Has The Peak Oil Idea… Peaked?
And if so, does the planet stand a chance?
by Gordon Campbell
They call it oil, but it just might as well be quicksilver. In this year’s Budget, all the energy cost assumptions were based on the oil price for West Texas crude falling from above $US100 a barrel in the March quarter of 2012, to $US94.4 a barrel by the June quarter of 2016. Well, hello. At time of writing (June 18, 2012) the price of West Texas crude was already down to $US83.27 a barrel and falling towards a predicted low of $US65 by next year. In part, this plunge is a reflection of the economic slowdown in the global economy – and sure enough, a fall off in demand can only have helped to send the price of Brent Crude tumbling from its four year high of $US128 a barrel in March to $95.76 in mid June, a trend that has (finally!) flowed through to lower prices at the petrol pump. Short term, that sounds good, right?
There is more to this story however, and there are forces out there keen to defy gravity. At the last OPEC meeting on June 14, the Saudis indicated they would be managing production outputs to stabilise Brent at around $90 a barrel for the rest of the year, despite the bounce back upwards in price that some might have been expected once the sanctions against Iranian oil begin to take effect on July 1st. So we’re probably talking lower prices, but not through the floorboards. Because looking further out, the price declines that we’ve seen in the past few months also happen to be a precursor of a global resurgence in oil and gas production that is imminent, if not already upon us. And not even the Saudis may be able to stand against this incoming tide.
We should all be feeling nervous at the prospect. Whatever happened to the peak oil scenario, in which fossil fuels were supposed to go the way of the dinosaurs, and where their increasing scarcity might actually help to save the planet, by making the switch to renewable energy sources both (a) inevitable and (b) affordable?
The recent BBC story “Is Peak Oil Idea Dead?” is asking much the same question while other commentaries are reaching grim conclusions (“Sad News For Peak Oil Disciples”) about the trendlines. The Wall St Journal on the other hand, seems quite cock a hoop that happy drilling days are here again.
For clarity’s sake, it may be necessary to back up a little, and get a few fallback positions clear. The term “peak oil” never did herald the end of oil itself, but merely the optimum point for oil production at a economically rational cost of extraction. Moreover, the more sophisticated advocates of the original peak oil theory never assumed that production would fall off a cliff (it was always assumed the fall-off would look more like a bell curve ) or that die-hard energy industry advocates wouldn’t re-double their efforts to exploit less accessible sources of oil by say… drilling out in deep water, or extracting oil and gas from tar sands. So optimists could still try to argue that the end times of peak oil are still unfolding, as predicted.
That’s not the case, unfortunately (see below). For a time (we’re talking about the heady days of 2005–2008) the peak oil milestone gave a crucial political momentum to the transition to renewables, and to the business models associated with alternative sources of energy. Essentially, peak oil gave politicians around the world a mandate to fund the transition to clean energy. Essentially, it is that momentum that’s in trouble right now, in the short to medium term at least.
Renewables investments worldwide during Q1 2012 were the weakest they’ve been since 2009, according to Ernst & Young. Tariff cuts and grid challenges in Germany and Italy reduced the short-term attractiveness of the renewables sector. The US has returned to boom-bust as a result of uncertainty over the Production Tax Credits and insufficient grid access in China is stifling the wind energy market, according to a report. The analysis also suggests the end of a tax break incentive in India is likely to dampen wind sector growth through 2012…
There are a few glimmerings in the gloom. The same Ernst and Young report sees ground for optimism in the longer term, if costs can be controlled. And on that score, the cost of renewables has been falling as reported here and here which might conceivably keep the transition to more planet-friendly technologies cost competitive, especially given the wider health and environmental costs that are still going to be incurred with the continued use of fossil fuels, regardless of the price per barrel.
What can’t be denied though, is that the economic margin for renewables has got much tighter, and some major clean energy players in the US (such as Solyndra) have already crashed and burned despite receiving large government subsidies. The political attack on clean energy in the US presidential campaign has already begun, with the conservative Koch brothers stumping up for a $6.1 million ad campaign against the Obama administration’s support for clean energy technology.
In sum, any room for complacency about peak oil and the political will to finance the shift to renewables has evaporated. Remember how, as recently as 2008, a major UK bi-partisan parliamentary report on peak oil could conclude:
While large resources of conventional oil may be available, these are unlikely to be accessed quickly and may make little difference to the timing of the global peak. A peak in conventional oil production before 2030 appears likely and there is a significant risk of a peak before 2020.
Well, “conventional” turned out to be the key word in that last sentence. Unconventional production techniques and locations are altering the energy landscape, and the prospect of cheap-ish fossil fuel energy for the foreseeable is putting the political impetus for the shift to renewables in jeopardy. Oil and gas production is no longer on its death bed – in fact, some in the industry are claiming to be on the brink of “a new golden age of petroleum”. The production outlook for the next decade has changed dramatically, as this June 2012 analysis in the industry Oil and Gas Journal appears to confirm:
The downside risk we saw in oil prices has started sooner than we had expected….We continue to see downside pressure for oil prices into 2013, as our oil model points to a severely oversupplied global oil market. While lower demand is part of the story, robust production growth in the US is the monster lurking in the shadows. We expect this bogeyman to fully show himself before the end of this year. Accordingly, we believe Saudi Arabia will begin to noticeably cut production in the fourth quarter, while US producers will begin to curb activity in upcoming weeks…Combining the US-driven resurgence in non-OPEC supply with our lackluster demand expectations, we believe that once the market’s focus shifts from demand to supply, the oil price picture will get uglier.
If that surge was a short run, last fling thing for fossil fuels, we might all breathe a little easier. But it isn’t. Most of the supply predictions on oil and gas productions runs to 2030, or 2035.
On most available measures, supply is likely to be outpacing demand for the next couple of decades. The supply drivers have been huge finds in Russia, in deep water deposits off the coast of Brazil, in the eastern Meditteranean, Kenya, Angola, and off the Falklands, to cite only a few. More importantly, new-ish extraction methods such as the process of hydraulic fracturing (aka fracking) have unlocked vast new sources of oil and gas.
Such is the forecast rise in production, Canada’s oil output by the end of the decade could almost be the same as the current volume from Iran, OPEC’s No. 2 producer. Even if the extraction practice involves dirty and very expensive technology, and even if the fall off in such fields tends to be steep, the size of the North America fields alone seems likely to be a game changer for the next couple of decades, at least. And these happen to be the crucial decades, if runaway climate change isn’t to become a reality. At the very least what we are talking about is a shift in the current balance of fossil fuel use – from OPEC to non-OPEC suppliers, and with more emphasis in future on natural gas vis a vis oil – rather than the wholesale replacement of fossil fuels altogether. The main brakes on production will not be a lack of fossil fuel supply but (a) a lack of capacity in pipelines to handle it and (b) such a surge will occur that prices may drop to a point where some major projects get shelved as uneconomic. Either way, these are not exactly green solutions.
Is there any countervailing good news? Well… not much. Leaving aside what will happen to energy prices when the global recovery takes place and demand rises – neither of them likely any time soon – production still appears likely to keep pace, if only because there is such an obvious convergence of interest on the supply side when it comes to price.
What I’m getting at here is that both the new and the old oil and gas suppliers have a common interest in the price staying out of the basement, and up in the mid-range. The conventional players within OPEC and the big players outside it can live with Brent prices in the $90-100 price range. Go any higher, and the fear both within and beyond OPEC is that this could cause a re-run of the latter half of 2008, when sky-high oil prices sparked a massive global investment in alternative, cleaner forms of energy. For the industry, the trick will be to keep prices just high enough to protect the profit margins that are required (on top of the higher costs of exploration and extraction) but without throwing renewables a life line. That’s going to be the challenge: let prices rise too high and renewables will get breathing space. Go too low and both fracking and renewables become uneconomic, and all sorts of mayhem ensues.
As mentioned, the new players (the frackers and the deepwater oil and gas explorers ) have a different motive than the Saudis for converging around much the same price. To repeat: they need the price to stay relatively high (maybe just south of $100 a barrel) to deliver a return on their relatively expensive activities. Trouble is, the break-even estimates do vary quite widely on this point – with anything from $60-130 a barrel being cited as the break-even point for fracking when conceived as anything more than a hit and run operation. The balancing act that will need to be sustained here will be a struggle, especially next year when an oil glut is possible, and – as mentioned – this could exceed even the Saudis’ supreme skills in production management, especially in the event of a Romney presidency that goes for broke on US energy independence and for supremacy over OPEC, at last! In sum, the bigger risks are still weighted towards lower prices and over supply, not higher ones.
The mid June outlook showed just how hard the balancing task will become, looking out for a decade:
In Houston, analysts at Raymond James & Associates Inc. reduced their 2013 price forecasts for crude to an average $65/bbl for WTI, down from $83/bbl previously, and to $80/bbl for Brent, down from $95/bbl.
Both of these new forecasts are now well below the futures strip and consensus estimates,” they said. They also reduced their 10-year outlook for WTI to $80/bbl from $90/bbl.
In the meantime… while renewables are still competitive players, the political pressure to scrap the subsidies for wind and solar is already strong, and likely to become more intense. As a consequence, there may not be quite as many green jobs created via renewables as seemed likely during the heady days of late 2008.
In the UK for instance, the picture is a classic good news/bad news situation. Yes, costs for producing offshore wind power are on course to steeply decrease by up to 30% but the Tories have also signalled their intention to scrap by 2020 the large subsidies being paid to the producers of onshore wind energy.
Despite opposition from the Liberal Democrats, who strongly support more renewable energy, the subsidy regime for onshore wind and solar panels is now firmly expected to be phased out by the end of the decade….At present, householders pay for subsidies to renewable energy producers through an extra charge on household electricity bills. An email sent by Oliver Letwin, the Cabinet Office minister, makes it clear that financial support both for onshore wind and solar panels is expected to have “disappeared” within eight years.
On the other side of the Atlantic, the ‘clean energy’ aspects of the Obama energy plan are also coming under heavy fire, as the presidential campaign heats up. Bearing the brunt of the criticism are the U.S. clean energy subsidies — spending, tax breaks, loan guarantees etc — which increased from $17.9 billion in fiscal 2007 to $37.2 billion in fiscal 2010, according to the Energy Department. Yet according to analyst Charles Lane in the Washington Post, the overwhelming market advantages enjoyed by fossil fuels have already produced a litany of clean-energy company failures, from electric cars to Solyndra. Lane’s analysis draws heavily upon a scientific report carried out under the aegis of the centrist Brooking Institute, and he concludes :
The best-laid plans are vulnerable to unforeseen market developments — such as the boom in oil and natural gas “fracking” over the past decade, which Obama has now embraced…..As for job creation, clean-energy subsidies shift demand for labor; they don’t increase it. “I’m not aware of a single peer-reviewed economic study that shows these programs create jobs in the long run, and on a net basis,” [according to Brooking Institute scientist Adele Morris] . Solyndra and its 1,861 vanished jobs proves her point…
Well, not exactly. The Solyndra bankruptcy was bad, but its failure alone doesn’t prove the case that renewables can’t create a net number of new jobs. All the same, if renewables can’t in the end compete head to head with fossil fuels on narrow economic grounds, the argument may need to be pitched (and won) on other grounds. On the Foreign Policy site, US energy analyst Steve Devine makes that point, and states the challenge facing clean energy technology very succinctly:
Clean-tech is under a perfect storm of challenges around the world: Subsidies are under threat or have already been withdrawn not just in the U.S., but in Spain; U.S. and German companies are in trouble because of competition from China; meanwhile, a surge in oil and natural gas discoveries has undermined the peak-oil rationale for cleantech development. Solar and battery companies are dropping like flies.
Only in China do cleantech companies seem safe. Otherwise, cleantech does seem at an inflection point, which is that it must establish a rationale on its own merits. It must persuade the public not that the world is running out of oil, that China is about to eat the West’s lunch, or that cap-and-trade is needed to save civilization. Instead, the industry must show that clean is simply better.
Easier said than done. True enough, the market prices for fossil fuels do not capture all the costs of procuring them, or of consuming them. Such truths however, seem like shouting into a cyclone given the vast amounts of fossil fuel energy and dirty tech jobs expected to accrue from shale oil deposits in Alberta, Canada and from the Bakken field that stretches from North Dakota into Saskatchewan, to the point where the US could be close to energy independence in the near future. Everyone, from the Calgary Herald, to Forbes magazine has been counting the potential output:
[Bakken field production] went from a mere 3,000 barrels a day in 2005 to 225,000 in 2010, according to the [US] government’s Energy Information Administration. EIA thinks it will produce 350,000 barrels a day by 2035, but most analysts think that estimate is far too low. According to Harold Hamm, president of the energy company Continental Resources, it could produce a million barrels a day by 2020.
More is to come, with the potential extractable output from Bakken being in time, in the region of 80 billion barrels :
http://modeshift.org/419/in-north-dakotas-bakken-oil-field-the-smell-of-diesel-the-sound-of-trucks/
By itself, the Bakken formation, a deep shale layer beneath North Dakota, Montana, and Saskatchewan, is said by state and industry geologists to contain 22 billion barrels of recoverable oil. That is five times more oil than the U.S. Geological Survey estimated a few years ago. State geologists say the entire formation holds 168 billion barrels of oil, and industry engineers say that the development of production technology is proceeding so steadily that perhaps half of the reserve is conceivably recoverable.[ ie. If the price holds up high enough.]
To its credit, the Canadian Financial Post proceeded to cite some of the downsides. As mentioned before in this article, the depletion rate in some fracking-driven fields can be precipitously high, and this may function as a deterrent to the investors needed to secure the gains. That’s the hope – for the planet, at least.
In addition, new oil drilling and fracking technologies are very expensive. The research we’ve read shows the cost of developing many of these unconventional oil plays requires a break-even price ranging from US$60 to US$130 per barrel, depending on the play type, which happens to be quite similar to the breakeven price for many Canadian oil sands projects.
Many of these unconventional fields also exhibit high initial decline rates to the tune of 60% to 80% in the first year alone. Therefore, should there be any prolonged downturn in oil prices, the high cost structure of developing these plays would result in less overall third-party capital being made available to keep up the pace. The end result would be a supply response to the downside.
Right. Which goes to underline the delicate balance we’re talking about here. The trick for the industry will be open up new fields of production without flooding the market in a way that renders those same endeavours uneconomic to pursue. Ironically this could affect New Zealand in the form of a fairly grim, green joke. Ultimately, what might well save the East Cape from the exploration and extraction activities of the Brazilian oil form Petrobras is a fossil fuel boom that could turn the local deepwater drilling plans of the (already stretched) oil giant into a no-longer-viable bet.
Ultimately, this means that our best bet of saving East Cape from potential pollution could rest upon a plunge in oil prices that puts the entire planet at further risk from climate change. ( Save East Cape or save the planet: take your pick.) Because here’s the thing: what we do know is that some of the current deepwater/fracking operations look likely to be big enough to extend affordable fossil fuel use beyond the point of no return for the planet. As the BBC article linked to earlier noted, clean tech has been put on the back foot:
The worry over energy security was helping to drive development of renewables and nuclear. Now that has slipped, a flood of cheap gas on to the world market threatens to starve wind and solar…[Yet] to meet the carbon cuts that scientists calculate are needed by 2020, the IEA says, the world needs to generate 28% of its electricity from renewable sources and 47% by 2035. Yet renewables now make up just 16% of global electricity supply… On carbon capture and storage, the picture is even worse: the world needs nearly 40 power stations to be fitted with the technology within eight years, and so far none at all have been built.
Moreover, a further hope had existed (in some quarters at least) that new and safe, non-carbon emitting forms of nuclear energy could help to rescue the situation – but such hopes have taken a hit since last year’s nuclear accident at Fukushima, Japan. “Expectations for atomic energy capacity in 2025,” the BBC’s Roger Harrabin adds, “have been scaled back by 15%.”
Okay, forget about the celebratory ululations from the oil and gas industry for a moment. How’s the current outlook for the planet? Not great, according to the data presented to an April meeting in London of energy ministers from the world’s biggest economies:
… “The world’s energy system is being pushed to breaking point,” according to Maria van der Hoeven [pictured left], executive director of the International Energy Agency. “Our addiction to fossil fuels grows stronger each year. Many clean energy technologies are available but they are not being deployed quickly enough to avert potentially disastrous consequences.” On current form, she warns, the world is on track for warming of 6C by the end of the century – a level that would create catastrophe, wiping out agriculture in many areas and rendering swathes of the globe uninhabitable, as well as raising sea levels and causing mass migration, according to scientists. “Energy-related CO2 emissions are at historic highs, [van der Hoeven added] and under current policies we estimate that energy use and CO2 emissions would increase by a third by 2020, and almost double by 2050. This would be likely to send global temperatures at least 6C higher within this century.”
The environmental imperatives behind the peak oil concept remain. Thanks to the resilience of the fossil fuel industry though, the political battle has suddenly become a whole lot harder.
ENDS
Tags: bakken field, brent crude, natural gas, obama energy programme, oil glut, oil price, oil production, peak oil, Petrobras, renewables, us energy subsidies, west texas
Scary article! But necessary.
I shudder for the East Coast of NZ, the most beautiful region of coastline in this country, under threat of being sacrificed to false economies.
The state of the planet’s energy system is being driven by the damaging control of the greedy and corrupt. This National government has bought into that ignorant reality avoidance completely.
“The environmental imperatives behind the peak oil concept remain. Thanks to the resilience of the fossil fuel industry though, the political battle has suddenly become a whole lot harder.”
That’s exactly it. As a political idea peak oil is not popular right now. But that doesn’t make it any less real or poignant.
The mad scramble that is reported as the “energy revolution” proves what a number peak oil theorists have been saying for years. It is highly debatable how long the bubble (and it is a bubble) in shale gas/fracking etc last.
For a history lesson look at this: http://theamericanwestatrisk.files.wordpress.com/2010/08/oil-prod-drilling-81.jpg
The Iranian Revolution pushed prices up leading to a huge drilling US drilling surge that flattened the decline in production and when the bubble burst production kept falling.
The exact same situation is happening right now again in the US. High oil prices causing a huge surge in drilling and a slight rise in production and suddenly US is on the way to oil independency? http://i.bnet.com/blogs/us-crude-oil-production-monthly-1920-2011-eia-circled.jpg
Chris Nelder destroys that notion here: http://www.smartplanet.com/blog/energy-futurist/energy-independence-or-impending-oil-shocks/375?tag=mantle_skin;content
We are on the bumpy plateau. Small short term gains underlain by slow decline. For more refuting the claims of peak oil deniers see here: http://www.energybulletin.net/stories/2012-05-04/seven-myths-used-debunk-peak-oil-debunked
Peak Oil is still with us. Nothing has changed. Marginal and unconventional oil and gas is just a part of the Peak Oil scenario. A didtortion of the bell-shaped depletion curve if you like. It’s the actual production numbers that matter first – second comes the net export numbers which turn out to be just as important. Matt Mushalik explains the production numbers that matter. Jeffrey Brown explains the net export ones. This whole fracking venture is a last-gasp exercise in hype. Here in Australasia, where we are supposed to be more rational about such matters, we need to remind ourselves that hope is not a plan – it’s an emotional (and often vain) thought experiment – nothing more! And that’s all that Bakken, deep sea oil and the rest represents – hope for those hell bent on cooking the planet.
If you think peak oil is now a non issue I would suggest you spend some time and study the laws of thermodynamics, perhaps read a bit about EROEI. “Beyond Oil” by Gever et.al and “Energy and resource quality” by Hall, Kauffman and Cleveland would be a good items to start with. Read the work of Campbell and Laharere, educate yourself completely as to the reality of our energy situation.
Oil is extracted as an energy source, if it takes more energy to extract than it produces it is not an energy source it is a sink. Unconventional oil is the last dying gasp of hydro carbon man, far from the low hanging fruit days of Ghawar and Cantarell.
Money does not feature in the laws that govern this planet, money is a myth created by humans to control other humans. Unfortunately we now use it as the only metric of human capacity. This is a significant part of why today we are heading for a depression that will make the 30′s look like a picnic in the park and a future which will have less, much less of everything.
And the governments (no matter which one) are not on the same side as the people they were elected to represent so will continue to pass benefit to corporations (e.g. sell state assets, TPPA etc) and business associates while our countries collapse. Austerity, coming to a suburb near you.
Even in NZ this will end in tears.
One of key but brief comments in here is the rate of depletion of the fields that have been fracked. I think that fracking is very hyped up by the lobbyists in a last chance attempt to maintain our addiction and avoid the clean(er) competition maturing as an industry. Fracking has a high chance of being a short run play and it’d won’t be long before we’re back to where we were a year ago.
Also the longer fracking goes on for, the more the unknowing and uncaring general public will learn of it’s downsides and public pressure will increase to reduce or clean up fracking practices.
The economic collapse in Europe is a major impact on the downward price pressure, and as the economic turnover increases, so will the price of oil – until it reaches a high enough price to trigger yet another economic collapse.
When I read articles like this I despair and think humans deserve everything that happens to them. On the one hand we have a group of intelligent, honest researchers and scientists — people who won’t get a penny (more than their salaries) for reporting the facts. On the other hand we have a group of rich and greedy oil producers and their flunkies who are happy to condemn the earth to a six degree average global temperature rise (a future that will not support human life) just to make a few bucks. Public opinion is being managed by PR firms and critical thinking blunted by “dumbed-down” educational system so what chance would there be for the truth to win out. I’ll keep fighting, but I’m glad I don’t have kids.
Peak finance must now be considered alongside finite resource problems, especially energy. Focusing on the price of oil gives a very two-dimensional feel to the analysis. Unconventional and lower-yielding plays are barely keeping up the production side of the curve as global demand has hardly resumed its pre-crash levels. The only thing that is keeping oil somewhat affordable is the massive recession and loss of liquidity, and this puts us into a double bind. If demand falls and deleveraging continues to shrink available money supply, we could find ourselves unable to afford $50/bbl crude. There’s a reason OPEC wants to keep a floor under $90: without that margin they won’t be able to afford to keep their increasingly restive underclasses in check, and if the payoff horizon vanishes into the distant future then low-EROEI plays won’t be able to cobble together the capital required to get into production.
Deep sea drilling, tar sands extraction and the huge effort that goes into controlling Middle Eastern oil would suggest that Peak Oil is all too in our face. Even at $80 a barrel the price is still about 4 times what it was a decade earlier. When it hit $147 a barrel in 2008 the modern world could not function as we have known it. Possibly you should read the German military report which suggests that the world economic system is likely to become untenable because of post peak oil pricing in the near future. Your analysis seems a bit light and ..crude, dare I say on this subject Mr Campbell
What you report is consistent with the peak oil theory. What you did not analyse is the NETT energy provided by these “wonderous” new ways of wrestling hydrocarbons from places where they should not be removed. Several of the other commentators above confirm this.
Relying on market prices to reflect physical realities and trends is clearly a completely delusional way to look at the world, which is why it is a core part of neoclassical economics I suppose.
Agree with Chester and Andrew. When we understand the idea of net return, or energy-return-on-energy invested (EROEI) and the enormous subsidies available to the industry to exploit limited net returns in environmentally risky processes, then Peak Oil seems to be the probable outcome. The industry has been pushing the lie of continuous supply out to the end of forever for a while now – but have upped the ante because the renewable lobby are gaining some traction. It suits their purposes to have everyone believe this distortion – which is manufactured by optimistic extrapolations of future discoveries and by ignoring the hard fact of EROEI. Not much point in pulling a barrel of oil out of the ground if you have to burn a barrel in the process.
http://www.youtube.com/watch?v=V0grQGKaTYA&feature=related
Peak oil is driving all the economic crashes we are seeing.
Economists and most politicians will deny it.Much of New Zealand lives in denial.
As Aldous Huxley once told us, this does not erase the fact.
Re Andrew, Chester and Mike,
Net return – as I thought I’d shown in the article – is one important factor amid a mix of (a) controllable and uncontrollable production drivers and (b) political decisions. My point is that while the peak oil theory predicted this late flurry of exploration and extraction activities, this is now playing out amid a climate of declining political and economic support for (and investment in) renewables, including the scrapping of the large subsidies on which clean tech too, depends – and a Romney presidency would skew that process even further. Since the window for action on climate change is quite small – the next 20 years is crucial – I think this is a disastrous situation. Bless you Mike for believing that “there’s not much point in pulling a barrel of oil out of the ground if you have to burn a barrel in the process”. Even if that was the relevant ratio – which is debatable – that’s not how the real world works. European and American farmers for instance, are growing cotton at a loss, and exporting it at prices less than the cost of production. How come? Because their governments subsidise the difference, and will continue to do so whatever the cost to the taxpayer – or the cost to cotton growers in places such as Mali, who are being told to embrace the gospel of free trade while US/European subsidy policies depress the real market price by as much as 10-15%. For similar reasons, there are no grounds for complacency that the peak oil imperatives will be recognised and acted upon – and those Greens who think the process is somehow inevitable really are part of the problem, and are not part of the solution.
Huge new finds and declining prices – are BAD news? The only thing we are really running out of is sanity. You people are know-nothing nuts! If you had a clue about the oil business you’d not be suprised by this – most exploration (around 90%) has been done in North America – and they are still finding more. What do you think will happen when they start looking in earnest elsewhere? We’ll be drowning in the stuff – and it’ll last for centuries. But don’t let the facts get in the way of your fantasies…
And bless you too. Of course I wasn’t suggesting that that is the ratio! (some put it at 10:1 (EROEI) where it was closer to 100:1 at the turn of last century) – just that it illustrates a point about energy extraction – that it takes energy to extract energy – and when this ratio tips too far towards 1:1 the exercise becomes meaningless (it is close to this ratio in respect to Canadian tar sands). And of course politics and subsidies distort this relationship – but since cheap non-renewable fuel underpins almost everything about Western economies these distortions will only accelerate supply collapse – so yes, an increasing proportion of the costs of extraction will be borne by the tax payers. As always, the people will suffer before the oil companies or their shareholders ever do.
It simply amazes me that you’d join a bandwagon so clearly orchestrated by the oil companies – terrified that governments the world over might subsidise renewable forms of energy in response to the inevitability of fossil-fuel supply collapse.
But anyway, here’s a really excellent new piece in response to the ‘endless-oil’ hype:
http://www.energybulletin.net/stories/2012-07-02/peak-denial
Hah – I should have read that piece a little more thoroughly.
“The recent deluge of cornucopian triumphalism has provoked a few thoughtful responses, including, “Has Peak Oil Idea . . . Peaked?” and “Is Peak Oil Dead?”, both of which carefully sift the evidence and conclude that world oil production is better understood when viewed through the depletionist lens than through the rose-colored glasses of the Peak Oil naysayers.”
That’ll teach me.
Gordon,
Forget money, we are talking energy. Energy is the ability to do work, no energy no work, the end. Wake up. Laws of physics.
As an energy source oil currently provides globally about 17 times as much energy as is used in the location extraction processing and distribution (Hall et al 2008ish) of said oily energy source. This figure reflects the EROEI for global oil production, (EROEI= Energy returned on energy invested). What this tells you is that if our economy was totally oil based the oil industry would consist of 1/17th of the total economy (now think that through as EROEI tends to 1). Back in the heady days of Spindletop the EROEI for oil was about 100, ie for each barrel of oil invested (as energy) we got about 100 barrels of oil energy back (low hanging fruit indeedy) this ratio has been dropping ever since as we attempt to pick the last few apples at the top of the tree. So if we dont have the energy then the oil remains in the ground, as does every other mined/processed mineral. And no, renewables wont even begin to cut the mustard, do the reading, work it out yourself, it is the only way we ever learn.
Oil is of particular interest however as it provides about 96% of transportation energy, and transportation energy is a doozy. Familiarise yourself with Liebigs Law of the minimum and population biology. Trade is enabled by oil driven transportation, as oil energy declines so will trade, as trade decliines so will populations return to local carrying capacity. Unfortunately with the ecological damage and reliance of modern agriculture on said oily energy and mucho fossil fueled pesticides, carrying capacity will be less, much less.
There are LAWS that govern all life on this planet, we would all be well advised to refamiliarise ourselves with them as the monetary system collapses and disappears. Of all the billions of species that do and have existed on this planet, we are the only species to base our decisions on a figment of our imaginations…..money. Money is a measure of human belief. We are imagining ourselves to extinction. Unfortunately we are likely to take a significant number of species with us. Next time that you see an economics type talking head you should imagine the full witch doctor regalia with assorted small furry animal skulls adorning the pinstripe suit. Feathers aplenty…..
Catton said it best, ” At some point in the not too distant future mother nature will initiate bankruptcy proceeding against the standing crop of human flesh” (from memory, close not exact)
It is however good to see there is a growing number of NZers thinking about the real state of our world, NZ in particular could do a lot better but I dont believe we will change until forced (collapse), we will continue to export our topsoil and water for the digits in the computer. Our kids will be most pissed
Time will come where our leaders will be held responsible.
George Monbiot agrees – peak oil is dead.
http://www.guardian.co.uk/commentisfree/2012/jul/02/peak-oil-we-we-wrong
High prices make new supply sources more economical. It’s what happens with priced commodities. Scarcity drives price, making new sources viable as well as alternatives. There was once fear that wood and coal would run out as well.
Given that one of the high priests of the green movement has embraced this, it might be time for the followers to think again.
Climate change can still be debated, along with how best to respond to it, but don’t pretend there is a resource need to shift from oil – the policy issue is solely CO2.
what a shame and a surprise that Gordon Campbell has been sucked in by the US- centric shale oil bonanza hype.
David Strachan sums up the reality of “peakonomics” here..
http://www.davidstrahan.com/blog/?p=1562
“Slower oil production combined with intensifying competition among consumers may soon produce oil prices so high they kill all prospect of sustained economic growth. The outlook is for repeated oil price spikes alternating with deep recessions, regardless of when global output actually peaks. Welcome to the last oil shock.”
If Campbell had researched a little more thoroughly he would have discovered the issues which are at the heart of the peak oil debate
First is that the rapid depletion of older existing oil fields is what is driving the oil price upward. As a result of depletion an IMF paper predicts prices to double by 2020
Second the so-called shale oil “bonanza” is not backed up by hard data. The IMF team expects total oil production (including shale and tarsands) to grow at no more than 0.9% per year for the next decade, way below the historical average of 1.5%-2%, and therefore insufficient to sustain economic growth.
Third … non-OECD oil consumption has risen around 4.8 million barrels per day since 2008, while OECD consumption has fallen by almost exactly the same amount. “China is bidding away the OECD oil supply” says oil analyst Mr Steve Kopits quoted in in the Strachan article, “and recessions are the mechanism by which that oil is being transferred from weaker economies to faster growing economies”.
Fourth …major oil producers such as Russia and Saudi Arabia are canabalising their own supply to meet soaring internal demand, leaving less and less for export. Saudi Arabia will be a net importer by 2038 if current trends continue.
MED industry-supplied data shows NZ domestic production has already begun a steep decline and will be near zero by 2020. This will force NZ to be ever more dependent on ever more expensive oil imports at the worst possible time in the next decade. Even if we found a super field tomorrow it would take a decade to bring it to full prodcustion and we would still pay the international oil price. Meanwhile China and India are already taking an ever larger slice of available net world exports. How exactly is NZ going to secure a share of this diminishing market? Send a frigate?
Finally Campbell glosses over the recession-inducing impact of even $US80-$90 a barrel oil. Economic peak oil is the point at which the cost of supply exceeds the price economies can pay without destroying growth at a given point in time. For mature economies such as in the OECD that unaffordable price and trigger point for recessions is around $US80 – $US90 a barrel, or historically when 4% – 5 % of GDP is spent on oil. 10 of the last 11 global recessions are linked to oil supply/ price shocks ( US economist James Hamilton ) and the current recession and that in 2008 have oily fingerpints all over them.
Reliance on modern agriculture????
Efficiency of ‘so called modern agriculture is worked out in man hours per acre / hectare. (apologies to all women). Not produce per acre / hectare.
Without modern fossil fuels and pesticides and Monsanto type interferance, we will be back to relying on local people and old practices.
Compost (good shit) and more people on the land. Not huge wages but good food.
The crop rotation practiced at the turn of the 19th century was the epitome of farming.
Good natural farming as opposed to chemical additives. Horses not huge ground compacting tractors.
The movement of working people around localities and the world under horse and steam was astounding.
Things will not ground to a halt if the temperature can be kept down. There in lies the crime
$90 a barrel in 2016? That is a joke. The way Bernanke will be printing to further delay the inevitable US crash will ensure a much much higher price. $200-$300 by then me thinks
[...] followed with Shortages: is peak oil idea dead? On June 27th Gordon Campbell in Werewolf asked: The Peak Oil Idea… Peaked? Campbell’s article was quickly promoted by The Oil Drum – ANZ in Gordon Campbell asks [...]
Anyone who thinks peak oil is a myth simply does not understand the exponential function. Check out a lecture called “Arithmetic, Population and Energy” by Dr Albert A Bartlett. He explains in easy to understand language how the exponential function relates to peak oil.
About a decade ago the “Peak Oil” symbol began to come into common use. At the time I suggested a number of reasons why this symbolisation of our situation is unhelpful:
No one can know the amount of mineral oil in the Earth’s crust.
An oligarchy controls the global trade of the mineral and there is no relationship between its price and its value or abundance. We could well see it priced at a low dollar value and yet increasing numbers of people would not be able to afford to buy it. We are now witnessing this phenomenon in Western countries in the form of escalating household and government debt, unemployment and the so-called “austerity regimes”.
We now know the potential negative effects of burning it on the atmospheric balances that sustain us and on health generally in urban areas.
It promotes unsustainable psychology in that its association with the bell curve sustains the addictive use of mineral oil. This is because it provides no sense of transition beyond the addictive state to sanity. The bell curve engenders a sense of hopelessness and this in turn intensifies the sense of craving and helplessness. People are more likely to resort to resort to dangerous activities in their desperation. This we are witnessing.
For all these reasons, especially the last reason, I proposed we instead speak of the end of the Cheap Mineral Oil Era to remind people that transition is possible. Our period of insanity also can pass.
Gordon frames his article:
Has The Peak Oil Idea… Peaked?
And if so, does the planet stand a chance?
The paradox is that in so doing Gordon denies the change he calls for. By introducing the use of the Peak oil symbol he promotes the behaviour that puts at risk the climate, ocean and other balances that sustain us. The discussion is dominated by considerations of price rather than value.
The article is useful in that it in some ways does work to remind people of how price manipulations are used to suppress more sustainable technology and practices. And it is quite possible we could see a downwards blip in prices in the next year so as the banker oligarchy that controls most of our global carbon trades works to assume greater control of the minerals of nations like Russia, Iran and Venezuela.
Gordon,
One could agree with your point on cotton if it was anyway comparable with oil, which it isn’t. Cotton isn’t cheap energy.
The fact is cheap energy in the form of oil is the most important cornerstone of our whole society. Cotton can be replaced by hemp or any other number of fibres without too much impact. People will still be clothed.
Cheap oil however can be replaced with absolutely nothing. Gas? Four times less energy dense, which in turn requires four times the storage space for the same amount of energy. Nuclear? Debatable if it is profitable without defence force subsidies and not very useful for personal transport. Wind? Can’t fill up a tank with it, same goes for hydro, tidal and other renewable sources of electricity generation. Biofuels may provide part of the answer, but once again there is nothing so far that comes anywhere close to the EROEI of oil which means its impact will be limited.
This perhaps explains it more eloquently than I put it:
“Only a few economists at the time, and even fewer since then, realized that these perplexities pointed to weaknesses in the most basic assumptions of economics itself. E.F. Schumacher was one of these. He pointed out that for a modern industrial society, energy resources are not simply one set of commodities among many others. They are the ur-commodities, the fundamental resources that make economic activity possible at all, and the rules that govern the behavior of other commodities cannot be applied to energy resources in a simplistic fashion. Commented Schumacher in Small is Beautiful:
“I have already alluded to the energy problem in some of the other chapters. It is impossible to get away from it. It is impossible to overemphasize its centrality. [...] As long as there is enough primary energy – at tolerable prices – there is no reason to believe that bottlenecks in any other primary materials cannot be either broken or circumvented. On the other hand, a shortage of primary energy would mean that the demand for most other primary products would be so curtailed that a question of shortage with regard to them would be unlikely to arise” (p. 123).
If Schumacher is right – and events certainly seem to be pointing that way – at least one of the basic flaws of contemporary economic thought comes into sight. The attempt to make sense of energy resources as ordinary commodities misses the crucial point that energy follows laws of its own that are distinct from the rules governing economic activities. Trying to predict the economics of energy without paying attention to the laws governing energy on its own terms – the laws of thermodynamics – yields high-grade nonsense.” http://www.energybulletin.net/node/49332
Some good comments above. It appears Gordon doesn’t get it, re the correlation between energy and money/price/wealth.
We can trade in virtualities – a lawyers fee is one such; When pocketed, it expects to be able to purchase real bits of the planet, which were proffered by work being done, which needed energy to have been consumed. If the energy wasn’t available, the work wasn’t done, so the ‘wealth’ had nothing to purchase (or it was involved in a bidding-war, so was worth less, rather than worthless).
REAL WEALTH, THEN, NEEDS TO BE UNDERWRITTEN BY ENERGY.
So, Gordon,who ‘pays’ for those barrels of oil? With what? Beyond peak energy supply, globally, we went past peak payment ability. That is the problem with Europe, Libor, the finance co collapses, Local Govt increased debt, National govt increased debt, and reduction of personal incomes.
Don’t make the mistake of valuing things in $ – as someone said up-thread, ’tis a nonsense.
It’s pretty clear that in your attempt to take an even handed view of the the oil supply and price dynamic you have fallen for the economic/technological view over the geological/thermodynamic one. Put simply economics 101 states that if scarcity pushes up the price of something substitution will magically arrive to fill the gap. Ceteris Paribus, this is all good. But it is pretty clear that with oil we have a product that is unusually useful and valuable and, in many significant cases, irreplaceable, and clearly finite. This alters the math somewhat.
Here is the article you meant to write, from, surprisingly, the IMF: http://www.imf.org/external/pubs/ft/wp/2012/wp12109.pdf
And here is a good summary of the new price dynamic:
http://gregor.us/oil/the-repricing-of-oil/
Where to from here, who knows? But the world is on a knife edge when it comes to oil, the source of all economic growth for the last 60+years. So only a boneheaded government of backward looking idiots would have as their two biggest programmes: 1. Giving away the power to plan electricity supply and distribution. And 2. Aggressive and accelerated investment in highways.
And what do you call a democracy that reelects such abject cretins? Gullible, I guess.
So it goes.
BTW East Coast ultra deep water will probably not be drilled, or at least will certainly not be of any help to NZ’s energy or fiscal balance. IMHO. Petrobras has plenty of other problems and it’s a loser on EROEI.