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The United States continues to slumber while a catastrophe lies in wait. Increasing numbers of analysts and policymakers are warning of another super price spike for oil and the likelihood of "peak oil" more generally.
Peak oil is the point at which global oil production reaches a maximum and then declines. The speed of the decline is a key unknown and if it is relatively fast, the results could be truly dire for economies around the world.
We saw prices as high as $147 a barrel in mid-2008 (the dominant factor for gasoline prices well over $4 a gallon), which played a strong role, perhaps the dominant role, in the global Great Recession -- as high oil prices have in most recessions over the last fifty years. Once the recession hit, oil demand dropped and prices plummeted as low as $33 a barrel.
Prices steadily recovered since their low in early 2009 and are back to dangerous levels in early 2011 (about $90 a barrel). We can expect far higher prices as the global recovery continues. An increasing number of analysts are projecting prices as high or higher than the 2008 peak in the next couple of years.
More importantly, global net exports of oil continue to drop as major oil exporters increase their own consumption at the same time as their production is stagnant or falling. As a major oil-importing nation (about 2/3 of our oil is imported, by far the largest import dependency in the world), net oil exports are far more important to the U.S. than total oil production. Even if global oil production increases in the coming years, if there is less available for oil-thirsty nations like ours the situation will be far worse than total oil production figures would otherwise suggest. More on this below.
It is time for public discussion of this issue to reach the same prominence as climate change. Indeed, many solutions to these "twin crises" are the same because reducing petroleum dependence will ameliorate peak oil and climate change.
This article is an update on the peak oil situation at the beginning of 2011 and a follow-up to my many previous pieces on peak oil (one with Nobel Prize winner Walter Kohn). First, some facts.
Global oil production has plateaued since 2004, despite the fact that oil prices have risen dramatically. Figure 1 shows this history, demonstrating that oil production has not been very response to market forces, suggesting strongly that we are at a global peak.
Figure 1. Global oil production and oil price 2004-2010. (Source: EIA, chart courtesy of www.TheOilDrum.com).
Bloomberg reported a summary of oil price forecasts for 2011, selecting for their summary those forecasters who have the most accurate track records. The dominant view was that average oil prices will raise almost as high in 2011 as seen in 2008 -- to $87 a barrel for the year as a whole (the average price for 2008 was $99). It's likely, however, that the actual average 2011 price will be significantly higher because we are already over this price at about $90 a barrel in early January and the large majority of economic forecasts project a robust global recovery this year, with attendant increases in oil demand.
More anecdotally, but with perhaps more impact because of its source, Shell's recent ex-president John Hofmeister predicts $5 gas by 2012 due to the global economic recovery and very tight supply.
A number of comprehensive reviews of the global oil supply situation have appeared in the last year.
Lloyds and Chatham House: "We are heading towards a global oil supply crunch and price spike." "A supply crunch appears likely around 2013.given recent price experience, a spike in excess of $200 per barrel is not infeasible."
The U.S. Department of Defense issued a stark warning in its 2010 Joint Operating Environment (JOE) report, including discussion of "peak oil": "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day."
Similarly, the German military is taking peak oil very seriously, made clear by a report leaked to Der Spiegel in 2010: "[The report] warns of shifts in the global balance of power, of the formation of new relationships based on interdependency, of a decline in importance of the western industrial nations, of the 'total collapse of the markets' and of serious political and economic crises."
The same article reports on secret British government planning for peak oil: "The leak has parallels with recent reports from the UK. Only last week the Guardian newspaper reported that the British Department of Energy and Climate Change (DECC) is keeping documents secret which show the UK government is far more concerned about an impending supply crisis than it cares to admit. According to the Guardian, the DECC, the Bank of England and the British Ministry of Defense are working alongside industry representatives to develop a crisis plan to deal with possible shortfalls in energy supply."
The UK's Industry Task Force on Peak Oil and Energy Security (a non-governmental group) issued its second major report on peak oil in late 2010, concluding: "[W]e face a situation during the [next few years] where fuel price unrest could lead to shortages in consumer products and the UK's energy security will be significantly compromised. This has the potential to hit UK business and commerce as well as the most disadvantaged in society with yet another crisis."
In August of 2009, the International Energy Agency (IEA), the official energy watchdog for the western world, was even more strident in its warnings. The UK's Independent newspaper reported:
The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production, a leading energy economist has warned.
Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could blow any recovery off course, said Dr. Fatih Birol, the chief economist at the respected International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies by OECD countries.
Later in 2009, two IEA whistle blowers went public and claimed that the situation was even worse than the IEA was stating publicly. The UK's Guardian newspaper reported in November of 2009: "A.senior IEA source, who has now left but was.unwilling to give his name, said a key rule at the organization was that it was 'imperative not to anger the Americans' but the fact was that there was not as much oil in the world as has been admitted. 'We have (already) entered the 'peak oil' zone. I think that the situation is really bad,' he added."
IEA has changed its public tune yet again, however. IEA's 2010 World Energy Outlook (WEO), a major forecast released each year, apparently ignored the IEA's own previous analysis by reverting to its previous policy of simply assuming -- literally -- that projected petroleum demand will be met with the needed supply. IEA states in WEO 2010: "Energy prices ensure that projected supply and demand are in balance throughout the Outlook period in each scenario." In other words, IEA simply assumes that supply will meet demand due to market forces. This is obviously true at a very basic level: supply will always match demand if we define demand as that which is actually consumed. But if we define demand instead as the desired oil consumption, all else being equal, we reach a very different conclusion -- far more in line with the US JOE report that projects a possible 10 million barrel per day shortfall by 2015.
WEO 2010 does, however, include some discussion of peak oil and it projects that the 2006 peak in global conventional oil production will never be exceeded (p. 8 of the Exec. Summary). That is, IEA has officially concluded that 2006 was the annual peak for conventional oil production. We are, accordingly, past the point of peak oil if we define this term to include only conventional oil.
Even based on official IEA projections (which are likely far too rosy considering the whistle blower claims), we have a major problem facing us, made clear by the below chart. The key point from this chart is that IEA thinks we've already passed the peak for global conventional oil production, as just mentioned. As a consequence, a huge amount of new oil must be found to replace declining conventional oil production -- a deficit of about 75 million barrels per day by 2035. This is equivalent to nine new Saudi Arabias coming online by 2035 (Saudi Arabia currently produces about 8 million barrels per day).
IEA projects (Figure 2) that this new oil will come from a combination of new conventional oil production, from known fields yet to be developed and fields not even found yet; from natural gas liquids; and from unconventional oil like tar sands and oil shale.
Figure 2. IEA projections for oil supply through 2035 (Source: IEA WEO 2010.)
For those who worry about national security and energy dependence, the report offers an even more worrying conclusion: the large majority of new oil will come from OPEC nations, with only Brazil, Canada and Kazakhstan as non-OPEC nations projected to have significant new production (Figure 3).
Figure 3. Sources of new oil by 2035 (Source: IEA WEO 2010).
We must keep in mind, however, that these new production figures don't take into account the growing petroleum demand in these producing nations. The key issue, from a U.S. national security and energy dependence perspective, is not oil production itself but "net oil exports." The public version of the 2010 WEO does not discuss net oil exports, but private analysts Jeffrey Brown and Samuel Foucher have produced forecasts of net oil exports, concluding that the top five oil exporters will have literally zero oil for export by 2030. Even if, for some reason, their model is substantially off the mark (it's not been peer-reviewed, to my knowledge), we must consider the net export issue in our analysis because any analysis that ignores rapidly growing consumption in oil-producing nations will be highly inaccurate.
Figure 4. Brown and Foucher's 2008 projections for top five oil exporting nations' net oil exports by 2030, in millions of barrels per day (mbpd).
It's not all bad, however. A more encouraging forecast from the IEA report can be found in their cost savings projections. They conclude that the "new policies scenario" (what used to be called the "reference scenario," which codifies existing policies) and the 450 parts per million of carbon dioxide equivalent scenario (which codifies new policies required to prevent atmospheric emissions from reaching this level) result in very substantial net cost savings on a global basis and, in particular, for oil importing nations. This is the case because fossil fuel demand is dramatically reduced in these scenarios. This reduction in demand lowers both average prices for fossil fuels and the amount of fossil fuel that needs to be purchased.
Figure 5. Oil-import bills as share of gross domestic product in selected countries (Source: IEA WEO 2010).
It is time to get very serious about managing a reduction in petroleum demand in the U.S. and around the world. I write "managing" because it is my view that this reduction in demand will happen whether we want it to or not due to declining oil supplies. The question, then, is how we best manage this decline. A high quality analysis of the possible scenarios for an oil-constrained world, by Oxford University professor Jörg Friedrichs, appeared in 2010. Friedrichs examines three possible trajectories: "Predatory militarism," "totalitarian retrenchment," and "socioeconomic adaptation."
At least two rigorous policy solutions have been offered in recent years. The Rocky Mountain Institute completed Winning the Oil Endgame in 2007, suggesting a suite of policy and technology solutions that can get the U.S. off oil, "led by business for profit." Richard Heinberg offered his own book-length solution, The Oil Depletion Protocol, in 2008, suggesting how the U.S. and other nations could manage declining oil supplies by achieving a three percent per year reduction in demand through various policies.
As we continue a global economic recovery in 2011, higher oil prices are inevitable, super price spikes are a strong possibility, and even shortages are not out of the question. We must ask ourselves: should we manage the decline in a way that avoids economic catastrophe or do we continue our generally laissez faire attitude toward this major problem?
For information on purchasing reprints of this article, contact sales. Copyright 2013 CyberTech, Inc.
Excellent article, Tam. Really informative. I'm finishing up my new textbook ENERGY AND ECONOMIC THEORY, and I hope it's published soon, because when the peak comes people may not have enough money to buy it. That would be bad for you too, because I will put a reference to this article in as soon as I close.
By the way, those cost figures that you had for nuclear installations. Completely screwy, if we look at best-practice facilities. And I'm going to overlook those green comments of yours at the end of the article.
Bob Amorosi 3.10.11
It's great to hear your keyboard voice again on this website. This article is very timely to say the least as oil is going now for around $105 a barrel and climbing steadily lately. I would hazard to comment that you and the other well-known author on this website, Dr. Banks, actually agree on the future of oil prices, for whatever reasons, and the potential economic crises they will unleash on us.
From a consumer's point of view, and from a technology designer’s point of view, I can say that consumers in general will gladly and quickly change their oil consumption habits if given quick and easy alternatives to use. The real problem is there are no quick and easy alternatives being commercialized yet.
Ask any consumer if they would buy an electric or hybrid gas-electric vehicle to replace their conventional gas engine cars. Most would do so without hesitation if they had products to choose from that were competitively priced AND were convenient to recharge. Manufacturers are working on this stuff but today we aren't there yet.
Ask any consumer if they would invest in upgrading their homes to be more energy efficient, or implement their own solar or other electricity generation to become less dependent on the grid. Most would do so if they could afford the up-front investment costs.
The answer to these problems in part, if you believe governments have any roll to play in the answers, is to make it more financially attractive for consumers to invest in energy alternatives, either through the tax system with far bigger incentives, and/or far more funding to the manufacturers who are developing the alternatives and trying to commercialize them.
As it stands now, the only consumers willing to invest in any energy alternatives are those with very deep pockets.
Malcolm Rawlingson 3.10.11
Good article Tam.... not much I would disagree with regarding oil.
But like all things as the price of a commodity increases and becomes more scarce alternatives (automatically) become more attractive and feasible. Since over 50% of oil consumption is in the transportation sector a simple alternative is natural gas which is now in very plentiful supply in the US and Canada and some estimates put natural gas supplies in the 100 to 200 year range in the US alone. Although Professor Banks has warned that these might be overestimated the supply of gas worldwide is very large.
I am presently converting my Jeep to run on natural gas. There is not much to it. No modifications required to the engine and I can change from gasoline to natural gas while the engine is running at the flick of a switch. Range looks to be about the same as a full gas tank (three gas cylinders).
Distribution networks are widespread in urban centres - less so in rural communities but once demand is there supply will follow.So rather than spend money on an electric vehicle that needs a new and expensive battery every few years and which are very pricey to start with I opted for a better and cleaner burning fuel. Total conversion costs are about $1700 for parts. Most of the installation work I did myself except the gas fitting.
I have also been looking into Solid Oxide fuel cells that burn methane gas. Several companies are bringing these to market. What I think is the more likely scenario as oil becomes more expensive is a simple change to other fuels.. When I read your article it reminded me of a similar article written about the impending shortages of whale oil in the early 1900's. It was used for lamp oil in those days and a shortage would have produced similar catastrophic effects as predicted above. Of course that did not happen and people simply switched to an energy source that was becoming more readily available...it was called petroleum. Exactly that will occur as oil becomes less available and the substitute fuel will be natural gas.Easy to use, clean burning, and readily available in large supplies.
What is really important is the transaction cost of changing fuels. It is quite low for natural gas and that more than any other factor will determine its selection as the substitute for oil.
This change is already underway. Nobody builds power plants that burn oil. Very few people build houses that have oil furnaces any longer and soon oil will be replaced at the pumps and in peoples homes with natural gas. Distribution is by unobtrusive underground pipeline networks with tried and tested technology. Oil tankers both on the roads, rails and shipping lanes will become a thing of the past. City pollution levels will drop dramatically since methane burns to produce only CO2 and water.
Methane is what we will be using when oil supplies start to decrease.
Malcolm Rawlingson 3.10.11
Bob, I like what you say but consider this. The largest beneficiary from oil IS the very governments who you expect to provide incentives to get off it. That is why there aren't any. The price of a gallon of gas has a very large proportion which is tax. Governments of all stripes have seen it as an easy way to gouge consumers pocketbooks while blaming it on the oil companies and OPEC when the REAL culprit are Governments themselves. I have not heard of one government any where in the world offering to reduce their cut of oil revenue in the face of rising prices. Governments are making billions and are as hooked on oil as OPEC is.
Of course they are not going to provide incentives to use other fuels - that would be a double whammy on their tax base. You are applying common sense to try and find a solution but you must face the fact that Governments do NOT want a solution.
The change from petroleum to methane is going to come from the people. It will never come from those with a vested interest in oil and that unfortunately includes every single western Government bar none.
In that respect this situation is very different from that of the early 1900's.
Bob Amorosi 3.11.11
I do believe what your saying about governments being hooked on oil. It must be a terrible dilemma for them because if oil skyrockets in price for extended time periods, it will surely drive our western economies into recessions. It will also probably drive large established corporations out of business when transportation costs blow up their business models, such as in airline companies, or mass market retailers like Walmart who import huge quantities of overseas products.
It promises to be an interesting but scary future for us consumers. I for one will be keeping my eyes on any natural gas alternatives for breakthroughs, like the solid oxide technology you talk about.
Thanks Malcolm for your frank insights as usual.
Malcolm Rawlingson 3.11.11
I could not agree more with you Bob. This is a very big dilemma for the Governments of the world. Your comments about Walmart are very true. One reason that Chinese goods have been able to undercut western products is because of cheap oil to transport them halfway around the world and a willing work force that will work for next to nothing. Both of those factors are changing rapidly. Oil is going to get alot more expensive and China's population problems are already creating labour shortages. The end of cheap Chinese goods is just around the corner - get set for inflation.
I have made the point on many occasions that the so called "energy efficient" light bulbs are nothing of the sort since they are all made in China and have to be packaged and shipped thousands of miles by ships, road trailers and railroads to get here - every one of those modes of transport uses oil. Without that cheap oil those products are going to get more expensive to make (a bigger proportion of energy than labour) and more expensive to ship large distances. As a result it will be cheaper to m ake locally and the "Global Economy" will fall flat on its face. We will simply not be able to afford grapes and exotic fruits from halway around the world - all possible only when oil is cheap. There is but one equation to bear in mind
Global Economy = Cheap oil
It will only be a scary future for those consumers that don't read the writing on the wall and do something about it. One only has to read Professor Banks posts here to realise what is really going on in the world of oil. I made use of Professor Banks insights and that of others who really understand oil with the result that my home is almost entirely operating on natural gas. One of my vehicles will be off oil very soon and for an investment of about $7 to $10k solid oxide fuel cell technology made in Australia could be producing electricity from gas in two years time.
The technologies are already here to change to gas but no government will help you. Their objective is to keep you on oil and them in power with the money they make from it.
As far as fuel efficiencies go my condensing gas furnace turns in an amazing 97% efficiency at least 30% better than the best of the best combined cycle gas plant. My gas water heater turns in a respectable 70% (working on making that better) and my drier is about 90% since I cycle the waste heat through a heat exchanger to heat the house. Don't use it in the summer months. Dry clothes outdoors on a clothes line. So next steps are electricity and cooking.I am looking for a system to refuel my car at home but notice that the one company that was making them (FuelSaver) has mysteriosly gone out of business. So much for Government support of alternatives.
As I said the Governments of the world are more hooked on oil than OPEC and they are not about to change the stauts quo - they cannot afford to.
Pleased to provide references fo these various initiatives Bob if you are interested.
Natural gas may increase in price as people switch over to it but normal gas supplies, shale gas, coal bed methane and improvements in usage efficiencies will ensure plenty of it for many years to come in North America.
The Bakken, Marcellus and Eagle Ford deposits are large. Add Alaskan gas, Mackenzie Valley gas and the gas that is underneath California and I don't think anyone should be too concerned about pricing of this energy supply. Not so for oil though.
Len Gould 3.11.11
Tam: Good article. I concur with your core concerns. It would be good, though, for any discussion of worldwide problem with oil prices to include discussions of past and future revaluations of the $US, eg. today's $90 is probably about the same as 2000's ?? $60, and the trend is set to accelerate. Perhaps a bit bleak for Americans, but they've got lots of space to work with. The point is that a lot of the increases in oil / products prices are not real increases to anyone outside the US.
I think something which would help (the transition to restricted oil supply) a lot would be some means of stabilizing the world price, eliminating a lot of the frothy fluctuations in price so that entities trying to properly evaluate an investment in a mitigating technology (from oil sands to GTL to renewables) could have proper reliable and accurate base / minimum price projections to plan with. e.g. the recent rapit climb to $147, then crash to $50, leaves investors wary of making any plans for the future based on prices anywhere above $50, even though the obvious stable market price should be around $80 to $90. Such fluctuations help no-one but speculator hedge funds, and should be squeezed out of the system.
Jim Beyer 3.14.11
Believe me, I wish it were true that: Global Economy = Cheap oil.
But I don't think that is the case. If you run the numbers as to how much oil is burned, for example, in transporting a car, or even a plastic toy, to the United States from China, you'd be surprised at how little it is. The large transport vessels are startlingly efficient.
A small U.S. bicycle supplier was able to stay in business because their product (metal bicycle baskets) were somewhat heavy and (more importantly) somewhat bulky so they could compete against the overseas shipping option. Of course, galvanizing is cheaper in China when you can just dump the waste stream anywhere......
Jim Beyer 3.14.11
I concur with most of your points. However, I think a problem/reality is that people may not notice peak oil due to the concurrent economic malaise that it brings with it. My belief is that peak oil has already occurred in July, 2008. Part of the reason this may bear out is that the economy has not recovered to that level of activity.
That being said, this may be the best way for this to unfold. Perhaps a sudden point event that exposes peak oil would prove unsettling and chaotic. That may have actually happened in the Summer of 2008, but most did not recognize it as such. It is a fortunate reality that much demand for oil is due to vehicle fuel when may present a greater elasticity of demand than many might realize.
Bob Amorosi 3.14.11
Those large transport vessels that cross the Pacific are indeed extremely fuel efficient on a per-item basis, especially for small items like toys, but consider shipping across the Pacific to a west-coast port is only part of the fuel used by Walmart’s products. A large batch of a single toy arriving by boat for example must eventually be broken up into much smaller batches to be trucked or air-lifted across the country to dozens of stores. Those road or air trips to all those stores I'm sure are nowhere near as fuel efficient as the boat ride was.
In addition to the mass-market retailers like Walmart, sustained oil price hikes will surely affect many others. Just think of all the “Just-In-Time” delivery systems serving many industries, which depend on couriers who operate vast numbers of diesel trucks and airplanes. These were made viable by cheap oil, effectively replacing our much more efficient railway trains commonly used in the distant past for cross-country shipping. I suppose higher oil prices might eventually result in the clock being turned back by giving a boost to the railway business.
Malcolm Rawlingson 3.14.11
Bob, Jim, Warren Buffet recently purchased a railway business (Norfolk and Southern I think). His logic is that high oil prices will make road transportation expensive and force more goods shipments back onto railroads which are more efficient. So far his investment is paying off.
Also while I am still of the opinion that high oil prices will have a serious negative impact on the worldwide shipment of goods the other factor I mentioned was the shortage of Chinese labour to make all this stuff. Chinese workers - like the rest of us are getting older and the one child per family policy has caused a significant upset in the natural order of things (like the percentage of chinese men vs women). This is predicted to cause a skewing of the labour force in China and already some factories cannot get enough workers. In just a few years the Chinese population will start to fall (it is a mathematical certainty) - where will all the pairs of hands come from to make all those toys and Christmas ornamnents we in the West cannot seem to buy enough of.
That means rising labour costs - along with cheap oil - the key drivers of Globalization. The net results are not hard to predict. Rising costs of Chinese and other Asian imports will generate higher inflation which will result in higher interest rates which means the end of the third driver of Globalization - dirt cheap money to build factories in places where there is dirt cheap labour and dirt cheap oil.
A point also to consider is that food price inflation is directly related to oil costs. Fertilizers needed to make land produce more crops takes energy - mostly from oil. The US remains the worlds top food producer by far and most of that food is produced using fertilizer and farm machinery that makes the Hummer look fuel efficient.
The end of cheap oil will mean the end of cheap money, the end of cheap food and the end of cheap goods from the far east. And as I see it those are the cornerstones of Globalization.
The transition back to more sensible economics where (for example) tomatoes in your local supermarket come from a local farm instead of 8000 miles away in Chile is going to be very painful. But it will happen - and soon.
Bob Amorosi 3.15.11
There are many who agree with you including myself. Don Drummond, the former chief economist with Canada’s TD Bank, had published a book after the oil price shock in 2008 that was called "Our Shrinking World" or something resembling that, which predicts exactly what you're saying about the demise of our globalized economy.
I've already made a vegetable garden in my backyard in anticipation of this since the oil price spike in 2008. Lately we're being warned of looming food price increases far above recent inflation levels too.
Perhaps those future Chinese-made nuclear reactors may not turn out to be so low cost to build either after all this unfolds.
I also predict that as oil prices escalate, the era of pick-up trucks and SUVs in every other driveway will slowly disappear as common people revert back to compact cars and eventually electric cars. The clock will turn back to the days when only trades and construction people drive pick-up trucks to earn their living with, as it should be.
I think I will personally invest in an in-home energy display for my home too, one that monitors real-time power and energy consumption and tracks my electricity bill in real time. I may not be able to implement one that communicates directly with the utility’s smart meter on my house, but there are products out there for several years now that use their own current clamp sensors that you can easily install in your home's electricity panel.
And being an electronics designer I plan to explore modifying the display to add extra current sensors for monitoring each, or most, of the individual circuits in the panel. In this fashion one could then track energy use costs for individual appliances of interest. Furthermore, by adding a bit of internet communication with my local distribution utility company website, or the Ontario Energy Board’s website, the system could easily automatically update Time-Of-Use billing rates as the regulators update them from time to time. And by reading my utility bill on-line the system could fine tune itself to maintain the panel sensors' calibration.
Who knows, such a monitoring system could have market potential as a new consumer product if its cost was kept reasonably low.
Save your pennies Malcolm, the future will herald dramatic changes within our lifetime I'm sure.
Jim Beyer 3.15.11
Malcolm & Bob,
Interesting points. Kind of odd, as so many companies have become married to JIT shipping. Saves costs on inventory. A lot of costs. So I'm not sure it still wouldn't make sense for them, even with higher oil prices.
I think reworking rail to be better about this would require an effort not unlike reworking the electrical grid. It really is not good at getting something somewhere in any kind of a reliable time frame.
A few weeks ago, I bought some asparagus, from Chile! Now how the heck can they make money on asparagus grown in Chile? Boggles the mind unless the transportation (mostly rail) is dirt cheap. Heck, maybe they were growing them on the railcars......
Bob Amorosi 3.15.11
With escalating oil prices we are going to get stuck with much higher prices for nearly everything, whether companies stick with JIT shipping or abandon it and hike their inventory costs. So as Malcolm has warned in a previous post above, we should all prepare ourselves for much higher inflation rates, and to fight the higher inflation we'll also probably get much higher government-imposed interest rates.
The economic future for the west will likely never see the heady days of prosperity and strong growth again that we enjoyed over the last 15 years, not counting the 2001 recession. As I've said before we may look back on 2007 some day and realize we never had times as good as then.
Tam Hunt 3.15.11
Thanks for the kinds words gents. And glad to see that no one seriously disputes my conclusions on peak oil. That in itself is a VERY significant sea change from just a few years ago.
Malcolm, a point of fact: US gasoline taxes are a fixed price per gallon (18.4 c/gallon, staying about the same for years now), so higher prices don't result in more revenue for Uncle Sam. Less, in fact, as higher prices reduce demand at a certain point that seems to be about $4/gallon. Increased sales of gas (in gallons) do indeed result in higher revenue, but not increased prices.
bill payne 3.15.11
BTU shortage problem looms if what we read is correct.
US apparently only produces 7% of the uranium it consumes. This may be more scary than peak oil?
Malcolm Rawlingson 3.15.11
Thanks Tam. This information is much appreciated. In Canada that is not the case. Federal Excise tax revenues increase as the price of gas increases. In Ontario where I live the Provincial revenue is fixed at 14 cents per litre so only the Federal revenue increases with increased base prices. However decreased consumption would have the opposite effect I agree.
In the UK and I think the European countries VAT (Value Added Tax) revenues also increase as the base price goes up.
Thanks for describing the US situation - it likely explains (at least partly) why US gasoline prices are lower than elsewhere in the west and that reinforces the point that the greatest beneficiaries are western Government - with the exception of the USA.
This is a well written article Tam - I enjoyed reading it. It will be very interesting to see how the world moves away from oil over the next few decades. But it is inevitable.
Malcolm Rawlingson 3.15.11
Bill, You are correct another looming problem is the shortage of Uranium. About half the US plants are operating on fuel from reprocessed nuclear warheads from Russia. That program ends in 2013 and Russia shows no indication of wanting to renew it. There is a 25% shortfall between mine production and current usage even without new reactors being built. That means that the US will be dependent on foreign produced Uranium. The GOOD news is that Uranium is produced in friendly nations like Canada and Australia so supplies are assured for the very long term. Malcolm
bill payne 3.15.11
I am not correct. Others may be conrect. I read. Not first hand knowledge.
Beliieve nothing you read or hear. And only half of what you see, we have been advised.
Positivve news is that the new construction and electronics industries have hit the panic button on energy consumption.
Play station and Xbox 360 total sales are reported to consume more electricity than the city of san diego, we read.
New construction industry are sealing homes so much that some builders are installing active radon evacuation system, WE SEE, not read or heard.
Michael Keller 3.15.11
Seems to me, reliance on the government to "solve" the oil problem pretty much guarantees that a disaster will morph into a full-fledged catastrophe. The historical record of the government demonstrates a poor ability to quickly maneuver and react, with an amazing and depressing ability to generate ever more inane regulations that generally stifle innovation. The bureaucratic, empire building nature of government is simply not a very efficient mechanism for solving problems.
Consider the great green energy crusade. Billions-of-billions of taxpayer and consumers wealth spent on very poor solutions to what may very well be a mythical problem, all the while completely overlooking the 800 pound guerrilla in the room.
The actual problem is energy, not man-made global warming. Wisely use energy and the green-house gas issue is solved as a happy byproduct.
So what to do? Heave most of the Department of Energy over the side; dump never-ending subsidies; pass laws removing CO2 from the clutches of the zealots in the EPA as well as laws to allow efficiency improvements to trump the EPA’s continuous ratcheting down of emissions regulations; more drilling; removal of all “green-energy” mandates. Establish a policy of energy efficiency, with implementation through tax credits to help rapidly deploy those efforts that achieve the policy goal. However, once up and running, you must be able to compete in the marketplace with no subsidies. The government sets a policy goal while the marketplace picks the winners and losers.
How would this work relative to oil? More rapid deployment of vehicles that are more efficient, as in use less fuel, such as hybrids, advanced diesels and possibly electrics if their costs can become competitive.
Relative to the production of our own transportation fuels, I would remove mindless bureaucratic restrictions and regulations. The only other help would come in the form of tax credits for the construction of projects that use our domestic fuel resources (our food supply is not a fuel resource, by the way).
How do we fund the effort? Taxes on inefficient energy production and use. Those taxes, however, can never end up in the “general fund” but must be used to fund the energy efficiency effort which is subject to "sunset" provisions at some point in the future (say 15 years).
P.S. Well done Tam!
Peter Platell 3.16.11
good article Tam, I hope more people start to get aware about the energy problem we will face and that we take action as soon as possible to GO SOLAR
Kerry Sloan 3.16.11
A couple of points you missed or are just wrong in your article --- The United States' import dependency, the percentage of demand met by imports, is about 50 percent. Industrialized countries such as Japan and Germany have import dependency levels of 90-100 percent. So technically speaking, other countries are at far more risk than the USA if a shortage of oil occurs.
The U.S. is sitting on the world's largest, untapped oil reserves -- reservoirs which energy experts know exist, but which have not yet been tapped. In fact, such untapped reserves are estimated at about 2.3 trillion barrels, nearly three times more than the reserves held by Organization of Petroleum Exporting Countries (OPEC) nations and sufficient to meet 300 years of demand -- at today's levels -- for auto, truck, aircraft, heating and industrial fuel, without importing a single barrel of oil.
So why aren't we getting that oil you ask? The reality is those untapped reserves are located in places that either Uncle Sam has put off-limits for environmental reasons or are too costly to get -- or a combination of both.
So the bottom line is --- IF there is a "peak oil" problem looming on the horizen, it's a self-created problem. It's not a problem that oil is actually running out. Seems to me the answer is ver simple. STOP CREATING OUR OWN PROBLEMS.
Don Hirschberg 3.16.11
Kerry, Peak Oil Theory does not and has never dealt with "running out of oil." It deals with economic oil.
Murray Duffin 3.16.11
Tam - good article, and right on. the problem has been known for more than a decade. the timing has been pretty obvious for at least 4 years. It is good to see that governments are finally catching on.
Kerry - Your numbers are way highand almost certainly include shale oil. the problems are that for oil shales, which are the fronteir now, the depletion rate of any well is so fast that more and more drilling is required just to run in place. To get USA production to 3 MMb/d by 2020 will require adding about 140 rigs/yr, training crews, finding water sources, disposing of contaminated water after frac'ng etc. Its a monumenatl task, that may not be possible, and we use about 20MMB/d. Canadian tar sand might get to 3 MMb/d by 2020, but that is not obvious. Shale oil is really kerogen, only about 15% of the assumed supply is rich enough to address, and EROEI will be between 1 and 3, again with production rate very limited. It doesn't matter how big the reserves are, what matters is the production rate. Flows, not stocks, are the problem. Also note that there are very large untapped reserves in the USA that are available for drilling, but are not being drilled yet, partly for lack of access and infrastructure to get the oil out, and partly for lack of rigs/crews. If the government opened all lands tomorrow it would make no difference to the picture Tam has presented.
Murray Duffin 3.16.11
Kerry - one other bit I forgot to mention. While we are developing the oil shales our present domestic conventional production (about 7 MMb/d) is declining 3-4%'yr, so if we do get to 3 MMb/d from oil shales by 2020, we might just offset declines. In the meantime imports will be in decline with no offset. We are not creating our own problem except to the extent that we don't get more efficient in our use of oil.
To complicate matters, oil yields about 3-4x the price per Btu of NG, so developers are shifting their horizontal drilling rigs from NG to oil, so there is a fair chance we will experience an NG peak, at least temporarily also.
Ferdinand E. Banks 3.17.11
Peter wants solar, and Kerry wants...wants to make the impossible possible. Well, Colonel Gaddafi might be at the Egyptian border in a few days, and at least we'll have his oil again soon.
Dean Tibbs 3.17.11
America has long had a habit of letting things build to a crisis, then solving it. Contributions to solving the oil issue once the nation decides in needs solving are likely to include:
Shift more freight to railroads & electrify them. By the way Jim, the railroads were straightened out in the 1980s and 1990s after deregulation in the 1970s. Much freight now is moved by rail in containers and delivered locally by truck. This is the kind of specialization that happens when regulation gives way to markets. (Warren Buffet bought the Burlington Northern.) For railroads the choice to electrify is just a matter of NPV. Thanks to deregulation they are once again solvent and can invest if it makes sense.
The US is preparing to export surplus natural gas. It is so cheap that fueling cars with it is inevitable. Conversion costs are supposed to be around $20,000, but there seems to be no premium when natural gas fuel is OEM. Malcolm, what did it cost to convert the Jeep? I would be tempted to convert one of my BMWs if it were economic.
Electric cars are here, but too expensive at $3.50 gas. See the latest Consumers Report about the Volt, for instance. At $4.50 or $5.00 the Japanese and Chinese will be sending ship loads of batteries to Detroit, if those prices persist.
SUVs are going out of style again. Happens every time gas goes to $4.00.
US consumer use of natural gas has been on a plateau for 20 or 30 years as increasing efficiency has offset new housing construction. Increases in transportation efficiencies could do the same, perhaps even on a world wide scale given the large possibilities to supplement improved efficiency with fuel substitutions. Tam has a lot of data on a possible problem. But stand back if it really materializes for the American public's solution. We don't need no stinking government direction to get it done. The big issue is whether there is really a wolf at the door. After 30 years of hearing cries of "wolf" only to find a small pack of small dogs we are all skeptical about the accuracy of the estimates of wolf packs on the horizon. I have been around too long and seen too much to believe that anyone can predict the future. On major issues it has NEVER happened. (Sorry Tam. I believed in forecasting when I was young and had not done it yet.) The only prediction that has been validated by history is that high prices for energy have always been defeated by innovation in its supply and its use. It is actually pretty safe to say that it is just a matter of the degree of innovation and the extent of its application. Of course there could be some bumps along the way. There always are.
Malcolm Rawlingson 3.18.11
Dean, I agree with what you say. History tends to make fools of those who try to predict the future. Some time ago on this site, I recounted the prognostications of one very learned Gentlemen writing in the Times of London about the turn of the last century. He said (and he was deadly serious about this) that if horse drawn traffic in Piccadily Circus increased at the present rate the roads would be knee deep in horse manure, traffic would stop and London would grind to a halt. Then some innovative guy by the name of Benz invented the internal combustion engine and the problem went away. Of course the horse servicing (farrier) market collapsed and those tasked with cleaning up the mess got other jobs and the economy carried on growing. Peak horse manure came and went without a hiccup in the economy of the UK.
While I have no reason to doubt Tam's work here the lessons of history are that when critical commodities become too expensive they are simply replace by other commodities or technologies that are less expensive. That is exactly what will happen with oil.
As I see it the replacement fuel will be natural gas for transportation with some electrification of railways. The latter has already happened in most of Europe. Diesel driven trains are largely things of the past there.
My Jeep has so far cost me about $1700 plus tanks at $2000 to convert but that does not include my labour. The parts were not easy to locate. I am looking for a home filling station so I can use my house natural gas supply to fuel up overnight but no luck with that yet. Filling stations are very few and far between. So this venture is not without its drawbacks. The oil companies want to keep their gas station chains intact so if people refill at home all that goes out the window.
But I am sure that once they see money to be made they will be into conversions in a big way.
I consider electric cars as a big smokescreen that will not make any significant dent in gasoline consumption until battery technology improves and as noted here they use rare earth metals like neodymium and China controls 95% of that market
Using methane directly in vehicles is a practical alternative that is already here and uses a fuel that is in plentiful supply in engines we are already skilled at making.
That sounds like the makings of a paradigm shift away from oil to me. Peak oil will give way to peak gas and peak gas will give way to peak electricity. Not much to worry about really. We don't need more oil we need more technology.
Malcolm Rawlingson 3.19.11
Murray, I don't often disagree with you but there are some additional factors to take into account with respect to accessing US and Canadian oil reserves - which as Kerry said are substantial.
Old drilling techniques using vertical single shot drilling are almost obsolete and if this was the only technology we had I would agree with much of what you say. However new technology allows a single rig to drill many wells in any direction underground at almost any depth from the same location. This three dimensional rilling capability allows a single drilling rig to access multiple areas of a deposit which simply could not be done 20 years ago. I agree the issue of disposal of wastes in the case of oil shales fracking and potential contamination of water sources are problems but neither are insoluble.
Should the price of oil reach $200/bbl there will be plenty of cash available to oil companies to resolve those issues.
Canadian oil shales will exceed the 3Bn bbl/day by 2020. The rate of development is very sensitive to price. At current prices developments are proceeding rapidly with several new areas being developed. Note also that new technology is being applied to tar sands extraction. What you see on the news (the big trucks hauling tons of oily sand) is not the way new deposits are being mined. New technology being deployed right now is to heat the heavy deposits underground and pump it to the surface in an already liquid state. I believe that is the process Cenovus is using.
To further support Kerry's post the known tar sands deposits in Canada alone have as much oil as Saudi Arabia claims to have and it will be developed much more rapidly than you expect.
I am not at all pessimistic about the future oil and gas supplies for the US and Canada and Mexico. Indeed I think the future is exceptionally bright for these countries. Canada is fully self suffficient in energy already and I expect the US will be able to reduce its dependence on Middle Eastern and Venezualan oil substantially by 2020 thus improving its balance of payments. Indeed the Canadian Tar sands are already displacing 500,000 bbl/day of heavy oil from Venezuela via the Keystone pipeline directly into US mid-west refineries. With the approval of the Keystone extension this will increase to 1.1 M.bbl/day and include deliveries to Texas and Oklahoma oil refineries. Every reason to expect the Canadian and US economies to grow 3-6% as a result. Malcolm
Malcolm Rawlingson 3.19.11
Bob, I missed your earlier post regarding startinG a vegetable garden. I am thinking of doing that also. In that post there are many seeds of wisdom that really do answer Tam's concerns about the catastrophe of peak oil. Here is why I think Tam's logic falls apart a little bit.
Underlying the catastrophe theory is the inherent assumption that people will behave in exactly the same way throughout the shortage of oil. While it does take big events to change people's behaviour (behavious such as buying gigantic SUV's and pick-up's as a fashion statement rather than a practical vehicle) those behaviours do indeed change. Just as cheap oil changed our behaviour to eating exotic fruits at any time of the year expensive oil and expensive food will cause that to change to locally grown produce from local farmers where you can see the stuff grow.
Indeed these behaviours are already changing. GM shutdown a pick up truck plant in Oshawa Ontario due to collapsing demand for these vehicles - why? Because people could not afford to swagger off to the local mall in a truck that does 15mpg. Now they swagger off to the mall in their trendy Prius.
Tradesemen and women need trucks - most of the people that buy them don't.
So as oil prices go up people will simply change their behaviours to accommodate it and that will be to find alternatives - which there always are. There are no current uses for oil that cannot be replaced by another source of energy. The main area affected will be plastics and petrochemicals production and I think we could all use alot less throway plastic. If plastic plates and knives and forks become more expensive people will revert to steel ones for their BBQ.
People will adapt to less oil and the catastrophe will be just another bump in the road.
I do save pennies Bob - always have - always will. Malcolm
Ferdinand E. Banks 3.21.11
Speaking of Colonel Gaddafi, I have a new short-paper/lecture in the works. It's called LIBYA: BUT WHERE IS THE OIL? Liars, fools and hypocrites have done their job, now it's our turn. Maybe Dr Chu can tell us what the oil price is going to be if Libya's energy resources fall out of the picture.
Don Hirschberg 3.22.11
Libyan crude oil has never figured significantly on the world oil market. Production is <2 million B/D. But since it is “light” i.e. low specific gravity and low in sulfur refineries that use it cannot easily, perhaps find it impossible, to convert to something like “heavy” high sulfur crude as from Venezuela.
Libyan crude is quite similar to the traditional benchmark WTI crude (West Texas Intermediate). That is 40 API Gravity “sweet”, that is low sulfur. API gravity (American Petroleum Institute) of 40 is the same as a specific gravity of 0.8251. “Sweet” means <0.5 % sulfur.
WTI and Libyan are both about 40 API and about 0.25 % sulfur. Brent is only slightly heavier and has a bit more sulfur. Refineries (Italy?, Germany?) that were designed to run on one could run any one of the three without much change in product percentages. But refineries hate to change crudes.
I can recall a crude sample from Venezuela about a zillion years ago that had an API of 10 (sp. gr. of 1.000, as has water) and a very high sulfur content. They wanted to know how it could be processed. This was when far better crude oils only fetched $2/ barrel. We told them to leave it in the ground.
Tam Hunt 3.22.11
Malcolm and Dean, indeed people and markets will adjust to dramatically higher oil prices. But at what cost? Oil price spikes have been a major factor in every recession since WWII, including the latest one. Will you accept a spiral of oil price spike, recession, reduction in oil demand, reduction in oil price, economic recovery, increased oil demand, increased prices, recession, etc.? This is the path we're on.
More seriously, as I write in my essay, it's not only a matter of price but also of availability. What if the Saudis and other major exporters suddenly decide they need to keep most or all of their oil for themselves? This happened with Thailand in 2008, the #2 rice exporter in the world. It decided, based on rice price spikes and concerns about global supplies that it would forbid any exports, literally overnight. It resumed shortly thereafter, but why couldn't this happen with oil? And why would it be short-lived? Certainly countries need oil revenue, but they may at some point need the oil itself more.
This is why I write that we need to manage our oil consumption decline as a nation and as a globe. By adopting the Oil Depletion Protocol or something similar we can hope to navigate to a lower fossil fuel consumption future with the least harm.
Don Hirschberg 3.22.11
Forty years ago those who were aware of such things had already heard that our civilization was not likely sustainable. (Hubbert’s Peak Oil Theory, the Club of Rome.) Even though we then had “only” 3.5 billion people neither my arithmetic nor anyone else’s arithmetic I saw managed to show sustainability. At that time I considered fusion the ace in the hole, man’s possible salvation.
Decade after decade we were told of solutions in great profusion for the energy crisis. We were buried in solutions. The result? We are using vastly more fossil fuels today than 40 years ago. We are even using vastly more fossil fuels today than when the Kyoto Protocol was agreed on. Who mentions Kyoto today? It was a fraud from the beginning. We are using more this year than last year.
Just a few years ago seems we heard of Global Warming every day. For those who would listen, today we can hear of new coal mines and new coal burning plants almost every day.
While this was going on the population has almost doubled in 40 years to 7 billion and is still growing at almost 0.1 billion per year. And those fusion plants are “at least 50 years” in the future the last time I checked - further off than when first projected 60 years ago.
Ferdinand E. Banks 3.23.11
No Tam. Many OPEC countries are not GOING to decide to keep their oil, gas, etc.
THEY HAVE ALREADY DECIDED IT! Saudi Arabia for example probably decided it 40 or 50 years ago, because it makes all the sense in the world. As for Kyoto being a fraud, Don. I should get some kind of prize for being among the first to point that out.
Tam Hunt 3.23.11
Fred, Saudi Arabia is the largest exporter of oil today (though Russia is now the largest producer), so not sure how they are keeping their oil. King Abdullah has said more than once that they plan to leave some oil in the ground for future generations and there is an interesting saying in Saudi Arabia: "My grandfather rode camels, my father drove a car, I fly in jets, my son will drive a car and my grandson will ride camels," or something to that effect. The fact is, however, poetry aside, that the Saudis are madly trying to diversify their economy away from oil while at the same time using oil as their primary economic pump. They know it won't last and they need to have an economy that can run without oil being the all-powerful economic force it is today.
Don Hirschberg 3.23.11
The idea of once again riding camels is clever and funny but everyone should be aware that riding camels cannot ever again be an option. The Bedouins and their camels can only exist in tiny numbers. There is no way they can have cities or even permanent houses. When I worked in Jordan to start up a small oil refinery in Zarqa Bedouins would appear as if from thin air, set up camp even using refinery fence posts to secure their tents. Except for shy little girls selling eggs one at a time, there was mo visible means of support and no contact that I ever saw with non-nomadic Jordanians. The refinery could well have been supplying them with water. Sharing water is part of desert culture. They had milk and meat but I could not understand how the camels, goats, sheep and chickens subsisted. At least when I was there even a blade of grass was a rarity.
Professor I would indeed like you to have a prize – a medal, Ruffles and Flourishes, reading of the citation ending with (rank) Ferdinand E. Banks entered the federal serve from the state of Illinois. Ta Da. Didn’t it go something like that?
Malcolm Rawlingson 3.23.11
Tam, The oil industry is very complex and is governed as much by politics as it is by the availability of the material. The US - as I am sure you will agree - is the largest consumer of oil and will continue to be for some considerable time. The US has very large reserves of its own but chooses NOT to exploit them because they can use someone else's (The Saudis) essentially for free. It is no coincidence that oil is priced in US dollars. What the Saudis get for their oil is a pile of US treasuries - otherwise called Uncle Sam's IOU's. The USA today sits on top of massive oil and natural gas reserves - quite enough energy to keep the worlds largest economy chugging along for years. The Monterey oil shale alone (it is right underneath most of California) and the Canadian Tar sands could easily keep the US supplied for years. So I am quite sure the USA will exploit those resources when the time comes.
However I do agree that there is a need to move off oil and I think that process is already happening. An interesting observation though is that it is not only the USA that sits atop large oil shales. The Chinese do to. That is why they are buying up US companies that have the technology to exploit these reserves. Once they have that technology they will be drilling for their own which will likely make China self sufficient in both oil and natural gas thus removing a large demand off world markets.
In all predictive articles there is the tendency to extrapolate current technology, markets and thinking into the future except that has always proven to be in error. The Club of Rome in their limits to growth were laughably incorrect in their predictions because of these assumptions. Human beings are the most adaptive creatures on earth and I have no doubt that oil will be substituted with other energy sources as time goes on. There may be a few price bumps in the road but that will simply spur faster development of tar sands and shale oils.
Not much to worry about.
Malcolm Rawlingson 3.23.11
Don, I agree with you that fusion energy is the real long term solution for energy. I am not confident that the planet can sustain the burning of fossil fuels for hundreds more years although I don't subscribe to the theories of global warming.
Fusion is an extremely difficult engineering task to accomplish but that does not imply that huge progress has not been made in the technology. The work underway in Cadarache France on the ITER is at the limits of technology in superconducting magnets, plasma physics, materials science, computing, vacuum technology and many other areas.
When I studied Nuclear Engineering in the early 70's confining and creating a stable plasma inside a torus was a dream. The magnetic fields could not be created to ensure that the plasma stayed where it was supposed to be - at the centre line of the torus. That is now as easy as falling off a log to fusion engineers. They know how to do that routinely. The work done on the Joint European Torus (JET) in Culham Laboratories in England had demonstrated and verified much of the physics and engineering technology to make the next step which is to achieve a sustained fusion reaction.
Engineers and scientists have produced fusion neutrons from plasmas already so they know that fusion reactions can be achieved. The difficulty to overcome now is to sustain it and control it for long periods. For sure it is taking far longer than fission engineering which is simple technology by comparison - but that does not mean it cannot be achieved. And, even if it does take another 50 years to perfect surely you would agree that being able to solve the worlds energy problems permanently is worth the wait. Fifty years or even a hundred years is a mere blip in historical time.
Of course those that view the future only through the lenses of the past will complain at the cost yet it is far less per year than the world spends on cosmetics and perfume that have no prospect of solving anything.
The people at Cadarache need to be supported in their work not criticised for not doing it fast enough. When they are successful (and they will be) fusion energy will be able to provide a vast energy source for ever and essentially free of radioactive materials. Those future generations that will use fusion reactors will look back at the dark ages of burning fossil fuels the same way as we look at the steam era - and wonder why we fought wars and killed thousands because of it.
Don Hirschberg 3.24.11
Malcolm wrote: “Fifty years or even a hundred years is a mere blip in historical time.”
Any time from the beginning of time until less than a mere 1000 years ago I would have agreed to that statement. A thousand years ago there had never been more than 0.3 billion people. Today there are all of a sudden 23 times as many of us – because of and almost all totally dependant on that wonderful NEW source of energy, fossil fuels. New.
In all history there have never been so many people in such dire straits. Just because we got a one shot deal of fossil fuels (formed from 300 million years ago) why should we expect another even greater? My arithmetic tells me we haven’t got 50 years. Your attitude reminds me of the religious saying “God will provide.” If so, I say He has to violate his own arithmetic and thermodynamics.
Ferdinand E. Banks 3.24.11
That's right, Don, but there are solutions for some of us. Iceland is one. I don't know however if wifey would buy that one. As for the kids and grandkids, I've tried to warn them, but they think that I am nuts. I guess that it has always been that way.
But listen, a mention of population is cropping up more and more in articles and comments, so I guess that there are more than two of us who get the population message..
Jim Beyer 3.24.11
Even if you could get fusion working tomorrow, you still have the issue of fuel. Yes, you could synthesize it using electrical power, but that's a whole bunch MORE electrical power needed to provide our current fuel needs. And even if fusion is cheap and plentiful, it won't be free, nor will it be freely available in the developed world anytime soon.
The future (even a future with fusion) is going to be a world where fuel (liquid or gaseous, but liquid is the most convenient) is a dear and precious resource. I'm wondering if the automobile might have turned out to be a huge mistake, at least given that we've run out of the oil needed to run them.
Tam Hunt 3.24.11
Malcolm, your last line: "Not much to worry about" gave me chills. I hope that you are right but I think history will show you to be woefully wrong.
Malcolm Rawlingson 3.24.11
Tam, I do hear your message loud and clear and I thank you for taking the time to bring it to this discussion forum. All opinions need to be heard and I certainly value yours. While I do agree that the era of cheap and readily available oil is indeed over - I have heard the associated doom and gloom sentiments that accompany it many times throughout my life. Not surprisingly - they never pan out. The world does not come to an end and society as we know it does not fall apart.
As you probably know from other posts here I am an investor - I suppose you would call me a contrarian investor - and my best returns have always been when every one else thinks everything is falling apart. The banking crisis of 2008 was a case in point. The world did not end did it? The problem is with all these predictions is that they never ever take into account the human factor and that is a critical error.
Back in the 1970's - an era I know very well - the landmark event was the oil crisis and everyone thought that oil supplies were going to be cut off for ever. Line ups and even fights at gas stations, prices going up, doom and gloom everywhere - world about to collapse., Western world going to run out of oil. So what happened. People stopped driving gas guzzling boats of cars and other people started thinking about electric cars and different technologies. Still others looked for oil in unlikely places - one of which was the tar sands of Canada - an unheard of source in the 1970's. Scientists and technologists started giving some thought as to how to get at oil and gas shales. The fruits of that technology have just made the US independent of natural gas imports for the next 200 years.
The problem with all these "limits to growth" and catastrophe theories is that they assume that we humans know how much of a resource lies beneath the earth's crust. That, of course, is the single fact we do not know.
Furthermore since "money" and "price" are artificial constructs of society the "value" placed on a commodity only changes the desire of humans to seek more or less of it and drives the technical innovation needed to get at it.
There is not much demand for whale oil any more because technology found a better way to light peoples homes. Demand for wagon wheels and the people that made them has also dropped off so I am told. These historical examples should serve as a wake up call to those that spread the doom and gloom scenarios.
Time will prove me right Tam - of that I am very certain. You need to be much more optimistic about people - humans are born problem solvers. Peak oil will come and go no doubt some will make a lot of money out of the energy shifts it will create and others will lose their shirt. It is what always happens.
Not much to worry about.
Malcolm Rawlingson 3.24.11
Jim, I always like reading your posts but I need to correct a few things about fusion technology, the fuels it uses and their availability.
Fusion of light nucleii provides many times more energy than fissioning of heavy nucleii as a result of the binding energy curve which is well known to all nuclear engineers. The greatest energy release comes from the fusing of two hydrogen nucleii to form Helium. However this requires plasma temperatures and pressures that are currently out of reach although as the technology develops that will not continue to be the case. Hydrogen fusion of course is what fuels our Sun and the stars where enormous temperatures and pressures are present as a result of gravitational forces.
Fusion reactors use magnetic fields instead of gravitational fields but magnets are not yet strong enough to cause the H-H fusion reactions to occur.
I think you will agree that there is plenty of hydrogen around and very little is required to produce enormous amounts of energy.
The next reaction is H-D which is a hydrogen nucleus (proton) and a dueterium nucleus (which is one proton plus a neutron). This reaction is also not possible - yet.
Same with D-D reactions.
However reactions between tritium nucleii (one proton plus two neutrons) are within the range of current plasma and magnetic field technology. Tritium is easily produced by neutron bombardment of Dueterium and is produced in nuclear fission reactors that use heavy water as the moderator. There is plenty of tritium around as a result of operating these reactors and it does not need to be manufactured.
One of the features of the T-T reaction is that it produces neutrons - lots of them. By placing a blanket of Lithium around the fusion reactor tritium (an isotope of hydrogen) is produced from the Lithium and drawn off to fuel the reactor. One of the aims of ITER is to test this technology such that the reactor requires no external tritium supply - only make-up to the lithium blanket.
As you can see - first the fuel already exists. Secondly the fusion reactor itself will produce more fuel than it uses and thirdly as the technology develops D-D and eventually H-H reactions will be possible. Even if electricity is required to break the hydrogen out of water the amount of energy derived from the fusion of these nucleii is many orders of magnitude greater than that required to electrolytically split it from water.
While many here joke that it always seems 50 years away that belies the huge strides that have been made in this technology over the years. And if it can be done in the next 50 years or even 100 years peak oil panic will be consigned to the history books - just like the wagon wheel - where it belongs.
Not much to worry about there either. Fusion technology should keep the lights on for the next couple of billion years. Well worth the effort in my opinion.
Malcolm Rawlingson 3.24.11
Just to underscore my points above I have included a link to Hans Roslings's video 200 countries, 200 years in 4 minutes.
To Don and all the pessimists here - despite what you believe the people of the world are far better off than at any other time in history and with the amazing technological developments coming to fruition in the next few years that will only get better. The number of people in "dire straights" is decreasing not increasing. People have never been healthier and they have never been wealthier than they are today.
The world is not going to run out of oil any time soon and there is no doubt in my mind that exploration of the Moon, Mars and other planets will make available all the minerals necessary for a very bright future for us.
So Don sorry to say your arithmetic is wrong. Suggest you get a better calculator.
Jim Beyer 3.24.11
You missed my point, or rather I didn't explain it very well. I was referring to vehicle fuel, like gasoline or diesel, not the materials needed to run fusion reactors. I agree we have lots of them. But it is oil that we are running out of. With fusion, we could synthesize it from water and CO2, but I was just saying that's a bit of a tough road in any practical sense.
Don Hirschberg 3.25.11
Malcolm I am embarrassed that I need to keep pointing out that up until about a thousand years ago there were never more than 0.3 billion people alive at one time on this planet. Let’s say they were ALL sick cold and hungry – 300 million people in miserable conditions. I hardly need a calculator, defective or not, to tell me there are far more than 300 million people who are sickly, cold and hungry and alive tonight. I’d guess more than a billion are in Sub-Saharan Africa and India alone. And these are the very places where population is growing the fastest. A trivial example: It is estimated that 20,ooo to 30,000 children die needlessly from diarrhea PER DAY from water that that would only need a few drops of laundry bleach to be safe. And it seems to be getting worse. These folks don’t have electricity - are they first in line to get fusion plants in 50 or 100 years (or more, or ever)? Is this to fall like manna from the sky?
We recently heard of the live slaughter by machetes of an estimated more than 300,000 people in Rwanda. (More than our battle deaths during the long years of WWII.) Did Rwanda even make the front page?
Education seems to have no affect whatsoever on the outlandish crime rates and antisocial behavior worldwide. In Mexico, a relatively advanced country, internal crime accounts for more deaths by far than our current wars, and their economy is dependent on their declining oil production. Nothing else is in sight.
Just today I read about the huge shipments of illegal Viarga and Cialis (from India) being sent to Africa. Hardly the advanced technology they need.
Optimism and pessimism have no influence on facts. Perhaps being a Pollyanna is satisfying. What has “science and technology “produced in the energy field since James Watt? Fission. Well maybe we should count solar voltaic. But that’s about it. It has been well over a hundred years since a leap forward in storage of electricity, the lead acid battery. You find one in every car, truck, tractor, boat today.
I say once again: Given our present situation and trends, 7 billion people, I see no way for our civilization to be sustained. While I wish I were wrong I’ll take odds that I am not.
Murray Duffin 3.25.11
Malcolm, my comments were based on an average of 6 wells per pad, 7 producing wells per rig per year, and a rate of rig/crew addition faster than the surge in 2007/8.(the wells are 1 to 2 miles down and then 2-3 miles horizontal, and require multiple fracturing, about 15-18 fracs per well looking optimum. And then you need infrastructure to get the oil out. It just isn't easy. The problem is that flow rates from first month rate decline 90% in the first year, and drop to a pretty meaningless level in 5-7 years. You can confirm this by checking reports of 2 or 3 of the drillers, and the USGS. The numbers are consistent benough to give a fairly high confidence level. As for tar sands, from inception to now, about 20 years or so, the production rate has not yet got to 1.5 Mb/d, which was forecast to happen in 2010 back in 2004. Also over the next few years production from open pits will begin to decline, and the decline has to be offset by new techniques you allude to. $200./b oil will assuredly dampen demand, and reduce the pressure for further devept in another click of the ratchet, as has happened for NG. All in all I will stand by my forecast. The tank is very big. The tap will never be very big, and will never do more than offset some of the decline from imports and conventional production. The main point I wanted to make is that we are not failing to develop a bonanza under our feet. That idea, which keeps floating around is nomsense.
Don Hirschberg 3.26.11
In a previous posting I referred to 300 thousand being butchered alive with machetes in Rwanda. I now understand this number is substantially low. There is no way to determine an accurate figure but all the estimates I see are much higher than the number I used. I would now say about 800 thousand were murdered in 100 days -hard to get one’s mind around it. To establish some perspective, going back to our Revolutionary War American battle deaths total 657 thousand, not in 100 days but over 235 years.
Ferdinand E. Banks 3.26.11
A bonanza under our feet, Murray. Where have you been lately? People are talking about trillions of barrels these days - people that I call liars, fools and hypocrites. And I wonder what percentage of the TV audience believes that this escapade in Libya is about protecting civilians. ITS ABOUT OIL, and the point is that the oil of Libya is crucial in the scheme of things - or at least the high and mighty believe that it is crucial. Why, Sweden is getting ready to take a part in that nonsense, and here in Uppsala they cant protect bus drivers from being used as punching bags, and elderly persons from being visited by 'transgressors'. And this is essentially a peaceful country - except perhaps on friday and saturday nights.
Don, 600,000 or more soldiers and sailors died in the American civil war. Probably about half of them from sickness, but if they had not been in the military, they might have lived to a ripe old age. American fatalities in WW2 were over 400,000, and then .... As for Rwanda, that could have been avoided, but not by the kind of morons I worked with in the UN. And these are the kind of people who handle the high level decision making these days.
Don Hirschberg 3.26.11
You are certainly quite right about deaths due to war vs battle deaths. In Korea there was also the large effect of prompt heroic helicopter and ambulance evacuations to the four MASHs across the rather narrow peninsula and antibiotics. (Just as Sulfanilamide saved many from being battle deaths in WWII) If you got to a MASH alive you were unlikely to become a battle death even with dreadful wounds.
We have only had large numbers of battle deaths in five of our many wars. In thousands they were - Civil War (USA only)140: WWI 53: WWII 292: Korea 32: Viet Nam 47, or 566 total for the five. (Time Almanac 2007)
I chose battle deaths rather than total deaths as a better comparison to the Rwanda deaths which were the result of butchering alive of men, women and babies over a very short period of time, some 100 days. In WWI Flu killed far more of us than did the Germans.
Malcolm Rawlingson 3.26.11
Well Don. There is little point arguing with you. You are so pessimistic about everything it is clear there is no changing your mind. So we will have 7 billion people and we will all starve to death in the cold and dark.
I can counter every single "fact" you present but it is clearly a waste of my time.
If as you say stopping thousands of children from dying of diarrhea every day is simply a matter of a few drops of bleach in their drinking water I suggest you take a bottle of Javex to Africa and fix it instead of sitting in front of your computer lamenting the fact. That of course would require some action on your part and you appear not to be cut out for that otherwise you would be doing it already.
A young lady that I know(just 19 years old) is in Zimbawe right now doing just that. She is very optimistic and she will make a difference to at least afew children. Even if she has to risk her safety to do it.
So nothing in the energy field since James Watt eh! Just Fission and Lead acid batteries. That is a joke isn't it Don. You reduce Einsteins breakthroughs to just fission. Nonsense man. Complete and utter garbage. He showed us that MASS is equal to ENERGY and THAT isn't enough for you!! There are 440 reactors using that knowledge that are churning out billions of Megawatt hours of electricity and probably powering the computer you are looking at right now.
And as for fusion technology being able to solve the worlds energy problems including Africa. That is precisely what it WILL be able to do and why there are many dedicated and optimistic engineers working on it right now. I know a great deal about fusion technology and should you wish to be educated on how close this technology is to unlocking vast amouints of energy I will gladly teach you but I am sure you will not want to hear anything positive.
Once sustained and controlled fusion reactions can be routinely produced some light nucleii reactions produce intense streams of charged particles which, when interacting with a magnetic field produce electricity - no turbine, no steam, no cooling water, no fission products. And nothing has happened since James Watt eh! That's worth a 50 year wait. Suggest you get a subscription to scientific American and see what science has been doing.
Malcolm Rawlingson 3.26.11
My son worked in Fort MacMurray where the major tar sands activity is and I have been there a few times. The working open pit mines are only working a tiny fraction of the oil that is there and it is not a particularly efficient method of extraction. The newer developments using new extraction technologies are cheaper with far less of a footprint than the open pit mines and are able to get at deposits deeper underground which of course open pit mining cannot. The tar sands extend into Saskatchwan and across most of Northern Alberta. There are in fact THREE tar sands deposit. The Athbaska tar sands, although the largest of the three, is only one of them. The other two have not, as far as I know, been touched yet.
These deposits are vast. Already 500,000 bbl/day are flowing directly to US refineries via TransCanada's Keystone pipeline. Mrs Clinton is sitting on the approval to build the next stage of that pipeline - the Keystone extension that will carry another 600,000 bbl/day into Texas. Investors will not put their money into developing this reserve unless they know they can get the oil out of the region and into the marketplace. It is one of the reasons a heavy oil refinery is being built there (to market finished products) and why the Chinese have been buying into tar sands companies. If the US does not want the oil there are plenty of others that do.
But as I said before the limits to growth folks and the "we are running out of everything" pundits have been wrong so many times it is getting quite comical. I believe the Club of Rome predicted we would be out of copper by now. We are not.
The price of oil will no doubt rise which will encourage the development of alternatives. Both coal and gas can be processed into oil with existing technology - it was done for years by South Africa when sanctions were in place against the regime there.
So I do not think Peak oil is that big a deal. It will come and go as all the crises of the past have come and gone and the wealth will shift around the world to the nations that develop the right technologies.
If, as you say Murray, the problem is the size of the tap, technology will build a bigger tap.
A lot of worry over nothing.
Don Hirschberg 3.27.11
Malcolm, your screed seems to me to only firmly establish that you are very annoyed by my pessimism, which I prefer to call recognizing reality. You castigate me for things I never said – setting up straw men so easy to knock over. Making me anti-Einstein. Indeed! Suggesting I get the Scientific American, - So I can read my own past letters? 50 years to commercial fusion when I made it quite clear I have already been waiting 60 years and the needle is just where is started, on 50 more, or 110 years at least.
You say I made factual errors in my post. Perhaps I did. But you did not point out one. You seem to associate 7 billion people with the future, while waiting a mere 50 more years for fusion we could well have 4 billion increase to 11 billion if the food lasts 50 more years. 4 billion more, that’s like adding ten Europes but largely among sub-Saharans and southern Asians already in dire conditions and not contributors to science and technology or finances, not among Italians, French and Danes, Japanese etc. whom we can consider and treat as adults.
You castigate me for not going to primitive villages and put my drops of bleach in their drinking water and thereby lengthen their lives in conditions already dire. Well that’s what those enthusiastic Peace Corps people did 50 years ago. The efforts were magnificent, the results were abysmal.
No efforts have had less success than those to help people chronically in need of help. We don’t know how to do it. Helping people whose house burns down or whose breadwinner dies – that works. I knew a couple of very bright and idealistic guys who went to Africa in the Peace Corps and gave it their all-out effort. Neither thought that they made any permanent change and rued that what they saw and experienced was largely a waste of effort and money. But a great experience for them personally and they made good friends.
Malcolm Rawlingson 3.27.11
OK Don - you be as realistic as you want. Woe is me and the sky is falling. I am so glad I do not inhabit the 6 inches between your ears. What a sad life you must have.
Jim Beyer 3.28.11
It's interesting to see Don and Malcolm butting heads. The problem with Malthus is that he's always been wrong. That is, until he isn't......
Don Hirschberg 3.28.11
Gee Jim, I didn't think anyone was still around.
Don Hirschberg 3.28.11
In the 30’s almost every family we knew had a car. It was in the depths of the Great Depression. Going for a Sunday drive was a common way for families to spend a Sunday together at very little cost and it often included a drop-in visit. Everyone knew there was always room for one more at the table. Drop –ins were always welcome to “stay for dinner.” It meant adding potatoes to the pot but there were not likely any extra pork chops or chicken so the signal FGL (family go light) was given. Everyone eating the same food at the same table at the same time engaged in the same conversation without anyone leaving the table or putting their arms on the table was the norm. It is all long gone. A pIty.
Ferdinand E. Banks 3.29.11
Well Don, I came from one of those poor or, actually, nearly poor families, and a drive on sunday was an experience we had for about half of the sundays in the year. The Cold War and the Korean War kept me from making that a lifetime thing.
But I can understand Malcolm too, because as far as I am concerned, Canada is richer than the US. It is easier for him to be an optimist than for those of us who have to put up with some of the loony things going on in The Big PX (as we used to call it). And yes, I mean this business in Libya.
Murray Duffin 3.31.11
Malcolm - No disagreement on the extent. The problem remains the size of the tap. I believe tarsands production is now estimated at 3 million b/d by 2020, and I have never seen any estimate above 7 Mb/d. Exports from oil exporting nations have been in decline since 2005, masked by the 2008 recession, and Chindia demand is growing rapidly. North American "comventional" production is declining 3-4%/yr. Available for import goes into decline next, not later than late 2012. Assume total conventional+import supply declines a conservative 6%/yr. No way will deepwater plus Bakken plus tarsands offset that decline completely. I often see the Club of Rome disparagement - they got petroleum wrong for sure, by about a decade. The good news, at least for North America is that we have plenty of room for efficiency and conservation to offset the decline for a decade or 2 while we develop alternatives, but we won't make a serious start until we have a clear crisis causing shortfall.
Rajon Mestra 6.22.12
Mainly the target of peak oil is the automotive industry which definitely implies that when the price gets skyrocket, people drive less. But the good thing is that the government of different countries have implemented several laws that will definitely decrease the tax on oil. As such the automotive industry is now dealing for alternative ways to come up with the solution and one of them is by integrating efficient car parts on several vehicle models, which not just comply the requirements of costumers but also help them in saving money through gas cost.