Post Peak Life – II

June 24th, 2010


Fatih Birol’s interview ‘We Have Warned Them.’ Obama’s speech discussing energy (Jan 26, 2009).


Rebuttal: There is a lot of oil out there. We’re not running out.

We are not running out of oil. Peak oil is about flow rates, not how much oil is left underground. As we use the easy-to-get and cheap oil, what’s left is hard-to-get and expensive. It can’t be brought to market quickly enough to offset the declines of the easy oil.

Rebuttal: At current production levels, there are 40 years of reserves left…there have always been 40 years of reserves left. The oil companies stop looking when they have enough oil “in the bank.”

The reserve to production (R/P) ratio has worked for decades to judge how much oil is available. However, it works only on the upslope of oil production. It fails as a predictor once peak oil is reached.

Moreover, today only some oil companies are successfully finding more oil than they are producing. Other companies (like ExxonMobil) are “fudging” by including tar sands in their reserve estimates or they are purchasing smaller oil companies with reserves. The oil companies must be able to show investors that they have enough oil to generate future profits and they are having difficulty finding the oil themselves.

Rebuttal: When the price of oil increases, we will simply move off it more quickly.

In many ways, this is the most dangerous misunderstanding of them all. Although a person acknowledges that oil will decline, they fail to understand that the rate oil declines matters — a lot. The impact of declining oil is greater the faster it declines. Clearly, if oil were to disappear entirely tomorrow, we would experience a catastrophe. On the other hand, if oil declines gently then we have more time (limited by climate change) to move to alternatives. The problem is that through a combination of natural production decline rates and the net export problem, we are going to experience a fast decline — far too fast for our economies to adjust without a great deal of pain (like in 2007/2008). For more, see the Hirsch report.

Another analysis in E&P (Exploration and Production) magazine asserts that the most recent economic downturn is a peak oil recession.

The graph showing the cost of oil relative to the % of GDP is from this article.

The graph of the cost of oil is from Cambridge Energy Research Associate’s (CERA) “Ratcheting Down: Oil and the Global Credit Crisis,” October 2008.

Rebuttal: Technology will come to the rescue. It always has.

Technologists can spend days describing all the new developments that we can use to get off oil — and they are mostly correct. There are many alternatives to oil (not least of which is conservation) and some of them will even be used. However, to move off oil requires decades and we simply don’t have that time any more.

Rebuttal: With efficiency and conservation, we’ll be able to handle the decline.

It costs money to replace equipment with more efficient versions so scarce credit combined with a high decline rate means that contraction is inescapable.

Rebuttal: With an all-out effort similar to a war time mobilization, we can move to renewable energy in time.

This too is an enticing thought but we just don’t see it happening. First, elected officials don’t even know there is an imminent problem with oil and won’t until everyone else does — when oil surges in price again. As James R. Schlesinger (the first U.S. Energy Secretary) said, the country’s basic energy approach can best be summed up this way: “We have only two modes — complacency and panic.” When oil again increases in price, the economy will suffer another credit crisis and that means less money for renewable energy projects.

Second, people have a very poor grasp of how much energy we obtain from fossil fuels. Chris Nelder, author of Profit from the Peak and Investing in Renewable Energy, points out that “Starting around 2012 – 2014, the world will need to build the equivalent of all the world’s existing renewable energy capacity every year just to replace the lost BTUs from oil” (emphasis added). The amount of fossil energy we use is truly mind boggling.

Read Chris’s full analysis “Can Renewables Replace Fossil Fuels?” You may also want to read “Renewable Energy Cannot Sustain a Consumer Society,” Synthesis/Regeneration, Winter 2009, Ted Trainer or his larger book that goes into more detail, “Renewable Energy Cannot Sustain a Consumer Society” at Amazon or your local bookseller.

It doesn’t help that Al Gore, who has done admirable work raising awareness of climate change, makes uninformed assertions like it’s possible to get the U.S. entirely off fossil fuels for electricity generation within ten years. Unfortunately, comments like that damage his credibility and make the job harder.

The IEEE article with the energy equivalents is here.

Additional Rebuttals

Rebuttal: There isn’t enough information to go on to tell when peak oil will happen.

That’s not true. It does take work to sort through all the data but many researchers from around the world are doing exactly that. For instance, in its “Global Oil Depletion Report,” (Oct 8, 2009) the United Kingdom Energy Research Centre (UKERC), a consortium of academic partners from 15 different UK universities and institutions charged with advising the UK government on energy matters, wrote:

“Despite large uncertainties in the available data, sufficient information is available to allow the status and risk of global oil depletion to be adequately assessed.”

Their conclusions?

“A peak in conventional oil production before 2030 appears likely and there is a significant risk of a peak before 2020. Given the lead times required to both develop substitute fuels and improve energy efficiency, this risk needs to be given serious consideration.”

Rebuttal: Natural gas is so abundant, we don’t have to worry about declining oil

Currently there is a lot of talk of an explosion of natural gas availability. It’s true that conventional wisdom is saying that natural gas is now tappable in vast quantities. However, Kurt Cobb points out that the conventional wisdom is not always correct. Here is what the conventional wisdom was saying about oil at the end of the last century:

[I]f you’re still operating under the assumption that the earth’s petroleum—or at least the cheap stuff—is about to run out, you’re not going to thrive in the new oil era. Technology is making it possible to find, produce, and refine oil so efficiently that its supply, at least for practical purposes, is basically unlimited.
—BusinessWeek, December 14, 1998

[T]he situation looks so gloomy that Crown Prince Abdullah of Saudi Arabia warned starkly in December, ”The boom days are over, and they will not come back.”
—The New York Times, January 16, 1999

Yet here is a thought: $10 [a barrel] might actually be too optimistic. We may be heading for $5.
—The Economist, March 4, 1999

Of course, this period marked the beginning of a decade-long increase in price from $10 to $147, the final leg-up in price starting in 2004 when world production hit a plateau.

Here is what is now being said about natural gas:

U.S. natural gas reserves are far more plentiful than previously estimated, says an industry study being released today – a discovery that heralds a potential remedy to the energy crisis. The report says the U.S. has up to 50% more natural gas reserves than earlier projections because of higher-than-expected yields from 22 shale formations in 20 states.
—USA Today, July 30, 2008

The amount of natural gas available for production in the United States has soared 58% in the past four years, driven by a drilling boom and the discovery of huge new gas fields in Texas, Louisiana and Pennsylvania, a new study says. The report, due to be released Thursday by the nonprofit Potential Gas Committee, concludes the U.S. has more than 2,000 trillion cubic feet of natural gas still in the ground, or nearly a century’s worth of production at current rates.
—Rigzone, June 17, 2009

A new technique that tapped previously inaccessible supplies of natural gas in the United States is spreading to the rest of the world, raising hopes of a huge expansion in global reserves of the cleanest fossil fuel.
—The New York Times, October 9, 2009

Sound familiar? It’s wise to be skeptical of these projections for the fundamental reason it’s wise to be skeptical of oil projections that say there will be a late peak in oil.

It’s not the size of the reservoir, it’s how fast the gas can get to market. Wells being drilled for this unconventional natural gas have astronomically high decline rates (as high as 65% in the first year alone), which means it takes much more energy and many more rigs (and thus money) to extract this gas. Arthur Berman, petroleum exploration consultant and former editor for World Oil, challenges industry projectionshere and Dave Cohen challenges them here.

Kurt Cobb further describes problems with unconventional natural gas:

  • Pollution of drinking water aquifers from chemicals dissolved in the water used to fracture shale gas formations, a process that is necessary to allow the gas to escape. There are many instances of polluted aquifers due to this type of drilling. Will we accept polluted drinking water in exchange for more natural gas? The natural gas companies have refused to disclose to the public the chemicals they are using during the drilling process. ProPublica, with some clever sleuthing, has managed to discover quite a few of them (PDF 25MB).
  • It takes large amounts of fresh water, up to 2.5 million gallons per well, according to the Department of Energy’s Modern Shale Gas Development in the United States (p. 58). Will we allow expanded drilling with such high fresh-water requirements?
  • The availability of capital in a depressed economy and industry to pay for expanded exploration and drilling for both conventional and unconventional gas.
  • The availability of rigs and other equipment needed for a geometrically increasing drilling rate for shale gas necessary both to maintain existing production (in the face of the rapid depletion of wells) and to grow supplies.
  • The possibility that conventional natural gas production in North America may be nearing a cliff that unconventional supplies simply won’t be able to compensate for.

I suspect restricted credit and new regulations to keep our drinking water safe will mean far less gas will be forthcoming from these natural gas sources than the top line number. (Read about one of the first court challenges over contaminated water.) However, as long as we can keep the world economy from breaking down due to the debt overhang, we should have adequate natural gas to operate at a much lower energy level. It would be foolhardy, in my view, to attempt to replace all oil usage with natural gas.

Rebuttal: Why aren’t the petroleum geologists speaking up?

Many are. Many of them are members of the Association for the Study of Peak Oil and Gas. Interestingly, they mostly join after retiring. Why? Likely because it’s considered a poor career move to discuss the inability of one’s company to meet future projections while working for the company. (They have good reason. See how the industry applied pressure to have Arthur Berman, who was questioning natural gas projections, stop publishing in World Oil and succeeded.)

Here is another reason, given by a working petroleum exploration geologist on The Oil Drum:

‘OK everyone…sit down and be quiet. I’ll will explain one more time the realities of PO as seen through the eyes of professional petroleum geologists. In my 34 years I have never met one petroleum geologist that didn’t understand PO. From exploration staff to production hands it dominates our daily existence. As I’ve said many times we don’t use the term “PO” and probably never will unless talking to outsiders. It has always been the “reserve replacement issue”. When I started with Mobil Oil in 1975 this subject was THE subject on the inside. And still is today. Public company concerns have been, and will continue to be, reserve growth. If one doesn’t believe a public oil company’s reserves will continue to grow in the future there is no reason to buy the stock. Many times during my career I’ve been tasked with convincing third part auditors that my company’s in ground reserves were actually greater then what we thought. And I am very good at it. I smoked some of the sharpest consulting companies in the business. Just need enough time and data to confuse them. I wasn’t paid to make the world more knowledgeable about PO. I was paid to help bolster the company’s stock value. And that’s the fact for every geologist working for a public company. Don’t like that fact? Get over it…it will never ever change.

Geologists have one primary function: drill successful wells. The secondary function is to drill any well even if it doesn’t work. This pressure is similar to the “publish or perish” pressure academics face. I won’t try to explain why so many geologists didn’t vote acceptance of PO: perhaps intimidation, didn’t like the term PO, maybe they worked international and thus see only some of the big opportunities that have popped up lately. As far as the management position goes, if I were the chairman of the board of a public company whose CEO admitted to PO I would fire his butt on the spot. The role of a CEO is not to inform the public of the truth. Their job is to promote the company stock. This is not a shot at those CEO’s…it’s a shot at those folks who think they should be saying otherwise. BTW -I’ve never met one CEO/high level manager who didn’t fret over PO on a daily basis. I’ve lost count of how many corporate pep talks I’ve sat through that encouraged/threatened us to struggle with the reserve replacement issue.

Every day for 34 years I’ve watched geologists struggle to generate viable drilling projects. I’ve seen them misrepresent and outright lie to get wells drilled. What do you call a geologist who consistently fails to generate drillable prospects? Unemployed. I can’t speak much about the international arena but domestically I can assure you that generating a viable drilling project is extremely difficult. And has been for my 34 years. Perhaps if they polled only US geologists the percentage would have been closer to 100. Now I work for a privately owned company. How accurate are our reserve estimates? Brutally honest. My new company came into existence six months ago for just one reason: the reality of PO. Our entire business plan is structured around PO and the anticipated crash. We are not unique in our expectations. Most in the industry would do exactly as we are: drilling as fast as possible. The difference is that we have $300 million dedicated to the effort while many others don’t even have the capital to keep their doors open. I’m not going to try defend every dumb statement from every dumb geologist. But the main reason I enjoy contributing to TOD is to counter the misconceptions, often promoted by the MSM, about the views of industry insiders. No one knows who I am nor who I work for (you’ll never see a press release about our successes…very private owner). Thus I can say exactly what I believe. Might not always be nice. Might not always be correct. But it is the view from the inside that’s probably closer to reality then you’ll likely see anywhere else IMHO.’

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