Two scientists, including David King, formerly chief scientific advisor to the British government, have come out with a paper in Nature arguing that we have a greater need to reduce fossil fuel use due to oil shortages than due to global warming. They see 2005 as the end of oil supply growth.
Stop wrangling over global warming and instead reduce fossil-fuel use for the sake of the global economy.
That's the message from two scientists, one from the University of Washington and one from the University of Oxford in the United Kingdom, who say in the current issue of the journal Nature (Jan. 26) that the economic pain of a flattening oil supply will trump the environment as a reason to curb the use of fossil fuels.
"Given our fossil-fuel dependent economies, this is more urgent and has a shorter time frame than global climate change," says James W. Murray, UW professor of oceanography, who wrote the Nature commentary with David King, director of Oxford's Smith School of Enterprise and the Environment.
The "tipping point" for oil supply appears to have occurred around 2005, says Murray, who compared world crude oil production with world prices going back to 1998. Before 2005, supply of regular crude oil was elastic and increased in response to price increases. Since then, production appears to have hit a wall at 75 million barrels per day in spite of price increases of 15 percent each year.
"As a result, prices swing wildly in response to small changes in demand," the co-authors wrote. "Others have remarked on this step change in the economies of oil around the year 2005, but the point needs to be lodged more firmly in the minds of policy makers."
I like it when prominent scientists come around to a point of view I've held for years. But my satisfaction is rather short-lived because high level recognition of the Peak Oil problem is coming too late. The coming decline in oil production is going to cause economic contraction and declining living standards until development new technologies make a migration away from oil more practical.
Production at existing fields is declining sharply. So new fields have to be found and brought online. But the rate of new field discovery is too slow.
For those who argue that oil reserves have been increasing, that more crude oil will be available in the future, the co-authors wrote: "The true volume of global proved reserves is clouded by secrecy; forecasts by state oil companies are not audited and appear to be exaggerated. More importantly, reserves often take 6 - 10 years to drill and develop before they become part of the supply, by which time older fields have become depleted." Production at oil fields around the world is declining between 4.5 percent and 6.7 percent per year, they wrote.
The result is a several year period of high oil prices (with dips on economic downturns). The high prices put a ceiling on economic growth.
Also see Scientific American coverage of this story.
An Australian government agency thinks oil supplies might peak in 2017 The Australian government tried to hide this report. For Western countries peak oil availability has already happened. Oil consumption is growing rapidly in oil exporters. So their exports have stopped growing and for many of them exports have already dropped from peak. At the same time, growing Asian demand reduces the affordability of the remaining oil for the Western countries.
See my November 20101 post Dr. James Schlesinger: The Peak Oil Debate Is Over. Schlesinger was the first US Secretary of Energy and he's also served as Defense Secretary and head of CIA, all back in the 1970s.
The US Geological Survey has cut its estimate of technically recoverable natural gas from the big Marcellus Shale by about 79.5%. You just got more energy poor. Get a more insulated water heater next time you need a new one.
The shale formation has about 84 trillion cubic feet of undiscovered, technically recoverable natural gas, according to the report from the United States Geological Survey. This is drastically lower than the 410 trillion cubic feet that was published earlier this year by the federal Energy Information Administration.
These are technically recoverable estimates. Economically recoverable reserves will be some amount less than these numbers and to get anywhere near the full technically recoverable number above might require substantially higher costs.
How does 84 trillion cubic feet compare to how much natural gas the United States uses per year? In 2010 the US used 24,136,666 million cubic feet in 2010 (i.e. about 24 trillion cubic feet). So the revision downward cost about 13.5 years of natural gas at current consumption rates. with the new total less than 4 years of consumption.
Shale natural gas has become the biggest fossil fuel energy hope. Cleaner than oil or natural gas and currently quite cheap. Shale natural gas enthusiasts claim the shales (Barnett, Haynesville, Fayetteville, Marcellus have huge supplies of natural gas can displace oil for many users (e.g. compressed natural gas cars) and natural gas is partially displacing dirtier coal in electric power generation. Therefore a lot is riding on how much natural the more optimistic view for the future of natural gas would have consumption rising substantially. While oil prices have gone up natural gas has stayed cheap since the 2008 financial crisis and US natural gas consumption grew by 21.7% in 2010. Cheap natural gas has made the construction of new nuclear power plants uncompetitive.
Back in June 2011 a New York Times article reported on skepticism inside the US Department of Energy's Energy Information Administration about the real potential for shale gas. With this big USGS downgrade on Marcellus the most important question becomes: Will USGS do similar downgrades on the other big shale formations? Anybody know whether the USGS is looking into reserve revisions on the other shales?
The New York Times has gotten hold of internal documents of the US Department of Energy's Energy Information Administration where several EIA officials are found voicing their skepticism about the long term prospects for extracting large amounts of natural gas from fracturing shale rock. The term "irrational exuberance" gets used.
In scores of internal e-mails and documents, officials within the Energy Information Administration, or E.I.A., voice skepticism about the shale gas industry.
One official says the shale industry may be “ set up for failure.” “It is quite likely that many of these companies will go bankrupt,” a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.
Some of the EIA folks think shale gas companies are exaggerating their prospects by selectively showing their best wells. Click thru to the article and you can then click thru to more emails it links to.
Why this matters: Natural gas from shale is being promoted as so plentiful that it will allow a large scaling up in natural gas production. Shale gas has made natural gas much cheaper in the last few years since peaking in price right before the 2008 financial crisis. In the United States natural gas consumption grew an amazing 21.7% in 2010. The low cost of natural gas has unexpectedly made new nuclear power plants uncompetitive in the United States. If the electric power industry does a big build of natural gas electric power plants as a result of an unsustainable boost in shale gas production then a big build-out of natural gas electric plants will turn out to be a costly mistake.
Another great hope for cheap shale natural gas is in transportation. Natural gas vehicles are touted as a way to move away from costly oil. As Asian oil demand keeps rising and production fails to follow the hope in some circles is that compressed natural gas cars The big hope requires lots of cheap shale gas. Is this hope realistic? The stakes for all of us are huge.
These leaks of internal EIA documents show that Arthur Berman and Henry Groppe are not alone in their skepticism about shale gas. See Berman's post on The Oil Drum: Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations. Berman thinks likely shale gas production potential is greatly exaggerated.
And then the other thing that we see empirically is that if you look at any of these individual shale-gas plays-whether it’s the Haynesville or the Barnett or the Fayetteville-they all contract to a core area that has the potential to be commercial that is on the order of 10 to 20 percent of the geographic area that was originally represented as all being the same. So if you take the resource size that’s advertized-say for the Haynesville shale, something like 250 Tcf-and you look at the area that’s emerging as the core area, it’s less than 10 percent of the total. So is 25 Tcf a reasonable number for the Haynesville shale? Yeah, it probably is. And it’s a huge number. But the number sure is not 250 Tcf, and that’s the way all of these plays seem to be going. They remain significant. It hasn’t been proved to me yet that any of it is commercial, but they’re drilling it like mad, there’s no doubt about it.
So will a huge sustained boost in shale gas production substantially ease our adjustment to Peak Oil? Or will shale gas so disappoint that it will be seen an unfortunate distraction that delayed nuclear power plant proposals? Will coal production have to suddenly ramp to fill in a gap while nukes get hurriedly built?
Update: Jeff LeVine has a pretty good summary of the EIA internal documents and the resulting flap. Also see at The Automatic Earth Stoneleigh's take on it with her post "Get ready for the North American gas shock". I fear Stoneleigh, Art Berman, and assorted industry participants who wrote letters to the EIA are right. Shale Gas really is an investment bubble whose economics are far worse than the major shale gas players are claiming.
A post by Big Gav at The Oil Drum reports on a decision by Shell to spend $12.6 billion to build a ship that will float above an Australian offshore natural gas field and liquify natural gas for shipment. The field is too far from the coast to have pipelines built to bring the natural gas onshore.
My take: This ship illustrates the massive amounts of capital and engineering talent available to extract fossil fuels (about $490 billion total capital spending by oil companies in 2011). Offshore floating LNG production ships seem to be unrivaled in costs for a single energy extraction device. Even a nuclear power plant won't cost that much (caveat: nuclear power cost estimates cover a wide range).
The costs of LNG production ships also dwarf the already very expensive deepwater drilling rigs. To put them in perspective in 2001 the Petrobras P-36 rig, then the world's largest, sunk and its insured value at the time was $500 million. In 2010 the Deepwater Horizon was insured for $560 million. Construction costs for the deepest water drilling rigs peaked at $800 million and then declined by about a quarter.
Nothing else offshore seems to rival this ship in size or cost. $12.6 billion builds a ship 6 times heavier than the world's largest aircraft carrier (which would be the 102,000 tonne Nimitz carriers). The LNG ship even beats carriers on cost. While the first Ford class carrier will cost almost $12 billion that includes a few billion of research and development that is for innovations for the class. Later Ford class carriers are supposed to cost $4-6 billion less. So you can buy 2 nuclear-powered aircraft carriers for the cost of one LNG production ship.
A new energy report from Shell sees increased economic volatility due to high oil costs and rising demand. (thanks Lou Pagnucco)
We believe that the world is entering an era of volatile transitions and intensified economic cycles. The recession interrupted the oil and commodity price boom but it may return. Emerging nations like China and India are going through materially intensive development and a tighter market will continue to put pressure on prices and generate volatility. Improvements in policy-making and strong gains in productivity have helped economies to grow without inflation in the last two decades. We do not believe the moderating effect of this combination of good policies, good practices, and good luck will continue into the future.
Supply will not rise as fast as demand.
Supply will struggle to keep pace with demand. By the end of the coming decade, growth in the production of easily accessible oil and gas will not match the projected rate of demand growth. While abundant coal exists in many parts of the world, transportation difficulties and environmental degradation ultimately pose limits to its growth. Meanwhile, alternative energy sources such as biofuels may become a much more significant part of the energy mix — but there is no “silver bullet” that will completely resolve supply-demand tensions.
You can download their full report Signals and Signposts as a PDF. On page 27 they show unconventional liquid fuels providing most growth in liquid fuels consumption. In my view that's optimistic because it assumes enough conventional oil that the non-convention builds on top of a firm conventional base. By contrast, I expect liquid fuels supplies to decline. Worse, the Energy Return On Energy Invested (EROEI) for oil is going to decline. With a flat oil supply and declining EROEI the effect would be a net decrease in useful energy.
The US government secretly takes seriously former Saudi Aramco exploration chief Sadad al-Husseini's belief that Saudi Arabia has far less oil than its official claimed reserves. Saudi Arabia's oil production might already be past peak.
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.
The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
The cable even betrays a thorough understanding of why peak oil exports precedes peak oil production. The Saudis have to use more oil domestically to meet rising demand for electric power (generated by burning oil - which is rare outside of Saudi Arabia) and gasoline.
The average local consumption of gas and oil grew 5.9 percent in the past five years, the official news service reported, citing the kingdom’s central bank governor Muhammad al-Jasser. “Domestic consumption of oil and gas is posting continuing growth and at high rates,” the report said. “This requires looking into the reasons behind the increase in oil and gas consumption and working on rationing it.”
Saudi domestic demand is already over 3.4 million and rising. In the face of oil prices the Saudis are engaging in their regular game of pretending there's no need to boost production because demand is weak. Yet China alone is building roads and cars at a rate that assures fast continued oil demand growth. So oil prices will go up until high prices cause another recession.
Also see the New York Times coverage on this story.
The Wall Street Journal reports that the Chinese government might place a limit on coal mining in order to make Chinese domestic coal reserves last longer.
State-run media reported that Beijing is considering capping domestic coal output in the 2011-2015 period, partly because officials worry miners are running down reserves too quickly to meet the needs of a rapidly expanding economy.
"China accounts for around 14% of global coal reserves but its share of global coal consumption is already over triple that at 47%, which is unsustainable," Hong Kong-based brokerage CLSA Asia-Pacific Markets said in a report last month.
Their main worry on coal consumption is not global warming. They want their reserves to last longer and would rather import more coal now in order to delay development of a later greater dependency on imported coal. Since imported coal will cost more one effect of this move could be to drive up Chinese demand for nuclear, wind, and other electric power sources.
China's industrialization places demands on resources that could grow to be multiples of current US resource consumption.
Update: Over at The Old Drum read Euan Mearns on China's unsustainable coal production growth and estimates on ultimately recoverable coal reserves. Kjell Aleklett believes China is very close to peak domestic coal production regardless of what their policy makers decide.
What does Peak Oil look like? The world's so desperate for oil that a big oil spill in the Gulf of Mexico makes the oil in the Alberta tar sands look like an environmentally superior choice.
"In North America there are really only two places where you can see meaningful supply growth, one being in the deepwater Gulf of Mexico, and the other being the oil sands," said Mark Frieson, an energy analyst with Versant Partners Inc. in Calgary. "We know what's happening with [the Gulf], and I think that has some potential positive implications for the oil-sands industry here in Alberta.
For example, BP is going to develop an Alberta oil sands (really tar sands) project that has 10 times the reserves as BP was drilling for with the Deepwater Horizon. No worry a blow-out.
These are the alternatives we are down to. You might think we can shift our purchases of oil to the Middle East as a way to get oil that is extracted with minimal environmental hazard. But no. Saudi Arabia is drilling heavily offshore in the Persian Gulf and plenty of rigs are busy offshore in the Persian Gulf. The US oil exploration drilling moratorium will free up offshore rigs to move to a number of other offshore regions including the Persian Gulf, Australia, Brazil, and quite possibly New Zealand. Some GOM (Gulf of Mexico) rigs will probably end up offshore of Nigeria. Nigeria's oil spills are large but ignored.
Why so much offshore activity? World onshore conventional oil production has peaked. Peak Oil has already happened for onshore conventional. We are left with frantic offshore drilling in deep water using rigs such as the Deepwater Horizon that cost $600+ million each to build. The US GOM is not the biggest user of deepwater rigs. Most of the deepwater rigs are operating off Brazil's coast. Deepwater Brazil is one of the great hopes for slowing the rate of world oil production decline.
Wondering about what sorts of people think Peak Oil is a real problem? Watch this video.
Check out more videos at aspo.tv (Association for the Study of Peak Oil & Gas).
Also, listen to this interview with retired petroleum geologist Colin Campbell. Also, read former ConocoPhillips engineer Robert Rapier on the latest US Energy Information Administration Annual Energy Outlook for 2010. The EIA took away the scary unidentified projects graph from last year.
Update: Here's Colin Campbell in 2005 predicting a financial crisis due to Peak Oil.
Wiriting in the Wall Street Journal Amy Myers Jaffe of the James A. Baker III Institute for Public Policy at Rice University says technological advances that ease the extract of the huge quantities of natural gas in shale rock are a game changer that will make natural gas cheap and plentiful for decades to come.
Over the past decade, a wave of drilling around the world has uncovered giant supplies of natural gas in shale rock. By some estimates, there's 1,000 trillion cubic feet recoverable in North America alone—enough to supply the nation's natural-gas needs for the next 45 years. Europe may have nearly 200 trillion cubic feet of its own.
We've always known the potential of shale; we just didn't have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.
I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.
Sounds really exciting, right? If you click thru and read the full article you'll see she raises nary a doubt about the prospects for shale gas - let alone raises concerns about CO2 emissions from burning it if it can all be extracted as easily as she claims. Ms. Jaffe argues the conventional wisdom on shale gas. But that conventional wisdom has some doubters.
The reality, he argues, is that shale gas deposits are a tiny part of the North American production pool – and they are already depleting fast.
Mr. Groppe says that while the average depletion rate in conventional gas wells is about 25 per cent (in other words, if you didn't drill at all for new wells, production would decline by a quarter each year), shale gas shows even more rapid depletion – output tumbles, on average, 45 per cent in the first year for shale wells.
Depletion rates determine how long each well will produce natural gas that can pay off the cost of the well. Slow depletion rates (i.e. slow rates of decline in output) mean lower total cost per 1000 cubic feet or million BTUs. The sunny view of shale rock natural gas depends on the slow rates of depletion.
I was surprised (and not happy) to learn that Groppe's taking a position similar to that staked out by geologist Arthur Berman who also says the shale gas wells deplete rapidly. Natural gas industry pressure over his writing got Berman fired from the magazine Oil World. You can find rebuttals to Berman's argument on the web. Berman's response? Facts are stubborn things. You can read more about the controversy here.
With Peak Oil approaching our economic future is riding on the cost of substitutes. Natural gas could substitute for some current uses of oil directly and also indirectly by powering electric power plants to generate electricity for electric cars and electrified rail. Future prices of natural gas depend heavily on natural gas shale depletion rates.
Gail the Actuary points to an interesting claim about deep offshore oil drilling potential. Gary P. Luquette, President of Chevron North America Exploration and Production Co., argues that Outer Continental Shelf (OCS) oil drilling could add a substantial amount to our oil supplies.
The good news: the OCS has significant potential. Over time, it could add 1 million more barrels of oil and natural gas equivalent a day--potentially representing a fifth of the current total U.S. oil production. Advances in technology could increase that amount dramatically.
Some people believe that if the United States just opens up currently closed off areas for drilling oil then there'd be so much the US wouldn't need to import any oil and oil would be real cheap. Well, the world is currently using about 86 million barrels of oil per day and the United States is using almost 19 million barrels per day (down from 20.5 million before the oil price spike and recession). While another million barrels per day would help the US economically it would not cause a huge change in the overall oil supply picture. 1 million barrels per day would displace less than 10% of current US oil imports.
If the US is lucky the OCS oil might provide a decade's worth of oil. You might ask what happens after that decade is over. But it can't be pumped out that fast anyway.
The U.S. government estimates that the Gulf of Mexico holds somewhere around 70 billion barrels of oil, 40 billion of which remain undiscovered in the deep water. Combined with the entire Outer Continental Shelf, there's thought to be more than 85 billion barrels of undiscovered crude off the coast of the U.S., more than a decade's worth of oil at our current pace.
Oil extraction is limited by flow rates of oil underground. The OCS oil will take decades to extract.
85 billion barrels might sound like a lot of oil. But the world goes thru over 30 billion barrels per year and demand is rising due to economic growth, especially in Asia.
I expect remaining undeveloped US OCS areas to get opened up for drilling after another really big spike in oil prices. But even if that spike occurs in, say, 2012 we realistically wouldn't see substantial oil flowing for 10 years. OCS exploration and development takes a long time. "Drill, baby, drill" for US OCS oil isn't a short term solution to high energy costs.
OCS development involves very high costs and so it requires continued high oil prices. The days of cheap oil are over. We need substitutes.
In a finding that may speed efforts to conserve oil and intensify the search for alternative fuel sources, scientists in Kuwait predict that world conventional crude oil production will peak in 2014 — almost a decade earlier than some other predictions. Their study is in ACS' Energy & Fuels, a bi-monthly journal.
Ibrahim Nashawi and colleagues point out that rapid growth in global oil consumption has sparked a growing interest in predicting "peak oil" — the point where oil production reaches a maximum and then declines. Scientists have developed several models to forecast this point, and some put the date at 2020 or later. One of the most famous forecast models, called the Hubbert model, accurately predicted that oil production would peak in the United States in 1970. The model has since gained in popularity and has been used to forecast oil production worldwide. However, recent studies show that the model is insufficient to account for more complex oil production cycles of some countries. Those cycles can be heavily influenced by technology changes, politics, and other factors, the scientists say.
The new study describe development of a new version of the Hubbert model that accounts for these individual production trends to provide a more realistic and accurate oil production forecast. Using the new model, the scientists evaluated the oil production trends of 47 major oil-producing countries, which supply most of the world's conventional crude oil. They estimated that worldwide conventional crude oil production will peak in 2014, years earlier than anticipated. The scientists also showed that the world's oil reserves are being depleted at a rate of 2.1 percent a year. The new model could help inform energy-related decisions and public policy debate, they suggest.
If true the decline will cause an extended economic contraction lasting several years. We are not yet ready to migrate away from oil as our primary source of energy for transportation.
"The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well," Branson will say.
"Our message to government and businesses is clear: act," he says in a foreword to a new report on the crisis. "Don't let the oil crunch catch us out in the way that the credit crunch did."
One wonders what Branson thinks this means for Virgin Air. Is he still buying airplanes? What's he planning to fuel them with?
Other notable British CEOs join Branson in citing the looming threat.
Their call for urgent government action comes amid a wider debate on the issue and follows allegations by insiders at the International Energy Agency that the organisation had deliberately underplayed the threat of so-called "peak oil" to avoid panic on the stock markets.
Branson's an optimist compared to Jose S. Gabrielli de Azevedo, CEO of Brazilian oil company Petrobras. Gabrielli doesn't see how world oil production can be maintained at current levels after 2010. Optimists cite offshore Brazilian fields such as Tupi as reasons not to worry about Peak Oil. But Petrobras's ambition to increase production by a couple million barrels won't replace much larger production declines in existing fields around the world. You might want to take your last long road trip fling this year.
I hope Gabrielli is off by a couple of years. I want to do a road trip up the Alaskan Highway thru Canada before oil prices skyrocket.
Update: Lest you think Gabrielli is an outlier among major oil company CEOs, ConocoPhillips CEO James Mulva said in 2007 that world oil production will never hit 100 million barrels per day. So we are within at most 15% of world peak.
"Demand will be going up, but it will be constrained by supply," Mulva said. " I don't think we are going to see the supply going over 100 million barrels a day and the reason is: Where is all that going to come from?"
Writing in a comment on a post at The Oil Drum Gregor Macdonald very succinctly sums up an energy future where China, India, and other rapidly developing countries gradually displace OECD countries as oil purchasers.
High oil prices are more painful to the OECD/Developed world user than the Developing world user. In the Developing world coal accounts for the largest chunk of BTU consumption, and the marginal utility to the new user of oil is high. In other words, the OECD user is embedded in a system where the historical consumption pattern has been to use much more oil per capita. But in the developing world, just a small amount of oil to the new user of oil is transformational. It will be the developing world therefore that will take oil to much, much higher prices in the next decade. They will use small amounts per capita, but the aggregate demand will be scary high. After all, the developing world's systems are not leveraged to oil. They are new users of oil--and unlike us, aren't married to a system that breaks from high oil prices.
Macdonald sees an even bigger future for coal. To prevent that either technological advances have to lower the cost of competitors down to coal's cost (and good luck with that) or developed and developing countries have to agree to tax carbon emissions. I'm not betting on big carbon taxes. I keep hoping for bigger pushes to lower the cost of nuclear, and other competitors. Otherwise Asian demand and Peak Oil will push the whole world toward coal.
I see the OECD becoming increasingly poorer, and turning to the preferred energy source of the poor: Coal. I see the developing world continuing to progress along its current coal-fired powergen pathway, while adding large amounts of oil but in small per-capita terms. It will be the developing world that will get oil above 200 dollars (in today's terms) on a sustainable basis.
Rembrandt Koppelaar, President of ASPO Netherlands, captures this shift of oil consumption from the developed to the developing countries in his Oil Watch Monthly reports (PDF). See pages 8-12 for OECD (developed countries of Europe, US, Japan, Canada, etc) and then compare their oil consumption usage trends (all down including the US) with the trends for India and China on page 13. US oil consumption has already peaked. China and India can afford to drive up oil prices to levels that cause Americans and Europeans to drive less and to switch to more fuel efficient vehicles. This trend will continue.
My advice: Get yourself out in front of this trend. Don't get run over by it. While you can still afford to make financial decisions that insulate your living standard from the price of oil. Don't buy another SUV until they come as pluggable hybrids. If you have an oil heating furnace take a hard look at ground sink heat pumps. Or move closer to your job (provided you think your job can survive higher oil prices). The really hard part I see in the adjustment is how to find a job that'll survive Peak Oil.
You might think that surely Europe is turning away from coal or at least turning toward carbon capture from coal electric plants. But so far the price of carbon emission rights in Europe is too low to force a large scale switch to nuclear power.
E.ON and Centrica warned that they would not invest the tens of billions of pounds to build expensive new nuclear reactors and clean coal plants at today's carbon price, which is supposed to penalise dirty coal and gas plants.
Spot prices are now around €12 (£10) a tonne, close to a six-month low, and experts say that to make building new nuclear reactors financially viable, a price closer to €40 is needed.
What I'd like to know: What do these numbers tell us about the price difference between coal electric and new nuclear electric power? What's the difference in pennies per kwh? The key fact we need: How many kwh or mwh get generated per tonne of carbon emitted when coal is burned? Anyone know how to calculate this?
So far European steps to build more nukes seem pretty small. As soon as the rest of Europe announces plans to build as many nukes total as France has alone I'll think nuclear power is going to play a big role in Europe cutting CO2 emissions.
FRANCE - Building a 1,600 MWe EPR at Flamanville, which is expected to begin operation in 2012. France announced plans in January 2009 to build another one at its Penly power station.
GERMANY - The new center-right government plans to extend the lives of Germany's 17 nuclear plants but is expected to uphold an existing ban on building new nuclear power stations.
HUNGARY - Government agreed in April to allow preparations for building another unit at the Paks nuclear plant to begin. It could take over 11 years to build. [ID:nLE437132] Paks' existing four reactors supply about a third of Hungary's electricity.
Click thru and read the full list if you are interested. Several European countries might build a nuke or two. But the numbers don't begin to approach what's needed to stop most coal burning.
The United States might be able to go with natural gas from shales (Marcellus, Bakken, Fayetteville, etc) instead of more coal. But I do not think most countries are going to find natural gas a lower cost choice.
Update: Gregor Macdonald argues that this transition away from oil is more problematic than previous energy transitions because the transition is toward lower power density energy sources. True enough for most of the alternatives on offer. Obviously, nuclear power is higher energy density but requires so much capital investment that it has high costs. Plus, electricity is inconvenient and costly for cars and impractical for airplanes.
Those who would propose a successful energy transition over the next 20 years have failed, on a number of fronts, to produce a holistic model that pays respect to both the history of previous energy transtions, and to all (not just some) of the hurdles that lay before us. For example, one group of transitionists will lay out the technical feasibility of running the world exclusively on clean power. But they ignore the construction phase, or the energy required to fund it. Other transitionists will appear to address the construction phase, but instead will elide over crucial engineering details by invoking historical examples of national will–like the space program, or the retooling of Detroit during WW II. Most neglected however is the history of previous energy transitions. And here we find the largest hurdle of all. For, in humanity’s last two transitions, from wood to coal and then coal to oil, the trajectory each time was to a higher power density energy source. Energy transition is disruptive enough, but much less so when you are gaining energy density. And how do you suppose transition will be this time, going in the opposite direction, to lower density sources?
There's no strong political will to do the transition. It'll happen after Peak Oil as the amount of oil exported per year declines by 5% per year.
In recent years the development of technology for extracting natural gas from shale has boosted natural gas production from the Haynesville, Fayetteville, and Barnett shales. While Peak Oil still looks to be on schedule the good news is that much larger supplies of natural gas might make our transition away from oil much easier. Natural gas can power vehicles, albeit with less range than gasoline-powered cars. The United States might have enough natural gas to last most of the 21st century.
The U.S. consumes about 23 trillion cubic feet (TCF) of natural gas a year, according to the Department of Energy's Energy Information Agency (EIA). The Potential Gas Committee (PGC), an organization headquartered at the Colorado School of Mines, put the country's potential natural-gas resources at 1,836 TCF in a biennial assessment released in June. That's 39 percent higher than its estimate of two years earlier. Add to that the 238 TCF that the EIA has calculated in "proved reserves" (the gas that can be produced given existing economic conditions) and the PGC pegs the future supply at 2,074 TCF. In other words, there is enough natural gas to supply the country for 90 years at current consumption rates. Even if we used natural gas to totally replace coal in generating electricity, domestic supplies would last for 50 years.
The shale gas extraction technologies might also boost natural gas production in Europe and in other parts of the world. European dependence on Russian natural gas will be lessened. The US and Europe will both benefit from lower costs for importing energy than otherwise would have been the case.
Currently oil is selling for about $13 per million BTU of heat energy versus natural gas at about $4.50 per million BTU. So natural gas is a cheaper source of heat energy. If the shale plays turn out to be cheap enough then natural gas could substitute for gasoline for some transportation uses. Currently the United States gets about 95% of its transportation energy from oil. Compressed natural gas could supply an alternative if the price difference between oil and natural gas stays large as oil prices rise.
While lots of optimistic stories are being written about the prospects of the natural gas shale plays wouldn't you know it there's some guy saying the emperor has no clothes. Arthur Berman has doubts about the economic viability of the gas shale plays. He thinks shale natural gas production will decline much more rapidly than some of the natural gas companies expect. Is he right? I have no idea. The next couple of years will tell.
Update: 2009-Nov-8 See Gail The Actuary taking a look at the controversy over decline rates and costs for natural gas shale plays. The correct answer matters a great deal for our energy future.
The other man who knows interesting things about oil deposits in the Arctic is Donald Gautier, who works for the United States Geological Survey (USGS) in Menlo Park in the heart of Silicon Valley.
Comparing similar areas helps determine possible amounts of oil in other parts of the world. So where are structures similar to those found in the Arctic region? "In the case of northeast Greenland, you can say, for example, that the area is very similar to western Norway and the northern part of the North Sea," says Gautier. Since there is already significantly more data on these analogous areas than for the Arctic, researchers can use this information for modeling:
A total of 17 surveyed sites promise significant finds. There could be up to 90 billion barrels of undiscovered oil in the Arctic, representing 13 percent of the world's as yet undiscovered reserves.
Does 90 billion barrels sound like a lot? It is only 3 years worth of oil at the world's current burn rate. If that's 13% of the world's undiscovered oil then 692 barrels are waiting to be discovered and that's only 23 years at the current burn rate. But even if the world's current oil production rate could be maintained (and it can't) Westerners would see much less of that oil in coming years. The Chinese, with over 4 times the population of the United States, are now buying cars at a faster rate than Americans. China is setting up for a huge surge in oil demand growth. Currently China's oil consumption per capita is a tenth of US oil consumption per capita. The potential for demand growth in China is enormous. Also, India, with an even larger and more rapidly growing population is also industrializing. The $2500 Tata Nano is bringing car ownership within the reach of many more Indians and will help feed growing oil demand in India.
Even if the 90 billion barrel estimate for the Arctic is conservatively off by a factor of 2 or 3 it doesn't much change our problem with dwindling oil reserves. North American crude production peaked in 1985 and I do not expect Canadian and Alaskan Arctic oil production to enable a new North American oil production peak.
World oil discovery peaked in 1965, give or take a year. The consumption rate surpassed the discovery rate in 1981. High oil prices in recent years haven't caused discovery to approach the rate of consumption. We'd need a discovery rate higher than the current consumption rate to accommodate rising Asian demand while still maintaining Western consumption levels. Not going to happen. My advice: Make choices that will lower oil rate of oil consumption. Future high costs won't hit you as hard if you start adjusting now.
Euan Mearns, writing on The Oil Drum Europe, takes a look at predictions made by Richard Duncan and Walter Youngquist in a paper they published in 1999 about expected future oil production peaks in assorted oil producing countries. So far Duncan and Youngquist's predictions on peak dates have achieved pretty decent accuracy given the quality of data they had to work with to make their predictions. If their predictions continue to be even half as accurate we are in deep trouble.
Duncan and Youngquist list 42 countries representing 98% of global production in Table 1. Of those, 8 countries were already past peak at the time the paper was written and a further 5 countries were forecast to peak some time after 2007 (the year I first looked at this data), those being Brazil, Iraq, Kuwait, Saudi Arabia and the UAE. A further 3 countries are not listed by BP leaving a group of 26 countries that were forecast to peak between 1999 and 2007. I have just updated this exercise using the 2009 statistical review.
I compared Duncan and Youngquists's forecast date with actual peak dates for individual countries. The distribution of these differences are shown in the chart up top. Once I had sorted the data I realised the most significant point was the rough normal distribution and that countries that had been "overestimated" were balanced by countries where an "underestimate" had been made. Summing the differences yields a value of -7 years when averaged for the 26 countries yields -0.3 years or - 4 months per country forecast. Weighting the countries for annual production reduces this bias further. This is a remarkable achievement.
These guys predicted a 2007 world oil production peak. Oil went a little higher in 2008. If they were only off by a year then the current recession is just the beginning of a deeper downturn.
Duncan and Youngquist forecast that world oil production would peak at 30.64 Gb/ annum in 2007 translating to 83.95 mmbpd. According to BP, 2007 production was 81.44 mmbpd that was exceeded by 81.82 mmbpd in 2008. It is of course premature to call 2008 as peak year although I am increasingly skeptical that the 2008 production will ever be exceed. If Duncan and Youngquist's unbiased accuracy follows through to Brazil and the 4 big gulf producers - Iraq, Kuwait, Saudi Arabia and the UAE, then this will underpin their 2007 peak oil forecast, reinforcing the view that 2008 saw the passing of peak oil.
Duncan and Younquist told us 10 years ago that peak oil will be buried in a bumpy plateau and that a number of years must pass before it will be evident from declining production that peak has indeed passed. The exact timing is unimportant. The important thing is the knowledge that we are within the plateau and that some scientists do understand the above and below ground factors leading to peak and that their warnings of decline past peak and its consequences should not be ignored.
Energy analyst Charlie Maxwell is predicting a 2015 date for world oil peak production. In that case we are going to go thru a period which Robert Rapier calls "Peak Lite".
Charles T. Maxwell, senior energy analyst at Weeden & Co., has been analyzing the oil industry for longer than most of us have been alive. Well connected and respected within the industry, his opinions can not be portrayed as coming from the fringe. Maxwell believes world oil peaks by 2015 and we are headed for a 10-12 year financial downturn as a result.
A lot of people have said that the year 2015 is too far out for the peak. But I built a big margin in there because I thought we might have two recessions. I didn’t dream that we would have one really big one. So I’ve still got 2015 out there. But if you said to me last July, when do you really believe the peak is going to come, I would have said 2013. I started years earlier by estimating 2015 and I happily held to that view as I saw the recession begin to develop because I could see that we would probably push it off a little bit.
For your purposes, I’ve got 2008 for the peak of non-OPEC-not really a peak, it’s a plateau, but we’re falling off it now. And then 2011 for the peak of the top 50 listed companies, the ones that dominate the stock market, so the stock market investors will say the oil industry has peaked because their stocks have peaked. And then I’ve got 2013 for the peak of black crude oil and then 2015 for the all-liquids peak, which I take to be ultimate peak oil. And that would include gas-to-liquids, coal-to-liquids, NGLs. And it would include both synthetic and natural crudes.
Solar costs too much, ethanol is a loser (I totally agree), and Maxwell even thinks ultimately we are going to be disappointed by wind.
If you look at solar power, it’s terrific, so terrific, so fast growing….that without a subsidy, no one will use it. So it’s not very attractive, and people don’t admit that. And I think it’s the same thing with ethanol, which was a loser from the start. And I think it’s the same thing with wind energy. I think wind energy is going to turn into a huge disappointment because so many hopes are being pinned on it.
I have two main questions about wind: How fast will wind's costs fall? Also, how much can long distance DC power lines allow wind from different areas to back each other up? The second question really has two components. The first relates to the cost effectiveness of really long range (thousand or more miles) transmission of electricity. Will superconductors help? If so, how soon? The other component relates to wind: how uncoupled are wind patterns in areas many hundreds of miles apart? I think the jury is still out on that and I've yet to see the published study using real world data from enough locations far enough apart from each other and over years of measurement. I'm taking a skeptical view of large scale baseload wind power.
A partial shift toward electric cars will lessen the problem with wind's intermittency. But we still need baseload power. We could free up more natural gas for use in transportation by building up more baseload nuclear power. Granted, nuclear power won't help us in the 2010s. But it could make a much bigger contribution in the 2020s.
In the second part of his interview Maxwell looks at the fuels we have to turn to as major sources when oil production starts declining yearly across the globe. He sees natural gas, coal, nuclear, and conservation as the main energy sources we can hope to turn to as substitutes. Note that he doesn't see wind and solar as major alternatives in the 2015 time frame. Leave aside the long term potential. What happens in 2015, 2016, 2017? We all eat in the short run.
In effect, by 2015 we’ve got five fuels that we’re talking about here: oil, gas, coal, and nuclear. And the fifth one we’ll call a “fuel,” which is energy efficiency and conservation. It acts like a fuel. It gives you more work done at lower energy volumes. So in that situation you have really got Hubbert’s peak operating to keep you from using the oil alternative. The obvious easy answer politically is to import more oil, but there’s not going to be any place to import more oil from. And the costs are going to be higher and higher, so we’re stalled out on that one. But you go on with oil; you don’t stomp on oil because that would increase the size of your problem immensely, very quickly, and without any reasonable basis. You just can’t emphasize it because it isn’t a solution; it’s just a maintenance story.
Maxwell correctly sees the main problem with nuclear is build times.
So then you go over to nuclear and you don’t have the time. You can try to summon up anything you want but if you don’t get it for 10 years…the vulnerability is going to be right here between 2011 and 2021. That decade is going to, I think, be the maximum vulnerability; that’s when we’re going to take it on the chin. So nuclear can’t get there in time. We should be doing something on nuclear for days ahead, but it won’t help us during the upcoming decade unless we started it today and we aren’t going to start it today because the public is not yet ready for it.
France is really in the best position to assure affordable electric power going to the Peak Oil era. Already 80% of France's electric power comes from nuclear power and the French are building another nuclear reactor at Flamanville. For a variety of reasons few of the French oppose nuclear power. On nuclear power I think the French are wiser than Americans overall.
Maxwell sees a bright future for natural gas from shale fields. Maxwell is responding to the much brighter prospects for extracting the massive amounts of natural gas in the shale plays. The Haynesville shale in Louisiana, Barnett shale in Texas, Marcellus shale in the US Northeast and other shales can be accessed with horizontal drilling and hydrofracturing. I'm beginning to think that the T. Boone Pickens Plan for powering cars with natural gas makes sense. Electric cars will have a role too. But existing cars can be converted to natural gas (especially if legislative and regulatory bodies decide to allow it) pretty quickly and for far less money than existing cars can be converted to electric power.
In a nutshell, I do not see a viable alternative to natural gas powered cars. Biodiesel algae looks too long term. The energy returns from corn ethanol are too low (and we do not have enough land to grow enough corn anyhow). Conversion of coal to liquid costs much more and is too dirty. A shift to more electric powered cars makes sense. But the time to make the transition is too long and the costs too high for electric powered cars to be the main transportation response to Peak Oil.
I do not see mass transit as a solution for most people because even in Europe with much higher fuel costs and more subsidized mass transit 85+% of passenger miles traveled are still by car. Mass transit takes more time because it is not door-to-door. For people with lower budgets or shorter distance traveling needs conversion of bicycles to electric power could pretty cheaply keep a lot of people going to work.
Maxwell expects an economic crisis that lasts from 10 to 12 years as we start to respond to Peak Oil too late. That sounds about right to me. The economy will shrink as the amount of oil available to drive it declines every year. To do the massive capital investments needed to develop alternatives a larger fraction of a shrinking pie will need to be allocated (whether by market mechanisms or government fiat) toward developing alternatives and investments in efficiency. One can claim we already have many of the technologies we need to adjust to Peak Oil. I would agree. But capital build lead times are long and turn-over in auto fleets and other equipment that uses energy takes many years. Few people or companies can afford to just junk all their cars, trunks, and other equipment and replace it with stuff that runs on electric power and natural gas.
Maxwell sees $300 oil as inevitable. I am less sure. Writing from Switzerland Francois Cellier argues that demand destruction will keep oil below $200 per barrel in the long run. Though even if that's a long term upper limit one can still imagine spikes above that price. So when world oil production starts declining at 4-5-6% per year how high will prices go? Possibly if the US dollar goes into a major decline against some other currencies $300 per barrel would be possible. Though I suspect that the dollar's value will be a lot less if and when that happens.
What do the alternatives cost? Electric power derived from a number of sources is going to play a larger role as in energy-intensive applications as oil gradually fades from the scene. The Institute for Energy Research has a report Levelized Cost of New Electricity Generating Technologies which you can view as a graphical of expected comparative costs for the main methods of generating electricity in 2016. Note they have wind and solar as still far more expensive than natural gas or coal with carbon capture and storage (CCS). But if low carbon dioxide emissions at the lowest possible cost is your goal then nuclear beats fossil fuels with CCS. Also, wind isn't far above the costs of nuclear, natural gas and coal. But it is not dispatchable (i.e. only generates when the wind blows - now when you want it to).
Some of my own policy recommendations:
Got any good energy policy ideas?
More recently, companies such as Royal Dutch Shell have developed ways to tap the oil in situ, by drilling boreholes that are thousands of feet deep and feeding into them inch-thick cables that are heated using electrical resistance and that literally cook the surrounding rock. The kerogen liquefies and gradually pools around an extraction well, where the oil-like fluid can easily be pumped to the surface.
The process involves no mining, uses less water than other approaches, and doesn't leave behind man-made mountains of kerogen-sapped shale. And according to a Rand Corporation study, it can also be done at a third of the cost of mining and surface processing.
An affordable way to extract oil from oil shale would make the United States into one of the best places to be when conventional worldwide oil production starts its final decline. The US has an amount of oil in shale equal to about 25 years of oil supply at the world's current oil consumption rate.
Will technological innovations push off the date of Peak Oil or at least greatly slow the oil production decline rate?
Projections of future coal burning maybe excessively optimistic or pessimistic (depending on your point of view) because the amount recoverable from the ground might be far less than governments project.
David Rutledge, a professor of engineering at Caltech, estimates economically recoverable coal reserves at 400 billion tons worldwide. By comparison, governments claim 850 billion to 998 billion tons of recoverable coal.
Rutledge presented this analysis at the annual meeting of the American Geological Union . He has also made this argument previously. Sounds like he's done more number crunching since the previous report.
If Rutledge is right then people fighting global warming are fighting the wrong battle. CO2 emissions are going to peak because of geological limitations.
The figure is substantially lower than the ones used in assessments by the Intergovernmental Panel on Climate Change (IPCC) to gauge possible future emissions scenarios.
"This is a radically different number from what is conventionally assumed," said Professor David Rutledge from the California Institute of Technology, who led the analysis.
"The IPCC assumes that about five times as much coal is available for burning."
I am more certain about the coming of Peak Oil than I am about Peak Coal. Oil fields appear to have attracted a lot more study.
"The record of geological estimates made by governments for their fossil fuel estimates is really horrible," Rutledge said during a press conference at the American Geological Union annual meeting. "And the estimates tend to be quite high. They over-predict future coal production."
More specifically, Rutledge says that big surveys of natural resources underestimate the difficulty and expense of getting to the coal reserves of the world. And that's assuming that the countries have at least tried to offer a real estimate to the international community. China, for example, has only submitted two estimates of its coal reserves to the World Energy Council — and they were wildly different.
We need lots more nuclear reactors and wind turbines. We also need better batteries for electric cars and genetic engineering of microorganisms for practical biomass energy.
Bob Dunbar, president of Strategy West, a Calgary oil sands consulting firm, says the risk of a no-growth period in the oil sands is high.
"If we have a prolonged financial economic crisis, then I think this industry is coming to a halt, other than startup and completion of projects that are already underway," says Mr. Dunbar, who was one of the oil sands' first regulators three decades ago with the Alberta government.
He sees oil sands production growing to 2-million barrels a day, from the current 1.3-million barrels a day, as projects under construction are completed by 2010-2011.
Then, the pipeline dries up. The industry's goal was to produce about 3.5-million barrels a day by 2015.
How long will the recession last? I wish I knew.
Deferred and cancelled oilsands projects could result in 300,000 fewer barrels a day flowing from northeast Alberta by 2017, the Canadian Association of Petroleum Producers (CAPP) said Friday.
The industry association expects oilsands spending to drop more than 25 per cent, to $16 billion in 2009 from a previous estimate of more than $20 billion. Overall upstream spending - including the East Coast offshore - is expected to fall about 15 per cent to $43 billion from $50 billion in 2008, said Greg Stringham, the group's vice-president of markets and fiscal policy.
If OPEC and Russia manage to make a bigger oil production cutback now then fewer projects will get canceled. But if OPEC can't get it together and the recession is long then we are going to be set up for a bigger surge in oil prices when they finally bounce back.
Jeff Rubin, chief economist at CIBC World Markets, sees an 800,000 barrels per day loss in new Alberta oil sands capacity.
"In the Alberta oil sands alone, we estimate that project cancellations and delays, affecting $100 billion of investment, will shave over 800,000 barrels from daily new capacity, roughly half of earlier projected growth in the next five years. And what is happening there is occurring in Brazil, West Africa and the Middle East itself."
I look on the bright side: oil not burned in the next few years due to project cancellations and delays is oil we'll have after world oil production goes into sharp permanent decline.
Update: The many oil project cancellations and delays are driven by oil prices that have fallen below project costs. Many projects require at least $55 per barrel to break even.
Goldman Sachs analysts Giovanni Serio and Jeffrey Currie identified 30 oil projects that require a price of $55 to break even, according to a Dec. 10 research note. Those ventures include Petroleo Brasileiro SA’s Tupi field, the biggest oil discovery in the Americas since 1976, and deepwater concessions in Angola belonging to BP Plc and Total SA.
Project delays might cut available oil by 4 million barrels per day. That's more than OPEC is expected to cut in order to restore prices.
These delays could curb future global fuel supplies by the equivalent of four million barrels a day within the next five years, according to Peter Jackson, an energy analyst at Cambridge Energy Research Associates. That is equal to 5 percent of current oil supplies.
One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices. Many companies are waiting for those costs to come down before deciding whether to go forward with new projects.
Dec. 11 (Bloomberg) -- Exxon Mobil Corp., the world’s largest company, may raise spending on oil exploration and refineries by $5 billion next year as rival energy producers reduce budgets to cope with falling prices and a recession-driven drop in demand.
Exxon has not been investing enough to maintain oil production. Partly, this is a result of inability to get access to fields where most of the remaining oil resides. At this point national oil companies control most of the remaining oil and the big international oil companies are slowly shrinking as their own fields deplete.
Hydrates have been hailed as a paradigm shift in how to achieve energy independence and as a massively abundant source of cleaner-burning natural gas. Others fear it represents an environmental disaster in the making. Until recently it was thought too dangerous and too costly to extract to be of use.
That view is beginning to change. In a recently released report, the USGS for the first time announced details of large hydrate reserves in the Alaskan permafrost that should be recoverable using existing technology. The vast field could hold as much as 85 trillion cubic feet of gas – an amount far less than the dream scenarios put forward in the past, but still massive. Even more important, such movement makes the possibility of getting at the mother lode of hydrate resources – those located offshore – increasingly realistic.
“I never thought this would happen so quickly,” says Carolyn Ruppel, a USGS research geophysicist who was heavily involved in prior hydrate research expeditions, referring to the planned production test. While the number of proposed drilling programs is small and significant obstacles remain, “there has been a real change these past four years,” Dr. Ruppel says. “It’s partially from market pressures.”
If the offshore methane hydrates become reachable then I fear we really will melt the polar ice caps with all the carbon we'll release from the oceans.
Worldwide, total natural gas consumption increases from 104 trillion cubic feet in 2005 to 158 trillion cubic feet in 2030 in the IEO2008 reference case (Figure 35). World oil prices are expected to remain high, and as a result natural gas replaces oil wherever possible.
I am expecting Peak Oil to prevent the scenarios of very high atmospheric carbon dioxide from happening. But if methane hydrates from the oceans become economically extractable I fear we'll hit much higher levels of carbon dioxide.
I think it’d be fair to say that our sponsorship of democracy around the world was rather presumptively based on the fact that there would be an expansion of living standards that you and I would understand would have to be based on hydrocarbons. The question is: can it be based on hydrocarbons? I think the answer is plainly no….
Our modern world is based on hydrocarbons. I think it’s going to slow and maybe even stop. And now I think the question is…
RB: It’s going to slow? You mean our way of life?
CM: Our rising standard of living. This is the first time you are getting people saying, “Every generation has created children who have a better standard of living than their parents. This is the first generation where that is not proving to be so.” And I think there will be more generations where it’s proving not to be so. To me, that’s the final problem here, that we lose our political way on the basis of economic problems that really are not so much bad policy as they are the misadventure of running out of fundamental materials that we need to support our economy in sustained growth.
People say, well, we have the scientific ability to work around that. And I think that we do over time. So I would expect that 100 years from now, the world will have a higher standard of living than [we do] now.
But nevertheless, it will slow. We can’t innovate scientifically as fast as the problems are going to accrue. So we are either going to slow to zero growth or to very low growth, perhaps something equivalent to our population growth, and then your per capita ceases to grow. Anyway, that’s what I fear.
Will an extended period of economic contraction cause the failure of democracy in some countries? Sounds plausible.
Some are more optimistic about our ability to handle declining oil production. But Maxwell argues many of the potential substitutes for oil require capital expenditures (capex) that take too many years to effectively respond to declining oil production. For example, nuclear power plants take several years to build. But Maxwell also mentions rail capacity increases that would be needed for big increases in coal production. I've made this same argument in comments of previous threads here. I do not see how we can capex fast enough even if have the technologies.
The capex argument is an interesting one from another standpoint: Energy sources that have short build times have the potential to play an outsized role in replacing oil. Solar photovoltaics looks like the strongest candidate by that measure. A PV factory can make solar panels rapidly and the panels can be installed rapidly. Any idea on how long it takes to build a PV factory? Probably depends heavily on type of PV. Maybe scaling up of thin film PV is faster than silicon because the silicon PV factories are dependent on silicon crystal factories. Anyone have insight on this?
But PV poses a big problem because PV puts out electricity. In order for electricity to substitute for oil in most transportation applications we need better batteries. In order for electricity to substitute in rail we need a big rail build of electric lines along the rails as well as construction of electric engines. Not sure what is the time line required to do that. But we have a basic problem with how to use electricity to substitute for oil.
The big liquid hope for oil substitution comes from biomass energy to produce ethanol or biodiesel. If we need genetic engineering of algae to make this happen then that could take several years. Scaling it up would take years too. Obviously corn ethanol can't scale far enough. Cellulosic technology would scale higher than corn ethanol. But we'd lose a lot of wildlife habitat to forest destruction if we went with cellulosic technology to make ethanol.
Maxwell sees Peak Oil as very near and expects an accelerating decline in oil as a source of our energy.
What I’m saying is that as oil withdraws, it hits America with particular force because of our heavy dependence. I think oil is 40 percent of our total energy; worldwide, by the way, I think it’s 39. But I see it something like this, and I’m quoting from the BP Statistical Review: in 1996, oil was 40 percent of the world’s energy. In 2006 it was 39. So oil is not growing as fast as some others, or it wouldn’t be losing ground. So [that’s been in the last] 10 years, exactly a decade. I think it is going to take five years to lose the next percentage. And then I’ve calculated that it’s going to take three years to lose the next percentage. And then two years. Then a year and a half, and then a year. Something like that. It won’t be that exact. But I am just trying to give you the scale of what’s happening.
Maxwell thinks we'll hit the final oil production peak plateau in the 2013-2017 time period. After that the decline starts. He does not see how we can maintain economic growth during a period of declining oil production.
Maxwell says he was originally unenthusiastic at the prospects for compressed natural gas (CNG) as a transport fuel. But he says he's rethinking his position because he only sees batteries for electric cars as the only other possible alternative. We do not know yet when or even if batteries will become cheap enough and sufficiently high in energy density to make electric cars suitable substitutes for internal combustion engine (ICE) cars.
T. Boone Pickens is promoting the CNG car idea. He combines it with a big build of wind turbines as a means to free up natural gas from its current use to generate electric power. Maxwell thinks the assorted shale natural gas finds in the United States put the US in a good position to maintain natural gas production for the next 20 years.
Last year analysts estimated it cost around $60 a barrel to produce light oil from here. The most recent estimate from the Canadian Association of Petroleum Producers (CAPP) now puts that number at $75 to $90. Comparatively, Saudi Arabian crude is said to cost around $1 a barrel.
The oil tar sands in Alberta are not the only expensive place to produce oil. The deep water Gulf of Mexico oil has a similar cost.
Peter Robertson, vice chairman of Chevron, recently told lawmakers that the cost of new production in the deep water Gulf of Mexico could exceed $95 a barrel.
I would expect Tupi and other deep water fields off of Brazil to have similar or even higher costs.
One can find a similar trend across the fossil fuels extraction industries. Chesapeake Energy, a big natural gas outfit, reports more than a doubling in the cost of natural gas extraction from 2Q 2003 to 2Q 2008.
A deep recession could cause prices to fall below marginal costs. But prices will eventually rise up to or above marginal production costs. The age of cheap fossil fuels has ended. We can't enter a new era in cheap energy prices without breakthroughs in solar, nuclear, and biomass energy.
A Texas company says that it has developed a cheaper and cleaner way to convert natural gas into gasoline and other liquid fuels, making it economical to tap natural-gas reserves that in the past have been too small or remote to develop.
The company behind the technology, Dallas-based Synfuels International, says that the process uses fewer steps and is far more efficient than more established techniques based on the Fischer-Tropsch process.
If this process works well it will drive up the price of natural gas as more natural gas gets used to produce liquid fuels for transportation. That will, in turn, reduce the desirability of natural gas for use in heating and electric power generation.
A better way to convert natural gas into liquid fuels using small chemical plants would allow many smaller and/or remote natural fields to be tapped. For example, the natural gas on the northern slope of Alaska hasn't been exploited yet because the costs of building a natural gas pipeline to bring it down to the lower 48 states is quite high. A couple of pipelines are in early development. But a way to convert the Alaska natural gas to liquid form would allow the existing Alaska oil pipeline to move the liquid south.
The article also mentions another start-up company, Gas Reaction Technologies, a spin-off from UC Santa Barbara, which claims its gas-to-liquid technology will work well for medium and small sized natural gas fields.
If either of these companies substantially lowers the cost of gas-to-liquid that will undermine the rationale for the T. Boone Pickens proposal to shift more toward natural gas as a vehicle fuel. Why use natural gas directly when it can be converted to a far more convenient liquid form? But since the conversion itself uses energy natural gas converted to liquid fuel represents a loss of energy that would not occur if natural gas was directly burned in cars.
I am skeptical that we'll ever see a big shift to natural gas for vehicle transportation. Liquid fuels are more convenient and use up less trunk space. Technological developments that cut costs for doing the natural gas-to-liquid conversion will provide a more convenient and therefore more valuable way to use natural gas.
Oil prices have declined on demand destruction. The CEO of BP observes a big decline in oil demand in developed countries.
Tony Hayward, chief executive of BP, said last week that the oil company had detected a drop in demand of up to 10 per cent in countries that are members of the Organisation of Economic Cooperation and Development (OECD).
US fuel demand averaged 20.2 million barrels a day during the past four weeks, down 2.4% from a year earlier, the Energy Department said July 30.
Consumption of petroleum products, which account for about half of the island's energy supply, fell 4.1 percent from a year earlier to the equivalent of 4.5 million kiloliters of oil, the bureau said. Demand for diesel declined 21 percent, while that for gasoline dropped 8.7 percent. Power consumption climbed 8.2 percent to 20.9 billion kilowatt-hours in June, with demand by industrial and energy companies 12 percent higher than a year earlier.
Oil consumption in the United States and OECD nations is weakening but China and India have yet to show signs of falling demand, making it unclear if the price fall below $120 is a turning point, the IEA's chief said. "We don't know if this is a turning point. We'd like to know but we don't have an answer yet," Nobuo Tanaka, executive director of the International Energy Agency (IEA), the adviser to 27 industrialised countries, told Reuters on Tuesday.
NEW DELHI : India’s oil imports from the Middle East increased to 89.73 million tones in 2007-08, up by 11 percent, compared to 80.81 million tones in 2006-07, according to Petroleum Ministry.
The Western countries will continue to cut back while Asian demand continues to grow. Eventually Western demand destruction won't be able to balance Asian demand growth. Then things will get ugly.
WASHINGTON – U.S. oil demand was significantly down for the first six months of 2008, API said today in its Monthly Statistical Report. While U.S. refiners churned out record and near-record amounts of oil products, imports – especially product imports -- fell substantially.Deliveries of all oil products – a measure of demand – fell 3.0 percent compared with the same first-half-year period in 2007, with gasoline deliveries slipping 1.7 percent. For the preceding three years, oil demand had essentially held steady.
API statistics manager Ron Planting said, “At 20.08 million barrels per day, total demand was the lowest in five years. And the decline in gasoline demand was the first significant one recorded in 17 years. Higher pump prices and a slowing economy were undoubtedly factors.”
At 2.0 percent, the second-quarter decline in demand for gasoline was even greater than for the first six months. However, the 1.8 percent decline for all products for the last three months, compared with the same period a year ago, was less in part because of a 2.1 percent increase in demand for distillates, which includes diesel fuels and home heating oil.
That demand destruction is causing a decline in oil prices of late. But eventually rising Asian demand will replace US demand and oil prices will start going back up again. How high will oil prices have to go to cause Asian oil consumption to stop growing? We are going to find out.
US oil imports have declined all the way back to 2003 levels. Some day US imports will reverse back to 2000, 1990, 1980, and earlier. We are in an energy consumption time machine traveling back into history.
Overall U.S. oil imports, including crude oil and oil products, sank to their lowest first-half level since 2003, at less than 13 million barrels per day.
Overall U.S. oil imports, including crude oil and oil products, sank to their lowest first-half level since 2003, at less than 13 million barrels per day.
Check out this series of anecdotal responses to higher gasoline prices to see how Americans from different walks of life are adjusting to higher fuel prices. As time goes on the cumulative effects of many individual decisions will grow much larger. People will buy smaller hybrids, move closer to work, choose jobs closer to home, take home online courses, walk, bicycle, car pool, take buses, and adjust in large numbers of other ways.
Some argue that since Americans use so much oil per person they are least able to adjust to the coming decline in world oil production. But I would argue that the opposite is the case. People who use a lot of energy in optional ways (e.g. to push a lot of SUV weight around) can downshift to more efficient choices. By contrast, those who are already relatively energy frugal have fewer cards left to play.
Just how long we stay on the bumpy world oil production plateau will do the most to determine how much disruption we will encounter as a result of the coming oil production decline. The longer we stay on the plateau the more alternative energy technology will get developed and the more capital accumulation will happen that adapts us to the era of oil decline. Rising oil prices during the production plateau send powerful signals to markets to develop alternatives. Enough oil still gets produced on the plateau that capital markets function well and research and development teams can work on new tech.
Other important unknowns include the rates at which production will decline in old oil fields. Also, at each price point how will Asian economies respond? They have faster economic growth rates and therefore faster energy demand growth. To get their demand growth rate to zero will require larger price increases than will be the case for the US economy. US demand destruction is putting a ceiling on oil prices now. But a lot of the US demand destruction basically frees up oil for consumption in Asia. US demand destruction has to happen faster than Asian growth in order for oil prices to level out and decline.
Will Saudi Arabia manage to raise their production to 12.5 million barrels per day? BusinessWeek has a reliable source that says the Saudis can not ramp up their production nearly as much as they claim they will.
But the detailed document, obtained from a person with access to Saudi oil officials, suggests that Saudi Aramco will be limited to sustained production of just 12 million barrels a day in 2010, and will be able to maintain that volume only for short, temporary periods such as emergencies. Then it will scale back to a sustainable production level of about 10.4 million barrels a day, according to the data. BusinessWeek obtained a field-by-field breakdown of estimated Saudi oil production from 2009 through 2013. It was provided by an oil industry executive who said he had confirmed it with a ranking Saudi energy official who has access to the field data. The executive, who has proven reliable over several years of reporting interaction, provided the data on condition of anonymity to protect his access to the kingdom and the identity of the inside contact who confirmed the information.
Among those who dismiss Peak Oil fears oil reserves in Saudi Arabia were supposed to provide so much increased production that world oil consumption could continue to rise along with economic growth and increasing demand. But the great Saudi hope is a dud.
Mexico's average crude exports plummeted 17.3% to 1.46 million barrels a day during the first five months of the year compared to the year-ago period, contributing to record oil prices.
In spite of record high oil prices and a big push to drill in the United States oil production in the US declined in May and June of 2008. The surge in oil prices over the last few years caused a temporary halt and small reversal of the long term declining trend of oil extraction in the US. Is that long term trend now going to resume?
My advice: make lifestyle and career adjustments to reduce your dependence on oil before rising oil prices force you to make changes. It is easier to make changes from a position of relative strength than from a position of relative weakness. If you are going to move then consider moving closer to work. When buying a car go for more fuel efficiency. For some types of occupations telecommuting might be a possibility. Organize a car pool or ride a bicycle or take a bus..
The latest International Energy Agency Medium-Term Oil Market Report (MTOMR) has an important change from previous reports: The IEA has increased their projected rate of production decline from existing oil fields.
Supply growth deriving from a concentration of new project start-ups during 2008-2010, allied to weaker economic growth, sees potential spare capacity rise in excess of 4 mb/d. However, this expansion slows from 2011 onwards when global demand growth recovers, leading to a narrowing of spare capacity to minimal levels by 2013. Since the 2007 MTOMR, significant downward revisions have been made to both non-OPEC supplies and OPEC capacity forecasts. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream -- to assure that the market is adequately supplied,” stated Mr. Tanaka.
Contrast that 3.5 mb/d needed increase from new projects with the Saudi promise to increase production by a half million barrels per day.
Keith Johnson of the Wall Street Journal asks where are those millions of replacement barrels of new supply going to come from?
So where’s that fresh supply going to come from? As the IEA noted, Saudi Arabia is the only country with a glimmer of spare production capacity—and the jury is still out on that. Increased domestic drilling, the U.S. energy agency already said, would be but a hiccup in the global market. Non-OPEC countries, from Norway to Mexico, are expected to chip in just 1.2 million barrels per day of new crude by 2013, IEA head of market analysis Lawrence Eagle said—or less than half the global shortfall.
We face a future with less oil. Therefore we need to change our lifestyles and change our industrial processes and infrastructure to use less oil. Are you preparing for this future? If so, how?
BTW, if you have been wondering why diesel costs more than gasoline in the United States when for years the opposite was the case: The US exports diesel to Europe and also to Latin America and the Far East (China). Europe's tax and regulatory regime favors diesel. So Europe has more gasoline but less diesel than customers demand. At the same time, Latin America and China are using more diesel to generate electricity (not the cheapest way to generate electricity btw). Will this trend continue? China's demand for diesel electricity seems short-lived. But what about Latin America?
Update: Also see Khebab's Oil Megaproject Update (July 2008).
For most of the post-WWII era US oil consumption went up year after year. One deviation from that came in the early 1980s. An even longer lasting and probably permanent deviation from that trend is developing. Americans have traveled back in a sort of time machine to 2002 levels of oil usage.
The U.S. Energy Information Administration revised downward U.S. April oil demand by 863,000 barrels per day (bpd) to 19.77 million bpd -- 3.9 percent below year-ago levels. The revision, which showed April demand was the lowest for the month since April 2002, came even before gasoline prices surged to new records in June.
But on a per capita basis the reduction in oil usage is even larger since the US population grows about 1% per year. So has US oil usage per capita gone down 10% since 2002? Can someone check me on this?
Back in 1959 the United States used about 6 million barrels of oil per day. The US had a population of about 150.5 million in 1950 versus about 304.4 million at the time of this writing. Okay, with 2 times more people we would use almost 12 million barrels a day if we used oil at the same rate as in 1950. But we use about 20 million barrels a day. So once prices go high enough to cut US demand by 8 million barrels a day we will have traveled back in time to 1950 in terms of oil usage.
A 1950 level of oil usage will be easier in the future than it was in 1950 because we have much more efficient cars and other higher efficiency equipment. Plus, we have nuclear power plants, wind turbines, and other sources of non-fossil fuels energy. As we hit each point of our future journey into our oil consumption past we will make other gains in technology for fossil fuel replacements. Now, I do not expect those advances to come fast enough to prevent a decline in total per capita energy usage. But those other energy sources will at least allow us to maintain an industrial society.
Update: In the comments Donkatsu explains how far off our peak per capita oil consumption we've already fallen:
The data tell the story, from 1998, oil use per capita in the US has risen steadily from 25.06 barrels per person to a recent peak of 25.9 bbl/capita in 2004. In 2005 per capita consumption fell by about 0.6%, falling further for the full years 2006 and 2007 to 97% of the 2004 peak. The 2008 levels, if maintained for the entire year, would put per capita oil consumption at about 91.6% of the 2004 peak.
If you find yourself driving less, driving a smaller car, flying less, and otherwise using less energy since 2004 it is not surprising.
In May, with gasoline at more than $4 a gallon, traffic at the Metropolitan Transportation Authority’s bridges and tunnels dropped 4.7 percent compared with the same month the previous year.
Preliminary data for June shows a similar decrease in traffic, and officials say the change is largely because of higher prices at the pump.
But public transit ridership is up.
Weekday subway ridership was up 6.5 percent in April, compared with the same month a year ago. April ridership increased 5.5 percent on the Long Island Rail Road, 4.3 percent on the Metro-North Railroad and almost 9 percent on PATH trains between Manhattan and New Jersey. Use of the subways and rail lines also increased in May, compared with the previous year, but in most cases by smaller amounts. New Jersey Transit ridership, including bus, commuter rail and light rail, was up about 4.6 percent in April and May combined.
When gasoline hits $6 per gallon the trains and buses will be full.
Mainstream purveyors of conventional wisdom have for years dismissed or ignored the prospect of a world peak in oil production before the 2030s or later. But high oil prices are undermining the conventional wisdom and some mainstream figures are taking more pessimistic views about Peak Oil. Fatih Birol, chief economist for the International Energy Agency, says Middle Eastern countries will not extract oil at the maximum rate possible because they want future generations to be able to live off of oil as well.
FP: Why aren’t more new supplies coming online, given the current high prices?
FB: The bulk of the oil has in the past been produced by the international oil companies, so-called Big Oil. But their existing reserves are declining in what they have under ownership. They have no access to new reserves, the bulk of which are in Middle East countries. In most of these countries, only the national oil company can, by law, invest. So, even though the international oil companies may have the capital and the technology, they don’t have access to the reserves. Therefore, the bulk of the growth in the future needs to come from the national oil companies, and perhaps price will no longer be the main determinant when they make their [production] decisions, because for many countries, oil is their only natural endowment. And those countries legitimately value and want to leave their one and only natural endowment for future generations.
Since their holding back oil in a world with limited alternatives drives up the prices they can make more money by producing less. If you were in their shoes wouldn't you produce less and make more money? Though Matthew Simmons and some other Peak Oil theorists argue that the real reason they are not producing more in response to higher prices is that their fields are old (which they are) and heavily depleted (which, again, they are). But regardless of whether Matt Simmons or Fatih Birol is right about the motivations of the Middle Eastern producers we can not expect more oil from that quarter.
Birol thinks global peak oil is coming soon.
FP: Do you believe in peak oil?
FB: Of course, but the question is when? Global oil resources are limited. We have conventional oil; we have unconventional oil. We have oil in the North Sea, in the Gulf of Mexico. We have more oil in the OPEC countries. What I can tell you is that one day global conventional oil will peak. This will depend on many factors, including the role of technology, investment, and production policies. When we look at oil outside of the OPEC countries, when you put all of them together, I think it is going to peak very soon. But we have unconventional oil, and we have oil in the Middle East as well. How much will come to the market from unconventional oil?
We are in trouble before world oil production peaks. Net exports (the amount of oil exported by oil exporting nations) will peak before net production because oil demand is growing more rapidly in oil exporting nations than in the oil importing nations. So oil exports will decline much more rapidly than oil production. On this see my post Big Oil Producers Cut Exports In 2007. Also, see Jeffrey Brown's post Is a Net Oil Export Hurricane Hitting the US Gulf Coast?
The data show that combined net oil exports from Venezuela & Mexico to the US have dropped by 414,000 bpd from 10/07 to 3/08, an astounding annual decline rate of -32%/year. This decline was at least partially offset by increases in imports from the Persian Gulf.
Think biomass ethanol will come to the rescue? With corn over $7 per bushel some corn ethanol plants may close. We need algae biodiesel in order to make a biomass alternative scalable. But while lots of companies and academic research groups are chasing cheaper and scalable ways to grow algae for diesel fuel no clear success story has emerged yet.
As reported by the Wall Street Journal the Export Land Model comes home to roost. The big oil producers are producing less oil.
And about one of those other big sources of economic worry, the alleged bubble in oil markets? Further undermining the bubble theory, the Journal reports that "the world's top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic and looks set to continue." Citing U.S. Energy Department data, the paper says that "the amount of petroleum products shipped by the world's top oil exporters fell 2.5% last year, despite a 57% increase in prices, a trend that appears to be holding true this year as well," and that this is partly due to higher demand for oil from within the petroleum-rich Persian Gulf region.
That is really bad news. How long will Pangloss have to stay on the Turkish galley before he figures it out? (I've had to explain the term "Panglossian" to so many people lately that I wonder why I even try to be the least bit literary in my references. Still, now I can use it with a lot of people and "so I got that going for me - which is nice")
China the biggest problem? The Arabs can export less oil and make more money while doing so. Not exactly an incentive to export.
For all the attention paid to China's increasing energy thirst, rising energy demand in the Middle East may pose the greater challenge. Last year, the region's six largest petroleum exporters -- Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar -- curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, leading to a loss in net exports of 862,000 barrels a day, according to the U.S. Energy Information Administration.
The Journal even refers to Export Land Model theorist Jeffrey Brown. Peak Oil continues to head into the mainstream.
Since 2004, Saudi oil consumption has increased nearly 23%, to 2.3 million barrels a day last year. Jeffrey Brown, a Dallas-based petroleum geologist who studies net export numbers, said that at its current growth rate, Saudi Arabia could be consuming 4.6 million barrels a day by 2020.
In the Export Land Model rapid growth of internal consumption by big oil producers causes available oil supplies to decline far more rapidly than global production declines. See my September 28, 2007 post Declining Exports From Big Oil Exporters Expected for a discussion of this and a link to an analysis by Brown and his writing partner "Khebab". Also see Brown's Net Oil Exports and the "Iron Triangle".
My advice: Buy only high fuel efficiency cars. Also, make commuting distances an important consideration when moving and switching jobs.
Update: If the rise in oil prices stops and backs off for a while that is because a whole lot of demand destruction is going on.
During the week leading up to the Memorial Day holiday, the traditional start of vacation season, Americans pumped 5.5 percent less gasoline than a year ago as average prices hit a peak $3.84 a gallon, MasterCard Advisors said in a report.
But US demand destruction will eventually again be overwhelmed by demand growth in Asia and the Middle East.
On a day when oil hit a new intra-day trading high of $126.40 we also received indications that attempts to boost world oil production continue to hit roadblocks.
Eni, Italy's largest oil company, and partners developing the Kashagan oil field in the Caspian Sea may delay production by as much as two years, the fourth postponement at the 7 billion- to 9 billion-barrel Kazakhstan discovery.
The start of commercial output may not occur until 2012 or 2013, said Dinara Shaimardanova, an aide to Energy Minister Sauat Mynbayev, confirming his remarks earlier in the capital, Astana. Eni in January said the field, which was the world's biggest discovery in three decades, was expected to start in 2011.
The original plan was to get it into production in 2005. Then it slipped to 2008 and then to 2011. Now production on this field, which is projected to peak at 1.5 million barrels per day, looks to come too late to delay Peak Oil. In a way that is a good thing since the late arriving Kashagan oil will slow the rate to production decline as the world comes off peak production.
While polemics were going on on its plan to increase domestic fuel oil prices prompted by world crude price hikes, the Indonesian government came up this week with an idea to quit the Organization of Petroleum Exporting Countries (OPEC).
The story of Indonesia fits perfectly with the Export Land Model where demand in the exporting countries soars while their production declines. Look at how oil production and consumption have played out in Indonesia.
Other oil producing countries are heading down Indonesia's path. Some of the big oil producing countries sell gasoline internally at far below market prices. Venezuela, Saudi Arabia, Iran, Qatar, Bahrain and a few other countries sell gasoline for less than $1 per gallon. These gasoline prices mean demand surges in those countries and if they only maintain constant production their exports go down. On top of that Asian demand rises. The Western industrialized countries can afford to outbid some of the poorest countries. But Asian demand and oil producer internal demand will take oil away from the West. Hence the rapid run up in oil prices.
House Speaker Agung Laksono said Indonesia`s domestic oil prices much depended on the price of world oil. Indonesia`s oil production and consumption were quite unbalanced with a production of 925,000 barrels per day while its consumption reached 1.4 million barrels per day.
He said that 15 years ago, Indonesia`s daily oil production reached 1.4 million barrels while its consumption reached only about 300,000 barrels per day.
The country's oil production fell for a fourth straight month in April, confirming pessimistic forecasts for the year, while exports rose on the back of improved weather.
Industry and Energy Ministry data released Sunday showed that production stood at 9.72 million barrels per day, down from 9.76 million bpd in March and more than 2 percent lower compared with the post-Soviet high of 9.93 million bpd in October.
Russia is one of the more rapidly growing markets for cars. More metal mouths to feed.
Russian oil executives are claiming that lower taxes could turn around oil production. But this is the same message we heard from the US oil industry in the 1970s. It didn't work then. It won't work now.
Oil output in Russia, the world's biggest supplier after Saudi Arabia, has ``peaked'' and may decline in the coming years, said billionaire Viktor Vekselberg, an owner of BP Plc's venture TNK-BP.
Russian companies need tax breaks to spur exploration and development of new fields to revive growth, Vekselberg told an American Chamber of Commerce conference in Moscow today.
Lukoil president Vagit Alekperov tells a similar story. Leave aside the reason they say Russian production will decline and focus on the decline itself. Russia is one more country that has crossed over onto the list of countries on the down slope for oil production.
The sooner you prepare for what is coming the easier your transition will be. Go smaller with your next car purchase. When you buy that car gasoline will sell for much less than gas will cost when you sell it. Think about how else you can get yourself more energy efficient. Think about whether you can move closer to work or switch to a job which is closer to home. Your commute will make a big impact on your living standard. Find lower energy hobbies. Our energy situation will get much worse before it starts to get better.
Update: Fund manager Tim Guinness, chairman of Investec Asset Management, says oil demand destruction in the industrialized countries is getting offset by demand growth in China, India, and the Middle East. He expects oil prices to hit $200 by 2010.
"What is going on is that OECD demand destruction is somewhere between 200,000 to 500,000 barrels per day (bpd) at the moment, while demand growth in the developing world is still over one million bpd," he said.
This will be a recurring pattern in coming years. Oil consumption in industrialized countries has probably peaked. I expect prices to keep going up at least until the whole world goes into a recession.
On a day when oil went over $120 per barrel you might wonder which direction production and prices are headed. Well, the richest man in the world (Warren Buffett or WB below) asked his long time business partner (Charlie Munger or CM below) where he sees oil production in 25 years. Charlie Munger sees oil production down in 25 years and Warren Buffett thinks a peak is possible in 5 to 10 years.
WB: Oil won’t run out - it doesn’t work this way. At some point the daily productive capacity will level off and then start declining gradually. There is the depletion aspect and the decline curves. We are producing 86m barrels per day or so, more than ever produced. We are closer, by my calculations, to almost our productive capacity, than we have ever been. I think our surplus capacity is less, and quite a bit less, than in past. Whatever that peak is, whether 5 or 10 yrs, the world will adjust, and we will think about it. Adjustments will cause demand to taper off. I don’t know how much oil is there, but there are lots of barrels of oil in place. We never recover total potential. We may have better engineering recovery in future. It is nothing like an on and off switch. You may still have enormous political considerations to get access to avail oil since it so important. There is nothing you can do over short period of time to wean world off oil.
CM: If we get another 200 yrs of growth dispersed over the world while population goes up, all oil coal and uranium will run out so you will have to use the sun. I think there will be some pain in this process. I think it is stupid to use up hydrocarbons of world so quickly. Stupid when there are few and limited alternatives. What should we have done? We should have brought all the oil over from Middle East and put it in our ground. Are we doing it now? No. Government policy is behind in rationality. If we have prosperous civilization, we must use the sun.
WB: Charlie, what is your over/under for oil production in 25 yrs?
CM: Oil in twenty five years, down.
I think that's a very easy call. Trying to call the next 5 years is harder because it is hard to guess how much the oil megaprojects will slip from their scheduled completion dates. Generally the big projects have been taking longer. We might already have peaked in conventional crude production. Or maybe a bunch of megaproject production start dates will line up and cause a new record in production.
Given where China is going with its oil demand (way way up) Buffett grasps what this means for prices.
WB: If this is true, that is big number. China is doing 10m cars this year, so down in 25ys is significant.
44 out of 1000 people in China own a car as compared to about 800 per 1000 in America (and some of us own multiple cars). China's car sales grew by 22% in 2007. China is going to bid up the price of oil so high that Americans will get a shrinking slice of the pie. American daily oil consumption might already have peaked.
We need good batteries to let us shift a substantial portion of all cars to electric power. I wonder whether Warren Buffett expects Burlington Northern Santa Fe (one of his investments) to electrify some of its rail lines once oil hits much higher prices points.
A little over a week ago Jad Mouawad of the New York Times wrote a piece on rising demand for oil and worries about supplies. His piece, while drawing attention to the problem, didn't go too far off the reservation of conventional thinking. He was pretty tentative about Peak Oil. Now he's back 9 days later and Mouawad seems to be leaning closer toward acknowledging we have a big long term problem with oil supplies.
As oil prices soared to record levels in recent years, basic economics suggested that consumption would fall and supplies would rise as producers drilled for more oil.
But as prices flirt with $120 a barrel, many energy experts are becoming worried that neither seems to be happening. Higher prices have done little to suppress global demand or attract new production, and the resulting mismatch has sent oil prices ever higher.
Prices have doubled and doubled again. Yet production has been pretty flat for the last few years.
“What is disturbing here is that things seem to get worse, not better,” said David Greely, an analyst at Goldman Sachs. “These high prices are not attracting meaningful new supplies.”
Mouawad even quotes Jeffrey Rubin of CIBC World Markets who I've recently posted about for Rubin's prediction of $225/barrel oil by 2012. Rubin effectively interprets the writings of Peak Oil theorists into language that the financial community understands.
Mouawad takes note of Mexico's plunging oil production.
Mexico, the second-biggest exporter to the United States, seems increasingly helpless to find new supplies to offset the collapse of its largest oil field, Cantarell. A combination of falling production and rising domestic consumption could wipe out Mexico’s exports within five years.
Mexico's rapid decline from its oil production peak deserves mention in the New York Times. But Mouawad could have been even more dramatic: Mexico's oil production is tanking while strong internal demand growth is causing net exports to drop even faster.
Mexico's gasoline imports rose to 360,700 b/d in March, the highest level since November 2007. This coincided with a 7.8% decline in the country's oil production in this year's first quarter to 2.91 million b/d, largely due to declining output from traditional oil fields.
Mexico fits a larger pattern. Rapid domestic oil consumption growth in big oil producing countries cuts down oil available for export. The New York Times has noticed the oil export problem as well. Some analysts call this the Export Land Model. At that link petroleum geologist Jeffrey Brown speculates that most of the remaining recoverable oil will not get exported. This collapse in available exportable oil could make the 2010s the most tumultuous decade since World War II.
Jeff Rubin of investment and merchant bank CIBC World Markets says a continuing world oil production plateau combined with growth in demand will double the price of oil in the next 4 years. Ouch.
Increasingly tight oil supplies will continue to push the price of oil higher with the cost of crude hitting US$150 a barrel by 2010 and soaring to US$225 a barrel by 2012, forecasts a new energy report from CIBC World Markets.
This will result in skyrocketing consumer gas prices in the U.S. with the national average price easily topping $4.00 this summer, reaching $5.50 in the summer of 2010 and hitting close to $7.00 by 2012.
Mexico has joined the list of states with declining oil production and Russia may soon. I think Rubin might be optimistic to see a world oil production plateau lasting all the way to 2012.
Rubin claims that the International Energy Agency has been overstating the production of oil because they've counted natural gas liquids that are not useful for all the purposes (e.g. making gasoline) that regular oil gets used for.
The report finds that current oil production estimates produced by the International Energy Agency (IEA) overstate supply by about nine per cent since it counts natural gas liquids in its numbers. The report notes that natural gas liquids, while valuable hydrocarbons, are not a viable substitute for oil and cannot be economically used as a feedstock for gasoline, diesel or jet fuel.
"While natural gas liquids only account for 10 per cent of total supply, they account for virtually all of the increase in petroleum liquids production since 2005," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. "Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period.
Oil consumption in the developed nations will decline due to increased competition coming from developing nations. A smaller fraction of the limited supplies will flow to the US, European countries, and other OECD members.
The report also notes that while production increases are at a virtual standstill, global demand continues to grow. While higher prices and a weak economy have seen demand drop in the U.S. - as it has in other OECD nations - this has been more than offset by demand growth outside the OECD.
"Car purchases in Russia, for example, are exploding as U.S. sales stagnate," says Mr. Rubin. "While in India the advent of the TATA, a car that will sell for as little as US$2,500, will allow millions of households in the developing world to own automobiles when they otherwise could not. Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves."
I agree with Rubin's analysis unfortunately. Also, I do not see development of substitutes happening fast enough. So the 2010s look to be a period of declining living standards in Western countries. We'll eventually turn the corner as new energy and materials technologies mature. But the transition period will impose hardships on many. My advice: Buy a hybrid or diesel or very small gasoline car or a combination thereof. Also, choose jobs and residence addresses to minimize the need to travel. Also, try walking and bicycling. Most of all, mentally prepare yourself for the need to restructure your life as oil prices keep going up.
US oil consumption probably has already peaked. More new cars in other countries mean fewer miles traveled in the United States.
"In order to accommodate more drivers on the road in Russia, China and India, there must be fewer drivers in the U.S. and the rest of the OECD. And so there will be. U.S. oil consumption is likely to fall by over two million barrels a day over the next five years as retail gasoline prices rise from their current US$3.60 a gallon mark to almost US$7 a gallon.
Here is the full report (PDF).
With oil hitting $117 per barrel major media organizations are paying more attention to the future availability of oil. On the one hand, a New York Times discusses worries about future energy availability. On the other hand, the analysis still lends considerable credence to the idea that large increases in oil production are possible.
Today’s tensions are only likely to get worse in coming years. Consider a few numbers: The planet’s population is expected to grow by 50 percent to nine billion by sometime in the middle of the century. The number of cars and trucks is projected to double in 30 years— to more than two billion — as developing nations rapidly modernize. And twice as many passenger jetliners, more than 36,000, will in all likelihood be crisscrossing the skies in 20 years.
In all likelihood? How does that work? If the oil can't be found (and I do not believe it can) how can the number of passenger jetliners double?
CEOs of some major international oil companies (e.g. de Margerie of Total and Mulvey of ConocoPhillips) do not expect oil to go above 100 million barrels a day (we are at 85 million now). Russia looks like it has peaked. Mexico has peaked. Yet the International Energy Agency talks about a 35% increase in production.
All of that will require a lot more oil — enough that global oil consumption will jump by some 35 percent by the year 2030, according to the International Energy Agency, a leading global energy forecaster for the United States and other developed nations. For producers it will mean somehow finding and pumping an additional 11 billion barrels of oil every year.
Where is this going to come from? OPEC nations either lack the ability or the will to increase production. Even if they lack (we should be so lucky) the will why should they change their minds? The higher the price of oil goes the less they have to pump to make the same amount of money.
There's the highly dubious use of "proven reserves" to refer to reserves that OPEC countries claim to have against all evidence and logic. Unless OPEC countries want to provide enough evidence to the rest of the world for their claimed oil reserves why should the New York Times or the International Energy Agency take OPEC claims seriously?
The 13 members of the Organization of the Petroleum Exporting Countries account for three-quarters of the world’s proven oil reserves.
OPEC countries inflated their reserves back in the 1980s in order to justify to each other their production quotas. They've kept their unrealistic reserve numbers ever since.
It is time to move beyond a discussion of why oil prices have gone so high and focus on the prospects for substitutes. In particular, a realistic discussion of the future liquid fuels ought to center around the costs of substitute liquid fuels such as algae biodiesel, cellulosic ethanol, and coal-to-liquid. We will be able to reduce the relative portion of transportation powered by liquid fuels by use of more electricity and batteries in transportation. But for at least a portion of our transport needs (e.g. airplanes, longer distance vehicles) we will continue to need liquid fuels.
If algae biodiesel can't be made to work then coal-to-liquid will take off in a big way. Maybe jatropha or cellulosic technology using trees or switch grass might work. But I fear the ecological footprint from planting and harvesting the huge areas such crops would need. Near as I can tell so far algae biodiesel has the potential to produce the most liquid fuel per area of land. So I'd like to understand better what problems must be solved for algae biodiesel to work and at what price points it could work.
A company called PetroSun that does conventional oil field development and also algae biodiesel development believes their approach using native algae (as compared to genetically engineered or otherwise specially bred) with natural sunlight can make algae biodiesel workable.
Ethanol (corn) and biodiesel (soybeans) are what we currently have available as alternative fuels. We accept that. However, at productivity levels ranging from 40 to 300 gallons per acre per year from these crops, why would algae not be acceptable even at a lower case production rate of 2,000 gallons per acre per year? Perhaps because the algae-to-biofuels community is mainly focused on super strains cultivated in photo bioreactors? So far, the economics prohibit this segment of the industry from moving forward today and is the primary reason behind the statements that algae-to-biofuels are perhaps five years away. It will probably require $250 per barrel of crude oil or more for these systems to be economically feasible. In time, the price of a barrel of crude oil will support the technology of the photo bioreactors, but why wait?
PetroSun's farming system will utilize native microalgae strains, so as to not disrupt local ecosystems. As stated previously, we will also use either saltwater, brackish or wastewater in our pond system, thereby limiting the impact on the fresh water supply. Our background in the oil and gas industry is the basis from which we developed our harvesting and extraction technology. Despite our stated lower case rate of production per acre being far less than the annual 20,000 gallon theoretical limit of algal oil potential, we are satisfied that we can compete with crude oil pricing and maintain a competitive pricing structure over other vegetable oil feedstocks. We intend to improve on these production rates as we move forward during the maturation of the commercial production of algae-to-biofuels.
Will we need to use closed systems to keep out contaminating organisms? The coverings up the costs. But genetically engineered algae might some day provide advantages that make the closed systems financially worthwhile. PetroSun's management think they can create a workable system sooner using existing algae and lower cost growing ponds.
How much land to produce biodiesel to substitute for all oil used in transportation in the United States?One US government report from 1996 says 15,000 square miles would be required.
NREL itself said in its 1996 report that an area around the size of the U.S. state of Maryland -- approximately 15,000 square miles (3.8 million hectares) -- would be enough to cultivate enough algae to serve the entire transportation needs of the U.S.
That would represent around 140 billion gallons (530 billion liters) of biodiesel it said, working out at around 140,000 liters per h/y. Achieving production levels of such a scale in theory is one thing however; being able to do it in reality is another.
In 1996, the DoE estimated that it would cost twice as much to produce algae-sourced biodiesel than it would gasoline.
Today, the University of New Hampshire's (UNH) Biodiesel Group estimates it could cost as much as $308 billion to build enough farms across the U.S. to meet these production levels and another $47 billion to run them.
Physicist Michael Briggs of the UNH Biodiesel Group says that 15,000 square miles if used for algae biodiesel is pretty small compared to what we now use for agriculture.
To put that in perspective, consider that the Sonora desert in the southwestern US comprises 120,000 square miles. Enough biodiesel to replace all petroleum transportation fuels could be grown in 15,000 square miles, or roughly 12.5 percent of the area of the Sonora desert (note for clarification - I am not advocating putting 15,000 square miles of algae ponds in the Sonora desert. This hypothetical example is used strictly for the purpose of showing the scale of land required). That 15,000 square miles works out to roughly 9.5 million acres - far less than the 450 million acres currently used for crop farming in the US, and the over 500 million acres used as grazing land for farm animals.
Even if the amount of land needed turns out 3 times greater it is still small compared to current agricultural land uses.
Further, these yield estimates are based on what is theoretically achievable - roughly 15,000 gallons per acre-year. It's important to point out that the DOE's ASP that projected that such yields are possible, was never able to come close to achieving such yields. Their focus on open ponds was a primary factor in this, and the research groups that have picked up where the DOE left off are making substantial gains in the yields compared to the old DOE work - but we still have a ways to go. But, consider that even if we are only able to sustain an average yield of 5,000 gallons per acre-year in algae systems spread across the US, the amount of land required would still only be 28.5 million acres - a mere fraction still of the total farmland area in the US.
Needing 3 times as much land would triple costs. But what would those costs be?
The problem of energy prices looks set to get much worse before it starts to get better. China will eventually become the biggest consumer of energy with the US becoming a distant second. The Chinese are getting excited about larger cars. China could surpass the United States in number of cars sold per year by 2015 (though with smaller numbers than currently projected since declining oil production will cut into usage). If we do not come up with workable substitutes for fossil fuels then Asian economic growth, world population growth, and dwindling fossil fuels promise to make for a grim future. Vigorous attempts to slow population growth would really help too.
Chris Skrebowski, a researcher for the Energy Institute in Britain, told delegates that the oil supply will peak in 2011 or 2012 at around 93 million barrels a day, that oil supply in international trade will peak earlier than the oil production peak, and he forecast: "There will be supply shortfalls in winter before peak."
According to Skrebowski, there were eight key pieces of evidence that insisted that the world was looming ever-closer to peak oil. These included the falling rate of discoveries of new oil-fields; sustained high oil prices; the age of the largest fields; the lack of real growth potential in oil-producing countries; the current lack of incremental flows; the sustained depletion of oil reserves; nongeologic threats to future oil-supplies; and the struggle to hold production by many of the major oil producers.
He explained that peak oil was predicted to become a reality in 2011 on the basis that the world’s major oil fields were being depleted at a rate of 4,5% a year.
The production decline rates of existing fields are an important part of the equation for when Peak Oil happens. Another important factor is the rate at which new oil megaprojects come on line. Megaproject delays - which are not uncommon - could make the peak come sooner. The debate about when oil peaks is partly a debate about how many projects will stay on schedule.
But how is it that crude can still trade above $100 a barrel, three times what it sold for at the start of the decade, despite a very wobbly economy?
If you want to understand that, it helps to listen in to ExxonMobil's (XOM) 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.
So $100 per barrel oil isn't enough for ExxonMobil to find ways to boost production. Only national oil companies might be able to substantially increase production. The publicly traded international oil companies can't find enough oil to produce.
What about supply? The recent Deutsche Bank report notes the perverse fact that since 2003 higher oil prices have caused lower growth in oil production, a phenomenon that is related to the hoarding issue that I have long discussed. Based is on the work of Skrebowski and the opinions of Maxwell and other experts on future oil supplies I suspect the world may scrape out the capacity to meet normal demand growth of developing countries for perhaps two more years, bringing oil use by the end of 2009 to perhaps 90 mb/d. But after that, oil supply growth will stop and then start declining. It could decline slowly by, say, 1 mb/d or it could decline more rapidly by perhaps 3 mb/d. If it declines by 1 mb/d between 2010 and 2015, it will be back to 85 mb/d in 2015. Implied demand, we saw, will be about 97 mb/d after the savings in U.S. car usage.
If you are sitting on a lot of oil why sell oil in a given year once oil production is in global decline? Each next year the price will be much higher. Leaving oil in the ground is a form of investment. This is why I think the environmentalists who oppose drilling in the Alaska National Wildlife Refuge (ANWR) have done us a big favor. The oil will get pumped out eventually assuming ANWR really has a lot of oil (and it might not). Meanwhile it sits in the ground waiting to help us in the coming harsh post-peak era.
Energy analyst Charles T. Maxwell thinks gasoline prices in the US will need to more than triple to force Americans into a radical restructuring of how they live.
Maxwell said it will take $12 to $15 a gallon to get Americans to let go of what he called the “precious freedom of mobility.” As much as Maxwell laments the loss, he sees no other way for the U.S. to impose enough conservation to deal with the growing imbalance between oil demand and supply that he sees developing around 2010 and getting worse in 2012 or 2013, as the world hits a “peak” in conventional oil production.
The Energy Watch Group is even more pessimistic since the EWG claims world oil production peaked in 2006 and we are looking at steep production declines going forward.
According to the scenario calculations, oil production will decline by about 50% until 2030. This is equivalent to an average annual decline rate of 3%, well in line with the US experience where oil production from the lower 48 states declined by 2-3% per year.
Still other analysts see peak oil between 2010 and 2012.
A decline in production in 2008 would be far more disruptive than a decline in 2012. Investments in reaction to the current high oil prices will gradually yield substitute energy sources in the coming years. We are better off if the world stays on an oil production plateau so that gradually rising prices send increasingly louder signals that we need to develop alternatives, implement conservation measures, and restructure our lives to need less energy.
We need nuclear, solar, and wind power and great batteries for transportation.
The growth in China's carbon dioxide (CO2) emissions is far outpacing previous estimates, making the goal of stabilizing atmospheric greenhouse gases much more difficult, according to a new analysis by economists at the University of California, Berkeley, and UC San Diego.
Previous estimates, including those used by the Intergovernmental Panel on Climate Change, say the region that includes China will see a 2.5 to 5 percent annual increase in CO2 emissions, the largest contributor to atmospheric greenhouse gases, between 2004 and 2010. The new UC analysis puts that annual growth rate for China to at least 11 percent for the same time period.
A constant percentage increase per year turns into an absolute increase per year. If China maintains an 11% CO2 increase per year through the 2010s then by 2020 it will likely emit more CO2 than all the rest of the world put together. Will they do that?
The study is scheduled for print publication in the May issue of the Journal of Environmental Economics and Management, but is now online.
Keep in mind that many Kyoto Accord signing countries are falling far short of meeting their pledges anyway.
The researchers' most conservative forecast predicts that by 2010, there will be an increase of 600 million metric tons of carbon emissions in China over the country's levels in 2000. This growth from China alone would dramatically overshadow the 116 million metric tons of carbon emissions reductions pledged by all the developed countries in the Kyoto Protocol. (The protocol was never ratified in the United States, which was the largest single emitter of carbon dioxide until 2006, when China took over that distinction, according to numerous reports.)
Put another way, the projected annual increase in China alone over the next several years is greater than the current emissions produced by either Great Britain or Germany.
Picture China's economy 2 times bigger. Picture it 3 times bigger. Huge demands for raw materials. Huge consumption of fossil fuels. Lots of pollution generated even from the solar photovoltaics industry.
Suppose rising CO2 emissions will cause global warming and that global warming will cause big negative impacts that outweigh the benefits. Well, we are going to have to use climate engineering techniques to stop and reverse the warming. Barring big breakthroughs to lower the costs of solar and nuclear power I do not see a substantial decrease in CO2 emissions until Peak Coal hits.
Most of this increase is coming from burning coal to generate electricity. If only they were building nuclear rather than coal electric power plants the emissions (and not just of CO2, also particulates, mercury, etc) would be far less.
China's installed nuclear power-generating capacity is expected to reach 60 gigawatts by 2020, a senior Chinese energy official said -- much higher than an earlier government estimate of 40 gigawatts. A gigawatt is the equivalent of one billion watts. The new estimate is equal to about two-thirds of Britain's total electricity-generating capacity today, although still equivalent to less than a tenth of China's current total.
Faced with an energy crunch resulting from its fast economic growth, China has decided to develop more nuclear power. By 2020, the nation will have an installed nuclear power capacity of 40 million kw, accounting for 4 percent of its total installed generating capacity.
They still see nuclear power as too costly as compared to coal. Without cheaper ways to generate cleaner power the world is going to become a dirtier place.
So when you industrialize a society, is that a reversible process? Can you take it on a backward path to a deindustrialized society that looks in the important ways like the society you had before the industrialization? As far as I can see, the "second wave" peak oil writers treat it as fairly obvious that this is both possible and desirable. It appears to me that it is neither possible or desirable, but at a minimum, someone arguing for it should seriously address the question. And it is this failure that I am calling the Fallacy of Reversibility. It is most pronounced in Kunstler, who in addition to believing we need a much higher level of involvement in agriculture also wants railways, canals, and sailing ships back, and is a strong proponent of nineteenth century urban forms.
I think those who see collapse in a post-oil peak world are making a number of mistakes. First, they are underestimating the potential of substitutes. Granted, the substitutes will initially cost more. So a shift to substitutes will cause a dip in living standards. But that is not collapse of civilization and a reversion to people following oxen around farm fields. The biggest problem with substitutes is the lag time while new capital expenditures for energy substitutes get made as oil production declines. But oil production won't collapse in a year. We will have time to make the shift. For people in First World countries it will be difficult but not a collapse of civilization.
Stuart invents a new term for peak oil doomers that is technically more precise: reversalists.
I am going to christen this general faction of the peak oil community reversalists. This encompasses people advocating a return to earlier food growing or distribution practices (the local food movement), folks wanting to bring back the railways and tramcars, people believing that large scale corporations will all collapse, that the Internet will fail and we need to "make our own music and our own drama down the road. We're going to need playhouses and live performance halls. We're going to need violin and banjo players and playwrights and scenery-makers, and singers."
Stuart argues that reversalist arguments are a distraction from figuring out what we really need to do to handle Peak Oil. I agree.
And before moving on, I stress that I'm not making an argument that our time is in all ways better than earlier times and that nostalgia for the past is entirely misplaced. Nor am I making an argument that peak oil does not pose a massive and important challenge to us. Instead, I'm making an argument that society is unlikely to reverse its trajectory of development, regardless of what we might like. Calls for it to do so are a distraction and get in the way of figuring out what we really need to be doing, and what the real options and dangers are.
Fortunately, I suspect capitalists are not much distracted by the doomer/reversalist talk. The capitalists are looking for ways to profit from high energy prices and that means investing in substitutes.
So why does Stuart think farmers will do well in a period of declining oil production? Stuart compares farm profitability in the United States to oil prices from 1976 to 2006 and finds that farm profitability does not decline as oil prices rise.
The relationship is somewhat stronger - profits are a little likelier to be higher when oil is expensive, but oil prices explain only about 12% of the variance in profit margins. The relationship is just barely statistically significant (p = 4.9%), but I wouldn't set too much store in it, given that the regression is not controlled for any other factors that might be explanatory.
But certainly, there is no evidence for the idea that farms are less profitable at high oil prices - that inference is completely unsupported by the data since 1975.
The analysis does not include 2007, since the cost data are not available yet, but it is likely that 2007 had high profit margins (since crop prices were very high), and certainly it had fairly high oil prices. I will argue below that this is a harbinger of the game-changing role of biofuels, which will tend in the future to make industrial farming more profitable as oil prices rise.
So far higher oil prices have created higher demand for farm products and so higher oil prices have pulled up farm prices and farm production. Will that continue to be the case? I think it depends on whether farms produce more energy than they consume. If they do then Peak Oil means happy times for farmers and high costs for food.
Stuart then shows a graph of farm labor costs versus oil prices which shows that, if anything, farmers use less labor per acre when oil prices are high.
What we see is that wheat and soybeans show essentially no meaningful relationship between oil prices and the amount of labor per acre that farmers use. They use the same low amount regardless. Corn farmers actually spend less on labor when oil prices are high, for reasons that are unclear - however the relationship is quite strong (r2 of 43%) and very statistically significant (p = 0.005%).
Stuart points out that even without subsidies corn-ethanol was profitable part of the time in recent years.
But what I would argue is that if oil gets to $200/barrel, industrial agriculture is likely to do very well. I pointed out in Fermenting the Food Supply that corn-ethanol has been profitable even without subsidies at times in the last few years, and that whenever oil prices go up sharply, there is a huge spurt in the growth of the biofuel industry. This creates an arbitrage between food prices and fuel prices, and mean that the former must go up whenever the latter go up (since the biofuel industry can very easily use most of the global food supply without adding more than a modest fraction to the fuel supply).
Take away the government corn ethanol subsidies and that profitability picture probably wouldn't have changed much. Farmers would have planted less corn and less of the corn would have been bought for corn ethanol. The supply and demand would have intercepted at a lower price point at which corn ethanol would have achieved about the same level of profitability.
Stuart's argument has more merit if farms are net energy producers. If the Energy Return On Energy Invested (EROEI) is a ratio much higher than 1 for highly mechanized farms then farmers can produce more energy from what they grow than they use as inputs. In that case farmers can create the energy they need to run their operations and so the odds of survival for the large scale mechanized farms becomes very high. A lot of debate surrounds the question of EROEI of agriculture. I'm inclined to believe at this point that some types of grain agriculture have positive and rising EROEI. Here's an intuitive illustration of why that's probably true. North Dakota vegetable oil production is a few times greater than the amount of oil needed to operate all of North Dakota agricultural equipment.
Canola, soybeans, sunflowers and safflowers are some of the main crops. All of them are capable of producing about 50 to 100 gallons of fuel per acre that can be used in an unmodified diesel engine, he says.
An estimate of the fuel production from the state’s three main oil-producing crops in 2003 - soybeans, canola and sunflowers - is more than 300 million gallons. Fuel production from any other oil-producing crops would be in addition to this amount. In comparison, North Dakota agriculture uses about 85 million gallons of diesel fuel per year.
Note that North Dakota farmers also grow various grain crops. Also, some of these crops that produce oils also produce meal rich with protein and carbohydrates as byproducts. So it looks at first glance like North Dakota's farmers can produce the energy they need to run their operations.
But this isn't definitive proof by any means. We still need to know about the energy inputs for fertilizer production, farm equipment production, and other components of highly mechanized and automated agriculture.
So here's my conclusion: If mechanised agriculture has an EROEI substantially above 1 then mechanised agriculture survives post-peak oil. I strongly suspect that this is the case for some crops and that biotechnological advances as well as smart innovations in farm practice will raise grain crop EROEI much higher. So we should see mechanized agriculture expand as fossil fuels energy production declines.
Update: Note that with positive EROEI Peak Oil therefore means greater demand for agricultural land even if yield per acre rises. Part of the land will go toward creating energy to use to farm the rest of the land. Part will go to create energy to operate cars and airplanes and other parts of modern civilization. I suspect less of the land will go toward growing food.
When a tree falls in a forest where no human will hear it does it make any sounds? Yes, but some like to pretend no in order to make the point that without observers sounds might as well be absent. Well, previously I've highlighted work by Peak Oil theorists "Khebab" and "westexas" on how rapidly rising internal consumption is going to cut oil exports by big oil exporters. But the mainstream media hasn't paid much attention to this problem until now. So the writings of Peak Oil theorists have until now resembled trees falling in empty forests. Finally the trees are falling within earshot of people who matter. The New York Times has a story entitled Oil-Rich Nations Use More Energy, Cutting Exports:
The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.
That crimping is going to get much worse.
Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.
I like the "if it continues". Well, okay, we could get hit by a massive asteroid next year, wiping out the human race and ending the trend of domestic oil consumption growth by big oil producers. Or aliens might land and give us technology for making fusion energy workable for cheap. Or aliens might attack us and wipe us out. So the "if" part can be defended. But I think it safe to say those are pretty low probability events (and anyone with good outer space alien contacts please correct me in the comments).
We are effectively already at Peak Oil for the non-exporting countries. Think I'm just some crazy extreme loon nutjob? Well, maybe. But I've got the company of 7 NY Times reporters who contributed to their story:
Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States.
Cheap prices have been driving consumption increases in oil producing nations.
Saudis, Iranians and Iraqis pay 30 to 50 cents a gallon for gasoline. Venezuelans pay 7 cents, and demand is projected to rise as much as 10 percent this year.
Fatih Birol of the UN's International Energy Agency says between now and 2015 world oil production might increase 1.1 million barrels a day. That increase will get eaten up in producer countries while demand from India and China will grow by large amounts. The IEA is assuming 25 million barrels per day (mbd) of new production to offset declines of 23.9 mbd in existing fields. But that decline rate is probably optimistic. Some of the OPEC countries are hiding their real capabilities and painting an excessively rosy picture.
Oil consumption in the United States and other Western industrial countries will start declining before world oil production starts declining. Reduced exports by big producers will combine with increasing demand from India and China to push up oil prices and cut US, European, Austrialian, Canadian, and Japanese demand.
What should we do about it? Electrify everything. We do not face a shortage of fuels for generating electricity. To the extent that any activity can be shifted over to electrical power we need to find ways to do it. Liquid fuels are too valuable to be wasted on, for example, heating homes and commercial buildings. Oil for heating should be replaced with electrically driven ground source heat pumps which will actually lower the cost of heating. Vehicles that go shorter distances should be shifted to electric motors and battery power. We need better batteries to power vehicles for longer distances.
Cliff and I had several conversations, but I am in no way taking any kind of credit for this story. This is his work, and I think that he did a very good job. I don't know what kind of discussions went on behind the scenes at the Times, but my guess is that trying to discuss the mathematical models of future exports was too complicated for an introductory article, and perhaps too scary.
My only real complaint is that I think that the MSM guys should reference the fact that Yergin's price and production projections have so far been way off the mark.
The NY Times should follow up with articles about expected rates of export decline for various oil producers.
Update II: Also see my post Wall Street Journal Takes Peak Oil Seriously. That's another sign that Peak Oil problems are entering mainstream discussion.
Update III: We need to build up nuclear plants and wind towers rapidly so that we can stop using natural gas and coal to generate electricity. This would free up the natural gas for fleet vehicle fuel and the coal to use to convert for liquids to power vehicles as well. This is not politically possible yet because Peak Oil is not yet an accepted event. Once it becomes accepted conventional wisdom remember that we need to reserve fossil fuels for transportation and plastics. Wasting them on heat and electric power generation is stupid.
On the front page today the Wall Street Journal basically legitimized the coming of peak oil.
A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.
Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.
The WSJ writers refer to peak oil theorists as "debased" and try to put distance between the supposedly more legitimate statements now coming from the titans of the oil industry and the predictions of supposed peak oil nuts. I think these writers are unfair in their treatment of the lower status and, in their eyes, less legitimate theorizing of petroleum geologists and physicists. How dare anyone but owners and top managers of capital get taken seriously? But the titans of industry were not long ago painting a far rosier energy picture (as were inept national and international energy information agencies) and I'm finding it hard to see them as the more legitimate experts on this topic. The sharpest peak oil theorists are looking a lot more accurate in their assessments than the CEOs of big oil companies.
It is becoming harder to label someone as a fringe kook for saying that Peak Oil is coming Real Soon Now. You can still tell us we are wrong. But I'm no longer fringe on this topic and that of course makes all the difference in the world. It creates a problem for me personally. How can I be cutting edge? Now I've got to find more topics to be fringe on since some of my major themes are heading into mainstream legitimacy and acceptance.
Who are these non-fringe people who say we are nearing the peak? ConocoPhillips CEO James Mulva says we'll never hit 100 million barrels per day.
"I don't think we're going to see the supply go over 100- million barrels a day. Where is it all going to come from?" Conoco CEO Jim Mulva said at an investor conference in New York.
I've got readers complaining to me that I need to take global warming seriously and get out of the denial mode. Well, Peak Oil is going to do far more to cut CO2 emissions than the Kyoto Accords would have done had they actually been adhered to. All those models that projected future CO2 emissions based on the world using 130+ million barrels of oil a day are based on unrealistic assumptions. I doubt we'll even reach 95 million barrels per day. Then comes the downhill slope. Or are we already on it?
Jeffrey J. Brown (aka Westexas at The Oil Drum) says the real problem is that net exports will decline even more rapidly than total production.
Kenneth Deffeyes predicted that world oil production (note that he used crude + condensate, not total liquids) would peak between 2004 and 2008, most likely in 2005. He observed that world crude oil production probably peaked in 2000, but he never backed off what his mathematical model showed.
The cumulative shortfall between what the world would have produced at the May, 2005 rate and what it has actually produced is over 700 mb (EIA, crude + condensate). So, the crude oil data suggest that we probably did peak in 2005.
However, the real problem is net export capacity. We are working on our final written report on the top five net oil exporters (about half of current world net oil exporters), but note that their total liquids net exports fell by -3.3%/year from 2005 to 2006, and the decline in net exports is almost certainly going to accelerate from 2006 to 2007. This is the fundamental reason for high oil prices--we are bidding against other importers for declining net oil exports.
Brown and his often co-writer khebab (Samuel Foucher) argue that oil exported from current net oil exporters (countries that make more oil than they use internally) will decline more rapidly than oil production in those exporters. They call this the Export Land Model as they group all the oil exporters into "Export Land" and the rest of us in "Import Land". They expect more rapid growth in demand in oil exporters will cause their exports to drop even before their production does. This is an extremely important observation. The amount of oil available to buy will go down even faster than the decline rate of oil production. Worse yet, the number of people bidding on that oil is going up due to population growth and economic growth. Asian economic growth - especially in China - is going to bid oil prices up so much that oil imports into the United States, Europe, and Japan will decline more rapidly than oil exports from producers.
Think about that.
There's a wild card that could make the short to medium term picture even worse: Countries with large oil reserves could decide to lower production even more rapidly in order to conserve oil to sell later. With prices in the stratosphere why sell as much as you can sell now if the high prices at a lower production rate will give you plenty of cash to run your government and placate your population?
Given the plateau and decline in world oil production (the second graph is really bad news) and khebab's guesses on possible future trends in production I gotta say I'm feeling job insecurity. Stuart Staniford thinks production declines in some big existing fields might even accelerate. Not good. China might take any increase in oil production in 2008 (but Hamish McRae is being optimistic in assuming there'll be an increase for China to take).
The present climb in the oil price has coincided with rising demand from China. Put it this way: China used about three-quarters of the additional supply of oil in the world last year. The economic team at ING Bank notes that China may account for all the additional production this year. If China is to go on using all the additional oil that is available, or more, the rest of the world will have to get by with less. This makes the present surge in the oil price different from all previous oil shocks: it is caused by rising demand rather than restricted supply.
Recently I've gone through a shift in my thinking about Peak Oil. I'm no longer worried about trying to figure out when it will come. The analytical curiosity about future events has been replaced with something that is beginning to feel more like fear. Peak Oil looks to be coming soon enough that I'm thinking more along the line of how to earn a decent living while economies around the world go through one year after another of wrenching recession.
Got any constructive thoughts about adaptation? I'm keen to hear them.
Royal Dutch Shell decided to lift some (though not all) of the secrecy surrounding their research into extracting oil from oil shale in Colorado and Wyoming. Jon Birger of Fortune magazine was given access to Shell oil shale researchers and has written a pretty good piece on the prospects for oil shale energy production.
Spanning some 17,000 square miles across parts of Colorado, Utah and Wyoming, this underground lakebed holds at least 800 billion barrels of recoverable oil. That's triple the reserves of Saudi Arabia.
Since Saudi Arabia's reserves are well below their claimed reserves the multiple between oil shale reserves and Saudi reserves is probably more than triple. If Shell can extract that oil it will change the relative economic power of nations.
The reason you probably haven't heard about the Green River Formation is that most of the methods tried for turning oil shale into oil have been deeply flawed - economically, environmentally or usually both. Because there have been so many false starts, oil shale tends to get lumped with cold fusion, zero-point energy, and other "miracle" fuels perpetually just over the horizon.
"A lot of other companies have bent their spears trying to do what we're now doing," Vinegar says of his 28-year quest to turn oil shale into a commercial energy source. "We're talking about the Holy Grail."
Unlike the Grail, though, Shell is convinced that oil shale is no myth and that after years of secret research, it is close to achieving this oil-based alchemy. Shell is not alone in this assessment. "Harold has broken the code," says oil shale expert Anton Dammer, director of the U.S. Department of Energy's Office of Naval Petroleum and Oil Shale Reserves.
Shell physicist Harold Vinegar thinks the oil can be extracted for a cost of $30 per barrel but not before 2015. So oil shale isn't going to do anything to relieve our near term woes with rising oil prices.
But while the amount of oil available for eventual extraction from the shale is enormous the peak production rate will not entirely offset the coming decline in production of conventional oil.
Shell declines to get too specific about how much oil it thinks it can pump at peak production levels, but one DOE study contends that the region can sustain two million barrels a day by 2020 and three million by 2040. Other government estimates have posited an upper range of five million. At that level, Western oil shale would rival the largest oilfields in the world.
Of course, considering the U.S. uses almost 21 million barrels a day and imports about ten million (and rising), even the most optimistic projections do not get the country to the nirvana of "energy independence.
Shell's work in this area has stretched over decades. Their research puts them well ahead of other oil companies and have lots of patents which will likely let them start producing before their competitors.
Oil shale and oil sands are good because they'll make the world oil production decline less sharp. If the coming decline in oil production is too sharp the economic downturns in many societies could lead to breakdown of order and mass starvation as modern agriculture loses the ability to run on oil. The rate of decline which causes a collapse varies depending on the circumstances of each individual society. France with a large number of nuclear reactors is less vulnerable than Britain with a much smaller number. Countries with highly skilled populaces and lots of capital will be better able to rush into nuclear reactor construction, build wind turbines, rework houses to increase insulation, and engage in many other adaptive adjustments to the oil production decline.
Follow the link to the article to read about Shell's method of in situ oil shale extraction. If their planned experiments produce successful results America especially will be able to better adjust to the post peak oil world.
Motorists in the United States smarting from rising gasoline prices, take note: Mr. Taurisano pays the equivalent of $1.50 to fill his Hummer’s tank. Thanks to a decades-old subsidy that has proven devilishly complex to undo, gasoline in Venezuela costs about 7 cents a gallon compared with an average $2.86 a gallon in the United States.
What do low prices do? They boost consumption of course. The same pattern of lower prices and rising consumption is seen in Iran.
Venezuela is not alone among oil-rich countries grappling with subsidized gasoline. Iran, a close ally, was shaken by unrest in June when its government rationed gasoline, which cost 34 cents a gallon at the time.
Some analysts expect Iran to stop exporting by 2014. Well, Venezuela appears to be on a similar path with very rapidly rising consumption.
Fuel smuggling into neighboring Colombia, where prices are much higher, is also rife. Domestic fuel consumption is up 56 percent in the past five years, to 780,000 barrels a day, said Ramón Espinasa, a former chief economist at Petróleos de Venezuela, the national oil company. One-third of oil production now goes to meet the subsidy, he said.
Perversely, higher world oil prices makes domestic consumption more affordable for oil exporting countries. The money flooding in due to the huge oil price rise raises living standards and gives people more cash for cars and gasoline. So what this lead to? The Export Land Model where oil exporters cease to export. In the Export Land Model the big oil exporters (grouped together in Export Land) have rapidly rising consumption and then when their oil production peaks their exports decline far more rapidly than their oil production. Us residents of Import Land (countries which are net oil importers) then find ourselves in a world of hurt.
The Export Land Model underscores why I believe our future quality of life and living standards hinge on how rapidly battery technology advances. We are headed for a big liquid fuels shortage. We need a substitute for liquid fuels for transportation.
A new report by the International Atomic Energy Agency forecasts India will increase nuclear production eight-fold by 2030 to account for 26 percent of its power grid.
However, China plans to use nuclear power for only 4 percent of electricity generation by 2030. Globally, the IAEA estimates there'll be drop an overall drop in nuclear energy from around 15 percent in 2006, down to 13 percent in 2030.
China's industrialization is one of the biggest threats to the world's environment. If China reversed on coal and shifted toward nuclear we'd be a lot better off.
Just nine months ago, the federal government listed more than 150 coal-power plants as "in development." Since then, at least 16 have been canceled, and many others have been put on hold, according to data from the US Department of Energy (DOE).
If political pressures against coal in the United States continue to build we will see a lot more nuclear power plants and wind towers.
If shareholders approve the acquisition, TXU would back federal legislation that would require reductions in carbon dioxide emissions through a cap-and-trade system. It would shelve plans for eight of 11 coal-fired plants that current TXU executives had proposed for Texas and would drop plans to build new coal plants in Pennsylvania and Virginia. The company would also double its spending to promote energy efficiency, to $80 million a year, for five years.
Opposition to coal helps spur development of technologies which can replace fossil fuels. Down with coal. Up with the coming post-fossil fuels era.
Environmentalists who oppose coal-based electric power generation are beginning to make headway in blocking new coal electric power plants.
The Kansas Department of Health and Environment yesterday became the first government agency in the United States to cite carbon dioxide emissions as the reason for rejecting an air permit for a proposed coal-fired electricity generating plant, saying that the greenhouse gas threatens public health and the environment.
The decision marks a victory for environmental groups that are fighting proposals for new coal-fired plants around the country. It may be the first of a series of similar state actions inspired by a Supreme Court decision in April that asserted that greenhouse gases such as carbon dioxide should be considered pollutants under the Clean Air Act.
This is good news for nuclear and wind power technology suppliers. Take away coal and the most obvious next choice is nuclear for baseload.
The New York Times has an article on the growth of coalitions against new coal electric plants.
Government projections suggest that coal, which provides 50 percent of the nation’s electricity and a quarter of its total energy, will continue to dominate the nation’s energy mix, despite its environmental problems. As of last May, the Energy Department projected that 151 coal-fired plants could be built by 2030 to meet a 40 percent rise in demand for electricity, largely from soaring populations in Western states.
“Coal is still very much alive,” said Jim Owen, a spokesman for the Edison Electric Institute, an industry group.
But opponents of coal plants are winning some battles. Reports from the government, the industry and environmental groups show that at least three dozen coal plants have been canceled or scaled back in the last two years.
The coalitions that form against proposals for coal electric plant construction include ranchers and other rural Republicans in the West. Opposition to coal isn't just found on the left half of the political spectrum.
While coal plant construction will become increasingly limited by environmental opposition in the United States I do not expect this to happen any time soon in Asia. To the contrary, we are probably going to see a continued explosion in Asian demand for coal. The industrialization of India and China is creating huge demand for energy among populations who are not yet affluent enough to place much value in cleaner environments.
CORK, IRELAND, Sept. 17 /CNW/ - CIBC (CM: TSX; NYSE) - Oil prices are likely to hit US$100 a barrel by the end of next year as soaring rates of domestic oil consumption in the world's leading oil producing nations cuts into their export capacity, forecasts the chief economist at CIBC World Markets.
Speaking at the 6th Annual Association for the Study of Peak Oil & Gas conference in Cork, Ireland, CIBC World Markets chief economist, Jeff Rubin told delegates that the export capacity of OPEC, Russia and Mexico will drop by 2.5 million barrels per day by the end of the decade.
"Domestic demand growth of as much as five per cent per year in key oil producing countries is already beginning to cannibalize exports and will increasingly do so in the future as production plateaus or declines in many of these countries," says Mr. Rubin. "OPEC members together with independent producers Russia and Mexico consume over 12 million barrels per day, surpassing Western Europe to become the second largest oil market in the world.
"At current rates of domestic consumption the future export capacity of OPEC, Russia and Mexico must be increasingly called into question. These trends are likely to result in a sharp escalation in world oil prices over the next few years."
He noted that while he expects today's US$80 barrel of oil will reach as high as US$100 a barrel by the end of 2008, consumers in many major oil producing countries pay nothing near the global price for crude. He finds that highly subsidized gasoline prices are often a significant factor in surging rates of domestic oil consumption. In many countries prices are as little as US$10 a barrel.
With exports from OPEC, Russia and Mexico expected to decline by seven per cent over the next three years, markets will seek greater reliance on higher cost unconventional deposits. He expects that Canadian oil sands will surpass deep water wells as the single largest source of new oil exports by decade end.
Governments of many big oil exporters sell petroleum products for a loss in domestic markets. They use lower prices to buy domestic support for their governments. So gasoline is cheaper in Venezuela, Iran, Saudi Arabia, and Russia than in the oil importing countries. As a result domestic demand for oil products is growing more rapidly in the oil exporting countries than in most of the rest of the world. This has hugely important implications. Oil exporters will reduce their oil exports years before their domestic production peaks. Also, once their domestic production peaks their oil exports will decline much more rapidly than their production.
NEW YORK, Sept. 27 /PRNewswire-FirstCall/ - CIBC - Six of the largest oil suppliers to the U.S. are poised to significantly cut exports by 2012, ramping up pressure on supply and price, and intensifying the focus on one of the last great deposits open to private investment: Canada's oil sands.
The forecasted cuts by Mexico, Saudi Arabia, Venezuela, Nigeria, Algeria and Russia are the subject of a keynote address that Jeff Rubin, chief market strategist and chief economist at CIBC World Markets will deliver at the firm's Industrial Conference Oct. 2 in New York City. In his remarks, Mr. Rubin will share his latest research on the global oil supply/demand balance, with specific focus on the size and scope of the oil supply crunch facing the U.S. over the next five years.
On the bright side, Americans can downshift to much smaller cars. Our profligacy makes it easier for us to adjust to oil shortages. We have that so much energy usage that is easy to curtail. If we were already all driving European sized small cars with diesels we wouldn't be able to downsize as easily as we can now.
This argument is similar to the argument made by The Oil Drum bloggers westexas (Jeffrey J. Brown) and khebab (Samuel Foucher). In a recent post they elaborate on their Export Land Model of how the big exporters will gradually stop exporting due to growing domestic demand coupled by stagnate or declining production.
The current top five net oil exporters--Saudi Arabia, Russia, Norway, Iran and the UAE--account for about half of world net oil exports. From 2000 to 2005, they showed a combined 3.7% per year increase in consumption.
From 2005 to 2006, their combined consumption showed an accelerating rate of increase, to +5.3% per year. From 2005 to 2006, the top five showed a net export decline rate of -3.3% per year. Based on year to date data, it is a near certainty that this net export decline rate will accelerate from 2006 to 2007.
Basically, khebab and westexas divide the world into Export Land (e.g. Saudi Arabia, Russia) and Import Land (e.g. the United States, European countries, Japan, China). They see the supply of oil for Import Land countries dwindling much more rapidly than the total world production of oil. While some dispute their time scales (e.g. when exactly will world oil production peak?) it is harder to dispute the logic for their argument. The exporters will cut their exports more rapidly than they cut domestic consumption and their domestic consumption will even continue to rise beyond the point in time when they start reducing exports. That's a big "ouch" for the rest of us.
As I see it the world is in a race between declines in oil exports on one hand and the development of non-oil methods do to things that we now do with oil. Most notably, we need non-oil ways to power transportation and cars in particular. When will workable batteries for cars become available? If the Export Land Model is correct then the answer to the battery question is enormously important.
Lord Oxburgh, the former chairman of Shell, has issued a stark warning that the price of oil could hit $150 per barrel, with oil production peaking within the next 20 years.
He accused the industry of having its head "in the sand" about the depletion of supplies, and warned: "We may be sleepwalking into a problem which is actually going to be very serious and it may be too late to do anything about it by the time we are fully aware."
Oxburgh argues that it isn't so much that we are running out of oil but that we are running out of oil that is cheap to extract. But we really are running out of oil too. Though new enhanced extraction methods such as toe to heel air injection (THAI) for heavy oil might delay the point of peak oil production.
As far as being too late to do anything about it: Well, the start-ups that are developing next generation batteries are doing the most to prepare us for declining oil production. Once we can shift most transportation energy usage to electric cars and electric trains declining oil production won't put an end to our mobile lifestyles.
The world will produce 118 million barrels of oil a day, up from its current 85 million barrels per day, just to satisfy projected demand by 2030, according to the Energy Information Agency.
"That's never going to happen," said Richard Heinberg, a research fellow at the Post Carbon Institute and author of three books on peak oil.
Heinberg says world production of regular crude oil actually peaked in May 2005. He also says production in 33 of the 48 largest oil producing countries is in decline, and that global oil discoveries peaked in 1964.
The people who see Peak Oil as happening in the next 10 years might be right. Suppose for the moment they are. Does that mean we will see $150 per barrel oil or even $200 or $300 per barrel? I have a hard time believing the higher price predictions because substitutes will become cost competitive below those higher prices and also because there are limits on how much people can afford to spend on oil.
The longer we go before world oil production peaks the easier the peak will be to handle. With time we'll get more technologies for producing and storing and using non-oil energy. We'll also gain technologies for using energy much more efficiently. So I'm not a doomster about Peak Oil even though I find the arguments for an earlier peak to be plausible.
If we hit an earlier peak (e.g. if it is happening right now) the economic cost will be substantial since we won't have as much technology to deal with it as we will if the peak comes 10 or 20 years from now. A peak in the next few years would cause a pretty sharp recession and require a lot of investment in more efficient vehicles and capital plant. But for the United States our profligate usage of gasoline actually makes adjustment easier. We could switch from bigger conventional cars to compact hybrid diesels and double or triple our miles per gallon. Countries whose populaces already drive compact diesels (e.g. about half of European car sales today are diesel) can't adjust as easily since they already are being relatively frugal in their oil usage.
Peak Oil anyone? The latest Medium-Term Oil Market Report from the International Energy Agency (IEA) paints a moderately bleak picture on oil availability in the next 5 years.
World oil demand will rise faster than expected to 2012 while production lags, leading to a supply crunch, the International Energy Agency said on Monday.
"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010," the IEA said.
"It is possible that the supply crunch could be deferred -- but not by much."
Why is this picture only moderately bleak? They aren't yet predicting a decline in production. But the growing ranks of those affluent enough to buy gasoline and other petroleum products are creating market conditions similar to those we'd expect to see once oil production peaks. The price keeps going up.
Prices will keep rising until demand stops growing. How high will prices have go to go stop oil demand growth? $100 per barrel? $120 per barrel? We are going to find out.
The report assumes no net expansion of capacity from Iran, Iraq and Venezuela and that 500,000 barrels a day of Nigerian oil - shut for a year - will not reopen in the next five.
Iran's own internal demand growth is going to cause Iranian oil exports to decline. So even if Nigeria's government puts down insurgencies an increase there will probably get cancelled out by a decline in Iranian exports. The civil war in Iraq still has some legs too. Though a US pull-out might accelerate the civil war and bring stability sooner.
But with forecasts of world economic growth of 4.5pc a year, the report argued that oil demand was likely to soar to 95.8m barrels a day in 2012 from 81.6m barrels this year.
At the same time it predicted production from the international oil cartel Opec would fall, slipping by 2m barrels a day in 2009, and it also cut supply forecasts for non-Opec countries by 800,000 barrels.
I am skeptical of claims that OPEC will substantially increase production. Probably most OPEC members prefer higher prices to higher production. Plus, the ranks of post-peak nations keeps growing. Pemex in Mexico can no longer keep up Mexican oil production.
Petroleos Mexicanos, the state-owned oil monopoly, said crude production fell 6.6 percent in May from a year earlier and dropped to its lowest this year as the company struggles with declining output from its Cantarell field.
We are not lacking in energy so much as we are lacking in energy storage for the types of energy which we can afford to create more of. We can build more nuclear power plants or wind towers to get lots of affordable electricity. But we do not have good enough means to store that electricity for use in transportation.
We need pluggable hybrid electric vehicles (PHEVs) and pure electric cars too. The energy cost per mile of electrically powered travel is much lower than the cost of gasoline to travel the same distance. But for electric vehicles to work out we need much better batteries. Some battery makers (most notably A123Systems) claim they have figured out how to make long lasting and affordable lithium batteries for cars. We are going to find out in 2 or 3 years whether this is the case. Those batteries are going to come not a moment too soon.
Short of PHEVs we have plenty of other ways to adjust: Get cars with smaller engines, diesel engines, or conventional hybrids. Also, live closer to work and take fewer car trips. Also, if you use oil or natural gas for heating then make your house much more energy efficient.
Dastardly humans won't be able to fry the world with excessive amounts of fossil fuels burning because we do not have enough fossil fuels left to burn to cause a first class disaster? Mother Gaia wisely limited the amount of fossil fuels she created because she knew her human progeny would wreak disaster if tempted with too much oil and coal to burn? Writing at The Oil Drum CalTech professor Dave Rutledge argues that the mathematical method which petroleum engineer King Hubbard used to predict the date of US oil production peak can also be used to predict how much coal will get burned in the world. Rutledge, Cal Tech Chair for the Division of Engineering and Applied Science, says the UN Intergovernmental Panel on Climate Change (IPCC) models for future climate change assume fossil fuels supplies available to raise atmospheric CO2 which overstate future hydrocarbon burning by a factor of 3 or 4 or more.
Often we do not have enough data to fit for remaining production this way. In these situations, I will use a Hubbert linearization to estimate the remaining production, like we often do for oil. Hubbert introduced this approach for modeling oil production in "Techniques of Prediction as Applied to the Production of Oil and Gas," in Saul I. Gass, ed., Oil and Gas Supply Modeling, pp. 16-141. National Bureau of Standards special publication 631. Washington: National Bureau of Standards, 1982. This is a great paper. It is difficult to find, but you can download it here (15MB file). Figure 2 shows a Hubbert linearization for world hydrocarbon production. The trend line is for 3.2 trillion barrels of oil equivalent (Tboe) remaining. We will use this number for our simulation of future atmospheric CO2 concentrations and temperature rise. This is 20% larger than the reserves given by the German resources agency BGR, 2.7Tboe. The BGR includes 500Gboe for unconventional sources. In contrast, the IPCC assumes that 11-15Tboe is available for production for its climate-change scenarios.
This fits with my intuition: We face such a huge looming problem with fossil fuels exhaustion that we should be thinking about moving away from fossil fuels due to rising costs and lowered production rather than because we might melt the polar ice caps. We need to embrace solar, nuclear, and wind because we just do not have as much fossil fuels left as the climate doomsters think we do.
If the Peak Oil, Peak Natural Gas, and Peak Coal folks are correct then why do the IPCC types spend so much time talking about climate catastrophe? My guess: Human-caused climate disaster makes for a far more dramatic moral story of human sin. Talk of using up all the coal and oil doesn't satisfy the need to see human action in such sinful terms. If we run out of oil then we suffer from the exhaustion of the oil but nature doesn't suffer as much as we do. We sin, but against ourselves. By contrast, if we heat up the planet the argument can be made for humans as massive sinners against nature.
Rutledge doesn't see how the IPCC scenarios for future atmospheric CO2 levels can happen given the amount of unburned and usable fossil fuels that are left.
Now we are in a position to see what some consequences for climate are. We convert future hydrocarbon and coal production to atmospheric carbon emission using EIA coefficients and plot them as the Producer-Limited Profile in Figure 10, together with the carbon emissions from the 40 scenarios. The Producer-Limited Profile has lower emissions than any of the 40 scenarios. This would be true even if we calculated the emissions with the full coal reserves. Jean Laherrere was the first to call attention to this anomalous situation. He has made the point forcefully and repeatedly, to no apparent effect.
Rutledge argues for carbon sequestration in order to avoid the 1.8 C heating. That amount of heating doesn't really alarm me. The biggest advantage I can see from carbon sequestration is that it will serve as a tax on coal and oil that will increase the incentives to develop energy replacements. A more rapid development of replacement energy sources will reduce the disruptions that will come with the exhaustion of oil, coal, and natural gas fields.
Heard the oft repeated claim that America has enough coal to last 250 years? A new report from the US National Academy of Sciences (NAS) claims recoverable US reserves are not nearly as large as has been claimed. Though another claim about America as "the Saudi Arabia of coal" might still be accurate. Why? If Matthew Simmons and other "Peak Oil" advocates are right then Saudi Arabia's oil reserves are also greatly exaggerated. The NAS report authors say attempts to spot check old recoverable coal reserves estimates have found far less recoverable coal than expected (PDF from Report Brief).
Present estimates of coal reserves— which take into account location, quality, recoverability, and transportation issues—are based upon methods that have not been updated since their inception in 1974, and much of the input data were compiled in the early 1970s. Recent programs to assess coal recoverability in limited areas using updated methods indicate that only a small fraction of previously estimated reserves are actually recoverable. Such findings emphasize the need for a reinvigorated coal reserve assessment program using modern methods and technologies.
Is this good news or bad news? I see it as good news. Coal is dirty. We have alternatives. The incremental cost difference going from coal to nuclear is probably at most 2 cents per kilowatt-hour (kwh). At the same time, wind and solar photovoltaics are declining in cost and photovoltaics probably can decline in cost by an order of magnitude. So coal has substitutes, at least for electric generation.
Small coal reserves seem more problematic for the coming peak in oil production. Coal-to-liquid (CTL) could help reduce the economic disruption that peak oil will cause to our living standards and lifestyles. Smaller coal reserves mean less CTL gasoline or diesel fuel. However Chevron and Shell research into oil shale extraction could provide another way to supply liquid fuels for that portion of transportation that does not go electric. Though the Natural Resources Defense Council (NRDC) argues that oil shale extraction will use too much of a limited supply of water in the Rocky Mountain states. What I'd like to know: at what price of oil and natural gas would nuclear energy become cheaper as a way to heat up tar sands in Alberta and oil shale in Colorado, Utah, and Wyoming?
The NAS coal report authors have revised US reserves from 250 years to 100 years at current consumption rates and so have reduced reserve estimates to only 40% of previous estimates.
The 250-year estimate was made in the 1970s and was based on the assumption that 25 percent of the coal that had been located was recoverable with current technology and at current prices, said one member of the study group, Edward S. Rubin, a professor of environmental engineering and science at Carnegie Mellon University.
But he said that more recent studies by the United States Geological Survey showed that at least in some areas, only 5 percent of the coal was recoverable with today’s technology and at current prices.
Even the 100 years estimate looks unrealistic given the boom in coal electric power plant construction now going on. But consumption could rise even higher if an oil production peak causes a building boom in coal-to-liquid plants to keep all the cars and trucks moving down the road.
The NAS coal report brief expects extracting difficult seams to cause more environmental and water problems. (PDF).
As mining activities extract coal from deeper and operationally more difficult seams, a range of existing environmental issues and concerns will be exacerbated and new concerns are likely to arise, particularly related to greater disturbance of hydrologic systems, ground subsidence, and waste management at mines and processing plants. Research activities should focus on developing techniques to mitigate the alteration and collapse of rock layers overlying mined areas, to model the hydrological impacts of coal mining, to improve mine mapping and void detection, to increase stability of waste heaps on steep slopes, and to improve the construction and monitoring of coal waste impoundments.
The money available for energy investments is enormous. Take the money spent on oil as a starting point. The current price for London Brent crude is over $71 per barrel and US oil is around $69 per barrel. Well, the United States uses over 20 million barrels of oil per day or over $1.4 billion dollars on oil alone per day. Add in coal, natural gas, nuclear, hydroelectric, and other sources of energy and the US economy spends billions of dollars per day on energy. If coal oil or shale oil can get made for $50 or $60 per barrel (and this seems likely from various reports) then the money can be found to build the capital plant to do the extraction and make the oil.
You can buy access to the full NAS report.
Update: If the Peak Oil pessimists (see here and here for Stuart Staniford on Saudi oil production) are right about an earlier date for a world oil production peak then it is it not too early to start talking about Peak Coal. If an oil peak comes sooner then we will not yet have the technologies needed to switch most transportation away from liquid fuel to electricity. Therefore big money will flow into coal-to-liquid (CTL) to make transportation fuels. As a result, coal reserves will decline much more rapidly.
But I'm not worried about Peak Coal. Coal, tar sands, and oil shale should buy us 2 or 3 decades to migrate to a much more electric economy. I think an early Peak Oil will be very costly if it comes as a surprise to most of industry. But my chief concern about a shift to coal is environmental. Coal is much dirtier.
Even if Peak Oil is still 20 years away Asian economic growth is pushing up the demand for energy so much that a shift to coal for liquid fuels could happen even before Peak Oil. I would rather the non-fossil fuels energy sources drop further in price and start putting a ceiling on energy prices than that coal consumption accelerates even more rapidly.
Production in Alberta is up 61 percent over the past four years. This year, Alberta's oil sands are expected to produce 1.2 million barrels a day, roughly equal to the production of Texas.
However it's extracted, all bitumen has to be transformed into oil in a process called upgrading. There are several different steps in upgrading, all of them using a lot of energy, usually natural gas. It costs $23 to $26 a barrel - depending on the project - to produce light oil from sticky goo of the oil sands.
CALGARY, Alberta - A massive rise in crude production from Canada's oil sands region over the next decade will nearly triple the area's call on strained natural gas supplies, Canada's national energy regulator said Thursday.
Production from the oil sands of northern Alberta is expected to rise to more than 3 million barrels a day by 2015, according to a study by the National Energy Board, triple last year's output.
The Canadian Association of Petroleum Producers’ forecast two weeks ago was higher than NEB’s at 3.5 million bpd by 2015 and 4.9 million bpd by 2020. Both said getting the increased oil production to markets must keep pace.
Sounds like a lot right? Well, world oil production is currently 81 million barrels and most of the fields have peaked or will have peaked by 2020. More conventional Canadian production is declining just like American conventional production is declining. So even the optimistic forecast of an increase of almost 4 million barrels a day is not enough to make much of a dent in total world oil supply.
I'm curious about production costs of alternatives for conventional oil since so many oil fields are in decline and more are peaking every year. Coal-to-liquid (CTL) looks like the most likely alternative for liquid fuels at perhaps $40 to $45 per barrel. Biomass ethanol is another possibility that will become more competitive once cellulosic technologies become cheap enough to use to break down the cellulose in trees and bushes. Oil shale is another possibility and oil shale might turn out to be only slightly more expensive than tar sands oil extraction..
My guess is that CTL can scale much higher than tar sands oil and eventually oil shale might supass tar sands in daily production as well.
One of the energy questions I'd most like to find answers for: What is the current cost for making liquid hydrocarbon fuels from various starter materials such as natural gas, coal, shale, and biomass materials? I suspect that at $70 per barrel oil now costs more than the production cost of liquid hydrocarbons from non-oil starter materials. But big money is probably holding back investing in massive Fischer-Tropsch coal conversion facilities out of fear that oil production could surge or demand could slacken and drive oil prices down below the costs of making synthetic. Then the synthetic plants would become huge investment losses. That happened with the Beulah North Dakota Great Plains Synfuels Plant which converts coal to a synthetic equivalent of natural gas.
Well, a New York Times article about a United States Air Force plan to shift toward jet fuels made from coal reports that the USAF and industry sources think coal-to-jet fuel would cost the equivalent of $40 to $45 per barrel oil. If they are correct then current oil prices are above long term sustainable prices.
In a series of tests — first on engines mounted on blocks and then with B-52's in flight — the Air Force will try to prove that the American military can fly its aircraft by blending traditional crude-oil-based jet fuel with a synthetic liquid made first from natural gas and, eventually, from coal, which is plentiful and cheaper.
The Air Force consumed 3.2 billion gallons of aviation fuel in fiscal year 2005, which was 52.5 percent of all fossil fuel used by the government, Pentagon statistics show. The total Air Force bill for jet fuel last year topped $4.7 billion.
Although the share of national energy consumption by the federal government and the military is just 1.7 percent, every increase of $10 per barrel of oil drives up Air Force fuel costs by $600 million per year.
Mr. Aimone said that if the synthetic blend worked, plans called for increasing its use in Air Force planes to 100 million gallons in the next two years.
Air Force and industry officials say that oil prices above $40 to $45 per barrel make a blend with synthetic fuels a cost-effective alternative to oil-based jet fuel.
This is good news. When we reach a world oil production peak the result will not be Mad Max at Thunderdome. Sorry survivalists. Civilization will not collapse due to declining oil production.
I think survivalists should base their civilizational collapse fears around something more possible like, say, a repeat of the Toba supervolcano or something milder like a Mount Tambora explosion repeat. If you are a leftist or Muslim who wants to fantasize a horrible punishment of the United States then the bulge in the Yellowstone Lake area would probably be your best bet. The US would take a big hit if a repeat of the 6,400 centuries ago eruption happened.
When the volcano in Yellowstone National Park blew 6,400 centuries ago, it obliterated a mountain range, felled herds of prehistoric camels hundreds of miles away and left a smoking hole in the ground the size of the Los Angeles Basin.
Though a repeat of the 650,000 years ago eruption would be a major bummer for the entire world. (same event, slightly different time estimate)
This last happened at the Yellowstone volcano approximately 650,000 years ago. The caldera that it left is 53 miles long and 28 miles wide. In the area surrounding Yellowstone, 3000 square miles were subjected to a flow of pyroclastic material composed of 240 cubic miles of hot ash and pumice. Ash was also thrown into the atmosphere and blanketed much of North America. It can still be identified in core samples from as far away as the Gulf of Mexico.
Getting back to energy: Coal alone looks like it could fill in for oil once oil production peaks. Also, cost effective and environmentally acceptable oil shale extraction looks within the realm of the possible. A sudden oil peak that was not expected by the market would probably cost us a severe recession of a few years long while coal conversion plants and other facilities got built. Then the world economy would bounce back and resume growing.
The longer we go before a world oil peak the easier the transition. We'll have more technologies to bring more alternative energy sources online at lower costs. I'd rather we develop the non-fossil fuels versions of those alternatives more quickly because they'll eventually be cheaper than oil and at the same time much cleaner. Clean air and clean water are good!
Suppose we really are hitting or getting close to hitting peak oil. An obvious question comes to mind: How long would it take to scale up Coal-To-Gas (CTG) and Coal-To-Liquid (CTL) plants? The answer to that question depends on many factors. One of those factors is how rapidly plants could be built that would do CTG and CTL conversions. Turns out we have a fairly recent example of construction of a CTG plant in the form of the Great Plains Synfuels Plant near Beulah North Dakota which was built in about 3 years.
The idea was conceived during the energy crisis of the seventies by a consortium of gas pipeline companies, Great Plains Gasification Associates. Construction commenced in 1981 after President Reagan agreed to back the project with federal loan guarantees. It was completed in 1984. Barely a year later, with the crash in gas prices, the pipeline companies bailed out, defaulting on $1.5 billion in loans. The Department of Energy took possession of Great Plains when the pipeline companies walked away. In 1988, Basin Electric, the local utility that powered the plant, acquired it for $85 million in cash and a promise to share future profits with the Department of Energy.
Dakota Gas survived by becoming a recycler. Its by-products bring in more than $150,000 a day. The most lucrative by-product is carbon dioxide. In 1997, Dakota Gas signed a deal to deliver CO2 for enhanced recovery in PanCanadian’s oilfield in Weyburn, Saskatchewan. As a result, the field is now producing at 27,000 barrels per day - its highest level since the seventies. An additional benefit is that large quantities of CO2 are now safely sequestered in Weyburn’s producing formations. This year, Dakota Gas signed up another Saskatchewan oil producer for its CO2 – Apache Canadian.
Carbon dioxide might be the ticket for extracting far more oil out of old oil reservoirs. If the rosier scenarios for CO2-enhanced extraction pan out then old US oil fields could burst back into high levels of production. But cost is a problem for producing purified carbon dioxide and then transporting it to oil fields.
Produces 125 million cubic feet of natural gas per day, plus by-products such as phenol, anhydrous ammonia, ammonium sulfate, cresylic acid, nitrogen and krypton/xenon. Operational in 1984.
A recent futures price of natural gas has it at $7.77 per million BTU. That represents 970 cubic feet. So 1000 cubic feet currently sell for about $8. Therefore the 125 million cubic feet of natural gas produced per day has a market value of about $1 million. Though transportation costs mean the plant operators receive less than that they also sell additional by-products as mentioned above. The total sales of the plant probably run into the hundreds of millions of dollars per year.
One question: what would the cost be for building a similar plant today? On the one hand, inflation has raised costs in general since the early 1980s. On the other hand, technologies for operating chemical plants have advanced in the last couple of decades. Some researchers at Rutgers and UNC Chapel Hill have just developed an important efficiency improvement for the Fischer-Tropsch CTL process. Green Car Congres has more details. Also, see the UNC Chapel Hill press release on the same research.
The Great Plains Synfuels Plant uses 700 workers. A plant built to use newer technologies and on a larger scale would very likely need fewer workers per amount of natural gas or liquid produced.
ANG went bankrupt in 1985 and turned the plant over to the Department of Energy (DOE). Employing 700 workers, the Synfuels Plant is one of only two gasification plants in the world (the other one is in South Africa). The plant purchased its power directly from Basin Electric's Antelope Valley Station (AVS).
Time for plant construction doesn't strike me as a major obstacle for a "Peak Oil" necessitated shift away from oil toward coal. But what about price? Conflicting claims are made about the price at which CTL technologies become competitive.
"The technology is truly efficient and economical," said Claude Corkadel, Rentech's vice president of strategic programs. "But the biggest thing is, our economic analysis shows this technology is better anytime crude oil is at $40 a barrel or higher."
"Coal is a relatively inexpensive form of energy compared to petroleum, and the United States has abundant reserves of it," said Bob McCormick, a senior engineer at the National Renewable Energy Laboratory in Golden who is familiar with the coal-to-liquids technology. "There is benefit to converting coal to liquid fuels."
But McCormick doubts Rentech's economic analysis.
"I have not evaluated Rentech's technology, but $40 a barrel seems far-fetched to me," McCormick said.
The cost of substitutes will determine how high the price of oil can go. Some substitutes have well characterized costs. But the cost picture remains unclear to me for coal and similarly for oil shale.
Also see my previous post Fischer-Tropsch Coal Gas Cost Effective With Current Oil Prices?
FuturePundit thinks he ought to join the peak oil pessimist camp. The Saudis do not think the oil producers can keep up with growing oil demand from China, the United States, and other developing and developed countries.
But demand for the world's premiere source of energy is rising so fast _ by around 2 million barrels per day each year _ that even Saudi Arabia's vast resources will be unable to cope without drastic help, oil executives and analysts say.
Remarkably, even Saudis, who control over a quarter of the world's known oil, are calling for relief from relentless consumption.
"The current out-of-control demand is not good for us," Ghazi Al-Rawi, head of private equity at Gulf One Investment Bank, said in a recent interview. "When you have this kind of demand, you're forced to supply beyond the optimal rate. That's not a positive thing."
So then $80 per barrel oil is not out of the question. Demand is going to get throttled back by rising prices. How much will this slow the world's rate of economic growth?
The guy formerly in charge of Saudi Aramco's oil production, Saddad al-Husseini, says that at best Saudi Arabia could boost production 35% and hold it there for 2 decades.
If such help doesn't materialize and Saudi Arabia maxes its output _ cranking out perhaps 35 percent more oil than it does today _ the kingdom's proven reserves might only sustain those gushing flows for a couple of decades before starting to dwindle, al-Husseini said.
Keep in mind that many nations have already reached their oil production peak and are on the way down. The Saudi peak will probably come later than for any other country. Therefore the world oil peak comes sooner than 2 decades from now. The demand for coal, oil tar sands, and oil shale will skyrocket unless we shift to nuclear and accelerate research into cheaper ways to make photovoltaics.
THE world lacks the means to produce enough oil to meet rising projections of demand for fuel over the next decade, according to Christophe de Margerie, head of exploration for Total and heir presumptive to the leadership of the French energy multinational.
The world is mistakenly focusing on oil reserves when the problem is capacity to produce oil, M de Margerie said in an interview with The Times. Forecasters, such as the International Energy Agency (IEA), have failed to consider the speed at which new resources can be brought into production, he believes.
“Numbers like 120 million barrels per day will never be reached, never,” he said.
Want more oil? Fuggedaboutit. We are at about 82 million barrels per day. If the Saudis at best hope to add 5 million barrels per day then the world oil production ceiling isn't even going to be 100 million barrels per day.
We need to ask ourselves what we should do about the coming peak in oil production. Some of my readers advocate for the development of nuclear power plants based on Molten Salt Reactor (MSR) designs. Those designs would supposedly be cheaper than the current Light Water Reactor (LWR) designs. MSR would use much less fuel since it would burn the fuel far more thoroughly and also would therefore produce far less waste. Sounds good to me.
We also need acceleration of battery development so that most cars can get powered by elecrticity generated from nuclear, solar, and wind power. We also need acceleration of research into photovoltaics as well.
Matthew Simmons argues (see his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy) that the Saudis have greatly exaggerated the size of their oil reserves. He's expecting an even earlier oil production peak and has some recommendations for what to do about it. See my post Matthew Simmons On Softening Oil Peak Impact. My guess is that many obvious things to do will happen in response to rising prices. But the costs of the transition would be lessened greatly if the public had a much clearer view of when the peak will come and how expensive oil will get. For example, new housing construction would feature much better insulation and other energy efficiency enhancing features.
Update: How soon and to what extent will people and businesses adjust to reduce their use of oil and natural gas? The New York Times reports that so far consumers have resisted changing their lifestyles to use less gasoline.
Still, the biggest surprise so far is that high prices seem to have had little impact on driving habits. Gasoline demand, which averaged 9.1 million barrels a day last month, remains very strong; in fact, it is up by 2 percent since January 2004 when oil prices began to rise. Analysts are puzzled.
"The real question is, What will consumers do?" said John Felmy, the chief economist at the American Petroleum Institute, the industry's main trade group. "That's a key part of the equation."
Anecdotes from rural areas suggest that people are moving away properties that require longer commutes to work. Maybe a shift is already underway and will show in coming months. But it could be that consumers are waiting to see whether prices will remain high. Once they become convinced that higher prices are to stay for a long time then I would expect more movements and job changes to reduce commute times, bigger efforts to insulate houses, shifts toward buying more efficient vehicles, and other longer term adjustments.
What I'd like to know: How high can oil prices go? I do not buy the predictions of $200 per barrel oil because before that happened high prices will curtail demand and also cause a stampede toward substitutes. The potential for Fischer Tropsch Coal-to-Liquid is the most obvious reason why oil won't go to $200 per barrel. Wood and corn for space heat, wind for electricity, and other substitutes would all become cost effective before $200 per barrel oil was reached.
One problem with substitutes is the time it takes to develop them. Oil shale and oil tar sands can also come on line and provide many millions of barrels of oil per day. But construction to ramp up either would take many years.
Maybe $200 per barrel oil is possible. But for how long? Such a price would cause a deep worldwide recession.
Failure to find any more oil than the Hawtah Trend since 1967 was not for lack of trying. Saudi ARAMCO has access to ample capital and the world's top talent. Exploration technology has seen major developments since then, but technology does not guarantee results. In 2005 ARAMCO's budget for exploration and development is $2.7 billion. Alaska's Prudhoe Bay is a clear example that while new technology may add something, it cannot keep up with depletion, even with the recent runup in prices.
Of course there is much more to an oil field than its area shown by this map. Simmons' book provides us with much such information that he has distilled from 200 papers published with the Society of Petroleum Engineers. ARAMCO ceased publication of production statistics by oil field when it was nationalized in the late 1970s, but their engineers continue to publish technical papers on problems, successes, and difficulties.
Alarmingly, the development of horizontal drilling has added nothing to reserves while hastening the speed at which they can be drawn down.
I am worried. The world economy looks like it is heading toward much higher energy prices for an extended period of time. But necessity is the mother of invention. So I also expect to see a big acceleration of energy research and development once the realisation sinks in that the world's oil production peak is near.
A new chemical process for removing unwanted minerals from coal could lead to reductions in carbon dioxide emissions from coal-fired power stations.
There is already a way of burning coal in a cleaner, more efficient fashion that would reduce carbon dioxide emissions: this is where the coal is turned into a gas and used to drive a turbine. However, problems with cleaning the coal before it is burnt have made generating electricity in this way very expensive. This new chemical process could make it more commercially viable.
Under development by a University of Nottingham team with EPSRC funding, the new approach involves using chemicals to dissolve unwanted minerals in the coal and then regenerating the chemicals again for re-use. This avoids the expense of using fresh chemicals each time, as well as the need to dispose of them, which can have an environmental impact. By removing unwanted minerals before the coal enters the power plant the new process helps protect the turbines from corrosive particles.
The aim is to cut unwanted minerals in coal from around 10% to below 0.05%, making the coal 'ultra clean'. Removing these minerals before using the coal to generate power prevents the formation of harmful particles during electricity production. To do this, the team is using specific chemicals to react with the minerals to form soluble products which can be separated from the coal by filtration. This process is known as 'leaching'. Hydrofluoric acid is the main chemical being tested. The chemicals not only dissolve the minerals but are also easy to regenerate from the reaction products, so they are constantly recycled. It is this aspect that has largely been overlooked in past research, but is virtually essential if chemical coal-cleaning is to be environmentally and commercially viable.
With half of US electricity (and probably most mercury emissions) coming from coal and a strong possibility that percentage will even increase I'm for anything that'll make coal cleaner. But in my view for decades the regulatory pressure on the coal burners hasn't been tough enough.
One of the reasons I favor nuclear power is precisely because coal plants pollute so much.
As for the argument that terrorists will some day explode a nuclear bomb next to a nuclear plant: First off, I think Islamic terrorists really won't be able to resist the temptation to nuke New York City and DC first. Second, the terrorists already have nuclear power plants to nuke. Third, imagine (and this isn't going to happen until after nukes have gone off) all the existing nuclear power plants were dismantled precisely to deny the terrorists nukes as targets. Well, there goes NYC or DC then.
One solution to the nuke plant as terrorist nuke bomb target would be to build nuclear power plants underground. But, again, we'll still lose millions of people if terrorists can get nukes to a Western country.
My guess is if terrorists ever set off a nuke the Western response will be so severe and far reaching that this will happen only once. I'm far more afraid of terrorists releasing genetically engineered pathogens than I am of terrorist nukes.
If you place a high probability on huge costs from global warming then go back and read my post "Planned Coal Plants Reverse 5 Times CO2 Impact Of Kyoto Protocol". So even if burning cleaned up coal reduces CO2 by as much as 20% for a given amount of generated electricity the growth in total coal demand is going to be so great that CO2 emissons from coal will still rise. The only way to stop the CO2 emissions would involve expensive CO2 sequestering technology. Anyone for 2 or more cents per kwh of electricity just for CO2 emissions elimination? I'm not expecting that to happen in the US or China for the next 10 years. Beyond that point I'm still not expecting it in China. Ditto India.
You have three current choices for satisfying most future demand growth in electric energy: Nuclear, coal, or higher prices. Accelerated energy research across a broad array of technologies could produce more choices in the future.
ROYAL Dutch/Shell Group has handed in a feasibility study report on a coal-to-liquid project in China worth several billion dollars to compete with Sasol Ltd, the National Development and Reform Commission said.
The project involves the proposed building of two plants with a combined investment of US$6 billion to US$8 billion in Shaanxi Province and Ningxia Hui Autonomous Region, which represent areas with the most significant coal reserves in the country.
The estimated crude production capacities of the two plants are up to 80,000 barrels per day, or more than 1 percent of China's total oil consumption currently.
Shell is competing against South African company Sasol which currently makes 150,000 barrels of oil per day from coal.
Gov. Brian Schweitzer believes Montana is sitting on the answer, and it’s in the form of the nation’s second largest coal reserve. Schweitzer wants the state to begin using an 80-year-old technology developed by Nazi Germany to turn Montana’s vast supplies of coal into usable, ultra-clean-burning diesel and aviation fuel.
With oil prices more than doubling the break-even point of producing synthetic fuels, oil companies and world leaders are beginning to take a serious look at the future of Fischer-Tropsch fuels. Schweitzer predicts they could be produced at a cost of about $1 per gallon in Montana if large-scale commercial plants could be developed in the state.
Closer to home, the Great Plains Synfuels Plant near Beulah, N.D., began operating in 1984 in response to the 1970s energy crisis and today produces more that 54 billion cubic feet of natural gas using the Fischer-Tropsch process.
“The Department of Energy was going to build hundreds of those plants but then oil prices dropped and we all forgot about it,” says Schweitzer, who visited the Beulah plant three weeks ago. “The cost of production [of syngas] at that plant last year was $3 per MCF (thousand cubic feet). Now the price of [natural gas] is $7 per MCF.”
Are Governor Schweitzer's numbers correct? What is the cost to convert coal to natural gas and then to liquid fuel with the Fischer-Tropsch process or some other process? Is synthetic gas (gaseous hydrocarbons - not gasoline) already cheaper than the current price of natural gas in the United States?
Three coal gasification plants currently are proposed in Illinois; only three are operating in the nation. A 260 megawatt gasification plant in Florida currently uses Illinois Basin coal. The state government, coal companies and even utilities have banded together to lobby for an Illinois siting of the federally-subsidized near-zero emission coal plant of the future known as FutureGen.
Synthesis gas can also be created from natural gas - and this is less costly than from coal. Since 1993, Shell in Malaysia (Bintulu) and PetroSA in South Africa (Mossel Bay) have been operating industrial Fischer-Tropsch Synthesis facilities, which produce liquid fuels from synthesis gas which comes originally from natural gas (Gas To Liquid, GTL). A third similar plant is being built by Sasol and Qatar Petroleum in Qatar in the Persian Gulf. Last year nine more GTL-facilities were being planned world-wide; most of them are to use Fischer-Tropsch Synthesis.
Both coal gasification and conversion of natural gas to liquid fuels are becoming more widely used.
Liquid fuel produced by the Fischer-Tropsch Gas-To-Liquids (GTL) process burns more cleanly than conventional fossil fuels and hence is less polluting.
Shell and ExxonMobil are ramping up production on a fuel, called Gas-to-Liquids, that's derived from natural gas. It significantly reduces the sulfur, carbon monoxide and other pollutants that belch from car tailpipes. And although more costly than regular gas, it should help crimp the air pollution in places like Los Angeles, or in New Delhi, where diesel buses are banned.
One impetus behind use of the Fischer-Tropsch GTL process is that natural gas is hard to transport. At the same time, the demand for liquid fuel is strong and prices are high. Shell has a plant in Borneo and is building another in Qatar to convert locally produced natural gas into a diesel-compatible fuel that burns much more cleanly than does diesel made from oil.
Note that natural gas gets used to generate electricity. If nuclear, wind, and solar generated all electricity then more natural gas would be available to make liquid fuel for transportation. There is already a lot of potential for substituteability of fuels even without development of better battery technologies.
Legislation recently signed by President Bush instructs the Interior Department to lease 35 percent of the federal government's oil shale lands within the next year, provides tax breaks to the industry,reduces the ability of states and local communities to influence where projects are located and compresses lengthy environmental assessments into a single analysis good for 10 years.
To produce the oil, Shell and other companies sink heaters half a mile into oil shale seams for up to four years, subjecting the rock to 700 degrees. Over time, natural gas and a liquid that can be refined into light crude oil rise to the surface. To prevent the brewing hydrocarbons from spoiling groundwater, the heated rock core would be surrounded by a 20-to-30-foot-thick impermeable ice wall, which also requires electricity to keep it frozen.
The federal government has begun leasing land for oil shale production. Ten new research and development leases are being processed by the Bureau of Land Management in Colorado. Others have been awarded on federal land in Utah and Wyoming.
See my previous post on Shell's effort to develop a better method to extract oil from oil shale. On coal gasification see a couple of Green Car Congress posts: "Rentech Moves on Its PolyGeneration Strategy: Fertilizer, FT Fuels and Power" and "Rentech Tracking to Startup Coal-to-Liquids Pilot Plant in Q4 2006". Also, Rentech makes the argument that synthetic liquid fuels made from natural gas (or coal gas for that matter) contain less contaminants that will mess up fuel cells than do liquid hydrocarbons made from oil. So when fuel cell technology matures that might increase the demand for synthetic liquid fuels even further.
Nuclear power could free up more fossil and biomass fuels to use as liquid fuel for ground transportation. This could be done a number of ways including the following:
There's enough coal to provide liquid fuel for a long time to come even if part of the coal is used to generate energy to process other coal into natural gas and liquids. Ditto with oil shale and Canadian tar sands. But for making liquid fuels nuclear power could stretch the supplies of coal, oil shale, and oil tar (perhaps doubling or tripling the amount extractable as liquid fuel) and also reduce the total amount of polluting emissions generated by the production of liquid fuel.
My bigger point here is that even if the "Peak Oi" pessimists are right and oil production peaks sometime in the next 10 years that would not spell the end of the fossil fuels economy or the end of heavy reliance on cars and trucks. We will not enter a worldwide depression. The liquid hydrocarbon alternatives to oil are not prohibitively expensive. The quantities of capital needed to rapidly build up conversion plants would be available because the energy marketplace deals in sales in the hundreds of billions of dollars every year. Non-fossil fuel energy sources can even be used to help convert non-liquid hydrocarbons into liquid hydrocarbons.
Looking down the road a few decades I expect solar photovoltaics to become cheap as a result of nanotech advances. That might happen as early as 10 or 20 years from now. If Peak Oil comes early we can keep vehicles moving using liquid fuels made from coal and oil shale. Then we can transition to nuclear and solar to charge better batteries once battery technologies advance far enough to make pure electric vehicles possible.
I'd rather that the transition to nuclear, solar, and batteries happen sooner for environmental, national security, and economic reasons. But I'm not worried about Peak Oil if the transition away from oil comes as soon as the pessimists predict.
Update: I've come across a number of companies developing what they claim are better catalysts and other improvements on the Fischer-Tropsch process. For example, Syntroleum claims to have a better catalyst for Gas-To-Liquid conversion.
During the last two years at Syntroleum's 70 barrel per day gas-to-liquids (GTL) facility at the Port of Catoosa near Tulsa, Okla. Syntroleum utilized its proprietary FT-410 cobalt catalyst to successfully demonstrate the Syntroleum(R) Process by producing ultra-clean diesel and jet fuels from natural gas feedstock for various U.S. government programs.
This new testing program will demonstrate the effectiveness of the Syntroleum FT catalyst with proven coal-derived syngas clean-up and treatment processes for use in a coal-to-liquids (CTL) application. Syngas, which consists of hydrogen and carbon monoxide, is the building block for many chemical processes including FT ultra-clean fuels produced from the Syntroleum(R) Process.
"This testing program is an important step for Syntroleum in demonstrating that our proven natural gas-to-liquids technology is also applicable to coal-to-liquids as well," said Ken Roberts, senior vice president of business development for Syntroleum. "We see this as an opportunity to develop our position toward participation in future coal-to-liquids plants."
"Coal-to-liquids technology has the potential of providing a tremendous source of ultra-clean fuels from abundant coal reserves in the United States and other regions of the world," Roberts said. "The U.S. has the world's largest estimated recoverable coal reserves equaling over 268 billion tons. If only 5 percent of this coal were converted to FT liquids, it would be equivalent to the entire oil reserves currently held by the U.S.
I'd like to know what fraction of the energy extracted from coal makes it into liquid form. The process must require considerable amounts of energy at every step. Unless nuclear, solar, or wind power drove the conversion process liquids made from coal will effectively emit much more CO2 and other gases than petroleum used for the same end purposes. So a switch to coal would increase the greenhouse gas effect of fossil fuel usage.
Update II: Coal is not immune to price rises.
The demand for coal on the world market is up, according to The Associated Press. China has gone from being an exporter of coal to being an importer. Because demand is higher, the price is higher. Futures contracts for Western U.S. coal have gone from about $9 in June to $19.50 in October.
Coal is in demand because it produces energy at low cost. In July, electric companies could produce one megawatt-hour of electricity for $17 by burning coal. It cost $59 to produce the same energy with natural gas and $64 with liquid fuels such as kerosene, according to the AP.
But my guess is that higher prices will be transient since lots of coal mines can be opened up.
Researchers at Lehigh University's Energy Research Center (ERC) have developed and successfully tested a cost-effective technique for reducing mercury emissions from coal-fired power plants.
In full-scale tests at three power plants, says lead investigator Carlos E. Romero, the Lehigh system reduced flue-gas emissions of mercury by as much as 70 percent or more with modest impact on plant performance and fuel cost.
The reductions were achieved, says Romero, by modifying the physical conditions of power-plant boilers, including flue gas temperature, the size of the coal particles that are burned, the size and unburned carbon level of the fly ash, and the fly ash residence time. These modifications promote the in-flight capture of mercury, Romero said.
Aside: One hears Orwellian talk of "clean coal" as if it is a reality today. But if coal was already so clean there'd be no need for research in how to reduce coal power plant emissions.
Coal-fired power plants are considered to be the biggest sources of mercury emissions. Only now 35 years after the Clean Air Act did the US EPA finally get around to restricting mercury emissions from coal plants.
Coal-fired power plants are the largest single-known source of mercury emissions in the U.S. Estimates of total mercury emissions from coal-fired plants range from 40 to 52 tons.
The U.S. Environmental Protection Agency last March issued its first-ever regulations restricting the emission of mercury from coal-fired power plants. The order mandates reductions of 23 percent by 2010 and 69 percent by 2018. Four states - Massachusetts, New Jersey, Connecticut and Wisconsin - issued their own restrictions before the March 15 action by the EPA.
My take on the Bush Administration mercury reduction regulations is that they came after too many years and do not reduce mercury rapidly enough. Similarly, I fault the Clinton Administration for not already imposing more restrictive standards 10 years ago. Neurotoxins are bad. We should do a lot more about neurotoxins than about the possible threat of global warming. But global warming is a far more fashionable worry.
The trick is to make the mercury become oxidized.
The changes in boiler operating conditions, said Romero, prevent mercury from being emitted at the stack and promote its oxidation in the flue gas and adsorption into the fly ash instead. Oxidized mercury is easily captured by scrubbers, filters and other boiler pollution-control equipment.
Note that computer simulations played a role in identifying operating conditions likely to reduce mercury emissions. This is part of a much larger long running trend where simulations speed up the rate of scientific and technological advance. What I'd like to know: Just how much faster will science and technology be able to advance 20 or 30 years from now due to the ability to rapidly run simulated experiments? Will the rate of advance speed up by orders of magnitue due to simulations alone?
The ERC team used computer software to model boiler operating conditions and alterations and then collaborated with Western Kentucky University on the field tests. Analysis of stack emissions showed that the new technology achieved a 50- to 75-percent reduction of total mercury in the flue gas with minimal to modest impact on unit thermal performance and fuel cost. This was achieved at units burning bituminous coals.
Only about one-third of mercury is captured by coal-burning power plant boilers that are not equipped with special mercury-control devices, Romero said.
Romero estimated that the new ERC technology could save a 250-megawatt power unit as much as $2 million a year in mercury-control costs. The savings could be achieved, he said, by applying the ERC method solely or in combination with a more expensive technology called activated carbon injection, which would be used by coal-fired power plants to reduce mercury emissions. The resulting hybrid method, says Romero, would greatly reduce the approximately 250 pounds per hour of activated carbon that a 250-MW boiler needs to inject to curb mercury emissions.
Reductions of emissions of sulfur and nitrogen oxides causes, as a side effect, a big reduction in mercury emissions as well. So a more rapid tightening of sulfur and nitrogen oxide emissions would also lead to reduced mercury emissions.
Best estimates to date suggest that human activities have about doubled or tripled the amount of mercury in the atmosphere, and the atmospheric burden is increasing by about 1.5 percent per year. Global anthropogenic emissions of mercury are estimated to range between 2000 and 6000 metric tons per year. Electric utilities, municipal waste combustors, commercial and industrial boilers, and medical waste incinerators account for approximately 80 percent of the total amount. Coal-fired utility boilers are the largest point source of unregulated mercury emissions in the United States.
I'd really like to know how much of the mercury in fish is there due to human pollution. Have humans doubled or tripled the amount of mercury in fish? I've yet to come across any reports on research that attempts to quantify the impact of human mercury sources on fish.
In 2000, for instance, these chlorine plants reported 79 tons of mercury consumed, according to federal and industry data cited in the report. Fourteen of those tons were emitted or released into the environment; the rest - 65 tons - was officially classified as "unaccounted for" by the US Environmental Protection Agency (EPA).
That's an amount that shocks environmentalists because, by contrast, the nation's 497 mercury-emitting power plants sent 49 tons of the toxin into the air that year, Oceana reports.
A relatively small number of all the chlorine plants still use mercury in the United States and a larger number in Europe use mercury. Why not shut down the old plants or force those plants to shift to mercury-free manufacturing methods?
Indeed, most of the 43 chlor-alkalai manufacturing plants in the US today use advanced mercury-free manufacturing processes that are relatively clean. But nine US factories - and 53 older ones in Europe - still use older "mercury-cell" technology that requires huge quantities of mercury to do the same job, Oceana reports.
One can debate about the effects of green house gases for decades and people have. But mercury is bad for the brain. Why let chlorine or power plants emit much mercury at all?
The development of an economically viable way to extract oil from oil shale would put a ceiling on oil prices and would extend the oil era by decades. It would also increase the odds of significant global warming. Well, in light of all that a variety of media outlets are reporting that Shell Oil thinks it can produce oil from oil shale at $30 per barrel using an in situ process where the shale is cooked without first mining it onto the surface.
They don't need subsidies; the process should be commercially feasible with world oil prices at $30 a barrel. The energy balance is favorable; under a conservative life-cycle analysis, it should yield 3.5 units of energy for every 1 unit used in production. The process recovers about 10 times as much oil as mining the rock and crushing and cooking it at the surface, and it's a more desirable grade. Reclamation is easier because the only thing that comes to the surface is the oil you want.
And we've hardly gotten to the really ingenious part yet. While the rock is cooking, at about 650 or 750 degrees Fahrenheit, how do you keep the hydrocarbons from contaminating ground water? Why, you build an ice wall around the whole thing. As O'Connor said, it's counterintuitive.
Shell has received approval from Rio Blanco County, state and federal officials to conduct a $50 million, two- to four-year study of a groundwater freezing process, said Jill Davis.
“We’re still looking to decide if we’ll move on to commercial production by the end of the decade,” she said. “It’s been promising, so we want to take it to the next level with an environmental test of our ‘freeze wall’ process.”
Refrigerants, such as ammonia dioxide, are circulated through underground pipes to freeze the groundwater and earth to keep groundwater out of an oil-shale formation.
“We’ve tested the process in a circular pattern and this will be a football field-shaped rectangle in an area more like where commercial production could happen,” she said.
Some estimates for the amount of oil in shale range as high as 1 trillion to 1.8 trillion barrels. Assume that 1 trillion barrels could be extracted. The United States currently uses about 20.5 million barrels per day which is about a quarter of current world oil demand. World oil demand is projected to rise to 119 million barrels per day by 2025 or about a 50% increase. Suppose we take that 119 million barrel figure and round it off to 120 million barrels. Also let us assume that oil shale could yield 1 trillion barrels of oil. That oil shale would satisfy total world oil demand by this equation: 1,000,000 million barrels/(365 days per year times 120 million barrels per day) which equals only 22 years at the projected year 2025 consumption rate. Even oil shale can delay the end of the oil era by a couple of decades. Still, we could use those decades to develop technologies to lower the cost of nuclear and photovoltaic solar power.
Since the future prospects for oil shale remain uncertain, the RAND report recommends that the federal government refrain from major investments in oil shale development until the private sector is prepared to commit its technical, management and financial resources. However, the report recommends a few low-cost efforts that can begin in the near future to move oil shale development forward.
The report by the RAND Environment, Energy and Economic Development program says that between 500 billion and 1.1 trillion barrels of oil are technically recoverable from high-grade oil shale deposits located in the Green River geological formation, covering parts of Colorado, Utah and Wyoming.
The mid-point of the RAND estimate – 800 billion barrels – is three times the size of Saudi Arabia's oil reserves. This is enough oil to meet 25 percent of America's current oil demand for the next 400 years.
The benefits of a competitive oil shale industry are substantial. For an output of 3 million barrels per day, the study estimates direct economic benefits of about $20 billion per year. Federal, state and local governments would receive about half of this amount in the form of lease payments, royalties and taxes.
Production at 3 million barrels per day also could likely cause oil prices to fall by 3 to 5 percent, saving American oil consumers roughly $15 billion to $20 billion annually, according to the report. A multimillion-barrel per day oil shale industry could also create several hundred thousand jobs in the United States.
The in situ process may avoid many of the environmental problems that arise from oil shale mining.
Another technical development that has been taking place involves heating the oil shale while it is still in the ground – a process called in-situ conversion. Mining is not required. Instead, electric heating elements are placed in bore holes, slowly heating the shale oil deposit. The released liquids are gathered in wells specifically designed for that purpose.
In contrast to surface mining, in-situ conversion does not permanently modify land surface topography and may be significantly less damaging to the environment. Small field tests conducted by Shell Oil involving an in-situ approach appear promising. While larger scale tests are needed, Shell anticipates that this method may be competitive with crude oil priced below $30 per barrel. RAND has not developed an independent estimate of the price level needed to make in-situ conversion competitive.
On the environmental side, adverse land and ecological impacts will accompany oil shale development no matter which approach is used. Oil shale production will also result in airborne and greenhouse gas emissions that could severely limit oil production levels.
Steve Wiig, geologist for the Rock Springs BLM office, said Wyoming oil shale, on average, would produce 15 to 30 gallons of oil per ton of oil shale rock. He said the Colorado and Utah deposits could produce 30 to 40 gallons, with some sites capable of producing 60 gallons of oil per ton of oil shale.
For example, one of the star witnesses of Gibbons' hearings was Jack Savage, president of Utah-based Oil-Tech Inc. He said the company is ready to start cooking oil out of shale with a retort it has built near Vernal, Utah.
"We have been working on this for 15 years," Savage said. "Now we're ready to go."
Savage, once president of companies that manufactured golf bags and other sporting goods, said he can turn shale into oil for $10 to $22 a barrel, depending on market conditions. Savage pushed for an accelerated federal leasing program, but he's already leased 38,000 acres of state land in Utah and says he's working on a research-and-development bid to continue work on his project.
The biggest problem with mining oil shale comes as a result of heating oil shale rock. The rock expands in size and then can't just get put back where it was excavated.
DENVER, CO (April 28, 2005): Luca Technologies LLC today announced that its researchers have confirmed the presence of a resident, methane-generating community of microorganisms ("microbial consortium") in substrate samples taken from the 110,000 acre Monument Butte oilfield located in North Eastern Utah. This site represents the latest in a series of active "GeobioreactorsTM" that Luca Technologies has identified since its first demonstration of this phenomenon in the Powder River Basin coalfields of Wyoming. Geobioreactors are sites where microbial conversion of underground hydrocarbon deposits (oil, oil shales, and coal) to methane is ongoing. Such Geobioreactors may offer the potential of turning currently finite energy reserves into methane "farms" capable of long-term, sustainable energy generation.
"The hydrocarbon resources available in the Monument Butte oilfield are very large, making the possibility of shifting from oil production to the ongoing farming of clean, natural gas an attractive consideration," said Robert Pfeiffer, president and chief executive officer of Luca Technologies. He noted that the Monument Butte site was one of six oil fields across the United States that Luca has been studying. The company has demonstrated two of those sites to be robust, methane-generating Geobioreactors, and two to be less actively generating methane. Three additional sites are not currently active but may have the potential to be turned into active Geobioreactors through cross-inoculation with microbial consortia from active sites.
Luca scientists have also begun to isolate and identify particular members of the Monument Butte microbial consortium. Through partial DNA sequence analysis, the company has identified Clostridia and Thermatoga as two of the key members of this consortium. Clostridia form a broad genus of bacteria known for their diverse metabolic pathways. Clostridia frequently thrive in anaerobic environments and many species are known for their heat tolerance. Thermatoga microorganisms are known to play a role in the anaerobic oxidation of hydrocarbons to alcohols, organic acids and carbon dioxide. Thermatoga also thrive in high temperature environments, such as those found in sub-surface oil wells.
"Oil within the Monument Butte field has a waxy composition that may facilitate the strong real-time methane generation we see at this site," commented Mr. Pfeiffer. "If so, then areas with large accumulations of waxy oil – for example, the Daqing Field in Northeast China -- could prove to be important sites for the bioconversion of residual oil to methane and the restoration of these 'spent' sites to economic energy production."
Note that oxygen suppresses the methane generation.
Luca scientists, employing the tools of modern biotechnology and genomics, have now shown that living methane generating, microbial consortia are present and actively forming methane within some of these hydrocarbon substrates. In addition to demonstrating that methane formation by these microbes can be stimulated by the introduction of nutrients or suppressed by heat sterilization or the introduction of oxygen, Luca has shown that radio-labeled CO2 (carbon dioxide) introduced to these substrate samples is converted to radio-labeled methane. This demonstrates that the methane formation is the result of a biological process occurring today.
Luca has a more detailed paper on their web site about this report. (PDF format)
Because their environment is hostile to familiar forms of surface life, oil reservoirs were originally thought to be devoid of life. However, more recent research has revealed that many oil reserves contain a variety of active and diverse microorganisms (19). In general, these microorganisms have been studied in the context of fouling, souring, and degradation of oil 8 reservoirs. Various gases are frequently associated with oil wells, and Luca’s data indicate that methanogenesis, the creation of methane, is another biological process occurring in some oil reservoirs. In addition to identifying these active systems (Geobioreactors), it will be important to understand the variables that control this overall methanogenic process.Because oil is a liquid, it is likely to be an easier substrate for the microbial consortia to contact, biodegrade, and convert to methane compared to solid-phase substrates such as coal and the kerogen in shale. Biodegradation is carried out by the consortia, and it has been shown that a mixed group of microorganisms is more effective at biodegrading organic compounds than any of the component strains acting alone (5). These microorganisms utilize the hydrocarbons as both a carbon and energy source, and the process most likely takes place at the oil/water interface (13). The enzymatic diversity within these microorganisms required to carry out the myriad of metabolic steps involved in methanogenesis is extensive. The ability to influence and control these microbial reactions in situ has major economic implications.
Back in November 2004 Luca Technologies claimed to have found methane generating bacteria in the coal deposits of Wyoming's Powder River Basin. At the time of that previous report another blogger asked me if I thought this report could lead to a practical way to extract large amounts of methane from coal. My initial reaction was that injection of bacteria into coal beds would be very problematic because the bacteria would not diffuse rapidly through solid masses. The amount of drilling needed to get good diffusion of the bacteria might result in costs too hgh to make such an approach economically feasible. Well, in their latest report they specifically note that getting bacteria into contact with liquid oil is easier than getting it into contact with solid coal.
Of course coal is much more plentiful than oil. But old and heavily depleted oil fields which have a lot of inaccessible oil left which injected bacteria might reach. If bacteria injected could reach those oil left-overs then bacterial injection might become an economically viable way to extract otherwise unreachable energy.
The November 2004 report is also online and Luca points out that if even a small percentage of a coal field's coal could be converted to natural gas in situ then the amount of natural gas that could be produced would be substantial.
The primary goals of the research were to evaluate the recent and ongoing biogenic methane formation in PRB coal seams and to identify some of the variables that may affect the creation of biogenic gas in these coals. The sheer size of the PRB coal-bed resource as substrate for biogenic methane creation is the primary incentive. The coalbeds of the PRB are thought to contain ~580 billion tons of coal in contiguous seams at least 20 feet thick (DeBruin et. al, 2001). Only a small portion of this coal is accessible for domestic use via mining. Although substantial quantities of methane exist in the PRB coal seams (estimated total resource of ~37 TCF, DeBruin et. al, 2001), this quantity of gas likely represents a small fraction of the methane that could be created through biogenesis supported by hydrocarbon substrates within the coals. For instance, the conversion of only 1% of the known PRB coal resource above would generate approximately 86 TCF of gas (Luca estimation).
So how much as 86 trillion cubic feet of natural gas worth? Natural gas is priced in dollars per thousand cubic feet with a general upward trend in natural gas prices now putting natural gas at the wellhead at about $5 per thousand cubic feet. If we assume $5 per thousand cubic feet then conversion of 1% of the Powder River Basin coal into natural gas yields a market value of about $430 billion. Bacteria suddenly become fascinating little creatures.
As of December 31, 2002, the estimated U.S. total proved reserves of natural gas were at 183.46 trillion cubic feet (tcf).
Natural gas consumption reached 22.6 trillion cubic feet (tcf) in 2000, a four percent increase over the previous year.
Natural gas supply, consumption, and imports are projected to steadily expand, with consumption projected at 35 tcf in 2025.
Current worldwide natural gas resources are about 13,000 tcf and natural gas reserves are about 5,000 tcf.
Global estimates place the gas volume resident in oceanic natural gas deposits in the range of 30,000 to 49,100,000 tcf, and in continental natural gas hydrate deposits in the range of 5,000 to 12,000,000 tcf.
World production of natural gas is dominated by the United States (24 tcf) and Russia (21 tcf), whose combined gross production accounts for 45 percent of the 102 tcf produced in 1998.
Aside: While some more recent estimates of oceanic clathrate gas deposits put the numbers way lower if we could ever get at the clathrates economically then CO2 emissions could rise so high we really would melt the polar ice caps.
At a 1% conversion efficiency then Luca's process might be able to extract an amount of natural gas from a coal field that equals 47% of current US natural gas reserves. A practical proposition? Imagine drilling down vertically to a coal seam and then drilling horizontally into the coal seam many times at places spaced apart so that all coal would be in reach of water and bactera sent down into the drill holes. Could this be done cost effectively? Or would the distance between drill holes have to be only a few inches due to lack of ability of the bacteria to migrate very far away from the drill holes? Also, if the holes couldn't be kept full of water oxygen exposure might stop the anaerobic process of methane production in the bacteria. So pumping of pure nitrogen gas into the holes might be necessary as a way to keep the oxygen out.
Any readers know enough about coal drilling costs and about water diffusion in coal to take a stab at guessing about the economic viability of such an undertaking? Also, assuming a 1% conversion efficiency due to diffusion problems what volume amount of coal would contain 100 times the energy of 1 trillion cubic feet of natural gas? My guess is one would be better off drilling more thoroughly into a smaller area in order to get a conversion efficiency much higher than 1%. But maybe that would require something akin to converting the coal to powder to even make that work Such an effort to turn coal into powder underground might be too costly. Just guessing though.
Triggering a lot of thoughts about energy is a good article Mark Clayton wrote in The Christian Science Monitor on February 26, 2004 that has been in my "ought to post about this" list for too long. The article is entitled America's new coal rush.
After 25 years on the blacklist of America's energy sources, coal is poised to make a comeback, stoked by the demand for affordable electricity and the rising price of other fuels.
At least 94 coal-fired electric power plants - with the capacity to power 62 million American homes - are now planned across 36 states.
Many different electric power companies have made the decision that coal is going to be cheaper than natural gas as a source of energy to generate electric power. After a long period during which most new electric power plants have been built to burn natural gas in order to reduce emissions this represents a substantial shift in long term views about availability of different fossil fuels. While part of that shift may be due in part to advances in coal-burning technologies that reduce emissions this shift also appears to be part of a larger pattern of a growing belief that both oil and natural gas production do not look like they will be able to rise as rapidly as demand. At some point in the next two decades it is quite probable that their production will actually fall. This spells a coming era of wrenching readjustments and difficult economic times.
Some experts claim that only half these plants may be built. But that is still a large number.
But experts caution that perhaps no more than half of all proposed plants will ever be built. It can take seven to 10 years for a coal power plant to go from planning to construction - and legal action and public protests often halt them.
My guess is that rising prices for other forms of energy will create conditions that will lead to the building of all of these planned coal-fired electricity generation plants and probably many more.
Industry plans for building coal electric power plants come from a US Department of Energy National Energy Technology Laboratory Office of Coal and Environmental Systems February 24, 2004 report entitled Tracking New Coal-Powered Power Plants: Coal's Resurgence In Electric Power Generation (PDF format).
CIBC World Markets economist Jeffrey Rubin says there are already signs that conventional oil production may have peaked.
Strip out unconventional sources of supply, and crude production is hovering around 65 million barrels, where it has been for the past four years. Has the world already seen the peak in conventional crude production?
The 82 millions per barrel total production today includes oil sands extraction and very deep sea extraction.
Dr. David Goodstein, Vice Provost and Professor of Physics and Applied Physics at Caltech, has recently written a book entitled Out of Gas: The End of the Age of Oil where he argues that the peak of oil production is rapidly approaching. A CalTech press release on the book provides a sketch of Goodstein's arguments on the coming decline in the production of oil.
But even the 1970s' experience would be nothing compared to a worldwide peak, Goodstein explains. Indeed, the country then experienced serious gas shortages and price increases, exacerbated in no small part by the Arab oil embargo. But frustration and exasperation aside, there was oil to buy on the global market if one could locate a willing seller. By contrast, the global peak will mean that prices will thereafter rise steadily and the resource will become increasingly hard to obtain.
Goodstein says that best and worst-case scenarios are fairly easy to envision. At worst, after the so-called Hubbert's peak (named after M. King Hubbert, the Texas geophysicist who was nearly laughed out of the industry in the 1950s for even suggesting that a U.S. production peak was possible), all efforts to deal with the problem on an emergency basis will fail. The result will be inflation and depression that will probably result indirectly in a decrease in the global population. Even the lucky survivors will find the climate a bit much to take, because billions of people will undoubtedly rely on coal for warmth, cooking, and basic industry, thereby spewing a far greater quantity of greenhouse gases into the air than that which is currently released.
"The change in the greenhouse effect that results eventually tips Earth's climate into a new state hostile to life. End of story. In this instance, worst case really means worst case."
The best-case scenario, Goodstein believes, is that the first warning that Hubbert's peak has occurred will result in a quick and stone-sober global wake-up call. Given sufficient political will, the transportation system will be transformed to rely at least temporarily on an alternative fuel such as methane. Then, more long-term solutions to the crisis will be put in place--presumably nuclear energy and solar energy for stationary power needs, and hydrogen or advanced batteries for transportation.
The preceding is the case that Goodstein makes in the first section of the book. The next section is devoted to a nontechnical explanation of the facts of energy production. Goodstein, who has taught thermodynamics to a generation of Caltech students, is particularly accomplished in conveying the basic scientific information in an easily understandable way. In fact, he often does so with wit, explaining in a brief footnote on the naming of subatomic particles, for example, that the familiar "-on" ending of particles, such as "electrons," "mesons," and "photons," may also suggest an individual quantum of humanity known as the "person."
The remainder of the book is devoted to suggested technological fixes. None of the replacement technologies are as simple and cheap as our current luxury of going to the corner gas station and filling up the tank for the equivalent of a half-hour's wages, but Goodstein warns that the situation is grave, and that things will change very soon.
"The crisis will occur, and it will be painful," he writes in conclusion. "Civilization as we know it will come to an end sometime in this century unless we can find a way to live without fossil fuels."
Goodstein sees the peak coming in this decade or the next decade. Needless to say, the world is in no way prepared to adjust to a declining supply of oil
Solar energy will be an important component, an important part of the solution. If you want to gather enough solar energy to replace the fossil fuel that we’re burning today—and remember we’re going to need more fossil fuel in the future- using current technology, then you would have to cover something like 220,000 square kilometers with solar cells. That’s far more than all the rooftops in the country. It would be a piece of land about 300 miles on a side, which is big but not unthinkable.
Dr. Goodstein was kind enough to provide me with some of the basic facts that went into those figures. The energy that would be collected by 300 by 300 mile area is for the whole world and he's assuming a current world total fossil fuel burn of 10 TW (ten trillion watts). He's also assuming a 10% conversion efficiency for the photovoltaics.
Note of course that part of that energy could be gotten from rooftoops. Also, some could be gotten from other human structures. It is conceivable, for example, that future materials advances may allow the construction of roads that could operate as huge photovoltaic power collectors. Also, boosts in conversion efficiency could reduce the amount of area needed by a factor of perhaps 4 or 5 or even higher. For example, some researchers at Lawrence Berkely Labs have shown that an indium gallium nitride material can boost conversion efficiency to 50%. Also many uses of power could be made much more energy efficient.
Another recent book by Kenneth S. Deffeyes entiteld Hubbert's Peak : The Impending World Oil Shortage m akes similar arguments that the peak of world oil production is approaching.
Deffeyes used a slightly more sophisticated version of the Hubbert method to make the global calculations. The numbers pointed to 2003 as the year of peak production, but because estimates of global reserves are inexact, Deffeyes settled on a range from 2004 to 2008. Three things could upset Deffeyes's prediction. One would be the discovery of huge new oil deposits. A second would be the development of drilling technology that could squeeze more oil from known reserves. And a third would be a steep rise in oil prices, which would make it profitable to recover even the most stubbornly buried oil.
In a delightfully readable and informative primer on oil exploration and drilling, Deffeyes addresses each point. First, the discovery of new oil reserves is unlikely--petroleum geologists have been nearly everywhere, and no substantial finds have been made since the 1970s. Second, billions have already been poured into drilling technology, and it's not going to get much better. And last, even very high oil prices won't spur enough new production to delay the inevitable peak.
"This much is certain," he writes. "No initiative put in place starting today can have a substantial effect on the peak production year. No Caspian Sea exploration, no drilling in the South China Sea, no SUV replacements, no renewable energy projects can be brought on at a sufficient rate to avoid a bidding war for the remaining oil."
I've previously written here on the coming oil production peak.
On my ParaPundit site I've written extensively about the political ramifications of rising oil demand during a period of rising prices and greater dependence on the Middle East. One possible source of hope is the possibility of extracting natural gas from ocean gas hydrates. Or perhaps we will be saved by a breakthrough in desktop fusion. Conventional nuclear power has both cost and proliferation problems. What we need is a massive research push on the order of $5 to $10 billion dollars per year in many different energy technology areas to develop methods to produce energy from other sources and to use energy more efficiently.
Update: At a February 24 2004 symposium hosted by the Center for Strategic & International Studies energy industry investment banker Matthew W. Simmons presented a skeptical analysis of official Saudi Arabian oil reserve claims. (PDF format and the following links as well) A couple of Saudi Aramco employees argued for Saudi estimates. If Simmons is correct then the biggest oil field in Saudi Arabia may already be mostly depleted and the beginning of the decline of oil production in Saudi Arabia may happen decades sooner than conventional wisdom expects. Also from the event: the introduction and the event transcript.
One of Goodstein's Caltech colleagues, chemistry professor Nathan S. Lewis, has calculated the total energy used in the world today, coming up with a grand total of 13 trillion watts consumed annually. That figure, he expects, will rise to 28 trillion watts in the next 40 years or so as the world's population increases from 6 billion to 10 billion.
For the first time, an international research program involving the Department of the Interior's U.S. Geological Survey has proven that it is technically feasible to produce gas from gas hydrates. Gas hydrates are a naturally occurring "ice-like" combination of natural gas and water that have the potential to be a significant new source of energy from the world's oceans and polar regions.
Today at a symposium in Japan, the successful results of the first modern, fully integrated production testing of gas hydrates are being discussed by an international gathering of research scientists. The international consortium, including the USGS, the Department of Energy, Canada, Japan, India, Germany, and the energy industry conducted test drilling at a site known as Mallik, in the Mackenzie Delta of the Canadian Arctic. This location was chosen because it has one of the highest concentrations of known gas hydrates in the world.
The United States is committed to participating in international research programs such as this one to advance the understanding of natural gas hydrates and the development of these resources. Even though gas hydrates are known to occur in numerous marine and Arctic settings, little was known before the Mallik project about the technology necessary to produce gas hydrates.
The successful results from this research form the world's most detailed scientific information about the occurrence and production characteristics of gas hydrates.
The estimated amount of natural gas in the gas hydrate accumulations of the world greatly exceeds the volume of all known conventional gas resources. While gas hydrates hold great potential as an "environmentally-friendly" fuel for the 21st Century, the technical challenges of realizing them as a resource are substantial. Additional research is required to understand and develop new techniques to quantify their distribution in nature.
Depressurization and thermal heating experiments at the Mallik site were extremely successful. The results demonstrated that gas can be produced from gas hydrates with different concentrations and characteristics, exclusively through pressure stimulation. The data supports the interpretation that the gas hydrates are much more permeable and conducive to flow from pressure stimulation than previously thought. In one test, the gas production rates were substantially enhanced by artificially fracturing the reservoir.
So how big a deal is this as compared to other fossil fuels energy sources? Gas hydrates reserves estimates vary quite a bit. But some of the estimates are pretty high.
The technology may take between 10 and 15 years to develop, but will help us tap gas hydrate reserves, estimated to be "more than double the known reserves of fossil fuel," said C.N.R.Rao, Founder and Honorary President of the Jawaharlal Nehru Centre for Advanced Scientific Research, and A.Kuznetsov, Director, Institute of Inorganic Chemistry, in Russia.
Interest in hydrate E&P has soared in recent years because of growing evidence that more hydrocarbon exists in hydrate deposits than the combined oil, gas and coal reserves worldwide. According to the U.S. Energy Information Agency in its just-released Natural Gas 1998: Issues and Trends, "Recovery of only 1% of hydrates would more than double the domestic gas resource base." A report from Ocean Drilling Program Leg 164, which investigated the huge Blake Ridge offshore the Carolinas, estimated U.S. methane hydrate reserves at 200,000 Tcf.
That really puts gas hydrates in the big leagues because there is an enormous amount of fossil fuel energy stored in coal.
The estimate was refined in 1997 to a more conservative 200,000 trillion cubic feet. Even this lower estimate is significant when compared to the 1,400 trillion cubic feet in the nation's conventional gas reserves. On a world-wide basis, it is estimated that methane hydrate reserves are 400 million trillion cubic feet, compared with 5,000 trillion feet in known gas reserves.
Well, there may not be enough hydrocarbons available to bring on global warming from conventional fossil fuels reserves. But if the technology to extract methane gas hydrates can be made cost-effective then humanity might need to refrain from using as much fossil fuel as it can burn.
In one science fiction novel whose title escapes me (anyone remember the story?) some event (nukes exploded on the ocean floor by accident or by terrorists?) caused all the gas hydrates to come to the surface and this caused an enormous hot house effect that melted all the ice and let lose massive hurricanes (or am I mixing up different science fiction novels? they all blend together after a while). The point here is that it would be a bad thing if all the gas hydrates came to the surface in an incontrolled manner. They constitute a pretty large amount of hydrocarbons.
Update: MIT's Technology Review has an article covering pretty much the same ground as covered in the other links above.
As a source for natural gas, hydrate today is about where coal bed methane was 15 years ago, says Michael Max, a hydrate expert formerly with the Naval Research Laboratory in Washington, D.C. “Coal bed methane was a classic, unconventional gas play,” with more than a few doubters, Max says. “Now it supplies around eight percent of the U.S natural gas supply. We think hydrate has a similar trajectory.”
Natural gas frm hydrates may well become a much higher percentage of the total energy mix if oil field production starts to decline within 10 years as some predict.
Oct. 27, 2003 – A staggering 98 tons of prehistoric, buried plant material – that's 196,000 pounds – is required to produce each gallon of gasoline we burn in our cars, SUVs, trucks and other vehicles, according to a study conducted at the University of Utah.
"Can you imagine loading 40 acres worth of wheat – stalks, roots and all – into the tank of your car or SUV every 20 miles?" asks ecologist Jeff Dukes, whose study will be published in the November issue of the journal Climatic Change.
But that's how much ancient plant matter had to be buried millions of years ago and converted by pressure, heat and time into oil to produce one gallon of gas, Dukes concluded.
Dukes also calculated that the amount of fossil fuel burned in a single year – 1997 was used in the study – totals 97 million billion pounds of carbon, which is equivalent to more than 400 times "all the plant matter that grows in the world in a year," including vast amounts of microscopic plant life in the oceans.
Keep in mind that the ratio between the amount of grown plant carbon matter to actual amount of carbon that gets deposited and eventually turned into fossil fuels is an extremely high number as stated below. Therefore if grown plant matter is used directly as an energy source the pounds of plant matter to make energy equivalent to a gallon of gasoline would be orders of magnitude less than the amount that had to be grown and deposited to eventually become oil.
"Every day, people are using the fossil fuel equivalent of all the plant matter that grows on land and in the oceans over the course of a whole year," he adds.
In another calculation, Dukes determined that "the amount of plants that went into the fossil fuels we burned since the Industrial Revolution began [in 1751] is equal to all the plants grown on Earth over 13,300 years."
Explaining why he conducted the study, Dukes wrote: "Fossil fuel consumption is widely recognized as unsustainable. However, there has been no attempt to calculate the amount of energy that was required to generate fossil fuels, (one way to quantify the 'unsustainability' of societal energy use)."
The study is titled "Burning Buried Sunshine: Human Consumption of Ancient Solar Energy." In it, Dukes conducted numerous calculations to determine how much plant matter buried millions of years ago was required to produce the oil, natural gas and coal consumed by modern society, which obtains 83 percent of its energy needs from fossil fuels.
Very little of ancient plant material ever ended up getting incorporated into oil, gas, and coal deposits.
To determine how much ancient plant matter it took to eventually produce modern fossil fuels, Dukes calculated how much of the carbon in the original vegetation was lost during each stage of the multiple-step processes that create oil, gas and coal.
He looked at the proportion of fossil fuel reserves derived from different ancient environments: coal that formed when ancient plants rotted in peat swamps; oil from tiny floating plants called phytoplankton that were deposited on ancient seafloors, river deltas and lakebeds; and natural gas from those and other prehistoric environments. Then he examined the efficiency at which prehistoric plants were converted by heat, pressure and time into peat or other carbon-rich sediments.
Next, Dukes analyzed the efficiency with which carbon-rich sediments were converted to coal, oil and natural gas. Then he studied the efficiency of extracting such deposits. During each of the above steps, he based his calculations on previously published studies.
The calculations showed that roughly one-eleventh of the carbon in the plants deposited in peat bogs ends up as coal, and that only one-10,750th of the carbon in plants deposited on ancient seafloors, deltas and lakebeds ends up as oil and natural gas.
Dukes then used these "recovery factors" to estimate how much ancient plant matter was needed to produce a given amount of fossil fuel. Dukes considers his calculations good estimates based on available data, but says that because fossil fuels were formed under a wide range of environmental conditions, each estimate is subject to a wide range of uncertainty.
If these calculations by Dukes are accurate then biomass from conventional plants can at best provide for a very small portion of our energy usage.
Unlike the inefficiency of converting ancient plants to oil, natural gas and coal, modern plant "biomass" can provide energy more efficiently, either by burning it or converting into fuels like ethanol. So Dukes analyzed how much modern plant matter it would take to replace society's current consumption of fossil fuels.
He began with a United Nations estimate that the total energy content of all coal, oil and natural gas used worldwide in 1997 equaled 315,271 million billion joules (a unit of energy). He divided that by the typical value of heat produced when wood is burned: 20,000 joules per gram of dry wood. The result is that fossil fuel consumption in 1997 equaled the energy in 15.8 trillion kilograms of wood. Dukes multiplied that by 45 percent – the proportion of carbon in plant material – to calculate that fossil fuel consumption in 1997 equaled the energy in 7.1 trillion kilograms of carbon in plant matter.
Studies have estimated that all land plants today contain 56.4 trillion kilograms of carbon, but only 56 percent of that is above ground and could be harvested. So excluding roots, land plants thus contain 56 percent times 56.4, or 31.6 trillion kilograms of carbon.
Dukes then divided the 1997 fossil fuel use equivalent of 7.1 trillion kilograms of carbon in plant matter by 31.6 trillion kilograms now available in plants. He found we would need to harvest 22 percent of all land plants just to equal the fossil fuel energy used in 1997 – about a 50 percent increase over the amount of plants now removed or paved over each year.
"Relying totally on biomass for our power – using crop residues and quick-growing forests as fuel sources – would force us to dedicate a huge part of the landscape to growing these fuels," Dukes says. "It would have major environmental consequences. We would have to choose between our rain forests and our vehicles and appliances. Biomass burning can be part of the solution if we use agricultural wastes, but other technologies have to be a major part of the solution as well – things like wind and solar power."
World energy usage is rising as the total world economy grows. So the amount of biomass needed to serve as a replacement would have to grow to an even higher level.
Does anyone know how many joules of energy fall on the surface of planet Earth per day from sunlight?
Update: I've gotten suggestions in the past from some folks that I ought to report more on a company called Changing World Tech which designs and builds plants for processing biomass waste into liquid hydrocarbon fuels. I haven't spent more time on it because my intuitive guess is that there just is not that much concentrated biomass waste out there to make that big a difference in our total energy usage. Yes, it is a good thing if some of the waste that is out there can be processed into useful fuel. But biomass waste is probably going to be a bit player no matter how low capital costs get for building a biomass waste processing plant. If someone has some good data to argue to the contrary I'd love to hear it.
So what realistic options are there for fossil fuel alternatives? Nuclear is one. But the biggest problem I see with it is the nuclear proliferation problems it poses. See my Weapons Proliferation Control archive on my ParaPundit blog for posts on the very large problem we face with nuclear proliferation. If a nuclear fuel cycle that was proliferation-proof could be devised I'd be more supportive of nuclear. If anyone knows much about the pros and cons of thorium nuclear power I'd like to hear more about it.
The most attractive option is photovoltaics made from carbon nanotubes or some other materials that could eventually be made much more cheaply than existing photovoltaics that are made from expensive purified silicon. I support the creation of a wide ranging Manhattan Project scale energy research effort to spend tens of billions on basic and applied science in an assortment of areas relating to energy generation, storage, transportation, and usage.