Peak Oil News: 09/01/2006 - 10/01/2006

Friday, September 29, 2006

The Peak Oil Crisis: The Perfect Storm

Falls Church News-Press

By Tom Whipple

Events move quickly these days. Two months ago oil was north of $78 a barrel and, nationwide, gasoline was above to well above $3. The Middle East was threatening a conflagration and another exciting hurricane season was in the offing. Even the concept of peak oil was starting to get some scattered but serious attention in the media.

Now here we are at the end of September. The price of crude is down nearly 25 percent. Gasoline is down 75 cents a gallon. The press is full of stories of a great new oil find in the Gulf that could show the way to a cornucopia of oil. The Dow is pushing an all-time high, and financial analysts are predicting lower inflation and solid growth in the year ahead. Finally, those who don't want to believe in peak oil are loudly proclaiming, "I told you so."

What happened? Is imminent peak oil still in the cards? Just where is reality?

The first thing to remember is that the price of oil has had a great run-up in the last five years. Way back in 2002 oil was circa $20 a barrel. Although there are many factors that go into the price of oil, they sort of group into three general categories: 1) Underlying supply and demand for the product including genuine hedging; 2) Technical factors that stem from the nature of commodity speculation: overbought, oversold, charting, stop loss orders, margin calls, etc.; 3) The sum of all the speculators' ideas as to whether the price will go up or down— the fear factor. All of these factors are present all of the time. The eternal argument is over how much of the current price is due to which influence.

Every jump in the price of oil earlier this year brought forth remarks about the "fear factor." Speculators were constantly afraid something so bad was about to happen that the price of oil would soon be over $100 a barrel so the current price was a great bargain.

A couple of months back this was not a bad idea to have. The forecasters were talking about a third year of giant hurricanes tearing up the Gulf. The Iranians were firing off missiles and muttering about closing the Straits of Hormouz. In Nigeria, a foreign oil worker a week was being dragged off for ransom. Israel and Hezbollah were hard at each other and were threatening to trigger a wider war. It would have been hard for a speculator not to conclude that at least one of these looming problems would result in higher oil prices.

But then the great pendulum of events reversed. One by one the fears began to melt. Diplomacy quieted much of the Middle East. The hurricanes of 2006 curved towards Europe where they harmlessly watered the fields of Ireland. Nigeria turned quiet. Chavez kept threatening, but the speculators no longer listened.

Fear factor after fear factor diminished into a perfect storm of good news. Week after week the good news for oil prices kept coming. US stockpiles continued to build. Cooler weather reduced the use of natural gas for air conditioning. A giant oil find was made in the Gulf of Mexico. Even the US economy cooperated by showing some signs of slowing, thus raising the specter of reduced demand for oil.

As the price fell, the normal technical factors of speculating came into play. The bulls bailed out. Margin calls were made. Overcommitted hedge funds went bust.

Now what does all this have to do with peak oil? The short answer is, so far, very little. Naturally, higher or lower prices will affect demand and therefore exacerbate or mitigate the supply situation. Tight supplies already are reflected in the base price of oil before we get to the speculative factors. This is how we got from $20 to $60 a barrel. If the price stabilizes in the neighborhood of $60 after the speculative premium is wrung out of the market, then we will have some idea of where simple supply and demand for oil prices the product.

Behind all the good news for oil prices, however, depletion of the world's finite oil supply continues at 85 million barrels per day, day after day, after day. Bad news for the future of oil production continues to come out, but it is lost in the shuffle or not recognized for its importance. Many now hold that the good news of a great new oil find deep beneath the Gulf of Mexico is, in reality, bad news. If ultra deep-sea oil, which is very expensive and may take many years to exploit, is all we have left, then we are close to the end of cheap oil.

During the last few weeks, slippages in major oil exploration projects have came to light. Of particular note is the BP's great Thunderhorse platform, which seems to have developed metallurgical problems associated with extracting oil from great depths. If this turns out to be a generic problem, then the new frontier of ultra deep-sea oil wells may be a while in coming.

The bottom line remains that peak oil is still very real and, if anything, the news from recent weeks suggests the peak may be moving closer rather than receding.

An interesting sidelight to the last few weeks has been the paranoia surrounding rapidly dropping gasoline prices. According to a Gallup poll, 42 percent of Americans, mostly Democrats, believe that the administration is deliberately manipulating gasoline prices to improve their chances in the November elections. As noted above, there are numerous factors that are more than adequate to drive down prices to current levels. Prominent among these factors is the normal drop in demand between the summer driving season and the winter heating season.

In 2005, gas and oil prices experienced a similar drop after the spike caused by the summer hurricanes.

Therefore, the message of the last few weeks is not to confuse lower gas prices with any lessening of the threat from peak oil. The peak is still out there and is moving inextricably closer. In the meantime, enjoy low gas prices while they last. OPEC is already wildly signaling that its members can't live with oil below $60 and that production restrictions are coming shortly.

For readers who are seriously concerned about the imminence and consequences of peak oil, the US branch of the Association for the Study of Peak Oil, ASPO-USA, is holding a World Oil Conference in on 26 and 27 October. For more information or to register, their website is

Wednesday, September 27, 2006

Oil crunch: U.S. Energy Department study concludes crude production will peak, requiring other energy forms

Last September, a Chronicle editorial warned that global oil production would peak in this decade or the next, and then inexorably decline. Given that likelihood, the United States would have to embark on a crash program to develop alternative energy sources or endure crippling increases in the price of energy.

Last week, a study performed for the U.S. Department of Energy concurred with the editorial's conclusions.

The study, led by Robert Hirsch, warned that the world should be spending $1 trillion per year developing alternative energy sources — including tar sands, oil shale and gas liquefaction — to avoid having its economy crippled by oil shortages and the resulting chaos. The study recommends a 20-year lead time, so it might already be too late to prevent a crunch.

The report said the timing was uncertain. Hirsch predicted peak oil production could come in five years, almost certainly by 2020.

Actually, the world would not have to arrive at peak production in order to experience severe shortfalls in oil supplies. The aftermath of Hurricane Katrina showed what even a minor constriction in supply can do to drive prices skyward. Apart from natural disasters, wars, political unrest, government intervention, deteriorating equipment, accidents or any combination could interrupt the supply of oil.

Demand for gasoline in the United States is dropping with the end of the summer vacation season. Consequently, prices also are dropping. But this trend is extremely temporary.

Demand for oil in China, in India and throughout the developing world will continue to grow. Exxon Mobil CEO Rex Tillerson predicts that world demand for crude will increase 50 percent in a decade.

Bloomburg News reported that the Energy Department study found that conventional oil production reached "soft and sudden" peaks in Texas in 1972, North America in 1985, Great Britain in 1999 and Norway in 2001. These dates were predicted by formulas used by proponents of the peak oil theory to predict the crest of global oil production.

Perhaps the report's most serious conclusion is that the free market and private industry alone will not prevent economic catastrophe from energy shortages. Government must have a policy for managing the transition from conventional crude oil to other energy forms.

Hirsch, a consultant and former government official overseeing research into solar and other renewable energy forms, said the conversion from oil could be compared to the race for the moon or the mobilization for World War II. Consumers, he said, could not rely on oil companies to get the huge job done.

If oil company managers disagree, they need to demonstrate where all the oil is going to come from to meet rising demand, or propose their own plans for developing alternative sources.

Monday, September 25, 2006

Cheap gas until the election?

Augusta Free Press

Recent hype can't disprove peak oil

By Erik Curren

I filled my tank with gas for $1.89 a gallon last week. Some station in your area might be even cheaper. But there's no question that the cost of gas is down across the country these days.

Then there's more good news for drivers: Earlier this month, Chevron and a couple other oil companies announced that they found a mammoth oil field deep under the Gulf of Mexico promising a domestic source of oil for years to come.

This summer, with gas at historic highs, it was easy to believe that America might be running out of cheap oil. The theory of peak oil started to spread. The theory says that world oil production is about to reach its highest possible level and then begin an unstoppable decline just as China and India start to compete with us for the remaining oil.

But oh, how soon we forget.

"Peak-oil theory is garbage as far as we're concerned," said Robert W. Esser, a director of Cambridge Energy Research Associates, in response to the discovery by Chevron and its partners, known as Jack No. 2. His group predicts that world oil and natural gas liquids capacity could expand by up to 25 percent by 2015.

If Esser is right, that's good news for big business. If there's anything that scares industry more than global warming, it's peak oil.

Fearing it would cut into their profits, the oil, coal, electric utility and auto industries have fought since the late '80s to postpone real action on global warming. This year, with America finally poised to take real action to reduce carbon-dioxide pollution, industry seems to have lost this battle. Yet, companies can still find consolation in opportunities to profit from fighting global warming, whether through genuine but limited solutions like hybrid cars or bogus ones like so-called clean coal.

But with peak oil, there seems to be very little upside for many industries. If oil is both as central to our economy today and as hard to replace as peak-oil analysts say, then the whole international trade system could be threatened. Cheap goods from China would no longer be cheap. Food shipped from California to the East Coast could skyrocket. Wal-Mart prices could start to look like those on Rodeo Drive.

If peak oil ever caught on with the public as global warming has done this year with Al Gore's film "An Inconvenient Truth" and Hurricane Katrina, then Americans would be left with an even more disturbing picture of the future.

Scientists have warned that we must stabilize our carbon emissions within a decade to avoid the worst effects of climate change.

But if we accept peak oil, then we'll see we don’t have the luxury of even a decade to transition to a lifestyle that uses much less energy. If we stick with business as usual and keep burning oil as fast as we can pump it or ship it in, we can expect decades of oil wars like Iraq, increasingly volatile energy prices and a level of economic hardship not seen since the Great Depression, according to peak-oil adherents.

If we accept peak oil, we'll see that we should have started yesterday to make the big changes needed to radically reduce our use of oil and electric power, for example:

1. Taking freight off of diesel trucks, one of the least efficient ways to move goods, and putting it on rail cars, one of the most efficient.

2. Stopping new highway construction and starting the reconstruction of passenger railroads.

3. Zoning out sprawling cul-de-sac suburbs with big-box stores you can only get to by driving and rows of McMansions that guzzle energy for heat and air conditioning.

4. Breaking up large factory farms, which suck down chemicals and ship food 1,500 miles from farm to plate, into small holdings that can be run by family farmers who grow only for their local area

This is a far cry from the kind of small actions being touted by many environmentalists to fight global warming, such as screwing in compact-fluorescent light bulbs or taking shorter showers.

Peak oil calls for big changes at the heart of the very same American way of life that Dick Cheney has said is non-negotiable.

Big business might go along with tinkering with energy use here and there to be more efficient. But the likes of Hewlett-Packard, Procter and Gamble and Nike will never go along with drastically curtailing global trade and the consumer lifestyle in favor of Americans buying less stuff made abroad by big corporations.

By the level of hype in the recent attacks against peak oil, it seems that big business is scared. Corporate flacks in the free-market blogosphere are all abuzz with the Jack No. 2 discovery and its promise of years more of cheap domestic oil.

"Suffice it to say that the new Gulf of Mexico discovery rivals that of Alaska's giant Prudhoe Bay oil field in 1968," writes infamous industry shill Alan Caruba, whose PR firm offers its services to chemical and pharmaceutical makers. Though only a bit player in the rogue's gallery of corporate front-men who tried to cast doubt on legitimate global warming science, Caruba's latest piece on peak oil has popped up on a variety of right-wing Web sites. There, he writes that the world may have up to 140 years of oil remaining, or at least enough to last until 2070.

Caruba concludes with a favorite "gotcha!" claim of peak-oil skeptics, namely, that predictions of peak oil have been wrong before, so they'll probably be wrong again.

"Meanwhile, it's worth remembering that predictions that the world was running out of oil date back to when it was discovered in 1874 in Pennsylvania," Caruba writes. Of course, any student of oil history knows that "Colonel" Edwin Drake found oil in Titusville, Penn., in 1859. But maybe Caruba means that the peak-oil Cassandras didn't come along until 15 years later.

In any event, a middle-school debate team could debunk such flawed reasoning. Even if predictions of oil depletion have been wrong before, they're bound to be right some time. What's different now is that leading petroleum geologists are seconding the prediction made by the dean of peak oil, geologist M. King Hubbert - who correctly predicted that U.S. domestic oil would peak in the early '70s - that world oil should peak in the next few years, if it hasn't done so already.

So what about the new oil in the Gulf of Mexico?

"Knowledgeable geologists and petroleum engineers began to question all the euphoria," wrote veteran energy reporter Tom Whipple a few days after the announcement. Whipple explained that the Jack No. 2 find was actually a test conducted not on a single mammoth field, but in a small deposit likely part of an oil zone hundreds of miles wide on the deep ocean floor. The area, called the Lower Tertiary, has seen much fruitless exploration in the past. But even if the latest discovery matches up to expectations, extracting oil from 20,000 feet under the sea may be prohibitively difficult and expensive.

"Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible," Whipple wrote, "will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO." Any oil from new finds in the Gulf of Mexico will take five years or more to come online. And by then, it would likely just be a drop in the bucket of America's projected oil consumption.

So why, then, have gas prices been coming down? And will they stay down?

"The Republicans are in a bad situation, even soccer moms know this. The best chance they have now is lower gas prices," says Michael Kane, energy affairs editor at From the Wilderness Publications, which publishes a daily e-mail newsletter on world energy and political news (

"When it comes to heating oil and natural gas, your bill may go up, but you pay what you pay for it. The price is not on billboards around the country. But people shop comparatively for gasoline. It's a real billboard sticker. Cheap gas is about the only push that the Republicans have right now, given that their backs are against the wall in Iraq."

Every year in the month of September gas prices usually go down a bit anyway. Demand declines after the summer driving season and before the winter heating season arrives. Yet this year, not only did prices see a bigger percentage decline than in previous years, but oil stocks held by refiners and wholesalers are bigger than they've been in previous Septembers as well.

"Following what the storage numbers say, each week the amount of oil and gas reserves is going up," says Kane. "The people who are involved at the refineries know the market, they know the cycles and they know that they don't need that much gas. By flooding the market when you know that demand is low, and then on top of that when the economy is slow, you know that there's even less demand."

Even though supplies are high and prices are falling, refineries have continued to run at higher than 90 percent capacity in recent weeks.

Kane concedes that the industry could be trying to stockpile fuel supplies in case demand rises later in the fall. But he says there's just as good a chance that industry management is glutting the market to bring prices down now before the congressional elections in November. He also claims that the Jack No. 2 discovery occurred some time ago, but that Chevron and its partners decided to save the announcement for just before the election.

Kane even wonders if the alleged terrorist plot uncovered in London in August was more or less a hoax by President Bush's allies in the British government, a pretext to reduce demand for air travel, and thus to cut demand for jet fuel, which would also bring down the price of oil in advance of the U.S. midterm elections.

Most oil executives, Kane says, are Republicans, and they feel that the GOP will protect their interests on Capitol Hill better than Democrats would. Yet, Kane does not see an organized conspiracy to manipulate voters before the election. "I doubt there was even one phone call," he says.

"We're seeing a coordinated campaign, but it's not a conspiracy. It's just everybody knowing what benefits them. It's a question of all the parts of the machine turning in the same direction at the same time."

Kane is not sure whether gas prices will go back up after November, but he does think prices will be more volatile, swinging up and down in unpredictable bumps that will jar consumers' nerves and create uncertainty in the economy.

It's a pretty safe bet that today's low gas prices are not here to stay. So fill up now while it's still cheap, because we're not likely to see $1.89 gas again for a long time.

Drivers might think that sounds like pretty bad news. But if the public ever comes to accept that peak oil is coming soon, then Americans will realize that low gas prices are really very bad news.

If America is addicted to oil as President Bush has said, then to kick our addiction we'll need to cut our oil use. Instead of feverishly drilling so we can continue to drive with abandon, we should radically reduce our energy use while finding clean alternatives to oil for the energy we'll still need.

One thing that free-market types have correct is that high prices tend to decrease demand and cause businesses and consumers to seek alternatives. That's why gas at $10 a gallon may actually be the best news for America in the long-term. It will put us on a crash energy diet that we should've started a long time ago.

Sunday, September 24, 2006

Get ready for oil supplies to dwindle, experts warn

Some observers predict a social and economic meltdown as severe as the Great Depression

By Scott Simpson

Crude oil makes Kjell Aleklett think about wild strawberries.

Aleklett, a Swedish professor of physics, sees inescapable similarities between the steady depletion of the world's most coveted energy source and the foraging habits of berry afficionados.

"In Sweden we have strawberry fields where you can go out and pick for yourself. If you go out there in the morning there is a possibility that you can pick a big volume of strawberries. But the first picker picks the big ones. The last one is left with the small ones. It's very much the same thing when it comes to the production of gas and oil.

"The goodies, the big ones, have been picked. It's true all over the world. Now we have to stick to the small ones. That means it's harder to fill the basket."

Aleklett made his comments during an interview in Vancouver, where he recently gave a speech on the future of global crude oil supply to the annual conference of the international Pulp and Paper Products Council.

Aleklett is a sought-after speaker on this topic -- he is founding president of an ad hoc group of academics, geologists and politicians who have formed the Association for the Study of Peak Oil (ASPO for short).

The U.S. House of Representatives is among the groups that have invited Aleklett to present his message.

The basic notion is that the world's oil producers are close to an absolute peak in terms of the volume of oil they can put onto the market in a given year.

Once that moment arrives, annual crude oil output will begin a long decline -- with grim consequences for national economies.

Aleklett believes the peak could arrive as soon as 2008 -- and that the struggle to adjust to the new energy reality could take 20 years, posing enormous challenges for developed nations.

Some observers suggest that the decline will prompt an economic and social meltdown on a scale last experienced in the Great Depression -- or perhaps when the Black Death swept across Europe in 1347.

Even the International Energy Agency, which mulls global oil issues on behalf of Canada and 25 other developed countries including the United States, Great Britain and Japan, is exploring "barbarization" scenarios in which billions of people starve, national governments collapse, economies are forced to deindustrialize, and many regions of the world return to "semi-tribal or feudal social structures."

"Oil wars are certainly not out of the question," says the U.S. Army Corps of Engineers.

Each day the world gulps down 82 million barrels of oil -- virtually the same amount that is produced.

The United States Energy Information Agency projects consumption to increase to 103 million barrels per day in 2015, and 119 million barrels each day by 2025.

That means global production must increase by 45 per cent -- about five times the maximum annual output available from Alberta's oilsands -- just to keep pace with ordinary economic growth.

There's just one problem.

No one can say with confidence where all that extra oil will come from.

It has been 57 years since Shell Oil senior geologist M. King Hubbert asserted in the journal of the American Association for the Advancement of Science that the dominance of fossil fuel in the global energy mix is just a tiny "pip" in the course of human history.

Hubbert attributed skyrocketing world population and U.S. industrial growth since the 1800s to an exponential increase in energy consumption, driven by cheap and abundant fossil fuel.

"The events which we are witnessing and experiencing, far from being 'normal,' are among the most abnormal and anomalous in the history of the world."

Hubbert said global consumption of fossil fuel rose from an estimated 300 kilocalories per person per day in 1800 to 9,880 by 1900 -- and 129,000 in the U.S. by 1940. (The current number in Canada and the U.S. is 200,000 per day).

Hubbert said sustained consumption at those levels was a "physical impossibility" because our oil, coal and natural gas spree "can only happen once."

Energy is so fundamental to human activity that "the future of our civilization largely depends" on preparing for a post-oil world.

"Cultural degeneration" was possible, he said, with our descendants living at "the subsistence level of our agrarian ancestors."

Six years later, Hubbert followed up with a paper that correctly predicted that oil production in the U.S. would peak in the 1970s.

ASPO members say the world must accept that the supply of its preferred source of energy is topping out -- and move quickly to figure out what comes next.

Aleklett says not even Saudi Arabia, the world's leading crude oil producer, can meet more than a fraction of all the new demand that's expected if the world maintains its current rate of economic growth.

Venezuelan heavy oil and Alberta oilsands are perceived as rich new sources of crude, and there's optimism that deep sea exploration will yield new reserves.

But Aleklett says those efforts may serve only to maintain existing production -- and cannot meet exploding demand growth in the developing world, including an expected five-fold increase in oil consumption by China and India.

China has 21 per cent of the world's population but at present consumes only eight per cent of its annual production of crude oil.

"Should they be allowed to use 21 per cent of the oil produced in the world since they have 21 per cent of the global population?" Aleklett asks.

"They will do whatever they can to make it happen. I have had discussions with leaders in China, with advisers to the president, about peak oil and they said they know about peak oil and they will act accordingly."

CIBC World Markets' chief economist Jeffrey Rubin has been portraying peak oil as a foregone conclusion for a couple of years in the company's provocative Occasional Report series.

Rubin thinks the peak year for cheap, conventional and easy-to-develop sources of crude oil was 2004, and that significant new additions to oil supply will come from unconventional sources such as the deep ocean and the oilsands -- at a much higher average price than at any time in the past.

That suggests that current high oil prices -- which may yet push the world into a recession -- are the new norm.

ExxonMobil recently concluded that about half the world oil supply needed over the next 15 years "has yet to be developed," Rubin said in a February 2006 report.

He calls the depletion of conventional oil "the elephant in the room" and noted that Kuwait's Burgan oilfield, No. 2 in the world behind Saudi Arabia's Ghawar field, "has started to run dry."

Ditto the world's No. 3 field, the Cantarell in Mexico, where production has started to drop off.

"Rising depletion levels mean, in effect, that oil firms these days must run faster just to stand still," Rubin wrote.

A scenario that is potentially more ominous for Canadians and Americans, who are the world's largest per-capita consumers of oil, is a new paradigm in which 80 per cent of the world's future supply is in the hands of nationalist-minded governments -- rather than multinational oil companies who could finesse it back into the automobiles of North American motorists.

Some expert sources are suggesting that a global recession could turn out, in relative terms, to be the best-case outcome. They are urging governments to act immediately to ensure an orderly transition to other kinds of fuel.

Former governor-general and Manitoba premier Edward Schreyer, an economist by training, presented a paper titled Global Energy Crisis Emergent to an ASPO workshop in May 2005.

He said the world's oil supply situation "is building up to a scenario which has all the signs and omens of a global energy crisis -- impacting in a way which challenges our imagination."

"This sobering story is now before our eyes playing out toward an ever more dangerous, and increasingly more likely, tragic conclusion here in the first quarter of the 21st century."

In a recent interview with The Vancouver Sun, Schreyer said "there are many, many geologists, lifelong petroleum engineers, who are saying that we can stand on our heads if we want, and the world simply cannot produce more than 80-something million barrels a day."

That doesn't mean that the world is running out of oil, Schreyer adds, only that the expertise to extract it has reached its limit.

For example, a typical Albertan well that has ceased to produce oil still contains half of its original reserve of oil -- but pressure inside the well has dropped too low to allow any further oil to be pumped out.

A more immediate concern, recalling Kjell Aleklett's anecdote about strawberries, is that new wells are smaller and less productive than those developed 10 or 20 years ago in Canada's greatest oilfield, the Western Canada Sedimentary Basin.

Records of the Canadian Association of Oilwell Drillers and Contractors show that drilling activity is up 25 per cent in Alberta since 1997.

However the actual volume of oil produced by that province is declining at the rate of about three per cent per year -- reflecting a trend that is echoed in conventional oilfields across North America and around the world.

"Drive through the southern stretches of East Texas and you will see graveyards of oil pumping equipment, processing tanks and the like, and you will understand the full meaning of an oil region coming to the end of its days," said Schreyer.

He believes there is "a rude awakening" in store for nations and for corporations that haven't made preparations for dealing with the situation.

"What we are witnessing now is that virtually three-quarters of the important oil producing countries of the world are now past their peak. There is no argument about it whatsoever.

"What is under argument is how soon the remaining one-quarter will be able to slightly escalate their production. But even those oilfields won't last forever."

University of British Columbia civil engineering associate professor Robert Millar reckons that the peak is here now -- but even if he's off by a few years, he said, consumers are beginning to get a sense of what the impact will be upon their pocketbooks.

"Global production has been flat now for a year and a half or more, and demand continues to climb with world economic growth. We are seeing the consequence of that with higher prices," said Millar.

He believes oil prices must remain high -- or climb even higher -- in order to slow the pace of consumption. "It's hard to conclude that we are not looking at substantially higher oil and fuel costs in the future."

Even some of Canada's most bullish oil-watchers are conceding that the peak oil argument has merit.

Vincent Lauerman, senior economist for the Canadian Energy Rese0arch Institute, and author of CERI newsletter Geopolitics of Energy, isn't quite ready to sell his car, but he agrees that the cost of running it has taken a permanent increase.

Lauerman said his outlook became more cautious after he heard a presentation by Jeremy Gilbert, the former chief petroleum engineer for British energy multinational British Petroleum (BP), at CERI's annual oil conference in Calgary. "He was excellent. At that point I was definitely a resource optimist. But after hearing him, pondering and doing some further reading, I have joined the moderate camp," Lauerman said.

From a Canadian perspective the peak may be further away than some imagine -- particularly because world prices have moved well past the point at which more costly and unconventional reserves can be developed.

"Once you get up to $40 a barrel, it opens up a lot of oil that wasn't even considered viable until the last couple of years. The prime example are the oilsands in northern Alberta."


A large deficit in global oil supply is predicted by 2015, according to chart provided by University of B.C. civil engineering associate professor Robert Millar, based on numbers from Association for the Study of Peak Oil.

Projected annual shortfall in oil supply by 2015:

- 22 million barrels per day, or eight gigabarrels per year, an amount that is equivalent to current total U.S. oil annual consumption.

That shortfall is also equivalent to:

- 13 times the projected 2006-2015 production increase from Alberta oilsands (according to Canadian Association of Petroleum Producers, 2005)


- 220 large (100,000 barrels per day) refinery plants converting coal into liquid fuel.


- 10 times the global vegetable oil production that could be converted to biodiesel fuel


- 1,500 one-gigawatt nuclear power plants.

Ran with fact box "2015 Projected Global Oil Supply Deficit", which has been appended to the end of the story.

The Collapse of Civilisation

By ? Jensen

It’s not possible to talk deeply about the US invasion of Iraq without talking about perception, entitlement, and the end of civilisation. On September 11, 2006, George W Bush said, of the US invasion of Iraq and more broadly what he calls the “War on Terror,” that, “In truth, it is a struggle for civilisation.”

Throughout that speech, as he has done throughout the past several years, he repeatedly framed his invasions of both Afghanistan and Iraq as defensive wars.

There’s a sense, of course, in which Bush is lying. And there’s a sense in which these sorts of lies aren’t uncommon: much of politics and history consists of these lies. As Robert Jay Lifton, probably the world’s foremost authority on the psychology of genocide, has made clear, before you can commit any mass atrocity, you must convince others and especially yourself that what you’re doing is not an atrocity, but instead beneficial. So Hitler was not, from his own perspective, killing Jews and committing genocide; he was purifying the Aryan “race”. Americans weren’t killing American Indians and committing genocide; they were fulfilling their Manifest Destiny. EuroAmericans weren’t enslaving Africans and committing genocide; they were helping the Africans: slavery, as one 1830’s philosopher put it, “has done more to elevate a degraded race in the scale of humanity; to tame the savage; to civilise the barbarous; to soften the ferocious; to enlighten the ignorant, and to spread the blessings of Christianity among the heathen, than all the missionaries that philanthropy and religion have ever sent forth.”

Today, industrialised nations don’t exploit colonies, they “help Third World Nations develop.” So, of course, Bush can’t just come out and say he’s ordering mass torture of suspects (instead, he’s “protecting our security”) or that he invaded Iraq to steal oil: even Hitler said his invasion of Poland was defensive and that Poland
attacked first.

This works on a personal level, too. Every jerkish action I’ve ever committed I’ve had fully rationalised beforehand, no matter how much I’m able to later see how awful I may have been. Our capacity for self-delusion is extraordinary.

But it’s not necessarily all self-delusion. The psychiatrist RD Laing, in The Politics of Experience, made the observation that people behave according to how they experience the world. There’s a great line by a Canadian lumberman: “When I look at trees I see dollar bills.” If when you look at trees, you see dollar bills, you’ll treat them one way. If when you look at trees, you see trees, you’ll treat them another. If when you look at this particular tree, you see this particular tree, you’ll treat it differently still. Likewise, if when Bush looks at Iraqis, he sees terrorists standing in the way of his version of freedom and democracy — or simply in the way of his access to oil — he’ll treat them as he has.

And he probably does perceive them this way. Entitlement does strange things to perception. It seems to me that entitlement is key to nearly all atrocity, and that any threat to perceived entitlement provokes the sort of hatred Bush has become known for. Europeans felt they were (and are) entitled to the land of North and South America, indeed the world. The British certainly felt they were entitled to India and Indians. Slave-owners felt and feel they’re entitled to the labour (and the lives) of their slaves. Americans act as though we’re entitled to consume the majority of the world’s resources, and to change the world’s climate. Industrialised humans act like we’re entitled to anything we want on this planet.

So long as this sense of entitlement remains invisible to those reaping its benefits — so long as this entitlement isn’t seen as such but rather is described as “economics,” or “religion,” or “tradition,” or simply “the way things are,” and most especially so long as those to be exploited don’t actively resist — exploiters don’t have to think much about those they’re stealing from. But let the rationalisations begin to fall away, or more to the point, let their victims begin to fight back, and suddenly we see the truth of Nietzsche’s line: “One does not hate so long as one despises.” Another way to say all of this is that if the rhetoric of superiority works to maintain entitlement, hatred and direct physical force remain underground. But when that rhetoric begins to fail, force — and hatred — waits in the wings, ready to explode. As we see.

The self-perception of those who run the US is that it’s entitled to whatever resources it needs, wherever it may find them. So long as everyone goes along with this — so long as there isn’t too much trouble in the colonies; so long as the US is allowed to steal everyone else’s resources (importation is the preferred term in polite circles) — there’s no need for aggressive rhetoric, and the troops (there must always be troops) can keep their guns holstered. But threaten their access to oil (their oil, from their perspective) no matter whose land it may be under) and watch the depleted uranium fireworks begin.

This brings us back to Bush’s comment, that this is a struggle for civilisation, and to the sense in which he wasn’t lying, even to himself. All empires — indeed all civilisations — are and must be based on the ever-increasing forced importation of resources from ever-expanding regions of increasingly-exploited countrysides. The British empire was based on the exploitation of the colonies as was the Dutch empire as surely as is the American empire. German Reichskanzler Paul von Hindenberg described the relationship perfectly: “Without colonies no security regarding the acquisition of raw materials, without raw materials no industry, without industry no adequate standard of living and wealth. Therefore, Germans, do we need colonies.” Of course someone already lives in the colonies, but that evidently is not of any importance.

The Age of Empire — the age of growth — has reached its endgame. Native forests have been destroyed, rivers dammed and murdered; 90 per cent of the large fish in the oceans are gone; oil extraction has either peaked or will peak very soon. The world is dying. Or rather being killed.

I don’t believe Bush is quite so stupid as he often seems. Even he — or at least his advisors — must recognise that a system based on perpetual growth and the perpetual importation of resources cannot survive on a finite planet. Even he, or his advisors, must recognise that any way of living based on nonrenewable resources such as oil cannot last. In this sense when Bush says the invasion of Iraq “is a struggle for civilisation,” he is for once telling the truth: in a world of dwindling resources, the American Empire needs access to this oil. Because they perceive themselves entitled to maintain their lifestyle no matter what the cost to others and to the earth — never forget Dick Cheney’s statement that the American way of life is not negotiable. And because this entitlement will increasingly be threatened not only by those who do not wish their oil or other resources stolen but also by the depletion of resource after crucial resource, we can all expect repeated episodes of the sort of hatred and mass violence perpetrated by Bush and his kind, as the American Empire tries increasingly desperately to maintain something which can no longer be maintained.

(Jensen is an American author and environmental activist. His last work was a two-volume series titled Endgame.)

Saturday, September 23, 2006

Peak Oil Passnotes: Why Is Oil at $60?

Resource Investor

By Edward Tapamor

When a commodity or a stock moves fast we tend to get very excited. We hope to discover whether or not it has made some kind of quantum leap or is just part of a long term trend. So what the heck is happening to crude oil? Is this a slip? A correction? Or gigantic profit taking? Or none of the above?

Since we last wrote this column oil has continued its most excellent nosedive, actually breaching the $60 at $59.80 intraday this week. Just six weeks ago it was busting out at $78 and everyone – this commentator included – thought it was only a matter of time before $80 oil arrived.

We did also think that before it hit $80 there could well be a pull back, $64 maybe, $62 possibly. But the recent declines have been savage. There are many factors that have precluded this fall in price but one that most people have forgotten – amidst Iran, the UN and Hugo Chavez – is the end of the effect from Katrina.

The effects of Katrina lasted a long time. In the first three months of this year they were still heavily in evidence. Damaged refineries sat along the Gulf of Mexico coast, it exacerbated the flood of cash that came back into the market following the Christmas bonus season.

The tightness in the supply of gasoline to the U.S. was compounded through the year to June. It hung around until summer picking up other items like Iran, Lebanon and so on. But sitting high in people’s mind was that the effect of Katrina, plus the cost of the repairs, could be thrown away by another hurricane season like the one in 2005.

Almost a year from the formation of Katrina, tensions in the oil market reached their highest. Oil was busting its gut on August 8th and 9th. Many people had almost assumed that hurricanes were going to come crashing through on top of all the problems that existed. But they did not.

So it is this commentator’s view that oil has had a temporary correction. One that may still be ongoing. But this is not some kind of major sidestep, we are not heading back to $40. Instead we are seeing the collapse of multiple worries all at once. Although too late for the 1200 dead there is a UN force in southern Lebanon. For now Iran seems fairly safe from attack, at least until next spring.

But most of all the expected return of hurricanes to the Gulf of Mexico has not happened. The possible effect of another Katrina, destroying hundreds of millions of pounds of repairs - so shortly after the repairs had been undertaken - was a massive problem at the back of the mind of the market.

One by one the problems underpinning the rise in the price of crude melted away and we saw the first set of falls to sub $70 around the turn of the month. The absence of hurricanes and the effective sanctity of the value of the repairs from Katrina were now safe in the bank.

This culminated in the return of our herd mentality and the profit taking surge. Remember we said the market would sit around $61 at Christmas time? Well it just happened three months early. As we write West Texas Intermediate sits at $61.

So where will it go now. After all we got our timing wrong so why not just get the whole shooting match wrong. Will oil be at $40 by Christmas? It does not look like it.

Short of the publicised start of some kind of new recession we are now looking at a base price of around $57/$57.50. At that price, crude has to be a buy. The market has seen a combination of events that had both instant effect – relative peace in Lebanon, possible talks in Iran, a slowdown of disruption in Nigeria – and the resolution of long standing others, namely the prospect of Katrina 2. It has also seen that despite all the problems around the world, no one has yet run out of oil to any great extent.

But upper boundaries are tempting. The profits they give are monumental. We will almost certainly see the same volatile surge, but this time upwards, once the down point has been touched. The problems in the world will not go away; we could still have a harsh winter like we had a hot summer.

What we have now is a moment of super volatility. Where ranges are broad sweeps, like the volume of cash in the market, like the money that can be made. Will be made.

The gusher paradox


By Andy Serwer

The recent discovery of a massive oilfield under the Gulf of Mexico appears to be a godsend for our crude-hungry country. It's not that simple, however. The new deep-water find is a pointed example of the way elevated oil and gas prices always seem to lead us to new technologies and, eventually, to renewed supplies. But one giant new gusher does nothing to get us off the gerbil wheel of ever more consumption creating ever more demand.

In case you missed it, in early September a consortium of Chevron, Devon Energy, and Norway's Statoil announced it had struck oil at the Jack No. 2 well, some 170 miles southwest of New Orleans and 29,000 feet down through water and earth. Geologists estimate that the area contains anywhere from three billion to 15 billion barrels.

If the find comes in at the upper end of that range - and of course the oil whisperers believe that will be the case - it will be the largest U.S. oilfield. (Alaska's Prudhoe Bay, where BP recently had some pipeline problems, is currently the biggest, with some 12 billion barrels produced.) The deposits could increase U.S. reserves, now at about 29 billion barrels, by 50%. No wonder the strike added to the downward momentum on oil prices: Since peaking at $77 in mid-July, the cost of a barrel of crude has fallen below $64.

If you're looking for a market winner in this news, the best bet is the smallest member of the exploration group, Devon. With a market cap of nearly $30 billion, the Oklahoma driller is hardly a pipsqueak. But it's no $137 billion behemoth like Chevron either. (Devon owns 25% of the Jack project, Statoil has another 25%, and Chevron has 50%.)

The "Jack prospect" appears to validate the aggressive growth strategy of Devon's chairman, CEO, and co-founder J. Larry Nichols. For 35 years, he has focused on opportunistic acquisitions and ambitious drilling projects in the Gulf of Mexico.

"We're smiling, but we aren't celebrating yet," Nichols, 64, told me the other day. "We still need to spend a considerable sum of money and solve some technological issues. It will take years." Nichols couldn't even begin to tell me what the cost per barrel would be, but he insists that the project will be viable.

Before you go gaga for Devon, though, consider this: Yes, after spiking to an all-time high on the news, the stock has now fallen six bucks to $66. But it's up more than threefold over the past five years.

And then there's the real question: Just how big is the field? "Of course this discovery was great news for Devon," says Fadel Gheit, veteran Oppenheimer oil analyst. "But all we know now is that Devon has a fish on the line. Is it 500 pounds or five pounds? It's too early to tell."

Just finding the oil represents a major technological breakthrough. More than five miles below the surface of the gulf, the wells will be the deepest on earth. Less than a decade ago this oil would have been considered untouchable.

But in 2000, new-generation drill ships were launched that allow for exploration in water up to 10,000 feet deep. And the seismic technology that penetrates the thick salt layer that covers this section of the gulf oilfields is also brand-new. "Before that technology you'd just have been drilling blind," says Nichols.

I happen to be reading Matthew Simmons's Twilight in the Desert, which describes how Saudi Arabia in particular and the world in general are running out of oil. This "peak theory" of oil (as in, the world has achieved peak production) would seem to be off base with the discovery of a 15 billion-barrel oilfield. And, as Nichols points out, oil alarmists have been sounding the same bell for decades.

But I'm not sure that we should be so quick to dismiss the peakists. At some point they will be right, and I believe it's important to act as if they already are. Pursuing petroleum at any cost overseas, and even domestically, exposes us to all sorts of risk and merely makes it easier to avoid the tough steps that could reduce our dependence on oil.

So congrats to Larry Nichols and his partners. I hope they get 15 billion barrels out of the gulf and more. But I'll be even more fired up when some engineer builds me an SUV that gets 100 miles to the gallon.

Friday, September 22, 2006

The Peak Oil Crisis: A Report to the Senate

Falls Church News-Press

By Tom Whipple

Last fall Australia’s Senate, concerned about the future of the country’s oil supply, directed a standing committee to conduct an inquiry. The Committee was charged with investigating projections for the production and demand for oil inside Australia and globally, and the implications for the availability and price of transportation fuel. In essence, the Committee was asked to investigate peak oil.

To gather information, the Committee advertised hearings and wrote to many organizations inviting submissions. In response came 192 written replies from all over the world. The Committee also held nine public hearings. Two weeks ago the preliminary findings were issued as an interim report. A final report is to be released next month.

This report to the Australian Senate is important in that an independent public body, after reviewing a wide range of evidence for and against the imminent peaking of world oil production, has reached conclusions and made recommendations.

The report is refreshing in that it approaches peak oil backwards. Instead of launching into the reasons many believe world oil production will peak soon, the report begins by reviewing the reasoning behind the “official” predictions that it won’t.

The “official” arguments that most governments, oil companies, and international organizations use to argue that there are many decades of increasing world oil production ahead are roughly as follows:

• Estimates of world oil reserves continue to grow faster than the 31 billion barrels we consume each year.

• The US Geological Survey (USGS) estimates that there are still another two trillion barrels of conventional oil under ground — either in known reserves or waiting to be discovered. High prices and improving technology will allow this oil to be discovered and brought to market.

• Current high oil prices are an aberration caused by a rapid, unexpected increase in demand, particularly from China, and the lack of sufficient investment to satisfy this demand in recent years.

• Tar sands, heavy Orinoco oil, and shale are cited as yet another reason there is even more oil left to be exploited.

The critique of the “official” government and oil industry predictions by peak oil proponents starts by noting that their estimates of recoverable reserves are simply over-optimistic and that a geologic peak for conventional oil is likely somewhere in the next 25 years.

Peak oil proponents cite the following:

• World discovery of oil peaked in the 1960s. The world is presently using oil faster than it is finding more. Production in many major oil-producing countries is in decline.

• Oil reserves reported by Middle East countries are self-serving and untrustworthy. State-owned oil companies do not release detailed production data and do not permit independent audits.

• The USGS estimate of world oil reserves, made in 2000, is “thoroughly flawed.” The estimated extrapolated US experience, under which new fields were assessed conservatively and then allowed “to grow” over time, is criticized as not being applicable when the oil fields being found today are much smaller than those found in the past. If the USGS projection that there are still some two billion barrels of conventional oil underground is true, the world would be finding far more oil than it is today.

• The critics of the “official” predictions note that while 500-600 billion barrels of non-conventional oil exist, the difficulty, cost, and environmental problems associated with exploiting this oil is so great that it is largely irrelevant to offsetting large declines in conventional oil production that are expected shortly.

In commenting on the two positions, the Senate Committee made some interesting observations. Those who assert that imminent peaking of oil production is unlikely commonly assert that increasing oil prices will bring more exploration and a higher rate of recovery from existing fields. The Committee notes that the increasing costs associated with advanced oil recovery techniques, such as ultra-deep drilling, may be reaching a point where the costs outweigh the benefits.

In one of the more telling findings, the report comments: “peak oil proponents have criticized official estimates of future oil supply with detailed and plausible arguments. The Committee is not aware of any official agency publications that attempt to rebut the peak oil arguments point by point in similar detail.”

The major finding of the report is stark and simple. “In the Committee’s view the possibility of a peak of conventional oil production before 2030, even if it is no more than a possibility, should be a matter of concern. Exactly when it occurs (which is now very uncertain) is not the important point. Australia should be planning for it now, as Sweden is doing with its plan to be oil free by 2020.”

Other findings also show a sophisticated grasp of the issue. “If the price of oil declines in the next few years . . . this does not dispose of peak oil concerns. Peak oil is a different and much longer term concern.”

In subsequent chapters, the report goes on to examine the social impact peak oil will have on Australia, and what can be done from the supply and the demand side to mitigate the situation.

After noting that almost no thinking has been done beyond 25 years from now, the Committee notes, “in view of the enormous changes that will be needed to move to a future that is less dependent on conventional oil . . . longer term planning is needed.”

About Abare
The Australian Bureau of Agricultural and Resource Economics (ABARE), located in Canberra, is an Australian government economic research agency noted for its professionally independent research and analysis. ABARE employs around 150 staff comprising economists, statisticians, modelers, mathematicians and support staff.

Thursday, September 21, 2006

Meeting 'peak-oil threat' will cost $20tn: US

Gulf Times

The world needs to spend $1tn a year in alternative fuels, starting 20 years before the peak in conventional oil production, in order to mitigate fuel shortages, a US Energy Department study showed.

Production peaks in Texas, the UK and Norway were examined as part of two studies for the department that advised on “crash course’’ efforts to cope with an eventual shortage of gasoline and other liquid fuels.

The study, led by Robert Hirsch, didn’t predict when world production will peak, though Hirsch told reporters his guess is “within the next five to 10 years.’’

“Conventional oil will peak at some point,’’ Hirsch said at the Oil and Money Conference in London. To lessen the impact, “we have to start a long time before the peak or we’ll have severe liquid fuels shortages worldwide.’’

Conventional oil production peaked in Texas in 1972, North America in 1985, the UK in 1999 and Norway in 2001, and all of those peaks were “sharp and sudden,’’ he said. To offset losses when world output peaks, “unconventional oil’’ will need to be rapidly developed, including heavy oil, oil sands, coal liquefaction, gas-to-liquids and enhanced oil recovery. Vehicle fuel efficiency will need to be improved.

Hirsch, who is a senior energy programme adviser at research and engineering firm Science Applications International Corp, said the effort required is similar to “the race for the moon, or the mobilisation for World War II’’ and consumers can’t rely on oil companies alone to make the right decisions and investments.

“The market is moving into a number of these things but at a rate which is determined by risk and public perception,’’ he told reporters. “The character of this problem is so large and time-consuming and difficult that we’ve got to move away from business as usual and move to a crash program, otherwise we are not going to be able to replace or save the volumes necessary.’’

Governments will likely take different approaches because some are less self-sufficient than others, putting them more at risk of economic failure, he said.

Oil company executives have typically downplayed the peak oil theory, saying that there are plenty of resources in the ground. At the same time, executives such as Chevron Corp vice-chairman Peter Robertson have noted shortages of equipment and skilled labour, and restricted access to resources in some countries.

“It’s not that it’s not out there, but converting it from a resource to a reserve and a reserve to production capacity is a very slow process,’’ Sadad Ibrahim al-Husseini, retired executive vice-president at Saudi Aramco, the world’s biggest oil exporter, told reporters at the conference.

“There is no reason to panic if you have a strategy, but if you leave it to the market to decide you are going to have these ups and downs, with repercussions on the economy,’’ al-Husseini said. “Getting the strategy right means you start early.’’

Using the lower 48 states of the US as a model, Hirsch’s study based calculations on a 2% annual decline in world production once the peak is reached, leading to a large global shortage 20 years later. Field declines may well be quicker, he said. – Bloomberg

Wednesday, September 20, 2006

Those quick to deride peak oil theory also don't know Jack

By Barrie McKenna

A chronic pitfall for economists is that the daily deluge of data often obscures more meaningful long-term trends.

Even months of data can seductively point to a conclusion that doesn't stand the test of time.

It's that old adage of not seeing the forest for the trees.

Consider oil. The flavour of the month is to dump on the peak oil thesis -- that world oil production has maxed out and is condemned to fall.

As the price of crude climbed ever higher last year, peak oil was all the rage. The conventional thinking then was that we were condemned to paying high prices because the world isn't finding adequate new supplies of oil and gas to meet burgeoning demand -- in Asia, North America and elsewhere.

In the past few weeks, as the price of oil has plunged more than 20 per cent from July's record high of more than $78 (U.S.) a barrel, economists have begun to second-guess and even joke about what last year was considered sound analysis.

On Friday, BMO Nesbitt Burns issued a report about the implications of cheaper oil titled Trough Oil Theory. After Chevron announced its recent big Jack 2 oil discovery in the Gulf of Mexico, The Globe and Mail's headline the next day was: "Peak oil theorists don't know Jack."

With oil now in the low $60 range, many economists are rethinking their assumptions of last year.

They are second-guessing the potential of Alberta's oil sands. The Prius and other fuel-efficient technologies may be just passing fads. And the world may go on guzzling like there is no tomorrow because oil will always be cheap and abundant.

The problem in all this is that the peak oil theory isn't about $78-a-barrel oil. And the price of abundance isn't necessarily $63.

The factors that pulled oil futures prices from $78 to $63 are short-term realities in a very long cycle. The forecasted hurricanes never came. Chevron hit pay dirt. Iranian President Mahmoud Ahmadinejad was suddenly sounding less like Dr. Strangelove on his nuclear intentions. Members of the Organization of the Petroleum Exporting Countries met in Vienna and said they won't lower production quotas.

BP said its leaky pipes in Prudhoe Bay might be on-stream earlier than first thought. The global economy looked to be on a downward slope, taking a bite out of demand.

Perhaps most importantly, oil follows seasonal patterns. And without a major hurricane, U.S. oil demand typically shrinks at this time of year because the summer driving season is over and the winter heating season is still months away.

All these things are really just trees, obscuring the view of the horizon. Don't let them trick you into thinking the landscape has fundamentally changed since mid-August.

If the past couple of years have taught us anything it is that oil prices are volatile and prone to speculation. They are "futures," after all. The typically quoted daily price of oil is actually a prediction of where the price will be a month from now.

Long-term futures prices of oil remain significantly higher. Futures prices for most of 2007 and 2008 suggest crude will stay near $70 a barrel.

And don't forget that even at $63, oil is twice as expensive as it was last year when the OPEC cartel raised its production to current levels. It's also twice as pricey as it was just three years ago.

A short-term reprieve would have important economic effects. Cheaper oil puts more money into consumers' pockets.

But it is the horizon that we should all stay focused on. The world's big oil fields are fewer and far between, and much more costly to locate and exploit. Many of the key producing regions remain geopolitical danger zones -- Iraq, Iran, Saudi Arabia, Nigeria, Russia and Venezuela. On the demand side, the rise of China and India as huge consumers is not a passing phenomenon. Likewise, the move to greater energy efficiency and alternative fuels won't happen overnight, even in the developed world.

So if you look carefully through the undergrowth, the peak is still there. Oil will be an increasingly scarce, and expensive, commodity.

"Peak Oil" or lots more oil?


By Alan Caruba

In May 2006 I wrote, "I know about the ‘Peak Oil' theory that says we either have or are about the reach the point of diminishing returns regarding the world's oil supply, but these recent discoveries suggest there is still plenty of oil to be found." In that commentary I documented nearly a dozen new fields of oil and natural gas discovered since 1995.

So I wasn't surprised when, on September 5, Chevron Corporation announced it had discovered new, huge reserves of oil some five miles below the surface of the Gulf of Mexico. The initial estimates were that these reserves "could boost U.S. oil reserves by 50 percent."

Good news for Americans and good news as well for other oil companies such as BP, Anadarko Petroleum, and Exxon Mobil that have their own projects in progress. Indeed, two days later, Exxon Mobil announced that its Sakhalin-1 project offshore Russia had begun to export crude oil, the eighth startup within the past year.

Suffice it to say that the new Gulf of Mexico discovery rivals that of Alaska's giant Prudhoe Bay oil field in 1968. President Bush may think we're "addicted" to oil and, along with other politicians, call for oil "independency", but the fact is we, like every other modern nation require oil for transportation, plastics, heating homes, and the countless other uses to which we put petroleum.

Recently, Abdallah Jum'ah, president and CEO of the state-owned Saudi Arabian Oil, better known as Aramco, said the world has the potential of 4.5 trillion barrels in reserves. At current levels of consumption, that's 140 years worth of oil to power the world. Even at the lowest level of estimated reserves, there's still enough until 2070 and does anyone believe we will not find more?

While the vast Middle Eastern reserves remain an important source of oil for the world, the geopolitical game just changed for the better as far as America is concerned. The Gulf of Mexico discovery insures a new degree independence and security. Think how much more we could achieve now that the twenty-five year old federal ban on offshore exploration has been lifted?

The next question is whether, for example, Florida will relent and permit more oil exploration and extraction off its shores instead of sitting around while China, in cooperation with Cuba, drills for oil? Indeed, potentially every state on the east and west coast of America could contribute to our oil independence by permitting this to occur.

The Consumer Alliance for Energy Security estimates that "The Outer Continental Shelf has enough natural gas to heat 100 million homes for 60 years and enough oil to drive 85 million cars for 35 years."

Meanwhile, the estimated billions of barrels of oil trapped beneath Alaska's ANWR are still waiting to be tapped! If we can just get the tree-huggers and their politician-pals to get out of way, we can all happily drive to grandma's house for the next generation or two.

In the September 11th edition of U.S. News & World Report, reporter Bay Feng wrote that the map of central Asia is being pored over by governments and oil company executives who call it the hub and spoke. "The hub is the Caspian Sea and the spokes are the multiple pipe lines emanating from it, representing potential export routes for the vast oil and gas resources that lie beneath."

Let me repeat "the vast oil and gas resources that lie beneath." So, while Chevron was announcing vast new oil and gas resources in the Gulf of Mexico, one leading news magazine was devoting its pages to yet another area that promises more of the same. In fact, it is believed "to be among the world's largest untapped fossil fuel resources."

We're talking about resources that are not subject to the threats that exist for those in the Persian Gulf area, the members of OPEC. Even Russia, the world's second-largest producer and exporter of oil after Saudi Arabia, and the largest producer of natural gas, will feel the competition.

The new "Great Game" of central Asia is to wean the nations in the region from their dependency on Russia to export their oil and gas. For that you need pipelines. "That's why U.S. officials," wrote Feng, "have been pushing the $4 billion Baku-Tbilisi-Ceyhan pipeline, which opened with much fanfare in July and links Azerbaijan, Georgia, and Turkey."

Places most Americans have never heard of and couldn't find on a map hold tremendous potential to relieve worldwide dependency on Middle Eastern oil and gas. Kazakhstan, the largest nation in central Asia, "has three of the world's richest hydrocarbon fields."

Meanwhile, it's worth remembering that predictions that the world was running out of oil date back to when it was discovered in 1874 in Pennsylvania. By 1920 geologists calculated the world had at best 60 billion barrels. By 1950, the world's oil supplies were estimated at 2 trillion barrels. Prior to the discovery of vast new reserves in the Gulf of Mexico, the U.S. known reserves were calculated to meet domestic needs for anywhere from 38 to 75 years.

Peak oil? A world running out of oil in our lifetimes? I don't think so.

Monday, September 18, 2006

Oil Companies Are Now Debunking 'Peak Oil' Alarmists

The Huffington Post

By Raymond J. Learsy

"That argument known as peak-oil theory has provided intellectual backing for the boom in crude prices. . ." This quote comes a September 14 Wall Street Journal article that was entitled "Producers Move to Debunk Gloomy 'Peak Oil' Forecasts" and detailed efforts by Exxon Mobil and Aramco to counter peak oil advocates.

The piece appeared more than a year after the publication of my book, "Over a Barrel," the first chapter of which challenged the notion of oil as a scarce resource. And it was published barely a week after my post, "Massive Oil Find in Gulf of Mexico Brings Gloom to Peak Oil Pranksters" 9/08/06 (you always read it first on Huffington). That post, focusing on the important Gulf of Mexico find underlined the vast potential for new oil discoveries not only in the Gulf but across the planet. The giant Gulf find serves as a harbinger of significant oil discoveries to come, and it highlights why we should all be skeptical of the peak oil theorists.

What I forgot was the peak oil pranksters view their opinions as closer to theology than theory. My Huffington article was bombarded with barbed comments and understandably self serving challenges. It was as if I had questioned received wisdom and, possibly more significantly, a key link to ever higher prices.

The truth is, the peak oil alarmists have been around in one form or another since -- or even before -- the first U.S. oil well was drilled in the nineteenth century. In 1855 when people were making patent medicine from crude oil that bubbled to the surface in Pennsylvania an advertisement for Samuel Kier's Rock Oil cautioned buyers: "Hurry, before this wonderful product is depleted from Natures laboratory!"

And so it is today with the peak oil pundits. Their convoluted geological and too-often-opaque jargon tells us as much about current world oil reserves as predictions back then, that oil in Pennsylvania would run out. It did, but by the time that occurred there was more oil around than Samuel Kier ever imagined.

Two things, though, make me nervous. According to the Journal article, I find myself allied with Exxon Mobil and Aramco on an issue. They are attacking peak oil but not because the price of crude is at stratospheric levels (even with recent pullbacks). They want policy makers and consumers to be comfortable about using oil and planning for petroleum consumption in the future. They are obviously becoming frightened that the search for oil substitutes could be harmful to their prospects in the years ahead. And, indeed, they should be. It is high time we put these modern-day robber barons out of the gouging and climate change business.

To be clear, my argument with peak oil is that it has been used as an effective yet spurious tool to ratchet up oil prices and transfer literally trillions of dollars to the myriad players of the oil industry and their hangers on -- all at our expense. I'm not arguing for lower prices so that we can use more. Given the looming disaster of global warming, it is essential that the price of oil come down and our utization of oil decline. The money now pouring into Big Oil's coffers needs to be used for more productive and environmentally urgent purposes, rather than public relations and 'K Street' lobbying billions, that are deflecting our attention from such urgent issues as green house gasses, global warming and their impact on our future.

And here's another twist: The U.S. Department of Energy, our government's ambassadorial mission to the oil and gas industry has asked The National Petroleum Council, an oil and gas research group, to investigate peak oil claims. To head this study will be none other than the "Gipper" himself, the oil industry's own Lee Raymond, the former chairman and chief executive officer of Exxon and the famous recipient of a $400 million plus retirement package. It was through his actions, by example and deed - serving as a beacon to others in his industry -- that we are now being held up at the gas pump to fatten their bottom line and make those payouts possible.

To paraphrase, "We're in good hands with the oil boys!"

Sunday, September 17, 2006

Peak oil theories wrong, says ExxonMobil boss

By Tim Dornin

THE world has an abundant supply of oil, and high petrol prices are just the reality of a globally traded commodity, ExxonMobil Australia chairman Mark Nolan said today.

Mr Nolan used his speech to the Asia Pacific oil and gas conference in Adelaide today to debunk the theory of peak oil, which suggests oil supplies have peaked and will dwindle over the next 20 years.

Such predictions, he said, had been around since the 1920s, particularly at times of high oil prices.

“The fact is that the world has an abundance of oil and there is little question, scientifically, that abundant energy resources exist,” Mr Nolan said.

“According to the US Geological Survey, the earth currently has more than three trillion barrels of conventional, recoverable oil resources.

“So far we have produced one trillion.”

Mr Nolan said the oil industry had always underestimated the extent of global resources and the ability of technology to both extend the life of existing oil and gas fields and find new ones.

“We should not forget that we can recover almost twice as much oil today as when we first discovered it over 100 years ago,” he said.

“And when you consider that a further 10 per cent increase in recoverability will deliver 800 billion barrels of oil to our recoverable total, we have every reason to be sure that the end of oil is nowhere in sight.”

Mr Nolan said that by 2030, conventional fossil fuels (oil, gas and coal) would still account for 80 per cent of the world's energy requirements.

But Mr Nolan said it was very difficult to predict what would happen in the future with both crude oil and petrol prices.

“They are both regionally traded commodities, they are priced by the market, priced by the region,” he said.

“The fuel price is ultimately driven by the source of the product, which is the crude price, and of course that is traded regionally and internationally.”

Mr Nolan's comments were endorsed by the president of the Society of Petroleum Engineers, Eve Sprunt, who said the proponents of peak oil theory often confused oil reserves with available resources.

“When you are talking about reserves, you are only talking about a very small fraction of the total resource base,” she said.

“The reserves are the portion for which the infrastructure is largely in place, the technology is in place and that can be produced at the current oil price.

“But if you are planning for the long-term energy future of your country you need to understand the resource base.”

“The whole name of the game is moving resources into the reserves category.”

Ms Sprunt said high oil prices also presented opportunities such as the viable development of other fuels.

“It's a time when new alternatives emerge,” she said.

Saturday, September 16, 2006

Peak Oil Video: Gas Prices, Supply Depletion & Energy Crisis

We are entering the Peak Oil era. The growth of oil production is slowing, driving up oil and gasoline gas prices, firing inflation, driving unemployment, straining our global economy, and threatening to collapse our entire system. We are reaching Peak Oil and we are unprepared. Teacher Aaron Wissner, in a compact 10 minutes video summary, details Peak Oil, the evidence, the impacts, and the solutions. See the full one-hour video at

Click the images to start playing.

Part 5 of 5 (These 2 parts are all that is available on YouTube at this time)

Wednesday, September 13, 2006

World May Have More Oil Than Imagined

Prensa Latina

The potential oil still to be found in the planet´s subsoil is over 4.5 trillion barrels, affirmed Abdalla Jum´ah, president of the Saudi company ARAMCO during an international oil meeting.

In his speech to the third international OPEC (Organization of Petroleum Exporting Countries) seminar, the Saudi official challenged exploration companies to find a billion additional barrels for the next quarter century.

The ARAMCO executive said the technological challenge is to extract all remaining barrels of oil lying under the earth´s surface, including non-conventional reserves as well as the progressive recovery of existing fields.

According to those calculations, there are oil reserves for at least 140 years, approximately half a century more than the quantity expected by European and US economists.

The challenge really lies in leaving the least possible amount of fuel in the depths of the planet, discovering all the barrels that can be economically extracted.

Jum´ah indicated that the steps to take would include finding new deposits, increasing rate of recovery, improving technology, reducing production and exploration costs, and benefiting from non-conventional sources like bituminous sands.

The ARAMCO director also put protecting the environment as a prime objective to eliminate the harmful impact of human activity.

Many experts agree that technology can still expand the useful life of oil world reserves, but more pessimistic specialists are convinced that the end of the petroleum era is nearer, in less than a century.

This view sustains that techniques to find fossil fuel in deep layers of the planet will only lead to a rapid depletion of reserves, implying high investment costs and harm to the environment.

Prominent CERA official: "Peak Oil theory is garbage"

By Steve Andrews

Cambridge Energy Research Associates (CERA) is a widely touted US-based energy advisor firm. They bill themselves as a source to “help decision makers anticipate the energy future and formulate timely, successful plans in the face of rapid changes and uncertainty.” One aspect of our energy future about which CERA appears certain is the concept of peak oil.

"Peak Oil theory is garbage as far as we’re concerned", said Robert W. Esser, a geologist by training and CERA’s senior consultant/director of global oil and gas resources, according to Business Week online national correspondent Mark Morrison (Sept 7).

A wide range of very serious organizations are looking at and/or have commented upon the concept of peak oil, including the National Academy of Sciences (10/05), the US GAO (11/06), and the National Petroleum Council (2/07), working at the request of US Energy Secretary Samuel Bodman. Apparently, CERA thinks that’s all a waste of time and, in some cases, tax-payer money. By inference, CERA completely discounts the considered opinions of dozens of sober individuals and firms looking into the peak oil issue. Consider just this partial list of informed (mostly US-based) commentators:

1. Fellow industry analysts like PFC Energy; Groppe Long & Littell; and Petrie Parkman & Co. Last fall, Tom Petrie said he expected peak oil by around 2010 and that he would be “shocked” if world oil production didn’t peak by 2015. In PFC Energy’s 2004 presentation on peak oil, they show world oil production peaking in the 2014 time frame; their 2006 study, to be presented at the ASPO-USA conference next month, likely points to a slightly earlier date. Henry Groppe sees world petroleum liquids production peaking by 2010.

2. T. Boone Pickens, oil industry entrepreneur with a background in geology, has stated several times that peak oil may have already arrived.

3. The Hirsch Report: with funding from the National Energy Technology Laboratory, Robert L. Hirsch and Roger Bezdek were lead authors of a 70+-page report entitled “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management.” The authors’ key concern: “Dealing with world oil production peaking will be extremely complex, involve literally trillions of dollars and require many years of intense effort.” Esser’s statement trivializes their report.

4. U.S. Congressmen Roscoe Bartlett (R-MD) and Tom Udall (D-NM) sound seriously concerned about peak oil, have been speaking out and writing about the issue, and have enlisted over a dozen colleagues to join them in the House Peak Oil Caucus. CERA would seem to be saying they’re wasting their time.

5. Denver Mayor John Hickenlooper, a former petroleum geologist, was recently quoted in a Bloomberg Markets article as saying, “I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say there is no peak is shortsighted.”

6. Former President Bill Clinton and Vice President Al Gore both recently referenced peak oil. First in June, Gore spent a minute talking it up on CNN’s Larry King Live. Then in early July, Clinton—in an interview with Atlantic Monthly—gave substantial credence to the peak oil concept. He also wondered why he had never received a peak oil briefing, given its strategic importance.

7. US cities large and small, from San Francisco and Portland (OR) to Willets and Sebastopol (CA), are leading the way in incorporating the eventual reality of peak oil in their long-term municipal planning processes.

8. Senior geologists like author Walter Youngquist (OR), Craig Hatfield (OH), Joe Riva (MD), and Jeffrey Brown (TX) have drawn attention to issues like long-term depletion, the limits to growth by unconventional oil sources, the problems with declining net-energy return, etc.

9. PhD academics like Dr. Al Bartlett (University of Colorado-Boulder) plus Robert Kaufmann and Cutler Cleveland (Boston University) have for at least two decades been pointing to upcoming problems associated with peak oil. By association, is their work “garbage?”

10. Financial analyst Jeffery Rubin—chief economist for the respected CIBC World Markets—foresees a peaking in world oil production between now and the end of the decade. Eric Sprott, Sprott Asset Management, has over $1 billion of his firm’s assets invested in areas that will benefit from peak oil.

11. Matt Simmons, chairman of Simmons & Co Int’l and author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” speaks more frequently about the peak oil story than any other respected executive in the country.

12. James Mckenzie, in his work for World Resources Institute, published a study in 1996 showing a peaking in world oil production in 2014 (plus or minus about five years, given three different scenarios).

13. Editorials and features in newspapers and major magazine cover the peak oil story. If, as CERA asserts, that story is “garbage,” why did a respected publication like Bloomberg Markets devote eight pages to this story in their September issue?

14. Richard Rainwater, a Texas-based billionaire investor, made piles of money by foreseeing, back in the mid-1990s, that oil prices were eventually headed strongly up due to long-term limited production vs. demand. Now he worries in the pages of Fortune magazine about the potential social costs and consequences that he believes peak oil could precipitate.

15. Sadad al Husseini, Saudi Aramco’s former head of exploration and production, wrote last fall that world oil production would peak and plateau by 2015, at between 90 to 95 million barrels a day.

16. French oil firm Total’s CEO Thierry Desmarest has broken ranks with other CEO’s of major oil companies by forecasting a 2020 peaking for world oil production. (From 1996 – 2000, several BP players forecast a 2010 peak; since 2000 they no longer mention a peak.)

17. Chris Skrebowski, editor of Petroleum Review, uses an analytical technique similar to that of CERA—following production trends and projections vs. following stated reserves. He sees a peaking in world oil production around 2010-2011.

18. Pang Xiongqi, professor at China’s University of Petroleum in Beijing, expects Chinese production to peak in 2009 and world oil production to top out in 2012.

19. The Oil Drum, perhaps the most rigorous website covering the peak oil story, includes a host of writers and researchers who research and write timely commentaries.

20. ASPO-USA foresees a peak between now and 2015. We believe there are too many variables, especially growing non-geologic factors, to forecast a date. However, given the Hirsh Report’s warning about lag time for mitigating actions, we’re close enough to peaking that trying to pick a precise date is irrelevant.

There is a bottom line here for people trying spot the signal vs. the noise here. Ask whether the risk is greater if decision-makers act earlier based on the views of peak oil “concernists,” or if those decision-makers accept the notion that “peak oil theory is garbage” and defer action beyond granting oil companies access to resources and simply letting markets work.

Steve Andrews is a co-founder of ASPO-USA. He has followed the building peak oil story since the early 1980s.

Thursday, September 07, 2006

The Peak Oil Crisis: The Word Begins to Spread

Falls Church News-Press

By Tom Whipple

The world oil situation is quiet at the moment. Oil prices have dropped to their lowest level in 15 weeks due to the lack of any imminent geopolitical threats or looming hurricanes. The Iranian nuclear enrichment situation seems to be on hold for awhile as the US can't convince China, Russia, Japan and a lot of European powers that the world would be better if only the UN imposed harsh sanctions on Tehran thereby forcing them to limit oil exports in retaliation. However, we earthlings are still draining off our finite oil supply at the rate of 85 million barrels a day (b/d) so things are bound to get interesting again somewhere down the line.

There are two parts to the peak oil story. First, is the peaking of world oil production itself and the accompanying economic, political, social, cultural, and you-name-it shocks that will precede, accompany, and last long after the peaking. The second is universal recognition of what is going on and the serious efforts to do something about living with less oil.

At 1,000 barrels a second or 31 billion barrels a year, we are moving nicely towards peak production, so there is little we have to do to get there. Recognizing there is a world-class problem in the offing clearly is another story. While a handful of magazines and a few large-circulation, influential newspapers have carried scattered peak oil stories for some time now, many of these been in the vein of "we might be hit by a giant meteor/earthquake/tsunami or bird flu" any minute now, or long after we are dead. In either case there is nothing we can do about it. Things may be changing.

Last week Bloomberg, "the leading global provider of data, news and analytics," published a balanced, carefully researched, 4,200 word article on peak oil. For those of us who follow the peak oil story, this was an event of earth shaking proportions.

Keyed on the July meeting of the Association for the Study of Peak Oil (ASPO)in Italy, the article covers most aspects of the peak oil story including extensive quotes from all sides of the issue. The piece is entitled "Peak Oil Forecasters Win Converts on Wall Street to $200 Crude."

The author, Deepak Gopinath, captures the essence of peak oil in one succinct paragraph:

"Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow."

Gopinath strengthens the credentials of peak oil by pointing out that the US Secretary of Energy has asked the National Petroleum Council to look into the matter; the US Government Accountability Office is scheduled to release a study on peak oil in November; and the US House of Representatives has a small but vocal peak oil caucus.

Then it is time to hear from the doubters. The ExxonMobil PR guy says "nonsense." "The world is nowhere near running out of oil." "ExxonMobil geologists believe oil production will keep rising through 2030."

The author then trots out a geologist from Cambridge Energy Research Associates who proclaims that "our outlook goes out to 2020, and we see no evidence of a peak." Realizing he may be a little far out on a limb, the geologist opines that "Eventually we will start to see a decline. There is still time to think about alternatives."

After noting that people have been predicting the end of oil production for over 100 years, and that it has never happened —yet—, the story becomes one of reciting the evidence and arguments for peak oil. Little is left out. M. King Hubbert of Hubbert's peak is brought in along with his various disciples Colin Campbell, founder of ASPO, along with Kenneth Deffeyes of Princeton who has calculated that peak oil production was reached on December 16, 2005 (We don't know as yet if he was right).

President Bush and his "addicted to oil" speech and billionaire oilman Boone Pickens, a peak oil believer are quoted. Declining production, a paucity of new discoveries, rapidly increasing costs to discover and produce new oil, nearly everything in the peak oil mantra is mentioned in the story. On balance this story is about 90 to 10 pro peak oil. The evidence peak oil is for real and imminent is laid out in some detail while the doubters simply assert their beliefs all is well and that no peak is in sight.

Now with wire service stories such as this one from Bloomberg, individual newspapers decide for themselves whether or not to run it. So far as I have been able to tell, only the International Herald Tribune has run the story although I did note a passing reference to the story on the Wall Street Journal's web site.

Obviously thousands of influential opinion makers, financial analysts and policymakers are aware of this story and have taken the message at least partially aboard.

In the Sept. 5 Wall Street Journal, in a story about a big new oil discovery in the Gulf of Mexico, the author was recounting why oil has risen from $20 to over $70 a barrel in recent years. He wrote, "Factors fueling the price include shrinking surplus production capacity, fear that global oil output is peaking, instability in several oil-producing regions and a rising tide of oil nationalism which has led some countries to tighten their control over their oil nationalism.

When the Journal, which has been one of the strongest opponents of the notion the that world oil production is peaking, includes a clause about peak oil (even if they are referring to someone else's irrational fears), we are starting to make progress.

Wednesday, September 06, 2006

Richard Heinberg: Saudi Oil Supply May be Crashing


Richard Heinberg, whose latest book "The Oil Depletion Protocol" aims to help citizens and municipalities deal with the increasing likelihood of global energy supply disruptions, publishes an excellent monthly newsletter called "Muse Letter." The latest issue focuses mainly on the recent Israeli-Hezbollah conflict -- not exactly within Streetsblog's purview -- but it also contains a potentially critical piece of news about global oil supply.

If it is true that Saudi oil supplies are beginning to crash, as Heinberg claims below, it is yet another major reason for New York City to begin helping its own people and people throughout the region get themselves out of automobiles and into other more efficient modes of transportation. Or, as Streetsblogger Aaron Donovan wrote last week, "We need a public relations campaign to encourage people to accept mass transit, walking and cycling first as American, and once that's done, as patriotic."

Even worse news, potentially, comes from Saudi Arabia, where oil flows have shrunk by some 400,000 barrels per day over the past few months, despite astronomic prices. No one knows for sure what is going on. The Saudis themselves say the production cuts are due to lack of demand, but this hardly seems plausible, unless the kingdom is only able to deliver unwanted heavy, sour crude to market—but even in that case, one would expect flows to increase, with a price discount factored in for resource quality.

At the same time, the Saudis are hiring just about every spare drilling rig in the world, resulting in a dramatically falling rig count in the Gulf of Mexico—a place that would otherwise be seeing an increasing count, given the fact that Mexico’s giant Cantarell field is in now in steep decline, with dire implications for the nation’s economy.

Matthew Simmons (Twilight in the Desert) has been insisting for the past few years that Saudi production is close to peak and that Ghawar, the world’s biggest field, may be in decline. Now many others are speculating that this is the real reason for the falling production figures.

What happens next? It depends on the real condition of Ghawar. Perhaps a heroic drilling campaign could result in a temporary bloom in production, lasting perhaps three years, followed by a swift, terminal collapse. On the other hand, it is possible that the field has been so thoroughly exploited already that we are seeing the irreversible, rapid decline. At the ASPO conference a well-connected industry insider who wishes not to be directly quoted told me that his own sources inside Saudi Arabia insist that production from Ghawar is now down to less than three million barrels per day, and that the Saudis are maintaining total production at only slowly dwindling levels by producing other fields at maximum rates. This, if true, would be a bombshell: most estimates give production from Ghawar at 5.5 Mb/d.