Where There Were No Doors

Follow your bliss and doors will open where there were no doors before - Joseph Campbell

Friday, March 04, 2005

News Just In: "The End Is Nigh!" - Official

A quite staggering article has appeared on the web in the latest issue of the ASPO Newsletter (Link to PDF). ASPO is the Association for the Study of Peak Oil. ASPO is openly an organisation with an agenda, but even those who disagree with that agenda acknowledge that it is made up of serious people with no personal axe to grind, and who are putting forward very well researched information.

This is illustrated by the fact that for some years there has been an ongoing dialogue (some of it in public) between ASPO and the US Department of Energy (DoE), and between ASPO and the US Geological Survey (USGS). This dialogue finally appears to have reached a resolution with the DoE conceding to ASPO's primary points.

If that is indeed what this article implies (and I can't see any other way of reading it) then it should be front page news. For some reason I suspect it won't be though.

In summary, the DoE seems to be saying that the problems posed by the peaking of oil supplies are massively worse than has previously been acknowledged. They suggest that in order to mitigate these problems, a Crash program (and by this they mean a huge focus of political will, resources and time; making it a major priority of our society) needs to be implemented 20 years prior to the peak of oil supply.
The US Department of Energy addresses Peak Oil
The US Department of Energy has submitted the following article for inclusion in this Newsletter

The Mitigation of the Peaking of World Oil Production

Summary of an Analysis, February 8, 2005

A recently completed study (ref below) for the U.S. Department of Energy analyzed viable technologies to mitigate oil shortages associated with the upcoming peaking of world oil production. Commercial or near-commercial options include improved vehicle fuel efficiency, enhanced conventional oil recovery, and the production of substitute fuels. While research and development on other options could be important, their commercial success is by no means assured, and none offer near-term solutions.

Improved fuel efficiency in the world's transportation sector will be a critical element in the long-term reduction of liquid fuel consumption, however, the scale of effort required will inherently take time and be very expensive. For example, the U.S. has a fleet of over 200 million automobiles, vans, pick-ups, and SUVs. Replacement of just half with higher efficiency models will require at least 15 years at a cost of over two trillion dollars for the U.S. alone. Similar conclusions generally apply worldwide.

Commercial and near-commercial options for mitigating the decline of conventional oil production include:
  1. Enhanced Oil Recovery (EOR), which can help moderate oil production declines from older conventional oil fields;
  2. Heavy oil/oil sands, a large resource of lower grade oils, now produced primarily in Canada and Venezuela;
  3. Coal liquefaction, an established technique for producing clean substitute fuels from the world’s abundant coal reserves; and
  4. Clean substitute fuels produced from remote natural gas.
For the foreseeable future, electricity-producing technologies, e.g., nuclear and solar energy, cannot substitute for liquid fuels in most transportation applications. Some day, electric cars may be practical, but decades will be required before they achieve significant market penetration and impact world oil consumption. And no one has yet defined viable options for powering heavy trucks or airplanes with electricity.

To explore how these technologies might contribute, three alternative mitigation scenarios were analyzed: One where action is initiated when peaking occurs, a second where action is assumed to start 10 years before peaking, and a third where action is assumed to start 20 years before peaking. Estimates of the possible contributions of each mitigation option were developed, based on crash program implementation.

Crash programs represent the fastest possible implementation - the best case. In practical terms, real-world action is certain to be slower. Analysis of the simultaneous implementation of all of the options showed that an impact of roughly 25 million barrels per day might be possible 15 years after initiation. Because conventional oil production decline will start at the time of peaking, crash program mitigation inherently cannot avert massive shortages unless it is initiated well in advance of peaking. Specifically,
  • Waiting until world conventional oil production peaks before initiating crash program mitigation leaves the world with a significant liquid fuel deficit for two decades or longer.
  • Initiating a crash program 10 years before world oil peaking would help considerably but would still result in a worldwide liquid fuels shortfall, starting roughly a decade after the time that oil would have otherwise peaked.
  • Initiating crash program mitigation 20 years before peaking offers the possibility of avoiding a world liquid fuels shortfall for the forecast period.
Without timely mitigation, world supply/demand balance will be achieved through massive demand destruction (shortages), accompanied by huge oil price increases, both of which would create a long period of significant economic hardship worldwide.

Other important observations revealed by the analysis included the following:
  1. The date of world oil peaking is not known with certainty, complicating the decision-making process. A fundamental problem in predicting oil peaking is uncertain and politically biased oil reserves claims from many oil producing countries.
  2. As recently as 2001, authoritative forecasts of abundant future supplies of North American natural gas proved to be excessively optimistic as evidenced by the recent tripling of natural gas prices. Oil and natural gas geology is similar in many ways, suggesting that optimistic oil production forecasts deserve to be viewed with considerable skepticism.
  3. In the developed nations, the economic problems associated with world oil peaking and the resultant oil shortages will be extremely serious. In the developing nations, economic problems will be much worse.
  4. While greater end-use efficiency is essential in the long term, increased efficiency alone will be neither sufficient nor timely enough to solve the oil shortage problem in the short term. To preserve reasonable levels of economic prosperity and growth, production of large amounts of substitute liquid fuels will be required. While a number of substitute fuel production technologies are currently available for deployment, the massive construction effort required will be extremely expensive and very time-consuming, even on a crash program basis.
  5. Government intervention will be essential, because the economic and social impacts of oil peaking will otherwise be chaotic, and crash program mitigation will need to be properly supported. How and when governments begin to seriously address these challenges is yet to be determined.
Oil peaking discussions should focus primarily on prudent risk management, and secondarily on forecasting the timing of oil peaking, which will always be inexact. Mitigation initiated earlier than required might turn out to be premature, if peaking is slow in coming. If peaking is imminent, failure to act aggressively will be extremely damaging worldwide.

World oil peaking represents a problem like none other. The political, economic, and social stakes are enormous. Prudent risk management demands urgent attention and early action.

Reference: Hirsch, R.L., Bezdek, R.H, Wendling, R.M. Peaking of World Oil Production: Impacts, Mitigation and Risk Management. DOE NETL. February 2005.
I can't overestimate the significance of this article. Ever since I've been involved in the energy resources debate (7 or 8 years now), the DoE has been "the other side". It was they who published the most strenuous of the counter-arguments and denials. They who made world production forecasts based completely upon demand projections.

And now they've admitted that ASPO is correct in its assessment.

To get technical for a minute, I believe (though I've yet to examine the source study referenced above, so this is conjecture for now) that the DoE have finally acknowledged that the Campbell / Laherrère method of reserve calculation (based upon their "back-dating" methodology) is correct. It's a huge U-Turn. As I say; it should really be front-page news.

Another bit of news that seemed to have slipped below the radar lately is the recent OPEC discussions. They concluded with a press conference given by Kuwaiti Oil Minister Sheikh Ahmad Fahd al-Sabah (also the current OPEC president) who declared that OPEC's target price band for oil of 22-28 dollars a barrel "is effectively dead" and that 32-35 dollars "would be a good price". Venezuela's OPEC delegate is pressing for a price band somewhat higher. A decision will be made in a couple of weeks at the next OPEC conference.

For those who aren't familiar with the idea of the OPEC target band, it's quite simple. The organisation attempts to calculate how much the average barrel of oil costs to produce. It's impossible to arrive at an exact number for this; there are too many imprecise variables involved; but they do a good job of narrowing it down (as you can imagine, a lot of money depends on the accuracy of that calculation). They then factor in their desired profit (the controversial bit, which I'll come to in a sec) and that's the target price band.

Since the year 2000 (the last adjustment), the band has been set at 22-28 US dollars per barrel. That means that OPEC believed they could make sufficient profit to satisfy them if oil was sold at that price. The price band, however, overtly takes no account of geopolitical concerns. The effect of the Iraq war on the oil price, for instance, should not - in the eyes of OPEC - trigger a rise in output to compensate. (Though of course, in practice OPEC often does respond to calls for increases in output even when they believe that the price is being artificially raised by political concerns as opposed to physical supply constraints).

Now, there will be those who point the finger at the scheming cartel who clearly just want to rob the world blind, and who are just using the Iraq war as a pretext to hike prices. But Matt Simmons (Energy advisor to the Bush Administration and Founder/CEO of the energy industry's investment bank) gave an interview and remarked:
Over the last year, I have obtained and closely examined more than 100 very technical production reports from Saudi Arabia. What I glean from examining the data is that Saudi Arabia, already a debtor nation, has very likely gone over its Peak. If that is true, then it is a certainty that planet earth has passed its peak of production.
Hand in hand with the DoE announcement, it is clear to me that the rise in target band tells us two things. One (the less significant) is that OPEC has lost faith in the strength of the dollar. The second is that OPEC is sending the world a coded message.

We're running out of oil.

6 Comments:

Anonymous Anonymous said...

Very interesting Jim. But like Monbiot says we are all in denial over this.
If I have a request is that you do a proper post about what you described in comments the other day: about the economists that base oil production figures on what the economy needs and not on reality! It deserves a bit more recognition.

4/3/05 15:12  
Anonymous Anonymous said...

Interesting indeed. So now it's official, I'd be interested to see you writing about your own personal response to it, ie what you're going to do to survive.

Joel

4/3/05 17:25  
Blogger Jim Bliss said...

Hi Anonymous (could I request that folks who leave comments also leave a name... make one up if you want... it's just to differentiate between different people is all). The world is very much in denial. What is significant about this article is that it comes from those who have (until now) been most in denial.

The vast majority of people aren't so much in denial, as completely unaware of how big this is. It is the denial of organisations like the DoE which reinforces this ignorance and maintains our "business as usual" approach. So it's big news when they accept reality.

And Joel, I still believe that it is the duty of those with brains to try and mitigate the effects of this crisis as best they can. It's rank stupidity that's got us where we are now. When morons are shaping world events, smart people are obliged to try and do something about it. You've heard it before... "all that's necessary for evil to win is for good people to do nothing" and what have you.

4/3/05 20:29  
Anonymous Anonymous said...

So Jim, I gather you believe that it's possible to do something about it. Well, maybe. A noble thought, anyhow. But I would say the intelligent people should also work out strategies for personal survival as well as working on a calm and resigned attitude of mind -- in the event that all that can be done to mitigate the effects proves too little too late. Because resignation towards one's own fate, and a certain accompanying serenity, will prove a lot harder to achieve in months than in years.

4/3/05 20:50  
Anonymous Anonymous said...

So Jim, I gather you believe that it's possible to do something about it. Well, maybe. A noble thought, anyhow. But I would say the intelligent people should also work out strategies for personal survival as well as working on a calm and resigned attitude of mind -- in the event that all that can be done to mitigate the effects proves too little too late. Because resignation towards one's own fate, and a certain accompanying serenity, will prove a lot harder to achieve in months than in years.

Joel

4/3/05 20:50  
Anonymous Paul said...

Hi Jim. The guy that put me onto the article in the first place had this to say...

"This whole issue poses a dilemma. If our leaders were to come out and admit to the problem and that it is too late to do anything, then surely there would be widespread panic and the world economy would collapse overnight, since it is based on future ability to repay debts. The more practical approach would be to deny it for as long as possible, whilst at the same time working flat out to sieze and secure access to as much of what is left as possible, thereby leaving the have-nots to do without and probably die off in order to reduce demand. I think we are now seeing the practical approach playing out now."

That makes sense. Why else would we be launching new superjumbos, and building more roads?

7/3/05 12:58  

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