Peak Oil News: 03/01/2009 - 04/01/2009

Tuesday, March 31, 2009

Buildings & Grounds: Food For Thought for Agriculture and the Future

A Farm for the Future, a BBC documentary about the prospects of agriculture after peak oil, is now available through Google Video. The program, which was made by the wildlife filmmaker Rebecca Hosking, begins on a conventional farm owned by Ms. Hosking’s father in England’s South Devon region. The documentary goes from there to explore other low-energy, low-impact farming methods that Ms. Hosking says might be necessary in an energy-starved (and food-starved) future.

The documentary should be compelling viewing for anyone involved with campus sustainability and food projects. We’ve recently discussed the importance of teaching agriculture at colleges and the fact that many colleges have become interested in local foods, along with agriculture and community gardens. Some colleges, like Green Mountain College, Sterling College, and Goshen College, have programs to teach students how to farm in a post-oil era.

Peak oil — the concept that oil production will crest and then decline, leading to all sorts of trouble in society — is of course a controversial topic, and the associated movement of so-called doomers attracts its share of ridicule. In a recent book, Global Catastrophes and Trends: The Next 50 Years (MIT Press, 2008), Vaclav Smil, an energy expert at the University of Manitoba, says that the alarmism of peak-oil proponents is “based on a lack of nuanced understanding of the human quest for energy” that disregards economics, innovation, and adaptability. (In his book, he seems more concerned about human interference in the global nitrogen cycle, water shortages, loss of biodiversity, and soil erosion — all of which affect agriculture, by the way.)

Planning for a post-oil era is at least a prudent thing to do. Agriculture, which has been one of the most important disciplines of the American university system, will certainly face a number of pressures in the future, peak oil or no. Ms. Hosking’s documentary might provide food for thought for the future of sustainable food production.

Thursday, March 19, 2009

'Peak oil' enters mainstream debate


By Adam Porter

Is global oil production reaching a peak?

A few years ago only a handful of geologists and academics were considering such a possibility.

But now it appears even governments are taking a serious look at the subject.

The question is occupying more and more minds around the world.

It could happen soon.

A French government report on the global oil industry forecasts a possible peak in world production as early as 2013.

Don't mention it

The report 'The Oil Industry 2004' takes a long look at future production and supply issues.

But perhaps what is most interesting about this Economics, Industry & Finance Ministry report, is that it actually mentions a possible production plateau at all.

Even one year ago it was unheard of to find the subject mentioned amongst government ministries or financial institutions.

Now banks such as Goldman Sachs, Caisse D'Epargne/Ixis, Simmons International and the Bank of Montreal have all broached the subject.

"They are being forced to by circumstances," says Professor Richard Heinberg, author of 'peak oil' books Power Down and The Party's Over.

"They have relied on optimistic data and rosy outlooks that are being proven to be incorrect."

Nevertheless, some analysts disagree with the notion of any peak in oil production, also known as 'Hubberts curve', after the geologist M King Hubbert who first argued the case.

Deborah White, senior energy analyst at Societe Generale in Paris, says that "we have heard these arguments about 'peak oil' since the idea of Hubert's curve came into being.

"We don't endorse the idea at all."

'Peak oil' mentioned

And yet, the French report, perhaps the most open government dossier yet, questions the viability of long term oil production.

The report's second chapter 'Global Exploration and Production' runs a series of differing scenarios based on current forecasts.

The scenarios differ according to projected demand increases, from 0% to 3% per annum, and possible new field discoveries, between zero and fifty billion barrels a year.

At a rate of 3% increase in demand per year and annual finds of 10 billion barrels, the ministry report states 2013 as "the time of maximum production or 'peak oil'".

That would mean the world's oil consumption would reach its highest point at around 97 million barrels per day (mbpd).

Forced to react

It is also very unusual to find a government report using the wording 'peak oil'. This is a phrase often used to describe the theory of a global oil production plateau, after which production would begin to decline.

Chris Sanders spoke at the recent Association for the Study of Peak Oil conference and is director of international finance consultants Sanders Research.

He believes 'peak oil' is major threat to modern economies.

"There is only so long politicians can ignore a geological problem, and it is a geological one," he says.

"Governments have had a great chance to take the lead on this situation, but they have not taken it. Now they are being forced to react.

"Why? Because it is very probable that we are nearing 'peak oil'."

The French report uses the phrase, in English, and repeats it on no less than four occasions.

Outdated data

The best case scenario the report lays out is rather far fetched, with a 0% increase in world consumption, at only 79mbpd, with annual finds of 50 billion barrels of new deposits per year.

That makes 'peak oil' arrive in 2125.

Unfortunately the report's figures are already outdated. The world consumed 84.7 mbpd in the first quarter of 2005.

International Energy Agency (IEA) forecasts - traditionally regarded as conservative by the markets - put demand at around 86.1 mbpd for the fourth quarter of this year alone.

Its figures put demand growing at 2.2% in the first quarter of 2005.

This means average consumption for 2005 would come out at 84.3 mbpd. Plus, in the past 30 years, new discoveries of oil have averaged about 14 billion barrels per year, with recent discovery rates well below that.

Despite not endorsing a production peak, Ms White is also factoring in demand growth "of around 1.5mbpd over the next five years, which will mean a total demand of around 91.8mbpd in 2010".

Different definitions

The French report also echoes a fundamental problem at the heart of the oil business, namely data transparency.

Without accurate audited data, discovery forecasts, forward pricing and reserve calculations become a matter of debate rather than science.

This year alone the International Monetary Fund, the G7 and IEA have all called on Opec countries and Russia to open their fields to independent scrutiny.

"The definitions of oil reserves are different in many countries," the report observes.

"The capacities of sustainable production by Opec countries are very difficult to estimate. It is impossible to know production levels without waiting, at best, several months."

The report also goes on to look at the daunting levels of cost needed.

Firstly to extract current reserves but also to explore for new deposits.

"Somewhere in the region of $900bn will be needed by 2013 alone to develop [existing] reserves," it says.

"This massive investment will double as one will need to add exploration costs to this figure as future production from 2013 to 2030 will depend on it which means that to be successful, around $250bn a year will need to be spent."

"Ruinously high oil prices are making governments look at the subject," says Professor Heinberg.

"For example, when they are faced with whole industries like the airlines going bankrupt, it forces them to react, but they may be too late."

Suburban blight

Ms White takes the problem from a different perspective.

Rather than a costly search for more oil, she recommends conserving its use.

"We are at the wrong stage of the economic cycle for a recession that would cut demand," she says.

"What is very important is conservation, especially in transport. Raising taxes on fuel, introducing toll roads and bridges into major cities for example, but also stopping the spreading of suburbs ever further from city centres.

"Controlling suburban blight is one way to slow oil consumption until we are a society no longer dependent on oil."

Friday, March 06, 2009

The Peak Oil Crisis: Oil in the Great Recession

Falls Church News-Press

By Tom Whipple

Earlier this week the Associated Press grappled with the issue of whether or not the current economic downturn has reached the point that it can be called a depression. After consulting many learned scholars the answer seems to be that it is too early to make such a pronouncement.

According to some, it is going to take three growth-less years during which unemployment will have to climb above 10 percent and the GDP will have to decline by at least 10 percent before the term should come into common use. (During the 1930's unemployment climbed above 25 percent and the economy shrank about 27 percent.) While we have not fulfilled these requirements, some are already suggesting it can be called a "Great Recession."

Last weekend, as a member of a panel on the outlook for energy at a student conference called Power Shift 09 in Washington, I was asked about what happens to peak oil in a depression. The implication was that if the global economy gets really, really bad in the next few years and the demand for oil drops so far, so fast, that nobody would notice that much of the investment in new oil production had stopped. If demand falls fast enough, declining world oil production resulting from depletion overtaking new production simply won't be noticed.

As the bad economic news continues to pour in, and the equity markets keep falling through support level after support level, the chances that we are heading into a very serious recession seem to be improving. In recent days, guests on the financial news networks have turned somber. Instead to talking about buying opportunities before the great cyclical rebound, more are speaking of uncharted waters and that we could see the Dow at 4,000 or even 3,000 in the next couple of years.

Across the ocean, OPEC currently seems much less certain that it can control oil markets through production cuts and seems less enthusiastic to implement further cuts. In recent weeks oil prices have stabilized around $40 a barrel and thus far a 3 million barrels a day (b/d) production cut has had little noticeable effect on raising prices in the midst of the economic storm.

The high oil prices last summer and the economic slump this winter have combined to cut U.S. oil consumption by about 1.2 million b/d or 6 percent during 2008. Oil consumption in Japan and Korea has dropped along with their exports, but Beijing continues to talk bravely about 8 percent economic growth in 2009. If this forecast holds true, it implies that China could increase its oil consumption this year, but certainly not as fast as in recent years.

The great unknown is how much effect a major economic contraction will have on oil consumption. Industrial consumption of oil will drop as economies contract as will discretionary consumption by those who have lost a portion of their former incomes. For other uses such as agriculture, home heating, public safety and utilities, it will be very difficult to make major reductions in consumption in the short run. However, for a world in which oil consumption is deeply engrained in nearly all facets of life, much will be given up before large drops in oil consumption take place.

In addition to the state of the economy, the price of oil obviously will play a major role in determining the level of consumption. Currently prices are relatively cheap, but should OPEC production cuts succeed in pushing prices back towards $100 a barrel, economically weakened consumers will have little choice but to take abnormal measures to reduce their consumption.

Currently world oil consumption is only down by a few million b/d from the all-time high levels of 2007-8. If this level of consumption holds, then the current OPEC production cuts of 3-4 million b/d seem to be on track to reduce stockpiles and force prices higher. The other side of the coin, however, is that the global economic situation is deteriorating far faster than most expected. It is possible that world oil consumption could quickly fall from a high of 86 million b/d in 2007 to 80 or even 70 million b/d simply because consumers can no longer afford and industries no longer need oil products in such volume.

In this situation, a new set of forces would come into play. While OPEC seems to be able to cut oil production by 3 or 4 million b/d, deliberately cutting production by 10 or 15 million b/d seems out of the question. The economies of the exporting nations that are already in financial trouble would simply collapse if oil exports were reduced by 50 percent. The consequences would be political turmoil and likely changes of government. The over-supply of oil would force prices lower. Analysts are already predicting that if oil goes to $20 a barrel there will be widespread reductions in oil production around the world as many fields can no longer produce oil this cheaply.

In a deep depression, supply constraints would no longer be a problem. If annual world oil production were reduced from the current 30 billion barrels per year to 25 or less, geological, and "above ground" constraints on production would likely be delayed for many years. Those individuals and institutions who could still afford oil would likely have available all they can use and probably at moderate prices.

What the global economy would look like under this scenario is another thing altogether. It would obviously be bad, very bad, but the details of the suffering are simply unknowable - there are too many variables.

It appears there are least two possible scenarios that could play out in the months ahead. Either demand holds up to a level at which OPEC can control the situation and we have higher prices, or the Great Recession causes demand for oil to simply melt due to lack of economic activity and declining incomes.

Natural Gas as Answer to Oil Decline Could Lead to Catastrophe, Says Leading Expert


Ploughing resources into the use of natural gas as an alternative energy supply could lead to global shortage within 20 years time, according to a leading energy expert.

Professor in Physics at Uppsala University in Sweden, Kjell Aleklett, says reliance on natural gas – believed by many to be a key source of alternative fuel for the future – would be a major mistake.

Whilst it could provide a short term solution to the energy issue, Professor Aleklett believes it is not the long term answer we need to tackle what he predicts will be a continuing decline in global oil production.

Professor Aleklett will outline his views this evening (Thursday 5 March) in his lecture Global Energy Resources – The Peak Oil View– which takes place as part of the institution’s Energy Controversies lecture series.

Professor Aleklett said: “The problem we should be concerning ourselves with is not climate change but the fact that there are too many people and not enough energy resources.

“We have reached a level where economic growth in the oil and gas industry is no longer possible. Looking for alternative energy sources has to become a key priority to counteract the continuing decline in global oil production which I predict we will experience.

“Many are looking to natural gas as a solution for electricity production in the future, but this is a massive mistake. Natural gas could generate enough energy to meet the demand for the next five to 10 years, but it is not a long term sustainable option.

“To expand the use of natural gas would be a mistake which could have catastrophic economical consequences for UK, Europe and across the globe in 20 years time. When we are hit by “Peak Gas” there are no alternatives for power generation. We have a discussion about future energy policy - it’s time to start to discuss the future power policy.”

The University’s Energy Controversies lecture series brings together leading international industry and academic experts to discuss the current challenges and debates facing the energy sector.

Professor Aleklett will deliver his lecture to a 250 strong audience at the sold out event which begins at 6pm at the University’s King’s College Conference Centre.

Aimed at influencing energy and social policy at a local and national level, the Energy Controversies series features seven public lectures and a discussion panel event.

Highly topical issues to be covered over the course of the series include:

• The exhaustion of fossil fuel reserves and their decline as an energy source
• The impact of the changing political climate on the energy industry
• The concern surrounding the environmental impact of our continued use of fossil fuels

Dr Peter Jackson, Senior Director for Oil Industry Activity at Cambridge Energy Research Associates and Professor Bahman Tohidi, Director of the Centre for Gas Hydrate Research at Heriot Watt University, will be amongst the lecture speakers, providing their unique insights into critical issues high on the energy agenda over the next few weeks.

Monday, March 02, 2009

What Next?

By Jim Kunstler

Isn't that a question, though....

The Peak Oil story was never about running out of oil. It was about the collapse of complex systems in a world economy faced by the prospect of no further oil-fueled growth. It was something of a shock to many that the first complex system to fail would be banking, but the process is obvious: no more growth means no more ability to pay interest on credit... end of story, as Tony Soprano used to say.

There was a popular theory among Peak Oilers the last decade that the world would enter a "bumpy plateau" period when the global economy would get beaten down by peak oil, would then revive as "demand destruction" drove down oil prices, and would be beaten down again as oil prices shot up in response -- with serial repetitions of the cycle, each beat-down taking economies lower -- the only imaginable outcome being some sort of quiet homeostasis. This scenario did not play out as expected. It was predicated on a mistaken assumption that all systems would retain some kind of operational resilience while ratcheting down. Anyway, the banking system was mortally wounded in the first go-round and the behemoth is dying hard.

The last desperate act of the banking system in the face of Peak Oil's no-more-growth equation was to engineer species of tradable securities that could produce wealth out of thin air rather than productive activity. This was the alphabet soup of algorithm-derived frauds with vague and confounding names such as credit default swaps (CDSs), collateralized debt obligations (CDOs), structured investment vehicles (SIVs), and, of course, the basic filler, mortgage backed securities. The banking system is now choking to death on these delicacies.

The trouble is that the EMT squad brought in to rescue the banking system -- that is, governments -- can't remove these obstructions from the patient's craw. They don't want to drown in a mighty upchuck of the alphabet soup.

The collapse of complex systems is actually predicated on the idea that the systems would mutually reinforce each other's failures. This is now plain to see as the collapse of banking (that is, of both lending and debt service), has led to the collapse of commerce and manufacturing. The next systems to go will probably be farming, transportation, and the oil markets themselves (which constitute the system for allocating and distributing world energy resources). As these things seize up, the final system to go will be governance, at least at the highest levels.

If we're really lucky, human affairs will eventually reorganize at a lower scale of activity, governance, civility, and economy. Every week, the failure to recognize the nature of our predicament thrusts us further into the uncharted territory of hardship. The task of government right now is not to prop up doomed systems at their current scales of failure, but to prepare the public to rebuild our systems at smaller scales.

The net effect of the failures in banking is that a lot of people have less money than they expected they would have a year ago. This is bad enough, given our habits and practices of modern life. But what happens when farming collapses? The prospect for that is closer than most of us might realize. The way we produce our food has been organized at a scale that has ruinous consequences, not least its addiction to capital. Now that banking is in collapse, capital will be extremely scarce. Nobody in the cities reads farm news, or listens to farm reports on the radio. Guess what, though: we are entering the planting season. It will be interesting to learn how many farmers "out there" in the Cheez Doodle belt are not able to secure loans for this year's crop.

My guess is that the disorder in agriculture will be pretty severe this year, especially since some of the world's most productive places -- California, northern China, Argentina, the Australian grain belt -- are caught in extremes of drought on top of capital shortages. If the US government is going to try to make remedial policy for anything, it better start with agriculture, to promote local, smaller-scaled farming using methods that are much less dependent on oil byproducts and capital injections.
This will, of course, require a re-allocation of lands suitable for growing food. Our real estate market mechanisms could conceivably enable this to happen, but not without a coherent consensus that it is imperative to do so. If agribusiness as currently practiced doesn't founder on capital shortages, it will surely collapse on disruptions in the oil markets. President Obama at least made a start in the right direction by proposing to eliminate further subsidies to farmers above the $250,000 level. But the situation is really more acute. Surely the US Department of Agriculture already knows about it, but the public may not be interested until the shelves in the Piggly-Wiggly are bare -- and then, of course, they'll go apeshit.

The recent huge drop in oil prices has left the public once again convinced that the world is drowning in oil -- if only the scoundrelly oil companies were forced to deliver it at reasonable prices. The public has been consistently deluded about this for decades. What's missing so far is for the president of the US to lay out the reality of the situation in a dedicated TV address. I know a lot of you think that Jimmy Carter already tried this and failed to make an impression (and ruined his presidency in the process). I guarantee you that Mr. Obama will have to do this sometime in the next few years whether he likes or not, and he'd be well-advised to get it done sooner rather than later. And by this I don't mean just vague allusions to "energy independence" or "renewables" in speeches devoted to many other issues. I mean telling the public the plain truth that we'll never offset oil depletion and the intelligent response is to do everything possible to transition to walkable towns and public transit, not to sustain the unsustainable.

The alternatives -- i.e. what we're trying now -- is to further delude ourselves into thinking that we can run WalMart and the suburbs by some other means than oil. Despite all our investments in these things, we won't be able to run them by other means, and the news about this had better get out before enormous disappointment turns into titanic rage. If Americans think they've been grifted by Goldman Sachs and Bernie Madoff, wait until they find out what a swindle the so-called "American Dream" of suburban life turns out to be.

On this blizzardy Monday in the power centers of America, attention is fixed on the never-ending fiasco of AIG -- a company whose main product turned out to be credit default swaps, and is now choking on them. Kibitzers on the sidelines of finance are forecasting a king-hell bear market suckers' rally in the stock markets followed by a belly flop to Dow 4000 or lower. I myself called for Dow 4000 two years ago -- and was obviously a bit off on my timing. All this is surely trouble enough. But while your attention is focused on Rick Santelli in the Chicago trader's pit, or Larry Kudlow desperately seeking "mustard seeds" of new growth in financials, try to let one eye stray to the horizon where these other complex systems are working out their next moves. Farming. The oil markets. These are the coming theaters of alarm and distress.