Peak Oil News: 10/01/2007 - 11/01/2007

Thursday, October 18, 2007

Experts Worry That World Oil Production May Soon Peak

VOA News

By Greg Flakus

Energy experts from around the world have gathered in Houston for a three-day conference on the issue of peak oil, which involves predictions that world oil production will soon reach its peak and then go into decline. This could cause a global economic crisis since demand for energy is not expected to slow, but, in fact, is expanding rapidly. VOA's Greg Flakus has more from Houston.

The proponents of the peak oil theory rely on data from existing oil fields around the world that show weakening production in many of the richest fields and increasing difficulty in extracting oil from newer fields. Oil companies, both national and private, tend to dismiss such concerns by citing the size of their reserves and the new technology that allows them to produce oil from areas that would have been bypassed a few decades ago.

But the peak oil theory believers include some of the world's most respected engineers and economists, many of whom have years of experience working in the oil and gas industry. Some of them go so far as to say the world may have already peaked in its oil production and that production will soon go into a steep decline.

What makes this especially worrisome is that demand is going in the other direction. Matt Simmons, an oil industry analyst based here in Houston, is one of the best known advocates of the peak oil idea. He notes that demand for oil on a worldwide basis has grown from ten million barrels a day in 1950 to an estimated 88 million barrels a day projected for next year. He says demand will grow even more in the decades ahead.

"Almost all the long-term forecasts look out to 2020 and then 2030 and see a world that is going to need 115 to 120 million barrels a day of oil by 2020 and 120 to 130 by 2030," said Matt Simmons.

But Simmons says even those predictions may not fully capture the danger ahead. He notes that the fast-growing economies of India and China have reached only one third of Mexico's per-capita consumption of oil. If they were to reach Mexico's level of use, the world would require an additional 45 million barrels a day in output.

"I happen to think that this issue will soon overwhelm global warming as the single biggest threat to sustaining the 21st century," he said. "But I am amazed that it still lurks in the shadows and amazed at the debate as to whether it is even a real issue."

Simmons says steps should be taken now to reduce demand and to develop alternative fuels.

Among other participants in this week's conference here in Houston are famed Texas oil man T. Boone Pickens, Chris Skrebowski of the Energy Institute in London, David Hughes of the Geological Survey of Canada and a number of academics and independent energy analysts. The conference will conclude with panel discussions on Saturday.

Saturday, October 06, 2007

The End of Las Vegas

By Kevin Capp

The room beamed with good intentions and positive thinking. So many ideas and innovations. You just had to believe.

On Aug. 27, inside the Dialogue Center at the Las Vegas Springs Preserve, the much-hyped $250 million beacon of alternative energy possibility, U.S. Sen. Harry Reid told the small group of concerned citizens and green business people in attendance that the time had come for Nevada to go renewable and lead the nation toward a clean energy future.

"What we need to do is stop using fossil fuel," Reid told the audience. "But people need to be incentivized to do this."

To that end, and to his credit, Reid has been doing a lot more than doling out platitudes. In a torrent of press releases, he has announced his opposition to three proposed coal plants; hailed a decision by the Bureau of Land Management to lease 123,000 acres of Nevada land for geothermal exploration; sung the praises of a Senate energy bill that he says will ramp down our oil use and ramp up renewable use; and, most recently, highlighted a report that shows coal is an unpopular energy source as a means to push the Silver State into a leadership position on all things renewable. (His only flaws seem to be a decidedly non-green coddling of a politically supportive Nevada mining industry, and helping developer Harvey Whittemore build a giant suburb in the middle of nowhere.)

Yes, the man's got ideas.

So did the folks at the meeting. They talked about all the usual, obvious solutions. We should harness the power of the sun; use soybeans and fry grease to run the cars; create a hydrogen economy; and all the other stuff Americans have been hearing about of late to lower those nasty emissions destroying Mother Earth. Best part is: We'll get to continue living the same way -- tooling around in our cars, relaxing in our air-conditioned homes. Only now we'll finally be treating our old Momma with some respect while we do it.

Green smoke

Many energy experts say this a dangerous myth, one that will prevent us from adapting to a monumental change with no historical parallels. While it's surely imperative we clean up our act in the name of preserving our planet, a potentially even bigger issue than that of global climate change is staring us down: an oil shortage. These critics say the American way of life as we know it is on the wane. They say our addiction to fossil fuels and all of the glorious achievements that accompanied our discovery of oil back in the mid-18th century have convinced us that the way we live is an inalienable right that will continue on into eternity. Because we have technology. Because we have ingenuity. Because we're Americans.

Fact is, none of that matters in the face of geology, experts say. Oil is a finite, fast-diminishing and, perhaps more importantly, unique resource that no amount of so-called alternatives can replace. Even if they could, we may already be too late to put together a plan.

"The renewables are not ready," says Jan Lundberg, an oil industry analyst. "They are not going to deliver energy the way cheap oil used to."

James Howard Kunstler, one of the most prominent speakers and prolific writers on the impending oil crisis, says of the push by Reid and other politicians to switch out energy sources: "What they are doing right now is blowing green smoke up the public's ass."

What's more, the issue isn't necessarily whether we run out of oil, but what happens when shortages throw the cost of energy into a schizophrenic tizzy of price spikes punctuated by brief, illusory drops, says Richard Heinberg, author of The Party's Over. Many credit him with being one of the first intellectuals to bring this issue to public light. "It's going to go up in a stair-step fashion, because oil usage is seasonal. March, April next year, we'll probably see softer prices. But softer in comparison to what? A few years ago, a soft price was $20."

Now oil hovers around $80 a barrel, a jump from around $60 earlier this year. "Reflect on what this is going to mean to the airlines and tourism in Las Vegas," says Kunstler. "You're going to be dealing with an increasingly tapped-out public. They're simply going to have a lot less money to toss into the casinos."

The endgame is even more frightening, surreal and just plain unimaginable. As oil peaks and prices soar, these experts say it will mean nothing less than the end of our air-conditioned, central-heated, car- and airplane-dependent neon metropolis, and it's coming soon, green revolution be damned.

A Peak Oil Primer

"As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented." -- from "Peaking of World Oil Production: Impacts, Mitigation, & Risk Management," a report commissioned by the U.S. Department of Energy, published February 2005

Although it's written in the sterile language of bureaucrats, the Hirsch Report -- named for its lead author, veteran energy analyst Robert L. Hirsch -- nevertheless paints a dark portrait of a world in disarray, if we don't act soon enough to wean ourselves off oil. While the term may sound like the name of some exotic religion, peak oil is a fairly straightforward concept that belies its devastating consequences for industrialized nations, which depend on access to cheap oil for almost every aspect of daily life, from getting to work on time to locating the ingredients grandma needs to make her famous apple pie.

Consider: Nevada, with its relatively small population of 2.5 million people, consumed almost two million barrels of petroleum in 2004 for asphalt and road oil alone, according to the Energy Information Administration, the statistical arm of the Department of Energy. That's a fraction of the more than 48 million barrels Nevada gobbled up that year for everything from jet fuel to gas for cars. With growth, our demand will only increase.

Because it means the point at which all of the world's reserves are depleted by half, global peak oil spells doom for meeting that demand by creating an unstoppable downward trend in the amount we can pump into our bigger-is-better economy.

However, as the Hirsch Report notes, "It is important to recognize that oil production peaking is not 'running out.'" Indeed, even after peak, there will still be oil left. The problem isn't total depletion so much as it is the turbulent ride toward it.

Predicting when this will happen is tough going for myriad reasons. For example, no politician -- including President George W. Bush, who once employed energy-investment banker and peak oil expert Matthew Simmons as an advisor-- wants to tell his constituency that life as they know it is kaput. And no oil company exec wants to admit to shareholders they're invested in an industry in decline, especially as it earns record profits.

Despite such problems and others on the geopolitical stage (the Saudis, for example, closely guard their most sensitive state secret: how much oil they have left), experts have constructed a plausible window of time when peak might occur, which doesn't bode well for Vegas. According to the Hirsch Report, "Even the most optimistic forecasts suggest that world oil peaking will occur in less than 25 years." There are others who say it's already happened.

Peak oil commentator Heinberg points to the latest figures released by the International Energy Agency, which shows the global production of liquids dropped by 854,000 barrels per day from August 2006 to August 2007. In addition, we're pumping out 1.53 million barrels per day less than the all-time high of 86.13 million extracted in July 2006.

Translation: The sun may have already set on our ability to meet world demand.

This is not good.

Running that close to the bone means any systemic shock -- a hurricane that damages drilling platforms in the gulf, a terrorist attack on oil pipelines in Nigeria, an unexpected cold snap in the northeast -- could cause prices to skyrocket, impacting everything from costs at the pump to costs at the grocery store. What's worse, the less oil we have, the less it takes to zap the price upward.

It's an inevitable part of peaking, says Byron King, formerly a geologist with Gulf Oil and now an energy and natural resources analyst with Agora Financial. "We've built an entire industrial civilization around [oil]," he says. "Now the question is: Can we transform it fast enough?"

Thursday, October 04, 2007

As the world burns

By Richard Heinberg

September is an equinoctial month—a time of momentary balance, instability, and change. Day and night are of equal length; however, the rate of change in the relative lengths of day and night is at its peak.

It’s been an unusually busy and stressful month for me personally. Leonardo Dicaprio’s enviro-doc “11th Hour” hit the theaters, featuring yours truly on-screen for a few seconds (though the producer and director decided against including a mention of Peak Oil). Early in September I gave a presentation at the UN at the behest of two organic agriculture organizations (the Soil Association of Britain and the Shumei Foundation of Japan). On Thursday the 13th, a CNN Money reporter called wanting information about Peak Oil; his story appeared the next day. The very first copies of my new book, Peak Everything, shipped during the last week of the month. A few days ago a Korean TV crew stopped by and filmed me at home for a three-part documentary to air in November. And a family emergency (aging parent) sent me off to the Midwest for a week. As the saying goes, there’s no rest for the wicked.

The month was no less eventful for the rest of the world—though of course the scale of significance of the following items is approximately 6.7 billion times greater than for the preceding ones.

Maybe the best place to start is with a general comment. It’s getting pretty damn obvious that the world is sliding head-first into the abyss at an accelerating rate, with most Americans as oblivious as ever. The latest indication of impending doom is a festering credit crunch brought on by the inevitable puncturing of a bubble puffed up over the past few years through the issuance of thousands of patently idiotic subprime, adjustable-rate, and interest-only mortgage loans.

The deeper story is that this is just the last of a series of bubbles that the US Federal Reserve has inflated in order to sustain for as long as was humanly possible a fundamentally unsound national financial condition.

As I explained in Chapter 2 of The Party’s Over, the US got rich exploiting its own resources and labor. Its most valuable resource—oil—went into decline forty years ago; since then, we Americans have tried to stay rich by exploiting other nations’ labor and resources, using leveraged trade rules, dollar hegemony, and military threats. All this time, we congratulated ourselves: we were living in a post-industrial information economy; they were doing the dreary, obsolete work of actually making things. They sweated and saved; it was up to us to spend and borrow. We served an indispensable function in the global economy as the consumer of last resort, as the engine of new debt creation (more debt equals more money in circulation—i.e., more GDP growth), and as the global cop keeping order in an unruly world (while also sneaking donuts and taking bribes). The Chinese burned their coal and poisoned their workers and environment to make our stuff, enabling us to enjoy a cleaner environment by keeping our coal in the ground, while they loaned us the money to buy cheap Chinese stuff with. Such a deal!

Life in bubble world was grand while it lasted. First there was the Third World debt bubble of the ’80s; then came the tech bubbles of the ’90s; and finally the real estate bubble of the ’00s. Along the way, Wall Street hoped for a little extra hot air from the privatization of Social Security, but even Americans weren’t stupid enough to sign onto that particular leveraged buyout. All during this time, suburbanites got used to having more gadgets and bigger cars and houses, even if they couldn’t actually afford them.

But now we’re at the end of the line. At last the rest of the world is coming to realize that it doesn’t really need Americans: the Chinese can consume, too, after all. And the Asians can’t really justify loaning us more money; we’re not going to pay it back—or if we do, it will be in devalued dollars. But those loans can also be looked at as investments: other nations have in effect bought US assets, which means that the wealth created from those assets will flow to the new overseas owners, not to Americans. What’s left to buy—other than a lot of soon-to-be-foreclosed real estate? And how much wealth will those assets produce once the bubble deflates?

It’s also clear now that there are alternatives to the dollar, including the euro, the yen, and the yuan. Not that the dollar won’t be missed; when it tanks, there will be as many financial casualties in Mumbai as Manhattan. But currency traders are clearly heading for the exits, and the last one out gets the booby prize—a bag of wooden nickels.

Yes, the rest of the world still must fear America’s awesome weapons of mass destruction: this mighty nation can certainly create an unholy mess when it means to, as it is demonstrating in Mesopotamia. But that doesn’t mean that other nations actually have to obey it any more. The US can bomb to smithereens any country it chooses, but it can’t always count on forcing that country to hand over its resources at gunpoint.

The dollar is hitting record lows. Gold and silver are hot commodities—always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar’s problems. If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets. One way or another, Americans are going to soon see a rapid decline in their real standard of living.

Of course, another big event this month was oil’s nose-bleed ascent to record-high prices, over $82US per barrel. Part of the price hike resulted from the dollar’s weakness, but—as Goldman Sachs has pointed out—the main reason was simply that demand is up while supply is down. The May 2005 peak for the rate of production of regular crude and the July 2006 peak for all liquids are still holding. It may be that the technical maximum global rate of flow for liquid fuels is still a couple of years away, but in effect the peak is here now.

As for Iran, “all options” are still on the table, and the pretext for a broad-scale air attack is apparently being patiently laid. Bush has vowed that he will not leave office with the Iran question unresolved, and France’s new neocon leaders are running defense for Bush/Cheney, calling for “the most severe sanctions possible” and for war if those “don’t work.” Meanwhile, when Tehran actually complies with the International Atomic Energy Agency’s requests, this is viewed as a provocation. This month, Newsweek revealed that Vice President Dick Cheney at one point considered asking Israel to launch air strikes on an Iranian nuclear site, so as to provoke Iran to lash out, thus giving Washington a pretext for more extensive attacks (a scenario I discussed in MuseLetter for April 2007, “Iran: We Will Know Soon”). Iranian President Ahmedinejad’s appearances in New York (at the UN and Columbia University) seemed only to give the US media an opportunity to whip up further anti-Iranian public sentiment, while the Senate’s passage of the Lieberman-Kyl amendment (which Hilary Clinton supported) provided a stamp of approval for any future military actions by the current administration.

But surely the single most important event of the month was the revelation that arctic sea ice is melting faster than even the most dire forecasts had predicted. This is significant because it shows the power of reinforcing feedback loops: as sunlight-reflecting ice melts, it leaves dark water in its place—which absorbs more heat, causing more ice to melt, and so on. This year’s minimum extent of ice was about one million square miles (as of September 16); the previous record low was 1.5 million in 2005. The rate of melting this year was 10 times the recent annual average. This month the Northwest Passage was ice-free for the first time in untold millennia. At this rate, the north polar region could be ice-free in summer by 2015.

Altogether, it was an extraordinary 30 days. Yet so far there’s been no instantaneous economic implosion, and there’s not much blood in the streets (except perhaps in Myanmar), and so the mainstream media can safely focus on the truly vital issues like O.J. Simpson’s current legal scrapes and Britney Spears’s performance at the MTV awards.

Many writers who discuss the sort of stuff that interests me (“reality” I think it’s called) wrap the unutterable sadness of it all in a crisp cellophane of cynicism. I’m guilty of that, too, from time to time—certainly in this little monthly summary. How else to make it somehow bearable?

Falls Church News-Press - The Peak Oil Crisis: On Contemplating $100 Oil

Falls Church News-Press

By Tom Whipple

For the last few days, the press has been full of stories about the possibility of oil reaching $100 a barrel this winter. As prices have been bouncing around in the low $80s for the last couple of weeks, another $20 increase will do it. The theory behind the $100 forecast is that supply and demand is very tight and that China, India and oil-exporting countries are growing their domestic consumption so fast that even if the U.S. goes into a recession the situation will continue to tighten.

Throw in increased interest by speculators, the sagging dollar, soaring coal prices and $100 oil this winter is starting to look like a good bet — even without hurricanes or terrorist attacks. A couple of writers have even noticed that world oil production has not increased for over a year now while demand continues to grow.

Last Saturday, the Wall Street Journal, which for obvious reasons doesn’t take well to the notion that world oil production will soon peak, ran a piece entitled “How the Economy Could Survive Oil at $100 A Barrel.” This front-page story is of interest for several reasons. First is the implication that just perhaps things aren’t going so well down at the old gas station, and just maybe we won’t be back down to $30 oil anytime soon. Maybe there is a need to start thinking about the unthinkable in case it should happen.

Of even more interest is the Journal’s well-caveated conclusion in answer to the question, “How well could the world economy survive $100 a barrel?”

According to the Journal, “The answer is quite well — so long as several conditions still hold true. The price rise would probably have to be gradual. Inflation couldn't get so bad as to force big interest-rate hikes. Oil-rich nations would need to pump their profits back into U.S. and European economies.”

Moreover, showing that they are in touch with reality, the Journal notes that the aforementioned tight oil supplies and weak U.S. dollar suggests that oil prices just might break 1980’s all-time inflation-adjusted high of $101. This in turn could “hit consumer’s pocketbooks — especially in the U.S.” where consumer spending has become the primary engine of growth.

In defending its case that the world can handle $100 dollar oil, the Journal relies on the difference between now and oil price spikes of 30 years ago. Those were triggered by wars and came suddenly. Today’s high prices come from a long economic boom across the world. U.S. households are now so rich that we only spend four percent of our disposable income at the gas pump, vs. over six percent in 1980.

The most interesting difference is that in the bad old days, the Federal Reserve responded to the inflationary pressures of spiraling gasoline prices by raising interest rates. We now know that this was the wrong thing to do and cutting interest rates to forestall a recession will hopefully lead to better results.

In the interest of fairness to other opinions, the Journal notes some believe that $100 barrel oil would be “too powerful for the U.S. to overcome.” Detroit has not been doing too well at $80 a barrel, so adding another 50 cents or more onto the price of gasoline is obviously not going to help SUV sales.

Toward the end, the Journal sets forth the current Wall Street consensus on oil. “For now, most economists expect oil prices will stay high through next year. An unexpected hurricane in the Gulf or a sudden disruption to oil flows from a big producer like Iran or Mexico could push oil to $100.”

Now all this is very nice. Indeed, we just might weather $100 oil for a while, but there is one glaring flaw in all this. There is absolutely no reason why oil will stay at $100 a barrel or anything close.

To emphasize how well the world’s economy is doing at the minute, the Journal points out that the IEA in Paris sees world oil demand in the fourth quarter rising by 2.3 million b/d over last year to nearly 88 million b/d.

What they don’t tell you, however, is that in August 2007 world production (all liquids) was estimated by the IEA to be 84.6 million b/d down by 854,000 b/d from August 2006. In 2006, and so far in 2007, world production has been just about 85 million b/d, some 3 million b/d less than we are forecast to consume in the current quarter.

We could of course take the extra 3 million b/d out of the world’s stockpiles, which would then be dropping by 90 million barrels a month — not really a long-term solution. Will OPEC bail us out with a 500,000 b/d increase in production? Could be, but considering that 140,000 b/d of that increase is supposed to come from Venezuela, where production has been stagnant for years, I wouldn’t count on it.

So there you have it. From the perspective of imminent peak oil, $100 oil is not something to weather for a while. It is merely a milestone on the way to still higher prices. The Journal’s bold conclusion that we can handle $100 “quite well” may be perfectly true, until you ask “then what?” and the only possible answer is higher and higher prices. Somewhere the bubble will burst, for at the close of every day, the world’s oil reserves are 85 million barrels smaller and smaller and smaller ...

There was nothing much of note in this week’s stockpile report. Crude stocks were unexpectedly up a bit and gasoline stocks down a bit. Those of you who are aware that world petroleum exports are becoming a problem should note that thus far in 2007 we have imported a daily average of 12.2 million b/d of crude and other petroleum products. This is down from 12.6 million b/d or 2.9 percent from last year. Domestic production is up 1.4 percent, but so too is demand — up 0.4 percent. A day of reckoning is coming.

Monday, October 01, 2007

Is the US oil resource running out?

By Edward Tapamor

If we think of peak oil as a subject in itself, rather than a subset of general discourse about oil and energy, then we can see it has been around for something approaching 100 years. After World War One there was sustained and popular debate about the prospect of the U.S.’s valuable resource running out. After all there was no more to be found and it was going to be too expensive anyway.

This debate has been repeated a few times since then, most notably in the 1970s, but it has never been stronger than it is now. Nor has it attracted such a wide range of people willing to discuss it.

The basics of peak oil are in fact quite simple. Under the present, failing, economic system scarcity breeds profits. Thus peak oil presents opportunities for those who control resources and powerful people, powerful nations and institutions rarely give away their golden goose. That the consequences may be painful for weaker people like you and me matters not.

Secondly there is the scale of the problem. That is if the world is consuming around 85 million barrels per day of oil - and demand is set at the very least to remain constant - one has to bring on stream around 3.4 million barrels per day of oil, each year and every year, just to stand still. That is a big task in the present day environment and is exacerbated by the first problem, the fact that scarcity breeds profits.

Unfortunately for the world, it appears to be – at least – stepping onto a plateau of global production that will only be altered by economics. In other words it is only recessions that can dampen demand, reduce costs and allow the oil industry to ‘catch up’ by bringing capacity on stream when demand is low. The oil industry is banking on a recession to do just that.

But sadly for the oil industry a few items have changed. Populations in producer countries, such as the poor people who live under the heel of the U.S. client state in Saudi Arabia, are growing in numbers. They will inevitably consume more energy. Then of course there is the wildcards of China and India. Even with a recession demand in those countries will continue to grow.

So following on from the meeting of the Association for the Study of Peak Oil & Gas (ASPO) in Eire recently it is time for the peakers to get their act together. ASPO must cement itself as a credible, reasoned organisation. Not one that publishes fascist-eugenicist rants and calls anyone who diverts from the line a “cornucopian”.

It must have a global focus and structure, not one splintered and focussed upon individuals such as Colin Campbell. Nice man though he is – apart from that publication which was very worrying - he cannot hope to cement a global debate on peak oil. His treatment of Fatih Birol at the ASPO Berlin meeting was a disaster and dampened any reasoned debate. Kjell Aleklett, Jean Laherrere, Baquis and many others must also stand down, move aside.

ASPO must also take its place as part of a debate about the energy future. Not the bringer of all truth to the ignorant masses. It must be the OPEC of peak oil, with rotating nations’ organisations heading up debate. It must learn to debate with its enemies, with the industry. It must learn the art of persuasion, not ridicule, not conspiracy and be part of a world that accepts peak oil as part of energy supply issues. Not as a reason to write self promoting, self aggrandising books.

It is time for the new wave of peakers to take the stage. And they are there. Waiting.