Plateau background
Posted by Stuart Staniford on June 14, 2006 - 9:49am
Topic: Supply/Production
Tags: oil prices, peak oil, plateau [list all tags]
World oil supply rose by 445 kb/d in May to 85.0 mb/d, fuelled by increases from OPEC, a lull in North Sea maintenance and recovering US GOM supply.That sounds good, doesn't it? A healthy increase from April to May? What they don't tell you is in April they were claiming supply was 85.1mb/d, which they've now revised down to 84.55mb/d. You have to be keeping track to notice that. This gives the realization that April, which they had said was the highest supply month ever, is probably not that special (we'll know better when the US EIA weighs in on April supply at the end of this month).
Anyway, this means basically that the pattern of the last eighteen months of more-or-less flat supply is continuing. The moving average graphs now look like this:
I promised I'd give a little more context to these plots in this post. I started plotting versions of these graphs on Thanksgiving Day 2005 (the day Ken Deffeyes had said, tongue-in-cheek, would be the peak of the smooth Hubbert curve of global production). I noticed there was a noticeable flattening of the curve. At that time, I was working from data provided by the Oil and Gas Journal, but I've since evolved my methodology and build these graphs out of data from both the US EIA (a branch of the Department of Energy), and the International Energy Agency (IEA), an OECD agency charged with worrying about security of energy supply. Both agencies produce monthly statistics.
The IEA reports first about 10-15 days after the end of the month. Then the following month, they produce a revised figure. The EIA doesn't report on a particular month until about two months later. Each time either of them come out with a new figure, I update my graphs. One graph (the headline in this story) shows all of the IEA initial reports, the following month corrected figures, and the EIA numbers. Presumably, the difference between the EIA and the IEA is some kind of estimate of the uncertainty in the data for global production.
The other graph I regularly produce shows a recursively applied moving average to smooth the data. The monthly signal that this is being applied to is the average of the EIA and IEA estimates. This is my best effort to see the overal trend in supply through the month-to-month and estimate-to-estimate noisiness. I have argued elsewhere that this plateau is probably evidence of peak oil being near-term (either now, or within the next few years, rather than decades off).
Several caveats are in order. First of all these data are for "all liquids". As well as crude oil, this includes natural gas liquids and condensate, ethanol, production from tar sands and Orinoco bitumen, coal-to-liquids production, and refinery gains (heavy oils cracked in the refinery increase in volume). A good discussion of the issues with this was recently led by thelastsasquatch.
It's also important to understand the region I'm plotting (Jan 2002-now) in the context of the overall history. A long history of oil production from 1930-2004 looks like this:
Average annual oil production from various estimates. Click to enlarge. Believed to be all liquids. EIA line includes refinery gains, others do not. Sources: ASPO, BP, and EIA.
If we move into a more recent timeframe, the next graph shows oil production (green) and real oil prices (plum) since the beginning of 1989.
You can see that there have been flattenings or downturns before - three times in this interval. The first is in 1991 and is similar to the events of 1973 or 1979 (but much milder). The Persian Gulf War following the Iraqi invasion of Kuwait caused a moderate oil shock.
The "peaks" of 1998 and 2001 are different in character. In both cases, they were led by demand falling, not by supply constraints. This is clearly visible in the graph above because prices peak and then fall for a year or so prior to those production peaks. The first of these was caused by the cascading emerging market currency crises that became known as the Asian flu. The second was caused by the collapse of the US technology stock bubble. In both cases, recessions in parts of the world led to falling demand for oil, falling prices, and eventually falling production.
The events of 2004-2005 appear to be unprecedented in the history of oil production. The flattening of supply was not demand led - on the contrary demand for oil has remained strong as evidenced by the fact that prices have continued to rise to very high levels throughout the supply plateau.
Nor was it caused by any particular geopolitical (or weather) related outage. I have analyzed this at length, and the basic plateau shape is there even if one assumes various oil disturbances had not occurred (and they are mild compared to past oil shocks in any case).
So, at a minimum, we can say with confidence that there is some kind of unprecedented difficulty in raising global oil production/consumption. The graphs I build each month are meant to track the ongoing story of this period with a view to understanding it as it evolves.
For more information than I can summarize here, see these past stories:
- EIA Insists on Plateau
- IEA Supply Creeping Up
- EIA Reports on April
- Pessimists at EIA Strike Back
- May IEA Oil Market Report
- OPEC Declines and the World Plateau
- Plateau Continues, Aided by Outages
- Plateau Update
- Cigar Now?
- Missing Barrels
- Close, but no cigar
- November Statistics Updates
- IEA Monthly Report for December
- Refining the Plateau
- Can Acts of God and Bush Explain the Plateau?
- November IEA global production
- Happy Peak Oil Day?
- Where Supply Increases Come From
They seem to operate in exactly the same way as OPEC. It is amazing how many revisions OPEC do to the figures even 3 years afterwards to get the increases or at least minimise the decreases to the yearly and quarterly totals.
You can read the entire eerie chapter 4 of 1984 for free here:
http://www.online-literature.com/orwell/1984/4/
-BB
IMHO we are getting here the peak in Conventional Oil (by Campbell's definition) not being tackled by other liquids.
The question is: is this just a temporary constraint? Can Deepwater or Fisher-Tropsch came and rescue us?
The answer will probably lie in the energy intensity of these alternate liquids, and the way they can be produced without cheap oil backing them.
If we consider the real energy supply, the impact of slowing oil supply growth in the latter part of 2005 will be seen only this year (because of the processing and logistics time lag). And yes, the are clear signs in the economy now.
Zero oil growth will not mean that the World energy supply growth will be zero, but it will mean a further slow down - about a half per cent. But this means also that if the oil production starts decreasing about 5% or more, the World Energy Peak is in.
World coal production growth is unlikely to increase from the present 5% level - the Chinese coal growth is already at the level of 10% and it is not going to get much better. The rest of the World cannot really increase its share enough. Coal is badly depleted in Europe and elsewhere, the volumes of Australia, Indonesia and South Africa are not large enough to make a difference. And the record of the US coal production growth is not such as to warrant a forecast of significantly higher growth than now.
Natural gas is crucial, but the supply growth has slowed down recently, so it is not likely to compensate the depleting oil as much as would be needed. And note, Bakhtiari is predicting Peak Gas in the near future. In any case, the present gas production data suggests that the growth is not going to be much higher than now.
What we will see in the near future is an economic slow down, where the action is mainly in the financial sphere (forex, debt, stocks, real estate). But we might get the World Energy Peak surprisingly soon, may be in a time frame of 5 - 10 years, and steep decline after that. It is not realistic to think that the Chinese coal production can keep the 10% pace for long. Add to that Peak Gas and Oil and All Liquids.
Note, that the the World Energy Peak may arrive quite soon even if the Peak Oil is delayed (the CERA/optimist view) or there will be just a longer oil plateau first, without decline or growth. In this situation natural gas will decide. In any case there is not much energy growth potential left in the World, so even a rather optimistic scenario will give a World Energy Plateau in a few years. The energy volumes involved are so huge that alternatives will not make any difference, CTL and GTL will not count here at all, because they depend on available coal and gas.
There you have the big picture.
Based on Simmons & Company data, total fossil fuel + nuclear energy consumption worldwide is about one billion barrels of oil equivalent every five days. Worldwide, we burn through the energy equivalent of all Texas oil production to date about every 10 months.
The other article was about data processing centers, which the article stated can use as much electricity as a city of 30,000 to 40,000 people. There was an article in the NYT about the new Google computer facility going up in the Pacific Northwest. They located it there to be close to large amounts of cheap (hydro) electricity.
In today's WSJ, there is an article contrasting the fate of the energy exporters to the energy importers, "In Oil's New Era, Power Shifts to Countries With Reserves." There was an interesting quote by the Saudi Oil Minister, "Any industry that requires intensive energy will be welcome in Saudi Arabia.
At I have noted before, it seems to me that we are going to see a population shift, here in the US, and worldwide, to areas that have surplus energy to export. As I have also pointed out, as depletion and rising domestic consumption both work against net export capacity, net exports are going to disappear at a rapid rate, while demand in energy importing areas like China continues to go up at a rapid rate.
Final quote from the article, by Henry Groppe, "We have entered the era of scarcity and price rationing (for oil)."
This is of course a mischaracterization of the Peak Oil argument--that one day we have oil, and the next day we don't. In any case, the WSJ writer went on to state that "But some oil experts foresee the big Western companies running out of easy-to-tap oil, and most of them are already turning to harder to recover reserves."
The overall theme of the article regarding Western oil companies is that they are turning toward GTL projects and to tar sands and very heavy oil and away from traditional exploration--not because they want to but because they don't have a choice.
There were three broad themes in the article: (1) life is good for energy exporters, not so good for energy importers; (2) Western oil companies are turning more toward mining type operations for oil, rather than traditional drilling and (3) they finished with a pretty good summary by Henry Groppe, that we have entered a new era "scarcity and price rationing."
The only mild gripe I have with the article is the mischaracterization of the Peak Oil argument, but the rest of the article all but made the Peak Oil argument, but in different words. The only real question is how fast unconventional oil production can be brought on line. IMO, it won't be fast enough to offset the declines in conventional production.
People don't pay enough attention (IMO) to the increasing role of electricity in the US economy. As implied in the following graphic comparing economic growth in the US to electricity growth and total energy growth, electricity is playing an increasing role in our total energy budget.
According to BP, the US electricity generation in 2005 was 4229 TWh, and the Chinese 2475 TWh. But the Chinese generation grew 12.3% and the US only 1.7%. The growth of the Chinese electricity generation accounted for 42% of the increase of the World electrcity generation in 2005. It is important to note that in China most of the energy and electricity is used in manufacturing (up to 70%), unlike in the US where residential and commercial use dominate (the share of the industrial sector of the electricity consumption is about 30%). This means that the Chinese industry can use considerably more electricity (and energy) than the US manufacturing sector. Here we have a striking example of the importance of energy in economic development.
We should especially note the rate of growth here. China is definitely where the growth is in energy production. The average electricity generation growth between 2002 and 2005 has been nearly 15%. This means doubling the production in 5 years! If the 2005 growth could continue, the Chinese would produce more electricity than the US in 2010 and its industry use it 3 times more than the US industry - and nearly as much as the US and EU industrial sectors together. I think it is easy to understand the significance of this.
An another matter is, if these extrapolations are realistic. It is obvious that China will meet the physical limits to growth very soon. What will happen when the growth engine of the World energy and economy stops?
The Chinese energy (coal) production is, of course, crucial to the Climate Change. China is overwhelmingly the most important factor here. So the future of Chinese energy production is decisive to the climate forecasts. The forecasts of the increase of CO2 in the atmosphere are dependent on the fossile energy (mostly coal) supply forecasts. But most of those forecasts used here are based on EIA or IEA super-optimistic "official" long-time energy scenarios. Closer look suggests that the overall fossile energy production is nearing to a peak very fast, or at least to a situation where the growth slows considerably. I think these are basic facts for a global Climate Strategy.
Incidentally, as I promised someone I would look up, Chinese coal consumption was 70% of primary energy in 2005, up from 67% in 2002.
Here we see the secret of the Chinese economy. The energy production of China has risen 44% from 2002 to 2005, and this at absolute volumes comparable to the US! The Chinese total energy production growth has supplied almost half of the total World energy supply growth during that time (450 Mtoe of 1010 Mtoe growth). China has been literally the engine of the World energy and economy.
It is absolutely clear that low costs are not the main reason for production moving to China. The industrial growth there would have been impossible without this huge growth in domestic energy production. This is the biggest "energy surge" in the World history and the driving force of globalization.
And as Smekhovo noted, the rising share of domestic coal in the Chinese energy mix is the explanation for those missing symptoms of an oil crisis (no real supply problems, prices not really skyrocketing, economy not yet slowing) in face of slowing supply. The rising share of coal is an anomalous phenomenon - developing, modern economy would normally use relatively more of oil and gas, not less.
It would seem that if China will not be able to grow their energy sources, then their economic growth must slow too. But at the same time, the competition for outside sources will then become very great. The key event would then be peak Chinese coal, not peak world oil.
But the Chinese are totally locked into the path they are on. Without burning the coal, their economy melts down and there's another 1949. Unlike here, remembrance of revolution is fairly recent. So the last thing the government will (can) do is allow any great cooling. Nay, worse, they can't even afford to allow things to level off.
And yet, we may be on the verge of just such a cooling off of the world economy if the current slide in the markets doesn't reverse itself.
It's all way too interesting. I'd love to be bored for a few years.
One example is importing from China. Seems like it would exposed to oil price increases. Yet container shipping is very effecient. Large cargo ships loaded with a generic size container with RF Id tags utilizing automation - that can move alot products at low cost. So that's why you can afford to ship all those Dollar Store items.
There is a POSSIBILITY that you have underestimated the potential for wind.
Wind is the only renewable that has the potential for a significant worldwide impact.
IMHO, 30% annual, compounded growth is possible, with occasional spurts greater than that. Designs will improve somewhat (not a mature, but a maturing industry) with 3% to 5% annual improvements in cost effectiveness (measured in a stable economy). In a recession, booming sectors attract capital, labor and materials.
In a decade (optimistic case) this new wind power plus much smaller contributions from other renewables & new nukes could balance the declines in other energy sources.
Of course, legal and social obstacles must not be an impediment (see the Kennedys, English "conservationists", ec.) to allow this MASSIVE growth, ann they likely will be.
Is there any guarantee, if wind is successful (or any renewable for that matter) we will not overdo it as we did the automobile, and simply turn the planet into an infinite powerplant ? What if someone invents better electrical storage so turbines can handle baseload? How can it fail to be overdone, if it actually works? When have people ever stopped drawing on a resource that still yielded more? I'm all for people being responsible for their energy consumption by having their energy plants in their own backyards, but knowing the greediness of my neighbors and their basic disdain for the common landscape as compared to the conveniences inside their monster houses, I am really not sure I would want a breakaway success of wind, or anything.
This is what it takes today to build a Nordex N-90, a windmill capable of producing 2,3MW:
150 tons of steel
10 tons of coper
30 tons of glass fiber
1.000 tons of concrete
If we were to substitute all the world electricity consumption (not all energy!) with windmills we'll need 6.000.000 of those Nordex N-90, ALL OF THEM in type 6 fields, and we'll need:
90% of the world production of steel
113 times world production of glass fiber
3,4 time world production of concrete
Just to let you know how really renewable is a windmill. Having said that, I hope to see as many windmills as we can fit in our territory.
In fact, according to the Hirsch Report the scale of this issue is such that only massive mitigation effort lasting 20 years or more will head off disaster. With all due respect jamaica22, "faith" alone is probably not going to cut it.
Even if you are right, can we keep on growing? Oops. Damn population problem. :P Hawking is right, we need to leave for space.
Sorry for the scarcasm. But the point seems to be missed too often.
Well, no it began way before Katrina. Oil was over $60 a barrel well before Katrina and has been below $60 since Katrina. Oil prices hit $55 in 2004 and that was about the time people realized we had a problem on our hands.
To try to pin the entire world oil crisis on a single storm in the US is just not logical. Most cornucopians are far too myopic and too local, as well as overly simplistic in their thinking.
Ahhh wood! 5,600 BTU per pound- slightly more for those wood that contain resins. IMO we will live on Planet Easter Island if we even consider wood as a replacement at "current levels of consumption" <---I think that westexas has noted enough that it is finally sinking in that this will have to change.
Like the boy that cried wolf.