Posted on 05/26/2005 10:09:46 AM PDT by liberallarry
Oil: Caveat emptyWithout any press conferences, grand announcements, or hyperbolic advertising campaigns, the Exxon Mobil Corporation, one of the world's largest publicly owned petroleum companies, has quietly joined the ranks of those who are predicting an impending plateau in non-OPEC oil production. Their report, The Outlook for Energy: A 2030 View, forecasts a peak in just five years.
In the past, many who expressed such concerns were dismissed as eager catastrophists, peddling the latest Malthusian prophecy of the impending collapse of fossil-fueled civilization. Their reliance on private oil-reserve data that is unverifiable by other analysts, and their use of models that ignore political and economic factors, have led to frequent erroneous pronouncements. They were countered by the extreme optimists, who believed that we would never need to think about such problems and that the markets would take care of everything. Up to now, those who worried about limited petroleum supplies have been at best ignored, and at worst openly ridiculed. Meanwhile, average consumers have taken their cue from the market, where rising prices have always been followed by falling prices, leading to the assumption that this pattern will continue forever. In truth, the market price of crude oil is completely decoupled from and independent of production costs, which average about $6 per barrel for non-OPEC producers and $1.50 per barrel for OPEC producers. This situation has nothing to do with a free market, and everything to do with what OPEC believes will be accepted or tolerated by the United States. The completely affordable market price--what consumers pay at the gasoline pump--provides magisterial profits to the owners of the resource and gives no warning of impending shortages. All the more reason that the public should heed the silent alarm sounded by the ExxonMobil report, which is more credible than other predictions for several reasons. First and foremost is that the source is ExxonMobil. No oil company, much less one with so much managerial, scientific, and engineering talent, has ever discussed peak oil production before. Given the profound implications of this forecast, it must have been published only after a thorough review. Second, the majority of non-OPEC producers such as the United States, Britain, Norway, and Mexico, who satisfy 60 percent of world oil demand, are already in a production plateau or decline. (All of ExxonMobil's crude oil production comes from non-OPEC fields.) Third, the production peak cited by the report is quite close at hand. If it were twenty-five years instead of five years in the future, one might be more skeptical, since new technologies or new discoveries could change the outlook during that longer period. But five years is too short a time frame for any new developments to have an impact on this result. Also noteworthy is the manner in which the Outlook addresses so-called frontier resources, such as extra-heavy oil, "oil sands," and "oil shale." The report cites the existence of more than 4 trillion barrels of extra heavy oil and "oil sands"--producing potentially 800 billion barrels of oil, assuming a 20-25 percent extraction efficiency. The Outlook also cites an estimate of 3 trillion barrels of "oil shale." These numbers have figured prominently in advertisements that ExxonMobil and other petroleum companies have placed in newspapers and magazines, clearly in an attempt to reassure consumers (and perhaps stockholders) that there is no need to worry about resource constraints for many decades. However, as with all advertisements, it's best to read the fine print. ExxonMobil's world oil production forecast shows no contribution from "oil shale" even by 2030. Only about 4 million barrels of oil per day from Canadian "oil sands" are projected by 2030, accounting for a mere 3.3 percent of the predicted total world demand of 120 million barrels per day. What explains this striking disconnection between the magnitude of the frontier resources and the minimal amount of projected oil production from them? Canadian "oil sands" are actually deposits of bitumen (tar), which are the result of conventional oil degradation by water and air. Tar sands are of a completely different character than conventional oil deposits; making tar sands usable is a capital-intensive venture that requires special procedures such as heating to separate the tar from the sand, mixing the tar with a diluting agent for pipeline transport, and constructing specially equipped refineries for processing. The most serious constraint, though, is natural gas supplies. Production of oil from tar sands requires between 400 and 1,000 cubic feet of natural gas per barrel of oil produced, depending on the extraction method used. Natural gas production, despite a near doubling of drilling activity, is flat or decreasing both in Canada and in the United States--which has prompted prices to triple over the past few years. Given these high gas prices, it almost makes more sense just to sell the natural gas directly rather than use it to produce oil from tar sands. Extracting oil from the 3 trillion barrels of oil shale cited in the Outlook presents its own challenges. The term "oil shale" is also quite misleading, since there is no oil in this mineral, but rather an organic material called kerogen, which is a precursor of petroleum. To extract oil, the shale (typically between 5 and 25 percent kerogen) must first be mined, then transported to a plant where it is crushed, then heated to 500 degrees Celsius, which pyrolyzes, or decomposes, the kerogen to form oil. After processing, most of the shale remains on the surface in the form of coarse sand, so large-scale mining operations will produce immense amounts of waste material. An estimated 1-4 barrels of water are required for each barrel of oil produced, both for cooling the products and stabilizing the sand waste. To satisfy these water requirements, petroleum companies once contemplated diverting the Columbia River--a feat that can be excluded today on political and environmental grounds.
With non-OPEC oil production reaching a plateau and frontier resources not viable, ExxonMobil proposes that increased demand be met in two ways. The first is greater fuel efficiency. (That alone should convey the seriousness of this report: When have you ever heard a petroleum company make a plea for vehicles that use less gas?) New cars in the United States are expected to go 38 miles on a gallon of gas in 2030, instead of the current value of 21 miles per gallon. This goal is actually quite modest, as new cars sold in Europe since 2003 already achieve 35 miles per gallon. The other way ExxonMobil believes demand will be satisfied is from vastly and rapidly increased OPEC production: "After 2010, the call on OPEC increases quickly, requiring OPEC to add more than 1 MBD [million barrels per day] of capacity every year," notes the Outlook. "OPEC's resources are large enough to achieve this rate of expansion, and we expect that investments will be made in a timely manner." This assessment is somewhat ominous. OPEC has not expanded production capacity much at all recently. Moreover, such production increases are only possible from Iraq, Saudi Arabia, Kuwait, and the United Arab Emirates. For these countries, and indeed for most OPEC members, petroleum and petroleum products are their only significant export. As such, they have a vested interest in obtaining the best possible price for their non-renewable resources. OPEC nations would be quite unlikely to increase production as rapidly as needed unless compelled to do so. To put this shortfall in perspective, in 2003 Algeria produced 1.1 million barrels per day; a new Algeria would need to be brought on line in the Persian Gulf each and every year beyond 2010 just to keep up with the projected increase in demand. Consequently, once non-OPEC production reaches a peak, conventional world oil production could peak shortly thereafter, and prices (never explicitly mentioned in the Outlook) would rise in accordance with the laws of supply and demand. What all this means is that the petroleum industry is approaching a turning point. Conventional petroleum production will soon--perhaps in five years, ten at best--no longer be able to satisfy demand. For their part, American consumers would do well to take a cue from their Western European counterparts, who enjoy a comfortable lifestyle despite a per capita use of petroleum that is half of that in the United States. The sooner the United States begins this transition away from oil, the easier it will be. That's a far more attractive option than trying to squeeze oil from stone. Alfred J. Cavallo is an energy consultant based in Princeton, New Jersey. His article "Oil: Illusion of Plenty," appeared in the January/February 2004 Bulletin. May/June 2005 pp. 16-18 (vol. 61, no. 03) © 2005 Bulletin of the Atomic Scientists |
OK, perhaps it is overly optimistic to expect that the trend could be reversed, but it seems clear that there is potential to slow the downward trend. This would at least buy time for other solutions to become more effective.
Besides, with such effective restriction on exploration, it seems the estimates of remaining crude should be subject to skepticism.
Sure, but then you are assuming that the gov't knows better than the market when to start plowing money into research. For example, it's not like Europe has been figuring out all sorts of better ways to produce energy based on a price increase that is the result not of market forces, but of taxes.
What's cool about http://www.dieoff.org is it has not been updated for 5 years. The author got too busy to continue. So it's a real timepiece, insight into thoughts about "peak oil" as of 5 years ago.
No. I'm suggesting the efficiency (conservation) is almost always - or always - a good thing. And that's especially true when we suspect that a vital resource is soon to be in short supply.
What's so great about encouraging the public to drive giant pigmobiles for image enhancement (low self-esteem)? I've read that something like 70% of 4-wheel drive trucks and SUVs never leave the road or do a lick of work. How many of these things have you seen all chromed and decked out with special springs and shocks and noisy, conspicuous drive trains but without a ding or speck of dirt?
I mean, come on, it's not as if the government was always neutral towards oil and suddenly jumped in with a consumption tax. Quite the contrary, it's always made great efforts to provide cheap oil and encourage massive consumption.
We're DOMED ! DOMED I tell ya ! This is hugh! /sarc
Howsomeever, I do find this a very interesting issue...i.e. peak oil. On the surface it seems logical if one assumes a finite/non-replenishing supply of oil and limited recovery technology. Interesting but scary to contemplate. Thanks.
How did that sorry canard ever get started, and why is it perpetuated?
The rest of the world is not subject to U.S. environmental restrictions - and they're experiencing peaks, too.
But you bring up a good point - one which should cause us all some concern. You say that "estimates of remaining crude should be subject to skepticism." Absolutely. Human nature being what it is, there is a benefit to overstating reserves. OPEC establishes pumping quotas based on reserves. Oil companies' stocks are affected by estimates of reserves. National prestige - and credit worthiness - are improved by large estimates.
So I urge you to ask yourself - what if the estimates are too optimistic? What if we do peak in 5 years' time - or less?
Drill ANWR like a swiss cheese, dig up all of Montana, do as you will - but it is time to consider the implications of the end of cheap energy. Both at a personal level, and beyond.
Why would the number of refineries even be an issue since we could build any number but oil is what is getting expensive? Between that and the coming killer flu epidemic and the might be and could be of stem cell miracles we are living in an imaginary future.
I suspect because the expected life expectancy for a field is about 30-0 years. Yes, ANWR will supply oil for that about that length of time but at a rate of about 1 million barrels a day. People take the statement that it will supply us with all for 30-40 years and assume that it will supply all of our oil needs for that length of time, instead of about 5% at peak production.
ANWR won't be producing for another ten years. Probably the same for North Slope natural gas. I wonder if oil will still be $50 a barrel by then.
I don't know.
My gut tells me that Hubbard's Peak theory is just fear mongering designed to keep oil prices artificially high.
The real problems appear to be the envirorats, nationalist policies which deter investment from major oil companies & instability in areas which could be exploited.
Political instability is not helping. Some estimates of the oil peak are this year, others are later, but none are more than a dozen years off.
Read the article I linked in my previous post. Existing refineries are running at 98% capacity. When supply can't increase to meet demand, the price will go up. IIRC, the cost of gasoline has grown faster than that of crude. The refinery shortage would explain this.
I've always admired DOMED hugh. I mean the guy has been around forever! :)
Whew, for a moment I thought you were series.
I've taken note that you've long been a proponent of this theory. I lean more toward Gold theory myself. But it's pointless to debate the merits of one vs. the other, as any CREVO thread displays.
Greed motivates people to do to do many things. Time alone will tell which theory prevails.
#2 Higher prices HAVE resulted in the development of more efficient engines. But in America we've used those improvements to produce bigger, more powerful vehicles rather than smaller, higher mpg cars. Then there are the hybrids, the electrics, the diesels, and the fuel cells, and various improvements to public transportation. It turns out - as you would expect - that truly revolutionizing our transportation system (abandoning the internal combustion engine) is no easy thing. To do so will probably force us to change the way we build our cities, and the way we live and work.
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