Peak Oil News: 02/01/2009 - 03/01/2009

Sunday, February 15, 2009

Take Peak Oil seriously - it'll be here much sooner than you think

By Cathal Kelly

While panic is not the prescription, experts are warning that the time to begin taking Peak Oil seriously is past.

"It's not about believing. It's about facts," said Gord Miller, Ontario's environmental commissioner. Miller has been warning about Peak Oil for years. He thinks we hit peak around early 2007.

"If we're not there, we're awful close," said Dave Hughes, a geoscientist who once ran Canada's national coal inventory.

Peak Oil doesn't mean we have run out of the stuff. It means that we have crested the top of a bell curve of supply. Then it's a roller-coaster ride down. Depending on who you ask, that ride will either be slow and uncomfortable or teeth-rattling and destructive.

"Depletion is taking somewhere between 5 and 6 per cent of (existing) world oil production per year," said Hughes. "The reason that oil price is where it is today is that the economy has reduced demand."

No one has found a major new oil field since the 1960s. It's getting harder and more expensive to bring up the oil we know is there. All these signs point toward the peak.

What happens now?

The first stage is price volatility, a little like the $100-per-barrel drop we've seen in less than a year.

The current low price "will increase demand to a certain extent, which will then increase price," Hughes said. "There will be a few cycles of that. That is, until depletion kicks in for good."

Hughes guesses a barrel of oil could cost $200 (U.S.) within the next two to four years. It sits at $41 today. Andrew Nikiforuk, author of Tar Sands, imagines it could go as high as $300 in that time.

"The second stage is supply shortages," Hughes said. "We could see a replay of the (oil crisis of the) early '70s."

Canada might initially be insulated from supply shocks, owing to our huge deposits in the Alberta oil sands. Of course, most of that oil is pumped into the U.S. Since Ontario, Quebec and the Maritimes get most of their oil from overseas, we are vulnerable.

And then?

"It will be a slow deterioration in our quality of life, in the reliability of transportation, in the availability of certain foods as well as price spikes for food," Nikiforuk said.

"It will cause pandemonium in both the public and private spheres."

So what should we do?

"Save your capital. Reduce your consumption. A lot. Make yourself accessible to mass transit," Hughes said. "And forget about buying things at Wal-Mart that were shipped here from halfway around the world."

"You prepare by walking more, operating one vehicle. You prepare by buying more food locally and talking to your friends about getting engaged in the political process," said Nikiforuk. "Oil has made us fat and lazy. ... It was a 150-year addiction to an energy source we didn't appreciate or use particularly wisely. It distorted our economy. Now it's going. And we can't go back to business as usual."

Thursday, February 12, 2009

The Peak Oil Crisis: The Economic Rebound

Falls Church News-Press

By Tom Whipple

A few years ago, peak oil was relatively easy to understand. At some point in the future, and estimates varied as to exactly when, oil production was going to start declining due to a combination of geologic and geopolitical factors, prices were going to rise precipitously and a massive civilization-wrenching paradigm shift would start as the world transitioned from oil to other forms of energy.

Those who understood that oil was going to start running out one day spread themselves along a spectrum of just when this unhappy event would happen. Pessimists saw the decline of oil production beginning in 3 to 5 years, optimists said 10, 20 or 30 years, and most of the world's peoples did not have the faintest clue that the oil was ever going to run out. Things were so simple 18 months ago.

In 2007, however, it was revealed that a collection of realtors, appraisers, mortgage brokers, bankers, builders, financiers, insurers, securities raters and assorted others had been making lots of money by selling houses to people who could not afford them and then dumping the tainted mortgages on the world's banking system. When all the dust from these revelations settled, it looked as if many of the world's banks had suffered grievous if not fatal damage and what could turn out to be the greatest economic downturn of modern times had been set loose. So where does oil fit into all this?

Oil of course, is the life blood of modern economies. Without increasing amounts of it there can be little or no economic growth until substitutes are found in quantity, and if it is withdrawn there will be economic contraction. One of numerous and ill-understood issues in our economic future is the relation of oil --production, consumption and price -- to our economic downturn. The interrelation is a complex one.

The onset of the economic troubles and reduced demand for oil last year not only crashed oil prices to the relief of many, but has led to a precipitous decline in oil exploration, drilling and alternative energy projects. Although it will be months or years before the effects of these reduced expenditures are felt, some are forecasting serious consequences three to five years ahead.

The overriding issue, however, is just how long the economic downturn will last. Historical precedent and conventional wisdom from Wall Street seems to be saying that by the middle of 2009 we will hit bottom and things will start to improve. Some, however, are not so sure and are making cases for a downturn of many months, quarters, years, or in extreme cases decades. Sorting this out is obviously impossible for we seem to be entering an era unique in history. The U.S. administration currently is intent on instituting a $3+ trillion economic stimulus and financial bailout using borrowed money that might do some good, have a negligible effect, or as some fear crash the dollar, the U.S. financial system, and God knows what else.

One of the problems is that there are many feedbacks implicit in all this. Should these government bailout plans start to work, there is likely to be an increased demand for oil. While OPEC which is currently cutting production as quickly as it can get its act together should have spare capacity to respond for a while, demand could get out of hand and oil prices could easily surpass those of last summer thereby dampening or destroying any recovery.

Should the stimulus and financial bailouts have little or no effect in the next year or two and the economic situation continues to spiral downward, then the demand for oil will continue to decline. At some point, however, demand in the U.S., Europe and parts of Asia will run into the limits imposed by our motorized societies. Particularly here in the U.S. the economy simply cannot function without a certain amount of transportation fuel or economic activity will take another major hit. Demand for oil in North America, Europe, and oil producing states is likely to continue at a fairly high level until either it is no longer available or prices become absurdly high in relation to incomes. It is clear the future is going to become a very complicated place with all kinds of forces pushing in all sorts of directions.

A lot of what happens depends on whether our current economic troubles turn out to be only a deep, but run-of-the-mill recession that lasts only two or three years, or whether the damage to the financial system coupled with falling oil supplies have created a new and previously unknown economic phenomenon from which there is no quick recovery. If the downturn continues for the next four or five years the world will be entering oil depletion territory where the fall of production is likely to simply overwhelm any efforts to stem the decline through increased drilling or establishing alternative sources of energy.

If there were still cheap, readily available sources of fossil fuels available then there might be some hope of working our way out the current recession. New sources of oil from deepwater wells, tar sands and heavy oil deposits are very expensive to exploit. While some drilling continues, this is because oil companies are locked into long term obligations which have to be paid anyway so they continue on in the hope that prices again will reach $100 a barrel. OPEC remains committed to cutting production until they can drive oil prices high enough to ensure economic and political stability.

These factors alone suggest that while cheap, plentiful energy is available today, it will not remain either cheap or plentiful much longer.

Tuesday, February 10, 2009

Candles In The Darkness

By Dave Bennett

Survival is a universal topic of discussion these days, given clearly evident faltering economies, climate change and rapidly diminishing resources.

Three recent books offer guidance from seemingly disparate authors. Cy Gonick -- editor of Canadian Dimension magazine -- has assembled a well-ordered series of essays which provide a Canadian context on these crucial and relevant topics.

Sharon Astyk is a Shakespearian scholar turned farmer; Pat Murphy, is a computer scientist who became an activist and builder of homes engineered to consume low energy.

Astyk focuses on family, which she ultimately extends to all humanity. Murphy traces the historical roots of consumption from the time of the Roman Empire, making his point that the nature of imperial power is to pillage the resources of subjected peoples, and that modern America is no exception.

Both Astyk and Murphy write with prophetic zeal. The authors foresaw the crises in global warming and financial chaos. They offer -- from different perspectives -- practical guidance on ways to alleviate our predicament, coming to the same conclusion: We stand or fall together. Survival in hard times is -- has always been -- a matter of living together in community.

Energy Security and Climate Change A Canadian Primer edited by Cy Gonick - Fernwood Publishing / Canadian Dimension 2007

Gonick’s book is divided in two parts, one focused on Peak Oil, the other on Climate Change. Richard Heinberg defines the difference in his article, Bridging Peak Oil and Climate Change Activism: “The first has more to do directly with the environment, the second with human society and its dependencies and vulnerabilities.”

Petr Cizek sets the stage with Scouring Tar and Scum from the Bottom of the Pit

In a section headed “The Tar Sands Appalling Impact” Cizek lists some of the costs: “Around Fort McMurray, over 430 square kilometers of boreal forest have been eradicated....[M]ining operations are already licensed to divert 349 cubic metres of water per year from the Athabaska river...” Other revealing sections are headed “Follow the Money” and “Buying the Environmental Movement.”

The other essay titles are self-explanatory: Fudging the Numbers: [Prime Minister] Stephen Harper’s Response (Dale Marshall), The Corporate Climate Coup (David F. Noble), Climate Change and Energy Security for Canadians (Gordon Laxer) and finally, A Twelve-Step Program to Combat Climate Change (Cy Gonick & Brendan Haley)

Plan C - Community Survival Strategies for Peak Oil and Climate Change by Pat Murphy (New Society Publishers – Sept. 2008)

Pat Murphy addresses American readers who have swallowed the myths of Manifest Destiny; but there is much that the rest of us can learn and identify with.

The book begins with the statement, "We are facing multiple world grave crises -- peak oil, climate change, inequity and species extinction. to name just a few. When I began this book our situation was very serious. Now it is life threatening."

He defines Peak Oil as “the term used to describe the point in time at which oil production reaches the maximum and then begins to decline. After 140 years the world has consumed about half the oil available. In the next 40-50 years all the oil in the earth will have been burned."

Plan C’s strength is in its powerful graphics and its compelling logic. Throughout the book, he presents charts and diagrams in support of his arguments. He builds his case systematically as one would expect from a computer scientist and engineer.

Murphy traces the North American sense of entitlement to the arrogance of earlier imperialists, pointing out that “It is the nature of aggressive empires to see themselves as benefactors and saviors of the people whom they conquer...The greed is good economic theory, maintained with nearly religious fervor, has tended to create extremes of wealth and poverty along with unsustainable environmental destruction.”

Murphy faults the consuming lifestyle “promoted and controlled by corporate owned mass media...To gain the wisdom to survive the dual crisis of peak oil and climate change, we may have to abandon our media habit....All teach consumption, competition and violence and tend to make us think along the lines that support a corporate consumer agenda.”

Having set up some major targets, Murphy then explains his title, Plan C. He reviews and discusses the options:

Plan A: Business as Usual (‘The growth-oriented paradigm obsessed with technology.’)
Plan B: Clean Green Technology (‘Cleaner technology is available, it just needs to be deployed.’)
Plan D : Die Off (‘Die off of the race or a drastic population decline.’)
Plan C: Curtailment and Community (The first to drastically reduce consumption.’)

In tracing the roots environmental destruction Murphy writes, "Undoubtedly one of the most destructive is the private automobile...The car is more than a mode of transportation -- it defines America's homes and communities. The car has formed our physical communities through suburban sprawl and to a great extent destroyed our social communities. Although the car supposedly represents freedom and independence, it may be the greatest creator of alienation between humans that has ever existed."

He sets out to demonstrate how all of the dreams of technical solutions -- from hydrogen fuel cells to battery power -- are in the remote future or too costly in terms of the fossil energy required to create them. In a later chapter he proposes what he calls ‘the Smart Jitney,’ based on the existing pool of cars and augmented by high-tech computer and GPS links. He contends that “The Smart Jitney can replace the private cars, help restore community and reduce emissions substantially.”

Murphy's chapter The Energy Impact of Buildings is stunning. He reveals that “The energy used and CO2 generated by the automobile or food production is much less than the energy consumed by US buildings...[and] we must not forget that a building is a container for a large number of machines that use energy.” He makes suggestions for retrofitting and replacement, which he admits may be expensive and force hard choices, a case of ‘pay now or pay later.’

Murphy takes pains to define the various meanings of Community. He points out that “community cohesion is not likely to be restored by simply calling for cooperation in our present affluent and individualistic society...Once conditions cause people to come together locally to cooperatively organize their own economic affairs and together deal with the issues of survival,”

The question is: Can we do it, and can we do it in time?

Depletion and Abundance, Life on the Home Front - Coming to Terms With Peak Oil, Climate Change and Hard Times by Sharon Astyk (New Society Publishers – Sept. 2008)

Astyk begins her book by reminding us of the Katrina disaster in New Orleans. This becomes a recurring metaphor: We can’t expect that those in authority will act appropriately, even if -- as was actually the case -- they had ample warning but chose to take refuge in denial. We must “take things into our own hands and prepare for the changes at hand.” If we are warned of hard times ahead, the best thing we can do is plan a way to deal with this, even if it is only to get a map of escape routes. Her book is such a map. It is also a chronicle of how she enlisted her family, including four young sons, to the cause.

Astyk’s sweep is wide, with topics ranging from finances and health care to politics and resource wars, all in the context of family and community.

She writes, “The hard times I am talking about do not lie in the conveniently distant future, but have begun already...And many of our problems are going to continue getting worse because we lack either the will or the money or the energy or the time to fix them.”

Astyk describes her despair of finding solutions until she “began looking for solutions that could be applied on the level of ordinary human lives, that involved changes in pulling together, the reclamation of abandoned ideas, and the restoration of strong communities, I began to feel hopeful, even excited...”

She transmits her fervour honestly with wit and wisdom. Her style is often anecdotal, sometimes confessional and seems to emerge organically from her vantage points as mother, feminist, scholar and deeply spiritual person. She doesn’t just pay lip service to saving the planet. Her whole family is involved, from the teenagers to the toddler.

The targets Astyk sets up have to do with setting goals for practical solutions -- some easy, some difficult. She reveals these by describing her family’s journey into voluntary simplicity and what she calls the subsistence economy, pointing out that subsistence is not necessarily the same as poverty.

“Poor agrarian societies generally have stronger social ties. In many cases, people who live in simpler economies, enticed with fewer things they can’t have, report themselves to be happier,”

Astyk writes with a genuine moral fervour that is hard to ignore. She closes her book with these words: “Peak Oil is not about petroleum geology or economics when you get right down to it. Climate Change is not about ice cores and meteorology. These things matter but they aren’t the center of things. Peak Oil and Climate Change are about justice, plain and simple. They are about fairness, morality and integrity -- we in the rich world have chosen to steal from the poor in our own country and other nations and from our children and grandchildren and we need to stop it right now.”

All three books are superb guides and reference works for thoughtful people who choose to survive in a world of diminishing resources.

Dave Bennett created many films about the environment, and spent some years in the Third World, where he learned about the benefits of a subsistence economy as well as the traps of poverty. Now retired, he lives with his wife in Belleville, Ontario, Canada.

Sunday, February 08, 2009

Enjoy low oil prices while you can

By Barry Critchley

Henry Groppe, founder of Houston-based Groppe, Long & Littell, is 83 years old, a vegetarian and has been a forecaster in the oil and gas business since 1955. And he is not afraid to go against the conventional wisdom. One year back he predicted the oil price would collapse in the second half of the year -- and not reach the much talked-about price of US$200 a barrel.

Now Groppe, a special advisor to the Toronto-based Middlefield group of companies, has done his analysis and concluded that between now and year end the price of oil will double. If that forecast pans out, oil will hit US$80 a barrel, or more than double what others are predicting. His advice to consumers: Enjoy the current low gas prices, because they won't last for much longer.

"Given enough time, it's the fundamentals of supply and demand balances that control the price," Groppe said. "It's just like journalism: 'Get your facts straight,' " he said, when referring to moves inside the 80-million-barrel-a-day global oil business.

He bases his 2009 consumption forecast relative to 2008 on three such factors: the two-million-a-day barrel cut in production from OPEC, the bulk of which will come from three countries (Saudi Arabia, Kuwait and Abu Dhabi); the four-million-barrel-a-day increase in demand that will result from the average 50% decline in the crude oil price; and the 1.2 million barrel drop in consumption that will flow from the global recession. Put them all together and what emerges is a 4.8-million-barrel-a-day net oil shortage.

"There has to be a big upward correction in prices to bring things back into balance," Groppe said.

Groppe pointed out that two of the factors are dynamic, meaning that so-called demand elasticities are associated with them: a 0.1 elasticity between price and demand and a 0.3 elasticity between price and world growth.

Overall, the reduced consumption effect of the global recession, while large, will be more than offset by the effect of the lower price.

"[The significant] price change, because there is so much volatility, has much more impact on oil price than economic activity," he said.

Groppe said cutbacks by OPEC, unusually cold weather and China driving up the price of distillate (because of a plan to substitute for coal) explain all but US$25-US$30 per barrel of 2008's peak-oil price. He puts the rest of the gain down to the actions of "momentum traders. They piled on," he said, noting the current price is about US$20 a barrel lower than what fundamentals would dictate.

The veteran forecaster said "depletion and rational exploration" are the two most important "controlling fundamentals" in the oil industry. He argues that depletion gets underway when production from a new well starts while explorers are focused on finding the biggest discoveries. Groppe isn't impressed with much of the analysis done by governments, agencies or companies.

"The big problem is the terrible quality of the data. Do it long enough over the years, you get some feel for what the actual [supply and demand] balances are." But you have to try and pin down what's actually happening versus the misperception of what's happening," he said.

Saturday, February 07, 2009

Time to toll the warning bells

Arab News

By Syed Rashid Husain

The crude world has now traversed the full distance. The inevitable has happened. The bubble has finally burst. Not long ago, the peak oil theory was in robust circulation. New converts were adding to the force and fury of the peak oil camp virtually on a daily basis. Things have changed completely within a very short span of six to seven months.

The tide is exactly on the opposite side today. The market’s obsession today with plummeting oil demand has been so pervasive that it has even fostered a new theory: Peak demand.

In the midst of rapidly falling oil consumption — which as per the IEA is set to contract again in 2009 — the first back-to-back contraction in 25 years. The global focus now is the issue of peak demand and not peak oil. And there exists a world of difference between the two extremes. What a transformation of fortunes indeed!

Much on the pattern the peak oil movement gained momentum when oil prices were rising, now that they have collapsed, some seem convinced oil demand hit its highest point last year in developed economies, never to return. They’re also pumped by the commitment of some governments to support conservation and invest in new alternative energy.

“There is a reasonable likelihood that OECD oil demand has peaked,” Peter Davies, former chief economist at BP PLC, told Reuters recently.

Antoine Halff and Veronique Lashinski, energy analysts at the US brokerage Newedge, said: “More and more analysts are sold on the idea that US oil demand peaked in 2007. The market meltdown is likely to entrench current demand losses not only in the US itself but in the world at large.”

And this realization, coupled with the softening markets is beginning to take its toll in more than one ways. OPEC now stands ready to make further output cuts in case crude prices continue to be subdued; in the second quarter OPEC expects an even deeper drop in demand. “OPEC is dealing with tough circumstances, the toughest in ten, if not 30 years,” said Raad Al-Kadiri of Washington-based PFC Energy. He has a point.

Crude oil prices during the three months to the end of March, Merrill Lynch estimates, could bottom out at an average of just $43 a barrel. Other investment and industry analysts at Deutsche Bank and at the China National Offshore Oil Corporation have predicted an average price of $40, or even lower.

The above scenario has a flip side too — and a scary one indeed!

At stake now are the future projects. For OPEC, and for international oil companies, low oil prices naturally lead to significant cutbacks in future expansion plans. Oil companies are keeping a wait-and-see stance justified by the easing of pressure on supplies. A number of projects are no more feasible. Investment has dropped off and, keeping in view the gap of roughly ten years between geological discoveries and bringing it to market, this definitely does not bode well for the industry.

In West Africa, termed by some as the next global oil frontier the expensive “deep-water oil is at risk of being deferred at current oil prices,” Nigerian Petroleum Minister of State Odein Ajumogobia warned at an oil exploration conference in Abuja.

The IEA is also concerned. Low oil prices and the lack of global liquidity to finance new hydrocarbon exploration and production are causing concern about future supplies and prices.

“We hear almost every day about a project being postponed,” says IEA chief economist, Fatih Birol. “This is a major problem.”

The IEA maintains that the average oil price needs to be significantly higher than in the past five years to encourage the development of new fields that are more costly to exploit, such as Canada’s tar sands, Siberian oil fields and deep-sea offshore reserves, as well as the construction of much-needed new oil refineries.

Estimates by Cambridge Research Associates point out that as much as four million barrels of future oil-productive capacity could be jeopardized if prices remain below $60 a barrel. Other analysts say that figure could be even higher if the figure averages less than $50 a barrel.

Randy Ollenberger, managing director of oil and gas research at BMO Capital Markets, said the global oil supply could decline by as much as 20 million barrels a day over the next three years if the oil industry stops investing new capital, whether by building new projects or sustaining existing ones, because oil prices are too low. This would dwarf a decline in demand of about 2.25 million barrels a day over the same period.

Jeff Rubin of CIBC World markets estimates that oil-sands project cancellations so far add up to the loss of one million barrels a day that was expected to come in the next five to 10 years. Around the world, he estimates, 40 to 50 new projects are vulnerable at today’s prices.

And this is happening at a time when the Russian oil production is also experiencing significant drop. Russian production went down 0.7 percent for the first time in 10 years, Vedomosti, a Russian newspaper reported. However, Russian exports during the year were reduced more dramatically by 6.2 percent over the previous years.

This leads us to another deduction too — the current low prices are not going to stay there long. The tide is in for another transformation down the road. Despite the lowering of raw material prices, especially steel, one is not witnessing a rush for rigs now that recession is eroding demand for fuel worldwide.

Sharp price rise by 2011-12 hence cannot be ruled out. Dan Lewis, research director at London’s Economic Research Council, recently said that an “oil crunch” is looming, a result of oil exploration projects being shelved during the current global economic crisis.

“The market is fixated on the demand side and ignoring the supply side, and if oil prices remain at these levels, what we will see is supply destruction that is much greater than the demand destruction than we have seen,” says Randy Ollenberger.

It’s the reason he doesn’t see oil prices staying at today’s levels for long.

“In the 1980s and through the 1990s, we had lower prices for protracted periods because we had excess supply over that entire period. We don’t have that today,” he said. “I think the turnaround here will be much, much quicker. Maybe not a turnaround in 2009, but by the end of 2009 we will see pretty clear evidence of the supply destruction.”

Jeff Rubin also predicts another oil spike to $100 a barrel toward the end of this year and into 2010, arguing that the recession may temporarily cut one or two million barrels a day from world oil demand, but will do nothing to stop the loss of nearly four million barrels per day this year from depletion alone. We are entering unknown waters again — time to toll the warning bells indeed.