020, through increased use of domestic renewable sources.  China's oil imports were about 40% of supply in 2004.  They hope to reduce their dependence on foreign imports to 35% by 2020. Conservation and non-coal sources such as nuclear power, wind power, solar and other and other renewable sources will be used to meet their demands.

A related story in the China Daily quoted Wang Tao, senior vice-president of the World Petroleum Congress as saying "Energy supplies, especially oil supply, cannot meet the demand of the soaring economy".  The story went on to report statistics indicating that China was more dependent on coal than oil.  China has vast reserves in coal, second only to the U.S. but only about 1/2 of the U.S. according to EIA.   The story indicated that China could enhance its oil exploration efforts. In the next 15 years China will quadruple its economy but its energy consumption will only double.

A March 23 presentation by James Dorian PhD, an international energy economist, gave a westerners assessment of China's energy search. Some excerpts from the presentation are: "The recent growth in oil and energy demand is certainly part of a long-term trend. ... Coal makes up 70% of their energy mix ... Coal mining accidents, transportation bottlenecks and inefficient planning ... have put additional stresses on an already highly strained electric system ... IEA estimate that more than $100 billion worth of investment will be needed by 2025 to revamp the coal industry and meet growing demand ... If coal problems persist or even worsen, Beijing could be forced to dramatically increase emphasis on nuclear and imported oil and gas ... China may surpass the U.S. in emissions of CO2 by 2020 ... they have announced plans to build 24-32 new nuclear plants by 2020 ... China is the second largest consumer of oil behind the U.S. ... 1/3 the oil is devoted to transportation ... Production of oil is likely to stay flat ... Chinese oil companies ... have made several acquisitions in Indonesia, Australia, Central Asia, Iran and Africa during the last few years ... passenger car purchases rose 75% in 2003 and another 20% in 2004 ... in several years transportation will likely account for nearly half of oil consumption ... Ultimately the U.S., China and Japan will be vying for the same Middle Eastern crude oil ... energy consumption ... is rising greater than 1% for every one percent increase in GDP, such an upward trend has potentially dramatic implications for energy consumption in the country. ... no other country in the world will have as great an impact on the world's energy industry than China. ... Given the importance of coal ... and dramatically increased use of passenger cars ... these two sectors need more focus and analysis by us".

Which is a more accurate assessment of China's energy picture, the Chinese or Dorian's?  I am sure most of us side with Dorian. China is at least going through the motions of saying it plans to reduce its dependence on oil. Whether they can deliver on their plans is another thing. We accept the fact that we will have increasing oil imports while not doing enough to increase our domestic supplies of liquid fuels in the short term, while we (the US government) hide our heads in the sand saying the oil peak is not in the immediate future. All this just reinforces my opinion that China plays a big role in the future of energy and that The Energy Revolution has begun and it is not going to end soon.

Recent News 4/12/05

A recent article in Rigzone pointed out these opposite views on oil supply :

• Well known oil man T. Boone Pickens, who has been correct about this market about as well as anyone else, was on CNBC talking about $60 oil, after some short term weakness.
• Venezuelan Oil Minister Rafael Ramirez reported Tuesday (4/5) that "The Organization of Petroleum Exporting Countries is running out of spare production capacity"
• Fed Chairman Allen Greenspan was quoted as saying "higher prices eventually should soften demand for energy and boost supply ...the investment needed to bring oil to market had fallen short of what was needed to match unexpected recent gains in demand, especially gains in China." He also said that the world oil refining capacity was "worrisome".

This reminded me that there were many other related items in the news recently, including:

• Matthew Simmons president of his international banking firm was reported to say that Saudi Arabia's oil fields are in decline and they will not climb much higher then 10 million gallons per day (mmbd).
• In the same article as above Nansen G. Saleri a manager of reservoir management for Saudi Aramco refuted Simmons statement saying that Saudi Arabia can maintain production capacity at the current rate of 10 mmbd for the rest of this decade and if needed they could increase maximum output by 20-50% within a decade.
• The New York Times in its Feb 24, 2004 edition said "Saudi Arabia's vast oil fields, pumped for more than half-century, are in decline, raising serious questions about whether kingdom will be able to satisfy the world's thirst for oil in coming years."
• On Tuesday 12 April 2005 on Aljazeera.net , bank of Montreal's analyst Don Coxe was quoted as saying "The combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia"
• In the same report Saudi Aramco's chief executive officer Abd Allah Jumaa was reported to say "We have ambitious expansion plans to boost our capacity ... [and] raise our production capacity to 15 million barrels a day... We are confident that we can maintain these production rates for about half a century"
• On NewsRatings, a financial analyst web site, quoted Saudi Arabia's Oil Minister Ali al-Naimi as saying " Saudi Arabia can increase its oil supply by 1.5 million barrels per day... [and]Saudi Arabia is planning to expand its oil production capacity to 12.5 million barrels per day in the next four years, beginning 2006"
• "It was widely reported that a Goldman Sachs research report said  "The oil markets are in a "super-spike'' period that could see 1970's-style price surges as high as $105 a barrel"

The EIA statistics and projections should be reviewed in light of these reports:

• According to the EIA World Oil Demand report the world demand averaged 82.63 million barrels per day (mmbd) during 2004.
• In their Annual Energy Outlook 2004 they projected 2004 consumption to be 82.25 mmbd in 2004, 84.26 mmbd in 2005 and 91.65 mmbd in 2010.
• In the same report they forecast OPEC to produce 32.06 mmbd in 2004, 33.08 in 2005 and 35.79 by 2010.
• In the EIA Short Term Outlook, April 2005 they listed Saudi Arabia's production capacity at 10.500-11.000 mmbd.
• In their April 2005 Short-Term Energy Outlook EIA also said "Gasoline prices in 2005 are projected to remain high, at an expected average of $2.28 per gallon for the April to September summer season, 38 cents above last summer. Similar high motor gasoline prices are expected through 2006."
• In the same outlook they said "West Texas Intermediate crude oil prices are projected to remain above $50 per barrel for the rest of 2005 and 2006."
• The EIA report, Long-Term World Oil Supply Scenarios, defends and explains their production forecast.

In looking this over there are many comments that could be made, but these five come to mind:

• As pointed out in Rigzone it is unusual for so much publicity in the popular press.  Does this mean that more people are becoming aware that declining oil production will occur at some time?
• By saying that prices will remain high for at least two years, is EIA admitting indirectly that peak oil is a fact?   I think that they are, but to the best of my knowledge they still think it is a long way off, somewhere in the 2030's.  It will be interesting to see what they say in their Annual Energy Outlook 2005, due out next month.
• EIA, in its base case, assumes that demand will grow by almost 2.2% between now and 2010.  Is this realistic in view of China's and India's seemingly unquenchable demand or are we going into a economic decline that will sharply cut demand?
• Where are we going to get even 10 mmbd more oil than we have now by 2010 if OPEC's output increases by only 3 mmbd.  Russia, Caspian Sea area, Iraq, Venezuela? It seems very problematic, considering the number of countries whose oil production is in decline.
• It seems that the only groups that don't believe that we will soon be in a period of short oil supplies are economists and financial types (except Simmons), the EIA and Saudi Arabia.  Most forecasts (many of them not referenced here) expect a peak between 2 and 10 years from now.  When is EIA and the administration going to get the message?  And why are all the economists so uninformed?  They must think that demand can squeeze oil out of a dry rock.

This comment on the WFMY2, Greensboro, NC web site sums it up:

"While gas prices continue to soar, now the U.S. Dept. of Energy says get used to it." 

New Forcast for Peak OIl

A new study, that appeared in the Energy Bulletin, does a very impressive job of combing the literature and developing a set of comprehensive parameters to determine the limits of possible timing of peak oil.  Their case with 2.9 trillion barrels of oil reserves, 3% demand growth, peak occurring at 50% of reserves and 7.5% max production growth (within countries that have not reached peak) results in a peak in 2024 and the year in which global demand is unmet is 2016. 

Whether this is the most likely case I do not know, but the input seems reasonable to me.  These dates are much later than Campbell predicts and more in agreement with the EIA scenario.  However the study is critical of the EIA methods.  I would appreciate your comments on this.

Forecasting the Availability and Diversity of Global Convention Oil Supply (Summary)

John L. Hallock Jr et al, Elsevier/Energy 29 (2004) 1673-1696

An independent study has modeled various scenarios to project possible dates of global oil peak. The modelers used data from both the USGS and ASPO to reach their conclusion that 'the answer to the question, "how much longer can we increase oil production?", seems to be probably not much more than 30 years, and perhaps less than five.'

A summary can be found on the Energy Bulletin and the complete report (24 pages) at the authors website.

Dawn of a New Oil Era?

The answer is yes.  I found this article in The Energy Bulletin and found it stated a view that closely agreed with my views and I though I would share it with you.

The Dawn of a New Oil Era?

By Robert J. Samuelson

Newsweek

April 4 issue - The interesting question about the advent of $50-a-barrel oil is whether it signals a new era in the economic and politics of energy. To sharpen the question: have we entered a period when, owing to consistantly strong demand and chronically scarce supplies, prices have moved permantly higher?  We don't know, but the answer could be "yes" for at least one reason: China.

The complete article can be found at this site

The Energy Revolution Has Begun

The start of the energy revolution is evidenced by continued high prices of energy and the successful introduction of hybrid cars by several manufacturers.  The revolution is fueled by the tight supplies and resulting price volatility of petroleum products and natural gas. These tight supplies are going to continue over the next 20-30 years, accompanied by further increases in prices, until reliable alternative supplies of energy are found, especially for transportation vehicles. This transition period, in which we have tight energy supplies, while we are continuing to develop vehicles that run on a new energy supply, as well as while we are developing alternate and improved energy sources for electrical generation defines the energy revolution.