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Northeasterners turn to burning wood for power | The Daily Caller

Northeasterners turn to burning wood for power | The Daily Caller.

Americans living in the Northeast and Mid-Atlantic U.S. are increasingly turning to a source of heat favored by humans for thousands of years: wood.

More and more people are using wood as their main source of heat as opposed to heating oil and kerosene.

The Energy Information Administration reports that, “All nine states in the New England and the Middle Atlantic Census divisions saw at least a 50% jump from 2005 to 2012 in the number of households that rely on wood as the main heating source.”

Those who switched to wood burning were spared high fuel oil and kerosene prices during this year’s harsh winter.

About 2.5 million households across the country now use wood as the main source of heat in their homes, up from 1.9 million households in 2005. And another 9 million households burn wood as a secondary fuel source for heating.

Millions of families faced skyrocketing energy prices as record low temperatures and snowfall hit much of the country. The U.S.’s constrained pipeline system could not keep up with the demand for propane and natural gas, causing prices to surge and utilities to burn oil and coal for power.

Midwesterners are expected to pay 54 percent more this winter on propane than last,reports EIA, and Northeasterners are expected to spend 7 percent more. Those who live in areas fueled by natural gas will pay 10 percent more this year and five percent more for electricity.

“Cold temperatures have continued to tighten heating oil supplies and helped drive up retail prices,” according to EIA. “Weekly U.S. residential heating oil prices increased by $0.20/gal during January and have averaged near $4.24/gal since the beginning of February.”

But EIA adds that heating oil prices will probably average about one percent lower this winter than last because of lower crude oil prices. Though natural gas spot prices hit record levels during periods of extreme cold.

But what this winter’s severe price swings demonstrate is the danger of over-reliance on one fuel source, says the coal industry. While low-priced natural gas is a good source of fuel overall, gas-fired plants have trouble operating in cold weather — which coal plants have make up.

This winter, gas-fired power plants failed due to cold weather and federal regulations that make it nearly impossible to burn coal.

“This year’s historically cold winter has served as a crystal ball into our future, revealing the energy cost and electric reliability threats posed by the Obama Administration’s overreliance on a more narrow fuel source portfolio that excludes the use of coal,” said Laura Sheehan, spokeswoman for the American Coalition for Clean Coal Electricity.

If the Northeast’s natural gas infrastructure is not improved and prices remain volatile during the winter, it might not be such a bad idea to burn wood for heat. But even that may become harder thanks to federal environmental regulators.

The Environmental Protection Agency recently updated its wood stove emissions standards that would effectively ban The EPA’s new action bans 80 percent of the wood-burning stoves in America, “the oldest heating method known to mankind and mainstay of rural homes and many of our nation’s poorest residents,” reports Forbes.

EIA notes that: “Most households still burn split logs, although wood pellet use has risen in recent years. And while households in higher income brackets are more likely to use wood, those at lower income levels who burn wood consume more on average.”

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Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.

Northeasterners turn to burning wood for power | The Daily Caller

Northeasterners turn to burning wood for power | The Daily Caller.

Americans living in the Northeast and Mid-Atlantic U.S. are increasingly turning to a source of heat favored by humans for thousands of years: wood.

More and more people are using wood as their main source of heat as opposed to heating oil and kerosene.

The Energy Information Administration reports that, “All nine states in the New England and the Middle Atlantic Census divisions saw at least a 50% jump from 2005 to 2012 in the number of households that rely on wood as the main heating source.”

Those who switched to wood burning were spared high fuel oil and kerosene prices during this year’s harsh winter.

About 2.5 million households across the country now use wood as the main source of heat in their homes, up from 1.9 million households in 2005. And another 9 million households burn wood as a secondary fuel source for heating.

Millions of families faced skyrocketing energy prices as record low temperatures and snowfall hit much of the country. The U.S.’s constrained pipeline system could not keep up with the demand for propane and natural gas, causing prices to surge and utilities to burn oil and coal for power.

Midwesterners are expected to pay 54 percent more this winter on propane than last,reports EIA, and Northeasterners are expected to spend 7 percent more. Those who live in areas fueled by natural gas will pay 10 percent more this year and five percent more for electricity.

“Cold temperatures have continued to tighten heating oil supplies and helped drive up retail prices,” according to EIA. “Weekly U.S. residential heating oil prices increased by $0.20/gal during January and have averaged near $4.24/gal since the beginning of February.”

But EIA adds that heating oil prices will probably average about one percent lower this winter than last because of lower crude oil prices. Though natural gas spot prices hit record levels during periods of extreme cold.

But what this winter’s severe price swings demonstrate is the danger of over-reliance on one fuel source, says the coal industry. While low-priced natural gas is a good source of fuel overall, gas-fired plants have trouble operating in cold weather — which coal plants have make up.

This winter, gas-fired power plants failed due to cold weather and federal regulations that make it nearly impossible to burn coal.

“This year’s historically cold winter has served as a crystal ball into our future, revealing the energy cost and electric reliability threats posed by the Obama Administration’s overreliance on a more narrow fuel source portfolio that excludes the use of coal,” said Laura Sheehan, spokeswoman for the American Coalition for Clean Coal Electricity.

If the Northeast’s natural gas infrastructure is not improved and prices remain volatile during the winter, it might not be such a bad idea to burn wood for heat. But even that may become harder thanks to federal environmental regulators.

The Environmental Protection Agency recently updated its wood stove emissions standards that would effectively ban The EPA’s new action bans 80 percent of the wood-burning stoves in America, “the oldest heating method known to mankind and mainstay of rural homes and many of our nation’s poorest residents,” reports Forbes.

EIA notes that: “Most households still burn split logs, although wood pellet use has risen in recent years. And while households in higher income brackets are more likely to use wood, those at lower income levels who burn wood consume more on average.”

Follow Michael on Twitter and Facebook

Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.

Peak Oil: The Military Seems Concerned … Just Sayin’ – Peak Oil Matters

Peak Oil: The Military Seems Concerned … Just Sayin’ – Peak Oil Matters.

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An observation worth noting … and pondering, from Dr. Nafeez Ahmed (quoting Lieutenant Colonel Daniel L. Davis):

‘A lot of high-ranking officials are starting to ask exactly these hard questions about the sustainability of the current energy system. You’ve got to remember that for the military, it doesn’t matter what you want to do. What matters is what you can do, and it’s our top priority to make sure we understand potential limits to our operational capability. Even the EIA is forecasting that we could see a peak of shale production by 2018 followed by a plateau and decline, and the Pentagon knows this. But our transport infrastructure is totally dependent on liquid fuels. How are we going to sustain that infrastructure with these decline rates? That’s why serious questions are being asked by high level US military officials as to what exactly the Army, as well as American society in general, is going to do to address this challenge.’

Is this a problem? If it is, thank goodness it will only affect the military and not the rest of us!

The military may be worried about how to transport all of its equipment and fuel along with its broad array of weaponry systems, but here in the general population, we have our transportation concerns pretty much under control. Visionary leaders in both government and industry working hard each and every day to provide citizens with all the information they’ll need to properly adapt to the energy challenges our military leaders are concerned with, and plans are this very moment taking shape to allow us all to seamlessly transition away from fossil fuel dependency and its assortment of costs and risks. Better still, industry leaders aware of those impending difficulties are plowing profits into every feasible research project designed to maximize alternative energy supplies.

So that’s what’s it’s like to spin a fact-free, feel-good story! That can be addicting for anyone who benefits from withholding information at the expense of so many others.

Three years ago, I wrote about this issue [here].

In that piece, I cited these observations:

The impact of peak oil on markets, lifestyles, and even national solvency deserves our very highest attention – but, it turns out, some important players seem to be paying no attention at all. [Chris Martenson] [1]
What Chris suspected, and as was confirmed in a presentation (by Rick Munroe) cited in his article, is that while our military (among other nations’) is definitely concerned about Peak Oil and its impact on the operations and responsibilities it’s currently charged with and will likely face in years to come, nothing is being done at the national political level. (Munroe himself, in another article, offered this: ‘This author has yet to encounter a study conducted by a military analyst which dismisses peak oil as an implausible, alarmist issue.’) There are no governmental departments and no bureaucrats who’ve been assigned the task of figuring out anything about what we should do. 
Acknowledging as have others that electoral politics hampers our officials from dealing with long-range planning and problems, Martenson added:
‘So I came away from the ASPO conference pondering two completely polar trends that combined to create a lasting discomfort. On the one hand we have more and more private and military organizations coming to the conclusion that peak oil is imminent and will change everything, possibly disruptively. On the other hand there appear to be no plans within the civilian government to deal with a liquid fuels emergency.’

More than a bit disappointing that not much has changed. Maybe it’s just me, but starting to plan after the big problems make their presence felt seems not the wisest choice.

~ My Photo: Newport Beach, CA – 02.16.14

 

Resource Insights: Ukraine, Russia and the nonexistent U.S. oil and natural gas “weapon”

Resource Insights: Ukraine, Russia and the nonexistent U.S. oil and natural gas “weapon”.

Commentators were falling all over themselves last week to announce that far from being impotent in the Ukraine crisis, the United States had a very important weapon: growing oil and natural gas production which could compete on the world market and challenge Russian dominance over Ukrainian and European energy supplies–if only the U.S. government would change the laws and allow this bounty to be exported.

But, there’s one very big problem with this view. The United States is still a net importer of both oil and natural gas. The economics of natural gas exports beyond Mexico and Canada–which are both integrated into a North American pipeline system–suggest that such exports will be very limited if they ever come at all. And, there is no reasonable prospect that the United States will ever become a net exporter of oil.

U.S. net imports of crude oil and petroleum products are approximately 6.4 million barrels per day (mbpd). (This estimate sits between the official U.S. Energy Information Administration (EIA) numbers of 5.5 mbpd of net petroleum liquids imports and 7.5 mbpd of net crude oil imports. And so, to understand my calculations, please see two comments I made in a previous piece here and here. My number is for December 2013, the latest month for which the complete statistics needed to make my more accurate calculation are available.)

The EIA in its own forecast predicts that U.S. crude oil production (defined as crude including lease condensate) will experience a tertiary peak in 2016 around 9.5 mbpd just below the all-time 1970 peak and then decline starting in 2020. This level is far below 2013 U.S. consumption of about 13.2 mbpd of actual petroleum-derived liquid fuels. (This number excludes natural gas-derived liquids which can only be substituted for petroleum-derived liquids on a very limited basis.)

So, when exactly is the United States going to drown the world market in oil and thereby challenge the Russian oil export machine? The most plausible answer is never. And, the expected 2016 peak in U.S. production is only about 1.5 mbpd higher than production today. That’s really quite small compared to worldwide oil production of about 76 mbpd. And, there’s no guarantee that the rest of the world isn’t going to see a decline in oil production between now and then. So much for the supposed U.S. oil “weapon” taming the Russian bear.

But what about natural gas? Surely, America’s great bounty of natural gas from shale could challenge the Russians. Well, not really. It’s true that U.S. natural gas production trended up significantly from its post-Katrina nadir in 2005. But the trend has now stalled. U.S. dry natural gas production has been almost flat since January 2012. The EIA reports total production of 24.06 trillion cubic feet (tcf) for 2012 and 24.28 tcf for 2013, a rise of only 0.9 percent year over year.

Not mentioned by any of the commentators touting the U.S. natural gas “weapon” is that U.S. natural gas imports for 2013 were about 2.88 tcf or about 11 percent of U.S. consumption. So, let me see if I understand this: The plan seems to be to import more so we can export more. And this would change exactly what in the worldwide supply picture?

Certainly, it is true that low U.S. natural gas prices have reduced drilling and exploration dramatically. But prices will likely have to rise above $6 and trend higher as time passes as the easy-to-get shale gas is used up and only the more costly and difficult reservoirs remain. Drillers don’t keep drilling unless they can make money and that will require significantly higher prices.

And, here’s the kicker. In order to ship U.S. natural gas to Europe or Asia, it has to be liquefied at -260 degrees F, shipped on special tankers and then regasified. The cost of doing this is about $6 per thousand cubic feet (mcf). So, the total cost of delivering $6 U.S. natural gas to Europe is around $12 per mcf. With European liquefied natural gas (LNG) prices mostly below this level for the last five years, it’s hard to see Europe as a logical market. Japan would be a better target for such exports with prices moving between $15 and $18 per mcf in the last five years. But a U.S. entry into the LNG market could conceivably depress world prices and make even Japan a doubtful destination for U.S. LNG. And, what if U.S. prices rise significantly above $6?

But all this presupposes that the United States will have excess natural gas to export. As my colleague Jeffrey Brown has pointed out, “Citi Research [an arm of Citigroup] puts the decline rate for existing U.S. natural gas production at about 24%/year, which would require the industry to replace about 100% of current U.S. natural gas production in four years, just to maintain current production.”

It seems that U.S. drillers are going to be very, very busy just keeping domestic natural gas production from dipping, let alone expanding it to allow exports. And remember, we are still importing the stuff today!

How many companies will actually risk the billions needed to build U.S. natural gas export terminals to liquefy and load exports that may never appear? I doubt that very many will actually go through with their plans.

What is truly puzzling is that all the information I’ve just adduced–except the cost of liquefying, transporting and regasifying natural gas–is available with a few clicks of a mouse and a little arithmetic performed on tables of data. I got the cost information on LNG from a money manager specializing in energy investments. And yet, commentators, reporters, and editorial writers don’t even bother to check the internet or call their sources in the investment business.

Perhaps the facts have become irrelevant. Only that would explain the current hoopla over the nonexistent U.S. oil and natural gas “weapon” in the face of the all-too-obvious and readily available evidence.

Kurt Cobb is an authorspeaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog calledResource Insights and can be contacted at kurtcobb2001@yahoo.com.

Resource Insights: Ukraine, Russia and the nonexistent U.S. oil and natural gas "weapon"

Resource Insights: Ukraine, Russia and the nonexistent U.S. oil and natural gas “weapon”.

Commentators were falling all over themselves last week to announce that far from being impotent in the Ukraine crisis, the United States had a very important weapon: growing oil and natural gas production which could compete on the world market and challenge Russian dominance over Ukrainian and European energy supplies–if only the U.S. government would change the laws and allow this bounty to be exported.

But, there’s one very big problem with this view. The United States is still a net importer of both oil and natural gas. The economics of natural gas exports beyond Mexico and Canada–which are both integrated into a North American pipeline system–suggest that such exports will be very limited if they ever come at all. And, there is no reasonable prospect that the United States will ever become a net exporter of oil.

U.S. net imports of crude oil and petroleum products are approximately 6.4 million barrels per day (mbpd). (This estimate sits between the official U.S. Energy Information Administration (EIA) numbers of 5.5 mbpd of net petroleum liquids imports and 7.5 mbpd of net crude oil imports. And so, to understand my calculations, please see two comments I made in a previous piece here and here. My number is for December 2013, the latest month for which the complete statistics needed to make my more accurate calculation are available.)

The EIA in its own forecast predicts that U.S. crude oil production (defined as crude including lease condensate) will experience a tertiary peak in 2016 around 9.5 mbpd just below the all-time 1970 peak and then decline starting in 2020. This level is far below 2013 U.S. consumption of about 13.2 mbpd of actual petroleum-derived liquid fuels. (This number excludes natural gas-derived liquids which can only be substituted for petroleum-derived liquids on a very limited basis.)

So, when exactly is the United States going to drown the world market in oil and thereby challenge the Russian oil export machine? The most plausible answer is never. And, the expected 2016 peak in U.S. production is only about 1.5 mbpd higher than production today. That’s really quite small compared to worldwide oil production of about 76 mbpd. And, there’s no guarantee that the rest of the world isn’t going to see a decline in oil production between now and then. So much for the supposed U.S. oil “weapon” taming the Russian bear.

But what about natural gas? Surely, America’s great bounty of natural gas from shale could challenge the Russians. Well, not really. It’s true that U.S. natural gas production trended up significantly from its post-Katrina nadir in 2005. But the trend has now stalled. U.S. dry natural gas production has been almost flat since January 2012. The EIA reports total production of 24.06 trillion cubic feet (tcf) for 2012 and 24.28 tcf for 2013, a rise of only 0.9 percent year over year.

Not mentioned by any of the commentators touting the U.S. natural gas “weapon” is that U.S. natural gas imports for 2013 were about 2.88 tcf or about 11 percent of U.S. consumption. So, let me see if I understand this: The plan seems to be to import more so we can export more. And this would change exactly what in the worldwide supply picture?

Certainly, it is true that low U.S. natural gas prices have reduced drilling and exploration dramatically. But prices will likely have to rise above $6 and trend higher as time passes as the easy-to-get shale gas is used up and only the more costly and difficult reservoirs remain. Drillers don’t keep drilling unless they can make money and that will require significantly higher prices.

And, here’s the kicker. In order to ship U.S. natural gas to Europe or Asia, it has to be liquefied at -260 degrees F, shipped on special tankers and then regasified. The cost of doing this is about $6 per thousand cubic feet (mcf). So, the total cost of delivering $6 U.S. natural gas to Europe is around $12 per mcf. With European liquefied natural gas (LNG) prices mostly below this level for the last five years, it’s hard to see Europe as a logical market. Japan would be a better target for such exports with prices moving between $15 and $18 per mcf in the last five years. But a U.S. entry into the LNG market could conceivably depress world prices and make even Japan a doubtful destination for U.S. LNG. And, what if U.S. prices rise significantly above $6?

But all this presupposes that the United States will have excess natural gas to export. As my colleague Jeffrey Brown has pointed out, “Citi Research [an arm of Citigroup] puts the decline rate for existing U.S. natural gas production at about 24%/year, which would require the industry to replace about 100% of current U.S. natural gas production in four years, just to maintain current production.”

It seems that U.S. drillers are going to be very, very busy just keeping domestic natural gas production from dipping, let alone expanding it to allow exports. And remember, we are still importing the stuff today!

How many companies will actually risk the billions needed to build U.S. natural gas export terminals to liquefy and load exports that may never appear? I doubt that very many will actually go through with their plans.

What is truly puzzling is that all the information I’ve just adduced–except the cost of liquefying, transporting and regasifying natural gas–is available with a few clicks of a mouse and a little arithmetic performed on tables of data. I got the cost information on LNG from a money manager specializing in energy investments. And yet, commentators, reporters, and editorial writers don’t even bother to check the internet or call their sources in the investment business.

Perhaps the facts have become irrelevant. Only that would explain the current hoopla over the nonexistent U.S. oil and natural gas “weapon” in the face of the all-too-obvious and readily available evidence.

Kurt Cobb is an authorspeaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog calledResource Insights and can be contacted at kurtcobb2001@yahoo.com.

Peak oil isn’t dead; it just smells that way – SmartPlanet

Peak oil isn’t dead; it just smells that way – SmartPlanet.

Energy analyst Chris Nelder fires back at the latest fact-free commentary on peak oil.

The Oil Drum, a Web site dedicated to informed discussions about peak oil and energy, announced on July 3 that it is closing down. (For a brief primer on peak oil, see my conversation with Brad Plumer in theWashington Post.) Those who hate the peak oil story didn’t bother to conceal their glee at the news; some even saw occasion to claim victory for their side in the “debate” over the future of fossil fuels.

“We could say ‘I told you so,’ not as a school-yard epithet, but simply as a fact,” crowed Mark Mills, co-author of a lightweight book entitled The Bottomless Well, which Publishers Weekly described as “Long on Nietzschean bombast but short on some crucial specifics.”

David Blackmon, a Houston-based consultant with a 33-year career in the oil and gas industry who is one of Forbes’ 1,300 advertorial “contributors,” called The Oil Drum “a site devoted a theory based on lack of imagination and growing irrelevance” in his mouthful of nuts.

Economist Karl Smith, another Forbes contributor, scoffed at the crucial distinction between crude oil and “all liquids” in his confusing word salad, asserting that “liquids like butane, propane and ethane are important petroleum products” without explaining why he believes they should be counted as crude oil, when they are not.

Emboldened by the recent exuberance over fracking in the United States, these pundits now claim that the only thing that has peaked “was the ability to argue that the era of oil, and hydrocarbons, was over.”

Not one of them said a single word about the global rate of oil production, which is the essence of the peak oil question. Why get into the data when merely slinging mud at your opponents and proclaiming your faith will do?

A handful of other writers offered less ideological takes. Matt Yglesias confessed that he “always found the ‘Peak Oil’ debate to be a little bit confusing” but recognized that there has been a profound price revolution: “The good old days of genuinely abundant liquid fuel really do appear to be behind us,” he wrote. Noah Smith had the most informed post of the bunch, noting that the transition to unconventional oil is a big part of why prices have been rising, and that “there is no substitute on the horizon” for good ol’ crude.

But neither of them mentioned the rate of oil production either.

Keith Kloor borrowed an Energy Information Administration (EIA) chart of U.S. production from aBBC article that repeated all the industry’s favorite talking points about how new technology has produced “a new oil rush.” Apparently, neither Kloor nor the BBC author realized that the chart represented “all liquids” production in the United States, not just crude oil, nor bothered to explore the detailed EIA data for themselves, nor tried to explain how this recent boom in U.S. production might dismiss the specter of a global peak. Kloor concluded that The Oil Drum was closing because “the numbers aren’t in your favor right now.” But like the others, he didn’t actually mention any numbers.

In short, all of these authors used The Oil Drum news to comment on the debate about peak oil — the poor predictions and demagoguing and pollyannish posturing and name-calling, which have, truth be told, tainted both sides of the issue — but none of them discussed peak oil.

I really didn’t think I’d have to say this again, but peak oil is about data, and specifically data about the production rate of oil. If you want to claim that peak oil is dead (or alive), you have to talk about data on production rates. There is no other way to discuss it.

Just for the record

Then what’s really going on here?

First, what did in The Oil Drum was volunteer burnout, falling visitor traffic, and an insufficient flow of high-quality original work and contributors. It’s unfortunate, because for the past eight years The Oil Drum has been the best free site on the Web for good rigorous work and informed discussion about energy data. I owe it a great debt for the education, the contacts, and the visibility that I gained through it.

I learned of its closing the same day I learned that Randy Udall had died. It was truly a sad and dark day for the peakists, one of those watershed moments that felt like a real turning point in the peak oil dialogue. Using the occasion to dance on their graves, as some ardent peak oil opponents did, was a low blow.

But the reason The Oil Drum has been lacking for good original content wasn’t that it had lost the argument and there wasn’t anything left to say. Far from it. The flow of content simply moved to where good analysts and writers on the subject could actually get paid for their work. That was inevitable, because a publishing model that relies on a steady flow of free articles that take days or weeks or even months of hard, highly skilled work to create simply isn’t sustainable. Freelance writers like me moved on to paying publications like SmartPlanet where we could actually make a living. Consultants and hedge funds began restricting their work to their private clients and subscribers, with maybe a teaser of free stuff posted in their blogs and newsletters. Investors and oil and gas companies began hiring capable analysts to do the work privately, after many years of enjoying the assembled intelligence on The Oil Drum (and trading it very profitably, I might add) for free. The volunteers who had put so much time into the site all these years discovered that they needed to spend their energies elsewhere. And the public got accustomed to higher prices, so the media stopped talking about peak oil, which led to a dropoff in traffic. Hey, that’s show biz.

It’s also true that many of us, having cut our teeth on the data and the dialogue at The Oil Drum, moved on to other pursuits. Once you’ve learned something, you don’t need to keep relearning it. Just speaking for myself, I moved on to grappling with the solutions to the peak oil problem: efficiency upgrades, financing, policy issues, transportation paradigms, and the transition to renewables. Merely revisiting the peak oil problem didn’t seem like a good use of my time, though I have continued to write about it as a context. I know that some other former contributors to the site changed their tacks similarly.

Second, fracking mania has been fairly well confined to the United States, because that’s where it is happening. Get outside the States for awhile, as I have done this year, and you quickly discover thatpeople are still worried about the future of oil and gas. Probably because their oil and gas prices haven’t gone down, and their reserves haven’t gone up. There is absolutely no evidence that fracking will produce significant volumes of oil outside the United States any time soon.

Third — and I know this is gonna hurt a few writers out there, but it has to be said — very few people who have written about peak oil outside of sites like The Oil Drum ever did the hard study required to really understand it. They just picked a side, usually on tribal or ideological grounds, and commenced to defend that. Many of them don’t have a clue, even now, what the difference is between, say, proved reserves and resources, or what a reserves to production ratio is, or what a P50 estimate actually represents, or the production costs and energy content of non-crude liquids. Not a clue. I’d be willing to bet that 95 percent of them have never even built a spreadsheet of oil and gas data and tried to analyze it.

Most of what you’ve read about peak oil in the broader press has been written by generalist journalists. It’s an insanely complex topic that really takes thousands of hours of study to understand. But most of them haven’t done that study, and much of what they write is wrong. Usually they just rewrite the summary of a long and technical report written by someone in the industry. They don’t read the whole thing; they don’t have the time, or they may not have the chops to understand it. They don’t do original analysis or fact-checking. And too often they don’t seem to understand the context of the data, so they don’t give you any. What does 7, or 19, or 91 million barrels a day mean to the average person? Nothing. So they don’t talk about it. But they can certainly write the hundredth variation of a story about incipient U.S. “energy independence” and how that will overturn geopolitics, blah blah blah, while playing into the mythos of American exceptionalism, without understanding the data.

Likewise, it’s easy to speculate that the solution du jour — ethanolbiofuels from algae, the ‘hydrogen economy’, space-based solar powerfuel cellsmethane hydrates, and so on — will save the day if you don’t actually dig into the data. Generalist journalists love to do that. Those articles generate lots of traffic and no one will ever hold them accountable for writing about a popular fantasy.

Actually, I’m being generous here by attributing their inattention to being generalists on tight deadlines. After a decade of this innumerate nonsense, I’ve begun to suspect either disinterest or laziness, or worse. Especially on the part of science and economics writers who clearly do have the chops to research and understand data. As Robert Bea, an expert who has studied some of the biggest civil engineering disasters in recent history, recently observed, failure is usually the result of hubris, shortsightedness, and indolence, not engineering. Our failure to prepare for peak oil is no different.

The only thing that most writers seem to have grasped is the hard reality of price. That’s easy enough; It’s published every day by a variety of agencies. A quick Google search will find it. It requires no study. Everybody cares about it. It’s cake. When prices are high, as they are now, those who only understand price look at it as evidence that the peak oil explanation has some merit. But price is fickle. When prices crashed into the $30s per barrel at the end of 2008, everybody was writing about how it was proof that the peak oil theory was wrong.

Those who do understand the technical aspects of the data are generally in the oil and gas industry. Most don’t talk about it because the data tells a story they don’t want told. So they try to divert the focus away from the data and onto the attitudes of the debaters. Or they just talk about the data that favors their point of view, like increasing technically recoverable resources and booming production in North Dakota and Texas. Most of the time, the ruse works.

So the tiresome “debate” about peak oil goes on, repeated as an endless Kabuki theatre of Malthusians vs. Cornucopians, ignoring the data in favor of another thousand words about attitudes and beliefs.

And in the middle, dear reader, is you. Caught between unwary and innumerate journalists on one side, and propaganda carefully constructed by those who are ‘talking their books’ on the other. Paying $4 a gallon for gasoline one day, then $2 six months later, then $4 again four years later. You don’t know why because the press never really explains it to you, the industry deliberately tries to confuse you, and politicians tell you whatever is needed to get your vote.

All I can say about that is: I’m sorry. It’s sad. I’ve been trying to get the facts out for years. It doesn’t seem to help.

The data

Now let’s talk about some data.

The world currently produces around 91 million barrels a day (mb/d) of ‘oil’ in the International Energy Agency’s definition, which is for all liquids. For the past two years, actual crude oil production (which includes lease condensate in the EIA’s definition) has been hovering around 75 mb/d on an annual basis, just slightly over the 74 mb/d plateau established in 2005.

The moment of truth for peak oil will be when the decline of mature fields finally overwhelms new production additions, and global supply begins to turn south. (A vogue alternative is that we’ll reach “peak demand” first, where oil is replaced by other fuels and demand falls due to greater efficiency, but as yet I find the proof that this has happened, or will happen, unconvincing.)

That moment of truth isn’t quite here yet. Fracking, along with all the other methods the world is employing to squeeze a bit more oil out of the earth, has barely budged global oil production. Here is the chart:

Chart: Peak Fish Data: EIA

What do you see there? An ignominious end to an unimaginative story perpetrated by self-interested mavericks looking to raise their profiles and sell some books, or a plateau of production that just barely broke higher in the past two years after an absolutely heroic effort that required hundreds of billions of dollars of investment and a quadrupling of oil prices?

Now let’s look at non-OPEC production, without U.S. production:

Source: Peak Fish

See how production has been falling off in recent years? That’s happening because the the aggregate decline rate of all fields is around 5 percent per year. In other words, the world loses around 3.0 to 3.8 mb/d of production each year (depending on whose numbers you use). Most of the 2 mb/d “tidal wave of oil” from U.S. fracking was absorbed by the decline in the rest of non-OPEC, as we can see from the aggregate non-OPEC production in this chart:

Source: Peak Fish

The question isn’t “Can fracking save the world from peak oil?” but “How long can America make up for declines in the rest of the world?” The answer is probably not much longer. The growth rate of tight oil production has cooled considerably over the past year, and per-well production is falling.

Now let’s look at U.S. production in isolation. Here’s the “all liquids” chart that Kloor reprinted, presumably without realizing that it wasn’t just for oil:

Looks great, right? Huge turnaround. We’re back to 1985 levels!

Now let’s look at the chart of actual U.S. crude and condensate production, without all the natural gas liquids and biofuels and refinery gains:

Source: EIA

Hey, what happened to that huge spike in production returning us to 1985 levels?

Now look at the article where I explained the difference between those numbers, and why the “all liquids” numbers overstates actual U.S. oil supply by about one-third. Do you still believe Karl Smith, who explained none of that and offered no data but simply asserted that “ ‘liquids’ is not a weaselly term” and that we should count all liquids equally “because the US Presidential Primaries begin in Iowa?”

A few more facts about U.S. oil, since there has been so much confusion disseminated about it in recent months: America consumes 19.5 mb/d of oil and produces 7.4 mb/d. On an annual basis through 2012 it was the world’s largest crude oil importer, but has probably been surpassed since by China on a monthly basis. It exports more refined products like gasoline and diesel than it imports, but that’s simply because it has a very large refining complex and falling domestic demand, not because it’s on its way to energy independence. The United States will never be a net oil exporter, nor will it surpass Saudi Arabia in oil production, no matter what you may have read about “Saudi America.”

Now let’s talk about price. Since 2003, who forecast the global repricing of oil best, the peakists who expected prices to spike into record territory, or the Cornucopians who consistently predicted that oil prices would return to historical levels? The answer is indisputable: the peakists.

For the past decade, the Cornucopians have told us that a new abundance was coming from deepwater oil, tar sands, enhanced oil recovery, biofuels, and other unconventional sources. Global oil production would rise to 120 million barrels per day, and prices would fall back to $20 or $30 per barrel. Those stories were all completely wrong. The peakists called it.

Here’s what happened: Oil repriced in response to scarcity. Triple-digit prices were responsible for the new flush of unconventional production. That production, including fracking for tight oil in the United States, raises prices, it doesn’t lower them. We’ve hit and fallen back from the consumer’s price tolerance repeatedly for the past six years.

For a last bit of data, look at this forecast from the final post that petroleum engineer Jean Lahèrrere did for The Oil Drum:

(I used another of Laherrère’s charts in my post from March.)*

Laherrère concludes: “With the poor data available today, it seems that world oil (all liquids) production will peak before 2020, Non-OPEC quite soon and OPEC around 2020. OPEC will cease to export crude oil before 2050.”

Looking closely at Laherrère’s data, it seems essentially in line with my view that in another 18 months or so we’re going to get the signal that oil needs to reprice higher still to maintain production. That will be very difficult for U.S. and European consumers to stomach. Whether that repricing will bring more oil to market, or simply kill demand, remains to be seen.

This is what the data — not beliefs or rhetoric — tell me.

What’s your bet?

So here’s what we know.

High value crude oil — the good stuff with 5.8 million BTU per barrel that we can make into diesel and gasoline and a million other things — has been generally holding on to a global production plateau since 2004. Global production will fall when the decline of mature fields overwhelms new additions. When, precisely, that will happen, no one can say for certain. But it’s almost definitely before 2020.

Most of the non-crude liquids are not equivalent to crude. Apart from tar sands and heavy oil, they contain less energy and are far less useful. Some of them can’t be made into gasoline and diesel. But with regular crude production trapped at around 75 million barrels a day, these other liquids must meet all future increases in demand for oil. As they take an increasing share of the liquid fuel market, they gradually increase the price of “oil.” Nothing on the horizon will change that.

Eventually, the price will become too high, and we’ll have “peak demand” alright, but it will be primarily because of price, not efficiency gains, and will lead to economic contraction, not growth. That price will owe to increasingly marginal and difficult — hence, expensive — prospects. In that sense, it’s a supply side problem, a concept at the heart of peak oil. Is it clear now why the “peak demand” vs. “peak supply” argument isn’t really that interesting?

If U.S. consumers are able to tolerate, say, $5-7 a gallon for gasoline by 2020, then it’s possible that the production plateau could extend a bit farther, and my expectation that global supply will begin to slip around 2015 could be wrong. It won’t be off by much, and in the grand scheme of what it means for the global economy, a year or three plus or minus is essentially irrelevant. But if I am off by even six months, you can be sure that my detractors will come out of the woodwork to say I’m all wet, and that production is going to da moon.

But my bet is that U.S. and European consumers can’t tolerate significantly higher prices. Price tolerance is something that Cornucopians never talk about, so you won’t hear that argument from them. If I am correct on that point, then production will have to decline as prices become intolerable. By virtue of its upward pressure on price, unconventional oil production contributes to, not cures, peak oil.

I expect world oil production to rise, weakly, for another two years or so, as America falls into a deeper slumber believing that fracking has cured everything. The media will reinforce that belief. And when it comes, the wake-up call is going to be harsh. In the meantime we’re just going to be waiting for the punchline.

So to those who can grasp the data, here’s my final thought: How will you prepare yourself for The Great Contraction? You’ve got perhaps two good years left of business as usual, and maybe another three or four after that before things really get difficult. I encourage you to use them well, and do what you can to make yourself resilient and self-sufficient. What will you do 10 years from now if the price of gasoline is $10 a gallon?

Yes, we do need to have a serious talk about our values, hopes, beliefs, mythologies, and ambitions; about the embedded growth paradigm, the debt overhang, and economic theory in an age of diminishing marginal returns. Those are all important discussions. But let’s have them after we understand the facts about energy. Not before.

Whatever you do, don’t think that peak oil is dead just because some guy who doesn’t know what he’s talking about said so in a fact-free blog post. It’s coming. Later than some thought, but sooner than you think.

Photo: Mark Rain (AZRainman/Flickr)

*Correction July 25, 2013: In the original version of this post, I said that Laherrère’s chart “leaves out extra-heavy oil volumes which may or may not materialize from Venezuela and Canada.” Laherrère responded that this chart does in fact include those heavy oil volumes. The text has been corrected accordingly. — CN

Jul 23, 2013

Chris Nelder

Columnist (Energy)Chris Nelder is an energy analyst and consultant who has written about energy and investing for more than a decade. He is the author of two books on energy and investing, Profit from the Peak and Investing in Renewable Energy, and has appeared on BBC TV, Fox Business, CNN national radio, Australian Broadcasting Corp., CBS radio and France 24. He is based in California. Follow him on Twitter. Disclosure

Limits to Growth–At our doorstep, but not recognized | Our Finite World

Limits to Growth–At our doorstep, but not recognized | Our Finite World.

How long can economic growth continue in a finite world? This is the question the 1972 book The Limits to Growth by Donella Meadows and others sought to answer. The computer models that the team of researchers produced strongly suggested that the world economy would collapse sometime in the first half of the 21st century.

I have been researching what the real situation is with respect to resource limits since 2005. The conclusion I am reaching is that the team of 1972 researchers were indeed correct. In fact, the promised collapse is practically right around the corner, beginning in the next year or two. In fact, many aspects of the collapse appear already to be taking place, such as the 2008-2009 Great Recession and the collapse of the economies of smaller countries such as Greece and Spain. How could collapse be so close, with virtually no warning to the population?

To explain the situation, I will first explain why we are reaching Limits to Growth in the near term.  I will then provide a list of nine reasons why the near-term crisis has been overlooked.

Why We are Reaching Limits to Growth in the Near Term

In simplest terms, our problem is that we as a people are no longer getting richer. Instead, we are getting poorer, as evidenced by the difficulty young people are now having getting good-paying jobs. As we get poorer, it becomes harder and harder to pay debt back with interest. It is the collision of the lack of economic growth in the real economy with the need for economic growth from the debt system that can be expected to lead to collapse.

The reason we are getting poorer is because hidden parts of our economy are now absorbing more and more resources, leaving fewer resources to produce the goods and services we are used to buying. These hidden parts of our economy are being affected by depletion. For example, it now takes more resources to extract oil. This is why oil prices have more than tripled since 2002. It also takes more resource for many other hidden processes, such as deeper wells or desalination to produce water, and more energy supplies to produce metals from low-grade ores.

The problem as we reach all of these limits is a shortage of physical investment capital, such as oil, copper, and rare earth minerals. While we can extract more of these, some, like oil, are used in many ways, to fix many depletion problems. We end up with too many demands on oil supply–there is not enough oil to both (1) offset the many depletion issues the world economy is hitting, plus (2) add new factories and extraction capability that is needed for the world economy to grow.

With too many demands on oil supply, “economic growth” is what tends to get shorted. Countries that obtain a large percentage of their energy supply from oil tend to be especially affected because high oil prices tend to make the products these countries produce unaffordable. Countries with a long-term decline in oil consumption, such as the US, European Union, and Japan, find themselves in recession or very slow growth.

Figure 1. Oil consumption based on BP's 2013 Statistical Review of World Energy.

Figure 1. Oil consumption based on BP’s 2013 Statistical Review of World Energy.

Unfortunately, the problem this appears eventually to lead to, is collapse. The problem is the connection with debt. Debt can be paid back with interest to a much greater extent in a growing economy than a contracting economy because we are effectively borrowing from the future–something that is a lot easier when tomorrow is assumed to be better than today, compared to when tomorrow is worse than today.

We could not operate our current economy without debt. Debt is what has allowed us to “pump up” economic growth. Consumers can buy cars, homes, and college educations that they have not saved up for. Businesses can set up factories and do mineral extraction, without having past profits to finance these operations. We can now operate with long supply chains, including many businesses that are dependent on debt financing. The ability to use debt allows vastly more investment than if potential investors could only the use of after-the-fact profits.

If we give up our debt-based economic system, we lose our ability to extract even the oil and other resources that appear to be easily available. We can have a simple, local economy, perhaps dependent on wood as it primary fuel source, without debt. But it seems unlikely that we can have a world economy that will provide food and shelter for 7.2 billion people.

The reason the situation is concerning is because the financial situation now seems to be near a crisis. Debt, other than government debt, has not been growing very rapidly since  2008. The government has tried to solve this problem by keeping interest rates very low using Quantitative Easing (QE). Now the government is cutting back in the amount of QE.  If interest rates should rise very much, we will likely see recession again and many layoffs. If this should happen, debt defaults are likely to be a problem and credit availability will dry up as it did in late 2008. Without credit, prices of all commodities will drop, as they did in late 2008. Without the temporary magic of QE, new investment, even in oil, will drop way off. Government will need to shrink back in size and may even collapse.

In fact, we are already having a problem with oil prices that are too low to encourage oil production. (See my post, What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs.) Other commodities are also trading at flat to lower price levels. The concern is that these lower prices will lead to deflation. With deflation, debt is strongly discouraged because it raises the “inflation adjusted” cost of borrowing. If a deflationary debt cycle is started, there could be a huge drop in debt over a few years. This would be a different way to reach collapse.

Why couldn’t others see the problem that is now at our door step?

1. The story is a complicated, interdisciplinary story. Even trying to summarize it in a few paragraphs is not easy. Most people, if they have a background in oil issues, do not also have a background in financial issues, and vice versa.

2. Economists have missed key points. Economists have missed the key role of debt in extracting fossil fuels and in keeping the economy operating in general. They have also missed the fact that in a finite world, this debt cannot keep rising indefinitely, or it will grow to greatly exceed the physical resources that might be used to pay back the debt.

Economists have missed the fact that resource depletion acts in a way that is equivalent to a huge downward drag on productivity. Minerals need to be separated from more and more waste products, and energy sources need to be extracted in ever-more-difficult locations. High energy prices, whether for oil or for electricity, are a sign of economic inefficiency. If energy prices are high, they act as a drag on the economy.

Economists have missed the key role oil plays–a role that is not easily substituted away. Our transportation, farming and construction industries are all heavily dependent on oil. Many products are made with oil, from medicines to fabrics to asphalt.

Economists have assumed that wages can grow without energy inputs, but recent experience shows the economies with shrinking oil use are ones with shrinking job opportunities. Economists have built models claiming that prices will rise to handle shortages, either through substitution or demand destruction, but they have not stopped to consider how destructive this demand destruction can be for an economy that depends on oil use to manufacture and transport goods.

Economists have missed the point that globalization speeds up depletion of resources and increases CO2 emissions, because it adds a huge number of new consumers to the world market.

Economists have also missed the fact that wages are hugely important for keeping economies operating. If wages are cut, either because of competition with low-wage workers in warm countries (who don’t need as high a wages to maintain a standard of living, because they do not need sturdy homes or fuel to heat the homes) or because of automation, economic growth is likely to slow or fall. Corporate profits are not a substitute for wages.

3. Peak Oil advocates have missed key points. Peak oil advocates are a diverse group, so I cannot really claim all of them have the same views.

One common view is that just because oil, or coal, or natural gas seems to be available with current technology, it will in fact be extracted. This is closely related to the view that “Hubbert’s Peak” gives a reasonable model for future oil extraction. In this model, it is assumed that about 50% of extraction occurs after the peak in oil consumption takes place. Even Hubbert did not claim this–his charts always showed another fuel, such as nuclear, rising in great quantity before fossil fuels dropped in supply.

In the absence of a perfect substitute, the drop-off can be expected to be very steep. This happens because population rises as fossil fuel use grows. As fossil fuel use declines, citizens suddenly become much poorer. Government services must be cut way back, and government may even collapse. There is likely to be huge job loss, making it difficult to afford goods. There may be fighting over what limited supplies are available.What Hubbert’s curve shows is something like an upper limit for production, if the economy continues to function as it currently does, despite the disruption that loss of energy supplies would likely bring.

A closely related issue is the belief that high oil prices will allow some oil to be produced indefinitely. Salvation can therefore be guaranteed by using less oil. First of all, the belief that oil prices can rise high enough is being tested right now. The fact that oil prices aren’t high enough is causing oil companies to cut back on new projects, instead returning money to shareholders as dividends. If the economy starts shrinking because of lower oil extraction, a collapse in credit is likely to lead to even lower prices, and a major cutback in production.

4. Excessive faith in substitution. A common theme by everyone from economists to peak oilers to politicians is that substitution will save us.

There are several key points that advocates miss. One is that if a financial crash is immediately ahead, our ability to substitute disappears, practically overnight (or at least, within a few years).

Another is key point is that today’s real shortage is of investment capitalin the form of oil and other natural resources needed to manufacture the new natural gas powered cars and the fueling stations they need. A similar shortage of investment capital plagues plans to change to electric cars. Wage-earners of modest means cannot afford high-priced plug in vehicles, especially if the change-over is so fast that the value of their current vehicle drops to $0.

Another key point is that the alternatives we looking at are limited in supply as well. We use far more oil than natural gas; trying to substitute natural gas for oil will lead to a shortfall in natural gas supplies quickly. Ramping up electric cars, solar, and wind will lead to a shortage of the rare earth minerals and other minerals needed in their production. While more of these minerals can be accessed by using lower quality ore, doing so leads to precisely the investment capital shortfall that is our problem to begin with.

Another key point is that electricity does not substitute for oil, because of the huge need for investment capital (which is what is in short supply) to facilitate the change. There is also a timing issue.

Another key point is that intermittent electricity does not substitute for electricity whose supply can be easily regulated. What intermittent electricity substitutes for is thefossil fuel used to make electricity whose supply is more easily regulated. This substitution (in theory) extends the life of our fossil fuel supplies. This theory is only true if we believe that  coal and natural gas extraction is only limited by the amount those materials in the ground, and the level of our technology. (This is the assumption underlying IEA and EIA  estimates of future fossil use.)

If the limit on coal and natural gas extraction is really a limit on investment capital (including oil), and this investment capital limit may manifest itself as a debt limit, then the situation is different. In such a case, high investment in intermittent renewables can expected to drive economies that build them toward collapse more quickly, because of their high front-end investment capital requirements and low short-term returns.

5. Excessive faith in Energy Return on Energy Investment (EROI) or Life Cycle Analysis (LCA) analyses. Low EROI returns and poor LCA returns are part of our problem, but they are not the whole problem.  They do not consider timing–something that is critical, if our problem is with inadequate investment capital availably, and the need for high returns quickly.

EROI analyses also make assumptions about substitutability–something that is generally not possible for oil, for reasons described above. While EROI and LCA studies can provide worthwhile insights, it is easy to assume that they have more predictive value than they really do. They are not designed to tell when Limits to Growth will hit, for example.

6. Governments funding leads to excessive research in the wrong directions and lack of research in the right direction. Governments are in denial that Limits to Growth, or even oil supply, might be a problem. Governments rely on economists who seem to be clueless regarding what is happening.

Researchers base their analyses on what prior researchers have done. They tend to “follow the research grant money,” working on whatever fad is likely to provide funding. None of this leads to research in areas where our real problems lie.

7. Individual citizens are easily misled by news stories claiming an abundance of oil. Citizens don’t realize that the reason oil is abundant is because oil prices are high, debt is widely available, and interest rates are low. Furthermore, part of the reason oil appears abundant is because low-wage citizens still cannot afford products made with oil, even at its current price level. Low employment and wages feed back in the form of  low oil demand, which looks like excessive oil supply. What the economy really needs is low-priced oil, something that is not available.

Citizens also don’t realize that recent push to export crude oil doesn’t mean there is a surplus of crude oil. It means that refinery space for the type of oil in question is more available overseas.

The stories consumers read about growing oil supplies are made even more believable by forecasts showing that oil and other energy supply will rise for many years in the future. These forecasts are made possible by assuming the limit on the amount of oil extracted is the amount of oil in the ground. In fact, the limit is likely to be a financial (debt) limit that comes much sooner. See my post, Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong.

8. Unwillingness to believe the original Limits to Growth models. Recent studies, such as those by Hall and Day and by Turner, indicate that the world economy is, in fact, following a trajectory quite similar to that foretold by the base model of Limits to Growth. In my view, the main deficiencies of the 1972 Limits to Growth models are

(a) The researchers did not include the financial system to any extent. In particular, the models left out the role of debt. This omission tends to move the actual date of collapse sooner, and make it more severe.

(2) The original model did not look at individual resources, such as oil, separately. Thus, the models gave indications for average or total resource limits, even though oil limits, by themselves, could bring down the economy more quickly.

I have noticed comments in the literature indicating that the Limits to Growth study has been superseded by more recent analyses. For example, the article Entropy and Economics by Avery, when talking about the Limits to Growth study says, “ Today, the more accurate Hubbert Peak model is used instead to predict rate of use of a scarce resource as a function of time.” There is no reason to believe that the Hubbert Peak model is more accurate! The original study used actual resource flows to predict when we might expect a problem with investment capital. Hubbert Peak models overlook financial limits, such as lack of debt availability, so overstate likely future oil flows. Because of this, they are not appropriate for forecasts after the world peak is hit.

Another place I have seen similar wrong thinking is in the current World3 model, which has been used in recent Limits to Growth analyses, including possibly Jorgen Randers’2052. This model assumes a Hubbert Peak model for oil, gas, and coal. The World3 model also assumes maximum substitution among fuel types, something that seems impossible if we are facing a debt crisis in the near term.

9. Nearly everyone would like a happy story to tell. Every organization from Association for the Study of Peak Oil groups to sustainability groups to political groups would like to have a solution to go with the problem they are aware of. Business who might possibly have a chance of selling a “green” product would like to say, “Buy our product and your problems will be solved.” News media seem to tell only the stories that their advertisers would like to hear. This combination of folks who are trying to put the best possible “spin” on the story leads to little interest in researching and telling the true story.

Conclusion

Wrong thinking and wishful thinking seems to abound, when it comes to overlooking near term limits to growth. Part of this may be intentional, but part of this lies with the inherent difficulty of understanding such a complex problem.

There is a tendency to believe that newer analyses must be better. That is not necessarily the case. When it comes to determining when Limits to Growth will be reached, analyses need to be focused on the details that seemed to cause collapse in the 1972 study–slow economic growth caused by the many conflicting needs for investment capital. The question is: when do we reach the point that oil supply is growing too slowly to produce the level of economic growth needed to keep our current debt system from crashing?

It seems to me that we are already near such a point of collapse. Most people have not realized how vulnerable our economic system is to crashing in a time of low oil supply growth.

Has Petroleum Production Peaked, Ending the Era of Easy Oil?  |  Peak Oil News and Message Boards

Has Petroleum Production Peaked, Ending the Era of Easy Oil?  |  Peak Oil News and Message Boards.

A new analysis concludes that easily extracted oil peaked in 2005, suggesting that dirtier fossil fuels will be burned and energy prices will rise

Despite major oil finds off Brazil’s coast, new fields in North Dakota and ongoing increases in the conversion of tar sands to oil in Canada, fresh supplies of petroleum are only just enough to offset the production decline from older fields. At best, the world is now living off an oil plateau—roughly 75 million barrels of oil produced each and every day—since at least 2005, according to a new comment published in Nature on January 26. (Scientific American is part of Nature Publishing Group.) That is a year earlier than estimated by the International Energy Agency—an energy cartel for oil consuming nations. 

To support our modern lifestyles—from cars to plastics—the world has used more than one trillion barrels of oil to date. Another trillion lie underground, waiting to be tapped. But given the locations of the remaining oil, getting the next trillion is likely to cost a lot more than the previous trillion. The “supply of cheap oil has plateaued,” argues chemist David King, director of the Smith School of Enterprise and the Environment at the University of Oxford and former chief scientific adviser to the U.K. government. “The global economy is severely knocked by oil prices of $100 per barrel or more, creating economic downturn and preventing economic recovery.”

Nor do King and his co-author, oceanographer James Murray of the University of Washington in Seattle, hold out much hope for future discoveries. “The geologists know where the source rocks are and where the trap structures are,” Murray notes. “If there was a prospect for a new giant oil field, I think it would have been found.”

King and Murray based their conclusion on an analysis of oil data from the U.S. Energy Information Administration. Looking at use and production trends, the two note that since 2005 production has remained essentially unchanged whereas prices (a surrogate for demand) have fluctuated wildly. This suggests to the authors that there is no longer any spare capacity to respond to increases in demand, whether it results from political unrest that cuts supply, as in the case of Libya’s political upheaval last year, or economic boom times in growing countries like China. “We are not running out of oil, but we are running out of oil that can be produced easily and cheaply,” King and Murray wrote.

Other statistics, however, argue against a plateau. Oil company BP found in its most recent analysis that oil production was actually more than 82 million barrels per day in 2010, higher than the proposed plateau of 75 million. That difference may be the result of the increasing use of “unconventionals”—Canadian tar sands or the natural gas liquids co-produced with oil extraction. Rising production in the China, Nigeria, Russia and the U.S. also hints that technological improvements may allow greater production from existing fields than the new research suggests.

Plus, the price of oil may argue against any such plateau. Adjusted for inflation, today’s $100 per barrel is roughly equivalent to prices in 1981, according to environmental scientist Vaclav Smil of the University of Manitoba. Smil also notes that in the last 20 years enough oil has been found to satisfy the demands of two new consumers—China and India—nations that now import more oil than is consumed by Germany and Japan.

Some of that price stability is the result of increased efficiencythe potentially vast reserve of unused oil. The U.S. and other developed countries have maintained economic growth while reducing the amount of oil (and other energy) required for that growth, although some of this apparent efficiency has come from outsourcing energy-intensive economic activity, such as steel production. “We have about halved oil intensity since 1981,” Smil argues. “We could halve it again, so we could do with so much less oil—why should we panic about producing less, even if that were the case?”

If King and Murray are correct about 2005 marking the end of easily extracted oil, however, then Smil’s additional halving of demand, plus conservation and a rapid deployment of alternative energy, would be required to avoid even more economically painful oil price shocks in the future. As it is, the U.S. spent more than $490 billion on gasoline in 2011—$100 billion more than in 2010, even though the number of miles driven was similar, according to data from the New America Foundation.

An easy-oil plateau is not good news for the climate, either. Harder to extract oil means increased burning of dirtier oil like that from the tar sands—or even dirtier coal. In fact, there are trillions more barrels of carbon-intensive fuel out there in the form of huge coal fields, such as the one currently being brought into production in Mongolia. “There will still be enough CO2 produced to result in significant climate warming,” Murray notes.

Even with large supplies of coal and natural gas, the world faces a potential energy shortfall, one reason that the U.S. Department of Energy suggested in a 2005 report (pdf) that a “crash program” to cope with any decline in oil supplies be instituted. The report argued this program should start 20 years before peak global production to avoid “extreme economic hardship.” That’s because it will take decades for any kind of energy transition to occur, as evidenced by past shifts such as from wood to coal or coal to oil.

In fact, King and Murray argue that global economic growth itself may be impossible without a concurrent growth in energy supply (that is, more abundant fossil fuels, to date). “We need to decouple economic growth from fossil-fuel dependence,” King adds. “This is not happening due to industrial, infrastructural, political and human behavioral inertia. We are stuck in our ways.”

Scientific American

Drought Emergency Declared in California as Residents Urge Halt to Fracking

Drought Emergency Declared in California as Residents Urge Halt to Fracking.

The state of California formally declared a drought emergency today due to a lack of winter rainfall and water reserves at only 20 percent of normal levels. This is the third year of dry conditions across California, which poses a threat to the state’s economy and environment.

cadroughts

In addition to concerns about having an adequate water supply for food production, Californians are worried about Gov. Brown’s plan to increase fracking as oil companies are gearing up to frack large reservoirs of unconventional shale oil in the Monterey Shale. Photo credit: National Oceanic and Atmospheric Administration

Last year was declared the driest year in recorded history in California and Gov. Jerry Brown recently described the state’s current condition as “a mega-drought.”

“The current historically dry weather is a bellwether of what is to come in California, with increasing periods of drought expected with climate change,” said Juliet Christian-Smith, climate scientist in the California office of the Union of Concerned Scientists. “Because increasing demand and drought are straining our water resources, we need to adopt policies that address both the causes and consequences of climate change.”

With the drought declaration in place, the state can ease certain environmental protections and create more flexibility within the system to allow for changes in water diversions based on critical needs. The declaration also raises public awareness about the urgent need to conserve water.

“The entire Southwest U.S. is gripped in an extended drought, including Southern California, all of which depends on flows from the Colorado River,” said Gary Wockner at Save the Colorado River Campaign. “If this is the ‘new normal’ of climate change, then we need to develop a likewise ‘new normal’ of water conservation and efficiency that also focuses on keeping our rivers—as well as our communities—healthy and thriving.”

This week, the U.S. Department of Agriculture (USDA) designated portions of 11 western and central states as primary natural disaster areas because of a drought, including 27 California counties. The disaster designation allows eligible farmers to qualify for low-interest emergency loans from the USDA.

In addition to concerns about having an adequate water supply for food production, Californians are worried about Gov. Brown’s plan to increase fracking as oil companies are gearing up to frack large reservoirs of unconventional shale oil in the Monterey Shale.

“The Governor’s drought declaration should be the final straw for fracking in the state. To frack for oil in California is to deny the facts of climate change, which tell us we have to leave this oil in the ground if we want a safe future,” said David Turnbull, campaigns director for Oil Change International and the BigOilBrown.orgcampaign. ”Our state cannot afford to waste more water digging up oil causing the very climate changes that will lead to more droughts like these in the future.”

Fracking wells generally consume between 2 and 10 million gallons of water in their lifetime. If every potential well in California identified by the U.S. Energy Information Agency were to be fracked, some 5 billion gallons of water would be required, according to Oil Change International.

Polls show Californians oppose expanded fracking in the Golden State and 65 percent of Californians say the state should act immediately to cut greenhouse gas emissions.

“While Governor Brown cannot make it rain, he can prevent wasteful and harmful use of our water by placing an immediate moratorium on fracking and other extreme methods of oil and gas extraction,” said Adam Scow, Food & Water Watch California campaign director.

America’s Feel-Good Oil Bonanza

America’s Feel-Good Oil Bonanza.

Think back to early 2004. Oil cost around $40 per barrel1—on the high side compared to the previous few decades but not much out of the ordinary. Gasoline still cost under $2.00 a gallon for most of the country. The evening news was more concerned with wardrobe gaffes by Janet Jackson (too little, at the Super Bowl) and President Bush (too much, on the USS Abraham Lincoln) than with energy prices.

In retrospect, these were the last days of “normal.” Most everyone in business, the media, and government assumed that the world had plenty of cheap oil.2 And hardly anyone outside the fossil fuel industry had heard of peak oil, the idea that we were nearing physical limits to global oil production and a new period of oil price and supply volatility.

We now know that the world’s conventional oil production would effectively stop growing the very next year, setting off a sickening global economic rollercoaster ride. The complacency of 2004 would change to worry by 2005 as the price of oil surged past historic highs, and to outright panic in 2008 when it crossed the once-unthinkable $100 barrier. It would spark massively increased investment in alternatives like tight oil, tar sands oil, shale gas, renewable energy, and nuclear power—all while the global economy made painful adjustments to the new normal of $80-plus oil.

By now you’d think we’d be chastened by the last ten years, and would be planning cautiously and conservatively for our nation’s energy future. Instead, almost everyone is once again assuming that we’ve got plenty of (admittedly more expensive) oil, and that there’s nothing to worry about.

Such shortsightedness isn’t necessarily surprising for Wall Street, where only the current quarter’s figures matter; nor for the news media, where energy-literate journalists are sadly few and far between. But it’s quite another matter to see it in a federal government agency, especially one whose most important functions include projecting the future of the country’s energy needs and resources.

In this respect, the Energy Information Administration’s (EIA) recently releasedAnnual Energy Outlook 2014 (AEO 2014), which foresees impending and long-term US oil abundance, is not just surprising—it’s a dangerous return to a 2004 way of thinking.

California Dreaming

Lest you think the projections issued by a relatively small government agency are immaterial to real-world decisions about the world’s most important resource, consider the case of the Monterey shale. Two years ago the EIA released a 105-page assessment of technically recoverable shale gas and tight oil in the lower-48 states.3 Among other things, it estimated a massive amount of tight oil in California’s Monterey formation: 15.4 billion barrels, or over 64% of the country’s projected total tight oil resource base.

America’s supposed new oil nest egg was quickly accepted as unquestionable fact. The New York Times4Wall Street Journal5, CNN6, and countless other media outlets reported it uncritically. It became a central argument in the fossil fuel industry’s efforts to influence California’s regulations on drilling and new technologies like fracking.7 And one can only assume that the 15.4 billion barrel worm made its way into the ears of politicians and policymakers across the country, whispering, “We’ll have decades of American energy independence!”

Of course, a deus ex machina like this raised more than a few eyebrows, including here at Post Carbon Institute; so we looked into it.8 We found that the EIA report’s authors9 had tallied up 15.4 billion barrels simply by assuming that every square mile of the Monterey would be more productive than practically all the best areas in America’s two best tight oil plays, the Bakken shale (in North Dakota) and the Eagle Ford shale in Texas. That’s it. No consideration of the Monterey’s significant geological complexity compared to the two plays, nor of data from actual Monterey oil production. In other words, our new cornerstone of energy independence rested on a back-of-the envelope calculation that any first-year petroleum geology student would recognize as unrealistic.

But simply because it was published by the EIA, the 15.4 billion barrel worm went on to influence some of America’s most important policy and planning decisions for over two years—unquestioned and unchallenged.

So, what the EIA says matters—regardless of its veracity or substantiation. In this light, let’s take a look at what the EIA is now saying in AEO 2014.

Saudi America

The most-repeated nugget from AEO 2014 is the projection that US oil production will reach 9.61 million barrels per day (mbd) by 2019, matching its historic peak of 1970.10 Less-repeated but just as important is the projection that after 2021 US oil production will start a very gradual decline, leaving us in 2040 with daily production at a respectable 7.48 mbd (which happens to roughly be 2013’s average daily production).11 It’s an energy patriot’s dream come true—an imminent, rapid rise in domestic production to give a boost to the economy, followed by a gradual tapering-off that will allow for an orderly transition to alternative energy sources.

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This rosy projection is driven by significant and sustained production of tight oil from shale formations (enabled by fracking and other technologies)—a cumulative total of 42.8 billion barrels by 2040. Anyone who’s not a petroleum geologist might be forgiven for assuming this means the EIA has a pretty good idea where that 42.8 billion barrels is and how it will realistically be produced. As we’ll see, this is not the case.

Most of America’s tight oil—about 74%—currently comes the aforementioned Bakken and the Eagle Ford plays. These look set to peak as soon as 2016-2017, although they could possibly recover a total of 11 billion barrels by 2035 if 48,000 new wells can be drilled (five times the current total).12 However, the Bakken and the Eagle Ford are the best we’ve got; none of America’s other tight oil plays look to have such high-producing wells over such large areas. Producing an additional 31 billion barrels by 2040 from increasingly marginal (and thus more expensive) plays is a real stretch.

A quick look behind the EIA’s numbers further undermines confidence. According to the assumptions underlying last year’s Annual Energy Outlook (the equivalent background material is not yet available for 2014), the EIA sees total recoverable tight oil resources of 13.7 billion barrels from the Monterey (a recent downward revision from the original 15.4 billion mentioned earlier), 7.3 billion barrels from the Austin Chalk, 5.3 billion barrels from the Permian Basin, and the remainder from a scattering of other plays. They’re impressive numbers…until one remembers the flimsy case behind the Monterey projections.

The EIA also says nothing about the rate of production from wells in these plays, which is critical to profitability and has proved to be an Achilles Heel in other tight oil plays. Production in Eagle Ford tight oil wells, for example, declines 60 percent on average in their first year; in the Bakken it’s 69 percent.13 This means more wells must constantly be drilled to keep overall production from collapsing. But there is a physical limit to the number of wells that can be usefully drilled in an area; once that limit is reached (in the Bakken and Eagle Ford it could be within the next 10-12 years depending on drilling rates14), production will decline sharply.

A perennial argument against such pessimism is that more oil resources will become accessible as rising oil prices make the more technically challenging oil economic to produce. However, in AEO 2014 the EIA actually expects the price of oil to drop to as low as $88 per barrel by 2018, and thereafter rise at a meager 1.5-2.5% per year15—about the rate of inflation the last few years.

Is the forecast that the United States will hit 9.61 million barrels of day of oil in 2019 credible? Perhaps, if everything goes right and capital inflows don’t falter; the forecast is largely driven by measurable results from the most productive areas of the Bakken and the Eagle Ford.16 But once those are tapped out, there’s scant evidence for a future in which the oil produced from the remaining tight oil plays will amount to nearly four times as much as from the Bakken and Eagle Ford—let alone that tight oil production will decline only gradually over the following 20 years. Indeed, one must conclude that the EIA’s projection assumes that future technological innovations will make it economical to produce currently unprofitable oil despite oil prices hardly changing.

Reality Check

A more prudent, conservative US oil forecast would look very different. It would consider that, although surprises are always possible, the most productive fossil fuel resources do tend to be discovered first and produced first. It would take note of the fact that production in fracked wells declines extremely quickly, requiring an accelerating drilling treadmill to maintain—let alone grow—production, with associated collateral environmental impacts. It would assume that most tight oil plays producible at current oil prices have already been discovered and put into production, and that major new resources—if they exist—are unlikely to be forthcoming unless there is a significant rise in oil prices.17 In short, the forecast would be based on actual data from existing and legitimately forthcoming plays, and leave the feel-good speculation about future resource abundance to Wall Street.

This is no small matter. The projected availability and price of future oil directly impacts decisions being made today about everything from factory expansions to multi-billion dollar transportation projects. It influences federal government policy on encouraging (or discouraging) gas mileage standards, electric vehicles, building efficiency, and renewable energy. And it certainly colors the debate around regulating the exploration and production of fossil fuels in communities and public lands across the country.

That last debate is playing out in California right now, as the fossil fuel industry pushes legislators to relax environmental laws to allow more development of tight oil in the Monterey shale via fracking and acidization. The heightened risk of environmental damage caused by developing Monterey tight oil may seem acceptable to legislators who believe 15.4 billion barrels of oil, $24.6 billion per year in tax revenue, and 2.8 million jobs18 are in the offing—though far less so if the recoverable oil is actually a small fraction of that (which our report Drilling California concluded is likely the case19).

The stakes are also sky-high with respect to the national economy. The EIA sees US oil imports remaining relatively low throughout 2040 thanks to the supposed windfall of domestic tight oil production. If they’re wrong, oil imports would have to make up the difference, adding to our already substantial monthly petroleum trade deficit of $20 billion per month.20 And, of course, the price of oil would go up—possibly significantly—until global demand balances with the new, reduced, global supply.21

Conclusion

The EIA’s yearly publication of the Annual Energy Outlook is, without a doubt, an enormously challenging undertaking. Each year’s AEO pulls together projections that involve extremely large sets of data, endless analysis of industries and economies, and—of necessity—significant assumptions and caveats. The EIA’s own retrospectives on the accuracy of its projections reveal, however, that it generally overestimates oil production and underestimates price.22 Nevertheless, once the EIA’s annual projections are released they’re inevitably treated as future fact by the media and the public.

Although few would disagree that the EIA’s data collection and dissemination activities are world-class, its projections in AEO 2014 are, like most of its previous projections, overly optimistic and unlikely to be realized. The risks to long-term American energy security are obvious if the EIA’s projections of low-priced energy abundance don’t work out.

Good news sells, and doesn’t rock any boats, but policy makers and politicians comforted by rosy forecasts are unable to understand the risks and properly prepare the country for long-term energy sustainability. It’s unfortunate—and yes, dangerous—that rosy forecasts are exactly what the government’s premiere energy fortuneteller continues to offer, despite its dismal track record.
ENDNOTES

1 In 2013 dollars.

2 The EIA’s Annual Energy Outlook 2005 reference case oil price for 2025 was around $30 (~$37 in 2013 dollars). http://www.eia.gov/forecasts/archive/aeo05/pdf/0383(2005).pdf

8 J. David Hughes, Drilling California: A Reality Check on the Monterey Oil (Santa Rosa, CA: Post Carbon Institute, 2013), http://montereyoil.org.

9 The report was authored by a contractor, INTEK, Inc., but published by the EIA with an EIA-written introduction.

10 Energy Information Administration, Annual Energy Outlook 2014 (Early Release); figures include crude oil and lease condensate. These projections are not to be confused with those of the International Energy Administration’s World Energy Outlook 2013 which, because it includes natural gas liquids, sees the United States being the world’s top producer in 2015.http://www.bloomberg.com/news/2013-11-12/u-s-nears-energy-independence-by-2035-on-shale-boom-iea-says.html

11 Energy Information Administration, Annual Energy Outlook 2014 (Early Release), Table 14. The EIA includes non-tight-oil liquids in these numbers that happen to come from tight oil plays.

12 J. David Hughes, “Tight Oil: A Solution to U.S. Import Dependence?,” presentation to Geological Society of America, Denver, Colorado, October 28, 2013,https://gsa.confex.com/gsa/2013AM/webprogram/Handout/Paper226205/HUGHES%20GSA%20Oct%2028%202013%20-%20Short.pdf.

13 J. David Hughes, Drill Baby Drill: Can Unconventional Fuels Usher in a New Era of Energy Abundance? (Santa Rosa, CA: Post Carbon Institute, 2013), http://shalebubble.org/drill-baby-drill/.

14 J. David Hughes estimates this could happen within 10-12 years in the Bakken and Eagle Ford; seehttps://gsa.confex.com/gsa/2013AM/webprogram/Handout/Paper226205/HUGHES%20GSA%20Oct%2028%202013%20-%20Short.pdf.

15 Energy Information Administration, Annual Energy Outlook 2014 (Early Release), Table 14.

16 According to J. David Hughes, $450 billion in capital expenditures (capex) will be required to drill the wells needed for the Bakken and Eagle Ford alone by 2025. The Permian Basin will also make a notable contribution to the 9.61 mbd figure.

17 See especially Art Berman’s comments on capital expenditures in Arthur Berman, “Reflections on a Decade of U.S. Shale Plays,” presentation at Shreveport Geological Society, Louisiana, December 17, 2013. http://www.jeremyleggett.net/wp-content/uploads/2013/12/SGS_Reflections-on-A-Decade-of-U.S.-Shale-Plays_17-Dec-2013.pdf.

18 Per this widely cited report: University of Southern California, USC Price School of Public Policy, The Monterey Shale and California’s Economic Future, (March 2013),http://gen.usc.edu/assets/001/84955.pdf.

19 J. David Hughes, Drilling California: A Reality Check on the Monterey Shale, (Santa Rosa, CA: Post Carbon Institute, 2013), http://montereyoil.org/report.

21 It’s unlikely that a significant amount of “lost” American tight oil would be compensated with increased production elsewhere without higher oil prices, as few areas of the world are expecting significant oil production growth outside of North America.

22 In his book Snake Oil Richard Heinberg notes that “during the past dozen years the [EIA] had underestimated oil prices and overestimated oil production most of the time” based on the EIA’s own AEO Retrospective Review published March 2013.http://www.eia.gov/forecasts/aeo/retrospective/

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