Energy Security

[AmericanPride]

Originally Posted by Ulenspiegel

We have a stagnating global production since 2005, OTOH the demand of India and China, which buy more despite increasing prices, increased, the domestic consumption in most producing countries increased.

Declining oil production is not sufficient of itself to determine whether production is in irreversible decline; or to prove that high oil prices are here to stay. There are two problems: first, the oil market in general is not stable; prices and production constantly cyclical rise and fall. There are at least four previous eras in which production appeared to peak, but was only followed by an oil glut and collapsing prices. The second problem is that the oil market is now dominated by speculation, which is driving up prices despite slowing demand. 2005 saw what Daniel Yergin termed a demand shock, where the simultaneous tightening of capital investment in oil production and market contraction (a response to the unexpected oil price collapse in the 1990s) collided with growing consumption in the developing world. This has stressed global spare capacity, with the consequent rise in prices encouraging intense speculation and more rising prices (the inflationary pressures of the GWoT, Iranian confrontation, and instability in Nigeria don't help matters either). And now more cynical than in the 1990s, oil producers are not about to rush to increase production without significant external pressure. Sustained high prices produces countervailing forces (increased production, reduced consumption) that will eventually dry up investment. This is already happening (high oil prices partly contributed to the 2008 recession as trillions of dollars of wealth was transferred from consumer-intensive modern countries to savings-focused third-world producer governments). Governments around the world are taking alternative energy seriously. And the oil market is throwing billions of dollars into exploration and production. We may or may not be transitioning from an economic dependency on oil (it's hard to say), but we are definitely not in some world ending peak oil crisis.

[Rick M]

"we are definitely not in some world ending peak oil crisis."

AP,
I would not argue that we are yet in a PO crisis, nor that it would necessarily be "world ending."
But there is much to be concerned about re. global supply of liquid fuels, and Ulen flagged three of the main ones:
- flat conventional production for 7 years
- demand growth in China & India
- demand growth within KSA and other major oil exporters.

Here in eastern Canada, the UK used to be our #1 supplier of crude only a decade ago, but it is in ever-worsening terminal decline (17% for 2011).
Chatham House warned that the export capability of KSA is likely to start to decline in about 10 years' time: should this occur, we will certainly enter a new era.

I agree with Lt. Col. Eggen that (for many reasons) nations may stick with oil until the last minute despite he risks of doing so. We still have no scaleable replacement for petroleum, least of all at the last minute. I see little room for complacency re. liquid fuel supply.

Meanwhile, we have the ill-informed claiming that we have trillions of barrels of shale oil, apparently just waiting to be pumped:
http://opinion.financialpost.com/201...-awash-in-oil/

[AmericanPride]

Originally Posted by Rick M

But there is much to be concerned about re. global supply of liquid fuels, and Ulen flagged three of the main ones:
- flat conventional production for 7 years
- demand growth in China & India
- demand growth within KSA and other major oil exporters.

Sure, demand is up and production has not responded to keep prices within what was previously considered a reasonable price band. I mentioned this in my previous post. But that does not indicate we are entering a period of sustained high prices or entering into terminal oil decline. I agree that there are serious security and political consequences that emerge from the behavior of the oil market, and this has been demonstrated throughout the course of the 20th century.

[Rick M]

"demand is up and production has not responded"

AP,
If demand is likely to stay up (or even accelerate, as seems pretty certain in Asia and MENA) and if conventional production can barely stay even with depletion, then I don't understand why you say "that does not indicate we are entering a period of sustained high prices." Surely both fundamentals point toward high prices for the foreseeable future (which admittedly is not very far ahead).

Like so many other analysts, I see little hope of a return to sustained low prices for liquid fuels. I agree with those who claim, "The era of cheap oil is over."

As for entering terminal decline, I agree that we have not yet peaked (much less entered decline), at least in terms of all-liquids. And perhaps seven years is insufficient to claim (as many have) that we have peaked in conventional oil... things could pick up on that front.

Also, the risks continue to mount: we have minimal spare capacity, refineries closing, Israel & Iran which will not back down, this week's announcement that Russian oil output will stay flat for the next 20 years, fierce UK decline, etc.
And all of this with no effective means to deal with a major global oil shock, should one suddenly occur (no matter what the cause). Surely north-eastern North America would be highly vulnerable in such a situation: Canada has no strategic reserve and USA would have difficulty moving SPR oil to assist PADD 1.

[AmericanPride]

Originally Posted by Rick M

If demand is likely to stay up (or even accelerate, as seems pretty certain in Asia and MENA) and if conventional production can barely stay even with depletion, then I don't understand why you say "that does not indicate we are entering a period of sustained high prices." Surely both fundamentals point toward high prices for the foreseeable future (which admittedly is not very far ahead).

Because I do not think that the tame response from the producers is an entirely a forced condition.

[Polarbear]

This week an article by Robin Mills, an energy consultant, appeared on the website of the European Energy Review. The piece sparked a controversial debate among the readers.
Especially questionable appear his assumptions about the energy value of different sources ("to the consumer, the source of the fuel that goes into the tank is irrelevant"), his belief that oil as fuel can be replaced by alternative fuels without any difficulty, as for example the substition by LNG or nuclear power on ships, as well as his total neglection environmental effects by the production of unconvetional oil (e.g. tar sand).

Mills' opininion is also contrasted by the article of James Murra and David King ("Oil's tipping point has passed") in Nature (No. 481, p. 433-435).

[AmericanPride]

Oil demand and speculation may be topping off. This should not come as a surprise since consistent high oil prices produce countervailing forces in supply increases and demand reduction.

[Rick M]

AP,

I posted a few observations re. your Globe article (in the Comments section for that article).

As for the larger energy supply picture, the big hope/"game-changer" has been shale/tight oil and shale gas.
The Globe recently ran an article on Art Berman, who was warning several years ago that shale gas was over-hyped and that investors should be careful.

Having been roundly criticized for expressing his concerns, the ongoing difficulties at Chesapeake Energy are exactly the sort of thing that Art warned about.
Please see Comments here:
http://www.theglobeandmail.com/globe...rticle2405737/

[AmericanPride]

Rick,

I appreciate your comments on that article; very well written. I agree with you that shale oil and gas are not an effective replacement for crude. Where I disagree is the claim that we are in, entering, or have past a point in which oil production is in terminal decline. I think this 2011 EIA report is a good starting point. I also mentioned in a previous post about the problems of demand shock, speculation, and global security issues (GWoT, Iran, etc), which all contribute to high oil prices. I think this graph and this graph are important to understanding the long-term context of oil prices and production.

[Rick M]

"in, entering, or have past a point in which oil production is in terminal decline."

Thanks for your reply, AP

It's a matter of definition (re oil production).
What is oil?

I certainly accept that although the evidence gets stronger with each passing month, the IEA could be proven wrong in its assertion that conventional oil is unlikely to surpass its 2006 peak of around 74-75 mbpd. There is plenty of evidence that this plateau was reached in 05, even as early as late 2004, but there is little to be gained by haggling over minor details.

Meanwhile, there is no evidence that global all-liquids production has peaked: we are now near 90 mbpd and there is nothing to indicate a peak (much less a subsequent decline).
I have no idea what the global all-liquids peak might eventually be, nor when such a peak/plateau might occur, but I do believe that it will be very problematic when it does occur.

What does seem clear is this: conventional oil production has been stalled for a worrisome length of time. depletion of the very large oil-fields (which provide most of our liquid fuel supply) is ongoing, perhaps accelerating, and new sources of liquid fuels (ie. deep-water pre-salt, shale oil, etc) are both more energy-intensive and more capital-intensive.

Both of these trends are consistent with the warnings that peak oil analysts have been arguing for many years.

[slapout9]

Dr. Jerome Corsi Interview on Abiotic Oil and NAZI technology from WW2.... on how to liquefy coal.
The interview starts at about the 12 minute mark.


http://www.youtube.com/watch?v=z998uKCahQo

Yes this is a conspiracy theory but he does raise some interesting questions like why is Oil found 40,000 feet(7 miles) below the surface if it is composed of dead plant and animal matter? Someone hear should know the answer if there is one.

[Fuchs]

Originally Posted by slapout9

Dr. Jerome Corsi Interview on Abiotic Oil and NAZI technology from WW2.... on how to liquefy coal.

Not Nazi technology, especially not NAZI technology.

The tech dates back to 1920's
http://en.wikipedia.org/wiki/Fischer_Tropsch
and is German technology.

Several plants were running (or are), including in East Germany, South Africa. The PRC gave a huge CTL program up, prolly because of coal supply issues.

I read years ago (~2004 info) that CTL would be commercially useful at 40 $/barrel. Very little has happened in regard to more CTL production during the recent oil price peaks, though.

[Ulenspiegel]

Originally Posted by slapout9

Dr. Jerome Corsi Interview on Abiotic Oil and NAZI technology from WW2.... on how to liquefy coal.
The interview starts at about the 12 minute mark.


http://www.youtube.com/watch?v=z998uKCahQo

Yes this is a conspiracy theory but he does raise some interesting questions like why is Oil found 40,000 feet(7 miles) below the surface if it is composed of dead plant and animal matter? Someone hear should know the answer if there is one.

There is one issue with abiotic oil: Many of the compounds in oil are chiral and you often find only one of the the two possible forms in oil, this clearly points to a biogenic origin.

Reason: The enzymatic proteins in plants (=biological catalysts) are build up from chiral amino acids. Therefore, they can only accelerate the reaction of one of two chiral product, which is enriched.

If the oil has an abiotic origin you would find both chiral forms in a 1:1 ratio.

[slapout9]

Originally Posted by Fuchs

Not Nazi technology, especially not NAZI technology.

The tech dates back to 1920's
http://en.wikipedia.org/wiki/Fischer_Tropsch
and is German technology.

Several plants were running (or are), including in East Germany, South Africa. The PRC gave a huge CTL program up, prolly because of coal supply issues.

I read years ago (~2004 info) that CTL would be commercially useful at 40 $/barrel. Very little has happened in regard to more CTL production during the recent oil price peaks, though.

Yes, I think the NAZI connection was due to the fact that the information was found by the Allies after WW2 during Operation Paper clip. Shell Oil company is supposedly making huge investments in this technology(Fischer-Tropsch Process). They think it is a big long term solution.There is also a conspiracy angle on this to. Shell Oil has a symbol of a sea shell which is supposed to be some kind of connection to Shale Oil again this was a popular conspiracy back in the 70's.

[slapout9]

Originally Posted by Ulenspiegel

There is one issue with abiotic oil: Many of the compounds in oil are chiral and you often find only one of the the two possible forms in oil, this clearly points to a biogenic origin.

Reason: The enzymatic proteins in plants (=biological catalysts) are build up from chiral amino acids. Therefore, they can only accelerate the reaction of one of two chiral product, which is enriched.

If the oil has an abiotic origin you would find both chiral forms in a 1:1 ratio.

Thanks for the response.

[davidbfpo]

The Lowy Institute had a recommendation / pointer to this book 'Earth Wars: The Battle for Global Resources' by Geoff Hiscick, published April 2012 and link, without reviews:http://www.amazon.com/Earth-Wars-Bat...mm_hrd_title_0

The Amazon summary (in part):

The global competition for scarce natural resources that pits the West against the super-hot economies of China and India, plus a clutch of other contenders including Russia, Brazil, and Indonesia, has become one of the biggest issues facing the world today. Whether it is the rare metal lithium found in salt pans in the Andes, gas from the Caspian Sea, oil off the coast of Brazil, coal from Africa's Zambezi River, or uranium from Kazakhstan, China and India are desperate to ensure the security of their future energy supplies. The same goes for food and water, as contamination and over-use take their toll, the need to provide continued access for the next generation and beyond has increased exponentially. In Earth Wars: The Battle for Global Resources, international business journalist Geoff Hiscock explores the problems, potential solutions, and inevitable tensions in this ongoing scramble for finite natural resources.

[Polarbear]

This week another article appeared in the European Energy Review taking nealry the same line as Robin Mills piece two weeks ago.

Investment and sustainability are the real challenges in oil, not availability.

[Ulenspiegel]

Originally Posted by Polarbear

This week another article appeared in the European Energy Review taking nealry the same line as Robin Mills piece two weeks ago.

Oil does of course not run out within a few years, CHEAP oil does!
Here the author uses a strawman, public deception is only a minor problem when even "experts" ignore some fundamentals.

All the new projects or revitalized old ones work, because the price of crude is high, therefore, they will not decrease the price but in best case slow down its increase.

The only positive developement is the higher production of natural gas in the US and Canada and the savings in the last two years.

Whether the transition from oil to methane is fast enough is for me interesting questions. We are talking about rates: rate of transition vs. increase of crude price

BTW: Some really good contributions to the decline of easily accessible crude is are found on "The Oil Drum": http://www.theoildrum.com/

Here I recommend the latest article on Norway's production, see figur 5 to get a feeling for the issue:

http://www.theoildrum.com/node/9166#more

[Ulenspiegel]

Addendum: A few minutes ago a IMF study on this topic was posted on TOD:

http://www.theoildrum.com/node/9182#more

[davidbfpo]

Peak oil hasn't happened, and it's unlikely to happen for a very long time.

So says a leading UK ecology advocate, George Monbiot.

Link:http://www.guardian.co.uk/commentisf...il-we-we-wrong

The world's most powerful nation is again becoming an oil state, and if the political transformation of its northern neighbour is anything to go by, the results will not be pretty.

Rick,

I don't follow Canadian politics, what is going on that is not pretty?