Peak Oil News: End of oil: End of another human era

Sunday, March 23, 2008

End of oil: End of another human era

International Analyst Network

By Ioannis Michaletos

The oil era seems to end in several decades from today, whilst the world markets are experiencing an upward trend in the energy price index. Moreover the consumption of fossil fuel is accelerating due to the growth of the Asian economies and in Eurasia the Russian corporations are eager in controlling most of the energy flow to Europe.

The worldwide oil consumption has increased some 25% over the past decade more than 85 million barrels of oil are needed to meet the daily needs of the globe. With the present consumption rates the oil era will end in less than 40 years. This can be calculated by the fact that the total known reserves amount around 1, 2 trillion barrels. Further, the reserves are distributed unequally in the different geographical zones of the earth, and that means that some countries will experience a shortage much sooner than others.

The oil price has already reached $111.5 and it remains to be seen if it is going to stabilize at even higher price. By taking into account that 40% of energy consumption derives from oil; Western governments already predict a slower growth with and as much as 0.5% of GDP lost in the coming year. Moreover the combination of increased consumption (By India-China), the upward pressure by the options & derivatives market, the weakening of the Dollar and the diminishing reserves, create an explosive situation that can erupt in the future and lay the basis of a world economic crisis.

The greater Middle East region still reigns with the largest oil fields and some other countries like Venezuela, Russia, and Nigeria can be said to form the foundation of the production markets. On the other hand the five largest petroleum corporations (Exxon-Mobil, Shell, BP, Chevron, and Total) made more than $120 billion of profits in total last year, of which 39.5 billion were Exxon-Mobil’s alone. Due to their immense cash-flow the oil industry is still considered as one of the pillars of the modern economic system, apart from their influence in major geostrategic decisions.

The depletion of reserves

It is more than certain that the last drop of oil produced will derive from an oil well in the Middle East. The region according to the BP Statistical Review of World Energy 07 produces 31.5% of the world’s total and holds 61.5% of the known reserves.

China’s dynamic entrance in the market assists greatly in the projection that in 20 years from now consumption will have increased some 40% and at that period the peak oil will not just be a term but a distressful reality. Of course the 39 years estimation is calculated for the world total and not for every individual country. Thus the rich in oil states will further upgrade their importance since they will be the ones dictating the rules of the game during the last annum of the oil period. For instance Iraq holds around 115 billion barrels and produces 2 million per day. That’s sufficient for another 100 years or so, whilst Saudi Arabia with 264 billion barrels and 11 million barrels production can hold on for not more of 67 years. Iran another key country will have sufficient amounts for around another 87 years. As it can be shown the interest of the world is rightly centered in the Middle East, because apart from other political developments, those countries will play a very significant role for the global economy from 2040 and beyond.

The OPEC states in general produce 45% of the global production and have 76% of the total reserves. Their cartel is challenged only periodically by the hedge funds that profit from legal gambling on the energy prices. Should the trend continue OPEC will further empower itself, when other non-member oil producing countries such as Norway, Brazil, and Russia deplete their resources (9, 18.5 & 22.5 years respectively).

The main quest for all the main energy players is to discover new oil fields or to take advantage of the new technologies in order to proceed in alternative modes of extracting oil. The oil sands in Canada could prove to be a promising opportunity, worth some 165 billion barrels of oil, even though that won’t stop the peak oil reality, rather it will delay a bit the overall path.

Furthermore over the past generation there has been little investment in the refinery sector of the oil energy industry. Both USA and Russia have neglected to invest in their refinery industries, thus contributed in the overall scenery. There are also serious considerations around Russia’s ability to manage its energy know-how in order to invest in new oil fields as well, thus future plans relating to oil transfer and new pipelines might end up to be just pipedreams, whilst future seams bleak for the market that cannot wait for long-term investments.

Since the first industrial extraction of oil int he modern era, more than 1.1 trillion barrels have been consumed. The interesting part is the acceleration of consumption during the past generation. In 1984 China required 1.7 million barrels per day; nowadays the figure has stepped to 7.5 million. India consumed 0.8 million barrels and today it needs 2.6 million. Both countries are still behind the living status of the post-industrialized Western markets and that is not reassuring that consumption rates will lower their growth. As it can be easily understood the oil era cannot have any future judging the nature of our social system which is based in over-consumption and the eagerness of the Eastern Asian states to imitate the Western way of living.

The underlying strategic landscape

The pessimist projections will lead to an overturn of the standing political balances across the world. Every state in need of oil will have to move fast in order to acquire new sources and be able to withstand the passage from the oil era to a new one, which is not yet well defined. It is not by coincidence that two of the most critical areas in the planet are Iraq, and Iran –As they have been for many decades now-.Even the former Director of the American Federal Bank (Greenspan) has implied that the war in Iraq had mainly motives that include the control of the commodity beneath its surface. The American economy which is responsible for 25% of the world’s consumption is still very much dependent on oil, despite recent moves to initiate renewable resources investments of a grand scale. The interest on the global warming and the environmental destruction was highly elevated since 2001, due to purely political and economic reasons that relate to the demise of the oil era and the turbulent situation in the Muslim world that controls much of this source. The issues here is the high costs of using sources as the solar and wind one and the low returns on investments that they provide. Actually oil is still much cheaper than any renewable commodity, thus the main challenge will be for the USA to retain its primal position in the world energy system for several decades and in parallel introduce new cost-effective technologies. To that one can add that the growth of renewable energy might alter the established world order by changing the importance of certain geographical regions in favor for other ones; and that constitutes another strategic quest for the policy planners and futurologists alike.

China and India are due to their rising needs two other power units that alter the established strategic notions. They will have to secure new energy sources; therefore they will try to re-engineer the global power blocs to their advantage. The deals signed between Iran-China, Russia-China, African countries & China, since 2001 are just a preparatory phase of what may follow next. Venezuela under Chavez leadership constitutes an emblem of energy nationalism which seems to becoming a trend in Latin America. His policies have global repercussions and an alignment of his state with the emerging giants of the East is a probable outcome in the near future.

Iraq by itself is a major issue, since the production of the country is not sufficient enough to assure a steady flow to the markets, as it was the case before the 2003 war. For the moment there are not signs of any positive development in that field and it should be noted that Iraq was at time the second largest oil producer in OPEC and its severe decrease means significant rise in oil prices. Terrorism also –And not just in Iraq- is an X factor for oil prices. For instance the attack on the oil industry complex in Saudi Arabia by Al Qaeda in May 2004 witnessed a sudden spike on prices, despite the failure of the terrorist act. One should wonder of the consequences of a successful terrorist attack in an oil-producing country, a hypothesis regularly discussed by security analysts across the globe.

Lastly Russia is a state that uses its natural resources wealth for geopolitical expansion and its main tool to re-establish most of the space lost due to the break-up of the USSR and the dissolution of the Soviet Empire. Actually when mentioning Russian diplomacy nowadays one means energy politics. Moscow is steadily becoming the major source for the European markets and gains footholds in East Asia. Simultaneously it retains a grip in the production of Central Asian countries by signing a multitude of agreements that require the trespassing of their exporting pipelines from its territory in order to influence directly the production of Kazakhstan, Uzbekistan and others.

The short-term projection in relation to the strategic landscape is actually more difficult to define than the long-term. OPEC seems to loose its influence it has since 1973 due to the Russia initiatives, the USA control of Iraq, the Venezuelan directions and the all-pervading reach of the international capital markets in the form of the hedge funds. Note however that the peak oil will elevate once again OPEC that holds most of the resources and certainly the Middle East can be said to represent the Middle of every energy related strategy in the future.

The quest for alternative production

The presentation of the aforementioned challenges & events already sweeping across the world, have activated a quest for making use of any type of material possible in order to both ease dependency on oil & gas along with the political implications that this implies. The Shell Research & Development sector has transmitted in the media that there is a great chance of making use of Kerogen a mixture of organic chemical compounds found in sedimentary rocks. A region in the USA that contains large amounts is a 17,000 Sq. mile one between Utah and Colorado. It is guessed that approximately 800 billion barrels of retrievable oil can be extracted an amount three times the one of the Saudi Arabia’s reserve. The area mentioned is named Green River and can produce up to 5 million barrels of oil per day, which is 17% of the present daily consumption. Shell expects to receive the appropriate license to begin using a new method to extract oil from there, and this revolutionary development might alter the future of oil politics. It has to be noted that there are not any clear projections on the financial viability of this investment, something that will be ascertained in the future.

Notable Kerogen amounts can be found also in Brazil, China, Jordan, Israel, Thailand, Russia and Korea. In total at least 3 trillion barrels of oil can be retrieved which is almost 3 times the currently assessed petroleum reserves. A drawback of the extraction process by Kerogene is the use of excessive amounts of water, something that might hinder the ability to use this technology in desert regions lacking water. Shell has invested 855 million USD on Kerogen research in 2006 and according to Fortune magazine the corporation has dedicated over 200 million Dollars per annum over the past 28 years in this project. Certainly this might be a future solution that will have its ramifications in the energy security politics.

The International Energy Agency predicts that up to 2030 the world energy needs will increase at least 60% due to the growth of China, India and the other booming developing economies. That means that in the next generation or so, the countries in OECD alone should develop new energy resources as much as 2,000 GW. That means renewable energy production should be introduced in any case regardless of the discovery of new modes of producing hydrocarbon.

Photovoltaic energy is being viewed as a promising renewable energy resource that has a plentiful of advantages. It is a clean mode of producing electricity without emissions; it doesn’t involve substantial operational costs and can provide a durable and trustworthy production. Germany for example which produces for 2006, 3,063 MWp and holds around 50% of the global market.

Wind energy is another resource that has gained popularity and promises clean energy and energy security at the same time. According to the World Wind Energy Association globally, the wind power generation more than quadrupled between 2000 and 2006.
At the end of 2006, worldwide capacity of wind-powered generators was 73.9 gigawatts, and the main producers are: Denmark (19% of its electricity production), Spain & Portugal (9%), Germany & Ireland (6%).

Lastly the Coal Storage techniques that have been introduced by BP, Total, Duke Energy, RWE, Vattenfal and others, might revive coal as clean energy resource, although the whole process is under scientific review and the commercial results are about to be seen in a decade from now.

What lies ahead?

The synthesis between the energy security quest by the Western countries and the demise of the oil era, leave no other option but for the use and deployment of new technologies and techniques in the field of alternative energy. Despite the fact that they are less cost effective presently, they have the crucial advantage of relieving the world from the perils of environmental destruction, although the current projections by concerned citizens and NGO’s portray a much worse depiction of what the reality is actually, a hotly debated subjected suitable for another discourse.

In the meantime before the demise of oil and the introduction of renewable energy new methods have to be used in order to ease the transformation, especially in the countries affected mostly. Furthermore the ongoing research on the use of hydrogen power is bearing fruits, even though it has to be noted that for the mid-term and possibly until the end of the first centenary of the 21st century, hydrogen will rely to the use of natural gas as a cost effective and reliable way to produce hydrogen. A latest development on that is the effort by the Abu Dhabi Emirate to invest 15 billion Dollars in order to construct the largest hydrogen production facility in the world. That will constitute the first phase of this gigantic project that will use natural gas as a production commodity, a material in abundance in that country.

Albeit that will not solve the issue of energy dependency of Western states by the gas producers notable Russia and the Middle East. Thus it is probable that for political reasons solar, wind, wave and other forms of renewable energy will enter the market with a greater role, until technological advancements can solve the complex issue of hydrogen production.

Technology & energy security considerations go hand by hand in the peak oil era that has to be managed skillfully by the political establishments across the globe in order not to experience a looming crisis that will certainly erupt to a military one and will visualize the Armageddon perhaps as envisaged in the Apocalypse. Energy is the blood of the global system since the period man became dependent in machinery for his own needs. That will continue into the future and this century seems to be a pivotal age for the human race to enter a new stage shedding the hydrocarbon one. The decisions made by the politicians in the near future will dictate more at stake than it can be assumed at a first glance presently.


At 5:31 AM, March 24, 2008, Anonymous Anonymous said...

The whole situation is accelerating to a scary end. I dont think bio fuels will plug the gap. Steve -


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