Global oil supply and Bárðarbunga

Some time ago magma started rising in the rocks near the Bárðarbunga volcano in Iceland, and after weeks of increasingly intensified earthquake activity, the first signs of eruption were found to have occurred under thick ice within the last week. These were not that visible to the general public. That eruption was followed by a second, where there were some streamers of magma across the surface, without causing any significant airborne dust to interfere with aircraft.

The delays in dramatic eruption footage, and the early decay in immediate activity has led a number of folk to anticipate that the risk has declined and for some the risks from the eruption are over, with one scientist commenting::

"If this eruption persists it could become a tourist attraction, as it will be relatively safe to approach, although the area is remote,"

Figure 1. The eruption at Bárðarbunga (from the first webcam) at 5:40 pm Aug 31.

Figure 2. The eruption at Bárðarbunga (from the second webcam) at 9:00 pm Aug 31.


The eruption is continuing and will likely continue, and potentially significantly worsen, over the next several months. Yet, in the world of instant highlights, headlines and Twitter the risks from the long-term eruption (which can be horrendously severe) are immediately glossed over as the eruption fails the “dramatic event” test.

This is uncomfortably similar to the situation that one sees when writing about “Peak Oil”. One can, on any individual day, find comforting headlines that tend to gloss over the longer-term problem that is being written, in increasingly large letters on the predictive wall of our future. But that does not hide the potential disaster that it presages, it merely conceals it from the general public.

The headlines are those that are short-term, and deal with the drivers for the daily fluctuations in oil price, rarely do they back off to look at the overall threat that the situation may presage. Similarly the eruption in Iceland looks relatively tranquil at the moment, but may be of a similar nature to that of 1783, which created, over a period of months, an absolute disaster in Europe, and may have been one of the contributing causes to the French Revolution. The problem with the oil crisis is that there is no similar history to look back on. (Not that this would matter to those “editors of the moment” who control the daily press).

If one were to step back from concerns over daily price fluctuations for oil and gasoline, and consider the import of the trend in international politics one could very easily be aghast at the situation. Not that one might tell this from the headlines.

Consider that, of the three international leaders in oil production, one – Russia – is currently set on a course that may well lead the rest of us into World War 3. As a consequence is likely to be unable to attract the financing that will allow it to even approach the current levels of oil production that it need to retain current production levels in the years to come.

The second of the three is Saudi Arabia. Glossing over any problems that the Kingdom may run into in the next couple of years with the terrorism that is sweeping though its neighbors, it is a country that has realized that today’s cornucopia is about over, and it must seriously invest in exploration and development. The KSA recognizes that if it is to have a chance at being able to even meet the bills for domestic consumption, let alone export income, as the years move onward, it must find new oil. Again it would seem that global commentators fail to realize that, while KSA is recognizing the problem, any finds of “elephantine fields” would require huge investments of money and time, given that they are now likely to be off-shore and sour (as with Safaniya and Manifa, even if such fields exist, which is very doubtful).

The Kingdom has repeatedly stated that it will not increase its production over current levels, despite the assumption of many commentators that they will have to, if global balance is to be retained between supply and demand. Put bluntly, their analysts have realized that, without new reserves that are currently still to be found, they will be unlikely to be able to meet even current targets without major new field finds. Yes, they have fields that are found and available, but in relative terms they are tiny when set against the current levels of production. (Bearing in mind that a 5% reduction in production per year from existing fields, a level now increasingly found to be overly optimistic, would still cut existing production by 450 kbd).

And so, gentle readers, as we have so often in the past, we return to prognostications of future American production. This should, realistically, be focused on the production from the USA, since that in Canada is tied to production from the oil sands and that is only likely to change at a slow (one might suggest geological, but that would be a little harsh) time frame.

And in the United States hope continues to focus on an assumed linear increase in production, month on month, from the Bakken and Eagle Ford Shales. That this is denied by even the local authorities (who also note that the Bakken is named after a local farming family). Their current estimate (assuming more than 200 drilling rigs, and there are currently only 192 is that the fields will peak in 2017, and will start to decline in around 2026. The problem with that estimate relates both to the number of rigs employed (which have to be higher) and the quality of the remaining reserve (which is highly unlikely to be of equivalent value to that which is now, or has been, developed in the past.

I would venture into the second tier producers, but they include those that lie in the MENA (such as Iraq and Libya) and are in even worse condition than KSA, and yet, as documented here repeatedly, these states seem increasingly unlikely to meet projections and thus are an ongoing and significant threat to a balance between global production and demand.

The global economy, and particularly the economies of the Western countries, are tied to a cheap source of energy and power – on which their industrial clout is based. Remove that underpinning, and the writing is clear on the wall about this, and current levels cannot be sustained.

But, as with the wish of the press to get “beyond” the “yesterday’s story" of Bárðarbunga, so the reality of the energy situation is unlikely to be recognized until, as with the Iceland volcano. its effects become too evident to ignore.

Tech Talk - the numbers keep going down

One problem with defining a peak in global oil production is that it is only really evident some time after the event, when one can look in the rearview mirror and see the transition from a growing oil supply to one that is now declining. Before that relatively absolute point, there will likely come a time when global supply can no longer match the global demand for oil that exists at that price. We are beginning to approach the latter of these two conditions, with the former being increasingly probable in the non-too distant future. Rising prices continually change this latter condition, and may initially disguise the arrival of the peak, but it is becoming inevitable.

Over the past two years there has been a steady growth in demand, which OPEC expects to continue at around the 1 mbd range, as has been the recent pattern. The challenge, on a global scale, has been to identify where the matching growth in supply will come from, given the declining production from older oilfields and the decline rate of most of the horizontal fracked wells in shale.

Figure 1. Growth in global demand for oil (OPEC MOMR )

At present the United States is sitting with folk being relatively complacent, anticipating that global oil supplies will remain sufficient, and that the availability of enough oil in the global market to supply that reducing volume of oil that the US cannot produce for itself will continue to exist.

Increasingly over the next couple of years this is going to turn out to have created a false sense of security, and led to decisions on energy that will not easily be reversed. Consider that the Canadians have now decided to built their Pipeline to the Pacific. The Northern Gateway pipeline that Enbridge will build from the oil sands to the port of Kitimat.

Figure 2. Route for the Northern Gateway pipeline (Northern Gateway )

The 731 mile long pipeline will carry 525 kbd to the port, and a twin pipe will carry some 193 kbd of condensate back to Bruderheim to help in the processing of the initial crude. It will, sensibly, move the oil that was to have come down through the Keystone pipeline to American refineries instead to tankers out to the Canadian coast, where it will be shipped to Asia to meet their growing demands. Given the investment in the pipe, infrastructure etc once this oil is committed to that market and the US will not be able to gain that supply back when it is needed in a few years.

There is a secondary impact to the opening of that market that may not be evident for a little time, but it something that the Russians discovered after the gas pipeline connected Turkmenistan to China. Suddenly there is a second market for the product, and producers are no longer tied to having to accept the price that the sole purchaser is willing to pay. At the moment, when there is a sufficiency of oil, that is an incidental, with significant impact only in improving the economics of the oil sand operations, but since it now ties the American refineries that would have received this oil more closely to the Venezuelan production it now receives (a somewhat less reliable supplier) this change remains as something of a future concern. It is not likely, in itself, to initially change the price of oil much ( a minor increase) but it will change the names and nationalities of those that profit from the trade.

The problems that the Keystone pipeline had are, to a degree, a function of the lack of concern over the supply of oil to the American market. As long as oil production continues to increase, from the Bakken and Three Forks in North Dakota, and the Eagle Ford in Texas, then there is no clear evidence for concern. But those wells are cumulatively starting to reach peak production, and the next shales on the list (the Spearfish and the Tyler) don’t hold the potential to match the gains that have been achieved to date. Particularly this is when, as the North Dakota DMR notes, the wells see an average decline of 65% in the first year.

Figure 3. Typical Oil production from a well in the Bakken:Three Forks region of North Dakota (ND DMR Oil and Gas Division )

The projections that gains in production continue thus rely on a continued high level of drilling and production with a defined rig count required having been estimated, and an assumed sustained level of production even beyond the time that the “sweet spots” start to disappear.

Figure 4. Projected production from the Bakken:Three Forks formations, assuming well productions are sustained and that the rigs are available. (ND DMR Oil and Gas Division )

At the end of June, 2014 the rig count in North Dakota is less than 190 (DNR says 189, but Kirk Eggleston notes that some 15 of these are moving, so that the real number is 173, a bit less than 225. That suggests that peak production may be delayed, and lowered from 1.75 mbd down to around 1.4 mbd. This reduction in short-term supply will have less impact in the US than elsewhere since it will be used to release oil that the US would otherwise have bought to the world market, but less than anticipated, and at a slower rate than expected. (Note that Eagle Ford production growth rate is also slowing and that this also affects OPEC projections which anticipates that US oil production will grow some 950 kbd this year).

At the same time, as I have noted in an earlier piece the reliance of many models of future oil supply have focused on Iraq as the next major supplier to sustain growth in production, even as other suppliers decline. But those projections are increasingly obsolete. It is unrealistic to expect the oil export business from Iraq to be sustained and continue to grow in the face of the developing civil war. The nature of the conflict makes it difficult to see how it can be easily resolved, and particularly if the country becomes divided, then the oil pipelines become a target of opportunity to attack the financial underpinnings of the different sectors. It is likely that the pipeline from Kurdistan into Turkey will carry increasing volumes up to Ceyhan and thence to the world market, under better security, given that does not now venture into Sunni territory, but the vulnerabilities likely remain.

The result of these declines in anticipated production (not to mention Libya, the Sudan’s etc) is likely to become evident within a year, while demand continues to grow. The balance need change only a small amount however, for the consequences to be dire. As Mr. Micawber said in “David Copperfield”:

Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Tech Talk - of oil, water and the age of Stone.

There seems to be an assumed correlation between those who have some concerns over the accuracy of the theories of climate change (shall we call them the doubters for today’s discussion) and those who believe that there is a plentiful amount of fossil fuel available that will see us properly provided for well into the future. This is in contrast with those who are actively pushing the agenda associated with remedial matters that might affect the climate, and who also assume that there remains a plentiful sufficiency of fossil fuels, but are anxious for the world to change to alternate sustainable and renewable fuels to reduce our dependency on fuels that generate carbon dioxide.

Discussions of peak oil, the limits to natural gas production, and concerns as to when, this century the currently abundant coal reserves (not to mention the resources beyond them) will run out are dealt with as an increasingly irrelevant topic for discussion. The current adequacy of supplies is assumed as likely to persist, and neither camp is much inclined to argue the issue. Which is unfortunate, since this lack of real interest is taking place at a time when the dominoes are lining up toward a series of cascading falls, when the rather glib commentaries of the past will lie forgotten, and concerns over national fuel resources will be topics for discussion in many more nations around the world than now even talk about it.

One of the most quoted remarks that epitomizes the blindness of many to the coming problems is that of Sheik Yamani "The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil.". Unfortunately for the applicability of this analogy, we have seen, in the past, times where technology disappeared under the assaults of external forces, wiping out civilizations around the world.

I recently mentioned the book "1491" by Charles C. Mann – who covers some of the civilizations that thrived and fell in the Americas before the arrival of Columbus. At some point or other some resource, vital at the time to each civilization proved inadequate. For example the Mayan Civilization collapse has been blamed on a prolonged series of droughts that made the centralized city life impractical. Richardson Gill, for example, in “The Great Maya Droughts: Water, Life and Death” points out how very short a distance a city worker can travel to find food for his family, if he has to go on foot. It is an argument that likely also held true, in its time, in Mesapotamia. Yet, in the short term, there was nothing apparently that the rulers of the time could do to achieve an adequate supply of water. The transient shortages were, however, sufficient to doom those civilizations that suffered (and that includes those along the West Coast of the United States in about the same period). We still have to rely on water, but that doesn’t mean that the times where it fell short were not locally catastrophic and destructive of civilization.

And that is the problem with Sheik Yamani’s analogy between the supply of liquid fuels and the Stone Age. We can look outside and see stone in abundance all around us. Yet we have moved on to rely on other materials. Even in a drought in California, they have a huge amount of water right beside them. It is merely the wrong sort (sea water) and they are only slowly coming to recognize that perhaps they are going to have to bite the bullet of desalination, if the problem is not going to get recursively worse.

There will always be some form of energy available. We have, in large measure, moved away from dung fires for heating and cooking in North America and Europe and it is unlikely we will return to those days. But what is often missed in the assumption that we can switch from one resource to another in times of shortage, is the time that it takes to make the change. That wasn’t too hard to do, if the switch was from gathering dung to gathering wood, but it gets more complicated if the two alternatives are coal and, for the sake of discussion, wind energy.

When coal-fired power stations are closed and demolished they cannot be turned back on if wind energy proves to be an inadequate reserve. Arranging for coal mines that will supply the coal, railways to ship it, and power companies to acquire the permits to build and then burn it takes years. Nuclear power takes even longer, and even running a new pipeline can (in the case of Keystone) drag on for seemingly ever without a decision. The changing picture of energy subsidies for wind and solar are also raising concerns over the reliability of return on investment in those industries. Small, local solar operations (as with the dung fire) can move relatively quickly. Individual houses can be retrofitted within a few months – but for an effort with national impact, the small-scale is likely to be inadequate in overall size to match the power output from major coal-fired stations now on the block.

We are marching to a set of drums that beats out the message that there is no problem, even as the signs of a slowing oil production increase are appearing, and none of the global signals is very reassuring. Those European nations dependent on Russian oil and gas are discovering that, perhaps there really isn’t a practical alternative to that supply, and so speak more quietly about Ukraine and the Baltics. Any tightening of global supplies (a likely event in the next couple of years) will only make that situation worse for those customer nations, and serve to strengthen the national stature of the Russian President.

It is worth remembering that those of us who talk about peak oil are not talking about a resource that will suddenly disappear. No, we are merely projecting that sometime in the near future there will come a time when that year’s overall crude oil production will be a little less than the year before, and similarly in the following years. (Projections for future drilling operations in North America are receiving increasing scrutiny). There will still be a lot of oil around, but as demand exists so the price will start to steadily increase in an continuing rebalancing of price, cost and supply that will increasingly roil the global marketplace. Unfortunately in an increasing number of cases the need for money is an upfront and increasingly expensive one, to pay for the exploration and development, with only some assurance of a payback. And as more money goes into a smaller return in volume, the mandatory prices needed to continue that progression will continue to rise, even as gains diminish.

In the interim the EPA has cut the targeted production of cellulosic-ethanol yet again.

Is Nero playing the fiddle?

Or to put this in terms the current Administration might have heard of. While the responsible Administration official talks of energy solutions that will come from bacteria, and might make a significant contribution to energy supply in 20-years – in the world of energy Mrs O’Leary’s cow just kicked over the lantern *.

While the world moves more rapidly to a crisis in terms of the supply of liquid fuels this year, and most critically the gasoline/petrol that drives our vehicles, Western Governments are more excited about seizing the opportunity to talk about increasing renewable energy targets. The European Union (EU) with the help of the British Secretary for Energy and Climate Change, Chris Huhne, has just decided that it has become more critical to raise the target for cuts in carbon emissions, within the EU, to 25% by 2020 (the Hon Sec wanted 30%) than other concerns. The fact that this might, as the EU Energy Commissioner pointed out lead to a “de-industrialization of Europe”, is not considered persuasive.

It was just last week that the chief of the National Grid, Steve Holliday, was quoted in the British Telegraph on March 2nd

Mr Holliday told Radio 4’s Today programme that people would have to “change their behaviour.” “The grid is going to be a very different system in 2020, 2030,” he said. “We keep thinking that we want it to be there and provide power when we need it. It is going to be much smarter than that.”

“We are going to have to change our own behaviour a consume it when it is available, and available cheaply.”

So much for reliable and sustainable power, which used to be one of the things that Government was assumed responsible for providing.
(* The cause of the Great Chicago Fire).

Michael Klare has just pointed out that we have reached what others might call “A Tipping Point.” In similar vein to some of the earlier posts here, he notes

To put the matter baldly: The world economy requires an increasing supply of affordable petroleum. The Middle East alone can provide that supply. That’s why Western governments have long supported “stable” authoritarian regimes throughout the region, regularly supplying and training their security forces. Now, this stultifying, petrified order, whose greatest success was producing oil for the world economy, is disintegrating. Don’t count on any new order (or disorder) to deliver enough cheap oil to preserve the Petroleum Age.

This is an argument not just about the collapse of Libyan society into civil war and the loss of 1.6 mbd from the world market. Rather it seeks to point out that first, after revolutions such as those in Iran and Iraq it has taken years and they are still not back to pre-revolutionary production levels, despite all the rhetoric.

More critically the issue will, however, come back to the investment of resource. Many of those driving the popular protests across the Middle East and North Africa are young. Many of them are educated but un- or underemployed. Some of the blessings of the last century included the medical changes that allowed more children to survive into adulthood, and the MENA countries have seen up-surging populations. IN 1980 Saudi Arabia had a population of 9.3 million individuals, by 1990 it had reached 15 million last year it reached 26 million meaning that most of the population is under 30. (And this is typical of the countries of MENA).

Where will the jobs and other incentives not to riot come from? Dr Klare drew attention to the remarks of a Saudi bank governor

The average local consumption of gas and oil grew 5.9 percent in the past five years, the official news service reported, citing the kingdom’s central bank governor Muhammad al-Jasser. “Domestic consumption of oil and gas is posting continuing growth and at high rates,” the report said. “This requires looking into the reasons behind the increase in oil and gas consumption and working on rationing it.”

The Saudi economy, excluding oil, may expand 4.5 percent in 2010 according to the International Monetary Fund, compared with 3.3 percent in the previous year. . . . . . . .

Power demand in the holder of the world’s oil reserves is set to increase 8 percent a year as the government invests to spur economic growth and the population expands.

Saudi Arabia, lacking natural gas supplies to meet domestic demand, is burning oil in power plants as it expands industry. Demand for oil to generate power could account for as much as 10 percent of Saudi Arabia’s total oil production capacity by 2012, Lawrence Eagles, head of commodity strategy at JPMorgan Chase & Co. in New York, said earlier this year. . . . .

The kingdom’s energy demand will rise to 8.3 million barrels a day of oil equivalent in 2028 from 3.4 million barrels last year unless it becomes more efficient, Khalid Al-Falih, Saudi Aramco’s Chief Executive Officer, said in a speech posted on the website April 26.

This is the country that the world is relying on to keep it out of the hole when world oil demand surpasses otherwise bounded supply.

In many of these states the only major source of revenue has been from their energy exports, increasing percentages of that wealth is going to be turned to meet short-term public demands, it will not go into investments needed to sustain fuel production (see Iran and Iraq).

So there is a short-term increasingly-evident problem of coping with the obvious cut-backs from places such as Libya. But the more serious concerns, which Government seems to be ignoring while they still tilt with windmills (which have very little bearing on liquid fuel shortages), is that the rather bumpy plateau of oil production along which we have been bouncing for the past five years may very soon now tilt downwards, inexorably and without likely reversal.

Short term-measures such as releasing oil from a finite stockpile will not do anything significant to change that situation. But if it is not addressed soon then it is likely that the public opinion will switch from its current uneasy complacency into Panic – and that would not be good. For it is from such conditions that demagogues arise.

Prophets of Doom??

Well, knowing one of the participants, and having bought lunch for and accepted drinks from another, I watched “Prophets of Doom”, on the History Channel on Wednesday night. The publicity for the show described it thus:

Today's world has troubles unique to its time in history, from the global financial crisis to technological meltdowns to full scale, computerized global war. Observing the convergence of such events, contemporary prophets have begun to emerge from obscurity to suggest that these conditions might be signs of the demise of the modern world.

Given the critical problems that are facing the world over the next decades I must confess to considerable disappointment with the resulting program. There were a number of interesting gimmicks, each prophet (there were six) discussed his topic on a different method of transport, including a taxi, a ferry, an airplane and a subway car. But sadly, apart from an allocation of a graph of two per participant the very real issues that some of us are concerned about (in my case population, water and fuel) got relatively little detailed explanation. And one of the likely answers, the development of appropriate and more advanced technologies was, instead turned into one of the threats.

The first half of the two-hour show dealt with such problems as over-population, the instability of the current financial system, and the shortage of water. It went on to the shortage of oil, (which was covered by James Howard Kunstler who did not care for the change in title from the original “The Futurists.” That was followed by the risk from robots becoming more intelligent than mankind, to the point that they treat mankind as a pest (where is Asimov when we need him?) and exterminate him/her. And finally it covered the risk from terrorists getting hold of nuclear devices.

Once the basic premise for the different ways we can follow the Roman Empire into extinction had been outlined, and foregoing that, at least according to Gibbons, that took a considerable number of decades, whereas we are now looking at the future over the next four at best, the prophets sat in a circle in an apparently abandoned warehouse to discuss their different viewpoints. (This was one of a number of formatting ideas that didn’t really work very well).

First they appeared to superficially debate which was the most pressing problem and how to deal with it. (And having been both before and behind a camera at different points in my career, to the point that I have spent several hours of shooting to produce about a minute of video, I fully recognize that this apparent superficiality is not the fault of the participants, but likely of the editor) Their conclusion was that the first severe problem that will face the United States (since it is the collapse of the American Empire/Life Style that they were addressing) was water shortage and contamination – for which it was felt that there was no practical solution, because of the local nature of the problem. But there was a minority rebuttal which held that it would be more likely that it would be the collapse of the financial system that is the most imminent.

However, Michael Ruppert, who had led off the program and seemed to have some sort of role as a discussion leader, suggested that the economic collapse is likely to be exacerbated by the coming shortages of water and fuel. He then led the group toward an apparent consensus that we must move toward local food production and a distributed society, rather than the highly integrated network that sustains us today. (Which is, interestingly the diametrically opposed view to the book “Power Hungry” by Robert Bryce that I happened to be reading during the commercials. He points out that the network is too large and well established to be changed significantly in a short amount of real time).

And so the question came as to what the prophets felt that can we do to change the situation? Suggestions ranged from getting some law and regulation into the financial community, to the need to rebuild local economies, to rebuilding the national railroad system. People must accept that they will have to do increasingly with less every year, instead of more, and the country must learn to “Buy American.” We should look into disjointing society to the point that we create local currencies as society moves toward collapse, for we have very little time remaining.

And then they turned to the final question, which was to decide if anyone would listen to them, or were they Cassandras likely to be ignored? The answers were really more like sound bites – “the problems are there and the time to address them is short” – “We need a time out from technology” – “we are going to have to live the way that we should have been living until now” – “If we could learn to work together, but as long as it is thus against them . . . .” - “we are the one species in the planet that would run into a fire to rescue a stranger” - "We will end up taking care of each other". (One thinks of what actually happened during the Depression as a rebuttal to some of these).

And they closed with the conclusion that water shortage and pollution and financial collapse are the greatest threat to the country in the short term. (And, for the record, I don't agree with that either).

I have bought a fair number of DVDs of shows that appeared on the History Channel, and have a number of other DVDs dealing with various potential futures and the problems that we are facing. I don’t think that I will be getting a DVD of this show to put among them, and actually, I think the change in title was justified.

Oh, and as a post script Eyafyjallajokull is a little more active today - Katla erupting is potentially a much greater threat within the next couple of years than any of the topics above, yet notice how little attention or care it is getting in the media anywhere.

OGPSS-When oil isn’t crude and gas isn’t gas, the Eagle Ford Shale play

There are two figures that keep cropping up when folk write about the production of oil, one number is the daily flow rate for crude oil, and while the EIA report that the peak production year to date was in 2005, when the world produced 73.72 mbd, the IEA have reported that the peak occurred in 2006. Yet just last week the IEA raised their forecast for next year’s oil demand to 88.8 mbd and there is about 15 mbd difference between the two numbers. So you might ask what causes this, where do these additional liquids come from and what is their future, relative to that of crude alone.

Part of the answer comes from what are known as refinery gains, the fact that when you crack a high-carbon crude into lower carbon products in a refinery then there is a gain in volume. In Oil 101 Morgan gives this processing gain in volume to be around 2.2 mbd. In addition there is the rising level of bio-fuel production, about 900,000 bd of ethanol in the US alone, for example. But the largest volume comes from the liquids associated with the production of natural gas.

These are collectively described as Natural Gas Liquids (NGL) and condensate. Simplistically, when natural gas comes out of the reservoir it is not always what is referred to as a dry gas, but rather can often contain a number of other constituents in the fluid flow. The NGLs are normally a combination of ethane, butane, isobutene, propane and natural gasoline and are normally combined with other light hydrocarbons that condense out of the fluid flow at the surface, when pressures and temperatures fall from those in the reservoir. These additional fluids are the ones generally called condensates, as a result. (The NGL's need a little pressure to re-liquefy). NGL total volume is about 8 mbd. Now to make life somewhat more complicated both oil and gas can come out of the same well at the same time in a admix that can include all of the above. And that requires that they be separated, but that is a topic for another day or two. Today I want to give an example of the importance of those liquids that lie between crude and natural gas.

These mixtures can be more important, depending on the relative composition of the flows that are then obtained. Consider, for example, the Eagle Ford shale, the new field that is being developed in Texas, where wells that are to be drilled into the gas shale are now touted for their liquids content, rather than for the natural gas that they are more commonly anticipated to produce. When the field was first drilled, back in 2008, the initial well flowed with natural gas production of 7.6 million cf/d and there have been some 944 permits for wells as and of last week.

Wells in the Eagle Ford Shale Texas Railroad Commission

However it is not just the surface location of the wells that has to be considered. And if those of you with more knowledge will forgive the repetition, I need to just give a short paragraph of explanation about where oil and gas originally came from. Very simplistically they come from algae that flourished in the oceans of the time, somewhere between 65 and 500 million years ago. The algae contained some lipids (an oil precursor) as do those of today. As the algae died their bodies fell to the seabed where they accumulated in layers, along with the sediment that collected with them. Over time that nascent rock was buried deeper in the Earth’s crust and as it did the pressure and heat slowly changed the lipids, initially into oil. However if the rock was carried deeper, then the oil was further cooked and became natural gas. The process has been illustrated at the oil and gas geology website where I got this illustration:

Transition from lipids to oil and then gas over time and depth of burial ( Oil and Gas Geology )

As a rough rule of thumb down to 15,000 ft the hydrocarbon is more likely to be oil, (which is thus referred to as the Oil Window) and below that it is more likely to be gas. That is only a rough rule of thumb, and one must remember that over time there has been a lot of uplifting and eroding, so that 15,000 ft isn’t necessarily what it used to be.

And the Eagle Ford shale is a fairly good example of this. If we use the EIA map of the play you can see that in the North, where the reservoir is about 6,000 ft deep the hydrocarbon is oil, while further South, where the deposit is down at around 14,000 ft then the hydrocarbon is dry gas. And in between it is what is known as a wet gas.

Eagle Ford play showing the depths to the reservoir and the nature of the hydrocarbon (EIA )

You will also see that the majority of the wells are in the wet gas/condensate section of the field. As a result, when we look at the amount of the different fluids that have come from the field in the two years of major production to date, we get the following plot. And to make it, I have made the simple assumption that 6,000 cubic ft of natural gas is equivalent to a barrel of oil (which I call the Apache number )

Fluids produced from the Eagle Ford shale (Texas Railroad Commission )

You may note that the condensate from the wells in the wet gas zone have produced around 2.3 million barrels, while there has only been about 1.6 million barrels of crude produced. It is also worth noting that while the natural gas coming from the formation has been twice the equivalent volume of oil, the market for natural gas, at the moment is still down at around $4.6 per kcf, which using the Apache conversion, would give it a price of around $27.60 a barrel of oil equivalent. On the other hand the condensate is a light high quality product, and West Texas Intermediate crude is running at the moment at around $88.30 a barrel. (EIA last Natural Gas Weekly ) You should also remember that these are not the retail price for the products – natural gas in Florida, for example, was given as $10.56 per kcf, while it is around $9.81 in New York (ibid).

The current excess of natural gas over supply, which is likely to continue through at least next year (and which I will discuss in more detail in a number of future posts) will likely keep the price of natural gas down around the $4 figure through most of next year. On the other hand the increasing demand for oil when set against the limited ability of the industry to respond, will likely mean that oil may well move over $100 a barrel.

So now you know why they are drilling in the middle of the play known as the Eagle Ford Shale.

Current and future Saudi and Russian oil production

One of the inexorable results of the developing shortage of oil is that prices will rise. It is a prospect that does not particularly concern the Saudi Arabian Administration, Minister Al-Naimi having recently inflated the acceptable range for crude up to $90 a barrel, and JP Morgan has recently predicted an imminent rise to $100, a theme apparently now also taken up by Libya. Higher oil costs lead to higher fuel bills, and there is already a report in the United Kingdom that, in consequence , there may already be an increase in winter deaths.

Because demand for imported oil in countries such as China and India continues to increase at a steady rate, it will only be through the increase in production from the exporting nations that supply can meet such demand, and prices can be held at a relatively stable level.

Chinese changes in oil flows (Energy Export Databrowser )

Indian changes in oil flows (Energy Export Databrowser )

The two plots above are only illustrative of the problem, given that the volumes and relative import/export flows change around the world continuously. However, the world’s two largest producers of oil are Saudi Arabia and Russia.

Given the likely continued increase in the world thirst for oil it is worth reviewing again the potential for increased exports from these two countries. The first is Saudi Arabia, whose oil Minister I quoted at the beginning of this piece.

Saudi Arabian changes in oil flows (Energy Export Databrowser )

While it is likely that a significant proportion of the oil export drop in 2009 was due to the world recession, the steady rise of the black line, that showing internal consumption, is also contributing to a reduced volume available for export. That rise is perhaps better illustrated with a plot from The Oilwatch Monthly for August.


Whether Saudi Arabia will increase production, and if so by how much, is now one of the more interesting questions for 2011. They have indicated that they are increasingly more concerned with maintaining the long term potential for higher ultimate yield, which requires lower daily production rates, and have already cut their maximum planned production rate to 12 mbd in consequence. If they do not increase flows significantly, then the focus swings to Russia.

Only today Russia was announcing that production had reached a new record of 10.26 mbd for October. The gain was achieved with increased production from Sakhalin Island, and oil exports increased to 4.97 mbd. Whether this level can be sustained, however, remains a critical question.

Russian changes in oil flows (Energy Export Databrowser )

President Putin has noted that it will take $280 billion in investment to stop a 20% fall in production over the next 10 years, and that investment will only hold production at current levels. Russian consumption has also been relatively flat over the last decade, and one has to wonder if that will continue, given the flow of money into the economy that the sale of the oil is bringing. The increased funding has already stopped the decline in oil production in the country that had been forecast only a year ago. Production is coming from the relatively new fields such as Vankor (270 kbd), South Khylchuyu, Verkhnechonskoye (51 kbd), Uvat (78 kbd) . However production from these fields has been manipulated a little, apparently, by attempts to find helpful tax breaks. Production at South Khylchuyu being a current victim of that, since the field has a potential of 150 kbd, and started at 80 kbd. That production is now all slated to go to China and China has also funded a loan for pipeline construction to Vankor, scheduled to be completed next year, that will carry that production (scheduled to peak at 510 kbd in 2014) to China. Current Vankor production is about 10% above that anticipated last year, but with that gain going to China, and overall production being about level, this suggests that the declines in production from older fields will increasingly hurt exports to the West.

"Vankor say they will do 250,000 bpd next year, but unless you're bringing on very sizeable fields every year, the five percent decline rate in western Siberia will take that out," said Russian oil analyst Oswald Clint of Sanford Bernstein. (last year).

Clearly the current prices of oil are helping to justify the increased production practices from Russia, and their investment in maximizing production.

I am, however, drawn to remember Jonathan Callahan’s presentation at the ASPO meeting. Because that is not yet up on the ASPO site I am going to include my review of it, as it drew the same conclusion as I. The bit that is important is the contrast between the British way of developing their oil reserve, and that of the Dutch.

Jonathan used representative plots from the series for his talk, beginning with the UK.


Noting that the UK used town gas (made from coal) until 1959, when the first LNG was imported from LA, gas in the UK was privatized in 1986 and reached peak production in 2000, becoming a net importer of natural gas in 2004. This last winter it was necessary, on three occasions for the National Grid to issue “Gas Balancing Alerts”, where industrial consumers should reduce use to protect domestic consumers. The situation is anticipated to get worse.

He contrasted this way of managing a resource with that of the Dutch, who have the large Groningen Gas field but which they have managed in a much more conservative way. With their different management philosophy they have retained a considerable margin for the future, over the same time interval.

I would suggest that we are increasingly seeing the Russians follow the British model, while the Saudi’s are moving toward the Dutch model. Such changes will likely impact future supplies.

(And if you think this is sort of a commercial for the upcoming Tech Talk switch you might not be wrong).

Saudi Oil Production - read Minister Al-Naimi's small print

Yesterday the Saudi Arabian oil Minister, Ali Al-Naimi, commented that the days of easy oil are not over, and that there remain at least 88 billion barrels in the Saudi oilfield of Ghawar, let alone the rest of the fields in that country. Well before that sends you out to buy a fleet of Hummers, you might want to take a wee bit closer look at some of the other things that he said, or did not say. For the future is not quite as rosy as his remarks might, at first, make you think.

Let’s start with the “days of easy oil are not over.” That is a somewhat egregious remark. It is relatively easy for the Kingdom of Saudi Arabia (KSA) to brag that it is still not that expensive to produce oil. Given the size and extensive development of their fields that is, at present, still to a large extend true for them. But Aramco have carried out extensive research into modeling their fields and developing technologies such as maximum reservoir contact (MRC) on order to get the maximum amount of oil out of their fields. (And I’ll get around to that in a minute). But the KSA only produce a fraction of the increasing amount of oil that the world needs every day. And it is the cost of the oil at the margin (that which balances oil supply with need) that to a much greater degree controls the price.

At the moment the countries that make up OPEC can increase production at need, beyond the current levels of demand. As long as they can do this they can impose controls on the price. This is because the rest of the world is producing just about as fast as it can and there is some doubt, despite some rosy predictions, that they will be able to raise levels above those currently produced. If the price falls too much, then some of the more marginal oil, that is more expensive to produce, might drop off the market. At that point, if OPEC cannot make up the difference, and I would argue that beyond a certain relatively low volume (4 mbd) it no longer can, then prices will rise again. There is an effective lower bound on price now, significantly higher than OPEC costs.

Last week at the ASPO-USA Conference Michael Klare commented on the amount of money that this will bring to the nations that produce oil much cheaper than the global price (which KSA is happy to keep at around $80 bbl) but to keep that price it relies on the make-up oil that is not “easy” at all. This includes oil sand and deepwater production.

Now let me turn to some of the more worrisome part of what he said. Until recently it has been assumed that KSA was going to raise production to levels of 12.5 mbd as part of the balancing act to match declines in other fields and meet supply. (And some time before that there was talk of Saudi production levels of up to 15 mbd). However the KSA has a problem. To get the maximum recovery from their fields they have to control the interface between the waterflood and the oil., and move it relatively slowly and evenly through the reservoir. They are quite good at this, and likely getting better. But it means that they produce the oil at, for them, relatively slow rates. And they are slowing these down a bit. As a result the maximum that they are now talking about is 12 mbd. Which means if you are looking at the global balance over the next few years you have just had to take an eraser and remove 500,000 bd from the available supply. Note that this is not quite 50% more than current production.

Why is this? Well that comes to another part of the remarks that the Oil Minister made. The next major plan for production of oil is the development of the Manifa oilfield. It was, at one time, scheduled to produce a million bd, but this is now dropped to 900,000 bd. But there is a greater concern.

Manifa is a heavy, sour (i.e. high sulfur), vanadium contaminated deposit. It requires a special refinery to process the oil, and these don’t exist. The KSA has had plans in the works for some time to build two refineries in the Kingdom that will refine this oil. There have, however, been delays in construction. It appears that these are getting worse, or, for other reasons, have been further postponed. Without the refineries the ability to produce the oil is meaningless. The original date at which these facilities were supposed to be on line was within the next two. It is now, apparently, been moved to 2024. Presuming that this is not a misprint (since the last target was 2013) it means that KSA has changed its strategy and is not looking to ever produce above the 12 mbd current target as we move into the future.

Naimi said the kingdom has sufficient production capacity at 12 million barrels per day (bpd) and has a strategy of preserving its resources and developing new sources of energy.

"We have the production capacity and we don't have to deplete our reservoirs as fast as someone who's just there for investment...so we don't really have to pull our reservoirs as hard as we should," Naimi said.

With their internal consumption continuing to rise, and with increasing sales to China, the amount of that oil which is going to be available to the West is going to go down.

Whether and when they will get to 12 mbd now becomes more of a question. Given current levels, and the income that they are getting from them, it is hard for me to see production rising to even 11 mbd. (subtracting the volume from Manifa). And if world consumption is rising at around 1.5 mbd per year, for the sake of discussion, then we are going to see an imbalance between production and supply needs, in just about 2 years.

Given that this was the message from the ASPO_USA conference, it is interesting to see the Saudi Oil Minister so rapidly confirm it.

So I’m afraid the difference between the headline of his remarks and the small print of his text are enough apart to be disturbing.

And I must apologize in that this was written on the train from Vienna to Graz and I don't have access to all my usual references, which I would insert.

The ASPO Conference - final thoughts

The remark that sticks most in my mind, as I look back on this year’s ASPO-USA Conference was one that I believe totally missed the underlying Conference message. It was Ralph Nader, the speaker at the final luncheon, who trying to encourage action, noted the likelihood of our still debating the same topic at the meeting ten or fifteen years from now. The chances of the happening are slim to none. If by that time there has not been an oil peak, with all its subsequent impacts, the Association will have lost any claim to be able to predict reality, and likely will no longer be having meetings. On the other hand, and the evidence was increasingly evident and worrisome, if the peak comes, then the group that met in Washington will have moved on to the equally worrisome topic of trying to predict how fast the decline in liquid fuels will be, and the impact. So we won’t be still talking about the same stuff.

And yet the tenor of the meeting felt different this year. I remember the excitement of going to Denver five years ago to meet the first group of folk that had the same concerns about future fuel supply that I did. I remember the video cameras, the emotional reaction when I realized that there were a significant number of folk, more knowledgeable than I, who had facts to substantiate an early rather than late date for Peak Oil to occur. Five years have passed. The intervening time has seen global oil use reach a rough plateau along which it has bounced. But the end to that plateau is now coming in the near future. This will make that future much darker than the present, and likely a lot of people are going to be hurt. Yet the mood at the meeting seemed more complacent, even as the message is becoming more urgent. Perhaps we have been talking to ourselves too long, for as the message becomes clearer, the reaction seems to lessen.

The Liquid Fuels problem (though there are concerns also over the effective supplies of energy as a whole) is not an immediately visible crisis. Yes the price of crude oil has gone up, but it is now held (largely through an adjust of the exports from a very few Middle Eastern countries) at a relatively steady price. As long as that reserve exists and is used, as it is now, the world can adjust to the current price and continue about its ways.

But the day when the carousel stops is almost at hand. The predictions at the meeting seem to increasingly focus on the 2012-2014 time frame. That begins to impact the next national elections. The price of crude will continue a slow ratchet up, that quickens towards the end of next year (there was at least one prediction that it will be back in treble digits by then). The slow growth of the crisis, partially because of the continued ill-health of the economies of the world, means that there are other more pressing topics of seeming more important concern. And so the meeting drew less attention than it should.

ASPO-USA is moving to Washington to seek more influence, but I suspect that the dawning awareness of the problem over the next eighteen months will do more to bring the group to national attention. What is needed is an underpinning of facts that explain some of the root causes of the problem, why it isn’t going to go away, and some of the resulting problems that are going to arise in the future. Plus of course the need to continue to work the numbers to better be able to estimate how bad it is going to get.

Robert Hirsch talked about what he has done to prepare – he knows it is coming and is getting ready – but I wonder how many other folks are? It has, to some, become almost an abstract topic, somewhat displaced from day-to-day reality in the way that some meetings change. We talk about the evidence, yes its getting stronger, and the dates are getting closer (even faster than that just due to time having passed) and yes the impacts could be severe, but . . . .

I remember coming away from my last ASPO Conference thinking I should talk to the mayor and council where I live. But it was still a few years from a crisis, and as someone said “if it won’t happen in this term, why should I worry, I might not be elected when it happens and so I won’t have to he concerned.” Well that isn’t true any longer. Those now being elected will begin to see the problem in their next term. The excuses for inaction are running out.

(Oh, and my wife, my eldest son and I drive hybrid cars. I spent the weekend before the Conference stacking wood for our tile stove. I have solar roll on the roof, and the house has been re-insulated. Living rurally I am loath to move nearer shops and we effectively have little public transport).

The evidence is stronger, more folk are becoming aware of it, the likelihood of significant mitigating measures being implemented are growing less, but, for a short while longer, we are off the public screens. But that will likely soon change – as earlier periods of awareness show, people do want web sites that can keep them informed, conferences that bring together folk that can build the encompassing picture of what is happening.

Unfortunately, as the Gulf oil spill showed, the current Administration thinks it can exist without much of that expertise. (The decisions were made by an overseeing panel assembled by the Secretary of Energy that did not contain a whole lot of Petroleum Engineering expertise, by number of members). It, sadly, takes time for those who don’t know the facts, or have the background knowledge, to be brought up to speed. So our role hasn’t gone away. It has actually become more important, and so we must continue to do what we do, until recognition comes. That it likely won’t be long coming is not necessarily good news.

ASPO Conference- last day

One of the helpful aspects of the ASPO-USA organization is that they post the videos and presentations that were given at their conferences. Obviously these need to be tweaked after being recorded, and so do not go up immediately but, for example, they have just posted the video of the Jeff Rubin talk on their site. I am going to conclude my summary of the conference itself with this report. I was not able to stay for the final afternoon, and so Gail has kindly furnished a summary that I will add to cover that section of the Conference. As usual I will then give a short summary of what I felt were the highlights, but which is more opinion that content – the goal of these initial posts.

Turning therefore to the Saturday morning meetings, these began with a slight change, since Terry Backer the scheduled speaker was, unfortunately, ill. Paul, one of his advisors, spoke on his behalf, noting that Connecticut – where they are from – has no indigenous coal, oil or natural gas. They had a plan for moving forward that had received support for a significant effort to insulate houses, but unfortunately even though it would have provided a number of jobs, it fell victim to the recession. They are now looking to see the potential for micro-hydro in the state.

The first session was chaired by Ted Patzek and was focused on the Gulf oil spill and the likely consequences.
I led off with a chronological review of the events that occurred through the course of the spill until the time that the well was declared dead. This covered the initial completion of the well, the kick and explosion on the rig, and the sinking of the well. I then went through the stages of the capture of oil, and the capping of the well. This also covered the assumptions that led to the location of the relief well and what was found when it hit the well. Very largely it was a summary of the posts that were written at the time, with the aid of some photos that others had posted.

After my talk, Art Berman spoke of some of the errors that culminated in the failure of the well and the consequent disaster. He began by pointing out that the energy resource of the Gulf is much larger than that of shale gas, and in the deep water is likely the last great hope of American production. From that point of view the shut down (which has nominally now been lifted. He described the number of wells in the gulf and pointed out that the Macondo well was not an exception.

In reviewing the causes of the disaster he started with the problems that arose when the initial float collar, used in the injection of the cement to hold the production casing in place, did not properly function. To get to work the crew used a pulse of high pressure down the well, and then only cemented part of the lowest section, rather than injecting sufficient cement to fill the annulus up to the level of the previous casing. Because there was a considerable washout of the reservoir, the crew then chose to use a foam cement. Tests have shown that this takes some 24 – 48 hours for this cement to set, and yet they began displacing the mud holding the oil and gas within the reservoir after only 16 hours.

Because the well was drilled with an oil-based mud (rather than the more conventional water-based) natural gas will not come out of suspension at the same depth, but rather remained in suspension in the oil until very close to the surface. At that point it would expand, so that one cu ft of gas at depth would occupy some 800 cu ft and so the onset of disaster came very suddenly.

A problem that continues to face drilling and production companies has to do with experience. There is not a large cadre of well-qualified managers, since the highly cyclic nature of the industry means that many of those who would occupy such ranks were let go in the bad years, and are now otherwise employed. Thus the onus of management is falling to people that do not have the necessary experience and knowledge.

Rick Munroe brought the debate into the larger picture of the Peak fuel debate. Ho pointed out the considerable difference between the military view of the coming crisis, in contrast with the more complacent civilian government point of view. The Energy Bulletin lists over 40 papers from military groups that have highlighted the coming problems of fuel availability. In contrast it was only in 2008 that the IEA began to express similar concerns. Yet, as a paper in 2009 from the war college noted, while these strategic shocks are predictable, they are either not prepared for, or inadequately addressed. The plans that do exist are over 30 years old, dating from the last time we had such a event.

On July 25th the Energy Bulletin carried a review of the Peak Oil situation by the German military. The response to the crisis, because of this lack of preparation, will not be stable, but chaotic. This instability will increase with time as economies shrink. The result will be unprecedented in its severity.

He pointed out that, by and large, these reviews are not individual opinions, but rather the consensus of qualified analysts and it defines a comprehensive domestic external threat to the point that peak oil can be seen as a weapon of mass destruction. In earlier exercises it was projected that if 4% of the world supply was removed from the market then prices would triple.

Yet with all this information available he was unable to find any significant interest in the topic either in Canada or the United States. There is no planning for the impact of oil shortage on the agricultural production of either country, and the GAO noted that planning on the topic ceased about 20 years ago. It is only, apparently, in the UK that plans for a Liquid Fuel Emergency exist. And yet a fuel crisis will, in very short time, transform into also being a food crisis. The problem is, in part, that while the response of many in government is to ration by price, but to give farmers priority, most operate on the margin and a trebling of fuel prices would put them out of business. It is a complex problem, and thus no-one wishes to address it.

In introducing the second session of the morning Ron Swenson said that one of the goals of ASPO-USA was to bring people together in such a way as to leave a world worth inheriting. The session was on the Laws of Energy, Technology and Scale.

Tad Paczek talked of scale, and that the critical metric is the rate of production. He sees peak oil in 2 – 3 years; peak coal soon and peak NG in 20 – 30 years. But while there is still lots of fuel underground it is the rate of production, and the scale of production that are constrained and that drive us into these peaks. If, for example, oil lies in a piggy bank, and we can’t break down the walls, then the rate at which we get money back out depends on the size of the slot in the top. But we should also remember that, on average, we leave 2/3 of the oil in the ground and only recover 1/3.

We use 100 times the amount of energy we have to eat to survive. The world eats roughly 1 Exajoule (EXJ) and we turn fuels into 39 ExJ of energy. One of the more promising techniques for enhanced oil recovery (EOR) is to inject CO2 into the field. This is already in use in the United States and might be able to increase production by 10%, but this comes at the end of field life. In total it might be possible to get up to 2.5 mbd of EOR oil (remember that Ghawar is producing in the 4-5 mbd range), but to get to that level will require lots of money and engineering expertise – and he is not sure we have enough of the latter. He anticipates that Canada may be able to grow tar sand production to 3 mbd by 2020.

In discussing future energy projections he said that many companies will list the prospects that they are considering drilling into – but for budget and other reasons will only actually work a fraction of those lists. Thus those who rely on the projections paint an unrealistic view of what the future will bring. We are, therefore, not in as good shape as most predict.

Ken Zweibel spoke about the Solar Grand Plan. Current development of solar has not developed under any of the pressures that will come when supply as seen as an “emergency need.” Yet overall production gas reached 10 GW and so he is optimistic of the future. Because the liquid fuels supply problem is so tied to transportation the we need to see how the use of solar energy can feed that market. This will require evolution of the Smart Grid, and means for solar forecasting and balancing of power. Unfortunately solar distribution varies – the Southwest gets 30% more photons that the DC area, for example. But, on the other hand, wind is like the measles.

We have gone from $30 a watt to $1.50 a watt, but this only covers the module cost. That is no all the costs since installation and maintenance must also be included and these will likely double the module costs. However while one can pay back the cost of the module in 1.5 years, it might take 15 years in energy savings to cover the whole cost of the installation.

He covered the current costs of some of the major systems that we will likely see grow to dominate the market. The costs have dropped 40% of the last four years, but to go lower they need (and deserve) the lowest interest rate for loans. And he moved on from there to discuss payback on the different systems., though he noted that many costs are based on out-dated methodologies. Cadmium telluride is a promising new candidate, and is not that polluting. And he noted that, in contrast to most conventional systems solar does not use significant water. (A little for cleaning). He pointed out that of the 17 Quads used in transportation only 3.4 Quads (quadrillion Btu’s) do the effective work of moving the object. Electric powered vehicles are thus a more viable alternative.

He said that only 15% of the Canadian tar sands could be recovered by surface mining, and hat the energy costs are 15 – 50% of the recovered and useful energy. For the remainder it might be possible to get 80% of it out, but at a 40% energy cost.

On the other hand vehicles will not, in significant numbers, switch from liquid fuel to solar powered in the near future. There is also not enough lithium for batteries, so realistically the answer hans to be in electrified trains. He seen the end of fossil fuels marking the beginning of a slow-down in economic growth. So the meeting slowed down for lunch.

Lunch began with a tribute to Matt Simmons. Chairman of the ASPO-USA Advisory Board and featured speaker at many of he events. A check to support the Ocean Energy Institute was presented to his daughter Abbie, on behalf of ASPO.

The noon speaker was Ralph Nader who took his quota of time, and more, to discuss Energy and Policy. He proclaimed (just having written a novel on the subject) that “only the super-rich can save us.” The main form of censorship is self-censorship. Why do we do it? It encourages a stagnant society. It builds the blocking of technological advance through the creation of mind sets. Secretary Chu advocates nuclear power and refuses to meet with opposition groups on the topic.

Mr Nader does not see a correlation between energy and economic growth. We have passed the diagnostic phase of energy future analysis, but there has been little prescription for future action and the path forward is obscure. We must mandate changes to buildings, vehicles and connect them to jobs programs. And we must make the jobs local so that they cannot be exported to China. He sees innovation as dramatically higher than it was 10 years ago. , and expects that stimulus funds will lead to innovation. But he gave the example of Evergreen Solar which had intended to stay in the US, having 800 employees here, but found that all its competition is moving to China, so they are too. Then he quoted the example of the “largest tile carpet manufacturer” in the US who has chosen to stay, and through innovation keep costs down low enough that he can remain in business.

Unfortunately as this talk drew to a close I had to leave. Gail Tverberg remained and was kind enough to supply me with her notes, which follow.

Anthony Perl, author of "Transport Revolutions: Moving People and Freight without Oil" and fellow of the Post Carbon Institute talked about ways to reduce oil used in transport. In his view, we have lots of technology, but not much time. Emphasis needs to be on proven, robust technologies.

One thing he talked about was electric motors to replace internal combustion engines, particularly for trains. Also expansion of the use of trains. One issue, though, is the fact that most rail track is privately owned. Perhaps some approach can be used that would allow double tracking with government somehow paying for/receiving ownership of the additional track.

Another possibility is "sky sails", which can reduce fuel use by ships by 50% to 80%. Water transport is already the most efficient mode of transport, and sails would improve it further.

He believes it will cost $1 trillion for passenger rail and $1 trillion for freights train needed changes / improvements. He also pointed out that GM used to build trains and busses, and asked why they couldn't again.

Dr. Charles Schlumberger, Principal Air Transport Specialist, Transport Division of the World Bank, pointed out that from the airline's point of view, it was the recession, and not the price of oil that was the problem. He felt this way, because he felt the airlines had pretty well hedged the price of oil. Its problem was a lack of passengers and cargo, because of the recession.

He pointed out that air transport is the catalyst for modern globalization. For example, he pointed out that without access by air, there is little chance of foreign direct investment in a country.

He also pointed out that at $80 a barrel, fuel cost exceeds personnel costs. He believes that above $80 a barrel, airlines cannot be profitable.

Regarding fuel efficiency, there have been improvements, but these are becoming smaller as the low-hanging fruit have already been found. Some additional changes may be difficult. For example, if changes are made that cause the size of engines to be bigger, these might necessitate completely redesigning the aircraft. One possibility is to use "Air Ships" or dirigibles for moving freight long distances.

Biofuels are being investigated, but progress is slow--perhaps 1% replacement of fuel by 2015. One issue is the huge land area that would be required. According to his calculations, algae would require the least land area, but even so algae would require an area the size of Ireland to replace existing airline fuel.

At this point, it looks like there is a possibility that airline use will need to be significantly scaled back, but if this happens, there will likely be big social and political impacts.

Next, Sharon Astyk, ASPO-USA board member and writer, talked about the world food situation. In 2008, there were 1 billion people who were seriously malnourished. The number is perhaps a bit lower in 2009, but not a lot. While oil prices have backed off a lot from their highs, some food prices are still not too far from their 2008 highs. She pointed out that high prices are a real issue for many, since almost half of the world's population spends 50% or more of its income on food.

Now China is buying land around the world, so as to be able to feed its people. This is likely to present problems for people who live in the area, and need the farmland themselves. Sharon also talked about there likely being an "Export Land" land for food, with countries cutting back on food exports, either as their own population grows, or if crops fail.

She talked about food insecurity being a problem even in the US. One in seven people is on food stamps; one in four children receives food stamps. Children who are hungry are likely not to do well in school.

There is a close tie between food and energy, so reduced food supply in the future is a concern. There are other related issues, like phosphorous supplies, which are already getting short. Lesser energy availability is likely to make the situation worse. There is also the issue of biofuels competition with food for land and water.

The last speaker was Brian Czeck, President of the Center for the Advancement of the Steady State Economy. He talked about the need for governments to scale back their expectations from everlasting growth to a steady state economy.

ASPO Conference - second day after lunch

This is a continuation of a series of reports on the ASPO Conference on Peak Oil that was held in Washington DC this week. I had covered the first 24 hours in two earlier posts, and return to the meeting at the luncheon on the second day of the meeting.

At the beginning of the lunch the Association presented the King Hubbard Awards for excellence in energy education. These, deservedly, went to Colin Campbell, Tom Whipple and Art Berman. They were followed by the Tom Whipple Volunteer Awards, which went to Lt. Col. Davis and Greg Geyer.

The first speaker at the lunch was Jeff Rubin who pointed out that although the deepest recession since the second world war has been blamed on the housing bubble and the financial problems of the American banking system, the problem was really global in nature, and it is not difficult to show the correlation with energy prices.

Historically economists have always said that when prices go up, then more oil will be released to the market, meeting demand, and the price will fall. This time they were wrong. There was no Alaska or North Sea to provide that additional source, only tar sands. With prices escalating oil demand declined in only the USA, Canada and Europe, which group has historically bought most of the international trade, but which now only consume half of it. That group has not dropped demand, it is just that others are now gaining in consumption (China is now at 9 mbd). OPEC now consumes some 14 mbd, and this is largely because fuel is so cheap in those countries (at around $0.20 a gallon). The OPEC internal consumption (as the Export Land Model predicts) is used at the cost of supplies to the export market.


Oil prices and demand fell during the recession, but are now growing again, as we return to $80 a barrel. As a result he is anticipating triple-digit oil prices again next year. For as demand rises the world is no more capable of balancing supply and demand than it was two years ago. He mentioned the conundrum that price controls growth, the Government cannot bring back cheap oil, and the balance between affordable general yet sufficient supply and the price of that supply is becoming a more difficult balance to sustain.

The rise in fuel costs will change the paradigm for manufacturing. For while it is cheaper to makes steel in China and ship it when transport costs are low, as those prices rise the cost of shipping will become too high. The benefits of local manufacture will become more evident. These economics will kill the suburbs. That will not be controlled by Government fiat, but rather the principles defined in Econ 101.

As the high-prices bring our entry into the Apocalypse it will not, at least initially , be that grim. The price changes will force change and this may help local manufacturing. So we may be moving to a better world, at least transiently.

The second speaker was Bianca Jagger who might, at first, appear to be a strange choice for the conference. However, as she explained, she has been following the topic for many years and initially had just planned on attending the conference, until asked to speak. She spoke of the need for a new Copernican Revolution in the use of renewable technologies. With no treaty in Copenhagen there is less than a decade before we will see dramatic changes in climate, due to greenhouse gas effects. Further the dependence on oil, and our need to get it from deeper waters and arctic regions threatens even more devastation for future generations.

The interactions of 9 billion people with the environment by 2050 will also impose increasing demands on the energy infrastructure, and have their impacts, some of which we have seen this year already in countries such as Pakistan and Russia. We must hold companies responsible for their damage, and she expressed concerns over the tar sand mining in Alberta.

She noted how the subject of Peak Oil had been considered a myth, but that the JOE Report showed that it was not, and she cited other reports that concurred. With the peak arrival we need the President to waken us from our current sleepwalking into disaster. We must democratize and decentralize energy production and if the Federal Government does not do this, then states and local government must act. We cannot compartmentalize the effort as the effects will impact us all, and we must make the investments to replace fossil fuels.

In the following question period the speakers pointed out that we should not expect the Administration to move until the point is reached where we really won’t have many choices left. But we have a greater capacity for change than the government gives us credit for. The problem is that with only 4 mbd of spare capacity, which may come at an increasing price, the balance between stability and recession will be small. We are, perhaps, at the bounds of affordable oil.

The worse the price rise, then the worse off the poorer segments of the community become, but it will become a zero sum game as oil production is bounded. It can be resolved by price – more bicycles are used in Copenhagen, for example, because cars have a 180% surcharge, and power is used economically because it costs $0.30 a kWh.

I chaired the coal session immediately after lunch, and briefly referred to my experience in hand-mining coal in a seam about 20 inches high, and the difficulties King Edward I had in banning the burning of coal. I then introduced Kjell Aleklett who paid tribute to Matt Simmons, and talked of the formation of ASPO – in which Matt played a part, before turning to the topic of coal supply prediction. In the IPCC reports there is an anticipation of coal use rising by 500% by 2100. But his group have been studying the likelihood of this happening and have written several peer-reviewed papers on the topic. (For example Dr Michael Hook nailed his dissertation on the topic to the wall last month, an Uppsala tradition.) He noted that there is a difference in the relative ranking of the worlds largest coal reserve holders and those that mine and export the most coal. China, for example, has 14% of the world’s reserves and yet mines 45% of the world’s coal. (These may be a little off due to my slow transcription of his table). There are only 10 nations that can be considered, as exporters, the “drug dealers” of the planet.

Global production is dominated by the big 6 (USA, China, FSU, Australia, India, and S. Africa) but the world is changing and increasing competition and regulation is changing the use and availability of coal. It is a fuel where there is no correlation between price and reserves, but we are now seeing a decline in coal quality to the point that we are at a peak in the energy level that can be produced from American coal. There are small changes that can occur (it is possible for Pennsylvanian Anthracite, which has peaked, to recover) depending on price but in general this is true. American hopes lie in the reserves of states like Montana, but local opposition, due to the sodium content of the water, makes this mining unlikely.

He then looked at production from the other large producers, and stated conclusions on their future performance, leading to the overall conclusion that coal will peak globally in 2030. He was not favorably impressed by the chances for coal-to-liquid (CTL) plants, and they may only possibly play a part in the future. None of the IPCC models consider peak oil, gas or coal, yet we cannot assume a business as usual (BAU) future, as fossil fuels run out. Concerns at the moment in Sweden are more related to politics than geology. And while coal will remain important, it will not be an answer to the energy challenge.

In questions one of the audience from Montana challenged the assumption that coal is unpopular in the state, and noted that it is likely that there will be considerable coal production in the future. Dr. Aleklett also noted that coal production is limited logistically and by infrastructure, rather than resource. And coal does not contribute to solving the liquid fuels problem.

David Rutledge discussed coal production in terms of the IPCC report, noting that the 2007 report showed oil production rising to 2100 in all 19 models that they ran in predicting future trends. His goal became one of reducing uncertainty in the predictions, and he began by explaining some of the statistical methods he used. He exemplified this by showing that UK coal production peaked in 1913, and is now down to what it was in Napoleonic times. Using statistical methods he was able to predict the likely total UK coal production over time, at around 27 billion tons. Future reserve estimates collapsed in the 1960-70 period as evaluators realized that reserves could only be coal that could be economically mined.

He looked at four regions, UK coal, Pennsylvania anthracite, France and Belgium, and Japan and South Korea. In all cases he found that mining will only extract about 25% of what was once considered a reserve. He tried to look at Chinese coal but had problems getting reliable statistics. While he was able to get good agreements between his plots and predictions and historic numbers his results were incompatible with IPCC coal presumptions.

Coal does not have the global fungibility that oil has and is more of a regional market commodity. He used Tom Wigley’s MAGICC computer model, but in trying to evaluate future temperatures he noted that, as a result of the Climategate incident, that the British Met Office are redoing their temperature records. He discussed some of the problems in assuring accurate temperature records. But overall he was confident of the IPCC predictions and those on the future rise in sea level, quoting Stefan Ramstorf.

Following a break Dr Robert Hirsch chaired a session on the link between Energy and the Economy, and it was possibly the bleakest of the meeting. Chris Martenson talked about looking at the economy as a straight highway, and then hitting a bend. While models often see progress in linear terms life does not turn out that way. Money is loaned into existence and credit (and thus debt) has increased over time. Since 1970 it has doubled five times. Money and energy have been tied, but while money must continue to grow, energy cannot. Credit market growth (with an R^2 of 0.98) has an exponential relationship with time. He sees the problem not with the individual smaller bubble causes of housing, etc but rather the overall credit size itself.

He sees the problems coming in the 2014-2015 time frame when Peak Oil will be recognized and while growth may continue, prosperity may not.

He was followed by Nicole Foss- who many of us have read under the pen name Stoneleigh . She sees fossil fuels as generating the largest bubble in history. The economy has been driven up by energy, but as that declines what will take its place? In the sense that bubbles are Ponzi schemes where only early investors make a return on their investment, as this one comes to an end as the largest suckers get fleeced, so they collapse to general hurt.

Markets are driven by perception rather than reality. But by the time the general public hears of “a good thing” it is generally over. Hearing the “it’s a new paradigm” should warn you to sell the stock. But the world is driven on emotion. And when there is a collapse it is often sudden, bringing the value down below what it was before the bubble began. (And oil prices are following this model). From this she could see nothing ahead but progress into a deflation and depression. We are already in a large debt and liquidity trap and as credit disappears the depression will develop and be sustained. The huge derivatives market may be the first to go, given its insignificant intrinsic value.

The problem is in part that it will be based on reducing volumes of oil, and with that reduction there is no possibility of a rebound, since the resource is not there to develop it. Oil has thus hegemonic power. The depression will, however, sustain its dominance since reduced demand will allow it to remain dominant.

The final speaker of the evening was Robert Hirsch, who has also recently co-authored a book – The Impending World Energy Mess which was available in signed copy at the meeting. In large measure his talk followed the book (from which you may gather that I did buy, and have half-read, a copy – and it is worth doing so, I may do a review later). He noted that the economy depends on energy, not the other way around. Further we should expect that the general public will still be surprised when oil supplies start to decline in the next 2 – 5 years. From then they will continue to decline for at least a decade, until alternate sources of fuel become sufficiently available. He covered the oil problem their forecast of how it will develop, and what an individual could do about it.

The story is a familiar one to the peak oil community, we are over reliant on a few giant oil fields that are depleting and not being replaced. We have been sensibly in a production plateau since 2005, something not predicted by earlier models, but there are an increasing number of reputable sources that see an end to the plateau, and the consequent decline, coming relatively soon. This will impact GDP and hurt national economies. The recent recession and drop in oil demand may have only shifted the onset of the decline by a few weeks.

It is unrealistic to expect a rapid answer to the decline from politicians. Looking at the likely rate of decline, a 2% fall could be easily handled, a 4% fall could be handled with difficulty, but at 6% it is going to be bad. They have had to guess, and think, at the moment that it will likely be at around 4%.

China, having foreseen this problem, are doing smart things to prepare for it. We in the West are not. It will lead to increased tensions – though they did not look at the potential for resource wars, or the likelihood that producers would withhold production for political or economic reasons.

Looking at individual response, we should all expect to be impacted, and because of the lack of political ability to resolve the issue (or even to address it yet) we should expect that the result will be very similar to the oil shortages of the 70s. There was a degree of panic – this will happen again. This time, however, there will be no North Sea or North Slope to come to the rescue. Nor can the oil taps be opened wider to remediate the problems. As a result he has got out of the market – since good stocks and bonds will be hurt as well as bad. He has added annuities to his portfolio, bought some gold, and moved closer to mass transit and the shops.

He reminded us that this is a liquid fuels problem, while most renewables (wind and solar and hydro) deal with the electricity supply, which is not helpful to the crisis. We also have enough food. The issue is in transportation where we need a substitute for oil.

In questions he was asked about rationing. He fully anticipates it happening, but it will be very complicated to develop and impose. Countries will respond in different ways and become more independent. The United States will have to reindustrialize, since it will not be able to rely on foreign manufacture. We increased productivity by having oil help labor. Now this must reverse.

He did not see the problem being deflation, but rather in the control of inflation. But then it is easier to write a history book than a forecast. He could only see that many people will get hurt in the coming years.

On which cheery note I went to find a drink, have dinner and retire for the evening. More later.