Today's reading assignment
Posted by Yankee on October 11, 2005 - 12:07pm
"The main risks to our Supply Expansion scenario are above ground, not below ground - changes in the political and operating climate that could delay expansion." In CERA's downside "Delay and Disruption" scenario, capacity increases by only 11.5 million barrels between 2004 and 2010.Whoops.
What is the implication? Will delayed projects and disruptions in the supply chain lead to temporary shortages before "Peak Oil" hits us? Perhaps we should review CERA's implied assumptions. They are, after all, the basis of CERA's optimistic conclusions.
The rest of this article discusses many of the supply issues that HO and Stuart have presented before, but intersperses them with a number of other concerns, such as the stability of the political and labor status in oil producing countries, the threat of terrorism, and resource nationalism.
Assumption # 4. The proven reserves claimed by OPEC actually exist.Even when Cooke feels fairly confident about something—like that unconventional oil sources really could contribute to the total supply—he tempers his enthusiasm:It is unlikely the proven reserves claimed by OPEC actually exist. Many believe they are a fabrication of the quota justifications that occurred in the 1980s. Furthermore, the claim that "Proven" reserves are increasing needs to be examined because in a sense we are merely talking about definitions. Words. As the price of oil increases, it becomes economically feasible to spend more money on production. Make sense? So the reserves that could not be classified as "Proven" at $26.00 per barrel become damn attractive if the price for a barrel goes to $55.00. There isn't any more oil. It's just that "Probable" oil reserves become "Proven" oil reserves as the price of oil increases because we can afford to spend more money on recovery. All we did was reclassify the definition of the oil we already have in the ground. No one found any more oil. Not a drop.
If we add up all of these resources, we probably have up to 1.1 Tbl of unconventional oil to play with over the next 20 years. But our estimate of annual production is much lower. Technical, weather, geography, political, environmental, cost and EROEI factors will limit total production to around 100 Bbl from 2005 to 2020. This estimate – by the way - mirrors the Energy Outlook projections made by ExxonMobile in its "World Liquids Production Outlook" presentation.So, what do you think of Cooke's story?
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
It's interesting how rising risk makes capital flee. For example why[1] build a lot of fresh refining capacity if your suppliers are highly doubtful? The lack of capital makes the whole chain of energy supply more shaky. Then if you wack it with a bit of mother nature, political insablity, or an economic storm you discover it's not very resilient.
I think all these sources of risk tend to balance out. No one of them gets to lead the parade; because if one gets in front the others get underfunded until they catch up.
How that for meta-pesimism :-)!
[1] Parenthetically the answer to that is: Because the government[2] covered all our risk. That seems to be what is happening in the nuclear power industry.
[2] Which happens at least to some extent because the industry in question goes an talks up how it's far to risky for them to even consider doing what's needed without subsidies.
I think the Defcon rating system is cute, but there is a problem applying it to peak oil issues. When the military declares a particular Defcon, they immediately make the preparations necessary to meet that potential challenge. While we are certainly facing risks of Defon (choose a number)-who's preparing? And an optimistic voice like CERA leads us toward less thought and preparation.
The list of things that have to "go right" for CERA to be accurate is entirely too long, and and a case could be made that several aren't even right today.
Of particular concern is the accuracy of Saudi and other ME reserve numbers. Simply assuming they are right seems inherently wrong to me, yet they are integral to CERA's "don't worry - be happy" outcome.
It's easy to dismiss this issue with a "garbage in, garbage out" joke, as I've heard lots of people do over the years, but the core issue is that if you're constructing any non-trivial model of all or part of the world energy market you're forced to make a buttload of guesses and assumptions.
Spooky is right on the money with the comment: "Of particular concern is the accuracy of Saudi and other ME reserve numbers." The problem is that lacking good data we have to choose between trusting the SA numbers or coming up with our own. The first seems inherently naive, while the second leaves us with a humongous question and no good way to answer it.
I agree that the above-ground issues will be extremely important in coming years. Many PO adherents like to say that in PO we're facing a unique event in human history. I agree with that view, which is precisely why I think that the human element--public policy, war, market psychology--will play a (much?) larger role in the energy markets than they have in the past. Frankly, I don't see how anyone can talk about how serious the arrival of PO is without coming to that conclusion.
And, of course, an increased role for human affairs and reactions makes the process of accurately predicting anything about the energy market all the more difficult.
For X insert the Arabs, or the Jews, or the terrorists, or the Democrats, or the environmental whackos, or Hugo Chavez, or Putin, etc.
At the same time, those arguments are going to blur the advent of Peak Oil since many people will prefer them over accepting the reality of finite resources.
I would think, given the prolific nature of Prudhoe Bay, that both the US and Canadian oil companies have thoroughly looked into the Beaufort area and beyond.
IMHO, THAT might be interesting to look at....
The USGS/EIA was 1.7-Tb in 1984 and is 3.797-Tb today.
Colin Campbell was 1.578-Tb in 1989 and is 2.t-Tb today.
M.K. Hubbert was 2-Tb in 1973.
etc etc
The Avg in our current Depletion series of 11 forcasters is 2.925-Tb of which 1.909-Tb is future production. http://TrendLines.ca
Global warming sounds like a good deal since it's that damned ice that prevents us from drilling there now. The problem is that global warming is shutting down the conveyor belt that makes the Gulf Stream run north and warm up the arctic.
With the conveyor belt shutting down that rapidly thinning ice up in the Arctic may and probably will start growing thicker again, until global warming is strong enough to overpower the effect of not having the gulf stream any more.
So far bigger, more powerfull, and more plentiful hurricaines in the Gulf of Mexico and also thicker sea ice off Alaska.
The good news is the top layer of permafrost that was prematurely melting in the Alaska summers and shutting down the construction period early and opening it late for the last few years will start freezing earlier and melting later again for when we open the ANWR.
One must take care not to confuse the premise of Hollywood movies for reality.
It's just going to go back to the cold part of the cycle called "The Little Ice Age" for a while. No big deal in human terms. More sea ice up north, more hurricaines down south. It doesn't stop so much as just slow down a little. There is still going to be cold air and cold water and hot air and hot water, just not as much as the last few hundred years or so.
Well, we think. A good volcano could kick us into a "Year Without A Summer" event, otherwise known as "Eighteen Hundred And Froze To Death". Mass famine and the death of hundreds of millions of people.
Then we'll be thankfull for all that CO2 to moderate things. The coal and oil corporation people will be heroes.
There isn't anything we can do about it anyway, so we'll see what happens.
Have a look at my post above. Has anybody done this? It would be interesting to see those curves, at least to me...
I'm wondering if the group at any point had commented on the information presented at http://lifeaftertheoilcrash.net?
Are his dire predictions supportable?
In what year will the globe be down to 1 billion?
In what year will we bulldoze the suburbs and use the salvage to rebuild in the city cores?
In what year will North Americans no longer have cars?
Heinberg came to Vancouver last year and told us we should start building massive manufacturing plants in the West for shoes, etc 'cuz soon China and other nations will not be able to find or afford fuel for tankers or freighters. Tell us Richard, in what year will that momentous crossover occur?
In what year will the Antarctic be ice free and similarly, in what year will NYC be under nine metres of water? The Hadley GCM Model says only 26cm (about 10 inches) by 2100!
When "they" start giving time lines, it opens up their rhetoric for challenges. That is the acid test of a good site.
But hasn't the Middle East, particularly Saudi Arabia but maybe less so UAE, failed to find additional appreciable reserves? You say the quota differentail has been "lost". What I am asking is can you leave everything else alone and simply remove the quota-driven "questionable" additions? If there were additional discoveries - fine - leave them in. Additional reserve expansions - fine - use the multiplier on the original data, not the "paper additions". What I am wondering is if the "paper aditions" made during the quota squabble are extrapolated to today, where does that place the curves?
This doesn't mean I think they're playing a straight game but I do believe they can pull additional heavy sour oil from the ground and refine it for a profit at today's prices.
Even Simmons would agree that putting a number to proven reserves is a black art (no pun intended). So much has to do with the geologic formations. One of his main complaints was that there aren't enough actual holes drilled - that too much is done by computer modeling. There is no substitute for actual core samples. I might add that the modern day equivalent of an M. King Hubbert is difficult to find as well. Interpreting samples from thousands of feet down has to be a pretty demanding task that requires lots of previous experience OR apprenticing to a master. How many master oil geologists are left?
The game for the Saudis is complicated by their need to produce a story for both the world and their own burgeoning population. They need both groups to view them as the swing producer. Whatever that takes. They probably see this as a their equivalent of having nuclear weapons. Like the Swiss being the banking country during WWII.
I realize this doesn't speak directly to your post. I'm just saying that subtracting out a reserve increase motivated by a desire to export more product doesn't necessarily produce a more accurate number. We really don't know what they've waiting in the wings since it's obvious they keep two sets of books, one for the world and one for them.
What i did do was to plot some of the series based on their URR claims which in every case is less not more. If u look at my prior BP and Total scenarios for instance in my blog, u can see that even use of their "proven reserves" which discounts alotta fluff shows long periods of extraction ahead... a sort of worst case scenario if u will.
If you want the absolute worst-case scenario, then those claims might be supportable. Most of us feel things will unspool very differently.
His argument that the expanding economy is based primarily on ever-increasing amounts of energy being available, and that economic collapse will result when that pool of energy begins to shrink, was rather disconcerting.
However, as you probably saw in the post here on TOD a couple of days ago, it is very hard to get 2 people to agree on what is going to happen to the financial infrastructure during and after peak.
This uncertainty is the most worrying part of Peak Oil for me. I don't know whether to sell my house and go renting, or fix my mortgage interest rate for 5 years. Will I have a job in 5 years!
I'm hoping for a slightly delayed peak (maybe 2010 as ASPO are now predicting) to allow us to try and prepare a bit more.
It is great that more people like you are discovering these sites, though. The word needs to get spread a lot wider.
Just don't dismiss the whole PO debate as doom-sayers because Matt sounds a bit negative. The best thing is to study the less pessimistic sites, like the ones listed as Defcon 5 thru 2 on the right side of this page.
A person shouldn't wait until they're hungry to plant a garden, nor wait until they're thirsty to dig a well.
I just wish we had stronger leadership on this subject and that people in power would stop feeding us nonsense like the hydrogen-based economy. As if all we had to do was to switch over to a new type of car!
I'll look at those sites and rest a bit easier with the understanding that Matt represents the worst-case-scenario end of the spectrum.
After planting, watering, harvesting, processing and storing only SOME of our own food this summer, I say God Bless Commercial Agriculture, and God help us if anything happens to the oil supply before we've found an adequate replacement! Especially with regard to food production and distribution.
As a recent study done by Cornell Univerisity found (http://www.news.cornell.edu/stories/July05/organic.farm.vs.other.ssl.html), organic farming can yield at least as much as conventional farming when growing corn and soybeans.
In fact, the study found that, despite organic farmers not having to pay for expensive agri-chemicals, they faired better during periods of drought because their soils did not dry out as much as soil that is heavily dependent on fertilizers made from natural gas.
The problem is going to come when oil does start to become a lot more expensive and the conventional farmers cling on to non-organic farming until the last minute, at which time their farms may not survive the three year conversion to being organic (generally, yields are lower during this period as the quality of the soil is 'rebuilt').
Farmers really need to be thinking about converting now, while things are still pretty good, which in itself will help to slow our cumsumption of oil and gas.
If I was a farmer at this time, with a fair amount of land, I would start to think about dividing up the farm and starting to convert parts of it to organic, thus the non-organic remainder can help to offset financial losses during the conversion period.
We did everything organic, which is expensive, and indeed we only fertilized the plants this first season and not the soil. I'm about to put down 30+ bales of mulch hay to begin the process of turning the entire piece of ground into loamy soil.
A friend who is in international development told me about the same three-year requirement for soil development - his experience being in third-world countries.
Anyway I know this isn't a gardening site but I agree with your point that this is not a process that can be rushed. So again the need to get started now. The most optimistic predictions I've seen are those that have community gardens once more as the centerpiece of our food supply, and not the factory farms of ADM.
Happily this is a trend that seems to have its own momentum as people increasingly register their preference for organic produce grown locally by known producers.
This is something that a lot of us can do. It is suprising how little space you need to start growing some of the food that we need. And 'some' is enough to help take some of the pressure of the food production and distribution infrastructure.
If everyone grew a few veggies in their back garden/roof garden/window box, then this would help to lessen the impact of Peak Oil.
It is also very satifying to each fresh, organic veggies grown only a few feet away from where you live!
Good on you!
"The study compared a conventional farm that used recommended fertilizer and pesticide applications with an organic animal-based farm (where manure was applied) and an organic legume-based farm (that used a three-year rotation of hairy vetch/corn and rye/soybeans and wheat). The two organic systems received no chemical fertilizers or pesticides."
and:
"although organic corn yields were about one-third lower during the first four years of the study, over time the organic systems produced higher yields, especially under drought conditions. The reason was that wind and water erosion degraded the soil on the conventional farm while the soil on the organic farms steadily improved in organic matter, moisture, microbial activity and other soil quality indicators."
It was a huge study that dated back to the early '80s, so this is not some quick look at Organic farming.
The study has several of my local organic farmer friends 'buzzing' with renewed enthusiam.
However, the study did note that similar equality in yields did not occur with the so-called 'cash crops' of grapes, apples, etc., but a lot of those crops we can grow in our own back yards.
The move to organics is one of the more positive sides I see to the whole PO scenario.
About one third of what was grown, or one third of the land cultivated, don't remember, was devoted to feeding the draft animals used to work the farms.
The end of cheap oil is not going to take away the technological knowledge that has been built up over the last century.
Even Cuba (which had to deal with a far steeper decrease in it's oil use than I expect the rest of the world will have to deal with) has made significant advances in agricultural knowledge since they lost their oil. Their universities have developed many advanced organic solutions (genetic and bacterial, for instance) to sticky problems.
Even if we do not have fuel to power the agricultural combustion engines, we will have the knowledge about how to build them in case some other fuel comes along (like ethanol or biodiesel). That's assuming that during any political instability the book-burning brigade don't rise to sufficient power!
Yes, cheap and plentiful energy has helped the planet's population grow to record levels, but, IMHO, food production, distribution and consumption is currently very inefficient (long transportaton distances) and wasteful (have you ever watched the 'empty' trays that are tipped into MacDonald's waste bins?).
And you just need to look at this generation of fat american children to know that we consume more than we actually need!
This was what I was sort of saying about what I perceive to be huge inefficiencies and waste.
I'll give you another example of the waste that occurs. I knew a dairy farm near my home town in Scotland that, when the cows produced so much milk that the farm exceeded their EEC quota, they had to pour the excess milk down the drain because they would have been penalised! Eventually they sussed out that they could make ice cream with the excess and get around the quotas! Now the whole farm is organic and one of the biggest boutique ice cream makers in Scotland (they're called "Cream o' Galloway" - see http://www.creamogalloway.co.uk).
I believe higher fuel costs will naturally force localisation. I would say that a lot more thought will be put into sourcing things locally before looking further afield. And as long as the decline in oil doesn't come too rapidly, that process shouldn't hurt too much.
While the transition will be painful for many, the end result may be beneficial in some respects, with high fossil fuel prices encouraging many things traditional environmentalists have been pushing (smaller cars, shorter commutes, car-pooling, organic farming) plus some they don't like so much (coal gasification, nuclear power.)
If there is not a collapse of the dollar or any other major disruption to american society, then I am afraid that we in the rest of the world will pay the oil price for the average high-consumption, non-negotiable american lifestyle.
My guess is that the 20mbd that America uses will remain fairly constant (without a collapse) but the rest of the world will be get less and less oil. The 25% of the oil that America uses will become 30%, 40% 50% without actually growing.
So, while I do not mean any of you harm, I'm kind of hoping for a dollar collapse, with it's associated collapse of the all-consuming American way of life.
Unfortunately, I do not think it will happen and the rest of the world will suffer (as is already happening in some of the poorest countries).
China and Japan are already preparing for fisticuffs. Taiwan is a major flashpoint between China and America. And the middle east is still not looking that rosy at the moment.
I like to think about all the countries in terms of different people and their ability to by gasoline.
America is the long-time millionaire who likes his hummer and who is unlikely to be affected by anything but major price hikes. Likewise the Japanese, although they're a bit more frugal. China is the nouveau-riche, one-time union rep who has worked hard for their million, but still remembers how to fix his own car and grow his own veggies. And Saudi Arabia is the one-time gypsy who won lotto a few years ago and is living of the last few hundred thousand in the bank ("Our bank balance is very healthy! We have more money now than we did when we won lotto!").
The Eritrea's and the Zimbabwe's are indeed the street-bums who can't even afford a car. But I would say there is at least 75% of the world that is not much higher than them.
Crude Oil goes to the highest bidder, and as long as the US economy is above everyone else's, they will still be the highest bidder.
And hey! It's a free Market! You can't say it's not fair! ;-)
- #1 -- look for a possible civil war in Iraq if the constitution passes...
- #3 -- Cooke's figure (60 bbo) for the Caspian region is too high.
- #4, #7 -- OPEC reserves really exist and production will continue to increase.... Too bad Google doesn't have a button labelled "I'm feeling skeptical!"
- #8 -- EROEI better be at least 3 but probably more....
- #9 -- unconventional sources. All numbers Cooke quotes here are unrealistic on the high side.
- #10 -- sufficient infrastructure? we're short on deepwater drilling rigs and other stuff.... Insufficient investment was made in the late 90's continuing up to the present in equipment.
- #14 -- we will be "we will be awash in oil due to overproduction...." Better hope not because the CERA scenarios require high prices, especially for unconventional sources like tar sands, etc.
- #16 -- Are we seeing an increase in resource nationalism? Of course, it's every nation for itself at this point with demand and supply tight into the indefinite future.... Think of it as the oil version of the TV show Survivor. Nobody is going to be altruistic here.
- #17, #18 -- the perennial favorites. Technology and high prices will save us. Discoveries are trending down and God will not put more oil in the ground contrary to rumors spread by CERA, Michael Lynch and my favorite person of faith, economist Steven Levitt.
Lots of things have to go just right and even if they do, we'll still peak by 2015.... Later,It is possible that supply could keep growing for 15 more years, with the pent up demand keeping prices high and shortages in some areas. I sense that this would be seen by many as the oil peak when strictly speaking it is not. Am I right in thnking there is a blurring of thought around these two issues?
Welcome. Are these issues blurred on supply and demand? Yes, and they are like to remain pretty unclear for awhile.
In the recent past, the demand for oil has been growing faster than the supply, leading to an erosion of the spare capacity that served as a buffer. To date, the system has been able to provide (just) enough oil for all who want it at current prices.
Could oil supply continue to grow for a period of time, but still have shortages, high prices, and disruptions? Absolutely. In the past year, we've seen growing supply of Ipods and Priuses, but there are still some shortages because people really want those products.
There are some vocabulary issues to be aware of on this topic. Classical economics would say that ("aggregate") demand cannot exceed supply: with hefty demand and constrained supply, prices will rise, and "demand destruction" will occur. In other words, demand is a function of price. Demand can and will be forced down to fit the supply available through pricing mechanisms.
Most non-economists think that demand can exceed supply. The technical economics term for this is "latent demand"-the pent-up demand from a mix of potential customers would would buy if the price were lower, or the supply were available, or both.
While supply and demand are linked in a dance of death, there are differences in our level of control and strategic options for each. You can reduce demand, sometimes rather quickly, through conservation measures. Demand is negotiable.
Supply is less nimble. Short-term, we can only do what spare capacity and inventories allow us to do. Medium-term, we can drill more wells, which will pump out the existing reserves faster. Long-term, the amount of oil is pretty much fixed by geological limits. High prices will make some marginal resources more economically feasible to extract, but it doesn't put more oil in the ground. A peak is non-negotiable, and issues become permanent until feasible substitutes arrive.
I'd suggest watching the signals in the marketplace, and make up your own mind about what is happening. We won't really know the peak occurred until some time after (2 years?). I'd still like it if someone would ring a bell on peak day, or maybe toll all the bells in the world. As John Donne pointed out, when the church bell tolls, we may not realize it is actually tolling for us.
Cheers,
DJPR at StrategyUnit.Blogsome.com *PS: Of course, the worse scenerio is the Peak at one end and an attack at the other.