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ExxonMobil Sounds Silent Peak Oil AlarmSource: Bulletin of Atomic Scientists SYNOPSIS: The fine print of The Outlook for Energy: A 2030 View report downplays the potential of oil shale, a misnomer, and Canadian tar sands. 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. UPDATE: Not many know as much about the Oil Industry as Matt Simmons. Simmons was consulted by the Bush Administration on more than one occasion on energy issues. His presentations are required reading for those interested in this subject. UPDATE II: Another article that seems to strengthen the impression in some quarters that the Economist is written by a group of Oxbridge educated idiots writing to cater to the appetites of deluded fools who dream of a borderless paradise of limitless wealth. The world is hurtling towards the edge of the cliff and the venerable Economist marvels at its speed.........
Posted by Phil Peterson on Wednesday, June 15, 2005 at 04:12 PM in Science & Technology Comments:2
Posted by Geoff Beck on June 15, 2005, 05:08 PM | # I’ve been reading much about the Peak Oil subject lately. Interestingly, 1973 was the year real wages peaked in the USA (perhaps eclipsed by the late 1990s bubble) it was also the same year oil production peaked in the USA, and declined. Also, interestingly, it is thought the North Sea Oil peaked in the in the ‘90s. I’d expect serious shocks to the UK as she falls from the ranks of being energy independent, and becomes oil importer LIKE THE USA. Perhaps this partially explains Blair’s participation in the Iraq adventure? 3
Posted by Charles Copeland on June 15, 2005, 05:14 PM | # The lack of political awareness and preparedness will make the consequences even more devastating. Only ONE mainstream British politician has really addressed the issue—Michael Meacher, environment minister from 1997 to June 2003. He was also the only British pol who participated in this year’s ASPO workshop in Lisbon. His article ‘Plan now for a world without oil’ (FT, 6 January 2004) is well worth reading: http://www.energybulletin.net/308.html I’m amazed and honoured that MR actually has THREE peak oil prophets—a FAR higher proportion than at the European Commission. 4
Posted by Phil on June 15, 2005, 05:15 PM | # I think oil was a big factor in this. No question. But then it would’ve made much more sense to cut a deal with Saddam Hussein. Under Saddam, Iraq may not have resembled Ohio but it was orderly (not many were engaging in suicide bombings then). And orderliness is all one needs for investment in oil production and for regular oil supply (Saudi Arabia isn’t Ohio either). Instead they have made the problem far worse. Now you have huge caches of arms being smuggled to Saudi Arabia fuelling an Islamic insurgency. If there was a revolution in Saudi Arabia…......that’s a possibility I can’t even bear thinking about. 5
Posted by Geoff Beck on June 15, 2005, 05:21 PM | # In the USA, the press and politicians used the phrase “spare capacity” to describe demand supply problem. Insert the phrase “peak oil” when Bush says “spare capacity”. 6
Posted by Phil on June 15, 2005, 05:22 PM | # Charles, The actual number of pols who are now convinced is probably much higher. But they do not wish to panic the markets and so they are not talking about it openly. Democracy infests everyone with the herd mentality - no one wants to take the risk of walking out of the herd for fear of being crushed by it. We have traders at Goldman Sachs willing to bet that oil is going to be selling for $25 a barrel in 2011. How much more dislocated from reality can we get? Now I would be tempted to screw a whole bunch of these traders on those hedges but when the big boys start going bust, those bets will be useless and unenforceable anyway. Its time to buy gold. Thats all that will save an investor in a financial meltdown. I have friends buying houses worth £300,000 in London. Insane. I sold mine a year ago. And a good decision it was too. 7
Posted by Geoff Beck on June 15, 2005, 05:39 PM | # > I have friends buying houses worth £300,000 in London. Insane. The real-estate bubble, caused by the Fed’s interest rate policy elevated the median home prices in such places as California, East Coast, and some parts of the South to $400,000+. The same home elsewhere is $200,000. 8
Posted by Lurker on June 15, 2005, 09:52 PM | # Looks like we need to start dusting off those nuclear power plants ASAP. 9
Posted by john rackell on June 15, 2005, 10:56 PM | # The consequences of Peak Oil are devasting, everybit as important as the immigration invasion. If the peak oil scenario plays out it will massively affect immigration, ending mass immigration in the next five years. All demographic projections are toast from then on. I’d expect serious shocks to the UK as she falls from the ranks of being energy independent, and becomes oil importer LIKE THE USA. Britain was entering Third World Basketcasedom in the late ‘70’s where she belonged. Her resource based saved her, at the cost of an overvalued currency that destroyed the rest of non-oil British industry. A lot of British social pathologies have been ‘financed’ by the windfall from easy oil money. The silver lining is Britain will no longer be able to afford terminal Liberalism. I think oil was a big factor in this[Iraq invasion]. No question.
Its time to buy gold. 10
Posted by Phil on June 16, 2005, 03:15 AM | # Buy Farm land! Well, I don’t think even in the worst possible scenario we are going to run out of food. And there just isn’t enough land in the UK to allow 56 million people to farm land. Remember that even in the great depression, not many died of starvation. So, there will still be markets to buy food from even when the crunch starts to kick in. The question is: which investment will hold its own in a meltdown. The answer is Gold. 11
Posted by Guessedworker on June 16, 2005, 04:22 AM | # No, the question is should I replace my Merc. 12
Posted by Geoff M. Beck on June 16, 2005, 09:26 AM | # > Buy Farm land! John, this guy: http://newerainvestor.blogspot.com , claims that living in the countryside will be a worse place to be. He claims the gov’t will confiscate crops and persecute farmers. Futhermore, he argues that the countryside will be more violent and dangerous. Anyway, its is all speculation. We know nothing of the future. > should I replace my Merc? Keep your Merc, just have it stuffed with gold and ammunition. Oops, I remember you folks can’t own that. 13
Posted by ben tillman on June 16, 2005, 10:58 AM | # We have traders at Goldman Sachs willing to bet that oil is going to be selling for $25 a barrel in 2011. How much more dislocated from reality can we get? Now I would be tempted to screw a whole bunch of these traders on those hedges but when the big boys start going bust, those bets will be useless and unenforceable anyway. Its time to buy gold. Thats all that will save an investor in a financial meltdown. You are right that such bets would be uncollectible, and you are right to buy gold (as well as silver, which is a much more convenient medium of exchange - how do you buy a cup of coffee with gold?). But there are only 4 billion ounces of gold above ground (most of which is held by central governments or central banks), and one needs only a few ounces to insure relative wealth in the event of a collapse. (It is assumed that the world population will quickly contract be several billion, as the subsidized populations of Africa and other poor regions will be devastated.) In addition to gold and silver, John Rackell is right to recommend the purchase of farmland. Actually, the general rule is to buy things with intrinsic value (which could mean oil, machinery, guns, fishing boats, or anything else that you can use), but farmland is the most fundamental item within this category. Well, I don’t think even in the worst possible scenario we are going to run out of food. And there just isn’t enough land in the UK to allow 56 million people to farm land. If there is not enough farmland to support 56 million, then it is a tautology that you will run out of food (barring imports, of course, but what will be exchanged for them?). One must ensure his access to a supply of food. 14
Posted by ben tillman on June 16, 2005, 11:09 AM | # He claims the gov’t will confiscate crops and persecute farmers. As a practical matter, this cannot be done in the US. Everyone in the countryside is armed. 15
Posted by Phil on June 16, 2005, 02:09 PM | # If there is not enough farmland to support 56 million No, you’ve misread me. What I said was that there isn’t enough farmland to allow 56 million people to farm. I didn’t say there wasn’t enough farmland to support 56 million people. If someone is predicting mass starvation in the West, I’d say they are wrong. The reason is that the Governments will heavily ration Oil use but allow the most fundamentally important uses of Oil to continue (such as in the case of farming). It is assumed that the world population will quickly contract be several billion, as the subsidized populations of Africa and other poor regions will be devastated. The effect on third world populations could be catastrophic. But then again, aren’t most third worlders a lot less dependant on heavy machinery and Oil for farming than us anyway? I guess peasant economies could survive to some degree. There are a lot of variables here too. No one knows what wars might start as a result of oil shortages or what else might happen. No, the question is should I replace my Merc. If you have two or three cars, it would be a good idea to get rid of the excess (which are more of a luxury than a real necessity). 16
Posted by Phil on June 16, 2005, 02:51 PM | # If the peak oil scenario plays out it will massively affect immigration, ending mass immigration in the next five years. All demographic projections are toast from then on. Yup. 17
Posted by Charles Copeland on June 17, 2005, 06:41 PM | # If Guessedworker can rap, so can I: A lyric I wrote on the topic of peak oil at Wallstrom’s blog in reply to a query from Richard North (co-author of ‘The Great Deception’): I don’t wear tin foil 18
Posted by Geoff Beck on June 17, 2005, 11:10 PM | # Very good, Charles. With such talent I’m sure you’d pass the immigration and naturalization test for American citizenship! 20
Posted by Phil on June 18, 2005, 06:09 AM | #
LMAO 21
Posted by Guessedworker on June 18, 2005, 08:03 AM | # Governments will heavily ration Oil use but allow the most fundamentally important uses of Oil to continue (such as in the case of farming). (Phil) They do, of course, favour farming in fuel terms already. What this clearly implies is that the government would prioritise. Food, along with certain social functions currently in the gift of the state will indeed be favoured. Thus (in Britain, anyway) public transport, health, education, police and the forces would be ring-fenced. Economies with heavy raw material and production sectors would probably get better fuel provision than those without. China and Japan might be granted the requisite supplies to maintain industrial output. In large parts of America - as in Britain - some industrial die-back and a renewed concentration upon the service industries must be anticipated. Tourism would die. Home-working would be enormously boosted. Taxation of the productive would have to rise to protect the rest. Lastly, those nations with the highest mean national IQ may have the discipline to order such massive change. Those with the biggest distribution to the right side of the curve would have the best chance of emerging with new hope for the future. After all, Man’s story is one of advance in the face of adversity. From an immigration perspective all bets are indeed off. Why carry the baggage of a black population when there is Liberia just a boat journey away? Inhuman ... unthinkable? Depends on the extremis. In my father’s wartime profession it was not that unusual to come home on two engines, losing a hundred feet or so of altitude every few minutes. Crews ditched everything - radio, toilet, guns, ammo - to give themselves some chance of staying out of the drink. 22
Posted by Phil on June 18, 2005, 01:54 PM | # Charles, I hope we will see more of you from here on. We agree on too many things to not have you here on a regular basis. 23
Posted by Phil on June 18, 2005, 02:01 PM | #
Dr. Colin Campbell says that population growth may cease because of peak oil. But how will population growth cease? Except in the West (and East Asia), population growth rates are still fairly high. I am not sure if Dr. Campbell believes (but doesn’t want to say it for fear of being accused even more often of being a “loony”) that population growth may cease due to starvation. 24
Posted by Charles Copeland on June 18, 2005, 02:32 PM | # I reckon Colin Campbell meant what he said. Tertullian put it more bluntly (though not directly in connection with peak oil) in the 3rd century AD: “The scourges of pestilence, famine, wars, and earthquakes have come to be regarded as a blessing to overcrowded nations, since they serve to prune away the luxuriant growth of the human race.” The stuff for the thinking man to read is Garrett Hardin’s essays on living in a lifeboat: Next entry: Probation for naked interviewer Previous entry: Krishna Rajanna’s Kansas Abortion Clinic |
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Posted by Geoff Beck on June 15, 2005, 04:46 PM | #
The consequences of Peak Oil are devasting, everybit as important as the immigration invasion.