Wednesday, January 28, 2009

"The Myth of the Oil Crisis" - Part 2

Well if yesterday was all misty ice, today was the snow cover that makes getting out of the drive a real challenge. So back to the book, and, today a little Welsh folk (music that is). If you remember yesterday I had got about half-way through “The Myth of the Oil Crisis,” the book by Robin Mills – which gives a petroleum economist’s view of the industry. But we had reached the point yesterday that I was bemoaning his inability to include either a realistic decline rate or depletion of reserve in his discussion of some of the major oil fields.

At the same time, while the book has significant value as a source for the different areas of the world from which we can anticipate getting the second half of the world’s conventional oil production, the factors of time and practicality in getting these reserves to the refinery are not mentioned. The $5 million it may cost to drive a slick-water fracked horizontal well to recover gas from a shale deposit is not given any consideration in the determination of what is still available out there, and that, for an economist is a bit of a lapse.

The second half of the book deals more with the unconventional sources of oil, with the nod given to the heavy oils and tar sands of the world. The book implies that these can be brought into massive production with relative ease, if only the Canadians would run a decent railroad up to Fort McMurray. Well yes they do need one, and a high speed commuter rail would solve a lot of the issues that the town has now with limited space and too many folk with lots of money. But that is not the only reason that production from that large hydrocarbon deposit hasn’t swamped the rest of the world with oil over the past five years. Getting parts for 400-ton trucks up to the site is not something that rail can always achieve, but the greater constraints involve things such as refinery capacity and adequate return on investment, as well as a very conscious effort to work on the environment. And this is a pity, because there is a case to be made for the increasing production that we will need to start seeing from these heavy oils, and from the oil shales of the world. This is not unrecognized (Total just made such an investment this month) but again progress and production is likely, at any significant level to be decades away. Listing and summing up the volumes of oil that might be produced from all these deposits is a useful catalog, but does not really give an honest perception of the volumes that will come into play in the next decade.

Production of biofuels is a whole aspect of fuel production that is likely to have some impact in the future, witness the mention of support that it is getting from the members of the new Administration, and so I cannot resist another quote from the book on this.
Much of biofuels policy revolves less around technology and more on providing sensible incentives that do not distort the market excessively or lead to negative social and environmental impacts.
One of the major factors constraining the advance of the biofuels industry is a current lack of technology that will yield an adequate return on investment, whether in terms of energy or cash. Cellulosic ethanol (as you will likely tire of hearing me explain) is a long way from being an economic or practical fuel source in volume.

Biodiesels are not advancing at the rate that they should, and while I consider algae, for example, to be a very likely future source, the reality is, as Robert Rapier has also concluded, that it remains for the moment more of a research initiative and set of projects. The biofuels industry still needs the heavy investment in development of new technology that the government and industry are making, in order to find viable answers. To project, as he does, a biofuel production rate of 4 mbd by 2020 is, as I have explained in an earlier post not realistic, given that date is only 11 years away. His planned excuse when we reach that time and the fuel isn’t there, will be that we did not make the required investment. This is the same excuse that we have been hearing from CERA for years as their forecasts fell flat, and it is disappointing to find that this book also falls into that mantra.

And yet he looks at the Hirsch Report, and finds that it is too conservative, feeling that it is possible to reduce the lead time for change by at least five years, from the twenty of that report. Unfortunately while this may well work as a theoretical exercise, as I have said before, the practical realities, the steps that must be gone through before, for example, there is a large switch from gasoline powered to diesel powered cars in this country will delay the program back to the more realistic time-frame that the report suggests.

And as a mischievous point I do note that he says
Norway maintains its environmental virtue by importing electricity from its Nordic neighbors to satisfy the shortfall of hydropower rather than building “polluting” gas-fired plants, but this imported electricity is generated largely by Danish coal plants.
Thus while recognizing the demands of those seeking to arrest global warming, he also adds some reality to that discussion. He does provide an estimate of CCS costs, which, at this stage, may be a bit more of a guess than reality, since we arre still waiting for more definite regulation, but the options are outlined.

So, in the end, if you are a cornucopian then this is definitely a book you would appreciate. It provides all the information to justify that position, and discusses the energy situation from that point of view in a way that, were this the only book you read on the subject, would leave you very comfortable about the future.

Unfortunately to do so it has had to gloss over the real problems with that approach. It does not really address the factor of time as it relates to when declining field production combines to swamp the increases in production from new fields. And many of the problems that those of us who anticipate the peaking of oil production can see happening already, the politics, the delays in starting production, the lack of new employees as the older ones retire, and the disappearance of the industrial memory not to mention the myriad others that impose practical limits, have been barely recognized. Had they been otherwise, then this book could not have come to the conclusions that it has.


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