Posted on 05/13/2004 11:04:00 AM PDT by .cnI redruM
Editor's note: This is the second in a three-part series on oil by MarketWatch columnist Paul Erdman. See Part 1
HEALDSBURG, Calif. (CBS.MW) -- Before considering the effect of surging global demand for energy on the price of crude, I would like to discuss the potential structural change in the supply of oil.
This change will have deep-seated implications beyond the cyclical supply/demand crisis we are experiencing at present.
In 1956, M. King Hubbert, an American geophysicist working at the Shell Oil research laboratory in Houston, came up with a startling prediction: Oil production in the United States would peak in the early 1970s, signaling the beginning of an irreversible decline in the domestic output of crude petroleum. This event would be merely the precursor of a peaking out of oil production on a global scale, signaling the onset of the end of the Age of Oil.
Almost every energy expert on earth rejected this thesis out of hand -- until the early 1970s when, indeed, exactly that happened. Output of crude oil in this country peaked in the year 1970, and it has been falling ever since.
This event has since become known in industry circles as "Hubbert's Peak." Despite its fundamental significance where the future of our oil-based economy was concerned, for decades it turned out to be a scientific thesis that remained generally unknown. For those who had heard of it, it was derided as just another of those crackpot "end of the world as we have come to know and love it" theories that are usually espoused by gold bugs or other doomsday prophets of the same ilk.
That has now changed. Its acceptance by the academic world is evidenced by the recent publication of two books dealing with this subject:
"Hubbert's Peak: The Impending World Oil Shortage" by Kenneth. S. Deffeyes, professor emeritus at Princeton University and a former colleague of Hubbert at Shell. "Out of Gas: The End of Age of Oil" by David Goldstein, vice provost and professor of physics at the California Institute of Technology.
These scientists have applied the same methodology developed by Hubbert in his analysis of the outlook for American crude oil output to world oil production. They have come to the conclusion that global output of crude oil now also is on the verge of peaking out and that when this happens, contrary to all expectations, the amount of crude of oil flowing into the world market will most probably begin fall by somewhere between 5 and 10 percent annually.
This conclusion runs contrary to all previously held expectations, for two reasons:
1. It was assumed that rapid new discoveries of oil reserves would continue well into the 21st century, ensuring that the future supply of oil would continue to stay well ahead of demand, just as it had during the entire 20th century.
2. Aside from the impact of new discoveries, given the amount of crude petroleum known to have been in the ground when we first started to pump it -- roughly 2 trillion barrels -- were we to continue to pump oil and consume it at the rate we are doing now, we will not have pumped the last drop for at least another 40 years. And it is only at that point where the so-called supply crisis will occur.
Those who subscribe to Hubbert's theory tell us that both of these expectations are dead wrong:
1. As regards new discoveries, they point out that the last great oil field, the Ghawar field in Saudi Arabia with reserves of 87 billion barrels, was discovered 45 years ago. Since then geologists have scoured the earth searching for major new fields -- to no avail. The largest remaining unexplored area is the South China Sea, which is considered by geologists to be promising but not spectacular.
But as Goldstein points out: "Let us suppose for one euphoric moment that one more really big one is still out there to be discovered. Even if we were to stumble onto another 90-billion barrels field tomorrow (the equivalent of another Ghawar field) Hubbert's Peak would be delayed by a year or two, well within the uncertainty of the present estimates of when it will occur. It would hardly make any difference at all."
2. Regarding timing, the bell shape of the history of crude oil output dictates that the supply crisis will begin in earnest not when the last drop of oil has been pumped out of the ground sometime in the hazy future, but rather when we have used up half the oil that existed, not all of it. Once we have reached that halfway point, existing oil fields will start to become exhausted faster than the new oil fields can be tapped. The rate at which oil can be pumped out of the ground will then start to decline.
This, as Goldstein points out. is the essence of the bell-shaped curve hypothesis. There is a growing consensus that the crucial turning point in output will probably occur in the second half of this decade, in or around 2007.
The crucial remaining question is: how fast will the gap then grow between supply and demand? All other things being equal, the decline side of the curve will be a mirror image of the initial increase. But of course there will be mitigating factors, such as energy conservation measures or the development of substitutes to oil as a primary energy source, ranging from hydrogen to nuclear to solar.
But the odds seem overwhelming that none of this will happen in time to head off an energy crisis that will dwarf anything we have ever experienced.
1) There is an old acronym in the CS field. GIGO - Garbage In, Garbage Out. As I explain below, that very well may apply to the scientific evidence being cited by Erdman as the factual graveman of his argument.
>>>>>These scientists have applied the same methodology developed by Hubbert in his analysis of the outlook for American crude oil output to world oil production.
That would pretty much constrain their solution set to a subset of results that are pretty similar to Hubbert's then. They've perfected the art of the echo chamber. What is the point exactly of mentioning either man's credentials in the article if they employed Hubbert's methodology? If a parrot can repeat an entire play of Shakespeare, you don't credit the parrot as author.
2. There still remains the problem of what will we do about energy prices and supply. This is not just an Enviro-Whacky Nut-Job Issue. Our economy and security relies too heavily on crude oil. What to do?....
Here's the modified redruM ygrenE tcA
A) Drill ANWAR like a $1,000 lady of dubious moral behaivior. Not just there, but also all over Alaska.
If Daschole disputes this measure, run Thune adds with the local gas price going up like the milage on a car odometer. Underneath it, print "Lower Supply leads to higher prices, higher supply leads to lower prices. We need a Senator who will drill America's oil fields, not her taxpayers."
B) Raise CAFE standards by 5 MPG. This will hurt and will be unpopular. However, we have to tighten the belt or we'll all start looking like the fatsoes in The Jenny Craig Commerical before pictures.
C) Lower Speed limits on limited access, interstate highways by 10 MPG.
D) Enhance the use of rail to haul tractor trailers over large distances. Use the 18-wheelers for local, short-distance hauls.
E) Make civilian governement and non-combat DOD activities drive hybrid cars. Now. Not later. Now. It doesn't require a legitimate degree to parse this one out.
F) Develop and permit large amounts of coal and organic materials petroleum extraction.
G) Restart America's nuclear power industry. I mean if we REALLY care about Global Warming. That's a start.
We have been under various emergency powers since the FDR administration that has not been rescinded. All the president has to do is invoke said emergency power and start a crash program to drill, and develop the fields. It could be done in a year to 18 months with enough muscle thrown behind it....
At the same time the President declares an energy emergeny and calls for immediate phase out of an oil based economy. Oil will be used for making products and petro chemicals, etc, but new or existing products will be used to power current engine technologies.
For those that cannot afford to switch to improved technologies, low cost retro fitted devices will be offered. Tax dollars will susidize this, but probably worth the money....
Other options also available either now or in the future. The issue needs to be addressed today...Drill and switch is the answer. Environmentalism, conservationism and good stewardship of existing supplies is not a liberal bag...Or conservative bag either----It behooves us to get with the program and ensure our economic future.
1. Technology has improved dramatically to get a higher percentage of oil out of the ground - and as the price increases, that percentage will continue to rise.
2. Technology is also allowing us to access oil we could never get to before, especially in deepwater environments.
3. Some fields seem to be replenishing themselves, so Hubbert's rate of depletion estimates may not hold up over time.
I've worked through all of this stuff numerically, just because it is interesting. The oil production peaking rather soon scenario has a lot of respect in the geology field and the great increase in East Asian consumption in recent years should speed things up.
Suppress demand -> prices stay artificially low -> less incentive for society to "switch". Do you want society to switch or don't you?
But like I said, I'm no economist. If you're not impressed, see Iris7's post #7 which fleshes this out better.
biodiesel - expensive
fusion - tech not ready
hydrogen - does not address primary energy resources.
China Will Change Coal Into Gasoline Using Draper Company's Technology BY LESLEY MITCHELL THE SALT LAKE TRIBUNE Headwaters Inc. said Tuesday that China's largest coal company will use Headwaters' technology to build one of the world's first plants to convert coal into automobile fuel in a deal that stands to raise the profile of the small Draper company. "This is a very significant contract," said Michael Ganey, a market analyst with Wunderlich Securities of Memphis, Tenn. "They beat out a lot of other companies." Under the terms of the deal, Headwater's wholly owned subsidiary, Hydrocarbon Technologies Inc. (HTI), will provide a technology license as well as process design and technical assistance to Shenhua Group of China, which plans to build the plant in the country's Inner Mongolian region. Financial terms were not disclosed. "They basically will be turning coal into a very clean gasoline," said Kirk Benson, chairman and chief executive of Headwaters. He said sulphur and nitrogen produced in the process of converting coal to liquid fuel will be sold as byproducts. The U.S. Department of Energy has funded the development of direct coal liquefaction technology since the 1970s oil crisis. Six years ago, the department introduced HTI to the State Science & Technology Commission of China, which led to the agreement with Shenhua Group. Headwaters, which acquired HTI in August, specializes in the development of alternative fuel technologies. The company, formerly known as Covol Technologies, owns a research and development facility near Trenton, N.J., that converts coal into diesel fuel. The plant in China ultimately will have a capacity to produce 50,000 barrels per day of diesel fuel and standard unleaded gasoline produced from China's vast coal reserves. Construction of the first unit at the plant is expected to begin early next year, with plant startup scheduled for 2005. Shenhua said it intends to build three more such plants in the Shengdong Coalfield of China in the Shaanxi Province and Inner Mongolia. "If oil supplies become constricted or if the U.S. chooses to invest in alternative fuels, one could certainly be built in the United States sometime in the future," Benson said. Rick Wayman, director of research for Web site researchstock.com, said Headwaters has a "good solid fundamental business plan and they're making money." For the second fiscal quarter ended March 31, Headwaters reported net income of $5.5 million, up from $4.6 million in same quarter of last year. Revenue was $25.3 million, up from $9.8 million during the same period in 2001. Ganey of Wunderlich Securities said Headwaters' stock is attractive because the company probably will acquire additional companies like HTI. Headwaters shares have increased 25.1 percent so far this year though the price has been erratic in recent months. Despite Tuesday's news, the company's shares fell 7.6 percent Tuesday to close at $14.49 on a day Nasdaq stocks overall declined 0.7 percent.
Sure, if the whole distance is downhill! Practically speaking, your statement goes beyond the limits of physics for any kind of car, even if the engine could ran at 100% efficiency. There are a finite number of BTU's of energy packed into a gallon of gas to do the required work. Weight, rolling resistance and wind resistance cannot be reduced to anywhere near nothing. As a practical comparison, I once had a moped with .7 hp engine that ran 20 mph and averaged 240 mpg. Do you want a car that anywhere near small?
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