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Oil Shocks, A Pessimistic View
Posted by Dave Cohen on December 9, 2005 - 7:59pm
Topic: Supply/Production
Tags: china, kurds, oil shock, russia, venezuela, world oil production [list all tags]
OK, that's enough. After reading this happy CERA drivel (hat tip, Leanan)
CERA estimated that oil production capacity -- including crude oil, condensate, natural gas liquids, oil sands, gas-to-liquids - could rise to 108 million barrels per day in 2015, up from 87 million barrels per day currently.it seemed apparent that fantasy was the order of the day. So, given the legacy of the 20th century (the Armenian genocide, World War I, the 1929 stock crash, the Great Depression, Mao Tse Tung's "Great Cultural Revolution", Stalin's purges, Romania's Ceausescu, World War II & the Holocaust, the Korean War, the Cold War, the Vietnam War, Russia's war in Afghanistan, Imelda Marcos' shoes collection, the Rwandan genocide, the Balkans fiasco and Bosnian genocide, etc.) and a conviction that humankind has gotten no wiser in the 21st century, a more pessimistic fantasy regarding oil depletion and supply shocks seemed to be called for. So, here we go.
First, we'll start off with graph illustrating BP's world liquids production numbers from 1965 to 2004.
The Iranian Revolution occurred in 1979, Saddam Hussein's Iraq invaded Iran in 1980 and subsequently, world production fell 4.7% in one year. In the next few years production continued to fall to a bottom level in 1983 of 56.6/mbd from a high in 1979 of 66.0/mbd. Now, here's the shocker. As the graph indicates, world production did not reach its 1979 level again until 1993, a period of 14 years! And what pulled us out of that long recovery? Remember, this recovery occurred during the time when Prudhoe Bay and the North Sea were both producing, both in friendly areas.
So, let's concoct a little scenario of our own starting with this graph.
Black dots indicate oil shocks. The first two are the OPEC embargo (1974) and the Iranian Revolution (1980). The second set involve the following events occurring in three consecutive years.
And so to the point. When CERA forecasts 10 years of light, it is also possible to forecast 10 years of darkness. And if my imaginary scenario were true--which it certainly is not--how many years would it take to ever get back to the 2005 production level cited here? Well, the world would never achieve that level ever again, would it?
But if CERA can do it, so can you. Tell us your best or worst cases, go ahead, predict the future. And then, as if it were money in your pocket, make an investment based on CERA's projections or the predictions made in this report.
The Iranian Revolution occurred in 1979, Saddam Hussein's Iraq invaded Iran in 1980 and subsequently, world production fell 4.7% in one year. In the next few years production continued to fall to a bottom level in 1983 of 56.6/mbd from a high in 1979 of 66.0/mbd. Now, here's the shocker. As the graph indicates, world production did not reach its 1979 level again until 1993, a period of 14 years! And what pulled us out of that long recovery? Remember, this recovery occurred during the time when Prudhoe Bay and the North Sea were both producing, both in friendly areas.
So, let's concoct a little scenario of our own starting with this graph.
Black dots indicate oil shocks. The first two are the OPEC embargo (1974) and the Iranian Revolution (1980). The second set involve the following events occurring in three consecutive years.
- 2006 -- The death of Hugo Chavez. All 2.98/mbd of production (all liquids) is shutdown in the immediate civil war which follows. Who kills him? The Venezuelan political opposition with CIA help? Pat Robertson? Does he have a mortal stroke brought on by excessive narcissism? Who cares? The Americans prepare to militarily intercede in the region.
- 2007 -- The US decides that Iraq is a hopeless quagmire and they're losing more oil from Venezuela where the real remedial actions must be taken. The US pulls out of Iraq (except for some troops left in Kuwait left to protect interests there and in Saudi Arabia) and begins active military operations to get Venezuelan crude production back online. But the American pull-out in Iraq is immediately followed by a civil war between the Shia' and the Sunni Arabs. The Iranians (without committing troops) support the Shiites in South/Central Iraq in every way possible.
- 2008 -- The Kurds of Iraq, Eastern Turkey and Northern Iran see their historical opportunity for a united ethnic nation. Both the Iranians and the Turks launch military actions to stem the separatist movements within their borders.
And so to the point. When CERA forecasts 10 years of light, it is also possible to forecast 10 years of darkness. And if my imaginary scenario were true--which it certainly is not--how many years would it take to ever get back to the 2005 production level cited here? Well, the world would never achieve that level ever again, would it?
But if CERA can do it, so can you. Tell us your best or worst cases, go ahead, predict the future. And then, as if it were money in your pocket, make an investment based on CERA's projections or the predictions made in this report.
The technology is the easy part; deal with people is the hard part.
Not so much lying as deliberate and excessive optimism.
In my list of 20th century horrors, I did forget the "killing fields" of Cambodia, oh, how soon we forget.
But what do you mean?
Engineers know about something called Murphy's Law
The Sheeple graze happily in the fields without ever being aware.
Engineers are pessimists. Sheeple are optimists.
When something like Space Shuttle Columbia happens, the Sheeple awaken for a brief shining moment: "Wha? How could something like that happen in this "day and age"?" Then they go back to sleep.
Engineers know that Murphy's primary law (What ever can go wrong, will eventually go wrong) has corollaries.
Here is the scary one (the Columbia one):
"Nothing will go wrong until the worst possible moment, and then everything will go wrong all at once."
CERA does not believe in Murphy.
CERA does not believe in Peak Oil.
Any questions?
and "them"
Same is true for this guy out in Oregon (click on picture):
Murphy's Law is with us every year (even election years, click)
Don't fight Murphy's. Rejoice in it.
We've discussed it in threads here the last couple of days and I'll stick with my explanation that CERA are living on a different planet.
Looking forward...
While we can, and should, extrapolate on a smooth, scientific and mathematically sound basis from the best data we can get, it is important to recognise that is not the way things normally happen. Unexpected events disrupting smooth, mathematically sound forecasts are the norm.
Moreover, I think there are signs we are entering more volatile times. There are huge global financial imbalances, increasing fundamentalism in the monotheist religious groups, significant developing changes in the economic order of nations. The next 5 years will very definitely not be 'business as usual'.
Will there be sufficient stability for the major mid-east producers (Saudi, Kuwait, Iran, Iraq etc) to continue producing at current levels for the next 5 or 10 years? I suggest the chances are less than 50%.
Will Russia slow its production for economic and geopolitical advantage? Smells to me like they may already be doing so. Can we actually get oil produced round the Caspian Sea out to western markets? Will parts of the world rebel at US intransigence on climate change? Will the US get silly in attempting to militarily secure access to supplies of oil? Will persistent hurricanes continually disrupt GOM production?
Those who think nothing significant will happen to disrupt oil supply over the next 5 years are very, very likely to be incorrect. We will have a major and probably sudden shortfall of oil supply in the next 5 years, even without depletion rates behaving as many here realistically expect.
I did a post here:
http://www.theoildrum.com/story/2005/12/8/114224/263#17
yesterday, with a scenario for $500 oil in 3 months next year. Now, I don't mean it as any kind of prediction but the real world does have a nasty tendancy for disruptive events to cluster, so something similar, while improbable, is very definitely possible.
Take a look at the chart at the bottom of this article:
http://www.safehaven.com/article-4246.htm
Looking ominous, isn't it? The last time it was behaving like it is now was going into the 1973 oil shock. Perhaps Halfin's markets are telling us something. If the pattern replicates we could get a DJIA of 1000 or a gold price of $5000 in the next 5 to 10 years.
The only significant possibility I see that would change things is a major US and global recession in advance of any caused by oil supply shortfall. The US probably (75%) does enter recession in 2006 even without major oil shocks, what worries me is that may postpone recognition of and action to ameliorate peak oil. I've been trying to feel out the relative timing and intensity of the recessions / depression and oil shortfalls for the last 18 months. Unfortunately I haven't seen it clearly yet.
Expect things to be worse than the 1930s depression in the US within 3 to 7 years.
I see no indication whatsoever that we plan to do anything differently.
Thus, if it hasn't worked very well so far, it will continue to work not so very well in the future. The idea is that it is easier to take someone else's energy than to work hard to produce your own.
I have this image in my mind of a giggling GW, wearing a clown's hat and red nose, announcing the US have just bombed Iran alongside a chart of the oil price gapping up to $150 and then some.
Imagine how people within the US felt during the worst of the Civil War or the Great Depression or WW II. Or how Londoners felt during Hitler's nightly rocket attacks. Or how Germans felt after Dresden was fire bombed. Or how the Japanese felt after Hiroshima and Nagasaki.
The US has indeed gotten supremely stupid in its foreign relations, in terms of both energy and non-energy issues, for many decades. In my opinion, only a fool would argue otherwise. But I see no reason to believe that we've already reached our nation-wide level of peak intelligence (or common sense or ...).
Look at the policy reversals we've seen going from Clinton to Bush 43. Who's to say that pendulum only swings one way? I'm sure as hell not prepared to make that pronouncement.
Our collective energy and environmental future is going to be extremely challenging, and there will be plenty of unpleasant surprises along the way. But there will also be some amazing breakthroughs and displays of human resilience, flexibility, and determination.
Honestly, I think that anyone, from any part of the pessimism scale, from flaming apocalypticon to brain-dead peak-oil denier, who claims to know how this will all play out is kidding him/herself and everyone else.
The truth is, if we haven't lived through them (or very similar) we can't really know what it's like. Thereby hangs a problem: most of us can't imagine how bad things may get and what that would be like. Life has been too relatively easy these last 60 years for most people in many developed countries.
But even in the darkest days there are moments and times of joy and happiness. For most of us there is a tomorrow and the chance that it will be better than today. If you have any friends or relatives who lived through the 1930s or similar difficulties now might be a good time to talk with them about it.
Also, one should never say that 'Such and such could never happen because no reasonable or moral person would do such a thing.."; because, as you implied, history is replete with examples of the unthinkable becoming reality.
Only through the greatest of steady efforts can we hold back the relentless tendendency towards chaos.
The future is unknowable because each of us can change it.
Now go out there and build your windmill.
Hook it to your grid.
Hook your hybrid to the grid.
Hook your grid to someone else's grid.
Build an Inter-grid-net.
(BTW, make it distributed DC at 120 Volts residential
[120 = 1 x 2 x 3 x 4 x 5])
Well this is the problem entirely isn't it? I believe it's called entropy. Our societies are now so complex and interdependent, so strung out on cheap fossil fuels and the quick fix that they cannot be made simpler, either by accident or design, without causing their collapse in the first place. It is only a matter of time before this happens, entropy cannot run backwards. Of course this does not necessarily mean the wholesale destruction of man and his cradle. However it does imply the end of our conceited belief that we could prevail over the earth and transgress its limits.
Although I agree that we cannot know the specifics of the future it is also absurd to believe that we cannot make reasonable assumptions about what the future may hold for the human race based on the existing and interrelated global trends of global warming, oil depletion, biosphere destruction, overpopulation and energy-related conflict. Because of these and other trends, our societies are increasingly becoming unsustainable and are being run by unsustainable economic systems.
The catalyst for collapse will probably be when the price of a barrel of oil enters the $100 - $150 range. This price band will probably occur ahead of any eventual oil peak because of the high energy inputs that will be necessary to produce the ever increasing amounts of energy our societies require as the quantity of cheap oil decreases. Based on the aggressive price performance of oil since 2002, and the questionable nature of stated oil reserves, one might reasonably conclude that we should reach this point sometime around 2008-9. This will cause economic recession worldwide, and the steadily ratcheting up of the price band will succeed in stopping any chance of sustained economic recovery in future. When this occurs, the Great Energy Depression of the twenty-first century will have begun, and the unwinding of the industrial era commenced, probably around 2012.
The oil price has increased at over 30% annually for 3 years, a straight line projection might hit $100 next year, so your 2012 may be 5 years tardy.
But many very smart minds and huge amounts of resource have been thrown at modelling and predicting the markets without much success. The Fed seem to have have concluded that the best way to predict the markets is to print lots of money and manipulate them ;)
How I expect peak oil to become apparent...
With a bang or with a whimper?
The bang will be obvious. The whimper will be harder to spot so I'll give you some clues...
This is how I expect peak oil to announce itself to the world unless some major geopolitical supply disruption occurs:
- Oil supply remains tight, just about meeting demand as perceived by the USA, occasional minor disruptions like hurricanes and demand peaks due to cold or hot weather bumping the price up and up, never quite falling back to previous levels.
- After a year or so of this there will be excuses of delayed projects causing temporary supply constraints, prices continue to bump up, now above $100 bbl.
- Another year and supply is getting still tighter, price is forced up beyond $200 bbl, excuses won't wash - $10 gas in USA getting hard to ignore, some major world leader says "Peak oil is here" and we must ration oil.
- sounds kinda familiar, don't it? Expect 2. to become apparent in 2006, and 3. to follow in 2007 or 2008.
What I really expect to happen is stages 1 and 2 of the whimper, then the bang. Best guess for that: October 2007 give or take a year.If peak oil isn't just about happening you can expect the price of oil to drop back below $50 by mid 2006 and stay there for several years as new supply comes online without being offset by even greater declines in existing production.
My own scenario for a US oil crisis is this: the US federal deficit is still running >$400B/yr in 2008 (>$600B if the Social Security accounting gimmicks are excluded), the Republicans win the White House promising further tax cuts, OPEC decides that dollars are a bad risk and (having converted a goodly portion of their petrodollars) announces that in the future they will price oil in euros. By 2010 oil is indeed priced at >$120/bbl, but most of the pain is confined to the US and China. Mike
And your not honestly arguing, despite all evidence to the contrary, that alternatives are going to replace the exponentially rising shortfall of the concentrated energy density and richness of sweet light crude in anywhere near the volumes necessary to satisfy current and future global demand, or that price for such energy dispersed substitutes will not become even more enormously expensive than they already are once that cheap oil subsidy starts to decline. Or that any of this will not impact on the complexity of our societies leading to instability?
I've been thinking about plug-in hybrid vehicles for nearly fourteen years now (the first thought I can document is early 1992).
You seem to be confusing "efficiency" and "doing without".I call "efficiency" a doubling of vehicle MPG through better powerplants and careful attention to aerodynamics. I still call it efficiency when we switch to battery-driven vehicles so we can burn oil in 60%-efficient combined-cycle gas turbines instead of 20%-efficient piston engines and get almost 3 times as much out of our hybrids.
When the electric vehicles let us use wind turbines or PV panels to make "motor fuel", I call that alternatives.
You poor fool. Did the world economy contract when the PC was cloned and IBM's profit margins on the product they standardized fell to the point they got out of the business? No, the computer business grew like crazy!What I'm saying is that the oil companies are in no way essential to the world beyond the current lack of substitutes for their products. If you find a way to do the same job on half the gasoline, kerosene or LPG, you are not going to contract the economy. Quite the opposite. And if you find a way to eliminate the need for petroleum altogether, the greater the economic advantage you will have as the cost of oil rises.
Yeah, well I've been thinking about them for 5...and studying them for 10. So we're about equal right.
You seem to be confusing "efficiency" and "doing without".
No I believe I've got it right. The efficiencies you call for will result in job cuts because there will be less "waste" to move around from production to disposal.
When the electric vehicles let us use wind turbines or PV panels to make "motor fuel", I call that alternatives.
I think you're dreaming. Apart from the incredible lead time required for all of this to happen, not to mention the expense involved, the world seems to be heading towards coal-fired stations again as an answer to hydrocarbon depletion not some "clean green" capitalist utopia as you envision. Besides the oil companies will want to be able to sell us some other liquid to fuel things to continue making the "big bucks".
You poor fool. Did the world economy contract when the PC was cloned and IBM's profit margins on the product they standardized fell to the point they got out of the business? No, the computer business grew like crazy!
How can you compare oil's importance to the economy with the computer when everything rests on the former - inlcuding the development of the PC? My standard of living can survive without me personally having a PC, but can't if cheap oil isn't available for me to get me to work or to the shops, or if it can no longer afford me a job so as to buy the stuff that was manufactured and shipped to them in the first place using the same cheap oil.
You imply that waste heat from vehicles produces more economic value than the work the vehicles do. If you've been studying this for ten years, you ought to be able to explain this in math terms (no hand-waving) and back it up with at least two examples. I will bet $1000 that you can't do it.
The world is doing both. The US will install about 2.5 GW of wind capacity this year, raising the total capacity by 35% in just one year. We need more like 25 GW/year for a few decades, but this is a lot closer than it looks. If turbine production increases 35%/year we'd get to 25 GW/year in mid-2013.Are you required to buy it? The more "big bucks" it costs, the more attractive efficiency and alternatives will be. You can make a plug-in Prius today, and sooner or later one of the hybrid manufacturers is going to offer it as a factory option.
"Everything" does NOT rest on oil, mostly the transport sector. If the transport sector suddenly needed half as much oil, the rest of the economy would grow. Same for the rest; you can make just about any kind of petrochemical from syngas, and you can make syngas from oil, coal, natural gas or biomass. Running the economy on coal is possible (though ecologically disastrous), and it would make little difference to the rest of the economy if the coal companies took over and Big Oil dried up and blew away.
I know who I'd be voting for (3rd party! ;). However, I've met too many people who'd vote for the former. He uses terms like increase when that's not what it is, says that things are great (he's not a nay sayer!), and that they'll only get better. The other says that we need a change. A change? Change is to be feared. Change means that things aren't rosy right now... I don't think that the president should be such a pesimist.
Perhaps I've been reading too much wisdom from Step Back's Lemming institute.
Regardless, from what I've seen of the two major parties, while one might offer slightly better leadership than the other (I won't name names for sake of political flames) regarding peak oil, I think it would only be slightly better at best. Both US and Canada need to pick up their heads and actually try to start thinking long term. Canada's having yearly elections, and thus is legislating to try and keep their polls up at all times, with wolves ready to snap at their heels. The US is increasingly being run like a corporation; big awards to the BoD, small short term gains for the share holders ($300 tax refund), and the only "long term" planning is the assumption that things will be tomorrow pretty much as they are today so keep the party going.
Iran is next door to all the Persian Gulf oil states. If they were to shut off their own exports and take out a chunk of their neighbors' oil production with air strikes, oil prices would skyrocket. I'm not sure if there's enough oil in the European or American SPRs to neutralize six months of that.
Such a conflict would also affect civilians in a way we haven't seen since WWII. I imagine it could lead to severe consumer rationing--war is a very oil intensive business.
Though I find this scenario possible it doesn't seem likely. Attacking the neighbors is not a good way to spread Islamic unity and brotherhood.
Hence, the Bushian Law: If there is something just too stupid, Bush will do it. What could this moron possibly do to shift attention from Iraq? Send in the ninjas and whack Hugo Chavez. Chaos in Venezuela. The Chavezistas take over. US oil supply plummets overnight.
Another joyful seasonal thought. Osama or one of his many new clones (Bush's spawn) figures out that PO is our Achilles heel--not just longterm, but any major disruption. Uh oh. A few well-placed bombs in Saudi Arabia.
But remember the sooner we go down, the happier the dolphins will be.
Each sample would show its own "oil shocks", "bubbles", "crashes", "bull and bear markets" and other characteristic market behaviors. You could make up a little story to go with each one of them, a possible future scenario to explain what is happening. None of the stories would be right but at least you'd be basing your prognostications on the best statistical evidence we have for how the future is likely to turn out.
America stops importing oil, oil production 80% of peak.
America produces synfuels, oil production 60% of peak.
This is the best case scenario and assumes no war.
I noticed a number of posts about shell corn heating. So I have been checking it out. 15% water in shell corn contains 7000 btu's of energy per pound, and 15% shell corn weighs 56 Lbs per bushel. That is 392,000 Btu's per Bushel. At $2.00 per bushel that is $5.10 per million Btu's. Then I checked kerosene it's about the same as distillate. 6.819 Lbs per gallon and 19,810 Btu's per pound or 135,000 Btu's per gallon, or 7.4 gallons per Million Btu's. At $1.76 per gallon that is $13.00 per million Btu's. NG spot today was about $15.00 per million Btu's. Now according to the USDA a bushel of 15% corn should yield 2.68 gallons of ethanol,and ethanol contains 14,000 Btu's per pound and weighs 6.59 Lbs per gallon. That means that a bushel of corn will yield 247,000 Btu's, so you see you lose 145,000 Btu's in the ethanol process, however the leftover mash is used for cattle feed. Also corn cobs contain 9,000 Btu's per pound, however their volume per pound is much greater than shell corn. During the 30's and the war years corn cobs were the sole source of heating and cooking in our home. In the winter when it was zero to 25 degrees it would require 3 - 6 bushel baskets of corn cobs per day. In them years with an annual harvest of 1000 to 1500 bushels of corn from 35 to 40 acres it was more than enough to keep the house warm.
I don't know the efficiency of a corn burning stove versus a gas or fuel oil furnace, however it is certainly more efficient than using it to produce ethanol, as a significant amount of energy is used in the conversion process. Most of my info came from Marks Mech eng handbook. Corn futures are looking better every day.
Corn burner web sites.
http://www.bae.umn.edu/extens/ennotes/enaug01/burncorn.htm
http://energy.cas.psu.edu/shellcorn.html
http://www.breitbart.com/news/2005/12/09/051209141924.flu6l9pn.html
Though you are not making a highly desireable fuel that you can use in your car, when you burn corn directly, at least you use more of the initial energy content of the corn.
Being from the Northeast, I was not at all familiar with corn stoves or the fact that they were in such widespread use. If this continues I wonder what it will do to the corn market.
By the way, what is the current disposition of corn cobs? Are they just ground up and returned to the land like the corn stover, or do they have some sort of byproduct use (other than as a substitute for toilet paper)?