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Rick M
06-21-2009, 06:13 PM
Greetings from Canada, where I am an energy researcher for a national farm organization.

My interest is primarily in the following aspects of energy security:
- peak oil (false alarm or legitimate threat?)
- recent warnings re impending decline in oil exports
- government emergency planning for fuel emergencies

Although some of the most progressive research is coming from military/security analysts, I fear that certain aspects of energy security (and most especially the matter of fuel emergencies) are being largely overlooked by civilian and military authorities alike.

An Energy Security thread was started at Armed Forces Journal last October because I wanted to put the relevant research before a primarily military/security audience (primarily to ensure that they are aware of it, but I also hope to receive input from this audience).

To make it easier for SWC members, I will start re-posting some of the AFJ info here, but in the meantime I would invite you to examine the info at AFJ:
http://www.afji.com/forums/
Please click on General, then on Energy Security (usually the first item)

My hope is that this topic will be of interest to SWC participants.
Thanks very much for considering this.

Rick M in Ontario

Ken White
06-21-2009, 07:22 PM
Timely stuff indeed.

Rick M
06-22-2009, 03:16 AM
During the next few days I will post information & links regarding various aspects of energy security.
I will begin with four articles by military analysts who view peak oil as a legitimate concern.
"Peak oil" refers to the point when global oil production reaches its maximum. With current global consumption having reached a thousand barrels a second at reasonably affordable rates, any constraint to the availability of cheap oil is expected to present some significant difficulties.

The following four studies may be of particular relevance to this audience:

1. excellent Armed Forces Journal article by Commander Jeffrey Eggers:
http://www.afji.com/2008/05/3434573

2. another article in the same edition (AFJ, May 08) by Maj. Daniel Davis:
http://www.afji.com/2008/05/3466428/

3. Maj. Davis did a more comprehensive study (37 pgs) in 2007:
http://www.aspo-usa.com/assets/documents/Danny_Davis_On_the_Precipice.pdf

4. Maj. Cameron Leckie did a concise analysis in Australian Army Journal (Summer 2007, p. 21):
http://www.defence.gov.au/Army/lwsc/docs/LWSC021_book_PRESS.pdf

There are other studies which could be included but these four are concise, focused, and properly sourced.
Please speak up if anyone sees something which they feel is less than credible.

Dayuhan
07-01-2009, 01:57 AM
The “peak oil” point will inevitably be reached, and the concern is legitimate. The extensive discussion of “peak oil”, however, may distract from equally legitimate and far more immediate concerns.

We all know that the easy oil has already been exploited, and that future capacity increases will require very large investments, high production costs, and extended time lags between investment and production. In theory, high oil prices should provide both the means and the incentive to support these investments. In practice, investment is far lower than it needs to be to support probable increases in demand.

National oil companies in many oil producing countries are managed according to political, not economic, rationales. In many cases political and social projects receive priority when oil revenue is allocated, and investment in oil production is often insufficient even to sustain current production levels, let alone to bring new capacity into play. In theory private investment should be able to make up the gap, but very large investment requirements, extended recovery horizons, very high levels of political and conflict risk and generally inhospitable investment climates in areas with high potential are major obstacles to private investment.

High oil prices should drive a wave of investment, but non-economic investment constraints have distorted the process and reduced investment to a level that may not be sustainable. A very high proportion of current investment in new capacity is in the GCC, which only increases the current global dependence on a single group of producers located in an area subject to very real security threats.

This investment gap actually delays the onset of the “peak oil” point, as it leaves more oil in the ground. It also creates problems of its own. I’d hazard a guess that the next great energy crisis will not be driven by an apocalyptic “peak oil” scenario where the oil simply runs out, but by a combination of increasing demand, reduced output due to insufficient investment, and political and/or conflict-related disruptions in one or more major producers. This is not as dramatic a scenario as “peak oil”, but the potential security impact could be severe and the probability of such a scenario appearing in the short to medium term is quite high.

davidbfpo
07-01-2009, 09:35 AM
Energy security issues get irregular attention in the UK and most are blissfully unaware that North Sea oil is running out. Natural gas is now being imported, hence the need for storage facilities and the IPPR report recommends more investment. Use of coal on the previous scale (i.e. 1980's) for power generation is unlikely and UK coal is reportedly too "dirty" for current environmental standards.

Meantime let us place our heads and wallets carefully back in the sand.

davidbfpo

Rick M
07-03-2009, 12:12 AM
Dayuhan,
I agree completely on your concerns re investment, which confirm the following point: price volatility may be worse than sustained high prices.

If high prices were sustained (prices would need to be sustained for at least a decade in order to achieve the following benefit) then more of the difficult oil would be brought on-stream, thus buying us some much-needed time to develop non-carbon alternatives.
However, a see-saw effect where the price dips regularly subvert such efforts will make investors reluctant to risk their money on something which cannot endure many consecutive months of losses.

But your final point about “an apocalyptic peak oil scenario where the oil simply runs out” makes me wonder if you share a common misconception about peak oil, which is to equate peaking with running out.

This is a very important distinction.
Some peak oil analysts argue that the peak (ie. point of maximum production/flow-rate) should coincide more or less with the half-way point. That is, production will peak when we have extracted about half of the ultimately recoverable reserves.
Personally, I see no causal link between the two, nor did Brent Fisher in his excellent study for the Institute for Defense Analyses (IDA).

Here is a review of his IDA study (2008):
http://www.energybulletin.net/node/49272

But the main point here is that peaking is not about running out, any more than the start of commercial extraction in 1858 (here in Canada, not in Titusville the following year) was about running out.

My bet is that we will have more than half the potentially extractable oil in the ground when we peak., so physical supply may not turn out to be the primary problem after all.
But the central thesis of the peak oil analysts is this: the troubles will start as we approach the apparent peak. It probably will matter little what combination of factors ‘causes’ the peak, and we could have serious difficulties simply from the perception of a peak, even if the perceived peak should later prove to have been a false alarm.

But I agree with everything else that you have said, including the scenario that you describe in your final paragraph.


David in the UK,
I am in regular contact with several UK analysts, both military and civilian.
Your nation seems to be awakening to the unhappy brevity of fossil fuel supply: from having little domestic production other than coal, to the sudden discovery of the wondrous North Sea oilfields, to Mrs. Thatcher’s gung-ho approach to extraction, to the sudden realization that your one-time bonanza had peaked within a generation, and finally to the stark realization that the UK will forever be an importer of oil & gas…. all of this within half a lifetime.

To the UK’s credit, at least they are taking a serious look at how one might manage fuel emergencies, which is more than we can say in North America, where fuel emergencies are barely on the radar.
Brits learned in Sept. 2000 just how problematic a liquid fuels supply problem can be, but here in Canada we have had no such experiences.
We are very complacent….

Rick M
07-04-2009, 12:49 AM
This morning I worked my way through three recent UK documents:

1. DECC's Business Continuity Management for Fuel Shortages (Nov. 08)

This brief document (10 pgs) contained the observation that local fuel supplies "could be exhausted within 48 hours of an incident and it could take up to 10 days before stock levels are fully restored" (p.2).

DECC's Maximum Purchasing Scheme would limit purchase for non-essential users to maximum 15 litres (roughly 3 gallons).
This strikes me as a bad idea for two reasons:
1. History: In USA during the 1979 crisis they limited purchases to $5 max, a similar volume. As Yergin states, "The results were exactly the opposite of what was intended, for it meant that motorists had to come back to gas stations that much more frequently" (The Prize, p. 692).
2. Common sense: People will want to top up their tanks as soon as they have gone 75 miles or so.
Topping-up creates line-ups which waste time & additional fuel and increases tensions at the pumps.

Better to have a fixed limit, say 30 litres, no more and no less.
That will reduce topping up.
Emergency pricing will do the rest of the job....

Here is the link:
http://www.cabinetoffice.gov.uk/medi...el_nov2008.pdf

2. NHS Guidance on Planning for Disruption to Road Fuel Supply (Oct. 08)

At 30 pages, this is the most comprehensive of the three documents.
It contained a few interesting observations:
- In the aftermath of Hurricane Katrina, health facilities had power and their lights acted as a beacon (literally) for displaced citizens, and this created some security issues for those facilities.

- This doc has several warnings not to underestimate the complexities of a fuel shortage, which is prudent.

- The "Myth of a Central Fuel List" (p. 14) is interesting... it indicates how seriously businesses view their fuel supply and gives a hint of the efforts that people will go to in order to gain preferential access/Essential User status.

- The recommendation to "attempt to have all workers try public transport options" (p. 14) of course makes sense, but as Kathy Leotta points out, "Transit systems have only limited capabilities for quickly increasing services... due to a small supply of extra vehicles and drivers" (p. 4).
Switching to public transit will be easier said than done.

- Other than its request that "all unforecasted costs... are captured for audit" (p. 17) there is little acknowledgment of the budgetary concerns which could quickly arise. It seems highly unlikely that any free-market economy could have an extended fuel supply problem without also having an extended price spike.
Here is the link:
http://www.dh.gov.uk/en/Publications...ance/DH_089955

3. Heart of Birmingham NHS Fuel Shortage Plan (reviewed June 27/09)

I found this 21-page plan to be the most intriguing of the three since it addresses some of the significant details of managing the Temporary Logo Scheme (p. 4-5), issues around communicating info to the public (p. 6), concerns about supply chain failures, etc.

Returning to the topic of budgetary problems arising during a fuel emergency, it is puzzling to see no warnings in any of these three documents that pricing during a fuel emergency could prove problematic to their budgets and/or to the service delivery capability of their agencies.
In the Birmingham document, the topic of Financial Implications (Sect. 12.0) is raised, but this section contains a single unfathomable sentence: "There are no significant financial implications anticipated in the implementation of this plan" (p. 13).

Similarly, Sect. 10.0 on Training states: "There are no specific training requirements associated with this plan" (p. 13).

Both NHS documents contain some specific and sensible recommendations for personnel, for delivery of services, accountability re fuel use, etc.
One would think that this would surely require some rather detailed consultation with staff (and subsequent training) in order to implement these recommendations.
Here is the link:
http://www.bpcssa.nhs.uk/policies/_h...cies%5C881.pdf

4. Some final comments

To their credit, the UK planners have recognized two central facts:
1. a fuel emergency can be a whopper of a problem, and
2. fuel supply and other emergencies must be addressed at the local level first, hence the need for local plans, pre-authorization & empowerment, etc.
Here in North America, there seems to be little awareness of either fact, and therefore precious little action, especially at the local level.

I fear that even the UK planners may be overlooking the issue of price spikes, the resulting budgetary constraints & economic difficulties, and the potential threat to civil order.

Surferbeetle
07-04-2009, 11:09 PM
From the Washington Times by Paul Saunders (http://www.nixoncenter.org/index.cfm?action=showpage&page=saunders): Oil losses pull Russia's claws (http://www.washingtontimes.com/news/2009/mar/10/oil-losses-pull-russias-claws/)


In Russia's case, the crisis has clearly profoundly damaged both the overall economy and the energy sector. Russia's stock market is down around 75 percent, its officials project a 2.2 percent contraction of gross domestic product in 2009, and the Central Bank has already spent more than $200 billion, one-third of Moscow's reserves, trying (largely without success) to defend the value of the ruble, now down by one-third against the dollar. At the same time, Russian officials admit to $130 billion in capital flight in 2008, with the true figure possibly significantly higher.

The state gas monopoly Gazprom also faces growing pressure as prices tumble in the European market, which provides an estimated two-thirds of the company's profits.

Rick M
07-05-2009, 02:35 AM
Thanks for your posting, Surfer.
Paul Saunders' point is well taken: the combination of a struggling Russian economy and low gas prices means less ability for them to invest at their end to ensure European winter heating.

My focus is more at the other end... how can people plan for and best administer a fuel shortage.
The following may be of interest as the same principle (of solidarity in burden-sharing) is a cornerstone of international response to an oil supply shortage.

European solidarity was briefly tested during the January 09 cut-off of Russian gas, but the result was hardly encouraging.
A few weeks later, the former executive director of the IEA, Claude Mandil said that a central lesson learned from the crisis is, “Solidarity is still just words.” He went on to cite the example of Italy, saying, “Italy doesn’t care for a second for the global supply of Europe, which is the exact opposite of European solidarity.”
The full transcript is here:
http://www.euractiv.com/en/energy/mandil-energy-solidarity-just-words/article-179254

Should this winter prove to be a cold one, Europe will be worried.

Meanwhile, we North Americans need to thoroughly examine this issue. Should anything interfere with our supply of affordable fuel (whether liquid fuels or gas) during the Canadian/North Dakota winter, we would have a most formidable problem on our hands... one which (like Ice Storm '98, which knocked out our electricity in January) must be dealt with at the local level.
The problem is that when it comes to fuel, we have no local plans.

The Brits and Australians are onto this in a serious way, and they barely have a winter.
We North Americans don't believe it will happen over here.
Thanks for your interest.

Surferbeetle
07-05-2009, 04:08 AM
My focus is more at the other end... how can people plan for and best administer a fuel shortage.
The following may be of interest as the same principle (of solidarity in burden-sharing) is a cornerstone of international response to an oil supply shortage.

Rick,

Thanks for the links and conversation. My interest in energy security was certainly energized by a tour in Iraq (sorry, couldn't resist :D).

At a marco level mapping is a powerful tool to use in gaining a better of understanding the of condition, needs, and capabilities of centralized energy infrastructure. My dirty boots experience in Iraq (03-04) was counterintuitive when compared to the typical emergency response that we would mount in the west.

Decentralization was the name of the game for energy requirements in Iraq. There are of course added costs and inefficiencies for an economy as a result of decentralization, however as an Iraqi if you wanted to have water, electricity, and fuel you could not count upon the Government to deliver it.

Blackmarket activities were prevalent, gas stations were dangerous places, and 'normal' economic activities were thoroughly disrupted. If one had money one would purchase a cheap generator (often Chinese brands - Caterpillar was big money and usually only seen in government applications) and sell electricity to nearby neighbors. Some of the families I visited would head out to the nearest watermain, dig a hole in the street, shoot a hole in the pipe (cross-contamination was prevalent due to open channel conditions), run a rubber hose back to a small pump attached to a large aluminum box in the courtyard and wait for the watermain to be filled (every 7 days or so where I was at). Others would contract with a water truck entrepreneur for deliveries. Cooking was done by propane canisters delivered by huge trucks at centralized locations.

Early in my tour (generators were not yet prevalent) I visited with some farmers near the Euphrates. They had dug rectangular pits/wells down to the water table and had mudbrick wellhouses nearby for irrigation. The centralized electricity was out and we brainstormed solutions...I shared a trick I have seen which involves pulling a tire off a car rim, while the car is on blocks, and running a band between rim and pump to power the pump (run the car while its on the blocks)...

Farm applications...hmmm. Popular Mechanics has had a few articles on 'closed loop' farm systems. It's not pretty but it's definitely the type of 'get ur done' that might get one through tough times.Cows to Kilowatts: U.S. Farms Save Big Turning Manure to Energy (http://www.popularmechanics.com/science/earth/4285577.html)


Holstein No. 2699 gazes warily over Shawn Saylor’s shoulder. The 39 other cows lining the stainless-steel stalls of the milking parlor at Hillcrest Saylor Dairy Farm appear unperturbed—by two strangers or by the vacuum pumps being swiftly attached to their udders. “They’re very particular,” notes Saylor, a fourth-generation dairy farmer. “Everything has got to be consistent.” No. 2699 gives one last measured look from under long lashes, lifts her tail and ejects a stream of runny, brown energy that, very soon, will help power the farm.

Most people don’t think of manure from 600 cows—18,000 gal, produced daily—as an asset; Saylor’s neighbors in Rockwood, Pa., certainly didn’t. Until two years ago, the waste was pumped to a holding pond on the property and spread on the fields every spring and fall. “You’d see a 2-ft crust floating down there that you could pretty much walk across,” Saylor says matter-of-factly. “The odor was unbelievable.”

A lot of people might not see a 50-gal drum of used cooking oil, flecked with bits of fried chicken, as a resource either. That’s why I asked my uncle, Dave Hubbard, to drive me here from West Virginia in his biodiesel Jetta TDI. Uncle Dave converts the waste oil from local taverns into fuel to run his car, a motorcycle and tractors for five farms, so I figured he and Saylor could trade tips.

Saylor, 35, is both practical and inventive—much like Uncle Dave. Above the Leatherman clipped to his belt, the sleeves of a well-worn blue work shirt are rolled up to the elbows; his face dimples from smiling even as he talks shop in the milking parlor. “There’s a recycle–flush system here,” Saylor says, activating a pump. Water recovered from other uses cascades across the floor, sweeping manure in murky streams down the length of the barn and into a tank at the mouth of an anaerobic digester.

Rick M
07-05-2009, 01:16 PM
Thanks again, Surfer... interesting stuff.

The rear-axle & drive-belt idea was of course standard on the old steam tractors 100 years ago and had all sorts of applications (except the tractors came with an elevated side wheel for that purpose).

I had not seen the PM article but some progressive work in on-farm methane is being done here in eastern Ontario:
http://www.agrinewsinteractive.com/archives/article-7716.htm

It's interesting that the pioneers over here in alt-energy and organic ag are so often of Swiss/German background... meticulous in their "attention to detail."

We need more of this, much more, but most Canadian farmers are low-income and lack the investment to undertake such projects.

Meanwhile, farmers are only 2% of the population (same in USA, I believe) and on-farm energy use is only about 10% of energy use in the agri-food sector overall. Most agri-food energy use is for transportation, processing, packaging, refrigeration, etc.

Part of the reason for the UK focus on the "localization" of emergency response is because the panic buying of fuel and food typically occurs by local people stocking up at their local pumps and supermarkets. Supplies which could & should last many days can be depleted in 48 hours, thus greatly exacerbating an already difficult situation. The prevention of hoarding and the administration of more prudent measures can best (only??) occur at the local level.

(But I will state this again: North America has not yet moved in this direction. Actually, here's a challenge for SWC participants: please phone your local and state Emergency Management Office and ask if they have a plan for fuel shortages/oil supply emergencies. They will have plans for pandemics, nuclear attacks & hazardous spills, etc, but no regime to allocate fuel to the public during a fuel crisis. They will probably also indicate their surprise at your enquiry.
Please let this forum know if anyone finds info to the contrary.)

Defence Academy is a research arm of the UK military, and one of their researchers has done an excellent job of examining the UK food supply chain, including the vulnerabilities created by energy shortages.
Here is the link to Helen Peck's excellent study:
Wrong link and refer Post 13 for actual link.

Her study is very thorough (about 170 pages) but the most relevant info to our discussion here may be found in Section 1 (the first 20 pages)... well worth reading.

slapout9
07-05-2009, 04:16 PM
The centralized electricity was out and we brainstormed solutions...I shared a trick I have seen which involves pulling a tire off a car rim, while the car is on blocks, and running a band between rim and pump to power the pump (run the car while its on the blocks)...



In Alabama that is centralized electricity:D what's the big deal?

Rick M
07-05-2009, 05:30 PM
Sorry, folks

Surferbeetle alerted me to the fact that the link which I provided in posting #11 no longer leads to Helen Peck's study.
I'm not sure why, and that is unfortunate because it provided a concise intro which people could examine before linking to the study itself.

Here is a direct link to Helen Peck's "Resilience in the Food Chain" (July 06):
http://www.cranfield.ac.uk/cds/departments/dassr/pdfs/defra%20final%20report.pdf

Sorry for the confusion

rm

Dayuhan
07-06-2009, 12:32 AM
Rick,



If high prices were sustained (prices would need to be sustained for at least a decade in order to achieve the following benefit) then more of the difficult oil would be brought on-stream, thus buying us some much-needed time to develop non-carbon alternatives.


I agree with this, except that if political risk issues are not addressed, even sustained high prices may not generate the necessary investment. Unfortunately there is very little anyone can do to mitigate political risks in Venezuela, Nigeria, Iraq, Iran, Russia, etc. No matter how high prices go, private capital will be reluctant to invest if they see a high probability of expropriation, harassment, major security threats, or government collapse. "Difficult oil" could refer to areas where extraction is expensive and technologically challenging or to areas where the investment climate is too risky to attract the money necessary to exploit reserves. The second problem may be more severe than the first.



But your final point about “an apocalyptic peak oil scenario where the oil simply runs out” makes me wonder if you share a common misconception about peak oil, which is to equate peaking with running out.


I'm aware of the distinction... however, much of the public discourse around the "peak oil" construct does really does take this apocalyptic vein, suggesting a rapid post-peak production decline that essentially equates to "oil running out". One popular and superficially analytical website (theoildrum.com) insists that June 2008 was "the peak" and projects an extremely abrupt and continuous decline in production thereafter. That's ridiculous of course, but people believe it, and as you suggest, perception is a large part of the problem.



Some peak oil analysts argue that the peak (ie. point of maximum production/flow-rate) should coincide more or less with the half-way point. That is, production will peak when we have extracted about half of the ultimately recoverable reserves.
Personally, I see no causal link between the two, nor did Brent Fisher in his excellent study for the Institute for Defense Analyses (IDA).


I'm with you and Fisher here, I also see no causal link.



But the central thesis of the peak oil analysts is this: the troubles will start as we approach the apparent peak. It probably will matter little what combination of factors ‘causes’ the peak, and we could have serious difficulties simply from the perception of a peak, even if the perceived peak should later prove to have been a false alarm.


This sums up my complaint with the "peak oil" construct: we have absolutely no way of knowing whether any given peak is "the peak" or simply "a peak", which renders the discussion extremely abstract. We also have no way of knowing, at any given point, whether we are approaching an apparent peak. I'd rather look at the problem as a function of production declines (you can't have a peak without a decline), whether transient or permanent, and the problems, both practical and perception-based, associated with declines.

Just as an example, the June 2008 peak is not generating any particular trouble because it is understood by all but the hysterics to be price-related, not supply-related, and because it came at a time of moderating prices and demand. A production decline at a time of escalating demand and prices would presumably have very different consequences.

Re rationing... I suspect that there's a plan or two, probably quite detailed, buried deep in the bowels of DC. Of course no politician wants to discuss such a scenario openly: the political risk is large and there is no political gain in raising the subject.

Rick M
07-06-2009, 02:06 AM
Hi again, Dayuhan
Thanks very much for your detailed response.

I should pause at this point and thank you and the others for your interest in this topic…. This sort of discussion is exactly what I had hoped for, and everything that has been said so far (including the occasional bit of disagreement) has been constructive, sensible and respectful.

On to your various points:
1. I agree with your point that high prices still may not lead to investment in volatile regions. Given the volumes of accessible oil in the Middle East, your point makes this issue all the more timely… should Saudi Arabia (for example) become destabilized (or simply suffer a successful attack on Abqaiq and/or Ras Tanura), the global oil export system and the investment climate could be seriously and rapidly affected.

2. As for apocalyptic views of peak oil, I have tried to steer clear of the doomer/survivalist perspective and have repeatedly asked the mainstream media to do the same (since they seem to have difficulty simply explaining the data and the concerns without raising the apocalyptic aspect, which is not helpful).

I have dealt primarily with Energy Bulletin rather than The Oil Drum, but more for reasons of format.
I’m not sure what you are referring to at TOD specifically…
I am usually very pleased with the level of scholarship (ie. sourcing material and providing balanced conclusions) that I’ve seen so far.
As for June 08 being the peak, we’ll have to see.
Matt Simmons, whose work I greatly respect, still argues that production of crude oil (excluding NGL and refinery gains) peaked in 2005 at just over 74 mbpd.

3. On your point about the rear-view mirror (how will we know if it’s the real peak or another false alarm?), I think that Bob Hirsch has it right: he suggests that we view the peak more as a plateau and allow for up & down wiggles.
He suggests a range of 4% up and down, and that people not get worked up one way or the other by variations which occur within that range.
I think that’s good advice.
The flip side of that is that we have been within that 4% range for several years now, so Simmons may eventually be proven correct.

4. As for your final point about the US having a plan for fuel rationing buried away somewhere, you may be right, but if so, then that is probably bad news.
As the recent UK and Australian research stresses, government authorities at any level can only do what they are authorized to do.
If they are prudent, they will not only do their legislative pre-planning well in advance of an actual emergency, but they will also communicate this to the public.
In the case of the UK, the details of their Fuel Emergency plan are secret (presumably because it identifies Essential Users, which is bound to contested by those who feel that they should have been added to the list).

But the fact that their national legislation has been completely reworked and that authority to act has now been assigned to local government authorities has been highly promoted, presumably because they want the UK public to be well aware of these changes and to reduce the likelihood of legal challenges to this change in legislative authority.

If US authorities think that they can suddenly restrict citizens’ access to fuel without being challenged in the courts (and thus risk disempowering authorities just when they need to take effective action to prevent panic buying and hoarding), then they should think again.

That is exactly the scenario that planners in the UK and Australia have worked so hard to prevent, and it does require legislative changes and ongoing communication with the public and with lower-level authorities, little of which seems to be occurring in North America.

Thanks again for your insights on this topic... they are well-founded.

Dayuhan
07-07-2009, 02:34 AM
Hello again...



I should pause at this point and thank you and the others for your interest in this topic…. This sort of discussion is exactly what I had hoped for, and everything that has been said so far (including the occasional bit of disagreement) has been constructive, sensible and respectful.

The topic is interesting, though as with many interesting topics constructive, sensible, and respectful discussion is hardly the rule on the internet! Hope it stays this way...



2. As for apocalyptic views of peak oil, I have tried to steer clear of the doomer/survivalist perspective and have repeatedly asked the mainstream media to do the same

I wish you the best of luck in that quest, but it will be an uphill battle. Reasoned analysis fits poorly in a 30 second sound bite, and the apocalyptic scenario draws more attention than serious discussion.



I have dealt primarily with Energy Bulletin rather than The Oil Drum, but more for reasons of format.
I’m not sure what you are referring to at TOD specifically…
I am usually very pleased with the level of scholarship (ie. sourcing material and providing balanced conclusions) that I’ve seen so far.


I get the feeling that the material that is sourced and the processes that are applied to the data are selected with the goal of supporting a preconceived view. An example might be these charts:

http://www.theoildrum.com/tag/update

Where the data selected to provide the mean and median projections seem selected to suppport the declining curve. All very well to say that "95% of the predictions sees [sic] a production peak between 2008 and 2010", but it is worth pointing out 95% of the predictions they chose to analyze see that peak occurring. Subjecting carefully selected and less than comprehensive data to rigorous analytical processes has become a very common thing, but conclusions reached through this process remain questionable.

One thing that seems consistently missing from discussions of production is the medium to long term impact of the 90s oil glut. The glut actually went well beyond the 90s: oil was below $20 by 1986. There was a brief spike around the first phase of the Iraq war, but the rapid drop after that only served to convince many producers that price rises were likely to be transient phenomena. As late as 2002 prices were still bumping along at the $20 level. By 2004 we were into a serious escalation, but it wasn't immediately recognized. The early stages of the price spurt were marked by peaks and troughs, and the rise was not fully acknowledged to be driven by a fiundamental alteration of the supply/demand equation until 2005/2006.

What that means, to make a long story short, is that for close to 20 years prices were either too low or price increases were perceived as too transient to support comprehensive investment in exploration and production.

The production increase from 2006 on seems to me to be largely driven by short-term measures aimed at improving and maximizing existing capacity, rather than serious attempts to bring new capacity onstream.

The production decline after mid 2008 seems clearly price related to me. OPEC reduced production quotas, but there's more to it than that: major producers in the middle east had been running flat out for over a year, and when prices tanked there was an obvious incentive to pull facilities off line for badly needed maintenance work.

Will add more to this later...

slapout9
07-07-2009, 03:31 AM
An opposite view about Peak Oil.....there is no such thing:eek: Stuff didn't come from dead Dinosaurs at all. Link to article by F. William Engdahl
http://www.globalresearch.ca/index.php?context=va&aid=6880

Dayuhan
07-07-2009, 07:14 AM
Engdahl's theory looks to me to be as full of holes as a Dick Cheney hunting buddy (ok, a low blow, but hard to resist), but I haven't time to point them out...

Life's catching up, but to abbreviate an extensive argument:

As suggested above, I suspect that the peak we've reached over the last 5 years is less driven by absolute scarcity than by the limits of a production infrastructure constrained by two decades of underexploration and underinvestment.

Quite a few "analysts" point out that the price increases after 2004-2005 were not paralleled by production increases. The reason is simply that existing infrastructure had reached maximum output, and the time lag between the decision to invest and actual production is too extensive to allow higher prices to call up more oil overnight.

The GCC currently has about $300 billion worth of oil projects underway, aimed at raising production capacity by approximately 5mbpd. The Saudis have discussed adding another 2.5 above that, eventually raising their total capacity to 15mbpd. Some of these projects dropped to the questionable level as prices plunged, but with the fast recovery to today's levels I expect most of them to go ahead.

Note that this added capacity may not be used at any given time. The GCC has no incentive to produce more than demand requires, but they do see a real advantage in holding the bulk of the world's surplus capacity, and having the ability to use that capacity as they see fit.

Other areas are also raising capacity. Projects currently underway are expected to add 1.1mbpd in Angola. Caspian production could increase by up to 2mbpd if transport hurdles can be overcome. Libya plans to add 1.5mbpd.

Obviously none of this is guaranteed, but we are speaking here of up to 10mbpd potentially coming on line in the next decade. This is primarily a response to the recent price spike and the expectation of continued high prices, a response delayed by the reality that bringing new production onstream takes time.

There are other areas that have seen production declines, stagnant production, increases below capacity or underproduction due to political and security conditions: Venezuela, Nigeria, Russia, Sudan, Iraq, Iran, Equatorial Guinea. Some of these may stagnate or deteriorate further, but it is also possible that some will see significant production increases.

Of course there are areas where production is constrained by absolute depletion, particularly in the US, the North Sea, and Mexico (though Mexico could probably do more with additional investment and a lot less politics, and the US has sources it is not exploiting for environmental and political reasons).

The pattern of extended glut followed by abrupt shortage has ramifications on the demand side as well. One of the most striking comparisons of energy use in the developed west vs the emerging economies is in energy consumption per unit of gdp. Compare the US to China in this category, and the Chinese energy inefficiency is staggering. This is partly a function of early stage industrialization, but it's also because the physical and planning infrastructure underlying the Chinese boom was put in place during the oil glut, and built on the premise of cheap oil. The Chinese have seen exactly how vulnerable they are to price spikes, and I expect a very real effort to diversify and to improve efficiency. Demand will increase, but the pace of increase will slow.

In short: yes, there is a plateau, and yes, there are serious risks of shortage. Both plateau and risks, though, are primarily driven by political, security, and investment concerns, not by impending scarcity or the arrival of an abstract peak.

I shall return, like MacArthur... hopefully sooner, and with less company.

Rick M
07-08-2009, 12:58 AM
Hi, Dayuhan
You have obviously thought a great deal about these issues and your observations are excellent.

Your choice of the Oil Drum entries by Sam Foucher is a good one to illustrate your point.
I must admit that I have difficulty understanding some aspects of both his graphs and his text.
In any case his focus seems to be on projections… anticipating the future, and I have little interest in the specifics of predictions.
His projections may be correct, in which case peaking is imminent.
His projections may turn out to be overly pessimistic, in which case the impacts may fall more on our children and grandchildren.
Personally, I am even more concerned that the burden may fall on them, so the timing of peak seems minor to me (apart from the fact that a later date affords us some valuable time to mitigate, though I doubt that North Americans would cooperate enough to make effective use of the extra time).

I agree with most of your points but the issue of oil-field depletion needs to be weighed against the potential increased production which you (correctly) listed.
I don’t think that I agree with your conclusion that our recent difficulties (possible plateau and attendant risks) are unrelated to arrival of peak. I think we are closer to peak than most mainstream analysts concede, and that the increased price volatility is a reflection of that.
I do agree that there was no impending scarcity when prices & demand peaked last summer.
I would like to consider your arguments a bit further before responding to them in detail.

Meanwhile, I should mention that my own thinking on energy security has shifted considerably over the years.
The larger Peak Oil issue was the initial focus… I wanted to learn whether it was BS or a legitimate concern. I am now convinced that it is the latter.
But both common sense and the work of Robert Hirsch, Jeff Brown, (Canada’s) Jeff Rubin and Chatham House (UK think-tank) all point toward export decline as a second and more imminent concern.
Third, both concerns then led to the issue of emergency planning (by government, not the personal/survivalist kind).

The last of these has been my primary focus for the past two years, but I would prefer to leave that aspect for now and return to the first two (PO and export decline).

Both topics are covered quite effectively in a UCSB lecture (undated) by a French analyst and by Jeff Brown, who was one of the first to raise the export decline issue.
This YouTube link takes a full minute to download and get rolling, but I believe it is worth examining:
http://www.youtube.com/watch?v=O7h4VjZhe_w&eurl=http%3A%2F%2FGraphOilogy%2Eblogspot%2Ecom%2F&feature=player_embedded

The first presentation, “A Peak Oil Primer” is by Catherine Gauthier (4:30- 23:30).
She examines demand growth, URR, timing of peak (at 12 min), its consequences, etc.

The feature presentation is by Jeffrey Brown (25:00 –59:00) whose analysis is in three parts:
1. Peak Oil (27:00 –39:00). Please note his point at 29:00 about the minimal difference to the timing of peak which results from having additional reserves. Also, at 37:00 he points out that in post-peak Texas, a surge in drilling did nothing to stem the decline in production. He asks a very good question at 39:00.

2. Export Decline (39:00- 57:00) Brown’s central point is that global oil exports could effectively be finished around 2030 (ie. a very serious problem). Meanwhile, most of the optimists are telling us that peak production is unlikely to occur prior to 2030 (ie. no need to worry for a few decades). Yet the difference between the two scenarios is radically different: a world which has just hit maximum production versus a world with no remaining export capacity. (The next 20 years should be very interesting, especially on the energy front, and there are many reasons for Defense analysts to get involved proactively.)

3. Electric Transportation: (57:00 - 58:45)

If people don’t have an hour to spend on this (which I can fully understand), I would encourage them to at least examine Brown’s 18 minute analysis of export decline (39:00 - 57:00).
If anyone spots something which they do not feel is credible, please speak up.

Thanks again for your interest, everyone.

Dayuhan
07-13-2009, 11:12 PM
Hi Rick,

More comments (there is always something...)



Your choice of the Oil Drum entries by Sam Foucher is a good one to illustrate your point. I must admit that I have difficulty understanding some aspects of both his graphs and his text. In any case his focus seems to be on projections… anticipating the future, and I have little interest in the specifics of predictions.

I don't fully understand how the Oil Drum site works... there seems to be content from a lot of different people, and I'm not sure what sort of vetting or editorial control goes on. I admit that I haven't looked all that closely: there are a lot of barrels on the Internet, and when I find a couple of rotten apples on top of one I tend to move on and look for another.

Predicting the future is an intrinsic part of the peak oil discussion: you can't talk about a peak without postulating a subsequent decline. One of the problems that I have with the projections on sites like Oil Drum is the radical divergence between the projections they cite and those that come from the big three of mainstream energy analysis: EIA, IEA, and OPEC. These institutions have access to all available data on production and depletion, and they have an abundance of analytical resources at their disposal. So why are their projections so different from those we see so often from the "peak oil" discussion? You almost have to postulate that the mainstream analysts are either completely incompetent or conspiring to collectively present baseless projections, and neither hypothesis sounds terribly credible to me.

Many years of working in the muddy ground between financial and political analysis has left me suspicious of sophisticated modeling processes, especially when they kick out results that seem questionable to me. I've seen too many people (especially in the financial world) use the sophistication of their models to validate their conclusions, conveniently failing to mention that cherrypicking the data you feed into the model will provide whatever result you want to produce. Torture the data enough and they will tell you whatever you want to hear.

I'm suspicious of the discourse claiming that the 2005-2008 plateau was "the peak" because too many alternative explanations for the observed phenomena are not considered. It has become almost a mantra in the "imminent peak" circle that from 2005 onward rising prices could no longer call up more production. The possibility that installed capacity had peaked and that high prices can call up production with a substantial time lag between investment and results, while obvious, is not discussed. Similarly, the downward production curve in mid 2008 looks terribly ominous until you put it up against a price chart, at which point the relationship becomes too obvious to ignore. All too often it is simply stated that mid 2008 marked the beginning of "the decline" in production, without discussion of the obvious connection between plummeting prices and production cutbacks.



Personally, I am even more concerned that the burden may fall on them, so the timing of peak seems minor to me (apart from the fact that a later date affords us some valuable time to mitigate, though I doubt that North Americans would cooperate enough to make effective use of the extra time).


I share this concern, which is one reason I feel that crying wolf over hypothetical peaks is a bad idea. If we announce a production peak and there isn't one, the public gets the impression that it's all hype and not an issue. The resource is finite and there will eventually be a peak. The only way I can see to maintain an impetus toward conservation and diversification is to keep prices high. The worst thing that could happen at this stage is another glut.



I don’t think that I agree with your conclusion that our recent difficulties (possible plateau and attendant risks) are unrelated to arrival of peak. I think we are closer to peak than most mainstream analysts concede, and that the increased price volatility is a reflection of that.


There may be a bit of circular logic here: we speculate that price volatility will accompany a peak, then cite price volatility as evidence of a peak. Of course a peak in production while demand is rising will create a price spike, but why should there be a difference between a situation driven by "a peak" and a situation driven by "the peak"?

We also need to consider that 2005-2008 saw intense price volatility across the commodities spectrum, not just in oil. Some of this was related to oil: higher energy costs drive production and transport costs up, and diversion of agricultural land to biofuel production did help to drive grain and meat prices up, but that's not a full explanation.

When I look at that period I see:

1. A rapid and generally unpredicted increase in demand across the commodities spectrum, primarily from East Asia, but this was a period of economic growth and demand growth around the world.

2. A substantial and rapid depreciation of the currency in which most commodity trades are denominated, supporting faster increases and creating an incentive to hedge the dollar with commodity trades.

3. The combination of inflated asset values and overextended leverage ratios created a vast pool of capital for speculation in commodities, and the rapid increase in commodity prices made such speculation attractive.

The extremely rapid spike in commodity prices in early 2008 and the extremely rapid plunge in late 2008 were too aggressive to be explained by supply and demand. The plunge in particular is very consistent with a liquidity crunch sucking speculative capital out of commodities.

I could go on, but suffice to say that there are many explanations for volatility that do not involve an absolute production peak.

I'm not trying to say that the idea of "peak oil" is BS - obviously it can't be. I do feel that the hype around the idea that the peak is imminent or recently past is baseless and may actually detract from rational planning.

Planning for abrupt scarcity is certainly necessary, but I think it's easier to justify that planning on the grounds of security and political risks than on the more nebulous grounds of "peak oil". Whether or not you believe an absolute production peak is near, the vulnerability of major suppliers is clear: I would rather argue that we need an emergency plan to deal with the possibility of a security crisis in the Middle East (Straits of Hormuz closed, instability in Saudi Arabia, nuclear confrontation... take your pick) than claim that we need an emergency plan because a production peak is imminent. It's easier to justify and the need is clearer.

Just thoughts and opinions, as always...

Steve

PS: Couldn't pull down the videos; I live on a mountaintop in the northern Philippines (while working primarily in Dubai - long story) and the connection speed is not up to it. Is there a transcript anywhere? I'd rather read than listen in any case...

Rick M
07-14-2009, 03:21 AM
Hi, Steve

Thanks for your latest detailed observations, and I’m sorry that I still have not responded to all of your ideas in your previous posting.
We’ve finally had a break in the rain so I’ve been busy at the hay.

I’ll take your points in order:

1. The Oil Drum
I don’t like their lay-out… vertical with wide sidebars, hard to read because the reader is forever scrolling up & down… hard to work with.
I also don’t like the fake names, but I’ve come to learn that it’s necessary for some of the most knowledgeable contributors to remain anonymous, so that aspect no longer bothers me.
Personally, I prefer Energy Bulletin which prefers sourced info and a standard wide format in terms of presentation.
But TOD has some excellent info from credible analysts: please examine this one on export decline and let me know if there is something you are skeptical of:
http://europe.theoildrum.com/node/4179

I have no answer to the gap between what the mainstream analysts say (the three that you mentioned, plus I would add CERA and some but not all industry officials) and what the PO analysts say.
Personally, I find almost all of the main PO analysts to be credible.
Simmons is an industry insider, has done the annual forecasts for World Oil journal for many years, etc…. it’s hard to imagine that he needs book money, nor how his up-front concerns could possibly help his company win contracts.
I think the guy deserves a medal.

Likewise Bob Hirsch…. it appears that doing the research for the 2005 paper has become a bit of a life-changing wake-up call. He and Bezdek continue to push on this issue.

Meanwhile, both industry spokesmen and senior bureaucrats have many good reasons to express a “no foreseeable problem” message.
The recent WEO was a major step for the IEA but I was stunned to discover four months later that my country’s lead ministry had not shifted its position to reflect the IEA’s sudden worries. The ministry still say that “there are no imminent peak oil challenges” and that “Canada’s oil supply is secure for about 200 years.”

2. peak in 2005-08
I agree with your points, but the PO analysts have always said that we can only know from the rear-view mirror, well after the peak has occurred.
And price volatility may be worse than steady high prices since the dips subvert the efforts to bring along the next-generation liquid fuels, which sustained high prices would foster.

3. Price volatility
You may be reading too much into what I had said.
Like yourself, I am not convinced that we are at peak, though I do think we are so close that it barely worth debating, especially if we examine it from a net-energy perspective.
Is there enough oil in the ground to get over 90 mbpd? Certainly.
Will we ever see the 130 that was talked about only a few years ago? Not even close.
But how much physical energy and how much additional financial investment will it take to get us over 90?
I believe that nearing the apparent peak will cause volatility of both price and supply, but volatility alone is no proof of peaking..

4. the 2008 price spike
I agree with your three points, including the third (speculation).
The recent talk about limiting speculation on oil (same as limits re food-grains) could be helpful in containing the next spike.

5. fuel emergencies
As for your final paragraph, I agree completely, and please remember what I indicated in the previous post… my own thinking has shifted considerably over the years, from
1. becoming aware of PO and viewing it as a legitimate and overlooked concern, to
2. recognizing that pricing and export decline would be more imminent issues, especially for import-dependent regions, to
3. my current focus on government plans for fuel emergencies.
I view the stresses caused by a real (or even an apparent) peak as likely to precipitate an event which then trips a fuel crisis (rather like the shot at Sarajevo in June, 1914 which sparked WWI, meanwhile pressures had been building for years).

Meanwhile, when I began to enquire about fuel emergency plans, it became clear that this is a grossly overlooked area, especially here in North America.
It was then that I contacted the military (in my country and in several other countries), believing that this is a neglected matter of internal national security.
The military/security issues would be external as well, of course, but they have been widely acknowledged & discussed.
It’s the threat to domestic social order that so few are willing to address.

Hence the Energy Security thread on this site and at Armed Forces Journal.
Hence also two postings which I expect will be posted at Energy Bulletin within the week, both of which examine studies by US military analysts.
They will be posted here as well.

6. the export decline video
Sorry, I don’t have a transcript.
But Brown’s theory is illustrated & examined on the Oil Drum link (above).

I greatly appreciate your insights on this vital topic, Steve
--rm

aangel
07-14-2009, 03:16 PM
Hi, everyone. I hope I can join the conversation...I'm happy to represent the view that oil has peaked or will peak very soon.

I think it's important to put the near peak models in context. What seems to be happening is that the far peak models are moving closer in time so that we have the following situation:

(2010-2012) Association for the Study of Peak Oil and Gas — the people raising the alarm
(2015) Shell Oil ("reach a plateau") — see their website for their latest scenarios "Blueprint" and "Scramble" (http://www.shell.com/scenarios)
(2020) Neftex/Toyota — this only happens if three conditions are met: Iraq must increase its production to 8mb/d (from its current ~2mb/d), Saudi production must not decline at all and each expensive project that has been fiscally sanctioned must come in on time
(2020) IEA — for this peak date, the oil industry must put into production the equivalent of four Saudi Arabia's in twenty years to maintain current production, six Saudi Arabias if growth resumes
(no date) DOE — the Department of Energy does not put out peak oil models, they put out consumption models and assume the oil industry will supply the oil. People then mistake these for supply models and this is the source of untold planning errors by third parties using DOE graphs.


Then there is the CEO of Total Christophe de Margerie who has continually lowered his estimate of peak production so that it is now down to 90mb/d.

Given the above, it seems like a near term peak is almost certain since the assumptions of the other models are unlikely, in my view, to come to pass. For instance, $170B worth of oil projects have been cancelled in the last nine months due to the credit crunch and reduced near-term oil use projections. (See the various megaproject databases for more on that.) That's why the near peakists are asserting that we will never surpass the production of last summer. The projects to do so are no longer on the books and depletion marches on.

There are some outlier models like CERA but they have recently backed away from their view because it was clearly untenable (peak in 2030) and they were increasingly looking "out of touch."

Once one has satisfied oneself that we will have a near peak, then it makes sense to focus on the near peak models as Samual Foucher does on The Oil Drum.

One could quibble over whether the peak is in this decade or it will show up early in the next decade but asserting that it will occur past 2020 requires some awfully optimistic assumptions.

On the matter of costs for the marginal barrel of oil, CERA has put out this graph. While it is a little dated (> one year old) it shows the relative costs well. Prices have come down perhaps 15%-20% since the graph was made.

http://i300.photobucket.com/albums/nn29/aangelinsf/CostOfOil.gif

And of course the net export problem is real and is going to cause what I call "The Great Oil Squeeze" — top line production will decrease while oil-producer consumption will go up increasingly leaving less oil available to the world market. With gasoline at 20 cents (Venezuela) or 90 cents a gallon (Saudi Arabia), there is simply no reason in these producer countries to conserve and their populations continue to rise.

-André

Dayuhan
07-15-2009, 10:45 AM
But TOD has some excellent info from credible analysts: please examine this one on export decline and let me know if there is something you are skeptical of:
http://europe.theoildrum.com/node/4179


Right up on top of that link I see a big multicolored chart, and there's plenty there to be skeptical about. The chart holds projections for 18 different exporters. All but one - the former Soviet Union - are forecast to peak in 2006, the year the chart was produced, FSU is forecast to peak in 2010. The forecast declines after 2012 descend at a remarkably - and suspiciously - consistent pace.

What bothers me about this set of projections is the almost identical forecast curves for so many different exporters. In a real-world projection set based on real country-by country-analysis there should be far more variation. Some producers should be able to hold a plateau and reduce the pace of decline by additional investment in production capacity, some should show far steeper declines... but in the real world there will always be variation, that kind of consistency in the export curves of such a diverse group of producers is beyond implausible.

Farther down the page we see the comment that the chart was produced by "a simple accounting exercise, based upon rudimentary forecast tools", which may explain the deficiencies. It looks like they simply imposed the same assumption set on each producer without regard for the variables.

The problem with forecasts beyond the short to early-medium term is that there are too many variables and too many of those variables are non-quantifiable. Of course analysts will insist on producing forecasts, no matter how low the confidence level, but in many cases these forecasts tell us more about the agendas of the analysts than they do about the future of whatever is being analyzed.



Meanwhile, both industry spokesmen and senior bureaucrats have many good reasons to express a “no foreseeable problem” message.

I'm not sure I see those reasons. It seems to me that energy analysts across the board have a very substantial stake in talking up the idea of impending crisis. Squeaky wheels get grease, and those who analyze oil, whether private, government, or multilaterally funded, are going to get more attention and bigger budgets in an atmosphere of imminent crisis. Politicians who see a major problem on the horizon have every incentive to raise the alarm: how else do you build the political will required to drive responsive measures? Oil producers will want to raise the issue as well: fear pushes prices up, and producers want to get as high a price as possible for their reserves, especially if they see those reserves dwindling.

Where's the incentive behind "no foreseeable problem"?

There's a great deal missing from the discussion, it seems to me. Projections have to be based on assumptions, especially about three critical elasticities: price/production, growth/consumption, price/demand. I don't see that discussion happening, or I see it happening in terms that seem driven by a desire to generate a pre-ordained conclusion. I don't see nearly enough discussion of political, security, and investment risks, the constraints they pose on production and exploration, and the possibility of changes in those situations.

When I look at the charts that spring up all over the Oil Drum, for one, I get the feeling that they are designed to generate fear. Look at how all of the projections show a peak followed by an absolute dive... that says "scare chart" to me. I think a fairly extended plateau trailing off to a gradual decline is a lot more likely, with fast declines among some producers offset by transient increases in others, with some producers stepping up in response to improved political or security climates, others running into sharp barriers... in short, complexity. When I see simplicity and consistency I tend to tune it out, because in my experience the real world doesn't work that way - though agendas definitely do.

It also strikes me that when the sky is falling, people who sell sky-props do really well. I don't see any financial disclosure on the Oil Drum, for one. There's a donation button, but who donates? Who pays the bills? What money comes in, and from who? I don't see any meaningful privacy policy either: if you go to sign up (I didn't) they promise that your e-mail address will not be made public, but they don't say anything about selling it. What do you figure that mailing list would be worth to somebody in the business of promoting energy stocks...?

That might be cynicism or paranoia, but when expended effort exceeds visible reward by a large margin, the possibility of invisible reward is always there.

In any event, my own personal tendency is to take what I call the Olympic Diving method of examining projections: toss the low and high scores out from the start. Somewhere between the diving bell-shaped curve and the perpetual rise lies reality, mixed up in a huge bundle of non-quantifiable political and security-related variables. Preparation, flexibility, and above all sustained high oil prices will serve us well... panic will accomplish nothing.

Dayuhan
07-16-2009, 12:51 AM
Rick...

Forgot to mention: another thing that bothers me about the data on the Oil Drum link you is that the historical export data for Venezuela is simply wrong. Venezuelan exports peaked in 96, had a sub-peak in 2000, and declined steeply from 2000-2003. The Oil Drum chart shows a sharp rise in Venezuelan exports from 2000-2003. If their "country-by-country analysis" misses out on historical data that is a matter of record... how are we supposed to trust their projections?



Given the above, it seems like a near term peak is almost certain since the assumptions of the other models are unlikely, in my view, to come to pass. For instance, $170B worth of oil projects have been cancelled in the last nine months due to the credit crunch and reduced near-term oil use projections. (See the various megaproject databases for more on that.) That's why the near peakists are asserting that we will never surpass the production of last summer. The projects to do so are no longer on the books and depletion marches on.

Some oil projects were put on hold when prices and demand projections dropped. Liquidity was not an issue: Saudi Arabia, Kuwait, Abu Dhabi etc do not face meaningful liquidity constraints. They are simply limiting new investment to the level they see as necessary. They have no incentive to produce more than the market will consume.

In the medium to long term both production and consumption are responsive to pricing. Growth and energy consumption are not necessarily proportional: look at a chart for OECD economic growth from 2002-2008 and a chart for oil consumption over the same period.

The other big question is a simple one: how much expensive oil is really out there? The only honest answer is that we don't know: for most of the last 30 years there has been little to no incentive to even look for oil in places where production costs would exceed $30-40/barrel, let alone develop these resources. We won't see significant moves in this direction until prices are sustained at a level at or above the $60-70 range. A spike will not inspire the necessary investment, it needs a clear, sustained price plateau.

High prices will flatten demand growth - it may not happen overnight, but it will happen. Look for the Chinese to build a lot of nuclear plants and burn a lot of coal over the next few decades: Greenpeace will be pissed, but the Chinese don't care. NIMBY is not a problem there.

High prices will call up more production. It won't happen overnight, but it will happen. How much more? Again, we don't know.

Political and security developments will have a major impact. 10 years from now Iraq could be producing 6mbpd... or nothing. Similarly variable possibilities exist for many other producers, and are almost impossible to project or quantify.

Rick M
07-17-2009, 02:42 AM
Welcome, Andre, and thanks for your list of projections re timing of peak..
The CERA graph is also useful… it highlights the fact that price volatility may be more problematic than sustained high prices, since volatility will routinely undercut the efforts to bring the more expensive (and eventually necessary) oil on-stream.

Steve, once again your observations are detailed and specific.
1. de Sousa’s graph
I am trying to contact Luis de Sousa and will invite him to join this discussion.
I assume that he will be able to defend his projections.

2. Incentives for optimism
I agree with many of your observations.
But there are many reasons for industry to present an optimistic front and these outweigh the benefits of raising the alarm (which you identified).

I am no financial analyst, but surely if potential investors believe that individual oil companies were faced with decreasing access to viable reserves, were burdened with aging infrastructure, were likely to be penalized by some sort of “carbon pricing,” and were facing an significant (perhaps government-supported) shift to alternative sources of energy, this would surely hurt their ability to retain investors, the value of their shares, and their overall financial viability.

Similarly, government bureaucrats surely have a vested interest in assuring the public and the Ministers/Secretaries (to whom they are accountable) that they are doing a wonderful job of anticipating future needs and laying the groundwork for that.
There are many other reasons to maintain the status quo: employment, royalties, safeguarding investment, retaining stock-holders, maintaining existing flow rates, etc.

Politicians are extremely reluctant to sound the alarm on an issue for which they have no credible & palatable solution. When one considers the incomparable net energy which we get from petroleum and the many benefits and comforts which we obtain from it, who on earth is likely to vote for a politician who (as you point out) is describing an unhappy scenario based on a speculative scare chart?
That politician would be characterized as a scare-mongerer, a person who lacks faith in the creative abilities of his nation, is unworthy of a leadership role, etc.
If you take a look at some of the videos of presentations by Rep. Roscoe Bartlett, you will not that he is speaking to a near-empty hall much of the time… no-one is interested.

To his credit, he doggedly perseveres, stressing always the larger points which really matter:
- fossil fuels are finite
- we are using oil at 1000 barrels a second and have become dependent on it for virtually everything
- it’s getting harder and more expensive to obtain
- our oil-related infrastructure commitments (highways, auto sector, heating, agri-food, military, etc) are enormous and will require decades to alter (to what alternative source?)
- carbon emissions are beginning to inflict serious environmental consequences
and so on… you know all of this and I presume that you would not quarrel with any of these larger points.
Roscoe (now 82) keeps on pushing, reminding people how worried he is for his grandkids.
He deserves a medal.

The details over when specific countries peaked in production or in their exports will, in the end, matter little.
I am certainly no fan of Bush, but I do think he was correct in referring to our relationship to oil as an addiction.
Despite all the info on climate change, we regularly see people addling their cars to run the A/C… 200 hp to keep someone cool on a perfectly normal summer’s day.
Most North Americans will resist any attempt to deprive them of these everyday comforts, the political perils.

Sorry for the rant.
We’ll get back to the issue of export decline, but this is enough for one posting.

--Rick

aangel
07-17-2009, 02:43 AM
Hi, Steve. There is a lot in your post so I'll just address of few of your points and perhaps Rick will discuss the others.

One thing you mention is that there is little incentive for bureaucrats and industry spokespeople to hide "bad news." I see it completely differently. The incentives to keep smiling and saying there is no problem are many and very, very strong.

For industry, their company share price is directly correlated with the expected future earnings of the company. For an energy company to say that it is having or will have trouble securing future product to bring to the market would mean an immediate negative reaction by Wall Street. Businesses must be forced to disclose material adverse information on a prospectus, for instance, because the natural tendency of people is to hide the bad news so as not to risk doing business. I think it highly unlikely to expect to hear bad news from the oil industry, the incentives and penalties all line up to hide bad news not to be forthcoming about it.

For bureaucrats, they have different forces at work but the primary reason they stay silent is because no one gets credit for exposing a danger if the danger fails to come to pass. The risk of a danger not happening and looking like a fool is just too great. So bureaucrats and politicians are trained very quickly by their constituents to be very conservative. Stick one's neck out and it will get handed back to you. The public is very unforgiving on this score.

And it's not just in government. I have had many conversations with business people who understand and agree with what I am saying and when I ask them, "Will you say something about this?" they reply, "No way. What if you're wrong?"

I assure you there are many people out there currently participating in this conspiracy of silence. The background feeling is that it's ok to miss a big danger if everyone else misses it, too. After all, how could I be blamed for not speaking up when no else was speaking up?

And for both groups no one wants to be the person who shuts down the party. This is, I think, a big reason why the real estate/credit bubble we are seeing burst went on so long. Of course some participants just wanted to get their share out before the bubble pops, others actually can't see the problem and the ones who saw the problem mostly stayed silent, too, or were silenced (i.e. fired, told their opinion should be kept to themselves, etc.).

To see how people who raise the alarm are treated and why there are so few whistleblowers/alarm raisers of any sort, watch how Peter Schiff was treated in this video:
http://www.youtube.com/watch?v=2I0QN-FYkpw

Of course he was exactly right. He spotted the trends, saw the peak in the US economy and was ridiculed. How many people have the courage of their convictions to endure that? It take a lot of courage to say something in the face of no agreement and not many people have it. Researchers who examine planetary trends (Club of Rome, Limits to Growth) are regularly called fear mongers. Humans aren't wired to hear bad news and actively avoid it until it's too late.

I assert that the near-term oil models make tremendous sense when one really looks into them and the far peak models require the kind of misplaced optimism (I would actually say poor analysis) that was demonstrated by the people in the video above.

Declining top line production (64 of 98 countries already past their peak and growing), declining net exports, decreasing net energy (aka energy returned on energy invested), how late the hour is, how poor the alternative energy sources are when compared to fossil fuels, the contraction of credit that would have enabled us to kick our fossil fuel dependency: all are conspiring to make life in the next decade very difficult indeed.

-André

Rick M
07-18-2009, 12:15 AM
Steve,
I think you are mistaken with respect to Venezuela in de Sousa's graph.
You said (sorry, I am such a computer klutz that I don't know how to operate the Quote function):
"the historical export data for Venezuela is simply wrong. Venezuelan exports peaked in 96, had a sub-peak in 2000, and declined steeply from 2000-2003. The Oil Drum chart shows a sharp rise in Venezuelan exports from 2000-2003."

I'm pushing 60 and my eyes are not what they used to be, but when I look closely at de Sousa's graph... VZ is in yellow, above brown which is Norway, I see what you say that I should see: the yellow widens around 1996 and then constricts between 2000-2003.
The way the countries are layered is a bit tricky... when the overall curve rises or falls, the temptation is assume that individual countries follow suit, which is not the case.

The brief export life of the UK is reflected in pale blue at the very top, with Norway in brown being very constricted by 2020.
Mexico in white is pinched off around 2012... all of this is consistent with current trends as far as I am aware.

The country that most requires explanation to me is Canada, which is barely visible.
Mind you, when net energy is considered, perhaps that is warranted, but that's another story....

I will transfer the Export Decline info from Armed Forces Journal Forum here in a few minutes, which will broaden the range of evidence/info on this topic.

Rick M
07-18-2009, 12:21 AM
Warnings that global oil production would soon peak (and then decline) have been around for decades and have been the subject of some debate.
Credible warnings about the threat of export decline have surfaced increasingly during the past two years but have attracted little attention.
Here is partial list of these warnings:

Jeffrey Brown is a Dallas-based petroleum geologist who developed the Export Land Model several years ago.
In October 07 he warned that "we should base our plans on the very real possibility of a rapid decline in world net oil exports."
His ELM and some related analyses may be examined here:
http://www.theoildrum.com/tag/export_land_model

In Sept. 07 Robert Hirsch (co-author of the Hirsch Report on peak oil) warned that a decline in exports could bite much more suddenly than the larger "peak oil" decline:
"But potentially overwhelming all else, considerations of resource nationalism posits an Oil Exporter Withholding Scenario, hastening the onset of decline and exaggerating world supply decline rates."
Hirsch elaborated on this during his presentation at the October ASPO-USA conference in Houston. His 28-minute presentation is available here (video):
http://www.aspo-usa.com/index.php?op...18&Item id=93

Also in Sept. 07 Jeff Rubin (Chief Economist at CIBC, on of Canada's chartered banks) warned of export decline during his presentation at the ASPO conference in Cork, Ireland.
Rubin went on to predict that Mexico will be unable to supply the USA with exports by 2012, but his warning about the disappearance of America's #3 supplier appears to have been met with complacency.
His report, "OPEC's Growing Call on Itself" is available here:
http://research.cibcwm.com/economic_.../occrept62.pdf

In May 08 Neil King (Wall St. Journal) wrote a concise analysis entitled "Oil Exporters are Unable to Keep Up with Demand," available here:
http://royaldutchshellplc.com/2008/0...p-with-demand/

In July 08 a 40-page study was released by Chatham House in the UK. Entitled "Ending Dependence: Hard Choices for Oil Exporting States", their assessment is stark:
"Of the twelve countries in this study, oil production is in decline or at a plateau in three: Indonesia, Malaysia and Norway.
In a further seven countries, the plateau will be reached around 2010.
Saudi Arabia and Kazakhstan will reach a plateau before 2020" (p. 35).
The study is available here:
http://www.chathamhouse.org.uk/news/view/-/id/457/

I hope people will find these five studies to be of interest. I see no reason to doubt the credibility of the authors nor the reasonableness of their conclusions.

But this information surely does not fit with current political realities.
Here in Canada, energy security was not on the radar screen during last year's federal election campaign.
In the USA it is an issue, but only from certain angles and there is careful avoidance of the peak oil issue and these recent warnings re export decline.

There is never a hint about the domestic disorder which would surely result should anything seriously interfere with that steady flow of affordable imports.

Thanks for your interest.
-- rm

slapout9
07-18-2009, 02:13 AM
Stewart Brand publisher of The Whole Earth Catalog on the 4 heresies
of environmentalism. Go Micro-Nuclear power:)

http://www.ted.com/index.php/talks/stewart_brand_proclaims_4_environmental_heresies.h tml

Rick M
07-18-2009, 02:46 AM
This was just posted a few hour ago at UpstreamOnline, which is very reputable:
http://www.upstreamonline.com/live/article183759.ece

These are very serious allegations... the USA currently gets almost 1 mbpd, about 18% of its domestic production from these low-output wells:
http://en.wikipedia.org/wiki/Stripper_well

This is not insignificant, and for any company to deliberately damage wells to prevent a rival company from extracting the remnants is a very serious matter.

Please keep in mind, our energy security has been largely entrusted to companies like Exxon.
This is not encouraging....

Ken White
07-18-2009, 03:25 AM
Sabotage or judicious blocking due to ground water concerns?

I'm not giving Exxon a pass -- nor am I ready to agree to 'sabotage' based on the linked article. Obviously you can state your opinion but if you know more than that article outlines, I for one would be interested.

Rick M
07-18-2009, 12:44 PM
Thanks, Ken

No, I don't know any more than this article indicates.

UpstreamOnline is a mainstream industry site and I have not known them to post information that appeared titillating or highly speculative. I assume that when they post something, they have done some homework on it.
In this case I'm not sure I like their headline "ExxonMobil may be fined $1b"... we are a long way from that outcome, with determination of guilt standing in the way.
A simple statement like "Exxon accused of sabotaging Texas wells" would have more accurately described both the issue at hand and its legal status.

Meanwhile, these are serious allegations against one of the world's most powerful corporations, and Mr. Patterson would have to be very foolish to make public accusations with little to back them up.

These accusations are worthy of investigation.
ExxonMobil should feel the same way.

Surely it is in the public interest that the Commission allow hearings on this issue.

Rick M
07-18-2009, 01:47 PM
This Statesman article (from Dec. 2007) provides some background and cites specifics of court testimony:
http://www.statesman.com/news/content/news/stories/archive/1230exxon.html

Ken White
07-18-2009, 03:08 PM
unknown phenomenon -- got in the way of common sense and the Texas Supreme Court wiggled out of a decision in a case that the State would like to see go away. I suspect the truth is somewhere in between the two poles. Agree the Commission should hold the hearings, a case this old is bound to have produced reams of data and evidence. Be interesting to see what the Railroad Commission does.

Approaching the age of the shale that floats the oil, I see nothing new or really shocking here. Little stupid or crooked people do surprises me, unfortunately. Humble / Esso both were pretty rapacious and their offspring Exxon should be expected to be no different. Corporations and People are prone to do what they can get away with. Here we theoretically have a big, bad Corp vs. a little guy -- but little guys also have been known to cheat, lie and steal. Generally Governments and the Courts keep the large and the small from going too far but they slip up occasionally. Courts and Commissions, regrettably, are also prone to human foibles.

People just aren't as nice as we'd like...:wry:

Thanks for the links. Curious to see how this works out.

Rick M
07-24-2009, 11:35 PM
A team of researchers has recently examined the data (of which there is precious little) relating to energy returned on energy invested (EROEI), or net energy.

Their study begins by stating, “Few issues, maybe none, are as important to industrial societies and their economies as the future of oil and gas supplies…. We no longer find large, cheap and easy to exploit reserves…” (p. 2).

The authors then point to a greatly overlooked aspect in the energy debate: “A critical issue missing from this debate is not how much oil is in the ground, or even how much we may be able to extract, but rather how much we can extract with a significant energy surplus. In other words, what we need to know is the net, not gross, energy available” (p. 2, emphasis added).

This research is an attempt to quantify what common sense tells us must be true: if we are drilling more, finding less, and the fields which we do find are either smaller, in more difficult locations, or of a lesser quality, then it stands to reason that it will cost not only more money but also more energy to find, develop and produce that energy.

They conclude that "global supplies of petroleum available to do economic work are considerably less than estimates of gross reserves and that EROI is declining over time..." (p. 1).

Their study is modestly entitled “A Preliminary Investigation of Energy Return on Energy Invested for Global Oil and Gas Production.”
Their pioneering attempt to quantify the decline in EROEI is a welcome addition to the literature.
This link provides the abstract and the link to the complete study (14 pgs):
http://www.mdpi.com/1996-1073/2/3/490

More general information on EROEI may be found here:
http://en.wikipedia.org/wiki/EROEI

rborum
07-25-2009, 08:15 PM
Rick M -

You may already have seen these. but the Center for Naval Analyses had what I thought was a thoughtful project and report on energy security (http://www.cna.org/nationalsecurity/energy/)last year. I didn't see it mentioned in this thread, but perhaps I missed it. Peak oil and fuel emergencies are not really my areas of expertise.

Here's a snippet:

Powering America’s Defense: Energy and the Risks to National Security is a report by CNA's Military Advisory Board (MAB) that explores the impact of America's energy choices on our national security policies. This report follows the MAB's groundbreaking 2007 report National Security and the Threat of Climate Change, which found that "climate change, national security, and energy dependence are a related set of global challenges."

This new volume builds on that finding by considering: the security risks inherent in our current energy posture; energy choices the nation can make to enhance our national security; the impact of climate change on our energy choices and our national security; and the role the Department of Defense can play in the nation’s approach to energy security and climate change.

Rick M
07-26-2009, 12:47 AM
Hi, Rborum

Yes, the CNA study (May 09, 60 pgs) is very worthwhile reading.
I did not mention it in the EROEI posting because the CNA study (like so many other studies of energy security) overlooked the issue.
In fact, there is quite a bit that CNA overlooked, and since I have seen no other reviews which point out these omissions, I have undertaken such a review myself.

I hope to have the review posted on Energy Bulletin early next month.
Two other military-related papers have also been submitted to EB which should be posted next week.
The links will be posted here once they are available.

As for peak oil and fuel emergencies not being your area of expertise, we are all learners and things are constantly evolving.
I think the PO concept has been rather misunderstood (and therefore inaccurately portrayed).
As for fuel emergencies, I think that the general public (and even many emergency planners) see this thorny issue as a very remote possibility, not on anyone's priority list in the near term.
I also believe that we now view as remote, even far-fetched, could in fact catch us by surprise, unprepared.

Thanks for your interest on this issue.

rborum
07-26-2009, 02:49 AM
Your review sounds very interesting and like a useful contribution. Good luck with it and please let us know here when it's complete. - Randy

Rick M
07-26-2009, 03:52 AM
Hi, Randy

One of the two documents which will be posted on EB is a bibliography of publicly-available studies which have been conducted by researchers from the military/security community (War Colleges, CNA, etc) on the issue of energy security.
The listing will identify those studies which address the issue of peak oil and which find it to be a credible near-term concern.

One item which I plan to include separately at the end (separately because it was done by the International Energy Agency, which of course is not part of the military/security research community) is the most recent World Energy Outlook (Nov. 08).

There is probably some merit in offering it now, since it really does not belong in that bibliography. Similarly with the Hirsch Report, yet both are so central to the issue, and both have such credibility, that they would surely be included in any serious analysis of the peak oil issue.

Here is what I intend to say about the WEO:

This WEO marks a significant departure from the IEA’s traditional confidence in future oil supply.
Its opening sentences state, “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable…. “
It then warns of “dwindling resources in most parts of the world and accelerating decline rates everywhere (p. 3). The WEO calls for “an energy revolution” and concludes, “Time is running out and the time to act is now” (Executive Summary, p. 15).

This sudden tone of concern is confirmed by subsequent verbal statements made by IEA Chief Economist Fatih Birol.

In a videotaped interview with George Monbiot, Birol states, “The reason we are asking for a global energy revolution is to prepare everybody for difficult days and difficult times. I think we should be very careful….”
This interview is available here:
http://www.guardian.co.uk/environment/video/2008/dec/15/fatih-birol-george-monbiot

Despite this recent tone of concern and the evidence which the WEO presents, the IEA remains very reluctant to state that the peaking of global oil production (whatever combination of factors “cause” the constriction) will present some very serious challenges, that effective mitigation will require decades of cooperative effort, and that that the world appears to be most unprepared for this event.

To provide some context, it should be noted that only four years ago IEA Executive Director Claude Mandil referred to peak oil analysts as "doomsayers" and went on to say that "none of this is cause for concern."
But barely 1000 days later, the IEA has suddenly told the world that "time is running out...."
As I said previously, this issue is constantly evolving, perhaps nowhere more rapidly than at the IEA.

The complete WEO is 578 pgs and must be purchased.
The Executive Summary (15 pgs, no graphs) is available here:
http://www.worldenergyoutlook.org/docs/weo2008/WEO2008_es_english.pdf

There are two WEO graphs in particular which I would like to post here and which are highly illustrative, if I could only figure out how to do it (I am hopeless with computer stuff, much to my brother's amusement).

Rick M
08-03-2009, 12:47 PM
IEA chief economist Fatih Birol continues to sound the alarm on oil supply, most recently in an interview published this morning in The Independent (UK).

Mr. Birol’s key points include [these are quotes from the article]:
- the public and many governments appear to be oblivious to the fact that the oil on which modern civilization depends is running out far faster than previously predicted [emphasis added].
- Global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.
- We will have the risk that the [economic] recovery will be strangled with higher oil prices.
- The UK Government, along with many other governments, has believed that peak oil will not occur until well into the 21st Century, at least not until after 2030. The IEA believes peak oil will come perhaps by 2020. But it also believes that we are heading for an even earlier “oil crunch” because demand after 2010 is likely to exceed dwindling supplies.

Mr. Birol also mentioned the fact that oil is essential for our global food system and that it “is a strategic asset for the military.”

This morning’s Independent article is here:
http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html

It also contains the link to a related article by Jeremy Leggett who asks, "Why haven't more people in government, and the oil industry itself, seen this particular crisis coming? Why aren't they acting proactively to soften the blow?"

Rick M
08-04-2009, 12:14 PM
Review and application of SSI study, “Known Unknowns: Unconventional Strategic Shocks in Defense Strategy Development” (Nathan Freier, Nov. 2008).

The Strategic Studies Institute (SSI) at the US Army War College has issued many stimulating research papers in recent years, several of which deal with energy security issues.
Nathan Freier’s recent SSI paper does not focus on energy issues.
Rather, the central purpose of his study is to present a paradigm for the examination of potential strategic shocks.

I recently summarized the key points of Nathan Freier’s “Known Unknowns” and then applied his paradigm to emerging energy security issues, primarily the phenomenon known as “peak oil” and its corollary, export decline.

The central point of my application of Freier’s paradigm to the issue of peak oil may be summed up thus: there are well-established trend-lines which point to impending energy security concerns (witness yesterday's warning from the IEA, #40 above).
Meanwhile, industry and government officials largely deny these concerns.
This ongoing situation provides a classic and real-time illustration of an evolving potential shock.
It is precisely the sort of situation which Freier says needs to be noted and scrutinized by military analysts.

This analysis was posted at Energy Bulletin this morning:
http://www.energybulletin.net/node/49779

Dayuhan
08-05-2009, 04:07 AM
Rick,

Back to this after a while away... I don't always keep track!

Too much to bite off all at once, but on this IEA report...



This WEO marks a significant departure from the IEA’s traditional confidence in future oil supply.
Its opening sentences state, “The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable…. “
It then warns of “dwindling resources in most parts of the world and accelerating decline rates everywhere (p. 3). The WEO calls for “an energy revolution” and concludes, “Time is running out and the time to act is now” (Executive Summary, p. 15).

This sudden tone of concern is confirmed by subsequent verbal statements made by IEA Chief Economist Fatih Birol...

Despite this recent tone of concern and the evidence which the WEO presents, the IEA remains very reluctant to state that the peaking of global oil production (whatever combination of factors “cause” the constriction) will present some very serious challenges, that effective mitigation will require decades of cooperative effort, and that that the world appears to be most unprepared for this event.

To provide some context, it should be noted that only four years ago IEA Executive Director Claude Mandil referred to peak oil analysts as "doomsayers" and went on to say that "none of this is cause for concern."
But barely 1000 days later, the IEA has suddenly told the world that "time is running out...."
As I said previously, this issue is constantly evolving, perhaps nowhere more rapidly than at the IEA.

There are two WEO graphs in particular which I would like to post here and which are highly illustrative, if I could only figure out how to do it (I am hopeless with computer stuff, much to my brother's amusement).

As far as posting graphs, I haven't tried it on this site, but you probably have to save the graph (right click on the image, then "save image as"). Then you upload it to a photo hosting service, like Photobucket, and paste a link into your post.

For the IEA study, it seems to me that reading the executive summary creates a rather different picture than the quotes you post. According to the summary, the IEA projects a rise in production to 106 mb/d in 2030 - they certainly do not see a "near peak" in production. They explicitly state that the main hazard is not insufficient resources, but the possibility of insufficient investment - pretty much exactly what I said in a previous post.

Examples


The world is not running short of oil or gas just yet. The world's total endowment of oil is large enough to support the projected rise in production beyond 2030.

and


The volume of oil discovered each year on average has been higher since 2000 than in the 1990s, thanks to increased exploration activity and improvements in technology

To the above I would add that increased exploration activity since 2000 has obviously been driven by higher prices: nobody commits major resources to exploration during a glut.

I see nothing here at all that supports the "near peak" hypothesis: quite the opposite. The EA Executive Summary suggests that the peak oil scenario is alarmist, and that the immediate hazards referred to are shortfalls in production due to underinvestment, political and security-related constraints on investment, and the impact of increasing hydrocarbon use on climate change.

I'm not saying a production peak will not occur: it obviously has to. According to this IEA report, and similar data from EIA, it would occur sometime after 2030, not in 2005 as much of the "peak oil" literature insists. What we have seen in the 2005-2008 production plateau is a peak in the production capacity of currently installed infrastructure, not an absolute peak in production.

That does NOT mean there is no problem. There are serious potential problems. I don't want to go into the climate change stuff, but the underinvestment risk is severe and the potential for security related supply disruptions is huge... and of course the peak does eventually come.

To me the single most important move that needs to be undertaken is a concerted effort to keep prices at a sustained high level. A spike to $140 doesn't do much, but 10 years at an average of $100 and you have a real incentive to explore, to invest in new production, to reduce consumption, and to invest in alternative energy sources. No matter how much we talk and how many alarms we raise, this is not gonna happen if oil is cheap.

Dayuhan
08-05-2009, 12:51 PM
IEA chief economist Fatih Birol continues to sound the alarm on oil supply, most recently in an interview published this morning in The Independent (UK).

Mr. Birol’s key points include [these are quotes from the article]:
- the public and many governments appear to be oblivious to the fact that the oil on which modern civilization depends is running out far faster than previously predicted [emphasis added].
- Global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.
- We will have the risk that the [economic] recovery will be strangled with higher oil prices.
- The UK Government, along with many other governments, has believed that peak oil will not occur until well into the 21st Century, at least not until after 2030. The IEA believes peak oil will come perhaps by 2020. But it also believes that we are heading for an even earlier “oil crunch” because demand after 2010 is likely to exceed dwindling supplies.

Mr. Birol also mentioned the fact that oil is essential for our global food system and that it “is a strategic asset for the military.”

This morning’s Independent article is here:
http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html

"

Saw this on another thread, figured best to keep it here.

If you read this quickly, it seems to openly contradict the projections in the IEA report referred to in the post above. Read it more slowly, and you catch the critical distinction between oil fields and oil reserves. Existing oil fields are seeing rapid depletion, but existing fields do not cover even close to all of the known reserves. Very few new fields have been developed since the start of the oil glut in the late 80s - it was cheaper to just keep pumping the easy oil from the existing fields. When demand spiked in the last 5 years, producers responded by running existing fields to their maximum capacity, hence rapid depletion.

The problem is not that the oil is running out, the problem is thast the existing developed oil fields are running out. To respond to that, as IEA report stresses, is that massive investment is needed to develop new fields, and many countries with large oil reserves are under-investing on their own account and are not presenting conducive environments for foreign investment. The vast majority of current investment in new production is in the GCC... a bit more in the Caspian, and some, mainly Chinese-financed, in Africa. In the West investment and exploration are constrained by environmental and NIMBY concerns. In Venezuela, Iraq, Iran, Nigeria, Russia, and many others it is constrained by the political and security environment.

I agree with the IEA report's conclusion that the quantity of oil available is not going to be the problem that causes the next crunch (and there will almost certainly be one). When that crunch comes there will be plenty of oil in the ground and plenty of demand above ground, but decades of underinvestment will leave us incapable of moving the oil from underground to where it's needed.

Rick M
08-05-2009, 03:16 PM
Thanks, Steve

You beat me to it... I see you have a second posting before I was able to respond to #42, which is the subject of what follows.

I’ll try to get those graphs up.

Let’s start with our points of agreement, which are mostly at the end of your post:
- There are serious potential problems, especially supply disruptions.
- The peak does eventually come.
- We need sustained higher prices (and I think $100 is about right as a minimum).
- The immediate problem is not a lack of resources (but I will qualify that later on).
- Insufficient investment is a more imminent hazard.

I think we can also agree on some other points:
- Both the content and the tone of the 2008 WEO are quite different from its predecessors
- Its tone of concern is reinforced by subsequent verbal statements by Mr. Birol.
- People can haggle over terminology (call it a peak or a plateau or maxing-out) and which combination of factors “cause” this limitation of production (physical resources, net energy, investment, geopolitics, infrastructure, climate change, sea-level rise, terrorism or war, etc.), but the bottom line is that it will surely present “an unprecedented risk management problem” (to quote the Hirsch Report).
- Our world (and North America most of all) is most unprepared for such an event, whenever it may arrive and whatever the causes.

I disagree with your point that "reading the Executive Summary creates a different picture."

Let’s consider various details (emphasis added):
a. Projected growth in production
Yes, this WEO projects 106 mbpd in 2030. The previous WEO projected 116, and we have seen earlier projections from various quarters of 130.
For a world that has enjoyed all the cheap petroleum it wanted for 150 years, these recent downward revisions indicate that we will not have this luxury in the future.
We are in for a serious shift.
Note the beginning of its final paragraph: “For all the uncertainties highlighted in this report, we can be certain that the energy world will look a lot different in 2030 than it does today. The world energy system will be transformed, but not necessarily in the way we would like to see” (p.49).

b. Near peak
You said that “they certainly do not see a ‘near peak’ in production” but I can’t find where they said that.
What they did say is this:
- “Non-OPEC conventional oil production is already at plateau and is projected to start to decline by around the middle of the next decade, accelerating through the projection period” (p. 41).
- Translation: We have already maxed out on the easy oil from the non-OPEC sector (ie. all but 12 countries), and the flow-rate from this sector will be less starting around 2015, decreasing more rapidly to 2030 and beyond.
- “Production has already peaked in most non-OPEC countries and will peak in most others before 2030” (p. 41).
- Translation here is less clear: the first part simply restates what they said in the previous sentence. But what do they mean by “most others”: the non-OPEC countries that haven’t yet peaked (eg. Canada) or do they mean that most of the 12 OPEC countries will peak by 2030?
- I presume they mean the latter, which fits with the Chatham House study which foresees at least half of the OPEC countries with reduced export capacity prior to 2030 (see #28 above). Furthermore, four of the 12 OPEC countries already appear to be post-peak (Venezuela, Libya, Iran & Iraq).

Also, you will note in Birol’s interview with Monbiot (above, #39) that he says in response to Monbiot’s request that he be more specific on the “before 2030” time-frame, “Assuming that OPEC will invest in a timely manner, global conventional oil can still continue [to increase] but we still expect that it will come around 2020 to a plateau, which of course is not good news for global oil supply….”
Translation: The flow of conventional oil from OPEC may increase for another decade but not beyond, and this potential growth cannot occur without timely and massive investment.
But if non-OPEC conventional has peaked and is about to decline, and OPEC conventional peaks in a decade (sooner without investment), then what is left?
Does anyone seriously believe that unconventional can deliver the volumes required? At an affordable price? At a sustainable net energy ratio?

Steve, you said, “I see nothing here at all that supports the ‘near peak’ hypothesis: quite the opposite. The IEA Executive Summary suggests that the peak oil scenario is alarmist….”
I don’t know what “near” means to you, but when we consider our collective dependencies, the volumes involved, our existing infrastructure and the apparent lack of viable alternatives to liquid fuels, I consider a decade or two to be an historical eye-blink and not worth quarreling over.
As for “alarmist”, the IEA (and many others) may have used that term a few years ago, but I did not find it in this WEO. Their final sentence, “Time is running out…” sounds rather alarming to me, especially given its source.

That’s all for now.
Last month was our wettest-ever July, and the hay (which I raked yesterday and got soaked overnight) has to be re-raked… it’s sunny out so I'd better run.

Which brings up another point: affordability is a key element of energy security, and the WEO is very explicit on that one: “the era of cheap oil is over” (p. 49).
But what does that mean for my tractor and your food, to choose just one example? (On this web-site, I guess I should have asked, "What does it mean for our military?")
Our Ag ministry believes our energy ministry’s determination that “there is no imminent peak oil challenge” and will not begin research on the effects to the agri-food system of the “end of cheap fossil fuel” until the energy ministry says that this is a foreseeable problem.

So farmers have no direction on this at all, and most of us are near the bottom of the income scale and will have difficulty contending with the high fuel prices that you and I agree are necessary to effect an orderly transition.
But a transition to what? Solar and wind cannot do field-work.

Our problem will be in affordability long before physical supply, though the result is effectively the same for low-income folks. And as Robert Hirsch continually emphasizes, our problem will be primarily in liquid fuels… the very stuff that keeps us fed, mobile and protected.

I think you could drop the word “potential” from your prognosis, Steve.
There are serious problems with our future supply of affordable liquid fuels, especially here in North America.
If I have a large tree with an increasing lean over top of my house, I would regard that as a problem, not a potential problem, since its falling is not a potentiality but rather an eventual certainty, and the threat of it falling is continual and can only increase.
To me, that's a problem, and the sooner I acknowledge it and address it, the better.

I'll say more after the haying.

Rick M
08-08-2009, 04:13 PM
Here are the two graphs from the Nov.08 IEA World Energy Outlook.
Neither graph was included in the Executive Summary (I got these from Matt Simmons' presentations).

The upper graph indicates a steep decline in crude oil production from currently producing fields, starting now and dropping to around 25 mbpd by 2030.
The anticipated growth in production to 104 mbpd requires 64 mbpd of actual production (ie. the "six new Saudi Arabias" that must be found and brought on-stream, all within 20 years).

Please note the relatively flat line for crude oil from 2005/6 onward. Even adding in the "yet-to-be found" and enhanced oil recovery, the line barely lifts and does not reach 80 mbpd.
This is consistent with the claims of Matt Simmons and several other analysts that "peak oil is already past tense" since crude oil production has been stuck between 74 and 75 mbpd since early 2005.
The WEO indicates that we are likely to move much beyond that and that any growth in liquids must come from other sources.
(How much of that energy will be net energy is another story....)

The second graph reveals how reliant our past and current oil production is on giant fields which have been producing for 40 years or more (let's not quibble over a few months... 2010 will be here soon enough and we're talking decades).
Meanwhile the Santos Basin off the coast of Brazil has been touted as the largest discovery of oil & gas in over 20 years. Some analysts believe that there may be up to 31 billion barrels.
Even ignoring the issue of net energy, 31 billion is equal to current annual global consumption... 365 days.

davidbfpo
08-08-2009, 07:45 PM
Rick and others here,

Not my subject, although I do try to follow some of this thread. The link is to an IISS conference on 'The Global Security Implications of Climate Change' http://www.iiss.org/about-us/offices/washington/iiss-us-events/iiss-us-conference-defining-global-security-in-the-21-century/ You may find the linked blog of value, even if little populated.

davidbfpo

Rick M
08-09-2009, 04:10 PM
Thanks, David

I will try to learn more about the IISS conference.
The blog entries were interesting, esp the Himalayan water issue.

The (glacier-fed) Athabaska River is vital for tar sands production, so there are long-term concerns on that one as well.
Water may be a limiting factor for oil shale production also.

Meanwhile, CNA did a fairly thorough analysis on CC two years ago (around 65 pgs):
http://securityandclimate.cna.org/report/

Rick M
08-28-2009, 02:36 PM
An article appeared yesterday which examines media coverage of Peak Oil (including this week’s exchange in the New York Times).

The author’s central point is:
"The fact is that if the Peak Oil proponents are correct, it amounts to one of the biggest stories of our time, right up there with global warming."

As the link below indicates, some of the most progressive mainstream coverage of PO is coming from the UK.
Brits are now awakening to the brevity of oil, having gone from importers to major suppliers and now to net importers, all within 40 years, half a human lifetime.
Same with natural gas, I believe.

http://www.huffingtonpost.com/gabriel-rotello/the-new-york-times-on-pea_b_270347.html

Rick M
08-30-2009, 04:28 PM
On Thursday evening the Saudi anti-terror chief (and member of the Saudi royal family) emerged relatively unscathed from an al-Qaida suicide attack at his home.

This follows increasing warnings during the summer about Yemen and the potential for a spill-over into Saudi Arabia.

Security has been tightened at major Saudi oil facilities (as indicated by this, which was posted a few hours ago):
http://uk.reuters.com/article/idUKLU62198420090830?sp=true

Abqaiq and Ras Tanura are the only facilities in the world that handle more than 3 million bpd (each handles about double that, more like 5-6 mbpd).

Rick M
09-03-2009, 02:50 AM
This 10-page analysis is entitled “Fueling the Balance: A Defense Energy Strategy Primer” and is authored by two members of the Obama ’08 defense policy task force.

This report builds on concerns which are increasingly being expressed about the vulnerabilities which are inherent in current energy consumption patterns (both in terms of physical supply and affordability).

Although this study focuses almost exclusively on DoD consumption, many of its concerns apply to the civilian sector as well, and of course it is the productivity of the domestic economy which funds DoD and other government services.
Clearly, our reliance on petroleum is suddenly emerging as an urgent issue.

Its bibliography reflects the incorporation into this study of the recent concerns of Col. Gregory Lengyel, the Defense Science Board, Cdr. Jeffrey Eggers, and the recent CNA study.

This study points to the upcoming Quadrennial Defense Review and states that “a closing window of opportunity must not be missed…. the energy nexus…. cannot be deferred again” (p. 1).

This is a concise and highly relevant study, well worth reading.
Thanks to Lisa Wright at Congressman Roscoe Bartlett’s office for passing along the link:
http://www.brookings.edu/~/media/Files/rc/papers/2009/08_defense_strategy_singer/08_defense_strategy_singer.pdf

Dayuhan
09-04-2009, 12:28 AM
Interesting piece of news today: new oil discovery in the Gulf of Mexico, estimated at a billion recoverable barrels. Deep, will be expensive to recover: $200 million per well, not all the wells will produce, and there's the transport infrastructure to consider. But still, with a billion recoverable barrels at, say, $70-100 each, you can afford to put $10-20 billion into production.

A billion barrels is significant, but the real significance of the find is the location, which is an impressive demonstration of what modern exploration and recovery techniques can do. The Gulf of Mexico is probably the single most explored oil-producing region on the planet. 20 years ago they were calling it "The Dead Sea"; it was considered all dried up. Clearly not so.

What we're seeing now (the 28 billion barrels off Brazil, discovered in 2007, is another example) is the beginning of the next wave of discoveries. They will be complex and expensive, but they are there.

I mentioned this in an earlier post, but it's worth repeating: most of the world's oil-producing regions have not seen systematic exploration in 20 years, often more. From the late 80s through 2002-2003 there was anb oil glut, offering little incentive to explore. From 2003-2006 the price spike was seen as just another transient spike due to instability in the Middle East. It's only in the last few years that we've seen real exploration beginning. It takes a good deal of time to produce results, both because of technical and political constraints.

Many traditional oil producing regions still aren't getting attention: Mexico, Venezuela, Indonesia, Libya and many others are still pumping from deposits discovered 30 years ago and more. In these cases National oil companies don't have the technology and government policies make investment by oil majors unattractive. Iran and Iraq have not seen significant exploration in 30 years. Even the GCC states have let exploration languish for years: given their known reserves they simply had no reason to go looking.

How much more is out there? We don't know. Probably a fair amount, and as long as oil remains expensive the next 20 years are likely to see an interesting range of technologies developing for getting more out of existing fields. Today we assume that only 20-30% of a given reserve is recoverable; that is likely to change. Today's technology is likely to look as primitive in 20 years as the technology of 20 years ago (which seemed really impressive back then) looks today.

Again, we do face major problems, but the geological problem (is there oil there) is less immediate and less vexing in many ways than the political and investment-related problem (can the oil that's there be brought to market). From the reactive perspective, the conclusion is the same either way: we need to prepare for potential shortage. From the proactive perspective, the actions needed to maintain supply are very different. This is the danger of the obsessive focus on absolute reserves: it distracts from the essential focus on confronting the political and investment-related concerns.

Rick M
09-05-2009, 02:02 AM
Hi, Steve

Regarding the GOM discovery, this article mentions at least 3 billion, which is of course significant:
http://newsok.com/oil-discovery-extends-petroleum-age/article/3397994

However, the exuberance of its headline surely is not warranted in light of other info.
A BBC article indicated that they should reasonably expect to retrieve only 30% or so, which fits with the 1 billion that you mentioned.

Even at 3 billion, that would supply the world for a few weeks, the USA for about 5 months.
If Tupi and the Iranian discovery are both around 8 billion, then that’s global consumption for about 12 weeks from each field.
Not exacting what I would call “extending the petroleum age.”
Most Ages are measured in centuries, not weeks.

Both the Santos Basin discoveries and the new GoM field are ultra-deep water (the latter at record depth), and thus cannot be cheap.

Our perspectives on this are different… you are clearly more optimistic than I am.

But there is much that we agree on: that we face major problems, and that the investment and geopolitical aspects may catch us long before the geological constraints.
I especially agree with your point that “the conclusion is the same either way: we need to prepare for potential shortages.”

I have spent the past few months going through numerous GAO documents from the 1970s and 80s. They are very detailed, blunt in their assessment, and I commend the GAO for its persistence.
But it appears that little has changed… the issue seems to have faded away and North America remains highly vulnerable to an oil shock.
Such a shock would not require physical shortages: all it requires is widespread & prolonged unaffordability: our continent would then surely have a problem of unprecedented magnitude and complexity.

I also agree with your final comment about the obsessive focus on absolute reserves: such a focus would indeed distract from the many interacting above-ground factors.
But I also think that the credible peak oil analysts moved beyond that many years ago.

But in some respects, the inclusion of above-ground factors makes the situation more tentative, not more secure: the geological limits then provide a best-case scenario which can only be achieved in sensible, orderly geopolitical & investment climate, which may not in fact be maintained.

In fact, there are many factors which point to the difficulty of maintaining the relative peace & stability that we have enjoyed since 1946.

Other views are welcome.

Dayuhan
09-05-2009, 03:24 AM
As far as supply is concerned, yes, I'm more optimistic than you are. I strongly suspect that the Santos basin and the recent Gulf discovery are the minimal tip of a very large iceberg. It is only in the last few years that there has been any incentive to look for "deep oil", the process is very complex and very time consuming, and only a very small number of areas with potential have seen systematic exploration. I think there's a whole lot more out there. We've only just begun to look.

I also think there will be a whole raft of new technologies emerging for getting more oil out of existing deposits. Right now the rule of thumb is that only 20-30% of a given deposit is recoverable, and I think that's going to change. Again, there was little incentive to develop those technologies in the face of a glut and perceived glut that persisted up until a very few years ago, but if the price of oil stays high, that changes the incentives radically. You put a few hundred billion dollars underground, there's going to be some real effort put into getting it out.

The development costs will be very high, but as long as oil stays in the $70-120 band the numbers still work out.

Again, the problems - and there are very large ones - lie more on the political and financial factors. The technology for finding and extracting new reserves is in the hands of the oil companies. The new exploration is very expensive and the oil companies will not invest without assurances of return on investment. Many countries with potential reserves are reluctant to make deals with oil companies.

In some areas we are seeing these problems addressed: the GCC countries in particular have led the way in developing win-win relationships between national oil companies and oil majors. Of course some level of political stability is essential. Some countries that have been driven by nationalist impulses in the past (think Mexico, Indonesia, and eventually Venezuela) will be forced by financial necessity to take a more pragmatic approach. It is in the interests of Western governments to promote such deals, but unfortunately "big oil" stands only slightly behind "wall street" in the demonology of anti-corporate sentiment, and in many places official support for oil companies is seen as politically unacceptable, even when the national interest coincides with the private interest.

Again, the danger of the excessive focus on absolute supply is that it distracts from desperately needed efforts to resolve the political and investment constraints on further exploration and production.

Bill Moore
09-05-2009, 07:12 AM
I also think there will be a whole raft of new technologies emerging for getting more oil out of existing deposits. Right now the rule of thumb is that only 20-30% of a given deposit is recoverable, and I think that's going to change. Again, there was little incentive to develop those technologies in the face of a glut and perceived glut that persisted up until a very few years ago, but if the price of oil stays high, that changes the incentives radically. You put a few hundred billion dollars underground, there's going to be some real effort put into getting it out.

No disagreement on the political and financial being the primary long poles in this tent, but I'm not as confident as you are that the technology currently exists, and this is not a financing friendly economy at the moment. However, let's assume energy demands overweigh political and financial issues and that the technology is developed. We still live a world where we have "the rise of the rest", and that means India, China and a lot of other nations will have an increased demand to sustain their growth. Not sure punching a few more soda straws seven or more miles deep into the ocean will meet that demand.

Other issues, if oil prospects for the U.S. look better in our backyard, why would western oil companies invest in places like Nigeria? What impact will that have on their economy and subsequently their security and our security interests?

Dayuhan
09-05-2009, 07:54 AM
No disagreement on the political and financial being the primary long poles in this tent, but I'm not as confident as you are that the technology currently exists, and this is not a financing friendly economy at the moment. However, let's assume energy demands overweigh political and financial issues and that the technology is developed. We still live a world where we have "the rise of the rest", and that means India, China and a lot of other nations will have an increased demand to sustain their growth. Not sure punching a few more soda straws seven or more miles deep into the ocean will meet that demand.

There would have to be a whole lot of new holes being drilled.

One of the keys to managing the medium-term energy future is keeping oil prices high. That will have impact on both the supply and demand sides. High oil prices will call up new supply and will lead the development of new technologies, if they are sustained. It won't happen overnight, and if high prices are seen as just another risk-driven spike, they accomplish nothing.

On the demand side, if you look at energy use per unit of GDP, you see very quickly that India and China in particular are exceedingly inefficient users of energy. That's because the infrastructure that underlies their current growth was laid down during the 90s oil glut. Sustained high oil prices will force a redirection of development... would the US have developed its personal transport economy and its energy-intensive ways if oil had been at $100 a barrel from 1950-1975? Not likely. If oil stays expensive, you will see concerted efforts by these countries to move in non-oil directions, out of self interest. I suspect we're going to see a surge of nuclear and coal construction in China in the next decade. Greenpeace will have fits but the Chinese don't care, nor do they have to deal with the NIMBY situation.

One of the most critical energy policy objectives I can think of for the next decade, counterintuitive though it may seem, is to keep oil prices up.



Other issues, if oil prospects for the U.S. look better in our backyard, why would western oil companies invest in places like Nigeria? What impact will that have on their economy and subsequently their security and our security interests?

If the US won't the Chinese will.

As we've both mentioned, the impact of political risk on potential for investment recovery - particularly as the size of the needed investments grows - is going to be a major problem, probably as great or greater than the issues of absolute supply. If risk is high enough not even the Chinese will invest, and once they are burned a few times (it will happen, given the way they are managing their business now) their risk tolerance may shrink a bit.

Another of the great energy policy challenges of the next decade will be to work out arrangements that will allow the governments of the nations that have the oil to make deals with the companies that have the technology to find and extract the oil on terms that will allow reasonable ROI and risk mitigation for the companies without overstepping the demands of nationalism on the part of the countries. Again, this may be a more vexing problem than any absolute supply constraint.

Rick M
09-06-2009, 12:27 PM
Here is some more info on Tiber & GoM oil, both from GLG.

Lynch is (as always) optimistic:
http://www.glgroup.com/News/BPs-Tiber-has-to-be-big-but-how-big--43001.html

The other (unnamed) analyst is less so:
http://www.glgroup.com/News/Tiber-Discovery-Will-Not-Imact-Global-Supply--Demand-for-Oil-43004.html

Rick M
09-07-2009, 02:59 AM
This appeared today in the The National (out of the UAE).
It provides the latest warning of an imminent supply crunch if serious investment does not kick in.
The author warns that "$147 a barrel oil [will] seem like a blessing" compared to what's coming if we can't get our collective act together.

This is a sensible article which links the concerns of peak oil, depletion rates and the urgent need for investment:
http://www.thenational.ae/apps/pbcs.dll/article?AID=/20090906/BUSINESS/709069952/1058&template=columnists

Surely it would be prudent for North Americans authorities to dust off & review our fuel emergency plans (at every level: federal, state/provincial and local).
It's possible to have a serious fuel emergency without physical shortages: all it would require is widespread unaffordability (which would almost certainly lead to public unrest).
Consistent warnings are being issued on this impending supply crunch, but there is little public awareness, no political or media interest, and therefore no observable action.

Rick M
09-08-2009, 01:55 AM
As for other evidence on the imminency of the expected "supply crunch" and price spike, I would point to several documents:

1. last summer's Chatham House report: "The Coming Oil Supply Crunch."
This report by Paul Stevens was written in Aug.08 and updated in May 09.
His 40 page analysis warns that "a supply crunch appears likely around 2013" (p.8).

In his May 09 update, Stevens stands by this prediction: "the developments since publication of the report in August 2008 have done little to change its original
conclusions" (p. 37).

This link provides an intro and link to the complete study:
http://www.chathamhouse.org.uk/publi...view/-/id/652/

2. last summer's Chatham House report on oil exporters
In July 08 a 40-page study was released by Chatham House in the UK.
Entitled "Ending Dependence: Hard Choices for Oil Exporting States", their assessment is stark:
"Of the twelve countries in this study, oil production is in decline or at a plateau in three: Indonesia, Malaysia and Norway.
In a further seven countries, the plateau will be reached around 2010.
Saudi Arabia and Kazakhstan will reach a plateau before 2020" (p. 35).

Clearly, if export capacity is headed for such near-term limitations, a supply crunch should be on everyone's radar.
The study is available here:
http://www.chathamhouse.org.uk/news/view/-/id/457/

3. the IEA's most recent World Energy Outlook
The Nov. 08 WEO is striking in its tone, warning that "global trends in energy supply and consumption are patently unsustainable" (p. 37) and that "time is running out" (p. 49).
It states, "Some 30 mb/d of new capacity is needed by 2015. There remains a real risk that under-investment will cause an oil supply crunch in that timeframe" (p. 41).

Paul Stevens (#1 above) has a concise analysis of the WEO in his May 09 update (p. 35).

4. public statements by Fatih Birol
Mr. Birol is the Chief Economist of the International Energy Agency.
He has provided several presentations and interviews since the release of last year's WEO and has repeatedly warned of the dangers of under-investment and of a potential supply gap "after 2010."

His recent interview with Steve Connor of The Independent (UK) is cited here:
http://www.independent.co.uk/news/sc...t-1766585.html

Mr. Birol is further quoted as saying, "the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted."

My concern is that despite this credible information, the potential for a near-term oil supply crunch & price spike does not seem to be on the radar of our policy-makers or the public.
Whether a crunch occurs in 2015, "after 2010" or somewhere in between, the time-frame is very tight when we are looking at something as colossal as the global supply of affordable liquid fuel.
This urgency is greatly compounded by our reluctance to acknowledge that a problem even exists.

Surely we need to prepare for such a situation.
I have several questions which I hope this group can assist with:
Can anyone shed light on the status of US plans for liquid fuel emergencies (LFE)?
Has anyone seen a written LFE plan at any level?
Does anyone know anyone who has?

Has anyone examined the recent LFE work in Australia and the UK?
Should we not be conducting similar reviews of our fuel emergency plans here in North America?

Since the military and National Guard are often called upon when domestic emergencies are beyond the capabilities of local authorities, this information and the the subsequent questions should be of some relevance to this audience.

Thanks very much for considering this, all of you.
Other views are welcome.

Bill Moore
09-08-2009, 06:43 AM
Posted by Rick M,
Surely it would be prudent for North Americans authorities to dust off & review our fuel emergency plans (at every level: federal, state/provincial and local).
It's possible to have a serious fuel emergency without physical shortages: all it would require is widespread unaffordability (which would almost certainly lead to public unrest).
Consistent warnings are being issued on this impending supply crunch, but there is little public awareness, no political or media interest, and therefore no observable action.

Rick, you know how we are, we like to admire and discuss problems and potential crisises, but we don't solve them until they are a crisis.

Rick M
09-09-2009, 03:43 AM
Hi, Bill

You are correct, it isn't a crisis yet, and maybe it won't be a crisis for several years (though it is unlikely that we can carry on for many decades).
But you are also correct in noting that we tend not to address things until a crisis hits.

That is my central fear... despite the evidence that oil production must eventually peak, that exports will be curtailed first, and that a near-term supply crunch (because of under-investment, not below-ground reserves) appears increasingly likely, we still carry on our merry way.

There is something almost Shakespearean about all this... human hubris... we attribute so much of our modern achievements to human ingenuity, when in fact much of it was the result of our ingenuity at getting this energy-packed liquid to do fantastic work for us.
We conveniently overlooked the fact that the stuff is finite, and we have made no provision for that unhappy fact.

Admiral Rickover was right a half-century ago... we have been "selfish and irresponsible" in squandering this one-time bonanza and putting our kids at increasing risk.

When it comes to petroleum supply, this issue is so complex and of such a scale that a major supply problem won't simply be a matter of fine tuning at the last minute.
We could easily get caught, but most North Americans appear to have no clue that such an event is even possible.

That is not an encouraging starting point, and we may actually find ourselves up against something (even though "that something" was reasonably predictable) which we cannot solve in a safe & orderly manner.

Pride goes before a fall, as they say, though I certainly hope that we can prevent a recurrence of this timeless human pattern.

davidbfpo
09-10-2009, 07:10 AM
This story intrudes and is difficult to identify why now: http://blogs.telegraph.co.uk/finance/rowenamason/100000869/britain-must-wake-up-or-risk-being-another-ukraine-in-the-global-energy-scramble/

The title alone should get attention, incidentally where is this place Ukraine? I can hear that question being asked.

davidbfpo

Rick M
09-12-2009, 03:32 PM
Last week the transcript of an interview conducted by ASPO’s Steve Andrews with Dr. Robert Hirsch was released.
Dr. Hirsch was the lead author of the landmark study of peak oil which was conducted for DoE almost five years ago.
Hirsch is a scientist by training and has spent an entire career examining various aspects of energy: nuclear fusion, alt-energy, oil refining, synfuels and electric power.

When it comes to energy supply issues, few analysts have the breadth of experience or the credibility of Bob Hirsch.

This concise interview (3 pgs) provides some intriguing background on:
- how the Hirsch Report got started (Hirsch suggested it)
- how the report was received once it was completed (NETL admin was shocked by its conclusions, there may have been an effort at higher levels to suppress the report, and “NETL was told to stop any further work on peak oil”).
- what’s happened since the release of the report in Feb. 05 (very little on the political front because it’s “a bad news story. There’s just no way to sugar-coat it…”).

Hats off to Dr. Hirsch for his courageous persistence on this issue.

Here is the link to this interview:
http://www.aspousa.org/index.php/200...g-of-peak-oil/

For those who have not yet examined the Hirsch Report, this article provides an introduction and link to the 91-page original report:
http://en.wikipedia.org/wiki/Hirsch_report

Rick M
09-24-2009, 11:51 PM
I finally completed a review of the May 09 energy security study by the Military Advisory Board of the Center for Naval Analyses.
The review was published this morning by Energy Bulletin:
http://www.energybulletin.net/node/50201

I would welcome your observations on both the CNA study and on this review of it.

Rick M
09-26-2009, 01:52 AM
An annotated bibliography of energy security studies which have been conducted by analysts from the military/security research community has been posted at Energy Bulletin:
http://www.energybulletin.net/node/50208

Many of these studies conclude that peak oil is indeed a credible near-term concern, and they have been flagged accordingly.

By presenting this bibliography, my hope is that the credibility of these military/security analysts will speak for itself: if they view peak oil as a credible concern, then the rest of us really should take note.
As always, I thank you for considering this information, and I would appreciate your observations.

Rick M
09-29-2009, 03:29 AM
We have had increasing warnings about a near-term oil supply crunch.
The warning with the strongest language yet appeared today in an interview with Sadad al Husseini (former senior official with Saudi Aramco).

Here are Sadad's main points (all direct quotes from last week's recorded interview):
- there are not enough projects. There is not enough new capacity coming on line, within the next five to six years, to make up for global declines.
- we are basically going to see a shortage of capacity within two or three years. We're being lulled by this current excess capacity....
- we do have a problem in the near term. In the longer term it's even worse.... So it's both a short and long-term problem.
- from 2003 forward, oil production has hardly increased. So the information is there.... the market it not able to deal with these realities... people can't deal with these realities.
- [we can't] act as if these issues don't exist and then wait for some solution to materialize out of nowhere.

Here is the EB link to this interview:
http://www.energybulletin.net/node/50234

Rick M
10-22-2009, 01:26 AM
I returned a week ago from the international ASPO conference in Denver, which was a remarkable 3-day experience.

I know that peak oil is hardly a favourite topic, but I would like to offer you the latest info:
First, the recent data on declining oil exports is very concerning… it is hard to imagine how we will make it through the next decade without a significant drop in available oil exports, which is bound to produce a more sustained price spike.

Second, an excellent UK study was released yesterday regarding government inaction on peak oil.
This study is reviewed in the first item, which provides a link to the original document:
http://www.energybulletin.net/node/50447

Third, CBC in Canada is finally moving on peak oil and there will be some info on CBC Radio's "The House" this coming Saturday morning.
More on that later.

slapout9
10-22-2009, 03:26 AM
I returned a week ago from the international ASPO conference in Denver, which was a remarkable 3-day experience.

I know that peak oil is hardly a favourite topic, but I would like to offer you the latest info:
First, the recent data on declining oil exports is very concerning… it is hard to imagine how we will make it through the next decade without a significant drop in available oil exports, which is bound to produce a more sustained price spike.

Second, an excellent UK study was released yesterday regarding government inaction on peak oil.
This study is reviewed in the first item, which provides a link to the original document:
http://www.energybulletin.net/node/50447

Third, CBC in Canada is finally moving on peak oil and there will be some info on CBC Radio's "The House" this coming Saturday morning.
More on that later.

Nothing to worry about that Invisible Hand is just gonna swoop down and fix everything:wry:

Dayuhan
10-24-2009, 12:21 AM
an excellent UK study was released yesterday regarding government inaction on peak oil.


I personally don't think that we should point the finger at "inaction on peak oil" or demand action "on peak oil". The danger there is that if the supply/demand equation moves at any point in a direction not compatible with peak oil theories, that can serve as a justification for abandoning policies that are likely to be unpopular.

Better I think to emphasize that overdependence on oil exposes us to a whole range of risks, including but by no means limited to absolute depletion and the peak oil hypothesis. That emphasis can drive a range of actions from both public and private sectors, ranging from increased investment and development of investment structures that satisfy host country nationalism to greater efficiency, conservation, and plans for sudden shortage.

The "invisible hand" actually has a vital role to play, and it is critically important that oil remain expensive regardless of supply/demand shifts. Policies to manage the range of risks resulting form oil dependence require will on the part of government, business, and the populace; when the price of energy drops, that will evaporates.

Bill Moore
10-24-2009, 04:22 AM
Posts by Dayuhan,


I personally don't think that we should point the finger at "inaction on peak oil" or demand action "on peak oil". The danger there is that if the supply/demand equation moves at any point in a direction not compatible with peak oil theories, that can serve as a justification for abandoning policies that are likely to be unpopular.

I thought you posted some excellent insights. I would add that if there is a favorable demand in either supply or demand that permits lower fuel prices it will serve as justification for abandoning sound policies that are likely to be unpopular, which means we will postpone further investment in exploration and investing in alternative forms of energy and energy efficiency technologies, so once again we'll admire (and do nothing about it) the problem we see coming until it is a crisis.


Better I think to emphasize that overdependence on oil exposes us to a whole range of risks, including but by no means limited to absolute depletion and the peak oil hypothesis. That emphasis can drive a range of actions from both public and private sectors, ranging from increased investment and development of investment structures that satisfy host country nationalism to greater efficiency, conservation, and plans for sudden shortage.

I suspect we're putting more money in the hands of Islamist extremists driving SUVs and other fuel inefficient vehicles than the kids buying dope linked to organized crime and violent extremist groups. Oil money going to the Middle East provides the wealth for the fundamentalists to generously donate to their favorite group ranging from Hamas to Al Qaeda. There are a host of other geopolitical risks related to our dependency on oil that could easily drag us into another conflict that we could otherwise avoid.


The "invisible hand" actually has a vital role to play, and it is critically important that oil remain expensive regardless of supply/demand shifts. Policies to manage the range of risks resulting form oil dependence require will on the part of government, business, and the populace; when the price of energy drops, that will evaporates.

I tend to agree, so if you're right, then the crisis is unavoidable, thus one focus should be on what does the crisis mean to our national security, how do we mitigate the crisis (versus prevent it).

slapout9
10-24-2009, 04:24 AM
The "invisible hand" actually has a vital role to play, and it is critically important that oil remain expensive regardless of supply/demand shifts. Policies to manage the range of risks resulting form oil dependence require will on the part of government, business, and the populace; when the price of energy drops, that will evaporates.

What you are talking about is a rational Government Policy designed to protect it's citizens and that is the total complete opposite of the "invisible hand" theory.

Dayuhan
10-24-2009, 07:54 AM
What you are talking about is a rational Government Policy designed to protect it's citizens and that is the total complete opposite of the "invisible hand" theory.

That's not what I'm talking about, actually. High oil prices are a prerequisite for rational Government policy, not a consequence of it. Of course Government action to keep oil prices high would be rational and desirable, but it's also unthinkable: any politician that proposed such a course would be charged with promoting the interests of oil companies and ay-rabs and would face public crucifixion. Disquieting though the thought may be, we rely on the invisible hand to keep energy expensive. The initiative will not come from government.

The problem is vexing enough to start with; it is made far more so by the American public's apparently unshakable conviction that cheap abundant fuel is an inalienable right that government is supposed to protect and preserve. Even at the peak of the recent oil price surge, polls showed huge numbers of Americans believing that there was really no supply/demand interaction behind high prices and the whole thing was an oil company plot. We the people just don't get it, for the most part.


I suspect we're putting more money in the hands of Islamist extremists driving SUVs and other fuel inefficient vehicles than the kids buying dope linked to organized crime and violent extremist groups. Oil money going to the Middle East provides the wealth for the fundamentalists to generously donate to their favorite group ranging from Hamas to Al Qaeda.

On this I'm not so sure. I think AQ found it much easier to raise support and money during in the gulf during the oil glut and consequent economic misery of the 90s than they did during the recent oil boom. Ideologies of hate and victimization are harder to sustain during prosperous times. If we stop putting money in the hands of the Gulf Arabs, and a real economic collapse ensues, AQ will have a wonderful time exploiting that. Of course there would be less money around for them to raise, but there will always be some and they really don't need that much to make a mess. I personally think prosperity in the Gulf accrues to our favor, while poverty favors our opponents.


if you're right, then the crisis is unavoidable

Not necessarily. I said that the will required depends on high oil prices, but I do think high oil prices are likely to continue even without any Government action, which is a plus point. There will certainly be change and there will certainly be some level of dislocation and discomfort (likely to be interpreted by media as a crisis), but I do not see cataclysmic events as inevitable. We rely on a factor we do not control - sustained high prices - to reduce consumption, increase production, and drive investment and innovation, and to a large extent the near to medium term energy equation will be driven by political events in countries that we also cannot control. All this lack of control is not reassuring, but it's something we need to learn to work with.

Bill Moore
10-24-2009, 12:36 PM
Posts by Dayuhan,


I think AQ found it much easier to raise support and money during in the gulf during the oil glut and consequent economic misery of the 90s than they did during the recent oil boom. Ideologies of hate and victimization are harder to sustain during prosperous times. If we stop putting money in the hands of the Gulf Arabs, and a real economic collapse ensues, AQ will have a wonderful time exploiting that. Of course there would be less money around for them to raise, but there will always be some and they really don't need that much to make a mess. I personally think prosperity in the Gulf accrues to our favor, while poverty favors our opponents.

I'm only speculating, but the oil glut in the 90s probably didn't significantly impact the wealth of the elite in the Gulf States. Assuming that their wealth is impacted significantly in the future, then theiir generous donations to NGOs that are nothing more than front companies for extremist groups would have to be decreased, which over time would have a negative impact on a number of terrorist groups. Weapons, militant salaries, ammunition, medical, etc. all cost money, and those prviding them have the money.


Not necessarily. I said that the will required depends on high oil prices, but I do think high oil prices are likely to continue even without any Government action, which is a plus point.

Depends on what you consider "high" oil prices. From what I'm reading the oil industry needs to maintain the price around $70.00/barrel to break even (a lot of factors, but probably true for the oil sands in Canada and the deeper wells in the ocean where exploitation simply costs more). There is no guaruntee that oil companies will intelligenty invest those profits to ensure a sustainable future, but that is another issue. Back to the main point, once the current economic crisis passes we'll be able to sustain economic growth at that price, but if it goes higher it is questionable. $100.00/barrel oil had a significant impact on the economic growth, but it didn't happen over night, so while we can survive spikes, I remain less optimistic about sustained high prices and think governments will intervene with subsidies, etc., which will only delay the pain.

Dayuhan
10-24-2009, 11:06 PM
I'm only speculating, but the oil glut in the 90s probably didn't significantly impact the wealth of the elite in the Gulf States. Assuming that their wealth is impacted significantly in the future, then theiir generous donations to NGOs that are nothing more than front companies for extremist groups would have to be decreased, which over time would have a negative impact on a number of terrorist groups. Weapons, militant salaries, ammunition, medical, etc. all cost money, and those prviding them have the money.


If the Saudi elite were completely broke, they wouldn't be able to fund terrorism. Realistically, though, this is not going to be a significant factor any time soon. Even with maximum investment in efficiency, conservation, and alternatives, oil is going to be a significant part of the global energy matrix for the next 20-30 years, which means the Saudis will have revenue. They also have very extensive investments in various assets around the world. It's not likely in any forseeable future that they will be unable to fund terrorism, which makes the will more important than the capacity.

I do think there's been a significant shift in the Saudi elite's perception of AQ since the 90s. During the anti-Soviet jihad, bin Laden was a hero and support was practically mandatory; that aura took some time to wear off. The American military presence during the 90s was an irritant, as was the inaccurate but widely held perception that the low oil price was a consequence of manipulation by the US and the oil companies (an interesting echo of the way Americans tend to perceive high oil prices). That combination drove considerable support for the bin Laden narrative at all levels of society.

That all changed with the oil boom, which rendered the 90's narrative of resentment obsolete. It was difficult to sustain the idea that the US would never allow Arabs to succeed or get a fair price for their assets when oil was over $100 a barrel and Bush was crawling to Jeddah to beg the king to pump more. The Saudi elite have also become increasingly aware that bin Laden would prefer to see them dead in a ditch, and that if he and his cohorts ever gain control the only thing they have to look forward to is a bullet in the head, not much of an incentive to contribute - though some might be willing to fund the Afghan jihad on the assumption that it will drain radicals from Saudi Arabia and keep them occupied (and preferably dead) elsewhere.



Depends on what you consider "high" oil prices. From what I'm reading the oil industry needs to maintain the price around $70.00/barrel to break even (a lot of factors, but probably true for the oil sands in Canada and the deeper wells in the ocean where exploitation simply costs more).


$70 might be a break even point for the really expensive oil but overall I'd say that figure is high.



There is no guaruntee that oil companies will intelligenty invest those profits to ensure a sustainable future, but that is another issue.

The real issue here is not the Western oil companies, which have a fairly good track record of investment, but the national oil companies in producing countries, which control increasing proportions of world production. Many countries set investment terms that make foreign investment unattractive at any oil price, or are too unstable for foreign companies to be interested. Domestic investment in many of these countries is insufficient to sustain production, let alone increase it. In many cases oil revenue is stripped to fund the personal expenses of the elite or ambitious social and political projects. National oil companies in Venezuela and Mexico actually contrived to lose money in 2007 and 2008, equivalent to starving in the midst of a buffet dinner. The governments in these cases would rather put the money into their own efforts to stay popular and in power than into feeding the goose that lays the golden eggs. Again, this is something that western governments and companies cannot control.

This also has some impact on the point you made about the Gulf Arabs. The Arabian Gulf states are one of the only places where really significant investment is being made in new production, and the world's dependence on them is likely to rise, not drop, in the near future.



Back to the main point, once the current economic crisis passes we'll be able to sustain economic growth at that price, but if it goes higher it is questionable. $100.00/barrel oil had a significant impact on the economic growth, but it didn't happen over night, so while we can survive spikes, I remain less optimistic about sustained high prices and think governments will intervene with subsidies, etc., which will only delay the pain.

True of course, and this is why expensive oil is unpopular. In the long run, though, the economic impact of cheap oil, an incentive to profligacy and a disincentive to investment and efficiency, will be far worse than the economic impact of expensive oil.

Rick M
10-26-2009, 12:41 AM
For those who may be interested, CBC is Canada's public broadcaster, funded largely by public revenues (ie. our tax dollars).
CBC Radio has an excellent 50-minute weekly show which covers Parliamentary affairs, called "The House."
For the past several weeks, this show has focused on peak oil and its implications for various sectors.
Yesterday's broadcast had a 10-minute segment on the agri-food sector.

Here is the link to The House's archive... go to Oct. 24 and let it load completely (yellow bar, which takes about 2 mins).
http://www.cbc.ca/thehouse/index.html

Then slide the slider until the right side of the slider lines up with the center of the bar-zone.
You should hear them talking about Going Local, agri-food and peak oil.
This segment totals 10 mins: first 5 mins with 2 Ottawa farmers, then 5 mins. on Canadian government inaction.

Despite some progressive activity in the USA (Roscoe Bartlett's Peak Oil Caucus in Congress) and in the UK (APPGOPO), little seems to be happening in their ag departments (USDA and DEFRA, respectively) in terms of planning for an end to cheap fossil fuels.
But here in Canada we aren't even asking the questions, let alone working on answers/responses....

Rick M
11-10-2009, 03:29 AM
A Guardian article published earlier today states that two senior officials within the International Energy Agency have recently come forward (anonymously) to state their concerns that the world's oil supply is less rosy than many would have us believe:
http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency

Rick M
11-17-2009, 01:28 AM
A press release (below) was issued a few hours ago from NFU head office in Saskatoon.

Thanks to the IEA whistle-blowers last week (and some further info in the past few days), there is finally some momentum on this issue.

The central concern is that the public is not being told the whole story... apparently not by the IEA internationally and certainly not by NRCan here in Canada.

Please note the 10 trends in the "backgrounder" and the link to supporting military/security research.

Here is today's press release:
http://www.nfu.ca/press_releases/press/2009/November-09/Global%20energy%20watchdog%20pressured%20to%20down play%20supply%20concerns.pdf

Rick M
11-19-2009, 02:07 AM
To my great surprise), this appeared last night:

http://peakoil.com/modules.php?name=News&file=article&sid=52746

You need to click on the link to Energy & Capital (at the bottom) to get to the complete article.
I'm thankful that someone views fuel emergencies as worthy of concern and has noticed the ASPO presentation on this issue.

Rick M
11-21-2009, 02:34 PM
Yesterday the Texas Supreme Court annonced that it will re-hear the case against Exxon-Mobil (which the Court dismissed in March).

This decision is unusual and should be commended.
Hopefully this will allow the whole truth to come out.

Again, the only place I've seen any media coverage of this issue has been by Noah Brenner at Upstream Online.
Please correct me on this if anyone has seen coverage anywhere else.

Here is yesterday's article:
http://www.upstreamonline.com/live/article199693.ece

Ski
11-22-2009, 02:50 PM
I've been doing quite a bit of research on the Mexican oil industry as part of a SAMS exercise over the last two weeks.

Mexico is in really bad shape and it's only going to get worse.

Their largest field, Cantarell, is dropping off the charts in terms of daily production. It's expected to go below 700,000 barrels a day by the end of the year, and under 400,000 barrels a day by 2012. The US Energy Information Agency said earlier this year that Mexico will be a net importer of crude oil by 2017. Why is this important?

1. The Mexican oil industry is nationalized. 40% of the federal budget comes directly out of oil profits. If they become a net importer, not only do they lose a significant percentage of the federal budget, they will lose additional federal funds in order to meet the import requirements.
2. Mexican demand is expected to rise 10-15% by 2017.
3. Mexico is the third largest importer of crude oil to the US. In 2005/6, the US was getting 1.2/3M barrels a day shipped northward.
4. The US is actually subsidizing Mexico's economy by running a trade deficit of $65-90B dollars per year (the numbers vary depending on what source), of which about $40B comes from oil profits.
5. If the Mexican federal state cannot develop new fields (and they've spent literally nothing in terms of exploration or infrastructure sustainment) , they will not anything to replace that lost income, and I suspect there will be a crisis of political legitimacy within Mexico.

davidbfpo
11-22-2009, 03:57 PM
Coming to the rescue - shale oil? See:http://www.spectator.co.uk/business/5504363/put-the-lights-back-on-shale-gas-has-arrived.thtml He has written other articles that IIRC read "It's OK". The author has worked for BP and as a (London) city journalist.

Bill Moore
11-22-2009, 09:37 PM
In article posted by David,


All this presents us with an unexpected problem. Gas is cheap, abundant and low-carbon. There could well be vast untapped resources of it in Europe. The Chinese may find their own supply, turning the global gas equation from one of excess demand to one of too much supply. All told, shale could be the biggest energy breakthrough since the North Sea oil discoveries of the 1960s. If so, it will be time for our energy planners to head back, once again, to the drawing board.

Interesting, and while I have read several article on new NG finds, I have also read others that indicate these new gas finds are rapidly depleted once exploitation starts, much faster than anticipated. Need to research this one some more. The other obstacle, or opportunity, is for gas to replace either coal or oil, there is a considerable amount infrastructure work required to make this feasible. You can't move gas in the same pipelines you push crude in (compressors instead of pumps) or in the same type of rail cars you move coal in. I hope the article is accurate, but I remain skeptical.

Rick M,

I'm surprised that the news of EXxon-Mobil sabotaging oil wells in Texas is making the headlines (makes you wonder who owns the media). They don't seem to be denying it, just claiming that is too late to press charges?

slapout9
11-22-2009, 09:53 PM
In article posted by David,



Interesting, and while I have read several article on new NG finds, I have also read others that indicate these new gas finds are rapidly depleted once exploitation starts, much faster than anticipated. Need to research this one some more. The other obstacle, or opportunity, is for gas to replace either coal or oil, there is a considerable amount infrastructure work required to make this feasible. You can't move gas in the same pipelines you push crude in (compressors instead of pumps) or in the same type of rail cars you move coal in. I hope the article is accurate, but I remain skeptical.




Bill, I think it is pretty accurate and there are a lot of articles out there about it, but it has a problem. The process to get the gas is called hydraulic fracturing, using water to break up the shale. It requires huge amounts of it, which is why some military people are saying the new Liquid Wars will be about water as opposed to crude oil.

Rick M
11-22-2009, 11:02 PM
Ski, you are correct re. Mexico.
Jeff Rubin predicted that Mexico will be finished as an exporter of significance by 2012. The 2017 date is widey regarded as an outside figure.
How the US will make up for the loss of its #3 supplier remains to be seen.
Saudi Arabia, Iraq and tar sands expansion may do the trick.
A more intractable problem may be that of having a failed narco-state next door.

David and Slapout, I agree with Bill on shale gas.
I disagree with Trefgarne on many points, but here are a few:
- He (along with many others) attributes the current glut and low prices to SG. SG is only a small part of overall North American NG supply.
- Contrary to his talk of "an early snow this winter" (ie. high demand??), this fall has been uncommonly warm in eastern Canada. Our winters aren't what they used to be, and NG heating demand has been down for several years.
We also had a very cool summer, hence low demand for NG to power A/C.
- The fact that $4.50 cannot support a SG industry escaped Mr. T.
Art Berman provided a reasoned, meticulous analysis of the economics of SG at the international ASPO conference last month:
http://www.aspo-usa.com/2009proceedings/Art_Berman_12_October_2009.pdf

Unfortunately, Art's call for critical thinking on SG quickly cost him his job at World Oil.
Furthermore, World Oil's long-standing editor, Perry Fischer, was suddenly fired:
http://petroleumtruthreport.blogspot.com/2009/11/letter-from-perry-fischer-former-editor.html

Surely we have a dangerous situation when the only voices that will be tolerated in the oil world are those of the optimists.

Slapout, you are correct on the water issue.
Both SG and shale oil require lots of water, and there are increasing reports of fracking fluids contaminating water-wells.
The top of the Marcellus SG deposit is under the watershed which supplies NYC, so there are growing concerns about allowing drilling in that area despite its excellent SG potential.

Rick M
11-22-2009, 11:15 PM
Sorry, something else from the Trefgarne article.
He says that people "can re-route a cargo at the press of a button, making supply infinitely more flexible to demand."
He is correct about LNG cargoes being suddenly re-routed, but it's happened because somebody offered considerably more for the cargo.
That's flexibility all right, but it's hardly security of supply (what about the original contractor who still needs the LNG?).

More at the Berman thing just appeared in the Financial Times:
http://www.ft.com/cms/s/0/3ea7c35a-d604-11de-b80f-00144feabdc0.html?nclick_check=1

I spoke with Art at length in Denver and he struck me as a very intelligent and honourable fellow... not plugging a book, no axe to grind... simply urging caution and critical thinking on various aspects of shale gas.
He's exactly the sort of person whom I would want to safeguard the energy needs of our grandkids.

Rick M
11-22-2009, 11:21 PM
Again, I apologize for popping in & out like this, but I keep finding stuff that I think will be of interest.

Ski, further to your points about Mexico, this was just posted:
http://www.reuters.com/article/featuredCrisis/idUSGEE5AL039

Ski
11-23-2009, 12:43 AM
Rick

I've seen similar data from other sources.

The maquiladoras along the US-Mexico border just asked for the UN to deploy peacekeepers in the major cities on the Mexican side of the border.

The drug cartels are a major issue to be sure, and for a slew of reasons. I think the potential collapse of the Mexican political state is going to occur because of a combination of the cartels, the corruption of public officials, the wealth distribution gap, and then finally the collapse of their economy because of the lack of external revenue sources (ie, fossil fuels).

Bill Moore
11-23-2009, 01:00 AM
Posted by Ski

I think the potential collapse of the Mexican political state is going to occur because of a combination of the cartels, the corruption of public officials, the wealth distribution gap, and then finally the collapse of their economy because of the lack of external revenue sources (ie, fossil fuels).

Ski, not sure if you're predicting the fall of the Mexican political state or simply stating it is potential. I think an argument could be made that any political state could collapse at anytime due to unforeseen system disruptions, but the same can be said about unforeseen factors that allow the State to continue on. Mexico is experiencing serious problems as you indicated, but they always had a huge wealth distribution gap (what Catholic country doesn't?), so that in itself won't bring it down (unless the emerging middle class experience a down turn in status. As for corruption, well it's Mexico, does anyone think the drug cartels will govern better? The drug cartels can be defeated if they pull out all stops and decide to do so. The external revenue issue is probably the most serious, because it will touch almost every aspect of Mexican society.

Why do you think it will collapse? I understand the reasons you listed, but how will this play out into an actual political collapse? Have you studied any parallel scenarios from history where the Political State collapsed because of these reasons?

Surferbeetle
11-23-2009, 01:32 AM
From the Atlantic by Phillip Caputo: The Fall of Mexico (http://www.theatlantic.com/doc/200912/mexico-drugs)


In the almost three years since President Felipe Calderón launched a war on drug cartels, border towns in Mexico have turned into halls of mirrors where no one knows who is on which side or what chance remark could get you murdered. Some 14,000 people have been killed in that time—the worst carnage since the Mexican Revolution—and part of the country is effectively under martial law. Is this evidence of a creeping coup by the military? A war between drug cartels? Between the president and his opposition? Or just collateral damage from the (U.S.-supported) war on drugs? Nobody knows: Mexico is where facts, like people, simply disappear. The stakes for the U.S. are high, especially as the prospect of a failed state on our southern border begins to seem all too real.

Ski
11-23-2009, 03:34 AM
Bill

I don't think there are too many lessons from history to apply to Mexico.

The problems in Mexico are not unseen. Here's a list of what I found that could contribute to a collapse to Mexico:

1. Lack of oil revenue - it cannot be replaced by any other export. PEMEX is not allowed to modernize or explore because the revenue has been needed to subsidize the federal budget. There is some oil in the south of Mexico but it is splintered into many smaller fields. The Mexican government is going to face a massive funding gap within the next decade. I suppose they could open up Mexico to private exploration but that will only delay the inevitable. Mexican domestic demand is expected to rise 10-15% over the next decade, meaning they will have to spend more Federal money on imports.

2. The lack of revenue means the lack of services within Mexico. With the income gap growing significantly (10% of the population owns over 40% of the wealth), and adding the lack of revenue to the case will cause additional social friction. In 1994, Mexico denationalized over 1,000 companies, and the elite (also known as the 100 Families) bought almost all of them. The rich became much, much richer. The poor only benefitted a little bit if at all. Why support a government when it cannot provide anything of interest to you?

3. Mexico has been a classic "patron" political system since the 1920's. It's similar to the Baathist system - party members and their children are given better educations, more opportunities, more government jobs. The left leaning PRI has dominated the political scene from the 20's and the PAN, led by President Calderon - is struggling to hang onto power, as he won the 2006 Presidental election by less than 1%.

4. The drug cartels will not be defeated by the Mexican government. That's my big prediction. Too much money is flowing. Estimates are anywhere from $30-50B a year. The Mexican drug czar was arrested last year for taking $450K a month from the Drug Cartel. The cartels have influence at the local, state, and federal levels with every political party. Two potential outcomes: a. the people get pissed off from the violence and turn against the Cartels
b. the Cartels are assimilated successfully in the Mexican political process, the drug profits are seen as legitimate in order to replace the lost oil revenues. Calderon deployed 40,000 Mexican Army and Federal Police personnel earlier this year - and the violence is still raging. The nationalized Mexican banking system is almost certainly laundering drug profits.

4. Large indiginous population. 30M indigineous people. Two indiginous rebellions in the last 15 years - Chiapas and Oaxaca. Many of these people live in the dope and opium cultivating areas, and they become more populous the further south one goes. 90% of the cocaine in the US comes through Mexico. I would not be surprised if there are a number of tribes cutting deals for easy access into Mexico.

5. There are signs of hollow states occuring already in Sinaloa (home of the Sinaloa cartel) and Michochan. The Mexican government had over 2,000 "Zones of Exclusion" in 2007 and supposedly reduced that number to less than 400 last year. I am suspicious of both numbers and have not been able to find a great deal of open source info on this aspect of Mexico's decline. I would love to get some more info if it is available.

6. Violence and corruption are spreading into the US in the forms of gangs (MS 13 and M 18). Corruption rates in the Border Patrol, ICE and local law enforcement departments have been rising steadily since 2005.

How do I see it playing out?

Something like this:
Mexico's economy continues to get hammered by the global recession over the next two to three years. The middle class is getting smoked just like every other middle class in the world. The maquiladoras - from the high point of 4000 of them in 2000, at 3000 in 2009, continue to slowly fade away as cheaper companies in Asia take their place. Globalization has many side effects to many people.
The drug cartels continue to make big profits thanks to El Norte, and many people start joining them to get a full belly. in 2012, the PAN and Calderon are defeated, and the PRI regains power. The PRI looks to gain closer ties with other populist leaders in Central and South America. The drug cartels are allowed to operate with greater impunity as they continue to bring lots of much needed cash into Mexico. The drug violence along the border rises as the cartels bribe entire units of the Mexican Army and Federal Police to look the other way.
Mexican people are still ok with their government. The oil flow starts to dry up, and then Mexican government, regardless of party affiliation, becomes more an annoyance than anything else to the people of Mexico. They've lost the financial power to the drug cartels and the super-rich who own the corporations. The corporations and the cartels have deals in place - business will not be disrupted on either side of the coin.
By 2020, the Mexican government is a government in name only. The cartels have locked down the flow of drugs from the south, and own the Mexican side of the border. The political collapse has been slow - people just don't get anything from the government except for increased taxes (this is actually how Calderon expects to meet the shortfalls in oil revenue) over this period, and finally just ignore them. The state doesn't have the power to respond in any real manner.

The wild cards are the indiginous people, the US government, Chavez and other populist leaders, and the potential decriminalization of drugs both in Mexico (it's already happened for personal usage) and in the US.

Worst case scenario is the drug cartels become the government, form strategic alliances with Chavez, Cuba, and you have an unfriendly government - built on narco-economics on one hand and supra-national trade on the other - telling the US to get bent whenever they want to.

Of course, this reads like a dime store novel. But I really don't see how the Mexican government is able to survive all of this - mainly because it's visible now, and their response has been to increase taxes to make up for the lack of oil revenue, furthering the isolation betweent the government and the people. If the US economy sputters , the Mexican government will get hurt even more.




Posted by Ski


Ski, not sure if you're predicting the fall of the Mexican political state or simply stating it is potential. I think an argument could be made that any political state could collapse at anytime due to unforeseen system disruptions, but the same can be said about unforeseen factors that allow the State to continue on. Mexico is experiencing serious problems as you indicated, but they always had a huge wealth distribution gap (what Catholic country doesn't?), so that in itself won't bring it down (unless the emerging middle class experience a down turn in status. As for corruption, well it's Mexico, does anyone think the drug cartels will govern better? The drug cartels can be defeated if they pull out all stops and decide to do so. The external revenue issue is probably the most serious, because it will touch almost every aspect of Mexican society.

Why do you think it will collapse? I understand the reasons you listed, but how will this play out into an actual political collapse? Have you studied any parallel scenarios from history where the Political State collapsed because of these reasons?

Bill Moore
11-23-2009, 04:35 AM
Ski,

All good points, but predicting the future is always a guessing game. One that I'll join you in.

Mexico for the issues you already addressed continues to spiral into a kleptocracy for two key reasons:

1. The State is broke, it can't reasonably protect its citizens, and can't provide essential services, so it has lost its legitimacy with its citizens, if they want to maintain any form of power (or the illusion of it) they need to reach out to the cartels and build their legitimacy with them.

2. Elections are bought and cartels have the money to buy the elections, and thus the politicians.

Mexico is now run by the families through their surrogate politicians.

This rapid demise of Mexico and the serious threat it poses to the U.S. will encourage the U.S. to militarize its southern border in order to contain the problem (it won't work). The the desparate Mexicans who desire to escape (illegally immigrate to the U.S.) will look more like the Cubans fleeing on make shift watercraft in the Gulf of Mexico or in the Pacific (where they risk becoming a meal for the rather large great white population in that region). Yet the drugs and money will flow through alternative means that are more sosphisticated and bypass our S. border. They'll also continue to smuggle illegal aliens into the U.S. who can afford to pay for it (like the many they have already smuggling into the U.S. from the Middle East).


Violence and corruption are spreading into the US in the forms of gangs (MS 13 and M 18). Corruption rates in the Border Patrol, ICE and local law enforcement departments have been rising steadily since 2005.

Violence and corruption will continue to spread throughout Norte America via the vast Latino-American street gangs and Mexican mafia social plague already well established in most urban areas and currently seeping into rural areas as well. They can either buy cooperation or get it through coercion. Would you like to find your kid's head in your mailbox senor?

By now the majority of the world's global market is either gray or black, so governments have less of tax base, thus less and less resources to combat these trends. The corrosive effect begins to pick off our cities, counties and states one by one.

Of course this is a worst case, grade B movie, speculation, but not entirely unfeasible IMO.

What's the alternative scenario? What do we need to do to reverse this trend?

Ski
11-23-2009, 08:55 PM
Bill

It's difficult if not foolish to try and predict what is going to happen, but we still must try.

You make a very good point about the grey and black (we called them shadow economies) economies. Mexico is heavily affected by the shadow markets as well.

The alternate scenario for me is still in the works. I don't even have all (or nearly all) the variables identified yet. I know one thing - Mexico will be in real trouble economically over the next decade without critical economic, governmental and social reforms.

Rick M
11-24-2009, 11:54 PM
I'm afraid I don't have anything worthwhile to contribute re. Mexico.
I'm aware of the oil aspects but that's it... never been down there, only know what I have read.

On a different note, this was posted today re peak oil and our agri-food system.
I think that the situation in Canada applies equally to USA: the first farmer is looking at biofuels, the second at local food supply.
My comments re. our energy dept being in denial on PO apply equally to your DoE.
My comments re Agriculture Canada apply equally to your USDA.
Until DoE sounds the alarm, USDA is unlikely to examine how US agri-food might function in a world without cheap energy.
Here is the link... please let me know what you think:
http://www.energybulletin.net/node/50800

Rick M
11-29-2009, 10:15 PM
The Association for the Study of Peak Oil & Gas kindly invited me to present at their international conference in Denver last month.

This presentation was one of three in a 90-minute session entitled "North American Energy System Vulnerabilities."
Scott Pugh (DHS) and Jeff Brown (geologist & expert on export decline) both made excellent presentations and I felt honoured to present alongside them.

The following link should allow you to view the presentation, which examines the literature on how a fuel emergency may be planned for & administered, some of the key sticking points, and the ongoing lack of preparedness here in North America:

http://www.aspo.tv/rick-munroe.html

(For some reason this video is usually accessible without a password... I don't know why. I hope that ASPO will eventually make all of them available because most of them are superb.)

Please let me know what you think, especially if anyone spots something which you think is erroneous or misleading.

Rick M
12-27-2009, 12:28 AM
A rather thought-provoking article on the past decade was posted in today's Ottawa Citizen:
http://www.ottawacitizen.com/technology/Anxiety/2381805/story.html

A response was submitted (at bottom).
Other views are welcome, of course.

Best wishes to you all for the upcoming decade.
By the time it's done, I will be pushing 70... now that's an anxiety-provoking thought in itself.

slapout9
12-27-2009, 05:57 AM
Here is another definition for ASCOPE.......it's a pipeline project:eek:



http://www.ascopegas.com.my/ascopewss/agc/default.aspx

Rick M
12-27-2009, 03:20 PM
Hi, Slap

I was puzzled by your comment but checked out the link.
I was aware of the new pipeline to China having just opened but not of the ASCOPE group (thanks for that).

Being still puzzled by your comment about definitions, I googled ASCOPE and was informed as to its usual (military) meaning.
So now I get it.
I continue to learn from you guys... there are many acronyms that I don't always understand.

But speaking of pipelines, this should be of concern not only to Alaskans (published this morning):
http://www.thenewstribune.com/news/northwest/story/1007672.html

The larger concern here is a legitimate one: once a supply system appears to be unviable (for whatever reason), it may be abandoned.
The sudden loss of oil which might otherwise be brought to market could accelerate the drop in production.

In the case of Alaska, the drop in production has physical as well as fiscal effects to the pipeline.
Pipelines are expensive to maintain, especially in such a harsh climate.
It's not clear how the interplay between declining production and increasing maintenance costs will evolve....

Rick M
12-29-2009, 03:45 AM
This was posted earlier today:

http://www.businessinsider.com/russia-today-peak-oil-will-hit-in-2020-2009-12#comment-4b3979260000000000c1b336

Dr. Robert Hirsch (author of the landmark 2005 Hirsch Report on PO which was conducted for DoE) argues against two analysts who argue that there is no urgency re global oil supply.

I offered some observations at the end.

slapout9
12-29-2009, 04:35 AM
Hi, Slap

I was puzzled by your comment but checked out the link.
I was aware of the new pipeline to China having just opened but not of the ASCOPE group (thanks for that).

Being still puzzled by your comment about definitions, I googled ASCOPE and was informed as to its usual (military) meaning.
So now I get it.
I continue to learn from you guys... there are many acronyms that I don't always understand.

But speaking of pipelines, this should be of concern not only to Alaskans (published this morning):
http://www.thenewstribune.com/news/northwest/story/1007672.html

The larger concern here is a legitimate one: once a supply system appears to be unviable (for whatever reason), it may be abandoned.
The sudden loss of oil which might otherwise be brought to market could accelerate the drop in production.

In the case of Alaska, the drop in production has physical as well as fiscal effects to the pipeline.
Pipelines are expensive to maintain, especially in such a harsh climate.
It's not clear how the interplay between declining production and increasing maintenance costs will evolve....

Hi RickM, all and all I just thought it was an interesting coincidence;)

Rick M
01-01-2010, 10:51 PM
As if Pakistan doesn't already have enough on its plate: Swat Valley, increasing bombings, and chronic electricity shortages... its oil refineries appear to be on the verge of shutting down.
Whether this report is a ploy to get government support or whether it's the bottom-line reality of companies with no cash, the results could be very serious.
Adding fuel (or in this case, an absence of fuel) to an already inflamed situation is the last thing any country need, least of all in that corner of the world.

Here is the Pakistani link (posted earlier today), though it's not easy to decipher exactly what the situation is:
http://www.thenews.com.pk/top_story_detail.asp?Id=26410

Rick M
01-02-2010, 04:44 PM
Shale gas has been touted as the energy salvation of the USA.
As Art Berman found out, there seems to be zero tolerance for those who might rain on the SG parade (in Art's case, all he did was call for "critical thinking," apparently the ultimate sin).

There have been growing concerns about the environmental aspects, not just in terms of the volumes of water required, but more specifically with the fracking chemicals which are injected.
Two weeks ago NYC asked for a ban on SG drilling in its watershed.
48 hours ago the EPA expressed its concerns:

http://www.upstreamonline.com/live/article202557.ece?WT.mc_id=rechargenews_rss

Furthermore, it's been revealed that Exxon has an escape clause on its purchase of XTO Energy, which was widely celebrated as proof that SG had indeed come of age.

http://www.oilprice.com/article-exxons-built-in-escape-hatch-from-the-shale-gas-game.html

Rick M
01-09-2010, 11:10 PM
I have carefully read a document issued by the Chief of Force Development (DND Canada) entitled "The Future Security Environment 2008-2030."
What follows is from FSE Part 1, subtitled "Current and Emerging Trends" (27 January 2009).

First, this quote: "many experts believe that peak oil has been reached and.... Consequently, the world will face oil shortages and disruptions, rising prices, and increased competition" (FSE, p. 41).

The use of the word "will" in this context is significant, as this document (following the practice of the DCDC Global Strategic Trends Programme in the UK) attaches a probabilistic meaning to the term.
In its Terminology of Probability, the term "Will" means "Circumstances are already moving in this direction, and moving off this trajectory is not foreseeable."

Therefore I'm very pleased to see DND accept the view that peak oil is a fairly imminent issue, and there is some reassurance in seeing it warn of the near-certainty of oil shortages, disruptions and higher prices.

Part Two of the FSE series will be entitled "Future Shocks," where some attention should be given to the extraordinary complexity of dealing with oil supply shocks.
I will try to connect with the DND researchers who are working on this aspect.

Also, the footnote for the above info (#60) is credited to six sources, including Cameron Leckie (Major, Australian Army), Peter Johnston (researcher at DRDC in Canada), Kjel Aleklett (President of ASPO) and Robert Hirsch (who was the lead author of the Hirsch Report for DoE in 2005).
Links to the excellent research of all four have been provided on this site over the years.

Here is the link:
http://www.cfd-cdf.forces.gc.ca/documents/publications/Signed_Eng_FSE_10Jul09_eng.pdf

Of course it's one thing for DND to identify the concerns (though that certainly is step one, and I'm thankful for it), and another to do anything about it.
Canada's lead agency for energy, Natural Resources Canada, still insists that "there is no imminent peak oil challenge," and DND may be understandably reluctant to call them on that.
Also, there is a clear disjuncture between DND's warning of the near-certainty of oil shocks and the inadequacy of Canada's existing LFE plans at all three levels (national, provincial and local).

But it's encouraging to see such a prudent medium-term outlook on oil supply.
It's a clear statement from Canada's military analysts that
a) it views peak oil as a valid concern and
b) it views future oil shocks as a near-certainty.

Now we need civilian authorities to act on these prudent warnings....

Bill Moore
01-09-2010, 11:50 PM
RickM, I agree, and I wonder how anyone with even a little awareness of the issue could deny it. One can debate whether we have already hit peak oil, or debate when we hit it, but if it hasn't happened, it will happen, and the consequences over time will be severe (as we saw do the pre-mature surge in oiil prices due to largely to spectulators). Imagine sustained triple digit prices for a barrel of oil?

In very simple terms you can view the world as a coffee cup with finite capacity to hold oil, and it can't produce oil as fast we're extracting it.

Assuming there are no major system shocks (black plagues, nuclear war) that greatly reduce the global population and demand for oil, it is probably a safe bet that the combination of raising global middle class (especially in China and India) and increasing population will significantly increase demand, thus push us past peak oil an ever increasing pace.

The potential saviors are efficiency technology or alternative energy sources, the former has already made a dint, and the latter is far from being a reality.

This is a much greater national and global security issue than Al Qaeda, and unlike the last 9/11 we can clearly see this 9/11 coming. It also creates a situation where nation-state wars will be likely to secure energy supplies, so like many others I vote for caution against diverting our entire military away from large scale warfighting to engage in irregular warfare. We need to be prepared to defend what essential first.

Surferbeetle
01-10-2010, 12:31 AM
Dammit Bill I'm a civil engineer not a mechanical, chemical or petroleum engineer (http://en.wikipedia.org/wiki/I%27m_a_doctor,_not_a#.22I.27m_a_doctor.2C_not_a.2 8n.29....22)...:rolleyes:

IMHO this book is worth every penny. Beyond Oil and Gas: the Methanol Economy (http://www.amazon.com/Beyond-Oil-Gas-Methanol-Economy/dp/3527312757) by George A. Olah (http://en.wikipedia.org/wiki/George_Andrew_Olah), Alain Goeppert, G.K. Surya Prakash


Amazon Review -The increasing world population and the declining availability of cheap oil threaten to plunge the world into a global energy crisis. Concerns over our reliance on oil and gas and the impact of fossil fuels on the environment have escalated significantly in recent years. This book explores current energy sources (oil, natural gas, coal, atomic energy) as well as renewable alternative energies (wind, solar, geothermal, biomass, etc), the interrelation of fuels and energy, and the extent of non-renewable fossil fuel resources. Besides the need to find alternates to diminishing fossil fuels, the authors outline the need for hydrocarbons and their products way into the future despite depleting reserves and global warming, and examine the envisioned hydrogen economy and its significant shortcomings.It illustrates how methanol can be used as a convenient liquid fuel and a raw material for hydrocarbons and their products. The needed methanol can be made from a variety of sources including carbon dioxide (the main greenhouse gas). This timely book demonstrates how carbon dioxide from industrial exhausts (and eventually even atmospheric carbon dioxide) can be converted into safe liquid methanol.

Natural gas changes the energy map (http://www.technologyreview.com/energy/23694/) by David Rotman in the November/December 2009 edition of Technology Review

Lifeline for Renewable Power (http://www.technologyreview.com/energy/21747/) By David Talbot in the January/February 2009 edition of Technology Review

A Path to Sustainable Energy by 2030 (http://www.sciamdigital.com/index.cfm?fa=Products.ViewIssuePreview&ARTICLEID_CHAR=7232617C-237D-9F22-E8D11BD75EC6B0D5); November 2009; Scientific American Magazine; by Mark Z. Jacobson; Mark A. Delucchi

22 Dec '09 Bloomberg, Iraq’s Oil Output Quota May Become OPEC’s ‘Hot Iron’ (Update1) (http://www.bloomberg.com/apps/news?pid=20601110&sid=aLdSqISbzLP4) By Rob Verdonck


Iraq’s plan to boost oil output with the help of foreign companies may upset the Organization of Petroleum Exporting Countries’ efforts to support prices because the nation has no quota to limit its production.

Oil companies including Royal Dutch Shell Plc, BP Plc and OAO Lukoil may help Iraq meet a target to boost oil output capacity to 12 million barrels a day in the next six years after winning oil licensing rounds earlier this year.

Rick M
01-10-2010, 01:05 AM
Bill. I agree with you... we need to err on the side of prudence.
If our fossil fuel reserves turn out to be double what the PO analysts say, then we will have ensured that some gets saved for our grandkids, and we will have helped to address Climate Change.
Erring in that direction should not have overly negative consequences.

I tend to fucus on supply issues, not CC imperatives, but that's not to diminish their importance.

Surfer, I can't examine your info without paying.

I have heard good things about methanol and wish I could speak in an informed way to that topic, but I don't know enough about it.

I fail to see the relevance of the Leonard McCoy link.

I've already presented plenty of countering evidence re shale gas.
If it can be extracted in the volumes that are required, at affordable prices and without wrecking farmers' water, then of course I will join in the celebration, but I think we are a long way from celebrating just yet.
I support Art Berman's call for "critical thinking" on SG first.

Meanwhile, I think National Defence in Canada is on the right track... deviation from existing trajectories seems unlikely.
Those trends were more fully delineated here:
http://www.energybulletin.net/node/49779

If you wish to challenge any of them, then I would like to know on what grounds, and I would like the opportunity to respond.

Thanks for your ongoing interest, both of you.

-rm

Rick M
01-10-2010, 10:23 PM
This article today gives a good summary of what appears to be going on in Yemen, and mentions oil supply concerns.

The article states that less than a fifth of world oil production comes from the Gulf region, but I'm fairly certain it's at least 25% from just the 7 countries along the Gulf (around 22 mbpd of the 84-86 global prod'n).

http://news.yahoo.com/s/afp/20100110/ts_afp/attacksyemenqaeda_20100110124049

Rick M
02-14-2010, 04:51 PM
This has the potential to be a story of the highest order.
It's early yet, but the military has led the way on many fronts.

This is from yesterday's Guardian in the UK:
http://www.guardian.co.uk/environment/2010/feb/13/algae-solve-pentagon-fuel-problem/print

This provides some background from DARPA (last Oct):
http://www.defencetalk.com/darpa-works-towards-dod-energy-independence-22549/

Dayuhan
02-15-2010, 12:43 AM
There's a lot of interesting work being done on what might be called next-generation biofuels. Algae has a lot of potential and algae-based fuel production could be a significant industry in wet tropical countries (think Cambodia or Bangladesh) that desperately need the revenue. I do wonder how much land area you need to achieve commercial production... how much yield per hectare/year? Another factor will be the extent to which algae production competes for land with other users of flat wet land, for example rice cultivation, fish culture, and the desire to preserve remaining mangrove areas.

Cellulose-based fuels are of course a much better idea than conversion of grain to oil, a pretty deranged idea from the start.

I personally don't believe that we will see a single "magic bullet" energy source that will replace oil, rather the emergence of a wide variety of dispersed options for reducing dependence on oil. The key to development for all of them, of course, is to keep oil expensive.

Rick M
02-20-2010, 11:08 PM
Anthony Kimery at Homeland Security Today has demonstrated a sustained focus on oil supply vulnerabilities.
In this respect he is not unique: a growing number of analysts, both in the Peak Oil camp and outside of it, are active on this issue.

But Kimery is one of the few analysts who have moved beyond the usual concerns (eg. dependence on foreign oil, the transfer of funds from American citizens to unfriendly regimes, etc.) and considered the potential effects domestically of a major oil disruption.

Kimery has written numerous articles on various aspects, but I will introduce two which are particularly relevant.

1. Petrojihad: Bin Laden and the Oil Weapon (Sept. 07, 2 pgs)

This article provides some background context and gives a concise summary of Al Qaeda’s efforts against major oil installations (following Bin Laden’s 2004 call to prioritize such targets).
North America of course needs to have effective plans for fuel emergencies in any event, but knowing that there are determined people who are actively working to cause disruptions should be sufficient cause for us to review our fuel emergency plans.
Here is the link:
http://www.hstoday.us/content/view/578/92/


2. Oil Disruptions Threaten National Security (Aug. 08, 8 pgs)

This study provides further analysis of the Oil Shockwave exercises as well as issues which surround the Strategic Petroleum Reserve.
But most striking are Kimery’s warnings about the domestic vulnerability to a major oil shock.

He correctly warns that a well-executed terrorist attack could create a problem “unlike anything the nation has confronted.”
Kimery points out that “having no plan to deal with a catastrophic interruption” is an obvious vulnerability and specifically warns of the potential for “unprecedented civil unrest.”
He also points out that such a disruption would weaken the response capability of “law enforcement and first responders.”
Increased civil unrest coupled with decreased response capability is clearly a dangerous internal threat.

Furthermore, despite DHS awareness of the vulnerabilities and their ongoing efforts to grapple with these concerns, “the department does not have an overarching oil and fuel contingency plan in the event of a sudden disruption of imports….”
This, however, should not really be a surprise: I have a 2” binder full of studies (done by the GAO alone) over two decades (1974 - 1994) which consistently pointed out deficiencies in the DoE fuel emergency plan.
I have found no evidence that these problems were ever corrected.

Anthony Kimery is to be commended for his efforts to draw attention to this long-standing (and ever-increasing) vulnerability.
Here is the link:
http://www.hstoday.us/content/view/4750/150/

Thanks for your response, Steve, and thanks to you all for considering this information.
If anyone has suggestions on how your nation and mine might address this vulnerability, please offer them.

Rick M
02-21-2010, 03:12 PM
The first Oil Shockwave exercise was conducted in June 05 using top-level Washington insiders and senior military officers (Gates, Woolsey, Gen. Kelley, etc).
Other Oil Shockwave exercises have been conducting in subsequent years.

Last night CNN carried the first Cyber Shockwave exercise (2 hrs).
I only got to see the final 45 mins but it was very interesting.

It's supposed to be repeated tonight on CNN @ 8 pm.

SethB
02-21-2010, 04:59 PM
I'll admit to not following this thread as closely as I should have. I've been interested in energy for a long time, and used it as a research focus in undergrad.

Forgive me if this point has already been addressed.

There are two kinds of energy security.

Strategic energy security relates to nations and economies. A strategic disruption is something along the lines of the oil embargoes of the 1970s.

Operational energy security relates to issues concerning the ability of a military to carry energy from where it is produced to the point of consumption. In peacetime this is easy. In combat zones it is difficult, dangerous and expensive.

From a military standpoint, the strategic threat isn't particularly high. DoD burns about 1% of domestic petroleum consumption (as a transport fuel). America produces 40% of its fuel domestically. So the military won't run out of fuel even if our supply lines were disrupted. What is a concern is disruption in theater. American ground forces are extremely fuel-bound. Not just for a mobility fuel, but also for electricity to power communications/computers/air conditioning etc.

Fuel supplies are relatively easy to interdict. Further, fuel use contributes to the general logistics snowball that surrounds US forces. Lastly, convoys can only meet the enemy on the enemies terms.

So the short term way to increase energy security is to reduce the operational need for energy.

Algae based fuels may indeed be the future, but in military terms they are little more than a stunt. If DARPA does succeed in developing them, then the benefit will be to society in general rather than the military in particular.

Dayuhan
02-23-2010, 01:59 AM
Anthony Kimery is to be commended for his efforts to draw attention to this long-standing (and ever-increasing) vulnerability.
Here is the link:
http://www.hstoday.us/content/view/4750/150/


I started reading this, but stopped at page 2 when I got to this...


Superpower confrontations for energy resources in Central Asia has begun. Confrontations with China can't be far behind, especicially as China works to get a foothold in the Middle East for its long-term strategic crude needs. China especially has its sights on Saudi Arabia, the US’s biggest supplier.

People who publish ought to get at least their basic facts straight: the US's biggest supplier, by a huge margin, is Canada. Saying that China "has its sights" on Saudi Arabia sounds terribly sinister, and doesn't reflect any particular real-world threat. China already buys large quantities of oil from the Saudis, in fact some reports suggest that in 2009 more Saudi oil went to China than to the US, with the US buying more from Mexico and Nigeria than it did from Saudi Arabia.

I also note a slightly irritating tendency to translate involvement of American companies in, say, pipeline construction in Central Asia, to American efforts to gain access to the region's oil. The involvement of American companies in an oil project does not mean that the oil will be going to the US. All in all he seems to play a bit fast and loose with his facts and seems eager to put a panic spin on every situation.

I suspect that the threat of terrorist attack is exaggerated: global oil infrastructure is dispersed, and a terrorist group would have to conduct a large number of effective simultaneous strikes to make a major impact. There's little evidence to suggest that AQ has the capacity to do this.

I'd be more concerned with the possibility of a major flareup with Iran, which would have the capacity to create a major supply disruption, or of major internal political upheaval in a producing country, for example Nigeria or Venezuela. In any case the impact would be felt more as an extreme price spike than as an absolute absence of oil.

Rick M
02-25-2010, 04:17 AM
Seth, I agree, I cannot imagine algae replacing anything like the 86 mbpd which we currently consume, or even putting a serious dent in that amount.

Steve, I would like to respond to three of your points.

1.Saudi Arabia vs Canada
You are correct, Canada supplies more crude & product to USA than any other exporter.
What you did not mention is that during the past year, imports from SA have declined by almost 40%…. In other words, the profile of US import supply has changed considerably during the past few years (as has that of eastern Canada).

Eighteen months ago, when Kimery wrote his article, the difference between the top five exporters to USA was actually quite close… certainly Canada did not dominate “by a huge margin” at that time.
An author who published in Aug. 08 would have probably been relying on data from early to mid 2008, which at that time showed the following approximate monthly volumes (from EIA):
US imports of crude & products from Canada = 73,000,000 barrels (June 08)
Saudi Arabia = 52,000,000 (July 08)
Venezuela = 41,000, 000 (July 08
Mexico = 40,000,000 (July 08)
Nigeria = 36,000,000 (April 08)

I agree, Kimery’s point about SA being USA’s largest supplier was incorrect, but just barely, both in terms of timing and volumes.

Meanwhile, your central point, that Canada is the USA’s main supplier of imports “by a huge margin” is also not accurate.
Although Canada’s supply to USA is now about triple that of SA, that was certainly not the case when Kimery wrote his article 17 months ago… Canada’s supply at that time was not even double that of SA or any other country.
Canada was #1, but not overly so, and we are still (on a monthly basis) usually less than double your #2 supplier, which I would hardly regard as a huge margin, even to this day.

As for the US buying more from Mexico and Nigeria during the recent past, you are again correct: they do supply more than SA.
However, one must ask how long we might reasonably expect that to continue: Cantarell is in free-fall and Nigeria seems increasingly unstable.
Saudi Arabia was once your main source of imports and I have little doubt that they will eventually regain that status, so it may only be during this interim that Kimery would be incorrect (and that may prove to be a relatively brief period).

An additional point is that the EIA import stats cover both crude and products.
Although the bulk of Cdn exports to USA are western crude (increasingly from the tar sands), our largest refinery is in New Brunswick. It refines overseas crude and the majority of its production is exported to your Northeast.
I don’t know how much of Irving’s crude comes from SA, but my understanding is that it is considerable. So although the EIA stats would show this supply as coming from Canada, the original source for some of it is SA..
This would increase SA’s contribution and reduce that of Canada, thus narrowing the gap and making Kimery's statement not that far off the true situation.

2. China
China seems to understand the implications of peak oil, and is responding in the way that any country which “gets it” would respond.
I’m not sure that I would call their actions sinister: I would call them prudent,

3. Export Decline and fuel emergencies
As I mentioned, Kimery is one of the very few analysts who points to the potential for domestic disorder as a result of a major fuel disruption.
I do not view this as putting a panic spin on anything.
I have great respect for the GAO, and they spent 20 years trying to get DoE to fix the obvious inadequacies in your country’s fuel emergency plans.
GAO was certainly not out to create panic (nor is Kimery)… they simply wanted to see prudent action on an obvious & ongoing vulnerability.
To this day, many of these problems have still not been addressed.

I agree with your final paragraph on both counts: the potential source of a major fuel emergency, and the certainty of a price spike as opposed to the unlikelihood of an absence of oil.

On the oil import vulnerabilities, this was posted today:
http://www.energybulletin.net/node/51695

USA is already looking at shortfalls from two of its top 5 suppliers (Mexico and Venezuela).
Should anything interfere with your supply of Cdn oil as well (eg. eastern Canadians demanding a “Canada-first” energy policy), then I think you would have a scenario which makes Kimery’s concerns appear entirely prudent and not at all far-fetched.

The global oil export/import situation is changing quickly.
I see little justification for complacency, least of all here in North America.

Dayuhan
02-27-2010, 11:57 PM
Eighteen months ago, when Kimery wrote his article, the difference between the top five exporters to USA was actually quite close… certainly Canada did not dominate “by a huge margin” at that time.
An author who published in Aug. 08 would have probably been relying on data from early to mid 2008, which at that time showed the following approximate monthly volumes (from EIA):
US imports of crude & products from Canada = 73,000,000 barrels (June 08)
Saudi Arabia = 52,000,000 (July 08)
Venezuela = 41,000, 000 (July 08
Mexico = 40,000,000 (July 08)
Nigeria = 36,000,000 (April 08)

I agree, Kimery’s point about SA being USA’s largest supplier was incorrect, but just barely, both in terms of timing and volumes.

Meanwhile, your central point, that Canada is the USA’s main supplier of imports “by a huge margin” is also not accurate.


20 million barrels/month difference might reasonably be classed as a huge margin, but possibly I should have said "large", or "significant". Either way, the point remains. Kimery is an oil analyst, he certainly knows (or certainly should) that SA is not "the US's largest supplier". Still he come out with the statement:


Superpower confrontations for energy resources in Central Asia has begun. Confrontations with China can't be far behind, especicially as China works to get a foothold in the Middle East for its long-term strategic crude needs. China especially has its sights on Saudi Arabia, the US’s biggest supplier.

On every level this comment seems designed to provoke an irrational level of fear. China isn't "setting their sights on" Saudi Arabia", they're buying oil from Saudi Arabia. So what? There's no confrontation involved, no US-China competition over Saudi oil, just a shift in the patterns of buying and selling. This happens, and it will continue to happen. These trends bear watching, but they aren't going to produce a shockwave and they don't deserve this kind of clutch-the-pearls-and-gasp-in horror rhetoric.

Kimery pulls the same move in the discussion of Central Asia, casting the Russia/Georgia conflict as a battle over the BTC pipeline. Of course there are lots of juicy threatening quotes from Georgian officials, but this stuff has to be taken with a huge grain of salt. We all know the Georgian government wants to pitch themselves as a vital link in the West's energy future, to maneuver the US into giving them more support vs Russia. The US, wisely I think, has declined to be baited. In perspective, BTC is not directly affected by the South Ossertia conflict, and would not be unless Russia actually annexed all of Georgia. In any event the pipeline carries 1.2 mbpd tops, generally less. If it were cut suddenly the European importers who buy the bulk of the output would have to scramble on the spot market. Prices would rise. Again, though, a situation that bares watching but not something cataclysmic.

Then we have stuff like this:


Western energy companies, backed by their respective governments, have been drawing up plans to develop the Kashagan Field, a Caspian Sea reservoir estimated to contain more than ten billion barrels of crude. The group that's working to develop this field includes Exxon Mobil and ConocoPhillips, and their plan is to transport some of this new found oil through the Baku-Tbilisi-Ceyhan pipeline.

Some partial truths here. it's true that US companies are involved. It's also true, but not mentioned, that the majority of the consortium is European. It's true that some of the oil is slated for BTC. Also true, but not mentioned, is that Kashagan is seen as the main source for the Kazakhstan-China pipeline and will also supply pipelines passing through Russia. Again, there seems to be a fairly egregious attempt to portray Kashagan as a matter of particular interest to the US.

In general, the view that Central Asia is a confrontation waiting to happen seems well overblown. Of course there's friction and of course there's potential for problems, that's always the case. So far, though, it's been pretty limited. The Kazakhs, Turkmens, Uzbeks, and Azerbaijanis are not stupid: they're pursuing Russia-free exports to the west via BTC, Russia-free exports to China, and also expanding exports through Russia, diversifying their export base without confronting or antagonizing anyone. Companies from all over the world are involved.

Russia's east Siberian pipeline is expected to supply 1.6mbpd to east Asia, the Kazakh-China line will boost that to 2mbpd, with a substantial amount of gas from Turkmenistan. That works rather well for the US and Europe, because it reduces east Asian demand on the Middle east and Africa. Whether or not that specific oil flows to the US is irrelevant, if it increases the supply the US benefits.

In the western hemisphere, of course Mexico and Venezuela will continue to decline, with a bit of offset from expanded exports from Brazil and from deep water finds in the Gulf of Mexico, and I'd expect the dip in US imports from Saudi Arabia to be temporary. In both Mexico and Venezuela, though, those declines are driven by politics, not geology, and will not be permanent: despite his wettest dreams Chavez will not be eternal, and the Mexicans will eventually realize that they have to allow foreign participation in their oil industry in order to keep any kind of export revenue. That may take a while, but it's oil in the ground for another day. Again, this is a trend that will play out over the next few decades, not a source of imminent catastrophe.

There's a great deal of nonsense talked about oil. A good example is the talk about how awful it is for the US to send American money to unfriendly regimes by buying their oil. Realistically, if an unfriendly regime has oil, somebody will buy it and they will get money. Whether that money comes from the US or not is pretty meaningless. If the US doesn't buy from Iran and China does, we're still sending US consumer dollars to Iran, they're just making a brief stop in Shanghai along the way. It just doesn't make any difference.

Another absurdity is the common assumption that because a consumer buys from one source they are somehow dependent on that specific source. It's just not true; oil is fungible, all consumers are equally dependent on all producers. Japan buys from Abu Dhabi, but if Abu Dhabi was shut down for some reason Japan would go out and buy elsewhere. The price would rise, and all consumers would suffer equally. I've seen all kinds of horror at talk of China buying 1mbpd from Venezuela, as if the US will then be short. Of course if China buys 1mbpd from Venezuela they will buy 1mbpd less from other sources, and the US will simply buy that. I suspect the China-Venezuela deal is mostly Chavez bigtalk anyway,there's just no logic to it. China would have to retool refineries to handle heavy Venezuelan crude, and trans-Pacific shipping in little Panamax tankers isn't exactly efficient.

I could go on, but that's enough. The opposite of complacency is not prudence, the opposite of complacency is panic, and it's every bit as counterproductive as complacency. Prudence lies somewhere between, and I don't think the cause of prudence is served by unjustified howling about impending doom. If anything that just reinforces complacency when the projected doom doesn't materialize.

Rick M
02-28-2010, 04:05 PM
Hi, Steve

As usual, you have given a very detailed reply, and I thank you for it.
I will address your points in the same order that you presented them.

1. SA and China
I’m not so sure that the recent (and quite dramatic) drop in US imports from SA could not lead to problems down the road.
USA was SA’s primary customer for decades, and although diversification is supposed to enhance security of supply, the obvious American shift away from the world’s largest supplier could have the opposite effect.
(American purchases of Saudi oil were only 837,000 bpd in Nov. 09, the lowest in 21 years.)
Most suppliers will prioritize their loyal customers, and the US may now appear less than loyal.

As for the shift in buying and selling, there is an increasing trend for China to enter into bilateral long-term contracts with various suppliers.
This trend understandably raised concern not just for Kimery but also for the US admin.
Please note Energy Bulletin’s “quote of the week” a month ago:
http://www.energybulletin.net/node/51213

As this article (yesterday) indicates, ties between China and SA are strengthening:
http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100227/BUSINESS/702279924/1137

It could be China, not the USA, that enjoys the benefits of "preferred customer" in the years ahead.

I agree, these trends aren’t going to produce a shockwave, but Kimery did not claim that they would, least of all with exaggerated rhetoric.

2. Export decline
You are clearly more optimistic than I (and many others) re. future oil supply, but I doubt that you would deny the increasing evidence on export decline (ie. that many of the major producers have already peaked both in production and in their capacity to export).
I certainly assume that you agree that we cannot all be importers.

I don’t accept that declining production in Mexico and Venezuela is due more to politics than geology. I really doubt that Mexico will find another Cantarell, and there is little optimism that Mexico can ever return to its peak production of 3.4 mbpd.
As for Venezuela, comparison with Canada is probably apt: both peaked in conventional oil some time ago, and future production lies primarily in oil sands.
However, oil sands production is never assessed as net energy, which is a gross overestimation of the energy which actually comes from the resource.
If we adopt a net energy evaluation, we have a less favourable (but more honest) assessment of production from these reserves.

In short, I accept that political and technical issues are significant factors, but I do believe that even larger forces are at work and that neither MX not VZ will ever surpass their historic peaks, least of all when net energy is factored in.
I agree with you that their current declines may not be permanent… there is certainly the potential for improvement, and I agree that we will eventually see some.

Bottom line: I doubt that a decade from now, importers will have the freedom to “shop around” that you describe.
You are correct in stating, “all consumers are dependent on all producers,” though one might add, “all importers are dependent on all exporters.”
As the number of exporters and their individual export capacities decline (as they must), importers will have less of the freedom to shop around that you describe, and there will be more potential for the sort of supply crunches that Kimery and I believe are likely and need to be planned for.

I don’t see this as imminent catastrophe, but I do see this as a reasonably imminent threat which ought not to be minimized, either.
Indeed, I see few other high-probability events which have the potential to cause so much internal distress to your country and mine as a major constriction of oil supply.

3. Central Asia
I won’t attempt to respond to your arguments… I don’t know enough about those issues and will not pretend that I do.

4. Prudence
I won’t debate the semantics.
I agree, panic is rarely a productive response.
But I think you are being a bit unfair in the way that you characterize the noting of some well-documented trends on a matter as vital as our oil supply.

Far from howling about impending doom, I think we are asking that the concerns which have been raised by Hirsch, the CNA study, War College analysts, the 2008 WEO, etc on future oil supply, and by the GAO, etc on fuel emergency plans, be addressed in a sustained manner.

I have made every effort to provide SWC with links to credible, sourced information (often from military/security researchers) on these issues, and have done my best to summarize their concerns in accurate, reasoned, non-alarmist language.

I agree with your final statement: crying wolf reinforces complacency.
But so does regular discounting of credible evidence (which the tobacco industry did for decades, and which we see in the ongoing debate over climate change).

Dayuhan
03-01-2010, 01:43 AM
I don't see the current shift in import/export patterns as a reflection of any fundamental alteration in the US/Saudi relationship. I suspect that both governments see domestic advantage with little penalty in downplaying that relationship at the moment.

I suspect that when push comes to shove, long term contracts and preferred customer relationships are going to mean exactly nothing: oil will flow to whoever has the money to pay for it. If all the buyers are willing to pay, the price will rise until the will and ability to pay drop.

I really wonder how the Chinese method of using bribery to organize long term contracts in marginally governed nations is going to work out for them in the long run. US and European companies did a lot of that once upon a time, with mixed results. You pay someone to sign a contract and it all seems great, until the guy you paid has a close encounter of the worst kind with a bullet, and the new guy wants a new deal. Long term contracts with governments that may or not be around tomorrow are of limited value, and the ability of governments to ignore contracts that no longer suit their interests is well established. If Angola or the Sudan decides that their contract with the Chinese no longer applies, what will the Chinese do? Send the marines? I doubt it.

Nobody really knows what Mexico still has, because nobody has really looked: PEMEX hasn't the technology or expertise, and Mexican politics won't let anybody else look. Venezuela's drop in conventional oil production is generally attributed more to underinvestment than to scarcity. In any event these are, again, trends that will play out over time, not a potential cause of sudden catastrophic interruption, a different matter altogether.

I have very limited faith in Government's ability to plan effectively in advance for the sort of event that's being discussed here. When I hear of Homeland Security telling DOE to plan for catastrophic interruptions I don't see prudence, I see bureaucrats trying to score some points with Congress by raising an alert that makes somebody else do some work. I have no doubt that somewhere in DC is a file with plans A(1) through Z(33/B) inclusive. I also have no doubt that when crisis comes it will fail to follow the parameters of any of the plans, and that we'll end up tossing all the plans and responding - probably not very well - to the circumstances that actually occur.

As oil becomes more scarce it will become more expensive, and as it becomes more expensive more effort will go into reducing consumption. In the meantime event-driven interruptions will be met with responses developed to suit the circumstances that occur, as they occur. Probably not the way it should be, but not too many things are the way they should be. Government simply lacks the capacity to force the response to precede the stimulus, or to prepare effectively for unknown events. Whatever happens, the response of Government will be governed not by long-term interests, but by what is politically salable in the short term. It's the American way.

My own preferred plan would be to use policy to mimic scarcity and tax all energy at a rate designed to simulate sustained oil prices of $120/bbl+. That might raise enough money to pay down a bit of debt, and it might get us to trim some consumption and develop viable alternatives... but it's not going to happen, so it's kind of pointless to think about it.

Rick M
03-08-2010, 03:49 AM
I just stumbled upon this... it should be aired tomorrow evening on Nat Geo channel (7 pm eastern time?):
http://channel.nationalgeographic.com/series/aftermath/4462/Overview?#tab-Videos/07862_00

It seems overly sensational.. from abundance to running out very suddenly, but it may warrant watching, if only to see how Nat Geo (which often does excellent work) presents the issues.

Some day someone (PBS and CBC should be among the more likely prospects) will take a thorough, reasoned, unsensational examination of the issue of fossil fuel depletion.

Meanwhile, this Nat Geo film may introduce the public to some basic facts and the overall concept.
This should have some merit, although an overly sensational presentation may cause people to dismiss peak oil as alarmist nonsense.

Rick M
03-12-2010, 07:53 PM
Hi, Steve

Sorry for my very slow response.
I have 3 shorter items and then some observations on planning for liquid fuel emergencies.

1. Nat Geo film
I found nothing on Monday evening on the Nat Geo Channel that we receive here in Ontario.
Did anyone see their show on PO/oil emergency?

2. Preferred customers
If I’m not mistaken, VZ had (maybe still has) a special price for Cuba, so the global marketplace does not work entirely on the basis of international supply and demand.
During the 73-74 embargo, ME suppliers were clearly prepared to take the financial hit to prove a point.
Should global oil supply become tight, and the price become very high, it is conceivable that we may see more preferential treatment, not less.
If producers are getting unprecedented prices, say of $175/b, they may be thrilled with that and may be quite happy to exercise the political freedoms which high prices allow them to exercise.

3. China
Today’s report from the IEA citing a 28% increase in China’s demand (Jan. 09 to Jan 2010) is indeed stunning.
Their prediction that we will soon be back to 86.6 mbpd should have us bracing for a return to $147 oil.
http://www.bloomberg.com/apps/news?pid=20601072&sid=aUSnfxw9xh6s

4. Gov’t plans for fuel emergencies
You said that you “have very limited faith in Government’s ability to plan effectively in advance for the sort of event that’s being discussed here.”
I agree, though I think for different reasons.
My sense is that you believe that they are being asked to plan for the unplannable… that the crisis which will occur will be significantly different from the one(s) that they planned for.
And you could be correct… there is a long & expensive history of people making major investments against a crisis which soon faded away (eg. the 1960s bomb shelters, air raid sirens, etc which I recall as a kid).
You may also be correct that “when the crisis comes, it will not follow the parameters of any of the plans” but I think that will be due primarily to a reluctance to subject the existing plan to hard-nosed scrutiny (here is where military logisticians could help), not to an inability to predict the deficiencies of the plan.
I agree with your point about responses being “developed to suit the circumstances that occur, as they occur.”
Unfortunately, the need for future flexibility seems to be a standard rationale for vague planning now… let’s have general guidelines but few specifics, since we don’t if or when or what shape the actual fuel emergency will take.
This is entirely understandable for several reasons:
1. we truly don’t know the specifics of the next fuel emergency
2. it’s easier and cheaper to keep plans vague in the interim.

But meanwhile, there are several things that we can anticipate with some certainty:
a. Any fuel supply problem (or even the perception of one) will quickly translate into a price spike, as you have indicated.
b. To take just one sector, the price spike will adversely affect rural residents more than urban residents since they lack mass transit and have longer distances to travel to obtain their essentials.
c. Farmers are both rural and usually low-income, so they will have a doubly hard time.
d. Farmers will therefore cut back on expenses (including production activities) but food imports will also become increasingly problematic. Reducing both domestic production and imports is clearly a recipe for food supply chain trouble.
e. Having high fuel prices and high prices for food and other essentials is bound to cause domestic discontent.
f. Add to the food supply issues all the non-essential sectors that cannot function without cheap fuel (eg. pizza deliveries, pro sports, tourism)… then the tax base takes a triple hit: declining tax revenue, increasing demand for financial support, and increasing need for law enforcement.

My point here I that all of this is quite foreseeable.
I you have watched the video from ASPO-Denver, you will know that the GAO, Alan Smart, Kathy Leotta and Helen Peck have all outlined numerous potential problems.
A fuel supply problem in 2013 may not be all that different from one in 1973… we should be able to anticipate the main problems and proactively mitigate some of them.

But as you point out, that would not be the American way (and I must agree, ditto for Canada)… there seems to be no prospect of planning an effective response prior to the stimulus…. “the response of Government will be governed… by what is politically salable in the short term.”
I think that you are (sadly) correct in this assessment, but that does not mean that it’s right/proper.
We are sensible individuals, and we come from strong, practical-minded nations.
Surely we can do better than bumbling along with impractical fuel emergency strategies whose inadequacies have been obvious for decades.

Rick M
03-13-2010, 04:10 PM
Matt Simmons continues to do excellent work on global energy supply.
His most recent presentation is entitled Twin Threats to Resource Scarcity: Oil & Water and was presented three weeks ago in Dubai.

This slide deck is shorter than most (32 slides) and of course I don’t know the oral content which accompanied it.
But one underlying theme is this: nothing could unravel global security of energy supplies faster than disorder and conflict, and Simmons points to water supply as a growing threat to both civil order and oil supply.

Simmons begins by pointing out our inability to substitute for water or oil (slides 1-7), long-term concerns over oil supply (8-11), and the looming threat of water scarcity (12-16).

He then focuses on the Middle East for several reasons: its growing population, its precarious water supply, and its surging internal demand for energy… all of which point in one direction: diminishing export capacity (17-21).
If we factor in the underlying potential for disorder (eg. conflict with Iran, terrorist damage to major oil infrastructure), there is little justification for complacency, especially in import-dependent regions such as ours.

As for solutions, Simmons mentions two: proper pricing (slides 7 & 22) and ocean energy (24-29).

This presentation is available here:
http://www.simmonsco-intl.com/files/Marsh.pdf

Simmons’ focus on the nexus between energy and water provides an effective complement to the ongoing work of the U.S. Government Accountability Office, which has undertaken a multi-stage (and quite detailed) analysis of this nexus.
Part one on biofuels was reviewed here (Dec. 09):
http://www.energybulletin.net/node/50988

The GAO’s study of water and oil shale should be released soon.

Rick M
03-15-2010, 12:55 AM
The National Intelligence Council has released a report on the expected effects of climate change to the Caribbean region.
This 21 page report is entitled Mexico, The Caribbean and Central America: The Impact of Climate Change to 2030: Geopolitical Implications (NIC Conference Report., Jan. 2010).
The report is authored by a team of private research contractors under the Global Climate Change Research Program contract with the CIA’s Office of the Chief Scientist.

The prognosis of these analysts is bleak.
They see considerable potential for “civil unrest and internal conflicts leading to increased migration” (p. 3).
The source of these tensions is both predictable and (apparently) intractable: increasing population, energy consumption, rising sea levels, fresh-water scarcity and land degradation, coupled with declining food production and an overwhelming dependence on oil imports.

The plight of Mexico City is particularly concerning: it is already “experiencing severe water scarcity and aquifer depletion…. With a population of more than 20 million, the city must pump water from great distances and has had to ration water at least three times in 2009” (p. 12).
Almost all countries in the region have inadequate health services and limited emergency response capability.

The authors are to be commended for their honest and direct assessment.
At the top and bottom of every page is the disclaimer, “This paper does not represent US Government views,” which is entirely understandable.

The full report is available here:
http://www.dni.gov/nic/PDF_GIF_otherprod/climate_change/cr201003_MexicoCaribCentralAm_climate_change.pdf

Dayuhan
03-15-2010, 04:12 AM
Hi Rick...

Re Nat Geo, I don't watch TV and my 3rd world connection precludes watching video of any length online, so 'm pretty much limited to reading text, which I admit to preferring in any event. Much easier to manipulate emotion in video!

Preferred customers... yes poor Hugo does subsidize the Cubans to make a point. I don't see this translating on a larger scale, particularly in a serious emergency. A supplier granting a preferential price to a major consumer would be forfeiting huge amounts of money, and few suppliers can afford to do that unless they are receiving very substantial benefits in return.

To me much of the discussion about the geopolitical impact of oil scarcity seems based on an obsolete cold war paradigm that fails to consider the evolution of co-dependence and shared interests even among rivals and competitors.

For example, many analyses treat the US and China purely as rivals, even suggesting the possibility of armed conflict over oil supplies. But really, how realistic is this? It's true that China needs oil to keep its industrial economy running, but that's not all it needs. They also need unhampered access to open markets that have the will and capacity to absorb their output surplus. China is export dependent, and gaining oil at the expense of access to thriving markets does them no good at all. The Chinese need oil, but they have an equally pressing need to keep their trade routes open and to keep their customers solvent: and as we've all seen recently, when the US sneezes the world catches the cold. China and the US may not be allies, but they are co-dependents, with many shared interests, particularly in generating increased investment in oil production and in keeping trade lines open.

Armed conflict with China over oil supplies is highly unlikely, simply because neither the US nor China has physical control over its key suppliers. Even in the event that China did someday decide that they had to conquer energy, given the land-heavy structure of China's military, the logical targets would be Siberia, Kazakhstan, or Uzbekistan. That would bring them into conflict, but with Russia, not with the US, and the Chinese would have little to gain from that sort of fight: they have money, and it would be cheaper and less risky for them to compete with dollars.

Another place where cold war thinking appears is in the peculiar but common assumption that producer-consumer relationships are somehow permanent and controlled by the consumer. There's a tendency, for example, to see Angola as "their" supplier and Nigeria as "our" supplier. Cold war thinking would suggest that we can somehow get one up on them by destabilizing Angola or by promoting pro-US forces there, or that they could do the same to us in Nigeria. n reality that would be completely pointless. If China is denied access to Angolan oil they will simply go out and bid on oil from other producers, who will be more than willing to sell to them. If Angolan or Nigerian oil output was reduced by internal instability, all oil consumers would suffer equally from the resulting price increase. The idea of "our suppliers" and "their suppliers" is an illusion: all consumers rely equally on all producers, regardless of who they actually buy from.

Co-dependence is not limited to consumers. Many major suppliers, particularly in the Arabian Gulf, has emerged as status quo powers in their own right. Their financial reserves are heavily invested in the West, they see themselves threatened by the same potential antagonists as the West (notably Iran and AQ). Again, that doesn't make us allies, but it provides a level of interdependence that much reduces the possibility that they would deliberately try to damage us.

I guess all I'm saying with all that is that many of the geopolitical analysis that floats around the oil scarcity debate seems to me to be based on outdated and improbable assumptions.

If you look at oil emergencies from a planning perspective, you basically have two scenarios:

1. Sudden but temporary event-driven interruption, such as terrorist attack on major facilities or conflict in a major producer or among major producers, driving a sudden and extreme spike in oil prices.

2. Gradual but long term changes in the supply-demand picture, essentially consumption increasing to a point where it exceeds production capacity, driving a steady increase in prices.

Either way, the issue is not absolute scarcity - oil will continue to be available to those who can afford it - but very high prices.

The options in either case are limited. In the short run, you can release oil from strategic reserves, which only works until the reserves run out, or you can subsidize purchases for high-priority users, which only works until the money runs out. In the long run, you have to reduce waste and increase investment in alternative energy.

My objection to much of the planning that gets discussed lies in the tendency to select sets of assumptions and then micro-plan around those assumptions, which keeps planners busy and happy but rarely produces anything with much real utility in the event of crisis.

Keeping things vague imposes limitations, but in one sense it allows us to focus on the core issues and the long term policies needed to address those issues, rather than pursuing reams of micro-level response plans that provide a false sense of security.

From the security/small wars perspective, there are issues that get very little attention. If there is a major supply interruption or a long term excess of supply over demand, prices will rise until consumers with fewer means are no longer able to pay and simply drop out of the market. This will free up supply for consumers who have the ability to pay, but it will wreak political havoc in 3rd world oil consuming nations, many of which (Pakistan, for example) are significant players in current and potential conflicts. Of the 47 poorest countries on the planet, 38 are net importers of oil, and 25 of those are completely dependent on imports. We can spend all the time we like dissecting the impact of $150/bbl oil on the US economy, but the reality is that we would hurt but we would survive - in fact in the long term it might be beneficial, as we'd be forced to make adaptive changes that we should have made already. The security implications of complete political and economic collapse in a significant number of oil importing developing nations are likely to pose a thornier challenge, at least in terms of the small wars discussion.

PS: Again on China...

Some analysts see China's willingness to invest in new production in politically unstable nations as a threat, again in the "they're locking up the oil" mode. China's willingness to invest in, say, Iran or Sudan is inconvenient in the sense that it dilutes the impact of economic sanctions and other attempts to use economic activity to force policy changes. Purely in terms of energy supply, though, the Chinese do us a huge favor when they make these investments. They put money in where our companies never would, bringing new oil onto the market and reducing their own dependence on traditional suppliers. That benefits us as much as it benefits them... in some ways more, as they're the ones accepting the political risks of potential lost investments.

Rick M
03-16-2010, 01:01 AM
Hi, Steve

Thanks for your latest (and very thorough) response.

Re your location, I think you once mentioned that you live in SE Asia… Philippines??
Or am I wrong on that?

1. Contracts vs spot market
I don’t think that we should discount the value of contracts. Sure, they can and are broken, but rarely without a range of consequences (if only a simple loss of trust).
Concern has recently been expressed by the Brits re their NG supply: France and other countries have contracts with Norway, while the UK prefers to shop around.
Both the mainland Europeans and the Brits view Norway as a preferred, trustworthy supplier, but British citizens worry that their gov’t has not signed contracts, and in a supply pinch (they’ve had several) they will be the last served.
As they should be….

2. China
I agree with everything you say… the economic symbiosis and China’s naval limitations (though that seems to be changing… you will know much more about those details than I)
I even (reluctantly) agree with your point in the post-script.
From a practical oil-supply perspective, you are certainly correct.
From a moral stand-point, less so, but so far we have not really explored that aspect.

3. Cold War thinking
I agree again… with a global market for oil, there is little to be gained by interfering with “anyone else’s” supply.

4. Fuel emergencies
Again, I agree with most of your points… as I said in that ASPO-Denver video, there will always be some oil available to some people at some price.

But I’m not so sure that I agree with your argument that micro-planning keeps emergency managers happy.
Almost every emergency planner that I’ve spoken with (in your country and mine) agrees that a fuel emergency could be a whopper of a problem, and that current plans are inadequate.
But they also say that they are strained to the limit with paperwork, exercises and training sessions, much of which (recently) centered around pandemics (SARS and H1N1)… no time to examine something which seems fairly predictable at some point and for which we remain quite unprepared.
Every planner that I have met strikes me as sincere and is aware of the vulnerabilities, and they know that they will be the first ones criticized if the response at their level is revealed to be ill-conceived or negligently under-prepared for.
I do not envy them.

But returning to my example of farmers…you are right about low-income consumers dropping out of the market.
That is precisely the point: we will have movie stars and NBA hot-shots who can still drive Hummers, but thousands of farmers will struggle to put diesel in their John Deere to produce food.
North America still has to be fed, but how will that be done if the price of diesel is beyond the reach of most farmers?

We really do need an effective plan for this one, and the micro aspects (esp. re essential services like food) need to be considered and sensibly addressed... well in advance.

Rick M
03-16-2010, 01:17 AM
Thanks to Andy Bochman at DOD Energy Blog, I was just alerted to this thoughtful article by Amory Lovins in the new issue of Joint Force Quarterly (re. DoD fossil fuel use and what can be done about it):
http://www.ndu.edu/press/jfq_pages/editions/i57/lovins.pdf

Dayuhan
03-16-2010, 05:23 AM
Re your location, I think you once mentioned that you live in SE Asia… Philippines??


Yes, little mountain village in the northern Philippines. Make a couple of visits a year to the Middle East, other than that I work on line, which is way better than being full time in the ME!



I don’t think that we should discount the value of contracts. Sure, they can and are broken, but rarely without a range of consequences (if only a simple loss of trust).
Concern has recently been expressed by the Brits re their NG supply: France and other countries have contracts with Norway, while the UK prefers to shop around.
Both the mainland Europeans and the Brits view Norway as a preferred, trustworthy supplier, but British citizens worry that their gov’t has not signed contracts, and in a supply pinch (they’ve had several) they will be the last served.
As they should be….


Agreed, not totally discounted, but not overly counted upon either. Norway is of course regarded as a reliable contract partner, something of a rarity in the energy producing world, which is why their contracts are sought after.

Europe's NG situation poses certain unique challenges. Gas is a bit different from oil, especially when it's delivered by pipeline: the pipeline only goes where it goes, which locks in supplier/consumer relations to a greater extent than we see in oil markets, which deliver primarily by tanker. Europe has access to Russian gas and Central Asian gas piped through Russia, but of course nobody trusts the Russians, hence the rush to gain the upper hand in non-Russia-dependent supply. Of course if the Russians play games it's possible to get gas shipped from Qatar or Iran, but that takes time and if the Russians are playing games there will be other users likely to be after the same gas, aside form the political issues in dealing with Iran. Gas is in many ways a preferable fuel for many uses, but the politics of transporting it can be on the insecure side.



I agree with everything you say… the economic symbiosis and China’s naval limitations (though that seems to be changing… you will know much more about those details than I)
I even (reluctantly) agree with your point in the post-script.
From a practical oil-supply perspective, you are certainly correct.
From a moral stand-point, less so, but so far we have not really explored that aspect.


Yes, the moral aspect of it is disquieting, but it's not something we can do a great deal about. I've said this before, but I really wonder how these deals will work out for the Chinese: American and European companies had their share of amoral dealings, and they didn't always come out well when the governments doing the dealing came apart, and the new governments didn't want to deal with people who supported their abhorrent predecessors. It wouldn't half surprise me to see some Chinese investments nationalized down the line, and some supply commitments broken. When it comes to contracts, Angola ain't Norway.

China is substantially upgrading their Navy, but not to the extent that would allow them to undertake major military interventions in oil-producing areas in Africa or the ME. In any event this would be horrendously expensive and risky for the Chinese, and I have trouble seeing a scenario where costs, risk, and benefit would support a military intervention scenario. Far easier to compete with dollars than with guns, not like they have a dollar shortage. For the Chinese, of course, any military adventure that interrupted their trade receipts would be suicidal: they can keep internal dissent bottled up as long as the economy is roaring along, but the internal security ramifications of a major trade disruption would be a huge problem.



Almost every emergency planner that I’ve spoken with (in your country and mine) agrees that a fuel emergency could be a whopper of a problem, and that current plans are inadequate.

But returning to my example of farmers…you are right about low-income consumers dropping out of the market.
That is precisely the point: we will have movie stars and NBA hot-shots who can still drive Hummers, but thousands of farmers will struggle to put diesel in their John Deere to produce food.
North America still has to be fed, but how will that be done if the price of diesel is beyond the reach of most farmers?

We really do need an effective plan for this one, and the micro aspects (esp. re essential services like food) need to be considered and sensibly addressed... well in advance.

As I said, I don't think the plans will be followed in any event, so it is largely an academic exercise. We also have to consider that any plan involving rationing or other prioritization of use has to remain secret, as the political penalties involved in openly discussing such matters far outweigh the benefits. No administration wants to stick their neck out and tell the vast bulk of wasteful American energy users that they are going to be at the bottom of the allocation list when the merde hits the fan, they know full well they'd be crucified and gain nothing.

Again, at the end of the day we either allocate reserves to be sold at low cost to high priority/low income users such as farmers and truckers, or we subsidize their purchases. The latter is more likely, and simpler: at the end of the day it's easier, more practical, and more accurate to see the challenge as one of rationing dollars, rather than one of rationing fuel. Dispensing dollars, of course, is one thing the US Government is pretty good at, or should be: they've certainly had enough practice!

Steve the Planner
03-16-2010, 05:53 AM
This thread has been a great learning device, but I am surprised at what is not mentioned---consumer responses to price.

I spent the 1970's in Germany, where prices were so high that no one could ignore conservation. If you lived in an apartment building with central heating, the thermostat went to "off" at 11 pm, so it was time for a thick blanket and a warm companion, just like in the old days.

Two years ago, I came home on leave to my suburban Maryland neighborhood to find gas prices around four dollars, so people changed habits. Of the SUV and prius/civic hybrids in the driveway, the SUV sat more of the time, and there were a lot more econo-boxes on the road, and less road miles driven.

For the last year, prices have been below $3, and people are back to the old ways, but there is always a 10% (and possibly 20%) consumer response range just from simple things like turning down thermostats, chaining trips, and using the hybrid instead of the SUV for elective trips.

While the big picture on the oil production side remains important, it is not the only big piece of the puzzle.

Behind that, of course, we had a lot of Illinois farm coops who lost money last year on ethanol coops when prices declined, and the pending expansion of Iraqi oil production over the next decade.

Complicated.

davidbfpo
03-16-2010, 10:12 AM
This story appeared today 'Petrol to hit 120p a litre, as motorists 'mugged' by oil companies' and subtitled (US price est. $6.84 a gallon)
Petrol is due to hit a record of 120p a litre in a matter of days, even though the price of oil is little more than half the levels it was at its peak, the AA motoring group has warned.

Read on for US readers I expect UK prices will shock.
The average petrol price across the country is 115.9p for a litre of unleaded and 116.6p for a litre of diesel, according to Petrolprices.com. However, the Treasury is due to add a further 3p on April 1.....In the summer of 2008, when petrol prices hit their record level, duty was 50.35p a litre. Since then it has climbed to 56.19p, with it due to hit 59p next month.

Link:http://www.telegraph.co.uk/motoring/news/7450106/Petrol-to-hit-120p-a-litre-as-motorists-mugged-by-oil-companies.html

A moment with the calculator gave the gallon prices and the exchange rate.

Dayuhan
03-16-2010, 10:29 AM
Behind that, of course, we had a lot of Illinois farm coops who lost money last year on ethanol coops when prices declined, and the pending expansion of Iraqi oil production over the next decade.


Nobody really knows how much Iraqi oil is going to come to market, or when... there are a lot of unknowns in that picture, many revolving around security and political stability. With luck, increased Iraqi production may offset decreasing production in Mexico, Venezuela, the North Sea, and other mature fields.

A more likely source of increased production is the GCC, where large investments have been made in increased capacity. The Saudis are targeting 16mbpd... not that they want to pump that much on a regular basis, but the capacity allows them to bring in a lot of money during price spikes, and having the world's only significant excess capacity gives them a lot of political leverage.

Your other point brings up one of the most interesting questions to emerge from the recent price spike. In theory, both production and consumption should be elastic relative to price: higher prices should drive increased production and reduced consumption. During the recent price spike, some SUVs may have stayed in the garage, but overall global demand kept right on rising, even at well over $100/bbl, until the financial system tanked and recession set in. We also saw that in the first half of 2008 production in many key areas declined, even as prices rose. This was interpreted by some as evidence that production had maxed out and could no longer be increased.

Some say the theoretical elasticities are no longer real or relevant. I disagree. My own theory is more or less as follows... only my own and doubtless flawed.

What's often forgotten in this picture is that our patterns of consumption and production were heavily shaped by the 90s energy glut. Remember $25/bbl? It wasn't that long ago. For over 10 years exploration and investment in new production capacity ground to a halt - producers didn't have the money or the incentive. Growing economies like those of China and India grew into the assumption of cheap oil, and habits in the West became entrenched.

When prices started curving up in the early 00s, most analysts saw it as a risk premium related to the US response to 9/11, and expected it to be temporary. It wasn't really til 2005-2006 that people really caught on to the fact that demand was outstripping available supply and prices were set to keep on rising.

On the consumption side, the response to higher energy prices was to cut back elsewhere, borrow money, print money, keep on buying. It was a time of very high liquidity and most consumers simply weren't able or willing to adjust fast.

In terms of production, we often forget that there's a considerable time lag between the decision to invest in exploration and new infrastructure and the appearance of new oil. The production increases in the early part of the price spike weren't new production coming onstream, they were achieved by running existing infrastructure at 100% capacity 24/7/365. Production eventually declined despite higher prices not because the oil was running out, but because if you run any complex mechanical system at that level for long enough, things start to break and you have to pull systems offline for maintenance, sometimes on a large scale.

What all this adds up to, IMO to the second power, is that the elasticities are there, but they are delayed. Higher prices will drive consumption down eventually, but not immediately: in the short run consumers will just bite the bullet and pay the price. Higher prices will call up more production eventually, but it may take years between decision and production.

For this reason, I always argue that on a policy level we need to sustain high energy prices in order to bring these elasticities into play, raising production (and investment in alternatives) and trimming consumption. That would mean radical production cuts and if necessary high taxes on energy during periods of low prices, ideally by international consensus but unilaterally if necessary. Of course the political will to sustain this sort of policy is... well, questionable at best.

Rick M
03-16-2010, 05:23 PM
Thanks for your comments, all of you.
I will have to hold my observations for 6 hours or so... it's beautiful outside and we are replacing a barn door, so I'm on the run.

But this was just posted... new study re oil demand.
I have not read it, only the synopses at EB:
http://www.energybulletin.net/node/51992

This touches on something that I was going to include in my observations anyway... that oil is so special (so energy-dense, versatile, safe, portable, etc) that it will be very difficult to "leave it."

Our recessionary drop from 86 to 84 indicates that even in very desperate times, we still consume 97% of what we did when things were 'normal.'
Given its "energy slave" value, even $100 oil is a gross under-valuation of the vital work that it does for us.

Gotta run... see what you guys think of this new study.

Rick M
03-17-2010, 01:39 AM
It's getting late... don't know if I can respond to your points before I fade.
I've spent the last several hours doing a review of the energy section in the new JOE, which I just spotted in the late afternoon.
It should be posted on EB in the morning... these are my observations:

The Joint Operating Environment 2010: Oil Supply Concerns

The February 2010 version of the Joint Operating Environment (JOE) is fundamentally similar to its predecessor, which was released in November, 2008.
Its overall structure is only slightly altered, and much of the text is identical.

Amid the multitude of security concerns, petroleum supply has moved rapidly to the forefront, and it is this issue which is the focus of this review.

The main oil supply vulnerabilities which were cited in 2008 are reiterated, thus indicating that there has been no amelioration.
It states that “oil and coal will continue to drive the energy train” until 2030, though it warns that in order to do so, “the world would need to add roughly the equivalent of Saudi Arabia’s current production every seven years” (p. 24).

Significantly, a text box has been added entitled, “Peak Oil” which states in part: “… Assuming the most optimistic scenario for improved petroleum production … [it] will be hard pressed to meet the expected demand of 118 million barrels per day [in 2030].” (emphasis added)

The JOE also states, “The central problem for the coming decade will not be a lack of petroleum reserves, but rather a shortage of drilling platforms, engineers and refining capacity” (p. 24).
Many peak oil analysts, including this reviewer, would agree with that statement. There is enough oil to get us through this decade, but a decade is a very brief period in time.
The following decade could be a very different story.
Drilling platforms and experienced engineers will indeed be at a premium, since land-based and shallow-water options seem be running out.
As for refining capacity, we seem to be going the other way, with refiners struggling and numerous closures world-wide.

A graph at the bottom of page 25 illustrates the precipitous drop in production from existing wells and the relatively small flow which can be obtained from non-conventional oil.
Given the ongoing use of natural gas to produce bitumen, the contribution of non-conventional oil would be even less significant if “net energy” were factored in.

The text box on Possible Future Energy Resources is similar to its 2008 predecessor and again highlights the fact that despite intensive research and improved efficiencies, the contributions of oil sands and shale, biofuels, wind and solar will be minimal.

The JOE then warns, “A severe energy crunch is inevitable without a massive expansion of production and refining capacity” (p. 28).
To add to the urgency, it restates its 2008 warning, “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD” (p. 29).
This warning is entirely consistent with others which have been voiced during the past 18 months (eg. the repeated verbal statements made by IEA chief economist Fatih Birol, the 2008 WEO, Paul Stevens of Chatham House, etc.).

Unfortunately, the JOE again fails to address two obvious “next questions:”
- To what degree might a global supply crunch constrict oil exports?, and
- How can we best prepare for and administer a liquid fuel emergency?
Both questions need to be addressed urgently, regardless of how close we are to peak oil.

While the JOE warns, “The implications for future conflict are ominous,” it fails to mention the internal strains which an oil supply crunch could place on civil order at home.
It acknowledges the potential for a prolonged US recession, deep cuts to defense spending, diminished capabilities “at the moment they may have to undertake increasingly dangerous missions” (p. 28).
However, the JOE makes no mention of the potential threat to civil order on the home front.
The difficulty of maintaining the domestic food supply chain and other essential services in the face of unprecedented energy prices needs to be considered as a reasonably probable piece of the future operating environment, given that the JOE’s own evidence points to a high probability of the very circumstances which could trigger such conditions.

The JOE’s Energy Summary is not optimistic.
It does not mention peak oil a second time, but reiterates its prior warning that “production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity” (p. 29).

In short, raising the profile of oil supply problems within the JOE is a helpful step. Perhaps civilian as well as military planners will take note.
The entire document is a curious mix of philosophical quotes, a hard-nosed assessment of some very formidable issues, and some very astute lessons from history.
For many decades, cheap fossil fuel has been something which we have taken for granted: for most of us, it’s simply another bill to pay.

Suddenly, concerns about its future availability are rocketing to the forefront. If nothing else, those lessons from history should warn us of our human tendency to see what we want to see.
What many of us see is an endless supply of cheap oil for our grandchildren and beyond.
This JOE prudently encourages us to look again….
Here is the link:
http://www.jfcom.mil/newslink/storyarchive/2010/JOE_2010_o.pdf

Rick M
03-18-2010, 04:00 PM
Steve/Planner:
I agree with your points about price and about the 10-20% response range.
Even on a farm, where most of what we do is essential (and most family farmers cannot afford to waste money), we all made changes during the summer of 08.

But once we are below that range, and are into the 80% that we really can’t give much more on, then the high cost of fuel really bites. Cows must be fed, hay must be made and transported to them, and we still need furnace oil.

You are right about the ethanol co-ops… same thing here in Ontario.
So farmers are squeezed on many fronts, which is why so few young folks want to do it (or can afford to do it).

But food must come from somewhere, which takes me to the other Steve’s points.

Steve/Dayuhan:
I agree with all of your points until we get the emergency plans.
Alan Smart has done extensive work for the Australian gov’t, and he stresses several things:

1. Legislative homework
Step one is ensuring that you have legal authority to do what must be done.
Anyone who thinks that gov’t is acting in an arbitrary, discriminatory manner can and will appeal for an injunction, probably at the very moment when gov’t needs scope of action.
Alan says we need a solid legal framework, mirrored at the state and local levels as well.

2. Informing the public
Far from keeping the plan secret, Alan (and others) point to the need to keep the public informed in advance as to the potential of a liquid fuel emergency (LFE) and how the gov’t intends to deal with one.
As he points out (and I used the quote in the Denver presentation), people have a responsibility to do their own contingency planning, but we cannot expect them to do so if they have no idea how the larger gov’t plan is supposed to operate.

The legislative framework can’t be kept secret, at least not in a democracy.

That said, much of the UK plan remains restricted. I assume (but cannot know) that they have criteria defined in terms of who is/is not an Essential User.
I think they should let the public be aware and get the legal challenges out of the way before-hand, but they have their reasons.

3. Politics
I agree re. the political backfire, but that just confirms why we need to raise & address this issue well in advance. If citizens are so self-centered that they won’t accept a politician who is up-front about discussing hard choices and the national interest, then what hope is there of orderly administration during an actual LFE?

4. Rationing dollars vs fuel
You are correct about it being easier to ration dollars vs fuel.
The easiest and most likely mechanism would be an end-of-year tax credit, based on income tax.
But this raises all sorts of complexities:
- people have to up-front the money and wait many months for a rebate to arrive.
- Many low-income people don’t own cars… do they get the rebate?
- People may believe that the economy will collapse and not trust that a rebate will ever be forthcoming. This belief will achieve the goal of cutting consumption, but it may cripple other goals (eg. of maintaining food production and social order). People can only do what they can afford to do.

Your first option (of allocating subsidized fuel to high priority/low income users) is what is needed, but the administrative and legal complexities will be enormous.
As GAO pointed out, such a immense task may be beyond the capacity of any organization.

All the more reason to get a much better brain than mine on this….
I’ve read & thought about this issue for some time and I certainly can’t see a clear solution, though I do see bits here and there that should help.
I also think that military logisticians could be invaluable in putting together a reasonably effective civilian LFE plan.

6. Higher prices
David’s info about UK prices fits with your call for sustained higher prices.
Kathy Leotta in Washington State did an excellent study on transport options for an LFE, but she points out that near-term responses are very limited.
She says that to build effective resilience, we need about a decade of work, but we can’t even start that decade until people accept higher prices.
Hirsch and Simmons say the same thing… price volatility undermines a lot of progressive action.

That’s about it… thanks to you all for your interest & ideas.

davidbfpo
03-18-2010, 08:50 PM
RickM,


(One passage only). That said, much of the UK plan remains restricted. I assume (but cannot know) that they have criteria defined in terms of who is/is not an Essential User.

I am reasonably sure the UK has defined 'essential user' and the fuel emergency plans had an "outing" in 2000 when a sudden protest by farmers initially, joined by hauliers quite literally nearly stopped the UK. Here is one link:http://news.bbc.co.uk/1/hi/uk/924574.stm

The UK plans were then explained to a limited audience, mainly within the fuel supply industry, as supplies dwindled and we edged towards declaring a State of Emergency. The most visible sign was the designation of a few petrol stations as only for 'essential users' and steps to ensure emergency serives, hospitals etc had supplies.

I would expect far more is in the public domain, but have not delved further.

Rick M
03-18-2010, 10:07 PM
Thanks for that, David

The BBC link gives a very good synopsis.
If you were in UK at the time (I don't know if are English or have moved there), I would appreciate your first-hand observations (and am happy to pay for a phone-call so you don't have to write it).

My gov't did a lessons learned thing (though it took them over 4 years to get around to it) which gives more detailed info:
http://www.publicsafety.gc.ca/prg/em/ccirc/2005/ia05-001-eng.aspx

Meanwhile, if you are familiar with the current UK Resiliency model, then I would really appreciate your observations on that as well.

Finally, are you familiar with the recent "Heads in Sand" study on UK energy security:
http://www.globalwitness.org/media_library_detail.php/854/en/heads_in_the_sand_governments_ignore_the_oil_suppl y_crunch_and_threaten_the_climate_

I appreciate your interest, David

davidbfpo
03-18-2010, 10:36 PM
I am a Brit and have PM'd in response.

Dayuhan
03-18-2010, 11:35 PM
Step one is ensuring that you have legal authority to do what must be done.
Anyone who thinks that gov’t is acting in an arbitrary, discriminatory manner can and will appeal for an injunction, probably at the very moment when gov’t needs scope of action.


The problem, of course, is the possibility that Government may turn around and apply that scope of action in ways that really are arbitrary and discriminatory. Americans do not entirely trust their government, nor should they.



Far from keeping the plan secret, Alan (and others) point to the need to keep the public informed in advance as to the potential of a liquid fuel emergency (LFE) and how the gov’t intends to deal with one.


I think the entire idea of a "LFE" may be deceptive, and may lead us to prepare for the wrong emergency. We need to remember that we're not looking at a lines-at-pumps fuel shortage, and if we prepare for that we're "preparing for the last war". Might be more useful to think of a "Liquid Finance Emergency".



You are correct about it being easier to ration dollars vs fuel.
The easiest and most likely mechanism would be an end-of-year tax credit, based on income tax.


I don't see that as practical, for all the reasons you mention and a few more.

One possibility would be a subsidized price for diesel, generally a "working fuel". Drawback of course is that not all diesel vehicles are for work, and that not all working vehicles are diesel.

A more likely option would be a two-tier price at the pump, with identified "priority users" paying less and government making up the difference to the oil companies. Of course you have to identify "priority users", and brace for the inevitable deluge of people trying to pressure or squeeze their way onto the priority list.

There will always be drawbacks, no perfect plan or device.

Of course no plan to identify "priority users" is going to be openly discussed by politicians, who would face an immediate and hideous backlash from the larger number of non-priority users. It doesn't help that in the US at least the public is for the most part convinced that there is no real fuel problem, and it's all a conspiracy between Evil Bigoil and the vile Ay-rab, who of course control the Guvvermint. The unpopularity of the oil companies is a real obstacle: government has to work with the companies to effectively prepare, but visible proximity to an oil company is politically unacceptable.

Rick M
03-20-2010, 10:00 PM
To David, thanks very much for your UK info… very helpful.

To Steve, thanks for your usual detailed response.

On your first point, that’s exactly why we need a plan, if only some general guidelines as to what gov’t plans to do & not do.
Then the public knows what it’s likely facing, we can plan (or decline to) accordingly, and the gov’t should be less likely to act in ways which are arbitrary and/or discriminatory.
They will be inviting legal action if they do, so it’s hardly in their interest not to tighten up the legalities well in advance.

On your second, I don’t see why lines-at-pumps cannot occur again.
Fuel is something that few of us can do without, and there is a limit to what we can curtail. What we should expect is a surge in people pulling “zoomers” (driving off without paying, often without replacing the nozzle).
This would bring a quick end to self-serve, and if there were other obstacles to easy service (prepayment, limits on purchase, restrictions on containers, etc), the whole refueling process could certainly bog down and cause extensive line-ups, even though people were buying less of it.

On your third point, I think we’d need not only a two-tiered price, but they had better be in different locations to avoid hassles at the pumps.
The Brits have about 800 Designated Filling Stations (DFSs) for blue-light vehicles only (only in the event of an emergency, but they have been pre-identified and authorized).
We should have such provisions here.

I also think that we need a ready-to-go system for farmers: we use a special fuel (off-road diesel) which is delivered to the farm, and most farmers are registered with the gov’t, so they know who & where we are (and could easily find out how much we usually consume to prevent barnyard “entrepreneurship”).

But you are absolutely correct re no perfect plan.
Apart from the certain aspects (pollution, urban sprawl, rapid resource depletion, obesity… all minor concerns… definitely joking) what we have now is the perfect system: just swipe a card and drive away…. good for another week.

Rick M
03-21-2010, 12:56 PM
One of Canada’s finest journalists is Steve Paikin at TV-Ontario.
In October 2009 he interviewed Gen. Wesley Clark (Ret) on the topic of energy security (28 mins).
This interview is currently posted at the Journal of Energy Security.

Gen. Clark has an excellent grasp of these complex issues and some very clear ideas about what we can and should do about them.
The topics discussed (with start-times) are:

1m – history of US oil supply
5m – resource nationalism
10m – role of Canada (tar sands, etc)
13m – nuclear
16m – ethanol, transport fleet
19m – corn production
20m – US total energy consumption, alt energy, transportation vs stationary
24m – Clark’s investments & interests
25m – opposing interests & political change
27m – climate change threat

Here is the link:
http://www.ensec.org/

Rick M
03-21-2010, 10:33 PM
The UK Industry Task-Force on Peak Oil and Energy Security (ITPOES) continues to make good progress.
Their second report was issued last fall and reiterated their concern that the UK gov't is much too complacent on PO.

The UK energy minister has suddenly agreed to meet with ITPOES in a private session, which they will do tomorrow:
http://www.guardian.co.uk/business/2010/mar/21/peak-oil-summit

I have just written to one of the ITPOES members to suggest that they endorse the idea which was put forward by an RAF officer in his 2009 thesis that Defence be included in gov't examinations of energy security. (MOD has so far been excluded.)
Defence analysts could provide a unique and invaluable perspective amidst the usual gathering of politicians, bureaucrats and industrialists.

CloseDanger
03-23-2010, 04:58 PM
Some really neat graphics and outlines in Northern Commands report. (http://publicintelligence.net/usnorthcom-electric-energy-security-in-the-domestic-theater/)

A good explanation of smart grid for installations as well.
It's a good overview.

Rick M
04-05-2010, 01:13 AM
First, thanks for your info on grid vulnerabilities, CD.
Your link confirms the concerns expressed at the Oct. 09 ASPO conference by a Homeland Security analyst... there are some very serious grid vulnerabilities with direct relevance to domestic base installations.

Meanwhile, I want to offer this, a petroleum study commissioned for last week's International Energy Forum which was held in Cancun, Mexico.

Some of the key points made in the IEF report by PFC Energy are (emphasis added):
- because of "a consistent set of trends" the PFC Energy projection is much less optimistic than those made by either the IEA or OPEC: "The divergences in supply forecasts are stark and significant.... PFC Energy sees liquids output at 89.8 mmb/d in 2030, after peaking between 2020-2025 around 95.0 mmb/d" (p. 9).
- "the fact that so much of the world's production is probably on irreversible decline is the key factor in restraining global output growth" (p. 10).
- "the challenge [of the plateau and onset of irreversible decline] is coming, and this emerging world of limited conventional production will require major adjustments..." (p. 13).
- "governments [must] appreciate the gravity of the challenge and the need for immediate and concerted policy initiatives..." (p. 13).

The original PFC Energy report is available here:
http://www.ief.org/whatsnew/Documents/IEF%20Unpacking%20Uncertainties.pdf

Tomorrow a letter will be sent to Canada's energy minister, asking how this PFC assessment (and the abundance of prior warnings, both civilian and military) fits with the Canadian government's ongoing position that "there is no peak oil challenge."
I will let you know what answer I receive, if any.

Rick M
04-07-2010, 10:45 PM
The letter below was sent this morning to Canada's Minister of Natural Resources, in connection with the PFC study which was commissioned for last week's International Energy Forum in Mexico.

Dear Minister Paradis

I have just finished reading the report commissioned by the International Energy Forum entitled Unpacking Uncertainty: Investment Issues in the Petroleum Sector.
This report was authored by PFC Energy in July 2009 (44 pgs) and it is my understanding that it was the subject of some analysis by the world's energy ministers (including yourself) at the International Energy Forum in Cancun, Mexico last week.

As you are aware, some of the key points made by PFC Energy are (emphasis added):
- because of "a consistent set of trends" the PFC Energy projection is much less optimistic than those made by either the IEA or OPEC: "The divergences in supply forecasts are stark and significant.... PFC Energy sees liquids output at 89.8 mmb/d in 2030, after peaking between 2020-2025 around 95.0 mmb/d" (p. 9).
- "the fact that so much of the world's production is probably on irreversible decline is the key factor in restraining global output growth" (p. 10).
- "the challenge [of the plateau and onset of irreversible decline] is coming, and this emerging world of limited conventional production will require major adjustments..." (p. 13).
- "governments [must] appreciate the gravity of the challenge and the need for immediate and concerted policy initiatives..." (p. 13).

These expressions of concern (and there have been many others since the release of the Hirsch Report five years ago) are not reflected in the position or policies of your department.
Since your Ministry has the lead on energy issues, other departments (eg. Agriculture and Agri-food Canada) are unable to incorporate these concerns in their policies or even their research.

For years, the position of Natural Resources Canada has been that "there is no imminent peak oil challenge" and therefore there is no need for a formal examination of the issue.
As you are aware, other jurisdictions (USA, Australia, UK) have conducted thorough analyses and concluded that the peaking of global oil production constitutes "an unprecedented risk management problem" (Hirsch Report, p. 4).

The ongoing complacency of our federal government is no doubt due to the tar sands, which represent Canada’s only hope of growing production given that conventional oil production has been in decline for decades (even considering the relatively minor amounts of new east coast production).
I and others who have expressed concern about peak oil to your Department are invariably told that thanks to the tar sands, "Canada's oil supply is secure for about 200 years."

However, this argument fails to account for the fact that oil is a globally priced commodity and there are no plans for government intervention with respect to oil pricing or security of supply.
All Canadians, including our essential service providers and our hard-pressed farmers, must pay the world price, which can be expected to increase substantially due to peak oil, followed by potential physical supply disruptions.
Furthermore, eastern Canada is not served with tar sands oil and in fact is highly dependent on imported oil, and (pipeline logistics aside) NAFTA constrains the shifting of production from exports to the USA to serve eastern Canada.

Consequently, my request is both prudent and direct:
In light of the information in the PFC Energy report, the discussions which took place in Cancun, the growing body of evidence which points to both a near-term supply crunch (2011-2015) and a likely peak in global oil production within the next decade, and the vulnerability of all Canadians to an oil price spike, will your department now conduct a formal analysis of peak oil and how our nation can best deal with its expected effects?


- Rick Munroe
National Farmers Union
Howe Island, Ontario

Dayuhan
04-09-2010, 12:29 PM
I realize that analysts have to make brave predictions... but I really don't think anyone's prediction of available energy supply 15 to 20 years from now means very much.

We tend to forget the glut. It seems a long time ago, but today's energy matrix is inextricably connected to it and shaped by it. For close to two decades - effectively about 86 through 06 - investment in exploration, production, new technologies, and both conventional and renewable alternatives virtually stopped - there was simply no economic justification for it. Even when prices curved up in 02-03 most people saw it as a risk premium associated with the US response to 9/11; it wasn't til 06 or so that it really sank in that the glut is done.

Today, of course, we all know the glut is gone, and for the first time since the mid 80s, real effort, real money, and a vast array of improved technologies are being applied to energy problems. A lot of this will go to oil: finding new oil, reducing the extraction and processing cost for the oil that we now say is difficult or expensive, and increasing the recoverable percentage of known reserves. A lot of it will go to conventional alternatives: hydro, geothermal, finding ways to make nuclear affordable and coal acceptable. A lot will go to non-conventional alternatives: wind, solar, waves, tides, etc.

In all cases, nobody can say what the payoff will be. We just don't know. Given the extended neglect and the considerably improved level of technology since the last time these matters received serious attention, I think we'll seeing a wave of very interesting stuff emerging around 2015-2020... maybe some hints and pieces before then, but this stuff doesn't happen overnight.

All I'm saying is that if we extrapolate from what is now known and now possible we ignore the reality that what we have now is the fruit of 2 decades of neglect. The answer to that is not to assume that this is all that can be, but to end the neglect.

At the moment we have some breathing space. Prices are at a sort of sweet spot: high enough to support significant investment and significant conservation, not so high that economies are crippled. There's still a bit of reserve: OPEC quotas are below maximum output and Gulf producers have been putting real money into new capacity. We need to make use of that breathing space and actively shape the medium and long term future, not simply assume that what will be is a linear continuation of the recent past.

Rick M
04-11-2010, 12:50 PM
Hi, Steve

As usual, I agree with some but not all of your observations.

Your central point seems to be the shortfall that we are looking at is due primarily to underinvestment in the two decades between the mid-80s and 2006, and that once we get serious about investing, supply will meet demand.


For close to two decades - effectively about 86 through 06 - investment in exploration, production, new technologies, and both conventional and renewable alternatives virtually stopped

I don’t know what you base that statement on.
There was considerable investment in all the sectors you mention during that period:
Exploration: GOM deep-water, Santos Basin, Gulf of Guinea, etc.
Production: North Sea, the second half of Quebec’s James Bay hydro-electric, surge at Cantarell, Gulf of Guinea, Bakken shale, Danish & German wind, BTC pipeline, tar sands expansion & pipelines, LNG, etc.
New tech: deep-sea drilling rigs, shale gas fracking, tar sands in-situ (SAGD, THAI & CSS), nitrogen injection at Cantarell, improvements in 3D & 4D seismic, thin-film PV, hybrid Prius, LNG, tidal, etc.

So I would argue that there was a great deal of investment (and payoffs from it) throughout this period.
Although Matt Simmons warns of the “rust factor” (our aging oil infra: pipelines, refineries, storage tanks, drilling platforms, tanker fleet) I think he views this more as one of age rather than deliberate risk-taking & neglect.
His main point is that (just like our farm fences) eventually the stuff is too old & rusty and must be replaced, not patched.
In the case of oil infra, the costs can be in billions, and we can’t count on timely investment of that magnitude (for many reasons).

You are right about not knowing the future pay-off and that this stuff does not happen overnight.
I also agree that we have a bit of breathing room and that oil (but not gas) is at a sweet spot.

OPEC is below max, true, but global output has now returned to 86.5 plus, so I will be surprised if there is much spare capacity out there.
Furthermore, the warnings about a near-term supply crunch (due to recessionary under-investment and accelerating depletion) in the 2011-2015 time-frame are increasing, not going away.

You’re more optimistic than I am, Steve.

Rick M
04-11-2010, 10:43 PM
We had this warning from the Joint Operating Environment posted three weeks ago (#128) but the Guardian only posted it today (usually they are pretty quick off the mark):
http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

The Guardian does raise one interesting question:
Why is DOD warning about a fairly imminent oil supply crunch (possibly of considerable magnitude) while DOE is not?

Rick M
04-15-2010, 02:22 AM
Oil Supply Crunch: 2011-2015

Concerns are mounting about peak oil, and there continues to be much debate over when the peak will be reached, whether a plateau can be sustained or whether the onset of decline would occur quickly, whether we will hit peak demand before we hit peak supply, etc.

There is convincing evidence that conventional oil production has already peaked, since we have been stuck at around 74 mbpd for over half a decade (despite the incentive of record high prices).
There also seems to be growing consensus that global liquids production (currently around 86 mbpd) is likely to peak within the next decade and almost certainly at less than 95 mbpd.
(Mainstream opinion a few years ago predicted no peak before 2030, with output at 130 mbpd.)

However, there are increasing warnings about an “oil supply crunch” within the next few years, not because of geological constraints, but because of under-investment.
These warnings began just over two years ago, yet the mainstream media have rarely mentioned them, so the public remains largely unaware.

Listed below is a chronology of some of these warnings, with URL links to the original sources.

One of the first warnings came from the chief economist of the International Energy Agency, Fatih Birol in the summer of 2007 and then reiterated in Nov. 2007, cited here:
http://www.davidstrahan.com/blog/?p=73

In May 2008 the Wall Street Journal ran an article entitled, Energy Watchdog Warns of Oil Supply Crunch:
http://online.wsj.com/article/SB121139527250011387.html

This was followed by a study from Chatham House, a highly regarded think-tank in the UK. In August 2008, it published a paper entitled The Coming Oil Supply Crunch in which author Paul Stevens predicted a shortage within the next 5-10 years. His 40-page study (which includes a May 09 reaffirmation of his 08 prediction) is available here:
http://www.chathamhouse.org.uk/publications/papers/view/-/id/652/

On Nov. 15, 2008 the International Energy Agency released its annual World Energy Outlook, which was something of a bombshell. The IEA, which had been quite dismissive of peak oil, suddenly warned, “What is needed is nothing short of an energy revolution… the era of cheap oil is over… time is running out….”
It further warned, “Some 30 mb/d of new capacity is needed by 2015. There remains a real risk that under-investment will cause an oil-supply crunch in that timeframe” (WEO, Executive Summary, p. 7).
The Executive Summary of the 2008 WEO is available here:
http://www.worldenergyoutlook.org/docs/weo2008/WEO2008_es_english.pdf

The release of the 2008 WEO was quickly followed by George Monbiot’s recorded interview with Mr. Birol and this article in The Guardian (Dec. 08):
http://www.guardian.co.uk/business/2008/dec/15/oil-peak-energy-iea

In August 2009 the IEA’s chiel economist again mentioned the likelihood of an oil supply crunch, this time indicating that it could occur any time after 2010:
http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html

In October 2009 Global Witness in the UK released its Heads in the Sand study which addressed government inaction on peak oil. This study also warns of a potential 7 mbpd gap between supply and demand by 2015 (p. 7 & 36):
http://www.globalwitness.org/media_library_detail.php/854/en/heads_in_the_sand_governments_ignore_the_oil_suppl

In Dec 2009 the CEO of Petrobras made a presentation in which he predicted an oil supply crunch for 2012 and 2013 (see figure 6 here):
http://canada.theoildrum.com/pdf/theoildrum_6169.pdf

In Feb. 2010 the UK Industry Task Force on Peak Oil & Energy Security (ITPOES) released its second report. ITPOES analyst Chris Skrebowski predicts a loss of spare capacity and a price spike “as early as 2012/2013 and certainly no later than 2014/2015” (p. 15).
http://peakoiltaskforce.net/

On Feb. 18, 2010, the US Joint Forces Command issued its Joint Operating Environment (JOE) which warned that “ By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD” (p. 29). A review of the 2010 JOE (with link to the original) is available here: http://www.energybulletin.net/node/52029

In March 2010 the Financial Times mentioned a crunch “in the middle of this decade” and blamed it on uncertainties caused by biofuels policies:
http://www.ft.com/cms/s/0/ea030306-26e8-11df-8c08-00144feabdc0.html

Also in March we had the chief scientist for the UK quoted as saying, “We’re talking supply not meeting demand in 2014-2015”:
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7500669/Oil-reserves-exaggerated-by-one-third.html

In April 2010 the Guardian (UK) cited the US JOE report and raised an interesting question: why are warnings over near-term oil supply (in the 2012- 2015 time-frame) being issued by the US Department of Defense, while the civilian Department of Energy has issued no such warning?
http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

As the above information indicates, these warnings are numerous, consistent in their time-frame, and from highly credible sources.

Rick M
04-18-2010, 09:17 PM
Former CIA director Jim Woolsey has created a bit of a stir with his recent WSJ article.
He talks about moving quickly "to strike a blow at oil and OPEC's dominance" and then draws a parallel with Teddy Roosevelt's "taking on Standard Oil's cartel and breaking it into 30 parts.
President Obama, meet your cartel...."

This is strong language.

It's a bit inconsistent of him to express concern about the high price of oil, the transfer of wealth to the Middle East, complain that "we now are financing both sides in our war with radical Islam," but then turn around and claim that "it was too easy for OPEC to drive prices down and crush [alt-energy] competition."

That said, there are many other points that he made which I agree with.

Woolsey's WSJ article is here:
http://online.wsj.com/article/SB10001424052702303411604575168130469848598.html

A response in today's Arab News is here:
http://arabnews.com/economy/article44491.ece

Dayuhan
04-19-2010, 02:05 AM
There is convincing evidence that conventional oil production has already peaked, since we have been stuck at around 74 mbpd for over half a decade (despite the incentive of record high prices).

As I've said before, "the incentive of record high prices" is completely meaningless. The record spike was too sudden and too brief to have any real impact on output. High prices will drive increased output, but to have an impact they have to be sustained, probably for several years. There are some saying that conventional production must have peaked because the price spike was unable to call up new production, but it's a non-argument, as it fails to consider the nbecessary time lag between investment decisions and investment outcome.



However, there are increasing warnings about an “oil supply crunch” within the next few years, not because of geological constraints, but because of under-investment.


With this I agree completely, been shouting about it for years. Again, the only way to drive the needed investments - in new oil, in more effective access to old oil, in alternative energy, and in efficiency/conservation - is to keep prices high, no matter how unpopular high prices are.


Former CIA director Jim Woolsey has created a bit of a stir with his recent WSJ article.

The most charitable explanation I can think of for this is that Woolsey is insane. This piece is so far off base on so many grounds that it's pointless to even start a catalogue... starting with the notion that OPEC sets oil prices. Has he never heard of demand? Of what happens when supply exceeds demand (20 years of low prices) or when demand spikes to exceed supply? Of course his comments will resonate with the Arabophibic OPEC-is-the-enemy crowd, ever impervious to logic, but I doubt that they will find much mainstream traction. The idea of investing heavily in alternatives and conservation makes perfect sense, of course, but the idea that the volatility of oil prices is the fault of OPEC manipulation, rather than a consequence of fundamental shifts in the supply-demand equation, is just ridiculous.

Rick M
04-20-2010, 12:44 AM
Hi, Steve

Thanks for your observations.
I disagree with your first point... I think that oil prices have been both high and sustained since 2005 or so... volatile, I agree, but apart from that sudden drop to $37 which didn't last long (and in the oil business a few months is a mere hiccup), the incentives have been there and are still there, with little reason to expect otherwise... the trend must be upward.

I must admit that I agree with your other observations, blunt as they are.
I wouldn't call him nuts, but perhaps self-defeating (and the two are often equated).
For a guy who has just started his own consulting firm, he can come across as rather undiplomatic.
Most people don't need to pay a consultant if the result is going to be inflammatory & undiplomatic... many people are pretty good at doing that on their own, without paying a penny.

Dayuhan
04-20-2010, 05:22 AM
I disagree with your first point... I think that oil prices have been both high and sustained since 2005 or so... volatile, I agree, but apart from that sudden drop to $37 which didn't last long (and in the oil business a few months is a mere hiccup), the incentives have been there and are still there, with little reason to expect otherwise... the trend must be upward.


If you look at a chart in retrospect, it certainly looks that way. What the chart won't tell you is how the price increase was interpreted at that time. When prices began rising in 03/04 the increase was seen not as a supply/demand imbalance, but as a risk premium associated with the Iraq war. The first Iraq war created a similar price spike, which very quickly deflated when the war concluded. That seemed to be happening again when prices sagged back to the $50 mark in early 07. That period between 03 and 06 saw prices going up, but as long as industry players perceived the increase as a transient spike driven by political events, there was no real incentive to invest in boosting production capacity.

It was only in 07/08 that the price spike was broadly recognized as evidence of a fundamental change in the supply/demand equation that required major new investments. At that point some producers, notably in the GCC, did begin serious investment in new production. We really don't know what came out of those investments, because by mid 08 prices were plummeting and producers were actively cutting back.

In retrospect, the transition from extended glut to shortage can be said to have begun in 03/04. However, because of the tradition of price spikes associated with political instability and/or military action in the Gulf region, it was not recognized for what it was until much later. That has to be factored in when we look at the question of why higher prices didn't call up increased production. The answer to that question is that high prices can and will call up increased production, but only up to the capacity of the installed infrastructure. Going beyond that capacity requires the planning, financing, and construction of new infrastructure, which requires substantial investment and substantial time.

Rick M
04-20-2010, 10:22 AM
Steve, this time I agree with everything you said.

--Rick

Dayuhan
04-20-2010, 11:14 PM
... I must be losing my edge :eek:

Gotta think of something contentious to say, quick!

Rick M
04-21-2010, 12:31 AM
Steve, you ARE a contentious fellow.

But that is what I asked for.
When this Energy Security thread was first started, I invited people to point out errors in my info & analyses.
You, above all, have done that.

We have some fundamental agreements: you are more optimistic than I am and have more faith in market forces than I do.
But I greatly appreciate the respectful manner with which you disagree (a rare thing on internet forums where people routinely abuse each other anonymously) and your consistent provision of data & details to back up your position.

Again, we seem to disagree as often as not, but that can be an enlightening exercise for both of us.
Many thanks for your observations over the months, including the contentious ones.

-- Rick

Surferbeetle
04-21-2010, 07:52 AM
Hmmm....how benign are cartels really, how do they impact pricing of products, and are there some case studies concerning to cartels to consider?

Cartel (http://en.wikipedia.org/wiki/Cartel) from Wikipedia


A cartel is a formal (explicit) agreement among competing firms. It is a formal organization of producers that agree to coordinate prices,.[1] Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition.

OPEC (http://en.wikipedia.org/wiki/OPEC) as described by Wikipedia


The Organization of the Petroleum Exporting Countries (OPEC, pronounced /ˈoʊpɛk/ OH-pek) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965,[2] and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter in the world again.[3]

According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.[4]


OPEC's website (http://www.opec.org/).


Striving for Stability in Global Energy Markets

OPEC (http://www.eia.doe.gov/emeu/cabs/OPEC_Revenues/Factsheet.html) from EIA (accessed 4/21/2010)


Based on projections from the EIA April 2010 Short-Term Energy Outlook (STEO), members of the Organization of the Petroleum Exporting Countries (OPEC) could earn $769 billion of net oil export revenues in 2010 and $828 billion in 2011. Last year, OPEC earned $573 billion in net oil export revenues, a 41 percent decrease from 2008. Saudi Arabia earned the largest share of these earnings, $154 billion, representing 27 percent of total OPEC revenues. On a per-capita basis, OPEC net oil export earning reached $1,554 in 2009, a 42 percent decrease from 2008.

Standard Oil (http://en.wikipedia.org/wiki/Standard_Oil) from Wikipedia


Standard Oil was a predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as an Ohio corporation, it was the largest oil refiner in the world[3] and operated as a major company trust and was one of the world's first and largest multinational corporations until it was broken up by the United States Supreme Court in 1911. John D. Rockefeller was a founder, chairman and major shareholder, and the company made him the richest man in modern history.


In response to state laws trying to limit the scale of companies, Rockefeller and his associates developed innovative ways of organizing, to effectively manage their fast growing enterprise. In 1882, they combined their disparate companies, spread across dozens of states, under a single group of trustees. By a secret agreement, the existing thirty-seven stockholders conveyed their shares "in trust" to nine Trustees: John and William Rockefeller, Oliver H. Payne, Charles Pratt, Henry Flagler, John D. Archbold, William G. Warden, Jabez Bostwick, and Benjamin Brewster.[7] This organization proved so successful that other giant enterprises adopted this "trust" form.


In one example of Standard's aggressive practices, a rival oil association tried to build an oil pipeline to overcome Standard's virtual boycott of its competitors. In response, the railroad company at Rockefeller's direction denied the association permission to run the pipeline across railway land,[citation needed] forcing consortium staff to laboriously decant the oil into barrels, carry them over the railway crossing in carts, and pump the oil manually into the pipeline on the other side. When Rockefeller learned of this tactic, he instructed the railway company to park empty rail cars across the line, thereby preventing the carts from crossing his property.[citation needed]

Standard's actions and secret[citation needed] transport deals helped its kerosene price to drop from 58 to 26 cents from 1865 to 1870. Competitors disliked the company's business practices, but consumers liked the lower prices. Standard Oil, being formed well before the discovery of the Spindletop oil field and a demand for oil other than for heat and light, was well placed to control the growth of the oil business. The company was perceived to own and control all aspects of the trade. Oil could not leave the oil field unless Standard Oil agreed to move it:[citation needed] the "posted price" for oil was the price that Standard Oil agents printed on flyers that were nailed to posts in oil producing areas, and producers had no power to negotiate those prices.[citation needed]


Sherman Anti-Trust Act (http://en.wikipedia.org/wiki/Sherman_Antitrust_Act) from Wikipedia


The Sherman Antitrust Act (Sherman Act,[1] July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 1–7) requires the United States Federal government to investigate and pursue trusts, companies and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the United States federal government.

Dayuhan
04-21-2010, 11:51 PM
Hi Steve, been a while... you been out on a wave?

Certainly OPEC is a cartel, but how effective they are is open to question. If the goal is "stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations", one glance at a recent price chart would suggest that they are not effective at all. OPEC was unable to support prices effectively during the glut, they were unable to control the 2007-2008 price spike, and they were unable to prevent the subsequent plunge.

In theory downside fluctuations can be controlled by production cuts, though in practice (as we saw during the glut) the cuts are hard to enforce and generally can't be maintained for very long. In theory the upside fluctuations can be constrained by pumping more, but that assumes surplus capacity, which as we saw in 07/08 is very questionable, though the GCC subset of OPEC is investing very heavily in trying to get it back.

Of course it's difficult to control speculative price swings by manipulating production. The difference in actual physical demand for oil at $147/bbl and at the subsequent plunge to just over $30 was not that large.

I wouldn't say OPEC is inherently benign, or that it's inherently malevolent. In the 70s they took a fairly aggressive political position and caused us trouble. Things have changed: the balance of power in OPEC is with conservative status quo powers whose interests, at least when it comes to oil pricing, align quite closely with ours. High oil prices are painful, but low ones are catastrophic, as they derail desperately needed investment in improved oil production, alternative energy, and conservation. Both we and OPEC have a strong vested interest in trying to maintain oil prices in a high but stable band. We may or may not be able to achieve this goal, but given that we share it we're better served by cooperating with OPEC to achieve the goal than by a confrontational stance. We've neither the ability nor any special reason to break up OPEC, so frothing about it in the Woolsey mode hardly seems sensible.

I'm not sure the Sherman anti-trust act is relevant, as neither OPEC nor its constituent states are subject to US law.

Rick M
04-22-2010, 12:04 AM
Thanks for that, Surfer

Not being a lawyer, and not having thought too much about the differences between OPEC and the SO history, I would offer these initial observations.
OPEC members are blessed with something that most of the world does not have. OPEC members know that it's a one-shot deal, so I don't blame them for collaborating to ensure that they obtain a fair (or even maximum) value for their irreplaceable product.

On the other hand, SO had gained control of a natural resource which (as a good Canadian socialist) I would argue belongs (to some degree) to the public, to the nation.
The company which makes the investment to turn a public resource into a useable product deserves to be rewarded (and must be, if it is to survive).

However, when a company tries to eliminate competition and place unwarranted prices between the purchasing public and a resource to which they have some collective claim, then I think that government (ie. the public interest) needs to step in.

Those are my thoughts... more political philosophy than anything useful....

Rick M
04-22-2010, 12:38 AM
Michael Economides (great name for a guy who follows economic issues) continues to do excellent work on oil supply.

This (below) was posted yesterday and is well worth the read.
I had not seen it and only know of it thanks to Lisa Wright at the office of Rep. Roscoe Bartlett, who heads your Congressional Peak Oil Caucus.
Dedicated people, both of them... in their case, your tax dollars do produce good work.

http://www.maritime-executive.com/article/op-ed/

Surferbeetle
04-22-2010, 10:48 PM
Hi Steve, been a while... you been out on a wave?

Demanding break + frequent sets = :D How's the river and streams? As a quick sidebar Tom Ricks has a recent and interesting post on chaos and whitewater (http://ricks.foreignpolicy.com/posts/2010/04/15/is_there_really_such_a_thing_as_chaos_the_more_i_k now_the_more_i_doubt_it)


I wouldn't say OPEC is inherently benign, or that it's inherently malevolent.

I would argue that cartels, to include OPEC, result in a long-term decrease in competition which negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs. At best, we see undesirable consequences with a worldwide impact resulting from a 'neutral' organization. When certain trigger-points/rivers are crossed, however, cartel's historically act to defend their interests, and these actions are not necessarily in the interest of the greater good as you point out.


In the 70s they took a fairly aggressive political position and caused us trouble.


not sure the Sherman anti-trust act is relevant, as neither OPEC nor its constituent states are subject to US law.

The Sherman anti-trust act is interesting from the standpoint that even in the home of no-holds barred capitalism there are some rivers that are marked do not cross.

Is this viewpoint a dated or a geographically isolated one?

European Union Competition Law (http://en.wikipedia.org/wiki/European_Union_competition_law) from Wikipedia


European Union competition law is one of the areas of authority of the European Union. Competition law, or antitrust as it is known in the United States, regulates the exercise of market power by large companies, governments or other economic entities. In the EU, it is an important part of ensuring the completion of the internal market, meaning the free flow of working people, goods, services and capital in a borderless Europe.

EU vs. Microsoft (http://en.wikipedia.org/wiki/European_Union_Microsoft_competition_case) by Wikipedia


The European Union Microsoft competition case is a case brought by the European Commission of the European Union (EU) against Microsoft for abuse of its dominant position in the market (according to competition law). It started as a complaint from Novell over Microsoft's licensing practices in 1993, and eventually resulted in the EU ordering Microsoft to divulge certain information about its server products and release a version of Microsoft Windows without Windows Media Player.

Korean Fair Trade Commission (http://en.wikipedia.org/wiki/Fair_Trade_Commission_(South_Korea)) by Wikipedia


The Korea Fair Trade Commission (KFTC) is South Korea's regulatory authority for economic competition. It was established in 1981 within the Economic Planning Board. The establishing law was the Monopoly Regulation and Fair Trade Act (MRFTA), Law No. 3320, December 31, 1980

Steve, I greatly appreciate the time you spent on your many other eloquent and well argued point's on OPEC in this particular post......I will chase some quantitative rebuttals as time permits.

Rick, ditto.

It's always a quality Socratic education here at SWJ...that's why I keep coming back. :wry:

Dayuhan
04-23-2010, 01:54 AM
Demanding break + frequent sets = :D How's the river and streams? As a quick sidebar Tom Ricks has a recent and interesting post on chaos and whitewater (http://ricks.foreignpolicy.com/posts/2010/04/15/is_there_really_such_a_thing_as_chaos_the_more_i_k now_the_more_i_doubt_it)


Dead dry here... this is dry season to begin with and the El Nino cycle is keeping it dryer. Hoping for rain by June and a river to paddle by July; meanwhile I ride the mt bike a few hours a day and dream of rain. To me we have 2 seasons, river season and bike season; they overlap from Oct-Jan and I don't get much work done!

If Ricks paddles Great Falls he's good, and he does have a point about chaos... you could probably describe chaos as a system with rules we don't understand or can't manipulate. Of course of an abstract scientific level there's probably something that represents pure chaos... on a practical level I'm not sure how much difference it makes; the knowledge that white water has its own order and rules is small consolation if you're trying to swim a class 5 rapid. The logical response to that knowledge, of course, is not to jump into class 5 rapids, but that would mean the application of the ever uncommon virtue of common sense!

But back to OPEC...




I would argue that cartels, to include OPEC, result in a long-term decrease in competition which negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs.


Competition in primary commodity production is a bit different than it is on the retail end. For example... Brazil and Australia both export iron ore, but they don't "compete" in the pricing sense; there isn't a Brazilian price and an Australian price, and they aren't trying to gain market share by undercutting each other. Even among non-OPEC producers, oil works the same way. The prices aren't dictated by producers, they're set on international commodity exchanges where contracts are sold on a bid/ask system. That system has its own risks, notably vulnerability to speculation, but overall it works and we'd want to think several times before trying to scrap it. That system wasn't created by OPEC and is not limited to oil.

OPEC's only real way to control prices is to increase or reduce production, and as we've seen, their ability to control price fluctuation is quite limited.

I don't really see any mechanism by which OPEC would "negatively impact investment, exploration, associated (energy in this case) infrastructure, and jobs." The primary constraints on all of these in the oil industry over the last 30 years have not been caused by OPEC, but by the extended period of low oil prices caused by the glut and by poor investment climates and poor decision-making by governments in countries with large oil reserves.

OPEC and the industrial nations have a common interest in trying to maintain relatively stable and relatively high oil prices. OPEC's rock-the-boat days are long past, and the organization has settled into a fairly conservative approach that we can work with. If that changes at some point in the future, we may want to change our approach, but at present cooperation serves us better than confrontation. The Woolsies of the world may froth about a need to break up OPEC, but we've no means to do that anyway, and any attempt to do it would have... well, let's delicately say abundant potential for unintended adverse consequences.



This (below) was posted yesterday and is well worth the read.


Worth the read, yes, but I can't help thinking the read on Chinese investments is a bit on the panicked side, and that some key information gets left out. For example:



Sinopec paid ConocoPhillips $4.65 billion to acquire its share in a Canadian tar sands project.

That sounds scary, the heathen Chinee walking into North America, buying up the oil, and presumably shipping it off to China.

It sounds a little less scary when you note that Sinopec bought a 9% interest in the project, a figure that was curiously omitted.

It's commonly assumed that all oil developments that China invests in will ship the oil produced back to China. That assumption isn't valid. Just as US oil companies operate many projects that do not ship oil to the US, Chinese companies get involved in many projects that will never ship oil to China.

Chinese investment in high-risk areas where US companies fear to tread is actually a very good thing for the US, and there's no point in seeing it as a threat, though some prefer to see threats wherever possible. If China wants to put a few billion into Angolan offshore reserves, great. They aren't displacing US companies; we don't want to go there. Even if all the oil goes to China, that reduces the pressure Chinese demand puts on other resources. Any new oil coming into the global market pool reduces upside pressure on prices, and that benefits all consumers. Essentially the Chinese are taking the very real political and financial risks and we are sharing the benefits... I don't see that as something we should be afraid of.

flagg
04-23-2010, 03:46 AM
Here's a snippet from Eric Janszen over at the iTulip.com forum:


But Peak Cheap Oil is unique in history. A cheap source of energy for transportation is in decline and there is no cheap substitute. Market failures will multiply like rabbits.

Here's one. Oil reserves are depleted globally, production declines, oil exports from oil producing to oil consuming countries falls, and oil prices rise; oil export income rises in places like Iran and Venezuela, increasing per capita income, increasing domestic demand, reducing exports further, further tightening global supply. Now there's a feedback loop.

Rick M
04-25-2010, 10:24 PM
Thanks for your observations, Steve & Steve.
And welcome, Flagg... thanks for jumping in.
That "feedback loop" is exactly what Robert Hirsch, Jeff Rubin, Jeff Brown and the other 'export decline' analysts have been warning about.

I participated at an energy security conference in Ottawa on Friday, geared primarily to defence analysts and emergency planners.
Canada's foremost peak oil/fossil fuel depletion analyst, Dave Hughes, was the keynote speaker.
He showed a very striking graph which lists the many oil producers which have peaked, when they peaked, and how much their current production is below their peak production.
The number of countries continues to grow, and their percentage of peak production continues to decline.

We can't all be importers....

Meanwhile, Johns Hopkins University and the Centre for Naval Analyses recently put together a two-day symposium on Climate and Energy.

A review of three of three presentations on energy has been posted here:
http://www.energybulletin.net/node/52558

All three of these presentations indicate that their authors view peak oil as a legitimate near-term concern.
Unfortunately, the EIA presentation to this conference completely overlooked the matter.
This omission adds further evidence to the recent debate over the apparent disjuncture between military and civilian views of future oil supply.

One obvious question is this:
Why do we have increasing expressions of concern from the military/security research community, while civilian authorities cannot bring themselves to acknowledge even the possibility of a near-term peak and the problems which that could present to an unprepared world?

Dayuhan
04-26-2010, 12:45 AM
He showed a very striking graph which lists the many oil producers which have peaked, when they peaked, and how much their current production is below their peak production.

I'm curious... was the effort made to distinguish between peaks caused by absolute depletion, peaks caused by underinvestment, and peaks caused by political factors (e.g. sanctions in Iraq and Iran)?

Rick M
04-26-2010, 01:31 AM
Hi, Steve

I have written to Dave Hughes to ask if we can post his graph.
I believe that the only countries to which your distinction between geological, under-investment and geopolitical constraints might apply would be the most recent situations (ie within the last few years).

I do not expect that anyone would try to argue that countries which peaked over a decade ago (eg. USA, Venezuela, Libya, Kuwait, Rumania, Indonesia, Peru, UK, Norway, etc) did so for other than geological reasons.

There is always the possibility that some of the countries whose production has suffered a recent decline may in fact revive and surpass their previous peak.
But for many of these countries so much time has elapsed and the recent economic incentives have been so great that it seems implausible that circumstances somehow conspired to prevent a resurgence in production which was (and is) within their capability.

Dayuhan
04-26-2010, 02:20 AM
I would certainly classify the Venezuelan peak as driven by investment and political issues: poor Hugo has not been good for the Venezuelan oil industry.

Kuwait is just beginning an $87 billion investment program aimed at raising production capacity to 3.6mbpd from the current (roughly, from memory) 2.5. They seem to think investment has been the constraint.

Libya is a classic question mark. Most of Libya's production for the last 50 years has come from a single area, the Sirte basin. There may be other significant reserves, or there may not be: we don't know, because for much of the last 40 years Libya has been effectively a pariah state. Nobody wanted to explore there, and the Libyans didn't have the capacity to explore effectively. They also didn't need to, because they had the Sirte basin fields. It's only very recently that methodical exploration has begun to resume. Certainly the Sirte basin fields have reached a geological peak, but that doesn't necessarily mean that Libya has. We won't know until somebody looks. Even now there's a real reluctance among foreign companies to put major resources into Libya... the government is capricious, to put it mildly.

Again, this all comes back to the impact of the glut. During a glut it's natural to sit back and pump from existing fields, it's much cheaper than going out and looking for new ones. Of course that means that those known, developed fields get run down, but that doesn't mean there's nothing else. Even in Saudi Arabia much of the Rub al Khali remains unexplored... until very recently there's been no incentive to look there.

Rick M
04-27-2010, 03:30 AM
Hi, Steve

Thanks for your observations.

My understanding is that Venezuela peaked in conventional oil around the same time as Canada and USA, in early 70s.
Regardless of the conventional/unconventional breakdown, this EIA posting indicates that VZ peaked in 1997 at around 3.5 mbpd, about 1 mbpd more than it produces now:
http://www.eia.doe.gov/cabs/Venezuela/Oil.html

Whether a change in regime and a more favourable investment climate can get VZ over 3.5 remains to be seen.
My understanding is that their future production must come increasingly from unconventional sources (same here in Canada), which will not be cheap or easy.

No comment on Kuwait... you know more than I do.

As for Libya... I did think that the international situation re Libya had shifted considerably... it's no longer the pariah state which it once was.
My understanding also is that Libyan oil is among the highest quality in the world, so I don't see why investment should be a major problem.
But you may have other info... I'm no expert.

Returning to the issue of cartels, this may be of interest:
http://economictimes.indiatimes.com/articleshow/5857847.cms

Dayuhan
04-27-2010, 05:02 AM
Charts need context. Venezuela peaked in 97, but we have to remember that in 98 OPEC made a last ditch effort to impose production cuts as a response to plummeting prices. Production then increased again until 2000, when Chavez's policies began taking their toll, driving a decrease that became terminal with the PDVSA strike in 2002. I don't think there's any geological reason why Venezuela couldn't produce far more, but it won't happen any time soon: between the extreme neglect of physical infrastructure and the gutting of PDVSA's professional staff it will be a huge project to bring production back up, and it's not likely to happen while Chavez is in power.

Libya is no longer an outright pariah, but it's still a one-man government and that one man lost the plot a long time ago. Have you been following Qaddafi's spat with the Swiss? Would you want to put billions of dollars into a long-term project that was subject to that sort of whim?

davidbfpo
04-27-2010, 08:42 AM
This morning the BBC Radio breakfast programme had one item on energy security that I heard near the end, possibly another earlier on. A former Labour energy minister and a Green party spokesman talked sensibly for a few minutes; mainly around the UK soon to have an energy gap as power stations of all types are closed down. Maybe on the podcast via link:http://news.bbc.co.uk/today/hi/default.stm

The BBC reporter indicated energy security had been virtually absent from the election campaign, although climate change gets a mention.

Rick M
04-28-2010, 12:51 AM
Thanks for your comments, Steve and David

Steve,
re. stalling production and its various causes, I would only say that our world is full of "could haves."
By that I mean, perhaps you or I could have been an Olympic athlete or the world's greatest pianist.
We may have had the potential, but a multitude of factors failed to fall into place, so you and I were neither, despite perhaps having the unrealized potential (though in my case both careers were clearly impossible).

My point here is that in the end, it may matter little what causes the peak for a country, a region, or globally.
The geological limit (the resource itself and the physics of EROEI) form an outer limit (and even that could change).

But within that, there are many interacting forces which could conspire to prevent us from extracting oil which we could have (and should have) extracted.
So we can point to geopolitics and under-investment, etc, and explain to how those factors and not geological constraints caused the production peak, but I'm not sure that much has been achieved (other than to highlight what could have been achieved, but wasn't).
When we have a situation where global oil production stalls, coupled with an ever-increasing population which is becoming increasingly dependent on oil, we will have a very serious problem.

The cause of the stalling production really may not matter, and we may find that the non-geological variables are just as insurmountable as the geological ones.
What will matter then is that what we have may be considerably less than what we wish we had, and that pricing may then play havoc with certain essential services like our food supply chain.
To farmers it will matter little what causes the price spike.
If fuel is unaffordable to us, we cannot conduct the primary production activities upon which the rest of the food supply chain depends.

David,
I agree... the issue of energy security seems to be absent from the UK election issues.
This omission is rather stunning: you have the issue of declining domestic production, reduced royalties from the oil and gas wells, declining taxes from the companies and their workers, combined with the longer-term threat of where that energy short-fall will come from and how it will be paid for.
Surely energy security issues should be at the forefront... I guess it shows how much we take cheap energy for granted.

Dayuhan
04-28-2010, 04:36 AM
My point here is that in the end, it may matter little what causes the peak for a country, a region, or globally.
The geological limit (the resource itself and the physics of EROEI) form an outer limit (and even that could change).

But within that, there are many interacting forces which could conspire to prevent us from extracting oil which we could have (and should have) extracted.
So we can point to geopolitics and under-investment, etc, and explain to how those factors and not geological constraints caused the production peak, but I'm not sure that much has been achieved (other than to highlight what could have been achieved, but wasn't).


Understanding what caused any given peak and distinguishing between a geological peak (irreversible) and a "peak" driven by political or investment problems (reversible) is very important. It's not about what could have been done but wasn't, it's about what can be done, now and in the future. The distinction makes an enormous difference in developing proactive responses to the problem. If the primary constraint is geological, all we can do is brace for the inevitable impact. If the primary constraints are related to political and investment issues, we can get off our over-larded (in the collective sense) backsides and start identifying and addressing those issues.

Too much of the "peak oil" discourse seems to me to be based around two assumptions:

1. A "peak" is by definition absolute and irreversible.

2. Neither supply nor demand for oil is elastic relative to price.

I don't think either assumption is valid. I also think that these assumptions, and much of the discourse derived from them, are deliberately manipulated to produce an unnecessarily apocalyptic scenario. This is by no means unique: we see the same thing in the climate change discourse, and elsewhere.

There are reasons for this. Fear is a powerful political motivator, and can be easily manipulated in support of a political agenda. Beyond this, though, Western societies seem to have developed a curious addiction to fear. I'm not sure what the emotional payoff is, but it seems that the less we have to fear the more fearful we become, and that many of us seem to actively look for something to be afraid of. A great deal can be (and has been) said about this, suffice it to say that I think it's something we need to be aware of when approaching these issues.

A problem to be solved, yes. The inevitable end of the world as we know it, I don't buy it, not from peak oil, climate change, or any other horreur du jour.

Rick M
04-30-2010, 03:20 AM
Hi, Steve

I agree with your final three paragraphs, and believe that I (and the more reputable analysts like Hirsch, Simmons, Strahan, Hughes, Homer-Dixon, etc) have made every effort not to engage in the sort of fear-mongering that you describe.

As for the two assumptions, I certainly agree with the second, but would qualify the first.
I'm not sure what you mean by "absolute," but "permanent" should perhaps be re-worded as "historic."

What I'm getting is that the peak refers to point at which we achieve the greatest flow-rate... maximum production.
But we won't know that until the 'rear-view mirror' gives us that perspective.
That would require several years to be reasonably sure, and perhaps several decades (or even more) to be 99% certain.
At that point, if there are clear geological constraints (along with the many other factors which would be operating), then I guess someone could declare that the (long-ago) peak was indeed permanent.

The US peak in Dec. 1970 is now widely accepted as permanent, since 40 years have passed and there seems to be little hope of the USA ever returning to 10 mbpd.
But miracles can happen, so I certainly would not argue that we can be 100% sure (though I’d place the odds at about 99:1).

It appears that you are assuming that the only variable which would make the peak absolute and permanent is geology (and I presume, “net energy”). As I have said before, this is the prevailing perception of the peak oil theory… that geological constraints will eventually lead to a peak/plateau in production.

But my point is that other factors come into play, and you have stressed this fact as well (on both sides of the argument… these factors can both improve and hinder flow rates). But I can think of non-geological factors which could conspire to stall global oil production, possibly on a permanent/historic basis.

The unhappy interplay of these factors is explored in this recent study from Ireland:
http://www.feasta.org/documents/risk_resilience/Tipping_Point.pdf

The Feasta prognosis is rather bleak, and I prefer to be more optimistic.
But I do think that their scenario is entirely plausible and something to beware of, and that it may take some proactive & creative work to prevent the domino effect which they describe from actually occurring.

My main point is that the heart of the peak oil theory is this: that we will have difficulties (ironically) as we approach the point of maximum, not minimum production, and the effects of stalling flow-rates will matter much more than what caused it, which may or may not be due to geological limitations.

My bet is that in the end, it won’t be geological limitations alone, but a convergence of above-ground and below-ground factors.

But the result will be the same… mankind will never again have the excess of cheap liquid fuels which we have enjoyed/squandered for many decades.
And that will change a great many things....

Rick M
05-02-2010, 12:52 AM
The prognosis regarding that BP oil spill just keeps getting worse.

What was initially described as 1,000 bpd was then revised to 5,000 by Wednesday, and today there are several reports that the flow may be more like 25,000 bpd.
This from WSJ:
http://online.wsj.com/article/SB10001424052748703871904575216382160623498.html

and this from UK Telegraph:
http://www.telegraph.co.uk/news/worldnews/northamerica/usa/7664907/Louisiana-oil-spill-may-be-five-times-bigger-than-previously-thought.html

But even 25,000 bpd could be the tip of a very long & destructive iceberg.
The chance of stemming the flow at such pressure (and at such depth & with so little visibility) appears to be increasingly remote.

In this press conference (below), it’s stated that they do not think that the flow has increased, but rather than their initial estimate was too low.
But when the question about 25,000 bpd was put to this press conference panel earlier today, no-one said that he/she believed that this figure is incorrect (there is no timer on this video, but this exchange occurs when the time-slider is 3/4 of the way across):
http://cgvi.uscg.mil/media/main.php?g2_itemId=845728&g2_navId=x2354a6fb

Transocean’s massive Development Driller 3 rig may already be in place to drill a relief well:
http://www.flickr.com/photos/uscgd8/4551849561/

But completing this second well is expected to take 60-90 days.
Should this spill continue unabated for two more months, the destruction will surely be catastrophic.
CBC-Radio cited one report that a spill of such magnitude & duration could migrate eastward around the tip of Florida and up the east coast.

Should the wellhead completely separate from the sea-bed, the flow could increase beyond 25,000 bpd.

Here is some additional info including an interesting sea-bed illustration of the problem:
http://oceanswavesbeaches.blogspot.com/

It's difficult to assess the probability of such horrific scenarios, but there is little reason to discount such possibilities....

Dayuhan
05-02-2010, 01:13 AM
Adding to that you have the Atlantic hurricane season coming up soon, with forecasts of above average activity. Storms could have a serious impact on efforts to close off and contain the spill.

Longer term, there will be some inevitable impact on the politics of drilling... hard to predict, we can only wait and see how that goes. There's always been a conflict between environmental issues and the desire to increase domestic production, hard to say how this will affect that balance in the medium to long term.

Rick M
05-02-2010, 01:26 AM
I agree, Steve

It is inconceivable that the costs of this mess will be less than astronomical (sorry for the hyperbolic language, but this situation surely warrants it) and they will eventually be reflected in the price of oil.
Insurance costs for BP and other oil companies, Transocean and other rig companies, and Halliburton and other subcontractors, will surely increase considerably.
What this will do to off-shore exploration in major prospect areas such as the Santos Basin and the high Arctic remains to be seen, but it is hard to imagine that there will be zero effect.

Dayuhan
05-02-2010, 03:00 AM
Astronomical is relative... compare the cost to, say, the cost of a month of maintenance for US forces in Afghanistan!

There will be substantial costs to BP, both for the cleanup and in liabilities, both from administrative fines and inevitable legal action. For other producers there will be stricter regulations with greater compliance costs, and higher insurance costs. When all is said and done, though, I'd expect the incremental cost per barrel of offshore oil produced to be manageable. What's harder to quantify or predict is the extent of and the response to political efforts to close areas to exploration or development.

Rick M
05-03-2010, 01:34 AM
As far as I am aware, there are three main options underway to stem the oil spill.

1. Relief wells
Transocean already has one rig in place to start drilling a relief well. Operations were due to start today but were delayed by the weather.

A second Transocean rig is also on its way to drill a second relief well… I don’t know if this is intended to further reduce the pressure or just in case something should go wrong with the first relief well.

2. Installing a new BOP
One idea is to cut off the broken riser and insert a second blow-out protector (BOP) above the first BOP.
This appears to be risky because if it fails, the flow would probably increase thorough the then nicely-sheared riser.

3. Containment domes/cofferdams
Three containment domes/cofferdams are being constructed and could be ready to install in a week or so.

All three of these options are outlined in this recent Upstream Online posting:
http://www.upstreamonline.com/live/article213922.ece

Further analysis of the ongoing predicament and a photo of the cofferdam is available here:
http://www.theoildrum.com/node/6421#more

(The photo is near the bottom of the discussion postings.)

If someone can figure out how to stop this thing, they deserve a medal....

Rick M
05-03-2010, 11:54 PM
I am by no means an expert on oil well technology, and am offering these bits of info because I track oil & gas issues fairly closely, and am hoping to save you folks a bit of research time on this extremely serious problem.

Although I will only pass along information from credible sources, even their information is somewhat speculative as this is an unprecedented problem and there are many uncertainties.

I already need to issue a correction of sorts, and it's not good news.

On that first option, the drilling of relief wells, I said (in the previous posting) that the outcome "appears fairly certain."
My understanding was that a relief well would be drilled close to the original well, and that this would reduce the flow from the damaged casing. But I was puzzled as to how this could stop the flow altogether (I figured that perhaps the reduction in pressure would allow the capping of the casing).
I was also puzzled by reports that the relief well would be near the bottom of the existing well (I would have thought that it would be near the top).
The Upstream Online article says that the relief well "will try to intercept the Macondo well bore near its total depth of about 18,000 feet."

But an article in this morning's NYT explains that the technique involves drilling into the existing casing, which is described as "like finding a needle in a haystack." The article recounts the Australian struggle to stop the Montara oil spill last year.
In that case, it took five attempts at a depth of 1.6 miles (below the sea-bed) to finally penetrate a 10 inch casing.

In the Macondo case, they will be drilling twice as deep, trying to hit a casing "reportedly measuring seven inches in diameter" (NYT).
So although people seem confident that this approach will work eventually, the actual technique may prove to be more challenging and tedious than is currently being presented.

Here is the NYT link:
http://www.nytimes.com/2010/05/03/us/03montara.html?th&emc=th

I will offer more info as I find it, but please forgive me if it's not perfectly correct.

Rick M
05-07-2010, 02:57 AM
1. Relief wells
Today's update from Rigzone (link below, #3) indicates that the first relief well is already 2,000 ft below the sea floor (16,000 more to go...).
A second rig is also about to start drilling.
The time-line for both remains in the 60-90 day range.

2. Containment dome/cofferdam
The first cofferdam should already be in place is expected be operational by Monday.
Cold water temperature and extreme pressure are both significant challenges, and this article describes how BP plans to overcome them:
http://www.rigzone.com/news/article.asp?a_id=92865

3. "Top Kill"
This strategy was announced today and involves reconfiguring the existing damaged blowout preventer.
If successful, it would stop the flow permanently within two weeks.
This Rigzone article does not mention what the risks of this strategy may be: it sounds like a battle of competing (and very considerable) pressures, which should have some inherent risks.
http://www.rigzone.com/news/article.asp?hpf=1&a_id=92872

4. Concerns about dispersants
This sensible caution from Lawrence Berkeley National Laboratory was issued two days ago:
http://www.sciencedaily.com/releases/2010/05/100504142110.htm

This Upstream Online article provides some details on the dispersants which are being used (as well as other good info):
http://www.upstreamonline.com/live/article214121.ece

-- Rick M

Rick M
05-09-2010, 12:45 AM
Today's methane hydrate setback is serious but not unexpected.

However, if crystals can, within hours, plug up the top vent and render the entire 90-ton cofferdam buoyant, then the problem is clearly more formidable than was expected.

My understanding is that the BP plan is for the oil to flow through a riser which is less than 7” in diameter.
This pipe will itself be enclosed by a second, 21” riser.
Since hydrate crystals are correlated with low temperatures, warm Gulf water from above will be forced into the gap between the two pipes, warm the inner pipe and hopefully prevent crystals from forming.

Today’s news is very discouraging: if crystals form so rapidly, and we all know how rapidly water cools in metal pipes (eg. how 30’ of hot water line delays our morning shower), then what hope is there of water being warm enough one mile down to prevent a 7” pipe from getting clogged?
(And if it should clog up, where happens as pressure suddenly builds?)

The real message here is to consider the implications for Arctic drilling, where there is no warm water which could be forced down, and where the time-frame for operations is measured in weeks, not year-round.

As Tony Hayward pointed out yesterday, "This has been a transforming moment for the deepwater oil industry.... Things will be different and they clear need to be."
Regarding the recent initiative, he said, "We've been very clear from the start that the likelihood of success is not that high."

It looks like we need a miracle....

Rick M
05-11-2010, 10:11 PM
An update on 7 aspects was posted this morning at Energy Bulletin:
http://www.energybulletin.net/node/52770

Rick M
05-13-2010, 02:44 AM
1. Relief wells
Drilling the first relief well has been stalled for a few days in order to perform routine testing on the new rig’s blow-out preventer (BOP).
Drilling is around the 9,000 ft mark (ie. 4,000 ft into the sea-bed) and should resume by the weekend.

2. Flow diversion: “top hat” and pipe insertion
The smaller “top hat” dome is ready, lying on the sea-bed near the damaged riser.
A new proposal is to insert a 6 “ (smaller) diameter pipe inside the damaged riser.
Both attempts to direct the flow of oil may be deployed later this week.

3. Top kill/junk shot
A manifold which is needed for the attempt to deliberately clog the damaged BOP has been lowered to the sea-bed.
This Upstream Online report says that the actual “top kill/junk shot” attempt is still about a week away:
http://www.upstreamonline.com/live/article214782.ece

4. New BOP
[There appear to be no new developments on the proposal to install a new BOP on top of the damaged one.]

5. Congressional hearing reveals “significant problems”
Internal corporate documents which were provided to the House subcommittee revealed numerous problems:
a. Hydraulic leak: a loose fitting on the BOP permitted “a large leak” of hydraulic fluid to occur.
b. Modifications to the BOP: apparently the BOP was modified in 2005 to allow for routine testing but may have rendered it ineffective during an actual emergency.
c. Shearing capability: the BOP lacked the capacity to cut through joints in the drill-pipe.
d. Emergency controls: the explosion may have disabled communications to the BOP.
e. Bad wiring and a dead battery were also cited as problems.
This MSNBC article provides further details:
http://www.msnbc.msn.com/id/37107033...gulf_oil_spill

6. Cementing
Testimony during the Congressional hearing on Wednesday indicated that the cement job failed a key pressure test which should have alerted the crew that something was amiss.
This Rigzone article provides further details:
http://www.rigzone.com/news/article....f=1&a_id=93183

Rick M
05-22-2010, 04:41 PM
Oil Spill Update

1. What caused the disaster?
Veteran analyst Art Berman consulted engineering experts before posting his interpretation of what occurred.

Art’s central conclusion is, “The blowout and oil spill… was caused by a flawed well plan that did not include enough cement between the 7-inch production casing and the 9 7/8-inch protection casing. The presumed blowout preventer (BOP) failure is an important but secondary issue.”

He further points out that “a flawed, risky well plan… was approved by the MMS, and BP, Anadarko and Mitsui management…. A plan that does not include enough cement to overlap the final and previous casing strings, and that does not require running a cement-bond log to ensure the integrity of a seal is a defective plan.”
If Art’s interpretation is correct, there was an inherent deficiency which originated at the planning stage, making this blow-out seem less like a tragic fluke and more like an accident waiting to happen.

Art’s insightful analysis (and subsequent discussion) is available here:
http://www.theoildrum.com/node/6493#more

Meanwhile, President Obama has begun assembling his bipartisan national commission to examine what happened and to revamp federal offshore regulations.
http://www.nytimes.com/2010/05/23/us/23address.html

2. EPA weighs sanctions against BP
Negotiations between the Environmental Protection Agency and BP (regarding previous violations) were suspended recently.
This article describes the range of sanctions which could be applied to the corporations’ US operations, including debarment:
http://www.propublica.org/feature/epa-officials-weighing-sanctions-against-bps-us-operations

3. Dispersants
Some pointed coverage of the dispersants issue has come from CNN, which on Friday explored why BP (which intended to use SeaBrat 4) has continued to use Corexit despite its higher toxicity.
Curiously, BP America President Lamar McKay could (would?) not say who decided which dispersant to use.
Here is the link to the CNN report:
http://www.cnn.com/video/#/video/us/2010/05/21/pkg.lavandera.oil.spill.dispersant.cnn?iref=allsea rch

This NYT article provides other useful details:
http://www.nytimes.com/2010/05/13/business/energy-environment/13greenwire-less-toxic-dispersants-lose-out-in-bp-oil-spil-81183.html

4. MMS deficiencies in Alaska
In March 2010 the US Government Accountability Office (GAO) released a report which identified significant deficiencies in the ability of the Alaska OCS Region (of the Minerals Management Service) to properly conduct assessments of environmental impacts regarding offshore development.
This NYT article provides a link to this thorough and timely GAO study:
http://www.nytimes.com/2010/05/20/science/earth/20alaska.html?scp=1&sq=gao%20alaska%20mms&st=cse

An earlier NYT analysis is available here:
http://www.nytimes.com/gwire/2010/04/07/07greenwire-gao-audit-mms-withheld-offshore-drilling-data-h-3483.html

5. Increasing insurance costs
There are many uncertainties about the gulf oil spill and its effects on the future of offshore operations. But one thing appears to be fairly certain: insurers of such operations must now factor in the extraordinary scale of liability which can result from a severe oil spill.
As this Rigzone analyst observed, “The potential alone may push offshore insurance rates higher.”
http://www.rigzone.com/news/article.asp?a_id=93614&hmpn=1

Meanwhile, legislation is being proposed in the USA which would increase the liability limit from $75 million to $10 billion. Such increased liability would be particularly burdensome to smaller companies.
This article provides additional information:
http://journalrecord.com/2010/05/21/debate-heats-up-over-oil-pollution-act/


- Rick M

Rick M
05-29-2010, 08:29 PM
Shale Gas: a review of PBS coverage of “Gasland” and fracking problems

Two months ago the PBS show, “NOW,” examined the issue of hydraulic fracturing and its apparent environmental and health impacts.
PBS built its story around the exceptional efforts of Josh Fox, the maker of the recent award-winning documentary, “Gasland.”

Fox decided to make his powerful documentary after the gas industry began knocking on doors in his rural Pennsylvania neighbourhood, offering landowners about $5,000 an acre for drilling leases.

He had already heard of “distress signals” in Dimock, PA, so Fox traveled there to interview local residents. He quickly recognized a pattern of potentially lethal problems: livestock and pets were losing their fur, residents could light their taps on fire, a water-well had dangerously exploded, and heavy metals and other contaminants were suddenly showing up in the local water table.

After visiting Dimock, Fox was shocked at the absence of public and political awareness and felt some responsibility “to get out the information to people who needed to know it.”

Fox pointed out one important detail which may help explain the surge in shale gas production during the past half-decade: the 2005 energy bill suddenly exempted the natural gas industry from the Safe Water Drinking Act.
According to Fox, “The EPA was totally 100% taken off the job” and state inspectors are overwhelmed.

Here is the link to the PBS interview with David Brancaccio (23 mins):
http://www.pbs.org/now/shows/613/index.html

A recent “FRAC Act” initiative is underway to repeal the exemption for hydraulic fracturing:
http://www.govtrack.us/congress/bill.xpd?bill=s111-1215

This 2009 ProPublica article provides an excellent analysis of the fracking issue and contains many supporting links:
http://www.propublica.org/feature/officials-in-three-states-pin-water-woes-on-gas-drilling-426

Surferbeetle
06-12-2010, 04:13 AM
Steve LeVine, Pipeline Politics Redux (http://oilandglory.foreignpolicy.com/posts/2010/06/10/pipeline_politics_redux) at FP posted Thursday, June 10, 2010 - 6:38 PM


Generals are consigned to fight the last war, as we know from the 118 million hits that Google turns up on the phrase. But must politicians? Such has been the spectacle this week in Istanbul, where the West and Russia did their best imitation of the uber-dramatic pipeline wars of the 1990s that established the United States as a key player on the Caspian Sea. Meanwhile, 2,000 miles to the east, an unchallenged China advanced another rook by signing a preliminary deal to pipe Uzbek natural gas into Xinjiang, and supported a fourth round of United Nations sanctions against Iran on the condition that it could continue its gasoline trade with Tehran.

The fight is over Europe's natural gas supply, and the perceived economic and political muscle that goes with it. Russia's natural gas giant, Gazprom, supplies some 25 percent of Europe's gas -- the figure rises to 100 percent in Finland and the Baltic states -- and Washington and many former Warsaw Bloc nations see this as a potent Russian economic and political weapon. Three times in the last four years, Russia has cut off the natural gas flow in rows with neighboring Ukraine, and Washington and the Europeans both want to lessen Russia's market dominance by finding a competing supply.


From one of the many excellent links in the article above:

Robert Tuttle on Bloomberg, June 10, 2010, 8:05 AM EDT: Qatar, Russia Shutter Gas Supply: Energy Markets (Update1) (http://www.businessweek.com/news/2010-06-10/qatar-russia-shutter-gas-supply-energy-markets-update1-.html)


Qatar, the world’s largest producer of liquefied natural gas, will idle 66 percent of its export plants this year, reversing earlier plans and joining Russia in curtailing supply amid a global glut.

Qatar’s two LNG producers, Ras Laffan Liquefied Natural Gas Co. and Qatar Liquefied Gas Co., had an “unusually heavy” maintenance program during the past two months that shut six of 12 production units for several weeks, New York-based consultant Poten & Partners said in a report. Another two units will undergo repairs this summer.

Russian gas-export monopoly OAO Gazprom, which supplies about a quarter of Europe’s gas, cut its 2010 production goal yesterday because of reduced demand. Qatar has changed tack from a January comment by Faisal al-Suwaidi, then chief executive officer of QatarGas, that his company probably wouldn’t idle any LNG units for maintenance in 2010. Qatar and Russia rejected a proposal by Algeria in April that exporting nations trim shipments to support prices.

Dayuhan
06-13-2010, 12:17 AM
Certainly there are politics around pipelines, but journalists sometimes make them out to be more than what they are, and are inclined to inflate the degree of US interest. In the Central Asian scene the players are the Central Asian states, China, Russia, and Europe; potential impact on US energy supply is negligible and the US is only peripherally concerned.

Pipelines linking China with Central Asia are a logical development, I can't see them as a real "win" for China and certainly not as a "loss" for the US. Oil and gas from Kazakhstan, Uzbekistan and Turkmenistan will flow to China, the geographic logic is overwhelming. Those pipelines actually decrease China's dependence on the Middle East, not a bad thing for other buyers of ME oil. Of course China will build the pipelines, and of course they will make loans, spread some money, try to build influence in Central Asia. It would be silly for them not to. Of course there are also vulnerabilities. If China's relations with its western Muslims deteriorate to the point where terrorism begins, those pipelines will be targets, and if Russia sees China trying too hard to build influence in what they consider their turf they may get a bit prickly.

The Central Asian states don't want to depend on Russia to move their product, but they also don't want to piss the Russians off. So they will keep sending a large part of their product through Russia, while developing alternatives through China and to Europe via non-Russian routes, and they will get as close to China as they can without ruffling Moscow too badly. They will try to split exports up, sending product out by several routes, and they will try to keep on good terms with both China and Russia. Again, this is common sense.

The Russians don't need the gas or oil, but they want the influence over Europe that comes with Russian control over transit, and they want to keep the Central Asian states in their sphere of primary influence. The most likely major-power confrontation in that area would be Russia-China; no real likelihood of it happening soon but the potential is certainly there.

Europe wants gas and they don't want to be completely dependent on Russia. So they'll try to push the development of the southern pipelines. Qatar's huge production capacity and new fleet of LPG tankers is a factor in that equation; Europe is their natural market.

Iran is a bit of a wild card on the gas scene. They have reserves and some capacity; everyone will buy from them but nobody wants to be dependent on them, too much potential for disruption.

Of course right now there's a glut in gas, so the maneuvering is looking forward.

Russia and Qatar cutting back gas production... really, so what? Producers trimming output during a glut is not exactly news. What would we expect them to do? It's a good time to do all your maintenance work, and a good time to maybe keep facilities off line a bit longer than you have to... again, common sense.

Of course there's jostling and maneuvering, nations pursuing their interests, covering their butts, looking to their future options... business as usual. From the US perspective it's a picture that bears watching, but not a matter of monumental concern. To talk about "pipeline wars" and wins and losses is really over the top, but media and the analyst community do have a bit of a vested interest in hyperventilation.

Rick M
06-21-2010, 02:13 AM
Thanks for your links, Surfer and for your observations, Steve.

Sorry for this very slow reply... I had the presentation in Toronto on June 8th, track meets, year-end report cards for school, and the garden to contend with.

I will not pretend to know much about Central Asian gas supply or pipeline politics, though I am in touch with a veteran analyst who does know a great deal.

Meanwhile, North Sea decline keeps looking worse... the Norwegians have done a much better job than the Brits in terms of long-term planning & their sovereign wealth fund.
However, last week's news re the future of their domestic natural gas supply seems to be a bit of a shocker:
http://www.energybulletin.net/53165

We in Canada have little to feel complacent about in this regard... our natural gas production peaked almost a decade ago, as did that of the USA, and we are both counting on US shale gas to fill the growing gap.

Given the increasing call on Canadian NG for tar sands extraction and the recent water quality problems re fracking, North American gas supply seems far from secure in the long term, though the NG boosters would have us believe otherwise.

Rick M
06-23-2010, 11:51 PM
This video illustrates how little has changed in our response capability:
http://www.wimp.com/oilspills/

As for why so little has changed, we must examine the issue of oversight, (especially in light of Monday's court decision).
The NYT has provided excellent coverage, including this detailed analysis:
http://www.nytimes.com/2010/06/21/us/21blowout.html?th&emc=th

The GAO issued this excellent report on oversight a few days ago (with much relevance for emergency managers and those with oversight responsibilities):
http://www.gao.gov/new.items/d10852t.pdf

Finally, Obama cannot yet bring himself to mention Peak Oil, but his comments last week said everything but:


After all, oil is a finite resource. We consume more than 20% of the world's oil, but have less than 2% of the world's oil reserves. And that's part of the reason oil companies are drilling a mile beneath the surface of the ocean - because we're running out of places to drill on land and in shallow water.

For decades, we have known the days of cheap and easily accessible oil were numbered. For decades, we have talked and talked about the need to end America's century-long addiction to fossil fuels. And for decades, we have failed to act with the sense of urgency that this challenge requires. Time and again, the path forward has been blocked - not only by oil industry lobbyists, but also by a lack of political courage and candor.

Thanks for considering this...
rm

Sumtingwong
06-24-2010, 02:36 AM
The Economist published a study on oil in an issue about 2 years ago. Much of the oil reserves on the books today are the results of geological surveys using technology that does not come close to what is around today. Further, the advanced drilling techniques and technologies that are around are also able to extract more of the oil from the wells.

It would seem that the reason we are drilling for oil a mile below the surface far out at sea is because a) we can, b) the environmentalists allowed it, and c) no other viable resource exists that fills so many needs. If I remember correctly, the largest oil deposits in the world lie in the Canadian tar pits--these are untapped(?) as the price of oil does not yet meet the cost of extraction.

Please pardon if I have repeated anything posted earlier.

Cheers!

Rick M
06-26-2010, 12:02 PM
Thanks for your observations, Sumting

The Economist is traditionally very optimistic with respect to energy, in my opinion.
Their logic is correct (technology continues to improve and we can extract more from each well), but technology still only takes us so far.
Despite the world's best technology and the incentive of sustained high prices, the USA still cannot get close to its production peak (which occurred 40 years ago).
Global production from conventional oil sources has been stuck for over half a decade (at around 74 mbd).

I certainly agree with your Point C (nothing else comes close to oil in its usefulness)... all the more reason to beware on future oil supply.

As for the tar sands, commercial extraction has been ongoing for forty years, but has barely touched 1.5 mbd.
This recent study examines some of the limitations:
http://www.ceres.org/Page.aspx?pid=1251

Rick M
07-20-2010, 06:03 PM
A double item on BP's plans for the Macondo well was just posted at Energy Bulletin.

The first part offers various quotes from the Initial Exploration Plan (Feb. 2009).
The second part is a review of Shell's July 9th presentation on deep-water drilling, during which two Shell officials contrast the difference between Shell's design & practices vs those employed by BP on the Macondo well.

http://www.energybulletin.net/node/53516

Rick M
08-22-2010, 01:15 AM
The Guardian, as usual, is a leader on the PO issue.

This article (dated tomorrow, Aug. 22) refers to a PO summit involving Ministry of Defence.
It also mentions the need for contingency plans.

More intriguing is the claim that the government is reluctance to provide info requested under Freedom of Information, with a reference to the matter as being "important and sensitive."

http://www.guardian.co.uk/business/2010/aug/22/peak-oil-department-energy-climate-change

Rick M
09-01-2010, 03:05 PM
FYI, this appeared this morning:
http://environmentalresearchweb.org/...ity-studi.html

I've gone through the doc but it's in German so of course there is much that I don't understand yet.
However, it is clear that the authors take PO seriously (with graphs from Oil Drum, etc and a couple of pages on EROI/net energy) and have a good deal to say about agri-food.
Apart from some of the war college studies (and they are "only" the opinion of the analyst) this appears to be the most detailed military analysis of PO yet (at least among those that are publicly available).

I've asked a couple of German friends to assist, so I hope to have some details in the next few days.
If any of you can read German, please help us out.

Rick M
09-01-2010, 05:18 PM
First, this from Norm at Oil Drum yesterday (in normal English):

Choice quotes and conclusions:


Oil becomes a crucial factor of shaping international relations": scarcity leads to a deliberalization of oil markets which in turn leads to more bilateral supply relationships. A window of opportunity opens for oil-exporting nations to pursue their economic, political, and ideological goals in regard to industrialized [importing] nations.

- Western foreign policy (e.g. towards Africa, MidEast) will have to become more "pragmatic" -- China et al. are already "pragmatic" and therefore better positioned. "Military interventions will become more selective - actors are overstrained". A new focus on one's own problems.

- "The transformation to a post-fossil-fuel society leads to economic and political crises": unemployment, food scarcity, less market-based distribution of oil products (rationing). Ultimately there is a "loss of trust" in public and governmental institutions which will possibly lead to more extremism and fragmentation on a national and international level.

- "Systemic risk of a 'Tipping Point'":
In the short term, oil production decline leads to reduced economic activity and trade. Loss of income for some actors, loss of livelihood for others. National budgets come under extreme pressure because of reduced tax revenue and higher spending on unemployment, food, and alternatives to oil.

- "In the medium term, the global economic system and every market-based economy breaks down. [...] Tipping Point: In an economy that is shrinking for the foreseeable future, savings are not invested anymore [...] banking sytem, stock markets, financial markets collapse [...] a completely new system status [...] Banks lose their reason to exist... since they can't earn interest [...] Loss of trust in currencies [...] Collapse of [international] value chains. Mass unemployment [...] National bankruptcies [...] Breakdown of critical infrastructure [...] Famines [...]

- It is probable that a high number of nations will not be able to make necessary investments in a timely and adequate manner. A high systemic risk is a given regardless of Germany's own energy policy because of its high grade of globalization."

- "Even if society's faith in market-based systems is big, its understanding of complex matters small, and its assumption of rational economic actors questionable, one can expect [...] uncertainty to give way to the realization that a critical point has been passed.


Also, here are some auto-translations which are pretty garbled, but some of the points are clear.

1. This one from Peak-Oil:

http://translate.google.com/translat...bundeswehr.php

2. from Spiegel:

http://www.spiegel.de/international/germany/0,1518,715138,00.html

3. from Welt:

http://translate.google.com/translat...n&hl=&ie=UTF-8

- Rick

Rick M
09-11-2010, 03:01 PM
Thursday's pipeline explosion in California raises several issues which are relevant to other communities.

This morning's NYT says that some residents noticed a gas smell for weeks, but really did not think too much of it, apparently unaware of the danger on their doorstep:
http://www.nytimes.com/2010/09/11/us/11fire.html?_r=1&th&emc=th

This LA Times article is even more to the point: many residents had no clue that they were living near a pipeline (including one lady who had lived there for 34 years).
http://www.latimes.com/news/local/la-me-san-bruno-gas-20100911,0,2967466.story

The argument that pipeline locations need to be kept secret because of terrorist concerns is surely outweighed by the benefits of having vigilant citizens in the vicinity.
In the case of the San Bruno gas leak and both of the recent Enbridge crude oil leaks, the first people to notice the leaks were local residents, many of whom did not comprehend the situation. That is, they first noticed an unusual smell, but failed to understand its significance.

If the San Bruno residents had been fully aware of the proximity of the pipeline to their homes, at least two things would have occurred differently.
First, neighbours would surely have been much more concerned and proactive when the gas smell was first noticed (weeks ago, according to the NYT).
Second, the first thought of local residents (in response to the fireball) would probably not have been that a plan had somehow crashed, but rather, "My god, what if it's that pipeline...."

Returning to the issue of secrecy re critical infrastructure, local residents who are well-informed and vigilant can provide a layer of front-line security, both against terrorists who may be snooping around and to hissing sounds and fuel-like odors.
As existing oil & gas pipelines continue to age, the latter is far more likely than the former, and we should plan according.

Rick M
09-29-2010, 11:53 PM
This morning two items were posted at Energy Bulletin, both relating to military research on peak oil.

When taken together, the two links (below) provide evidence of a recent (and increasing) phenomenon with respect to peak oil and export decline: there is increasing concern being expressed by military analysts, but still very little concern among our civilian authorities (politicians and bureaucrats).

The most recent example of military concern is an extensive report by the Future Analysis department of the German military (Bundeswehr) which was leaked a few weeks ago.
This review summarizes the key points of the German report, considers it within the context of previous military studies of peak oil, and points out how the Bundeswehr report goes far beyond previous military analyses:
http://www.energybulletin.net/stories/2010-09-28/review-putting-bundeswehr-report-context

Second, a bibliography of military research has just been updated.
The most striking aspect of the new additions (2009 & 2010) is the sudden interest in peak oil by officers at Canadian Forces College, where no studies on peak oil were done prior to 2009, but now we have several, all within the past 18 months and all of which view peak oil as a serious matter.
http://www.energybulletin.net/stories/2010-09-28/energy-security-annotated-militarysecurity-bibliography-2010-update

The public remains very unaware of all of this: most North Americans have never heard of peak oil, and very, very few will be aware of the growing concern among military/security researchers.
But as the Bundeswehr report points out, public awareness is a prerequisite to any hope of effective mitigation.

davidbfpo
09-30-2010, 06:36 AM
May fit here, as a quick search found no separate thread. From a UK think tank, the Oxford Research Group and by Professor Paul Rogers and opens with:
The consequences of climate change for human security are profound, but much of the last decade has been lost in avoiding those consequences. The implications for human security are serious. Today, with the consequences of climate change being increasingly recognised by military analysts, there is a risk of the “securitising” of the climate change agenda leading simply to military responses rather than a more preventative course of a rapid shift to a low-carbon society.

Link:http://www.oxfordresearchgroup.org.uk/publications/monthly_briefings/climate_change_and_security

Rick M
10-02-2010, 11:45 PM
Hi again, David

Thanks for the link to Paul Rogers' concise study... I was not aware of it.
I hope that all is well in UK

- Rick

davidbfpo
10-12-2010, 08:39 PM
From the monthy Strategic Comments:
Scientists working on climate change have come under intense scrutiny over the past year. They – as well as scientific institutions and climate science itself – have been accused of procedural and methodological flaws, and even of outright fraud. The criticism prompted the commissioning of several independent reviews, most of which reported their findings in summer 2010. Following this examination, the scientific consensus that human activity has induced climate change remains intact.

Link:http://www.iiss.org/publications/strategic-comments/past-issues/volume-16-2010/october/climate-science-well-done-could-do-better/

Dayuhan
10-13-2010, 09:05 AM
there is a risk of the “securitising” of the climate change agenda leading simply to military responses rather than a more preventative course of a rapid shift to a low-carbon society.

I love the way people talk about "a rapid shift to a low-carbon society" as if it was as easy as changing your underwear. I guess for the inhabitants of think tanks it is that easy, or at least seems that easy.

One of the real obstacles to rational discourse on climate change is the number of people involved in the discourse who see climate change less as the issue of the day then as the thin end of the wedge, a means to promote a whole range of agendas that have little real relation to either climate change or human welfare.

Rick M
10-13-2010, 11:55 AM
Dave,
Thanks for the link... excellent article, very concise.

Steve,
re rapid shift to low-carbon, you are correct, people greatly underestimate the scale and complexity of doing so.

That point was made repeatedly by various speakers at last week's Peak Oil conference in Washington. The entire team which did 2005 Hirsch Report was present: Hirsch, Bezdek and Wendling have just released their new book.
Here's a review:
http://www.energybulletin.net/stories/2010-10-04/review-impending-world-energy-mess-robert-hirsch-roger-bezdek-and-robert-wendling

I'm about half-way through a write-up on the national security aspects which were discussed over the three days. My report will probably be posted here in four parts:
1. the 90 minute panel on Energy & National Security
2. the keynote presentation by James Schlesinger
3. points made by various economic/financial analysts
4. my own presentation on the final morning, subtitled "military concerns vs civilian inaction".

Here is part 1:

The 2010 ASPO Conference: Security aspects

The Association for the Study of Peak Oil and Gas (ASPO) held its annual conference in Washington on October 7-9, 2010. The theme of the conference was “The Future of Oil, Energy and the Economy.”

This review summarizes what transpired at the conference with respect to national security concerns, including not only military aspects but related issues such as energy security, food security and financial & economic stability.

1. Panel on National Security

This year ASPO included a 90-minute session entitled “Energy and National Security” which was held on the first evening, Oct. 7th.

a. Rep. Roscoe Bartlett
The keynote speaker was Rep. Roscoe Bartlett (R-Maryland) who heads the Congressional Peak Oil Caucus. He reminded the audience of the warning issued by the US Joint Forces Command that “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD” (Joint Operating Environment, p. 29).
Bartlett then pointed out that the Secretary of Defense intends to eliminate the Joint Forces Command.
More information on the termination of JFC is available here:
http://www.stripes.com/news/is-jfcom-really-expendable-1.114103?localLinksEnabled=false

Bartlett concluded his presentation by quoting from Admiral Hyman Rickover’s prescient speech (May, 1957):
“In the face of the basic fact that fossil fuel reserves are finite, the exact length of time these reserves will last is important in only one respect: the longer they last, the more time do we have, to invent ways of living off renewable or substitute energy sources and to adjust our economy to the vast changes which we can expect from such a shift.

Fossil fuels resemble capital in the bank. A prudent and responsible parent will use his capital sparingly in order to pass on to his children as much as possible of his inheritance. A selfish and irresponsible parent will squander it in riotous living and care not one whit how his offspring will fare.”

b. Rear Admiral Lawrence Rice, USN
Rear Adm. Rice recently served as Director of Strategy and Policy in Joint Forces Command. He said that they received ‘push-back’ on their analysis of peak oil, climate change, China and Russia. Rice pointed out that reliance on fossil fuels not only presents operational risks, but also constitutes a strategic risk to the nation.
He touched on fiscal aspects, reminding the audience of Adm. Mullen’s warning that the greatest security threat is the national debt. He also mentioned James Woolsey’s observation that through its purchases of foreign oil, the US is funding both sides of the war with radical Islam.
Rice provided examples of progressive work by the various US armed services with respect to energy conservation, “untethering” & self-sufficiency, reducing the fuel supply tail, etc.
He concluded by pointing out the need for civilian sectors to demonstrate similar progress, asking “What’s it going to take to get the rest of the country to act?”

c. Michael T. Klare
Dr. Klare is the Five College Professor of Peace and World Security Studies, based at Amherst College, and is also the author of several books on geopolitical aspects of energy security.
He began by highlighting an overlooked milestone which occurred this year: China has become the world’s number-one consumer of energy. This is a position which was held by the USA for over a century, and Klare regards this transition as highly significant. China’s use of coal will increasingly be a driver of climate change, which Klare views as a major threat to international security. He pointed out that both China and the USA will both be seeking to import about 10 mbd of oil, just as global export capacity shrinks. China is now the dominant manufacturer of photovoltaic and wind.
Klare stressed the importance of cooperation between the US and China on these various aspects of energy security.

d. Lt. Col Danny Davis, US Army
Lt. Col. Davis was scheduled to present during this session, but was serving in Afghanistan and circumstances prevented his return to Washington. This was most unfortunate, as Davis has done some excellent work on peak oil in the past including his 2007 paper, “On the Precipice:”
http://www.aspo-usa.com/assets/documents/Danny_Davis_On_the_Precipice.pdf

Davis also contributed this article to Armed Forces Journal:
http://www.afji.com/2008/05/3466428/

During the questions which followed the presentations by Bartlett, Rice and Klare, Bartlett made an observation on why government remains so inactive on the issue of peak oil. With characteristic wit, he offered two facts:
1. Most Americans are unaware and unconcerned
2. Americans have a government which is truly representative….

Rick M
10-16-2010, 11:29 AM
2. James R. Schlesinger
The following morning’s keynote address was given by Dr. Schlesinger, entitled “The Peak Oil Debate is Over.”
Although the primary focus of his address was not on security aspects, Schlesinger’s service as Chairman of the Atomic Energy Commission (1971-73), Secretary of Defense (1973-75) and CIA Director (as well as his later service as first Secretary of Energy, 1977-79) make him well qualified to comment on the interface between energy security and national security.

Dr. Schlesinger is now in his 83rd year, and the years have enhanced his wisdom and sharpened his wit. He warned against the Keynesian interpretation of Say’s Law, which asserts that supply creates its own demand. Schlesinger warned against the popular belief that demand can create its own supply (especially when dealing with finite resources).

He recounted the American consideration of military force during the early stages of the 1973 Arab oil embargo. He mentioned Carter’s suggestion that it would make better long-term strategic sense to leave American oil in the ground and draw from others, and how the response was ridicule and anger, especially from the southwestern states.

Schlesinger concluded by repeating his earlier quote from Christ’s Sermon on the Mount (Matthew 6:34)
“Sufficient unto the day is the evil thereof.”
I presume Schlesinger intended the audience to depart from the usual interpretation of that line (“Let the day’s own trouble be sufficient for the day”) . A more contemporary translation might read, “I’ve got enough on my plate without worrying about long-term problems which may or may not happen.”
Schlesinger’s context indicated that the quote might better be taken as a warning that we need to plan ahead, and that there are dangers in blindly trusting that sufficiencies will somehow appear on their own.

3. Economic analysts
In keeping with the theme of the conference, there was plenty of analysis on economic & fiscal aspects offered by many capable presenters. Several analysts warned of triple-digit oil prices, inflation, recession and unemployment. Nicole Foss warned of the power of financial markets to aggravate downward tendencies, “cascading movements” and the specter of deflation. Whether the eventual convergence of problems results in inflation or deflation, the pressures on government budgets (which are fundamental to military capabilities) may be extreme.

In short, these various analyses indicate that military analysts should look well beyond the practicalities of “fueling the troops” in an energy-constrained world.
Military and security analysts should examine the complexities of fueling the economy and sustaining the tax base, upon which the military and other essential public services are utterly dependent.

Polarbear
10-17-2010, 12:52 PM
Yesterday I joined the annual conference of ASPO Switzerland (which is under the auspices of Daniele Ganser a Swiss historian and "peace researcher" who has formerly published on the Cuban missile crisis and the European stay behind organisations during the cold war). The motto of this year's conference was "Peak Oil and it's impact on Switzerland", which is a too narrow view to my mind, but which gave the public the impression that some 7 Million people living in Switzerland could change the global
approach to energy consumption, only if they reduced their own consumption.

Following are some of the thoughts of yesterdays presentations.

Dr. Daniele Ganser (President ASPO Switzerland, Historian): Gave s hort introduction into the topic and terms of Peak Oil and research. Dr. Ganser is convinced that the peak will occur somewhere between 2010 and 2020. Although he has done extensive research in the area of oil exploration and the oil industry it is not clear for me on what data he bases his assumption. As a peace researcher he is interested in the mechanisms that lead to conflict over scarce resources and how to avoid them.

Peter Malama (Nationalrat/MP of the Swiss parliament for the Liberals FDP, President of the trade and crafts association of Basel): Mr. Malama talked on the responsibilities of politics to prepare the country for the post-fossile era. He tried to demonstrate that a society where people do not need more than 2000 Watt per day is possible.

Ralph Stalder (Country Chairman of Shell Switzerland): Mr. Stalder had the most difficult part of the invited speakers because he had to justify the policy of the oil industry. He laid out how Shell will deal with the doubling of the demand of energy within the next forty years:
1) increase efficiency, meaning increasing the level of de-oiling the known oil fields as well as improving the technology to find new fields.
2) diversification, i.e. the reduction of the risk of an energy crisis by the development of new fuels (especially of 2nd generation biofuels), gas (which has lower CO2 Emissions than petrol based fuels and coal), and the controversial mining of tar sands. In 2012 Shell will produce more gas than oil for the first time of its history.
3) Climate protection: CO2 pricing, use of gas, biofuels, use of CCS technology to reduce CO2 emissions in general.
According to Mr. Stalder the world will still be dependent to a large part on fossils in 2050 (his estimate was 65%). The predicted "gap" of about 40 Million barrels per day will be filled by newly found or exploited oil fields. But he put also emphasis on two important points relating to the new and "clean" energies. Firstly, the time factor. It takes about 20-25 years for a new technology to gain 1% of the market. Secondly, the resource factor. Even the new technologies depend on the availability of raw materials and not all of these are abundant or available from politically stable countries. (A fact that very often is forgotten by environmentalists...)

Although not many of the visitors liked what Mr. Stalder said, I think one thing was very important: the transition from an oil based society to a society using renewable or alternative energies will not happen from one day to the other but only through a series of intermediate steps.

Dr. Werner Zittel (Physicist and member of the board of ASPO Germany): According to Mr. Zittel the world has already reached the oil peak. His explanations were rather alarmistic. His assumptions about the peak were based on the analysis of the oil fields of England and Brasil. He is very pessimistic about the predictions of the oil industry that the newly developed fields in Brasil for example will make up for the decreasing output of the giants in the middle east for example. Further signals that the tide is turning are the financial crisis, whis has its roots in the high energy prices since 2003, the consolidation of the oil industry and the car industry, the crisis in the airline business, as well as the nationalisation and export reluctance of some countries, especially in the middle east.
His main thesis is that in 2030 there will be no more fossile energy on the free market!

Bernhard Gunzenhauser (Geologist working for the oil industry for 25 years): Although he did not deny that fossils are finite, Mr. Gunzenhauser showed that modern technology has the potential to increase the efficiency in de-oiling current and exploring new fields. This will prolong the time of the worlds dependence on oil but will also give the chance to

Mirjam Ballmer (Grossrätin/MP of Kanton Basel Stadt): the only women to speak and by far the youngest of the participants (27 years), she presented her vision of Swiss society for the year 2050. Her assumptions were rather idealistic, if not to say naive. Basically she thinks that Switzerland will be a 2000 W society and will be independent from fossil fuels.

Overall the conference was rather disappointing for several reasons:
1) The focus (on Switzerland) was to narrow.
2) The overall layout was biased and showed a certain reluctance of the organisators to confront arguments critical of peak oil.
3) The naivety of the ideas of many of the people about how fast and how far reaching the transition from an oil based society to a society using renewable and "clean" energies will be.

Rick M
10-18-2010, 09:26 AM
Thanks very much for your info, Polarbear

I am somewhat familiar with Ganser's work (NATO's secret armies, etc). His projection of peak within the next decade is certainly consistent with the views of many other PO analysts.

The suggestion that we can manage on 2,000 watts/day seems absurd: that would not even cover the energy used to deliver basic public services like water, sewage, electricity and heating fuel, much less food and essential transport.

Good for Stalder for agreeing to participate... many industry people would not bother. I may not share his optimism re future oil supply, but I certainly accept his point about how long it takes to make fundamental changes in things like energy supply. That's why Hirsch and others have pleaded for action on PO, pointing out that we need to get moving a decade or two before we hit peak if we hope to avoid major trouble.
He's probably right about us still using fossil fuels in 2050: they are the best (most energy-dense & versatile) energy sources we've ever found, and we will use them until we run out (our reserves will be severely depleted by 2050, one would think... not much left for our grandkids).

He's also right about resources (including some of the rare earth elements) being needed for alt-energy... we do face a huge & complex problem.

Zittel is also correct: the North Sea is in major decline, and Brazil's deepwater fields may be the biggest discoveries in decades, but they aren't big enough to offset depletion else where. As I recall, Brazil's proven reserves were around 12 billion last year, and last month they said that their new Libra field has about 8 bn, so if we are generous and say 20, or even 30, that's what the world uses in less than 365 days.

Gunzenhauser's point about enhanced oil recovery is fine... that's what we all hope for, since we can usually only recover 30-40% of the oil that's in each well. But UK, Norway and USA are world leaders in EOR, none of which has prevented terminal decline.

I accept your three criticisms of the conference, but I'm not sure that I would view the conference as disappointing for those reasons.
Rather, it's an eye-opener in terms of the difficulties which lie ahead. There is a great spectrum of opinion out there, just as there is on climate change. There are skeptics and deniers who think the others are alarmists, and people who think we are doomed. There are people who think that all that is required for a post-carbon transition is political will, ignoring the realities of physics, net energy, resource supply, infrastructure, scale & deliverability, etc.
At least you are aware of the issue as well as of the scale and complexity of trying to come up with viable solutions.
What I find disappointing/discouraging is that it's so, so difficult to get humans to agree, even on identifying a problem... much less finding solutions to it.
We just aren't that agreeable, I guess.

Thanks very much for your info and for your interest.
- rm

Polarbear
10-19-2010, 07:10 AM
Rick,

Thank you for your interest for the "sorrows" of a small country in the middle of Europe. ;)
Don't misunderstand me. I do not think that the Peak Oil theory is nonsense. When I met Daniele Ganser a few years back, I became and ardent admirer of his research. That was also the first time I came in contact with Peak Oil theory. But over time I became more and more sceptic about his work. Additionally Ganser made some grave mistakes in his research, especially about what he called the Swiss Stay behind Organisation (P26/P27); but that is a different story. Nor did he make many frieds with his 9/11 conspiracy theories. Therefore, his credibility as a serious scientist suffered.
One of my main problems with the conference was that although the focus was on the impact of Peak Oil on Switzerland it mainly dealt with the global issue. There is nothing wrong with that, but I expected more information or hints on how Switzerland should act. You have to know that for months or better for years now Switzerland is struggling with its security policy. We had a new review on security policy this year. One of my main criticism on that review is that it completely lacks the strategic perspective of security policy. It seems as Swiss politics is reluctant to define strategic goals and how to achieve them. In my opinion, energy security should be one of these goals.

About the tendentious character of the conference: I personally think that one can make his point/argument even stronger if one confronts it with serious counterarguments. Unfortunately, most of the presentations only reinforced ASPO Switzerland's position, i.e. Gansers position. That gave me the impression that Ganser and ASPO Switzerland are shying away from opinions that are challenging their opinion. By that they are creating a circle of indoctrinated "freaks" which do not question things. As a consequence people with serious background will stay away from the discussion.
By the way, I will post the links for the presentations from last Saturday during the next days. They were all held in German, but maybe you and others will find some interesting facts in there anyway.

Polarbear

Polarbear
10-19-2010, 07:17 AM
Rick,

Thank you for your interest for the "sorrows" of a small country in the middle of Europe. ;)
Don't misunderstand me. I do not think that the Peak Oil theory is nonsense. When I met Daniele Ganser a few years back, I became and ardent admirer of his research. That was also the first time I came in contact with Peak Oil theory. But over time I became more and more sceptic about his work. Additionally Ganser made some grave mistakes in his research, especially about what he called the Swiss Stay behind Organisation (P26/P27); but that is a different story. Nor did he make many frieds with his 9/11 conspiracy theories. Therefore, his credibility as a serious scientist suffered.
One of my main problems with the conference was that although the focus was on the impact of Peak Oil on Switzerland it mainly dealt with the global issue. There is nothing wrong with that, but I expected more information or hints on how Switzerland should act. You have to know that for months or better for years now Switzerland is struggling with its security policy. We had a new review on security policy this year. One of my main criticism on that review is that it completely lacks the strategic perspective of security policy. It seems as Swiss politics is reluctant to define strategic goals and how to achieve them. In my opinion, energy security should be one of these goals.

About the tendentious character of the conference: I personally think that one can make his point/argument even stronger if one confronts it with serious counterarguments. Unfortunately, most of the presentations only reinforced ASPO Switzerland's position, i.e. Gansers position. That gave me the impression that Ganser and ASPO Switzerland are shying away from opinions that are challenging their opinion. By that they are creating a circle of indoctrinated "freaks" which do not question things. As a consequence people with serious background will stay away from the discussion.
By the way, I will post the links for the presentations from last Saturday during the next days. They were all held in German, but maybe you and others will find some interesting facts in there anyway.

Polarbear

Rick M
10-19-2010, 10:46 AM
Thanks again, PB

Yes, please post the conference proceedings. I can't understand German but should be able to understand some of the charts & graphs. I have several German friends who would make use of your links as well.

I agree that we should all be open to new info and should invite (rather than suppress/avoid) info which challenges our own views. That is why I've regularly asked for info from SWC analysts, especially if they have info to the contrary.

Here is the link to the Washington presentations:
http://www.aspousa.org/2010presentationfiles/

Also, this was posted re national security aspects of the conference:
http://www.energybulletin.net/stories/2010-10-17/2010-aspo-conference-national-security-aspects

The first 3 parts are pretty much the same as what was posted here last week, but part 4 is new.

Polarbear
10-19-2010, 12:35 PM
I have good news: the presentations are already online. They can be downloaded from the following link:

http://www.peakoil.ch/archiv.html

(First there are the anouncement and the program. The six presentations are below these materials.)

Yesterday, I came across an energy outlook from Llods (not sure anymore). ately I can't find it at the moment. I'll post that link too as soon as found the document again.

Regards
Polarbear:)

PS. Thanks for the links to the ASPO USA Presentations

Rick M
10-20-2010, 12:10 AM
Hi, PB

Thanks for the link to Swiss presentations... I will check them out.
Meanwhile, is this the link that you were after:
http://www.chathamhouse.org.uk/publications/papers/view/-/id/891/

Rick M
10-29-2010, 01:34 AM
USGS now expects to find only one-tenth of the oil that it previously expected to find in the National Petroleum Reserve in Alaska (NPRA):
http://energy.usgs.gov/alaska/npra.html

This should be front-page news, but it isn't.

rm

Rick M
10-30-2010, 08:21 PM
The video of Dr. James Schlesinger's presentation at the recent Peak Oil conference in Washington is now available.
A written transcript (with link to the video) was posted a few minutes ago:
http://www.energybulletin.net/stories/2010-10-30/peak-oil-debate-over

Dr. Schlesinger served as Chairman of the Atomic Energy Commission (1971-73), Secretary of Defense (1973-75), Director of the CIA and was the first Secretary of Energy (1977-79).

His wealth of experience at the highest levels of public administration is consolidated by his octogenarian wisdom, all of which make his observations worth considering (it's only 11 minutes).

-- RM

Polarbear
11-05-2010, 10:10 AM
I was roaming through the internet this week and found some interesting stuff about Peak Oil and the concurring debate. I would like to share my new "acquisitions" of this week. To be honest I have not read through all of them yet so I can not tell how precious they are.

1) Burr, Peter. (2008) World oil and gas resources: status and outlook – A rational attempt at an emotional issue, Swiss Bulletin for Applied Geology 13, 1 p. 3-26
Available thourgh open acces:

http://www.angewandte-geologie.ch/Dokumente/Archiv/Vol13_1/131_1Burri.pdf

=> Burri, a Swiss oil geologist argues that, contrary to other voices, there are still enough fossile ressources to still the global demand for energy up to the middle of the century. This should give us enough time to develop alternative and cleaner energy sources. According to him only ¼ of the total oil and 1/6 of all gas reserves have been developed so far. His argumentation has provoked strong opposition from other scientists such as Colin Campell. A response to Burris article has been published in the current issue of the journal.

2) W.H. Ziegler, C.J. Campbell, J.J. Zagar (2009). Peak Oil and Gas, Swiss Bulletin for Applied Geology 14, 1/2 p. 81-90
Doubting Burris assumptions about the statistics for the oil and gas reserves they areinsisting that decline in production is imminent. Article is also available through open access:

http://www.angewandte-geologie.ch/Dokumente/Archiv/Vol14_1_2/1412_7Ziegleretal.pdf

Further, I found two transcripts of hearings before the Committee on Foreign Relations from last year, via the electronic catalogue of the Air University:
3) Energy security : historical perspectives and modern challenges : hearing before the Committee on Foreign Relations, United States Senate, One Hundred Eleventh Congress, first session, May 12, 2009.

http://purl.access.gpo.gov/GPO/FDLP360

4) $150 oil : instability, terrorism and economic disruption : hearing before the Committee on Foreign Relations, United States Senate, One Hundred Eleventh Congress, first session, July 16, 2009.

http://purl.access.gpo.gov/GPO/LPS116613

Wish you all nice weekend.
Greetings from Switzerland
Polarbear

Rick M
11-05-2010, 11:49 PM
Thanks very much for that, PB

Like yourself, I have not yet gone through those links carefully.
However, it is immediately apparent that your last two links to the US House Committee on Foreign Relations are both very interesting.
I was not aware of either document, and will examine them closely.

As for the Burri document, I am inclined to support Colin Campbell's rebuttal.
The central point about peak oil is not reserves or resources, but flow rates and the warning that difficulties will start as we achieve maximum production rates (or simply fear that we have maxed out).

This is good info... thank you again for providing it.
I would probably have never found it otherwise.

rm

davidbfpo
11-06-2010, 10:52 PM
Rick M and others,

These popped up on an IPPR email:


This week, the UN's High Level Advisory Group on Climate Change Financing is due to report back after eight months of deliberations. A new international clean energy investment partnership with the private sector could help get the funds flowing for critical low-carbon energy initiatives in developing countries.

Link:http://www.ippr.org/articles/?id=4194


The clean energy investment challenge will only be solved through coordinated public and private effort. This investment challenge is now the world's greatest innovation challenge argue John Podesta, Richard Caperton and Andrew Light of Center for American Progress.

Link:http://www.ippr.org/articles/?id=4193

Polarbear
11-07-2010, 06:34 PM
I just found a speech of the Chairman of the JCS, Adm Mike Mullen, before the Energy Security Forum.
http://www.jcs.mil/speech.aspx?ID=1472

Polarbear

Rick M
11-07-2010, 08:42 PM
Thanks for that, PB... I had not seen it.

Mullen raises the usual points: fully burdened cost of fuel, the environmental and strategic imperative of reducing FF use, how we have taken cheap FF for granted, the need to achieve sustainability, the need for bright young minds with ideas, and the need to be mindful of complexities and multi-order effects.

One can only hope that behind the scenes, high-level military people like Adm. Mullen are pointing out to their high-level civilian counterparts that there are major risks on the home front re. energy supply.
He mentions hopelessness leading to radicalization, which is entirely true, and not only overseas... one wonders whether there could be trends in that direction here in North America, as people wonder what on earth happened to their dreams and expectations.

As for actually making progress toward sustainability, one might ask where the USA and Canada were in 1987 when the Brundtland Commission was trying to get things rolling. Their "Our Common Future" was a pretty level-headed document and spawned a flurry of conferences and initiatives, but the effort gradually fizzled out.

Meanwhile, the address by RADM Lawrence Rice at ASPO-Washington has been posted... well worth a look (18 mins):
http://aspo.tv/

Polarbear
11-10-2010, 03:15 PM
The new energy outlook of IEA has been released yesterday. Some graphs and a summary can be found here: http://www.worldenergyoutlook.org/

Regards
Polarbear

Rick M
11-12-2010, 11:43 AM
Thanks, PB

I've been following the discussion around the WEO fairly closely.
Energy Bulletin has several interesting observations:

1. from Gail at TOD
http://www.energybulletin.net/stories/2010-11-11/iea-world-energy-outlook-2010-questionable-assumptions-and-major-omissions

2. from Kjell at ASPO
http://www.energybulletin.net/stories/2010-11-10/spin-slips-oil-production-numbers-world-energy-outlook-2010-cry-help

3. from Stuart at TOD
http://www.energybulletin.net/stories/2010-11-11/iea-acknowledges-peak-oil

Dayuhan
11-12-2010, 12:28 PM
As for actually making progress toward sustainability, one might ask where the USA and Canada were in 1987 when the Brundtland Commission was trying to get things rolling. Their "Our Common Future" was a pretty level-headed document and spawned a flurry of conferences and initiatives, but the effort gradually fizzled out.

A quick look at a price chart will explain why it fizzled out. It's very tough to maintain such initiatives during an oil glut.

A lot of people - Americans in particular - get upset when oil is expensive, but the first requirement for progress is that energy must stay expensive... ideally as expensive as it can get without actually crippling economies. If it doesn't, all we will have is talk.

For now, IMO only, the $70-90/bbl band is about right. If economic recovery progresses I'd prefer to see it higher.

Rick M
11-12-2010, 07:25 PM
I agree, Steve

Cheap oil prevents many things, and price volatility undoes many things and burn investors and policy-makers, which makes them less likely to stick out their wallets and political necks the next time.
We do need sustained high prices for fossil fuels if we want an orderly transition away from them (which might allow some to be saved for future generations).
We still see people routinely idling their vehicles, which tells me that $86 oil is still too cheap.

When I mentioned Brundtland, I was actually thinking of more than just energy (though energy is of course fundamental to almost every other issue). The World Commission on Environment & Development had many sensible observations and recommendations on other sectors: agri-food, forests, oceans & fresh-water, transportation, urbanization, economic systems, etc.

A lot of effort by some first-rate people went into those initiatives throughout the late 1980s, but it sure feels like the subsequent 20 years have taken us even further down a most unsustainable path.

Dayuhan
11-13-2010, 04:18 AM
The 90s struck me even at the time as a rather euphoric decade... no more cold war, cheap abundant oil, an artificially inflated economy, and a generally unfounded sense of well being. Very difficult to gather impetus for change of any sort in that kind of environment. Toward the end it all got ridiculous, in the 97-99 bubble economy, but it was building all along.

Even now it's amazing how much nostalgia there is for that time, and how little recognition that all the seeds of the messes that came after were being sown in that decade.

Rick M
11-13-2010, 12:19 PM
I agree, Steve.
I'm sure that every thinking Brit would agree with you, too.
That decade saw the increasing production and export of North Sea oil (much of it to eastern Canada), with a peak right at then end of the decade.
Brits have now discovered to their horror just how brief their oil bonanza was.
The seeds of their future (and probably permanent) oil & gas predicament were indeed sown during that decade.

Meanwhile, I would recommend two articles.
I just stumbled upon this brief 1999 article from Army Logistics magazine:
http://www.almc.army.mil/alog/issues/JulAug99/MS406.htm

Second, this recent SSI paper explores the application of an ecological perspective to the problem of energy resilience (43 pgs):
http://www.strategicstudiesinstitute.army.mil/pdffiles/PUB1011.pdf

Dayuhan
11-13-2010, 11:27 PM
Brits have now discovered to their horror just how brief their oil bonanza was.


Must hurt to realize they could have left it in the ground, bought cheap oil from the ME, and sold their own at 3x the price or more a little way down the line...

Rick M
11-14-2010, 01:18 AM
I agree completely, Steve.

I am often reminded of the observations of Roscoe Bartlett, the remarkable US Republican from Maryland who heads the Peak Oil Caucus in Congress.
If my memory serves me right (it sounds like a Dylan/Band song, I know), Roscoe said something like this:
When we first discovered oil, we should have stopped and thought, "How can it do the most good, for the greatest number of people, for the longest period of time?"
But that is not what we did... we just pigged out.

Roscoe is absolutely correct: instead of making their one-shot bonanza last, the Brits now provide the classic example of what not to do with a non-renewable resource.
Good long-term thinking, Mrs. Thatcher.

Polarbear
11-19-2010, 02:20 PM
Two new reports predict end of fossil fuels long before alternative energies will be available:

http://pubs.acs.org/doi/abs/10.1021/es100730q

and plead for greater cooperation between US, China, Brazil and India to develop low carbon energy:

http://www.cfr.org/publication/23321/energy_innovation.html

Rick M
11-21-2010, 09:05 PM
PB,
Thanks for those links. I had seen the UC-Davis study but not the CFR one.

Meanwhile, there have been a few developments during the past 12 days.
Two weeks ago, the International Energy Agency released its annual World Energy Outlook.
Last week, the New York Times published "There will be fuel," a rosy prognostication by Clifford Krauss.

Energy Bulletin has just published an open letter to the NYT by Canadian geoscientist David Hughes, explaining why Krauss' article is "inaccurate, misleading and unhelpful:"
http://www.energybulletin.net/stories/2010-11-21/there-will-be-fuel-open-letter-new-york-times

Rick M
11-27-2010, 09:16 PM
A draft of Staff Working Paper #6 by the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling was released a few days ago. The document is titled, Stopping the Spill: The Five-Month Effort To Kill the Macondo Well (39 pgs).

A review of this document has just been posted at EB:
http://www.energybulletin.net/stories/2010-11-27/review-national-commission-working-paper-6-stopping-macondo-spill

AdamG
12-03-2010, 07:52 PM
The Navy is developing biofuel-burning F-18 fighter jets and hybrid-electric warships to increase energy independence. Secretary of the Navy Ray Mabus discusses those initiatives, and retired Army Gen. Steve Anderson talks about what he learned about energy-efficient camps while in Iraq.

http://www.npr.org/2010/12/03/131785448/Military-Goes-Green-For-An-Edge-On-The-Battlefield

SethB
12-04-2010, 12:30 AM
Biofuel combat vehicles are a publicity stunt. Domestically, we can produce 40 times the amount of oil that the DoD uses every year.

Add in Mexico and Canada, and there is no strategic vulnerability in the military sense.

Rick M
12-04-2010, 04:04 AM
Seth,
I agree with you on your first point.
Like shale gas, I think the biofuels have been greatly over-hyped (though for different reasons).
The net energy gain on corn ethanol is marginal (with Pimentel's study even showing a net loss), and Brazilian sugar and cellulosic being somewhat better, but still nothing like the energy profit that we enjoyed for over a century from conventional crude.

However, the US military uses about 400,000 bpd (most of it for the Air Force), and the assertion that US domestic production is 40 times greater than this is incorrect: it's more like one-third of that figure (ie. 13 times greater), since the US currently produces about 5 mbpd.

I would certainly dispute your final point.
Mexico is in steep (and probably terminal) decline.
Canada is your number-one supplier, true, but please be aware that the eastern half of my country (by population) is 90% dependent on overseas oil (everything from Toronto, east).
Should we have a global oil supply crunch (as many are predicting) there will be great political pressure to move oil which presently flows south to the USA, eastward to supply eastern Canada.
So I would not be too assured of US oil supply from either Mexico or Canada (for very different reasons).

As for strategic vulnerabilities, I think this year's report from the German military analysts says it all: our focus should be less on fueling the troops, and more on fueling the economy which funds the troops.
Without a solid tax base, and perhaps faced with domestic social disorder, military forces everywhere may find their capabilities severely restricted.

http://www.energybulletin.net/stories/2010-09-28/review-putting-bundeswehr-report-context

Rick M
12-05-2010, 04:50 PM
"The Coming Famine" by Australian analyst Julian Cribb was recently released (248 pgs).
In this audio interview (with visual accessories) he examines the convergence of factors (water, declining foodland, CC, population growth, urbanization, etc) but he repeatedly mentions the depletion of non-renewables: oil and fertilizer (Part 1, 15 mins).
http://peakoil.com/consumption/peak-oil-the-coming-famine/

Meanwhile, both USDA and Agriculture Canada have not only conducted no study on peak oil, they still have not even conducted an analysis of the likely impacts to the agri-food sector of the much broader topic of "the end of cheap fossil fuels."

Rick M
12-16-2010, 12:51 AM
A pair of articles was posted today at Energy Bulletin:
1. an annotated bibliography of the LFE research:
http://www.energybulletin.net/stories/2010-12-15/oil-supply-emergencies-annotated-bibliography

2. a supportive response to the article which was submitted by Kathy Leotta and her colleagues last month:
http://www.energybulletin.net/stories/2010-12-15/preparedness-fuel-supply-disruptions

Rick M
02-09-2011, 02:32 AM
Today the Guardian published the transcript of a US embassy cable which summarized an interview with Dr. Sadad al Husseini in late 2007:
http://www.guardian.co.uk/business/2011/feb/08/oil-saudiarabia

Saudi Arabia is the world's "swing producer," the only country which is believed to possess the ability to increase production quickly and significantly.
Dr. al Husseini questions whether Saudi Arabia could sustain production levels of 12 mbpd much beyond 2020.
In this respect, the projection of Dr. al Husseini is consistent with at that of Chatham House analyst Paul Stevens, who expects Saudi export capacity to decline after 2015 and to end around 2040:
http://www.chathamhouse.org.uk/publications/papers/view/-/id/645/

As an indication of the expertise & credibility of Dr. al Husseini, this interview is offered:
http://www.youtube.com/watch?v=cd7QGbNKxoQ

Bottom line: when production from Ghawar stalls, Saudi Arabia will stall, and then global oil production will almost certainly be in permanent distress.

AdamG
02-11-2011, 01:02 PM
BEIJING – Hackers operating from China stole sensitive information from Western oil companies, a U.S. security firm reported Thursday, adding to complaints about pervasive Internet crime traced to the country.
The report by McAfee Inc. did not identify the companies but said the "coordinated, covert and targeted" attacks began in November 2009 and targeted computers of oil and gas companies in the United States, Taiwan, Greece and Kazakhstan. It said the attackers stole information on operations, bidding for oil fields and financing.

http://news.yahoo.com/s/ap/20110210/ap_on_hi_te/as_china_us_cyberattacks


A new drilling technique is opening up vast fields of previously out-of-reach oil in the western United States, helping reverse a two-decade decline in domestic production of crude.

Companies are investing billions of dollars to get at oil deposits scattered across North Dakota, Colorado, Texas and California. By 2015, oil executives and analysts say, the new fields could yield as much as 2 million barrels of oil a day — more than the entire Gulf of Mexico produces now.

http://news.yahoo.com/s/ap/20110209/ap_on_re_us/us_shale_oil

Rick M
02-12-2011, 08:23 PM
Hi, Adam

Thanks for your posts.
On the first one, I view it as yet another indication of how assertive China is on energy... they seem to be very peak-oil aware and proactive on it, unlike us North Americans.

On the second, I would offer several cautions. The environmental risks of fracking have only recently come to the fore, and we will all have to await the EPA's determination. North Dakota is trumpeted as USA's #4 producer, but it has yet to hit 350,000 bpd (in a nation that consumes around 20 million. By the time oil shale production hits 2 million, many of the world's other sources of oil could be seriously depleted. Furthermore, the net energy return on oil shale is relatively low, so those 2 mbpd will require a good deal of fossil fuel to extract and refine. As that Wikileaks thing from Saudi Arabia suggests, what we really need to beware of is export availability.

Oil shale will help, and there's lots of it, but there are other factors that we need to consider as well.

I appreciate your interest, Adam

- Rick

Bill Moore
02-13-2011, 04:20 AM
At today's oil prices of roughly $90 per barrel, slashing imports that much would save the U.S. $175 billion a year. Last year, when oil averaged $78 per barrel, the U.S. sent $260 billion overseas for crude, accounting for nearly half the country's $500 billion trade deficit.

From one of the articles that Adam posted, this is illuminating.

Rick M
02-13-2011, 05:14 PM
True, Bill

But I fear that US oil imports could drop for an entirely different reason: export decline.
Not only is the US post-peak, so are UK, China, Norway, Mexico, Indonesia, Egypt, etc... even Canada for conventional oil. By 2020, Mexico may have evaporated as an exporter, as will UK.
Meanwhile, the eastern half of Canada's population is supplied 90% from overseas. I live in eastern Ontario, and by 2020 we will almost certainly need to be supplied from Alberta, not Algeria (which is now our #1 supplier). What this will do to the USA's #1 source of supply remains to be seen.


The Bakken and the Eagle Ford are each expected to ultimately produce 4 billion barrels of oil. That would make them the fifth- and sixth-biggest oil fields ever discovered in the United States. The top four are Prudhoe Bay in Alaska, Spraberry Trend in West Texas, the East Texas Oilfield and the Kuparuk Field in Alaska.

This is rather misleading: there are qualitative differences between Prudhoe and East Texas gushers and the two oil shale deposits, in terms of both flow rate and net energy/EROEI. Furthermore, the USA can consume the 4 billion barrels cited in about 8 months, but of course oil shale can't trickle that fast.

Houston, we have a problem....

Rick M
02-23-2011, 12:36 AM
There are parallels with Saudi Arabia, which we cannot underestimate.

Just as the heart of Libya's oil industry is in the eastern region (where support for Gadhafi was obviously weak), the heart of Saudi production is in its Eastern Province.

This province is home to the world's two largest oil facilities at Abqaiq and Ras Tanura, the mighty Ghawar oil-field, and the headquarters of Saudi Aramco. Its largely Shia population does not subscribe to the predominant Wahhabi form of Islam.
There are reports of quiet protests during the past few days:
http://www.thepeninsulaqatar.com/qatar/143209-saudi-shias-protest-in-eastern-province.html

There have also been several al Qaeda plots to destroy major Saudi oil facilities since the assault on Abqaiq five years ago this week.

There is much to be wary of here... we take a great deal for granted.

slapout9
02-23-2011, 04:51 AM
RickM,
What is your opinion on Low Energy Nuclear Reactions. They supposedly are the only source of energy production that produces more energy than it consumes. The patents on this process are supposed to be nearing expiration. If that is true we will finally have a source of inexhaustible Energy.

Rick M
02-23-2011, 12:38 PM
Hi, Slap

I know very little about this, though I do remember the flurry of excitement 30 or so years ago re cold fusion.
I'm assuming that this is correct (that LENR and "cold fusion" are the same thing):
http://www.lenr-canr.org/

The US Army put out this concise paper (8 pgs, 2007) on our hopes of getting something for nothing:
http://publicintelligence.net/ufouo-u-s-army-zero-point-energy-assessment/

Polarbear
02-26-2011, 12:28 PM
So finally I'm back again. This week I learned about a new and interesting project that could solve some of the problems of our oil based industries. A group of scientists of the Federal Institute of Technology in Zurich/Switzerland in Cooperation with the Paul Scherrer Institute (PSI) and the California Institute of Technology (Caltech) in Pasadena, CA succeded producing a preliminary stage of fuel and kerosene from water and carbon dioxide (CO2) by using a solar cavity-receiver reactor.
The researchers calculate that the technology could be commercialised within the next eight years. I will meet the head of the research group by the end of April on a roundtable of ASPO Switzerland. I hope I will get more details there.
The results of the research group were published in Nature http://dx.doi.org/10.1126/science.1197834. A short description of the project was posted on the ETH Life website: http://www.ethlife.ethz.ch/archive_articles/110104_solarthermischer_reaktor_per

Wish you all a nice weekend!

PB

slapout9
02-26-2011, 03:28 PM
So finally I'm back again. This week I learned about a new and interesting project that could solve some of the problems of our oil based industries. A group of scientists of the Federal Institute of Technology in Zurich/Switzerland in Cooperation with the Paul Scherrer Institute (PSI) and the California Institute of Technology (Caltech) in Pasadena, CA succeded producing a preliminary stage of fuel and kerosene from water and carbon dioxide (CO2) by using a solar cavity-receiver reactor.
The researchers calculate that the technology could be commercialised within the next eight years. I will meet the head of the research group by the end of April on a roundtable of ASPO Switzerland. I hope I will get more details there.
The results of the research group were published in Nature http://dx.doi.org/10.1126/science.1197834. A short description of the project was posted on the ETH Life website: http://www.ethlife.ethz.ch/archive_articles/110104_solarthermischer_reaktor_per

Wish you all a nice weekend!

PB


Take me with you. I have solved the JFK Conspiracy....time to solve the Energy Conspiracy:D

Rick M
02-26-2011, 05:14 PM
Thanks for that PB

I was not aware of this, and although I am always wary of such supposed break-through technologies, the fact that it has been written up in Science lends it some credibility. Please keep us posted.

On a less happy note, Iraq's largest refinery was attacked this morning, which cannot be helpful:
http://www.reuters.com/article/2011/02/26/us-iraq-oil-refinery-idUSTRE71P0IM20110226

Dayuhan
02-27-2011, 12:58 AM
I was not aware of this, and although I am always wary of such supposed break-through technologies, the fact that it has been written up in Science lends it some credibility. Please keep us posted.

I am skeptical as well. The wording, for one thing, is rather odd: "a preliminary stage of fuel and kerosene". You have to wonder what sort of fuel is under discussion, and what the "preliminary stage" was.

The problems, of course, will be the energy inputs the system requires and the question of whether the process is replicable on a significant scale. H20 and C02 are extremely stable molecules, which is why they are so common. It might be possible to find a way to break those molecules down and rearrange their components without an energy deficit, but reproducing that process on an economic scale is not going to be easy.

Rick M
02-27-2011, 01:51 AM
Steve,
Thanks for your posting: you are certainly correct in mentioning scale. As that recent RAND report on alt-fuels for military points out, to be of wide-spread use a new technology needs to be capable of putting forth volumes & availability (ie. infrastructure) which will permit widespread adoption of it.... often not so easy.

Meanwhile, the Herzliya conference on national security was held two weeks ago in Israel.
Here is the agenda:
http://www.herzliyaconference.org/_Uploads/dbsAttachedFiles/3197AgendaE(1).pdf

Please note the Tuesday morning session (11:30) entitled "At Peak Oil: Strategic Implications..."
Brig Gen Binder covers a lot of ground and many points are understated (sometimes his English is a bit jumbled, though I think his intent is clear):
http://www.youtube.com/user/HerzliyaConference#p/u/40/bYATgE_KsXs

Yossie Hollander also makes a number of good points.
David Hobbs from CERA states the obvious.
Brenda Shaffer sees little to worry about, thanks to natural gas.

Jim Woolsey seems all over the map: in this interview he seems to downplay PO in the first few seconds (there could be some context missing here) and then seems to discount the IEA warning about needing 4-6 Saudi Arabias within 20 years, yet he expects surging consumption in China:
http://wn.com/herzliyaconference?upload_time=all_time&orderby=published

Woolsey's optimism re alt-fuels does not quite fit with the recent RAND study on alternative fuels for military application.
His last few minutes are spent on small talk with the interviewer, so you may want to stop around the 10th minute.

These links connect to conference videos of other familiar names re energy security: Liam Fox, Gal Luft, Patrick Clawson, etc.

AdamG
02-28-2011, 03:51 PM
Mass. company making diesel with sun, water, CO2


CAMBRIDGE, Mass. – A Massachusetts biotech company is claiming it can produce renewable diesel fuel using the same ingredients that make grass grow.

Joule Unlimited in Cambridge says it has invented a genetically-engineered cyanobacterium that simply secretes the diesel — or ethanol — at remarkable rates.

The organisms live in water and take in sunlight and carbon dioxide. They then produce and directly secrete ethanol or hydrocarbons — the basis of various fuels, such as diesel — as a byproduct of photosynthesis.

Other methods for making fuel from solar energy use "biomass," such as corn or algae. Joule says its technology is far less expensive.

Joule claims its work can change the world, but skeptics say the company may have trouble efficiently collecting the fuel they produce and also must demonstrate their technology on a broad scale


http://news.yahoo.com/s/ap/20110227/ap_on_re_us/us_growing_fuel;_ylt=Aj.W4NZjsuq1w07xC5ig9_EV6w8F; _ylu=X3oDMTMzbDU3MWpkBGFzc2V0A2FwLzIwMTEwMjI3L3VzX 2dyb3dpbmdfZnVlbARjY29kZQNtcF9lY184XzEwBGNwb3MDNAR wb3MDNARzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA21hc3Njb21wY W55bQ--

slapout9
02-28-2011, 04:03 PM
The science is way above my head but what I think:confused:I am looking for is a chemical process that imitates the Chlorophyll process in plants. Again going back to the 70's(when I first heard of it) Buckminster Fuller was talking about something like this as the only known process that creates more output than input.

AdamG
03-11-2011, 02:57 PM
The U.S. Armed Forces are heavily burdened by the financial and tactical costs of transporting fuel to the battlefield. This July, in an effort to address the problem, the United States Marine Corps will deploy a pair of diesel generators coupled with powerful batteries to frontline troops in Afghanistan. The hybrid power systems should cut by 50 to 70 percent the amount of fuel needed to generate electricity, according to the manufacturer, Earl Energy of Portsmouth, Virginia.

The generators that U.S. military camps currently use operate inefficiently because they need to handle ocassional peaks in demand. "You may have a 10-kilowatt generator that at any time is only producing 1.5 kilowatts of power to satisfy its load," says Doug Moorehead, president of Earl Energy. "So you are wasting 8.5 kilowatts of power that you aren't storing for later use," he says.

http://www.techreview.com/energy/35080/?p1=MstRcnt&a=f

Rick M
03-18-2011, 02:04 AM
Thanks for that, Adam

I had not seen that, and I've passed your link on to a couple of Defence energy personnel here in Canada.

Dayuhan
03-18-2011, 08:08 AM
Mass. company making diesel with sun, water, CO2

These aquatic processes always strike me as potentially viable industries for countries like Bangladesh or Cambodia, with abundant wetlands and sunshine. Lots of unknowns on the practical aspects, of course. I always wonder about output per area/year, and as with ethanol, the potential for food and energy production competing for land area.

Rick M
04-09-2011, 03:10 PM
Steve,
re food & fuel in southeast Asia, this NYT article enlightened me on the growing use of cassava for fuel, which I was not aware of:
http://www.nytimes.com/2011/04/07/science/earth/07cassava.html?partner=rss&emc=rss

On a different issue, I am puzzled by Thursday's IMF statement, "Oil Scarcity, Growth and Global Imbalances" (2 pgs):
http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/3sum.pdf

These "Press Points for Chapter 3" refer to the IMF's World Economic Outlook which is due to be released on Monday, according to this article:
http://www.liveoilprices.co.uk/oil/oil_prices/04/2011/wti-oil-trading-over-111-imf-joins-the-peak-oilers-party.html

This brief video reiterates the main points:
https://www.imf.org/external/mmedia/view.aspx?vid=888827744001

This Reuters article also provides a summary:
http://www.reuters.com/article/2011/04/07/energy-imf-oil-idUSN0712329720110407

Question: on p. 2 of the Press Points, Helbling states, "A persistent adverse oil supply shock would imply [may cause?] a surge in global capital flows from oil exporters to importers [sic] and a widening of current account imbalances."
Surely he means that capital will flow from importers (who will be paying very high prices) to exporters. What am I missing here? (that oil exporters will have surplus cash to loan to importers?)

Rick M
04-09-2011, 06:02 PM
I have just obtained the PDF of Chapter 3, in which the sentence reads:
"... the wealth transfer from oil importers to exporters would increase
capital flows and widen current account imbalances."

As suspected, the Press Points has the words reversed, hence the confusion.

http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/c3.pdf

bourbon
04-09-2011, 07:23 PM
Question: on p. 2 of the Press Points, Helbling states, "A persistent adverse oil supply shock would imply [may cause?] a surge in global capital flows from oil exporters to importers [sic] and a widening of current account imbalances."
Surely he means that capital will flow from importers (who will be paying very high prices) to exporters. What am I missing here? (that oil exporters will have surplus cash to loan to importers?)
These days, part of that money flows into sovereign wealth funds (SWF), which are like state-owned hedge funds. SWFs seek to maximize returns as opposed to foreign exchange reserves held by central banks that seek to stabilize currencies.

Q. But wait a minute, aren’t hedge funds pumping money into oil futures, which in-turn are inflating the price of oil?
A. Yes, they are.

Q. And SWFs are like a hedge fund?
A. Correct.

Q. And doesn’t the money that these SWFs invest derive from high oil prices?
A. Why yes, yes they do.

Q. So doesn’t it stand to reason, to suspect that SWFs are by buying up all these paper barrels to inflate oil prices?
A. You would be silly not to.

Q. That is a reinforcing feedback loop, right?
A. It most certainly is.

Q. So couldn’t this be like…you know economic warfare or something?
A. That’s very interesting; I would say it is worth looking into.

Dayuhan
04-09-2011, 10:30 PM
The role of hedge funds and speculators in sustaining high oil prices is very much overrated. They can drive a spike higher but they can't sustain a plateau: speculators can't produce actual demand and they can't profit until they sell their position, which means price support doesn't last. When speculators see upside pressure on oil prices they will jump in and try to make some short-run profit, but they don't stay and when they underlying causes of the upside pressure resolve they will bail.

Over the long term high oil prices are driven by rising demand, limited supply, and political instability in source countries, not speculation. In any event high oil prices are not contrary to US/Western interests at this point. There's pain, but without that pain we will never get serious about developing alternatives and reducing consumption.

The Gulf SWFs in particular are pretty conservative and very diversified in their investments, and you're more likely to see them buying US and European real estate at this point than oil futures.

I see no evidence of "economic warfare". Economic mess, yes, but that's always with us, actual or incipient. Calling it "warfare" just makes it easier to blame someone else and absolve ourselves.

bourbon
04-10-2011, 02:31 AM
The role of hedge funds and speculators in sustaining high oil prices is very much overrated.
According to whom?


They can drive a spike higher but they can't sustain a plateau: speculators can't produce actual demand and they can't profit until they sell their position, which means price support doesn't last.
Profits can be made through index speculation and OTC swaps. They wouldn’t want to sustain a price plateau; they would want to drive volatility, create bubbles. It’s not investing, it’s trading for maximum returns – the money is made from the price swings.


When speculators see upside pressure on oil prices they will jump in and try to make some short-run profit, but they don't stay and when they underlying causes of the upside pressure resolve they will bail.
Which is all the better if the country’s national-oil-company has the ability to influence supply pressures; its SWF can front-run the speculative herd and fleece western institutional investors.


In any event high oil prices are not contrary to US/Western interests at this point.
Maybe, for one thing it seriously screws with the Chinese. Bill Casey and the Saudi’s did the opposite to the Soviets in the 1980’s. The role low oil prices played in the collapse of the USSR is overlooked.


The Gulf SWFs in particular are pretty conservative and very diversified in their investments, and you're more likely to see them buying US and European real estate at this point than oil futures.
How exactly would you know this? They don’t have to reveal their activities, and it is easy enough to obscure them anyhow.