Peak Oil News: 02/01/2008 - 03/01/2008

Friday, February 29, 2008

The Peak Oil Crisis: Catenaries and Pantographs

Falls Church News-Press

By Tom Whipple

As the availability of liquid fuels dwindles, those supplies that remain will be increasingly allocated to uses for which there are no readily available substitutes -- such as powering aircraft and ships. Electric power for land vehicles appears to be the most realistic option for the present. Cellulosic biofuels may come to power some share of land transport, but this is still many years away. Electric power is a proven technology and, more importantly, a widespread distribution system for electricity is already here.

If ways of producing hydrogen cheaply and distributing it are ever developed, hydrogen too could provide fuel for vehicles. For the immediate future only electricity, which can come from conservation of existing power production, nuclear power stations and renewable sources, appears to be the most likely power source for land vehicles.

Powering cars and light trucks with electricity does not seem to be an insurmountable problem provided that one is willing to live with their limitations. Progress on improved batteries apparently is being made (although some are skeptical) so that numerous makes and flavors of electric cars and light trucks will likely be coming on the market within the next few years. Developing a battery powered car, however, is one thing, building and marketing hundreds of millions of them, in an era of declining resources, is something else. While the electric car age seems likely to start soon, just how ubiquitous they will become is another question.

The U.S. currently has some 230 million light vehicles in its fleet. If, as seems likely, gasoline and diesel reach unaffordable prices in the next five to ten years, then these vehicles are simply going to be abandoned by the millions as their owners can no longer afford the fuel or be willing to make payments on useless machinery.

For the few that have an alternative fuel vehicle, are very wealthy, or are able to travel in car pools so that many can pay for the gas, the roads are going to have a lot less traffic. In many countries, but particularly here in North America, there is going to be a lot of “stranded investment.” The trillions of dollars that have been spent on cars, trucks, roads, garages, service facilities, parking lots, shopping malls and God know what else, will no longer be of much use without affordable gasoline.

It is easy to imagine office buildings being converted into apartments as the need for office space declines and people seek to live close to places of employment. It is not much of a reach to imagine shopping malls being converted into mixed-use space where apartments, retail and light manufacturing bunched together in what was once retail shopping. Maybe some food growing will take place in space once used for parking lots and all those flat roofs will make excellent places for solar power collectors.

At the rate our natural resources are running out, however, it is doubtful we will be building and selling 100’s of millions of non-fossil fuel cars in the foreseeable future. As our vehicle fleets decline, a lot of underutilized space will become available on our road nets that could be switched to other uses. Again it does not take much imagination to conceive of a lane or two on the interstate system being converted to light rail, high-speed rail or maybe even a maglev. Given the quality and condition and connectivity of the interstate right of ways, it seems like a natural. As soon as the affordable gasoline and diesel dries up, there will be very few users around to object.

Although new rail lines would probably use diesel-electric power initially, the rapidly declining supply and high price of liquid fuel eventually will lead to electrification of at least the main rail lines. In the long run, electric-powered railways coupled with short haul electric trucks, busses and cars, would leave the country with a sustainable transportation system.

There may even be some better ideas around. As long as liquid fuel was cheap, heavy trucks were the preferred way of transporting most goods because of the great flexibility of a truck offers. While light trucks can be easily electrified and are starting to come on the market, heavy trucks are another matter. They simply require too much energy to move large loads for long distances. Batteries might prove capable of powering large trucks for short distances, but certainly not very far.

One idea that surfaced recently was to repower our long-haul trucks with electric engines, some battery capacity, and pantographs to contact overhead wires. By adding overhead wires (catenaries) to a lane or two of our major highways the energy would be available to move trucks for long distances. While this may be expensive to achieve and take many decades to come into widespread use, the idea would appear to have merit – especially when the alternatives are considered.

While electrified rail would be far more efficient at moving goods than electrified trucks, the added flexibility of an electric-powered heavy truck might prove attractive. We already have some 2 million 18-wheelers in America and one would hate to see them scrapped for lack of fuel.

Other large vehicles such as intercity-buses could draw power from overhead lines much as the trolleys and trolley-buses do currently. It is difficult to imagine cars and smaller vehicles extending pantographs many feet into the air to reach power lines, but who knows. Maybe battery recharging lanes for light vehicles will someday be feasible.

When affordable liquid fuels dry up, we are going to be left with a lot of vehicles and their infrastructure that will no longer be of use. With a little imagination, time, and money, much of this stranded investment can become useful again. There certainly will be powerful incentives to introduce whatever works.

In its day, the internal combustion engine was a wonderful device that served us well for over a century. That day, however, will soon be over. It is time to start thinking about and planning for alternatives.

Thursday, February 28, 2008

Oil could reach $300, says expert

By Claire Ferris-Lay

Oil prices could top $300 per barrel within the next five years, according to one industry expert.

Matthew Simmons, chairman and founder of specialised energy investment banking firm, Simmons & Company International, said the current highs of $100 per barrel are "cheap".

"I think the supply is showing some very troubling signs that we might well have already peaked and started [to slow] down. If we haven't, we are very close to it," he told Arabian Business. "Demand on the other hand shows absolutely no sign of slowing down because we are now at $100 a barrel, which I still think is a preposterously cheap price. It works out at just $0.15 a cup.

"A cup of gas will get a car with six passengers in, with the air conditioning on and go two miles. It's a bargain," he added.

Simmons also told Arabian Business he is more concerned about energy shortages than the rising price of oil. "What I am worried about most is not high prices but shortages because then people worry."

He noted that in the UK's capital, London, where typically the price per gallon can reach as much as $9, it hasn't deterred motorists from continuing to use their cars.

"[That price] doesn't seem to have slowed anyone down. It works out as much as $378 a barrel. Yes [I can see it reaching that high]," he said.

"We'll never run out. What we will run out of is light sweet oil because it is the easiest to get out of the ground. So all we will be left with are massive amounts of oil in places but it is going to tend to be stains on rocks or oil sands," he continued.

Simmons is a leading expert in his field and author of the controversial book, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. In the book Simmons argued that Saudi Arabia will, in the coming decades, be unable to maintain its current level of oil production, with huge economic repercussions. Simmons said that the peak oil issue is poorly understood and the world's data on production, demand and inventories is inaccurate.

Last week oil reached a new record of $102, closing in on its inflation-adjusted peak, as a slumping dollar on lacklustre US economic data triggered a surge across commodities markets. Opec's president said members would agree not to raise production in part because of fears of a demand slowdown.

Tuesday, February 26, 2008

Are the days of easy-to-reach oil at an end?


By Leah Bower

Apart from a new price high, this week has been more of the same - oil prices have been high, and boy, are they looking to stay that way.

But what people are talking about now is the one factor that may keep those prices in place.

And the words of the day are 'peak' and 'oil'.

Even in the UAE, where oil brings in the lion's share of the country's revenues, there is more than a little speculation about how much oil there really is.

Matthew Simmons, who is known mainly for his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, is in Dubai this week to hobnob over lunch with big names in oil, gas, investments and banking.

While Simmons is the founder of an investment banking practice, what he's most known for is his stance that peak oil is not only imminent, but upon us. "Price has no impact on slowing demand," he told Texas Monthly magazine earlier this year. "We've seen a stealth growth of 18 million barrels a day, while the demand between the end of 1995 and last week went up tenfold.

What about when everyone said that Saudi Arabia was hiding vast reserves, ready to flood the world market and cause a price collapse? "That was the dumbest thing I ever heard. What giant new oil finds have they reported in the last decade or so?"

But this isn't just a crazed crackpot on a street corner, waving a sign that the end of the world is nigh.

Just last week, Jeroen van der Veer, the chief executive of oil major Royal Dutch Shell, released a study that predicted the days of easy-to-reach oil are at an end. He iced that rather unsettling cake with the prediction that Shell sees "about 50 per cent more demand for energy in the world in the coming 25 years, and a doubling of energy [demand] by 2050" and those sources of energy are going to be increasingly expensive to access.

Closing in

Jim Buckee, retired president and chief executive of major independent Talisman Energy, echoes van der Veer. "We're there [at peak oil] or close to it," he told Canada's Globe & Mail. "Mexico, the North Sea and possibly Ghawar [in Saudi Arabia, the world's largest conventional oil field] are all in decline. The truth is the world is producing 30 billion-plus barrels of oil a year and is finding less than 10 billion. This is the worry."

Not everyone believes it is scarcity that will drive that peak, however. Back in January, BP's special economic adviser, Peter Davies, told British lawmakers that peak oil is closer than previously though, but for a different reason.

"I believe there is a realistic possibility that world oil production will peak within the next generation as a result of peaking demand," Reuters reported him as saying.

Unlike van der Veer or Simmons, however, Davies said he felt it was a combination on restrictive environmental regulations - coupled with the those increasingly protectionist governments who pushing international investors out of their markets - that will bring production to a peak, not the limited amount of oil in the ground.

Despite Saudi Arabia's running commentary that it has plenty of oil in the ground, thank you very much, more and more industry insiders are taking the position that new supplies are not sufficient to meet the growing demand for oil, especially with emerging markets in China and India continuing to blaze.

After all, over the last 20 years, both the number of new oil finds, and the size of those discoveries, have declined. It is almost enough to make you stand on that soapbox and proclaim the end of the world as we know it.

Thursday, February 21, 2008

The Peak Oil Crisis: Connecting the dots

Falls Church News-Press

By Tom Whipple

Earlier this week oil closed above $100 a barrel for the first time. To make matters worse, wholesale gasoline and heating oil jumped 11 cents a gallon in a single day to their all-time highs. A lot of bad news triggered the increase of nearly $14 a barrel in the last two weeks. A 70,000 b/d refinery in Texas blew up and may take months to repair; floods, snowstorms, and power outages have the world’s coal markets breaking records; and to top it off OPEC is threatening to cut oil production, either officially or unofficially, because OECD stockpiles crept up a bit in January. When you can get $100 for every barrel exported you might as well save some for the grandchildren, because you sure don’t need the money.

Then there is the economic news. Last week, a Harvard economist opined to an energy conference in Texas that when we are through tallying up the credit crunch losses from real estate loans, car loans, credit card loans, and business loans all going bad at the same time, the total will be over $1 trillion. Now this is just an abstract figure until you learn that the total capitalization of all the banks in America is about $1 trillion.

It gets still worse. We recently learned about an arcane new financial product called the credit default swap. These are sort of marketable private insurance policies that you buy to cover financial assets that you suspect might go bad. This is all very nice until we learn that these “insurance polices” have been sold and resold so that the insured has no idea who is supposed to pay off his claim and whether or not the current insurer has any money. The scary part is that these things are now said to have a total value of $45 trillion.

If these credit default swaps start going bad and somebody is liable for even a tiny fraction of their supposed value, there is not enough money in China or all the sovereign wealth funds in the world, or the US Treasury to bail this out. All this is by way of saying that $100+ oil may turn out to be the least of our problems.

Now many traders are saying that $100 oil is just a short-lived speculative binge. The fundamentals don’t justify it and oil will soon be back to its “proper price” of $85 a barrel. Note how the “proper price” keeps moving up. Few talk of $40, $50, or $60 oil anymore. Even OPEC says that if oil goes below $85 a barrel, production will be cut until prices go up again. It just shows how easy it is to get used to being richer and richer.

For those who don’t follow such things, world oil production has been essentially flat for the last four years. Asian consumption keeps surging as China’s GDP grows by 10 or 11 percent each year. Domestic consumption in most oil exporting states, primarily Russia and Middle East is also growing rapidly. US and European consumption is growing slowly, so the difference between flat production and increasing demand is being made up by reduced consumption in the poorer nations of Africa, Latin America, and numerous small island states which are heard from occasionally. World stockpiles are also shrinking at a measured pace. As a world, we are burning more oil than we are producing.

Although there are endless debates about how fast oil production from current field is declining, everyone agrees that many million barrels per day from new oil production projects should start coming on stream in the next few years. These prospects leave many forecasting that all will be well for the immediate future.

Some are skeptical, however. If you have noticed the all-time high prices of agricultural commodities lately, you will realize that mandating the conversion of a significant portion of our corn crop into motor fuel is one of the worst laws the US Congress has ever passed. However, don’t worry, for within a year or so, all those voters who eat will bring them to their senses so that mandates and prices subsidies for corn-based ethanol will be eliminated.

When you connect the dots outlined above, it says there is a very big change coming, a paradigm shift far greater than any of us have known in our lifetimes.

At this point it is reasonable to ask that if so many bad things are about to happen, where are our leaders and aspirants, the President, the Cabinet, the Congress, the presidential, senatorial, and congressional candidates? The evening news, the talking heads, the syndicated columnists, the major papers? Isn’t anyone connecting the dots?

The answer is human nature. Nobody holding office or running for one wants to be associated with such devastating news. If you need an example remember poor old Jimmy Carter who was 30 years ahead of his time in warning us all -- and was blown out of office as a consequence. Dire warnings do not win elections. All the incumbents will ever do is cross their fingers and hope that things don’t come unglued before their time in office is up. For the current US administration, it is going to be close.

Those in power justify themselves by saying they do not want to cause panics – widespread hording, market sell-offs, whatever. Let the panic, which will surely come, happen on somebody else’s watch. It is too much to deal with.

The downside of this collective denial is the loss of time to effect change. So far the only decisive action in the US was to turn our corn into SUV fuel. Much more needs to be done. It is looking more and more as if we are going to go over a cliff, while buying nearly unaffordable food and waiting in lines at the gas pumps before meaningful action is taken.

Tuesday, February 19, 2008

Canada's Oil Sands Emit More CO2 Than 145 Nations

By Dan Shapley

A single industrial project is so massively polluting that its greenhouse gas emissions are larger than 145 nations, according to the Toronto Star. Maybe more impressive, there are only 62 nations emit more carbon dioxide.

It is the Alberta Oil Sands, and its fate has everything to do with global warming and peak oil.

Experts that discount the peak oil theory – that the world is close to pumping as much cheap, high-quality crude oil as it ever will – say that new technology will allow us to exploit heretofore inaccessible oil deposits, like oil sands, oil shale and deep water deposits.

To appropriate a campaign phrase: Yes, we can.

But do we really want to? The choice is to continue pumping oil from whatever source we can, the climate be damned, or switch to alternative fuels now, before we run out or run up a climate debt the future will be paying off for generations to come.

Saturday, February 16, 2008

The Steroid Problem

Inside Futures

By Phil Flynn

I think it is high time that I address the steroid issue. It has been a topic of conversation this week and I think it's time we face the issue and get it all out in the open. It is clear that anyone who is a fan of the game and has watched it for a long time realized that the performances we have seen and these incredible displays of strength have been due to juicing. This is obvious to even the causal observer. No, I don’t want to believe it either, but for the good of the game, I think it's time that that we admit the truth of what many of us secretly and dimly suspected. The truth is, players are juicing. That’s right, popping, injecting, or buzzing up. Whatever you call it. It is the only way to explain performances that are beyond the realm of what can be humanly expected.

What, baseball? Who cares about baseball! I am talking about the oil market. I mean, look at what this market has done over the last month and a half. After soaring to over $100 a barrel, this market broke to near 85, then after a little recovery, slammed back down to 86 in a wave of economic pessimism. Then low and behold, in just a few short trading sessions, oil rallied close to 96 dollars a barrel. That kind of a move used to take years and now it is happening in days. I mean, come on! That is more amazing then anything Roger Clemens has ever done. A major shift in market psychology in an instant put the bulls in control. Maybe the funds are juicing or maybe it’s the traders, but this kind of comeback reeks of some type of performance enhancing supplement.

I mean, what in the world has changed so dramatically from last Thursday when we were in the 86-dollar handle?

Well in hindsight, technically, the market failed to take out a major trend line on Thursday and put in a market-reversal. That trend line was tested because of some weak economic data worldwide. Let me speak in loose technical terms that most with a rudimentary knowledge of technical analysis can understand. If you look at a daily crude chart, it looked as if the market was trying to put in a head and shoulders top. When we bounced on Thursday, the proceeding explosive move was either a test and further formation of the right shoulder or a "W" like bottom that points us back towards new all time highs.

On Thursday it seemed that most people believed that if we were not in a recession we would soon be in one. That prediction might have somewhat changed with later data that seemed a bit less gloomy. One that comes to mind was the release of the better than expected US retail sales number and yesterdays trade deficit number.

Yet, yesterday, with big Ben Bernanke still promising to aggressively cut interest rates and sluggish economic growth at a time when some are feeling a bit more optimistic about the economic outlook, once again put commodities on a buying spree. I will remind you that in 2007, the event that caused the bulk of the move in oil was not a hurricane, war or famine, but the move by Ben Bernanke to surprise the market with a 50 basis point rate cut back in October. You can point to that day, as the day oil made its historic move.

Or can the move in oil be about something more mundane like the unusually cold weather. Yesterday, the larger than expected withdraw in natural gas supply helped feed into the bullish feeding frenzy. Storage in gas that was supposed to be so large that it might never be used but supply is falling way behind year ago levels and is closing in on the five-year average. What we are finding is that storage is not as large as we think it is when we go through periods of strong demand.

The geo-political situation has also favored these juiced-up bulls. The ongoing saga with Exxon Mobil and Venezuela threatening to cut off oil supply to the US was fodder for the bulls to keep on trekking higher. Yesterday, Exxon Mobil won another round in court, raising fears and bullish hopes that Venezuela will cut off oil supply.

The larger issue of course, is the big picture peak oil stuff. Does a recession really matter if we are running out of oil? With all the bullish fundamentals that have driven oil for the last 5 years, we only added roughly 10 dollars to the highs for oil a year. That was in the backdrop of a growing and expanding economy. Now we add 30 into a slowing economy! The only thing that can explain it is either we are seeing the peak oil production along with the sudden realization by the masses that we are running out of oil or more likely; it’s the bulls on steroids! Or maybe, just maybe, this is a last desperate attempt to take out a $100 a barrel before we crash into the sixties!

Phil Flynn is Vice President, Energy Analyst and General Market Analyst with Alaron Trading Corporation. Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

Friday, February 15, 2008

The Peak Oil Crisis: The Future Of Our Cars - Part 4

Falls Church News-Press

By Tom Whipple

Hardly a day goes by without an announcement that some company is either developing a new model of an electric powered car or has made some sort of progress on the ones under development. These announcements are coming from major automobile manufacturers all over the world and from numerous startups working in small garages. It is clear from all the activity and rapidly increasing oil prices that the day of the electric car is almost upon us. For the immediate future there is no practical alternative for personal mobility with the speed, flexibility and comfort that we have become accustomed to except the electric car.

Before we look at the various forms these electric cars might take we should answer the key question of whether there will be enough electricity to replace gasoline and diesel we currently consume in cars and trucks. In the long run the answer, of course, is “yes” – provided we can hold industrial civilizations together long enough in a era of oil depletion to produce and install the equipment necessary to supply electricity from renewable sources – solar, wind, the seas, and biomass.

A recent article in Scientific American makes the case that a massive solar power facility covering much of the southwestern U.S. could, when combined with innovative ways for storing power and a new nationwide electrical grid, provide a third of our current electric requirements within 40 years. It seems likely that even with existing technology; a decades-long crash program could cover whatever is needed As long as the sun is shining, the energy is there; all we need is the time and admittedly massive resources to convert it into usable forms.

If we can’t build the infrastructure to generate renewable forms of energy quickly enough, then the only hope is massive conservation of electricity (think no air conditioning) until such times as we can.

Our electric vehicles will come in a wider variety of shapes and sizes than have our cars. Without the luxury of powerful internal combustion engines and cheap liquid fuels, the designers of electric cars are going to design their vehicles for the utmost energy efficiency if they are going provide similar function and performance to the cars and light trucks we have today.

Some will look considerably different than we are used to. There are already a half dozen three-wheeled electric cars under development. These will have the capability of taking one or two passengers and a modest amount of stuff for hundreds of miles on a gallon of electricity-supplemented gasoline.

When electric vehicles start coming on the market in the next three to four years, they will come in several different flavors. First we will have the all electric car or light truck that will not have a gas tank and will get its power from being plugged into the grid. While battery driven cars are already available in a form known as a neighborhood electric vehicle, their performance is such, and gasoline still is so cheap and available, that they never caught on.

The coming versions of all electric cars will easily provide all the speed we can safely use and should have ranges on the order of 100 miles or better until they need to be plugged in again..

The key to the electric cars of course is the battery or other device to store the electricity. For the immediate future, the on-board power storage device of choice seems to be the lithium-ion battery. These have already been developed in numerous forms and chemistries. Manufacturers are busy trying to sort out which of these is the best fit for the size and type of electric car they are trying to design.

If the electric battery works as hoped, there are still a number of issues, such as how quickly they can be produced in large quantities, how much they will cost in large quantities, and the main question of whether there will be enough lithium to replace the 230 million cars in the U.S., the 900 million cars in the world, and the billions more that the six billion people in the world hope to own some day. This is indeed the key question of the age of the electric car.

There are other candidates for advanced electricity storage in the wings ranging from carbon foam to ultra capacitors that may prove to be more affordable and available than lithium-ion batteries. We should have better insights into this issue in the next five to ten years.

The next flavor of electric car is the plug-in hybrid, which is simply a current hybrid with a bigger battery allowing some amount of all-electric range. The extra-large hybrid battery is recharged off the grid and when depleted the vehicle reverts to normal hybrid mode. While short trips at moderate speeds from 5 to 30 or so miles without using any gasoline is possible, the power from the battery allows for much better mileage at freeway speeds for moderate length trips.

The newest and most interesting flavor of the electric car is what has become known as the extended range vehicle. This is simply an electric powered car with an on-board gasoline powered generator to recharge the batteries. The most publicized of these is under development by Chevrolet which is aiming for a 40 mile range on the electric batteries and hundreds of miles with the gasoline generator doing the recharging. This combination of electric powered wheels and an gasoline powered generator is inherently more efficient than using gasoline to drive the wheels.

As these vehicles are capable of performance similar to today’s cars using only a fraction of the liquid fuel, they are likely to come into widespread use during the time of oil depletion. Next week I would like to discuss the feasibility of electric vehicles connected to the grid.

Tuesday, February 12, 2008

Apart from used chip fat, there is no such thing as a sustainable biofuel

The Guardian

Even capitalists now admit the oil crisis is real. But their solutions border on lunacy as they avoid the obvious answer

By George Monbiot

Now they might start sitting up. They wouldn't listen to the environmentalists or even the geologists. Can governments ignore the capitalists? A report published last week by Citibank, and so far unremarked on by the media, proposes "genuine difficulties" in increasing the production of crude oil, "particularly after 2012". Though 175 big drilling projects will start in the next four years, "the fear remains that most of this supply will be offset by high levels of decline". The oil industry has scoffed at the notion that oil supplies might peak, but "recent evidence of failed production growth would tend to shift the burden of proof on to the producers", as they have been unable to respond to the massive rise in prices. "Total global liquid hydrocarbon production has essentially flatlined since mid 2005 at just north of 85m barrels per day."

The issue is complicated, as ever, by the refusal of the Opec cartel to raise production. What has changed, Citibank says, is that the non-Opec countries can no longer answer the price signal. Does this mean that oil production in these nations has already peaked? If so, what do our governments intend to do?

Nine months ago, I asked the British government to send me its assessments of global oil supply. The results astonished me: there weren't any. Instead it relied exclusively on one external source: a book published by the International Energy Agency. The omission became stranger still when I read this book and discovered that it was a crude polemic, dismissing those who questioned future oil supplies as "doomsayers" without providing robust evidence to support its conclusions. Though the members of Opec have a powerful interest in exaggerating their reserves in order to boost their quotas, the IEA relied on their own assessments of future supply.

Last week I tried again, and I received the same response: "The government agrees with IEA analysis that global oil (and gas) reserves are sufficient to sustain economic growth for the foreseeable future." Perhaps it hasn't noticed that the IEA is now backtracking. The Financial Times says the agency "has admitted that it has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected ... natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate." What if the data turns out to be wrong? What if Opec's stated reserves are a pack of lies? What contingency plans has the government made? Answer comes there none.

The European commission, by contrast, does have a plan, and it's a disaster. It recognises that "the oil dependence of the transport sector ... is one of the most serious problems of insecurity in energy supply that the EU faces". Partly in order to diversify fuel supplies, partly to cut greenhouse gas emissions, it has ordered the member states to ensure that by 2020 10% of the petroleum our cars burn must be replaced with biofuels. This won't solve peak oil, but it might at least put it into perspective by causing an even bigger problem.

To be fair to the commission, it has now acknowledged that biofuels are not a green panacea. Its draft directive rules that they shouldn't be produced by destroying primary forest, ancient grasslands or wetlands, as this could cause a net increase in greenhouse gas emissions. Nor should any biodiverse ecosystem be damaged to grow biofuels.

It sounds good, but there are three problems. If biofuels can't be produced in virgin habitats, they must be confined to existing agricultural land, which means that every time we fill up the car we snatch food from people's mouths. This, in turn, raises the price of food, which encourages farmers to destroy pristine habitats - primary forests, ancient grasslands, wetlands and the rest - in order to grow it. We can congratulate ourselves on remaining morally pure, but the impacts are the same. There is no way out of this: on a finite planet with tight food supplies, you either compete with the hungry or clear new land.

The third problem is that the commission's methodology has just been blown apart by two new papers. Published in Science magazine, they calculate the total carbon costs of biofuel production. When land clearance (caused either directly or by the displacement of food crops) is taken into account, all the major biofuels cause a massive increase in emissions.

Even the most productive source - sugar cane grown in the scrubby savannahs of central Brazil - creates a carbon debt which takes 17 years to repay. As the major carbon reductions must be made now, the net effect of this crop is to exacerbate climate change. The worst source - palm oil displacing tropical rainforest growing in peat - invokes a carbon debt of some 840 years. Even when you produce ethanol from maize grown on "rested" arable land (which in the EU is called set-aside and in the United States is called conservation reserve), it takes 48 years to repay the carbon debt. The facts have changed. Will the policy follow?

Many people believe there's a way of avoiding these problems: by making biofuels not from the crops themselves but from crop wastes - if transport fuel can be manufactured from straw or grass or wood chips, there are no implications for land use, and no danger of spreading hunger. Until recently I believed this myself.

Unfortunately most agricultural "waste" is nothing of the kind. It is the organic material that maintains the soil's structure, nutrients and store of carbon. A paper commissioned by the US government proposes that, to help meet its biofuel targets, 75% of annual crop residues should be harvested. According to a letter published in Science last year, removing crop residues can increase the rate of soil erosion a hundredfold. Our addiction to the car, in other words, could lead to peak soil as well as peak oil.

Removing crop wastes means replacing the nutrients they contain with fertiliser, which causes further greenhouse gas emissions. A recent paper by the Nobel laureate Paul Crutzen suggests that emissions of nitrous oxide (a greenhouse gas 296 times more powerful than CO2) from nitrogen fertilisers wipe out all the carbon savings biofuels produce, even before you take the changes in land use into account.

Growing special second-generation crops, such as trees or switchgrass, doesn't solve the problem either: like other energy crops, they displace both food production and carbon emissions. Growing switchgrass, one of the new papers in Science shows, creates a carbon debt of 52 years. Some people propose making second-generation fuels from grass harvested in natural meadows or from municipal waste, but it's hard enough to produce them from single feedstocks; far harder to manufacture them from a mixture. Apart from used chip fat, there is no such thing as a sustainable biofuel.

All these convoluted solutions are designed to avoid a simpler one: reducing the consumption of transport fuel. But that requires the use of a different commodity. Global supplies of political courage appear, unfortunately, to have peaked some time ago.

Friday, February 08, 2008

Peak-Oilers Put Money Where Mouths Are

By Jeffrey Ball

The peak-oil debate no longer is a matter just of the planet’s future. Now it’s the subject of a one-sided $100,000 bet.

Reveling in the role of the fly tweaking the elephant, a group of peak-oil proponents has challenged prominent oil-industry consultancy Cambridge Energy Research Associates to a not-so-friendly wager.

If CERA proves correct in its prediction that global oil production will rise by 20 million barrels per day by 2017, then the challengers, the Association for the Study of Peak Oil & Gas, will hand CERA a check for $100,000 nine years hence. If oil production falls short of CERA’s projection, as the group known as ASPO projects, ASPO will get the bragging rights and the check – and donate the money to charity.

CERA, the Boston-based company headed by prominent consultant Daniel Yergin, forecasts that global oil-production capacity could rise to 112 million barrels per day in 2017. Today, according to CERA, capacity is about 91 million barrels.

“That’s a vision in search of reality,” Steve Andrews, co-founder of ASPO’s U.S. branch, said in a statement it sent out yesterday. Who knows whether ASPO’s finances will peak before then. But along with its press release, ASPO sent a copy of what it said is a bank letter of credit guaranteeing its $100,000 bet.

ASPO believes the peak in global oil production is, in its words, “near.” If true, that wouldn’t mean oil production is about to stop. It would mean that the era of cheap oil is over for good, with production entering a long-term decline. The oil industry dismisses the peak-oil argument as, fundamentally, Luddite. It concedes oil is getting harder to find, and that the world will need other sources of energy to meet growing demand. But it argues that peak-oil predictions have been made many times before, only to be proven wrong when technology rooted out new troves of black gold.

ASPO pumped out its press release just as CERA is gearing up for its big annual conference next week in Houston. The event typically draws some of the oil industry’s biggest luminaries. A CERA spokeswoman declined to comment. Randy Udall, also a co-founder of ASPO’s U.S. chapter, said he wasn’t planning on attending the CERA confab. “I don’t know that we have the entry fee,” he said. “It’s a high-dollar deal.”

Thursday, February 07, 2008

The Peak Oil Crisis: The Future of Our Cars - Part 3

Falls Church News-Press

By Tom Whipple

Last week’s column explored the options for powering vehicles when supplies of imported petroleum and products start to decline. At present it appears that biofuels, natural gas, and electricity are the only alternatives that will be available in large deliverable, quantities in the next ten or 20 years. While biofuels are already in widespread use, it is becoming obvious that turning food crops into fuel is bad policy. Fuels from non-edible plants may provide a significant share of our fuel someday, but that day is still someway off. Many think it will be years and certainly well into the time of oil depletion, before cellulosic ethanol becomes commercially viable on a large scale. Not only does the technology and economics still need to be worked out, but also massive amounts of infrastructure would have to be built.

This leaves us with natural gas and electricity as the only realistic options to power our cars and trucks for the immediate future. It is important to remember that gasoline and diesel will not disappear all at once, but gradually become less and less available over the coming decades and will be accompanied by increasing prices. There will be a period of transition lasting from a few to many decades, during which liquid fuels will still be available but at steadily increasing costs. We live in a country that currently imports about 12 million barrels or two-thirds of its petroleum and petroleum products each day. Given the worldwide trends toward increasing consumption in the oil producing states, it seems likely that most of our sources of imported oil will simply not be available ten or 20 years from now and we will be making do with a third or less of the oil flow currently available.

When talking about the prospects for increased use of natural gas powered vehicles in the U.S. last week, I pointed out that while natural gas had many good features such as compatibility with existing internal combustion technology, an existing widespread and robust distribution system, is cleaner to burn, and mainly comes from U.S. and Canadian wells. The overriding problem is that North American natural gas production has been on a plateau in recent years and all indicators point to declining production in the near future. It is clear that we will never be able to increase production enough to make up for declining oil production.

Some see prospects for large increases in the importation of natural gas from foreign sources. It should be kept in mind that there are already prospects for natural gas shortages in the developed countries. Russian production seems likely to go into decline shortly leading to increased competition for imported liquefied natural gas in the years ahead. Given these realities, a massive replacement of petroleum powered vehicles with ones powered by natural gas seems remote. But what if it becomes a matter of necessity? Natural gas or nothing?

If, as a nation, we are forced to survive on domestic sources of energy, before renewable energy sources come into widespread use, we are going to have to make choices as to how we use our domestically produced fuels. The U.S. currently consumes about 20 trillion cubic feet of natural gas each year. About a third is used for residential and commercial heating. About a third is consumed by industry, either for energy or as the raw material for plastics, fertilizers, and other products, and the final third is used to produce about 20 percent of our electricity.

While there is optimism that in the near future cars and light trucks can be powered by new forms of electric batteries, this still leaves us with the issue of powering our heavy vehicles – large trucks, earth movers, and a myriad of other equipment that currently runs largely on diesel. Given the surge in the world’s demand for diesel, it currently seems likely that the amount of diesel fuel that we can import will be restricted even before our ability to import crude oil and gasoline.

The amount of energy required to run large vehicles and heavy equipment is such that battery-stored electric power is probably not practical for the immediate future. If cellulosic ethanol is not yet commercially viable, then it world appear that natural gas would be the fuel of choice during a transition to renewable energy.

In looking at our current consumption patterns for natural gas, it seems a large scale shift from some current uses for natural gas to replacing diesel would be feasible from both a technical and economic standpoint. WalMart, for example, is already experiment with liquefied natural gas to run its fleet of trucks.

A third of our natural gas consumption goes to produce 20 percent of our electricity. Reducing our electricity consumption by 20 percent should not be difficult. More efficient light bulbs, massive reductions in outdoor lighting and especially turning up the thermostat on the air conditioning, or turning it off, should be a good start. If market forces are not sufficient to bring about the necessary changes in consumption patterns, a change in tax and other polices may be necessary. For governments, decisions to force changes in energy consumption will not be difficult for the choice will be between convenience and comfort vs. survival.

While there is not much of a future for the fossil fuel powered vehicle, during the transition from life as we know it now and a sustainable future, natural gas may well play an important part.

Next week I would like to explore the various possibilities for powering our cars and heavy vehicles with electricity.

Why the price of 'peak oil' is famine


By Ambrose Evans-Pritchard

Vulnerable regions of the world face the risk of famine over the next three years as rising energy costs spill over into a food crunch, according to US investment bank Goldman Sachs.

"We've never been at a point in commodities where we are today," said Jeff Currie, the bank's commodity chief and closely watched oil guru.

Sugar cane on a bullock cart in India. Rising energy costs spill into food crunch.
Sugar cane on a bullock cart in India - the commodity is popular as the basis of biofuel, as it is a cost-effective and cleaner alternative to oil

Global oil output has been stagnant for four years, failing to keep up with rampant demand from Asia and the Mid-East. China's imports rose 14pc last year. Biofuels from grain, oil seed and sugar are plugging the gap, but drawing away food supplies at a time when the world is adding more than 70m mouths to feed a year.

"Markets are as tight as a drum and now the US has hit the stimulus button," said Mr Currie in his 2008 outlook. "We have never seen this before when commodity prices were already at record highs. Over the next 18 to 36 months we are probably going into crisis mode across the commodity complex.

"The key is going to be agriculture. China is terrified of the current situation. It has real physical shortages," he said, referencing China still having memories of starvation in the 1960s seared in its collective mind.

While the US housing crash poses some threat to the price of metals and energy, the effect has largely occurred already. The slide in crude prices over the past month may have been caused by funds liquidating derivatives contracts to cover other demands rather than by recession fears. Goldman Sachs forecasts that oil will be priced at $105 a barrel by the end of 2008.

The current "supercycle" is a break with history because energy and food have "converged" in price and can increasingly be switched from one use to another.

Corn can be used for ethanol in cars and power plants, for plastics, as well as in baking tortillas. Natural gas can be made into fertiliser for food output. "Peak Oil" is morphing into "Peak Food".

Land use for biofuels has shot up from 12m to more than 80m hectares worldwide over six years. Biofuel provides 3pc of global energy needs, which will rise to an estimated 10.6pc by 2030.

In a pure market, sugar cane would be the only viable biofuel with a cost of $35 a barrel (oil equivalent). The others are sugar beet ($103), corn ($81), wheat ($145), rapeseed ($209), soybean ($232), cellulose ($305).

Subsidies drive the business. The US offers tax relief of $1 a gallon for biodiesel. The EU has a 10pc biofuel target by 2010.

The crop switch comes just as China and India make the leap to an animal-based diet, replicating the pattern seen in Japan and Korea, where people raised their protein intake nine-fold as they became rich. It takes 8.3 grams of soya or corn feed to produce a 1g weight gain in cattle - compared with 3.1g for pigs, 2g for chicken and 1.5g for fish.

Mr Currie said investment cycles in energy typically last about 10 to 12 years as producers struggle to catch up with demand. However, this cycle has been short-circuited by politicians after barely six years.

"The political environment is extremely hostile. The world is looking like the 17th century under mercantilism when countries saw economics as a zero-sum game. They exported as much as they could to get gold, and erected enormous barriers. China looks like that, so does Russia, the Mid-East and most of Africa and Latin America," he said.

While the West has much of the skill for developing energy projects, it is blocked by nationalist petro-states from investing directly.

Why Saudi Arabia Refuses to Boost Oil Supply

5 Reasons the Saudis Won't Turn On the Spigot

President Bush made America's appeal to Saudi Arabia on his recent trip to the Middle East: "As your financial and military backer, can't you pump some more oil. Please? I mean, after all, our economy is moving toward recession, we burn more oil than anyone, the price of oil has almost doubled in a year's time ... and isn't the customer always right?"

The answer, as we all know, was, "Nah."

But, why?

In an op-ed in the Christian Science Monitor, Steve Yetiv, a political scientists, and Lowell Feld, a former Department of Energy economist, lay out these possibilities:

1. Supply Isn't the Problem:Oil prices are due to market speculation, the weak dollar and political strife, not supply. That's Saudi Arabia's, and OPEC's, public line, and it may well be true.

2. It Needs the Cash:Saudi Arabian demographics are shifting such that there's less oil revenue per person (72% less than in 1980) so it has to cash in while the getting is good. That means keeping oil prices as high as possible without triggering a recession that would cut into profits.

3. Iran:Saudi Arabia is scared of fellow OPEC member Iran, and doesn't want to annoy Iran's leadership, which opposes any supply increase.

4. The Future is Green:The talk in the industrialized world is about going green, going energy independent and doing something about global warming – none of which bode well for the future of oil. Saudi Arabia may want to cash in while it still can.

5. Peak Oil: Saudi Arabia may have hit its own personal peak oil, which would likely mean the world has too. In other words, it may be pumping as much cheap easy and profitable oil as it can. Boosting supply, then, would not lower the world price or boost its profits since whatever new oil it could pump would be extracted at a greater price. The authors point out that the Energy Information Administration has lowered its expectations for Saudi Arabian oil output in 2010 by 22%.

Tuesday, February 05, 2008

Worldwide Peak Oil May Already Be Here - Now What?


By Ronald G. Nelson

Houston recently hosted the 2007 US.-World oil Conference of the Association for the Study of Peak Oil & Gas - USA (ASPO) at the Hilton Americas hotel. The event included four days of presentations and field trips by several hundred participants. Yet, despite the compelling significance of this issue - that the world's supply of petroleum is due to "peak" at some point during this decade, at which point total world production will officially be declining toward depletion - there was amazingly little press coverage or US. public interest. ASPO boasts more than 20 chapters in the world, many of which are in Europe. Most members are retired and active professionals of the oil industry and academia. They are united in their efforts to educate the public and governments about the urgent need to begin steps to alleviate a massive potential crisis that is already apparent in the rapid price increases for crude oil and natural gas, two leading indicators measuring our advanced industrial economy.

We have had plenty of warnings about the consequences of an early peak in global oil production, but no one in Washington is listening. A premature topping plateau in global oil production would wipe out most, if not all, economic and policy plans on offer by politicians and "think tanks" in our nation's capital. Such plans assume continued growth in supplies of generally affordable oil, but a surprised world could instead soon be facing rapidly dwindling supplies of increasingly unaffordable oil.

The U.S. is the world's largest consumer of oil (25% of total world consumption) and could also find its sources of petroleum imports drying up. In the face of supply shortages, it is likely that the oil-exporting countries would begin to restrict the volumes previously available for export, to ensure that their own economies and people will be spared immediate shortages. Shrinking exports will adversely impact the global economy. The aftermath of peak oil will have major ripple effects for everyone on the planet, and these will only grow in intensity.

What Is Peak oil?

Dr. M. King Hubbert laid the foundation of the study of peak oil in 1956, publishing a paper predicting the U.S. would reach peak oil production by 1970. He based his forecast on the history of oil exploration success in the U.S. up to 1956. Though ridiculed for years, his analysis, conclusions and prediction proved to be spot on: we reached peak oil in 1970. Not even our subsequent development of the giant Prudhoe Bay reserve in Alaska could bring U.S. production back to the levels achieved before 1970.

Today, many scientists utilize Hubbert's basic principles of analysis to measure the rate at which oil, natural gas and other natural resources are produced over time. Usually, a rapid period of exponential growth is followed by an inflection point, after which growth tapers off, reaching a peak or plateau.

After the plateau-rate period, production begins to decline. The "peak" is reached after approximately 50% of its resource base, or ultimate reserve, is produced.

In analyzing global oil production, the methodology consists of backdating all oil reserves to their original year of discovery, and then constructing the production curve to project the same volumes of oil that are likely to be produced ultimately. In this way, scientists can make informed assumptions about peak oil production.

Based on the views expressed and documented at the ASPO conference, it is quite possible that we have already reached peak oil. It is difficult to be sure because oil production statistics include lease condensate, natural gas liquids, oil from tar sands, and reduction of oil in storage. The oil production rate in the world has been virtually level for the past two years.

Global Oil Fever

There was a consensus at the conference that there could now be deliberate retention of oil supplies by OPEC and other exporting countries before the advent of peak oil. Additionally, if new projects are delayed, the entire world could feel the supply pinch well before the peak oil point around 2011.

Developing countries, such as those across Africa and Asia, are already being priced out of the market for oil-based energy. Recent riots in Myanmar were touched offby high prices for energy. Iran has instituted rationing of gasoline (petrol) because of insufficient refining capacity. The Nigerian government is struggling to pacify its citizens, who are striking for a larger share of the oil revenue from exports to the U.S.

Mexico, one of our chief suppliers of imported oil, has been experiencing declining oil production since 2004. Venezuela, another of our oil suppliers, has reached declining oil production and is also beginning to export oil to China, a huge market hungry for oil to fuel its fast-paced growth. Bolivia, Colombia and Ecuador are becoming stridently nationalistic with regard to their internal oil supplies.

All of these situations reflect symptoms of world oil fever and are causing tightening oil supplies, rising demand and progressively higher oil prices. Meanwhile, our financial and governmental energy experts tell us that high prices are only a temporary problem due to oil speculators driving up the price, and that $98 per barrel is roughly equivalent in inflation-adjusted dollars in the oil crunch of 1980, during the Iranian revolution.

These same experts also tell us that our gross national product is affected by oil usage by less than half as much as it was a generation ago. Few, if any, of these experts are trained in geology. Instead, they base their analyses on extrapolation of past years' growth to ever-increasing prosperity in a world with abundant transportation energy. They point to immense reserves of tar sands, oil shale and coal that can be exploited in the future, if necessary. What is not mentioned is the multi-year time frame and colossal investment required to develop these resources. The worldwide appetite for petroleum is now nearly 1,000 barrels of oil per second.

Conservation Is Critical

When oil imports do begin to decline, government-controlled gasoline rationing and price controls could be a fact of our daily lives to ensure fairness in energy distribution. We will all be under the gun to conserve energy, including smarter commutes, telecommuting and transportation not reliant on petroleum. Price alone, as a mechanism to reduce demand, is not the answer. High energy prices unfairly penalize the people at a lower economic scale, and result in waste by the wealthiest segment of the population.

If the concept of conservation seems foreign to the American way of life, look back to the rationing and price control of gasoline, tires, food and other consumer products during the war years of 1942- 1946.

If sacrifice is not shared equitably, it can lead to a breakdown in civil government and society. Most countries have undergone drastic shortages of necessary food, fuel and/or material products for extended periods in their history, usually as a result of wars. It is not too early for our officials and leaders to begin to plan for fuel supply rationing among the nations of the world. Invading oil-rich countries by the strongest nation(s) is anathema as a solution to our fuel supply needs. P&GJ

Author: Ronald G. Nelson, NRG Consulting, The Woodlands, TX. A frequent contributor to P&GJ, Ronald G. Nelson is a retired petroleum engineer whose career took him to North Africa in the 1960s, Europe and the North Sea in the 1970s, Houston in the 1980s and to DeGolyer & McNaughton in Dallas, TX, during the 1990s. At D&M, he provided consulting services and detailed reservoir analyses, traveling to Russia, London, Dubai, Kazakhstan, Congo, Egypt, Singapore and many other countries to gather data and report to clients. He holds a master of science degree in geology and a bachelor of science degree in engineering from the University of Minnesota. He can be reached at rgnelson 1936@earthlink. net.

As Oil Majors Chime In, the Reality of Peak Oil Lurches Closer

Associated Content

By Robert Fanney

One by one, the world's oil companies are coming out of the closet. For years operating under the assumption and public assertion that world oil supplies were plentiful and would be for years to come, now many of the world's most powerful and well known oil giants are talking about scarcity or, even, the dreaded peak in world oil supplies.

For the uninitiated, Peak Oil is not the point where oil runs out but where it becomes physically impossible to grow the amount coming out of the ground and onto the world oil market. For all intents and purposes, Peak Oil is the top of the curve beyond which world oil production goes into inexorable decline. With a world economy largely dependent on oil for transportation, chemicals, and a range of synthetic products, even a plateau in world oil supply spells trouble.

So let's see what some influential people in the industry have to say about oil supply.

In 2005, Chevron's CEO announced to the world that the era of easy oil was over and went on a major advertising campaign to announce its solutions. In 2007, Total's CEO stated "we have all been too optimistic about the geology..." and went on to state that he couldn't see world supply ever going any higher than 100 million barrels per day. Also in 2007, the former CEO of Talisman stated "I think it's fair to say that the era of cheap energy is over." Then in early 2008, Shell CEO Jeroen van der Veer issued a public email that stated "Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."

What's revolutionary is that these major oil companies are talking about the idea of scarcity at all. But the concept that world supply of oil might struggle to increase, much less meet demand? To many this situation still seems a remote concept relegated to some far off future date.

The facts are a bit more disconcerting.

In large part, just such a thing has been happening since 2005. Since that time, Energy Information Agency world liquid fuel production figures have hovered just below or above 86 million barrels per day. Since demand for oil was rising the failure of the market to supply more oil, or liquid fuel interchangeable with oil, resulted in prices rising throughout 2005, 2006, and 2007 making a new high in January 2008 of just more than $100 per barrel.

Overall these high prices have not been good for the world economy. The United States, in particular, is vulnerable to high priced oil. With imports at 10 million barrels per day, at $100 per barrel oil is a 1 billion dollar a day US addiction. And though the US economy is quite large, we are, in large part a debtor nation. We owe foreign countries trillions of dollars both in public and private debt. So what happens when the supply of oil is scarce and the US, essentially, must borrow more money to buy more oil? The value of the dollar goes down. This paradigm creates a double impact with oil going up in value and the dollar going down and US consumers and companies take the hit.

While many have marveled at the stunning resilience of the US economy in the face of high oil prices, ever since mid 2007 there hasn't been much to marvel about. Suddenly vulnerable to rising interest rates on adjustable mortgage home loans and other high risk loans, more and more US consumers slid into default. By fall of 2007 reports came out in the Associated Press that as many as 7 million home owners were in danger of default. While many analysts have claimed the high price of oil and the housing crisis are unrelated, I don't think it's possible to entirely avoid the fact that the housing crisis occurred at a time when high energy prices are constraining consumer budgets more than at any time since the 1970s.

Owners of SUVs, that popular dinosaur drive-all of the nineties, were suddenly paying $60, $75, or even $100 every time they visited the gas pump. In what is, usually, a weekly ritual for most Americans the nearly tripled costs could have added as much as $300 to the monthly gas bill. At $3600 per year and, probably, financed by more debt this may well have been enough to put many in the middle class, already living paycheck to paycheck, over the edge.

But the gas pump isn't the only place where higher prices have an impact. With increased costs for fuel and fertilizer a wide number of essential items have increased in price. Not the least is food. According to the US Department of Agriculture, the average monthly cost of food for a family of four with two young children was $675 in January of 2005. In December 2007 the same family paid, according to the USDA, $943.

With the average American family with two cars and two kids paying more than $500 each month in added food and fuel costs alone, is it any wonder so many are slipping into default? Or put it this way -- when was the last time you got a $6000 dollar a year raise after taxes and didn't keep a dime? No wonder food and fuel have been removed from the inflation index. But you have to ask the serious question -- why? These are costs we can't avoid. For the most part, if you live in America, you need a car to drive to work and I haven't yet met the person who can go without eating.

The added costs, however are broader than just food and fuel. Postage increases every time the price of oil jumps, as do airfares. Pressure increases on any industry that must ship goods or make a product out of things like plastic or nylon, that come from oil, to increase prices. If the industry fails to pass costs on to the consumer, it shuts down and puts workers out of well paying jobs. One way or the other, wage earners take the hit.

Regardless of whether or not these added costs are the root cause of the financial crisis or a further insult, they are clear indications of the impact of rising oil prices. The oil prices themselves point toward constrained supply and Peak Oil.

As mentioned earlier, the production of all liquids interchangeable with oil has hovered around 86 million barrels per day since 2005. Underlying this total liquids figure is a more ominous number. The number measures total production of all crude oil + all condensates. Crude oil is what we think of as real oil -- the stuff that comes from a well. Condensates can be a product of oil or of natural gas but it all goes to making gasoline and other oil products. In total, the crude + condensate number represents what many in the industry think is the crucial figure as all liquids can include more expensive products like oil from tar sands or even ethanol.

So how much crude + condensate has the world been producing lately? According to the EIA, In 2005, crude + condensate production maxed out at 74.3 million barrels per day. Since then, according to EIA figures through October of 2007, crude + condensate production has never again reached such a high number. Many in the Peak Oil camp, including Matthew Simmons and Boone Pickens, state that we may well have seen the peak in world oil production in 2005 and they point to the crude + condensate production level as evidence.

Whether or not the peak in world oil production has already happened or will happen sometime in the near future, we are already seeing its effects on a number of levels both in the US and worldwide. Food, raw materials, money, they all become more difficult to access in a time of constricted energy supply. The wealth of energy oil has been providing to us for the last 150 years is now being taken away. We are at the point in history where we must begin to chart a new energy future with new and different kinds of energy. It will be anything but easy. Perhaps, this is the defining moment of the 21rst century, if not that of modern human history. Can we step away from our dependence on fossil fuels without wrecking our civilization, culture, and planet? Or will we, as many have warned, return to a new dark ages?

It's possible, just possible, that oil industry executives are sounding the alarm. They would like to warn us in plain terms what we're facing but are constrained by the interest of their boards of directors and major stockholders. Perhaps we should listen a little more carefully and think about what it all means for us as individuals, families, and as human beings. A chance for each of us to show our quality and, maybe, just maybe, preserve an ounce of prosperity for our children.

The Militarization of Energy Security

Excerpt from: International Analyst Network

“Peak Oil”

Oil, which sits in the foreground of the global energy picture, is a finite resource. Much remains to be discovered about the ultimate extent of global petroleum reserves, and about the economics of their exploitation. In the final analysis, however, there is no disputing that the world’s supply of oil must be depleted sooner or later. This fact casts its shadow over strategic calculations in the energy sphere.

Experts disagree about when what has come to be called “peak oil” will arrive. Some hold that it is already behind us—that we have already used up half of mankind’s natural endowment of oil, and are on the downward slope of a curve whose theoretical bottom represents the absolute disappearance of oil as a natural resource. Most experts reject this idea, however, and in recent years estimates of available reserves have pushed the hypothetical peak of oil farther into the future, generally beyond the twenty- to fifty-year horizon that constitutes the practical limit of even the most ambitious strategic planning.

In reality the true moment of peak oil is likely to be apparent only in retrospect. At the same time, its looming presence somewhere over history’s horizon seems equally certain to be priced into the market before it actually arrives. The idea of peak oil is already becoming established as a subtext or unspoken assumption among strategists and policy-makers, and reinforces the tendency to see the energy sector as one in which especially critical threats are liable to arise. In this sense the timing of peak oil is less significant that the strategic inferences that thinking about it and getting ready for it may inspire.

Peak oil also has a derivative meaning that strategists must struggle to take into account. In theoretical terms peak oil means simply that oil ceases to be useable for present human purposes. The simplest reason for this would be that the world’s supply of oil dries up—peak oil in its most immediate sense. But mankind might reach comparable conditions by a different avenue, should conditions arise that cause all the environmental externalities associated with the use of carbon-based energy to get priced into the energy market. Energy markets in the industrial era have invariably failed to reflect the true immediate and long-term social costs incurred by mankind’s ferocious hunger for carbon-based fuels, costs that have only recently become apparent, and are now accumulating at a rapid rate. In the same way that estimates of world oil reserves have so far proven to be too pessimistic, estimates of measurable environmental effects linked to climate change have proven no less consistently optimistic. If the graph of peak oil has moved consistently “to the right” by virtue of the accumulation of new scientific knowledge,[5] the metrics of impending environmental crisis have all moved no less consistently “to the left” for the same reason.[6] Even granting the significant uncertainty that prevails in both areas, it is easy enough to imagine a cross-over point at which the environment impacts of fossil fuel consumption (a category that includes coal, biomass, and natural gas as well as oil) begin to register in strategic terms, so that a condition akin to “virtual peak oil” is reached well in advance of the real thing.

From a market perspective there are risks on both sides of the peak oil problem. A nation that preemptively abandons a petroleum-based economy before others do so may incur additional short-term costs, as an early adopter of new and unproven technologies that place it at a disadvantage relative to competitors that hold on longer to what is still cheap and familiar. A nation that waits too long may find itself paying premium prices for a commodity that has become too scarce to burn, but must be rationed for other, more specialized purposes. The risks associated with “virtual” peak oil also include the possibility that states will attempt to coerce each other to reduce their consumption of fossil fuels (and the resulting carbon emissions), in effect re-defining environmental pollution as a form of international delinquency, perhaps even as “aggression,” toward which a strategic response is warranted.

Saturday, February 02, 2008

Mexico's Oil Output Has Peaked, Under Current Limitations - Business - RedOrbit


By Stephen Payne

Peak oil production occurred in Mexico in 2004-that is, under the limitations of current regulations-says George Baker, publisher of Mexico Energy Intelligence in Houston. Mexico's most important field, Cantarell, is in serious decline, and the recently announced KMZ and Chicontepec prospects are "suspect" as well, he says. A Pemex business-as-usual scenario is unlikely.

Despite a debottlenecking project in 1989 and nitrogen injection in 2000, Cantarell production peaked at slightly more than 2 million barrels per day. Consequently, Mexico's exports peaked at the same time, near some 1.88 million barrels per day. and have since fallen to just over 1.7 million barrels per day, according to Baker.

"The Mexican side of the deepwater Gulf of Mexico requires 80 oil companies, not just one oil company with 80 contractors." Any perceived threat of crossborder oil fields may provoke change in the Mexican government's energy policies. However, if the government changes the upstream rules, it could push Mexico's peak oil date out for several decades.

Mexican oil company Pemex's 10-year plan to drill 10,000 development wells and invest $24 billion to accelerate recovery of light and heavy crude oil from the Paleocanal de Chicontepec Field is a "highly speculative investment, given the adverse geological parameters of the field, the rapid annual decline rate of 50% and the low rate of initial production, typically below 150 barrels per day."

He adds, "oil exports have taken all of Cantarell production since November 2006, a worrisome trend for Pemex and its customers and government. Before, Cantarell supplied all of the export market plus a cushion of domestic use. Now that cushion is gone, and is likely not to return."

Friday, February 01, 2008

Shell chief fears oil shortage in seven years

Times Online

Shell chief fears oil shortage in seven years

By Carl Mortished

World demand for oil and gas will outstrip supply within seven years, according to Royal Dutch Shell.

The oil multinational is predicting that conventional supplies will not keep pace with soaring population growth and the rapid pace of economic development.

Jeroen van der Veer, Shell’s chief executive, said in an e-mail to the company’s staff this week that output of conventional oil and gas was close to peaking. He wrote: “Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.”

The boss of the world’s second-largest oil company forecast that, regardless of government policy initiatives and investment in renewables, the world would need more nuclear power and unconventional fossil fuels, such as oil sands.

“Using more energy inevitably means emitting more CO2 at a time when climate change has become a critical global issue,” he wrote.

Mr van der Veer is expected to discuss Shell’s energy outlook today at the World Economic Forum in Davos.

In his e-mail, which was reported on, an independent website that monitors the company, Shell’s chief set out two scenarios for the world’s energy future.

The first scenario, “Scramble”, envisages a mad dash by nations to secure resources. With policymakers viewing energy as “a zero-sum game,” use of domestic coal and biofuels accelerates.

It is a world, said the Shell chief, where “policymakers pay little attention to energy consumption – until supplies run short.”

The alternative scenario, “Blue-prints”, envisages a world of political cooperation between governments on efficiency standards and taxes, a convergence of policies on emissions trading and local initiatives to improve environmental performance of buildings.

Shell has not committed to either scenario. The oil company regularly uses scenario-planning to test the likely impact of widely divergent economic and political scenarios on its long-term strategy.

Unsurprisingly, Mr van der Veer indicated that Shell preferred the Blueprints scenario but he expressed caution over the likelihood of it coming to pass without a global approach to emissions trading.

The Blueprints scenario assumes that 90 per cent of CO2 is captured by coal and gas power plants in developed countries by 2050, and at least half of the CO2 emitted by power stations in the developing world. No such plants are in operation today, noted the Shell chief. “It will be hard work and there is little time,” he said.

Mr van der Veer’s comments emerged in the same week that the European Commission launched reforms to its carbon trading system, with plans to force power stations to buy permits to emit CO2.

In an acknowledgement of the challenge of securing global acceptance of the need to curb carbon emissions, the Commission President, José Manuel Barroso, said that the Commission would consider the possibility of taxing imports into the EU by countries that failed to take equivalent measures to curb carbon emissions.

Mr van der Veer’s prediction that the oil industry would soon struggle to deliver sufficient conventional oil and gas to meet demand echoes growing concern from other oil bosses.