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Peak Oil: “Show-Stoppers” – Peak Oil Matters

Peak Oil: “Show-Stoppers” – Peak Oil Matters.

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Freshly fracked wells sent U.S. oil production soaring 39 percent since 2011. That’s the steepest climb in history, and if production continues apace, the U.S. would become the world’s biggest source of oil by 2015, according to the U.S. Energy Information  Administration.

Rapid well declines threaten to spoil that promise. The average flow from a shale gas well drops by about 50 percent to 75 percent in the first year, and up to 78 percent for oil, said Pete Stark, senior research director at IHS Inc.
‘The decline rate is a potential show stopper after a while,’ said Stark, a geologist with almost six decades in the oil patch. ‘You just can’t keep up with it.’ [1]

That’s an interesting comment, given that the company Mr. Stark works for is more commonly known for its sunny optimism about our future fossil fuel supply.

FRACKING ISN’T FREE OR EASY

The reality is that rapid decline rates are a common feature of fracked wells. Drilling faster, more, and at higher costs just to keep pace with current production is not exactly a winning strategy. Higher costs for them are supported by the higher costs we pay. At some point, consumers balk, and when they do, there goes a lot of investable funds for more production. Then what?

The article from which that quote was sourced describes some of the admittedly-fascinating overview of the artificial intelligence systems now being considered—and it some cases already deployed—to improve the drill results from fracking (the hydraulic fracturing of shale in order to facilitate the flow of “tight” oil trapped in those rocks.) The article notes that “four out of every 10 clusters of fractures in an average horizontal well are duds.” Given that each well can cost millions of dollars, much more than wells drilled in conventional crude oil fields, that can be a problem.

AN UNSPOKEN CHALLENGE OR TWO

The use of fiber-optics and 3D seismic imaging are among the technological advances now being used to aid scientists “scientists see and hear what’s going on two miles underground.”

An executive of Schlumberger Ltd is quoted in this same article announcing that the combination of their own scientists’ expertise with the “U-ROC” software program “has led to an almost 30 percent increase in production in some wells in the Eagle Ford [TX].”

An official from another petroleum company that after collaborating with Halliburton and using a “science-based approach,” his company’s “shares doubled in the five months after” a conference call with investors.

If that’s not enough good news, by last summer the company enjoyed its “best-ever results” in the shale formations of western Texas’ Permian Basis, “and that it was‘among the best’ among its competitors at that location. The improvements were attributed in part, as a spokesman noted, to the company’s “own internal efforts to pump more time and money into the science of drilling and production.”

A LOOK AT THE UNSPOKEN

Improved performance is improved performance. But for those of us interested in how depleting and finite fossil fuel resources—with a healthy concern that technology and economics will continue to make extraction and production feasible to begin with—will keep up with demand in the years ahead, the doubling of a company’s shares, “an almost 30 percent increase in production in some wells,” being “among the best,” and pumping “more time and money into the science of drilling and production” suggests that all is not well in Oil Production Land.

That’s precisely what those of us concerned about peak oil continue to stress to listeners and readers.

It’s probably safe to assume that none of those efforts or the technologies employed are inexpensive. It’s also a certainty that whatever costs are associated with developing, testing, supplying, and using those impressive advances get passed on to consumers.

The impressive technologies now in play, with their higher costs, to locate and produce a product harder-to-come-by and not of the same quality as the conventional crude oil we’ve used to power our civilization for more than a century all point to the fact that we clearly can no longer rely on Business As Usual in oil production itself and fossil fuel usage by all of us.

Taking a bit of a detour in the headlong pursuit of ever more expensive technologies in order to plan for what happens in years to come when that resource just doesn’t do what we all need it to do; or devote more resources to the alternatives which will be needed when it makes little sense to continue the fossil fuel chase; or even provide more information to the public now so that they can get into the game doesn’t seem all that unreasonable, does it?

~ My Photo: Corona del Mar, CA – 02.16.18

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 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

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

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.

[chart]

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/

7 things everyone knows about energy that just ain’t so (2013 Edition)

7 things everyone knows about energy that just ain’t so (2013 Edition).

by Kurt Cobb, originally published by Resource Insights  | TODAY

Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” And, there are many, many things that the public and policymakers know for sure about energy that just ain’t so.

That list is very long indeed and getting longer as the fossil fuel industry (which has little interest in intellectual honesty) continues its skillful manipulation of a gullible and sometimes careless media.

Pinocchio in a parade http://commons.wikimedia.org/wiki/File:1916MomusPinocchio.jpg

Below I’ve listed seven whoppers that it would be charitable to call misleading. Longtime readers will recognize that I’ve addressed them before in various pieces. But I thought that it would be useful to review the worst of the worst of 2013 as the year ends.

Here are seven things everyone knows about energy that just ain’t so:

1. Worldwide oil production has been growing by leaps and bounds in the last several years. Oil companies (with governments following suit) have cleverly redefined oil to include something called natural gas plant liquids (NGPLs) that you might surmise actually come from natural gas wells. These include propane, butane, ethane, and pentanes. The new definition also includes biofuels such as ethanol and biodiesel.

This mishmash is sometimes referred to as “total liquids,” but more often “total oil supply.” This redefinition, however, depends on something that just ain’t so, namely, that NGPLs and biofuels are 100 percent interchangeable with oil. There is some interchangeability, but the volume is relatively small. NGPLs make up just 10 percent of total liquids. I’ve seen investment research that asserts that probably less than one-fifth of that (equivalent to about 2 percent of total liquids) can be directly substituted for oil, primarily in petrochemical refineries. That portion could grow, but only with extensive and costly retooling of the refinery industry, a move that seems risky with U.S. natural gas production stalled (see below).

Now, the central problem with including NGPLs as part of the oil supply remains that they have only a very limited ability to be used as transportation fuel which is the main driver for oil consumption.

Moreover, the energy content of NGPLs is around 65 percent of oil per unit of volume. Ethanol has about 66 percent of oil’s energy, and biodiesel has slightly more than crude oil, but somewhat less than the diesel it is meant to replace. We must also consider all the energy including oil that goes into growing, harvesting, transporting and processing the crops that are feedstocks for biofuel refineries. Some studies show that more energy goes into making ethanol than ethanol produces when burned in an engine.

Despite these well-known facts, the industry and government continue to count NGPLs and biofuels in barrels right alongside oil as if they were all equivalent.

Ethanol and biodiesel do directly substitute for some motor fuels. But there are upper limits on what we can produce and use. We are near those limits with ethanol unless engines change to tolerate higher concentrations of ethanol. Moreover, neither ethanol nor biodiesel can be used for the wide variety of purposes that crude oil can.

It turns out that 2005 was an inflection point after which supply growth for both total liquids and oil proper slowed considerably. With all this in mind, let’s look at the actual numbers which come from the U.S. Energy Information Administration (EIA).

 Total Liquids:

 Growth from 1998 to 2005: 11.7 percent

 Growth from 2005 to 2012: 5.7 percent

 Oil Proper (Crude Oil Plus Lease Condensate):

 Growth from 1998 to 2005: 9.9 percent

 Growth from 2005 to 2012: 2.7 percent

You can see that the real oil supply (crude oil plus lease condensate) has been growing at just over one-quarter the pace it did in the previous seven years–even with record prices, record investment and the wide deployment of new extraction technologies. Slowing growth coupled with skyrocketing demand in places such as China and India has put a lot of upward pressure on oil prices. It’s one reason oil prices remain near record highs based on the average daily price of Brent Crude, the world benchmark.

In 2011 the average daily Brent Crude price was a record $111.26—which was followed by another record in 2012 of $111.63. The price in 2013 through December 26 has averaged $108.52.

2. U.S. natural gas production continues to grow by leaps and bounds.This claim is even more misleading than the first one. It’s true that natural gas production has grown in the United States in recent years due to the exploitation of gas trapped in deep shale deposits, deposits that new technology called hydraulic fracturing is now making accessible.

But, it turns out that the rate of production of these wells declines rapidly, and the numbers suggest that raising the overall U.S. rate of production is going to be very difficult and expensive. In fact, since January 2012, monthly U.S. marketed natural gas volumes have been nearly flat despite a more than doubling of natural gas prices from their April 2012 lows. The average monthly volume in 2012 was 2.11 trillion cubic feet (tcf). For 2013 the data are only available through September, but the average through that month was 2.12 tcf. It’s doubtful that the average will change that much when the final three months of the year are included.

The easy shale gas has been extracted. Now comes the hard stuff. We may already be on the shale gas treadmill.

3. There is enough natural gas under the United States to last the country for 100 years. This claim requires that you first do bad math on the numbers even the perpetrators of this falsehood provide. The number turns out to be 90 years using their figures and 2010 U.S. natural gas consumption (while assuming, improbably so, no growth in U.S. natural gas use for the next 90 years).

But even that number vastly overstates what we are likely to get out of the ground for it includes estimates of probable, possible and speculative technically recoverable resources. Now, just because something is judged to be technically recoverable does not mean it will be economically recoverable. And, if it is further labelled possible or speculative, it seems foolish to base our public policy on such resources as if they were proven to exist and were ready to extract.

Shale gas expert Art Berman suggests we focus on the probable resources category and assume generously that 50 percent of those resources will actually get turned into reserves. (Keep in mind that no resource is ever exploited to 100 percent and usually only to a fraction of that. Also, resources are what are thought to be in the ground based on sketchy evidence, while reserves are what the drill bit proves are actually there and, more importantly, amenable to extraction.) Based on these assumptions, the United States has about 550 tcf feet of probable and proven reserves which means that the country has a likely supply of about 23 years (again, assuming, improbably so, no increase in the rate of consumption during the entire period).

Since Berman made those calculations, some of the probable resources have moved into the reserves category. But, the outlook has not really changed because this was expected.

4. The United States is about to become the world’s largest oil producer. This claim depends on the same sleight-of-hand being used to inflate worldwide oil production numbers as noted above: the inclusion of NGPLs and biofuels in the production numbers. The United States has been furiously drilling natural gas wells in the last few years and has increased its supply of NGPLs greatly. The production of crude oil proper has also been growing for essentially the same reason natural gas production grew: the deployment of hydraulic fracturing techniques and horizontal drilling to extract previously inaccessible deposits of so-called tight oil.

The results have been impressive, lifting U.S. production of crude oil proper (crude oil plus lease condensate) from 5.2 million barrels per day (mbpd) in 2005 to 6.5 mbpd in 2012. The latest available monthly production results are for September 2013 and put U.S. crude oil production at 7.8 mbpd.

But, it seems unlikely given the very steep production declines that existing tight oil wells experience–about 40 percent per year–that production will be able to scale that of the world’s number one and number two oil producers.

Russia currently produces 9.9 mbpd of crude oil proper. Saudi Arabia produces 9.8 mbpd. Both numbers come from the EIA.

Could the United States produce more crude oil proper than these countries in the near future? Since we cannot know the future, anything is possible. But, consider that the United States has gotten most of the easy tight oil. Now, it must begin to rely on extraction of the hard-to-get oil. That oil will come out at a slower rate.

Meanwhile, the tight oil wells already drilled will continue to decline at colossal rates and their output will have to be replaced before any increase in production is possible. Trying to increase oil production under these circumstances can be likened to running up a down escalator since the declining production of existing wells cancels out much of the production from newly drilled wells.

If the United States were to attain the number one spot some day, it would be hard to maintain given the high production decline rates cited above.

5. The United States is on the verge of energy independence. This canard takes advantage of the lack of public awareness about U.S. energy resources. The country has long been self-sufficient in coal. This has never been an issue. It has also been nearly self-sufficient in natural gas, importing a little over 15 percent of its needs (almost all of it from Canada) from 1991 through 2011 according to the EIA. That percentage has trended down recently as U.S. production has increased. But the U.S. supply of imported natural gas was never in danger due to political disruptions or wars in faraway unfriendly countries.

So, it turns out that energy independence really means oil independence. On this count the country is still very far away from independence despite recent gains in domestic oil production. For the most recent week ending December 20, the United States’ net crude oil imports were 7.5 mbpd. The country would have to nearly double its rate of domestic crude oil production to meet its current consumption needs. That seems very unlikely given the production dynamics discussed above for tight oil which is where nearly all the growth in production is currently taking place.

6. The United States has 250 years of coal left. This claim keeps getting recycled even though a 2007 National Academy of Sciences study concluded that there was no basis for making such a claim. It suggested that the United States might have 100 years of coal left (assuming, improbably so, there would be absolutely no increase in the rate of consumption over that period). But, the report concluded that no comprehensive study of U.S. coal resources was currently available. The truth is nobody knows how much coal is left in the United States, nor how much of that might actually be accessible.

7. Peak oil is a myth. Peak oil is the idea that oil production inevitably reaches a maximum rate and thereafter begins an irreversible decline. It does NOT mean running out, but rather that production declines over time. It turns out that peak oil is actually an empirically demonstrated reality for every oil well, every mature oil field, and now for the majority of oil producing countries in the world. Those who tell us that peak oil is a myth can only be engaged in propaganda rather than a search for the truth. Ironically, many of them cite the upturn in U.S. production as “proof” that peak oil is a myth, forgetting that U.S. production peaked more than 40 years ago.

Oil is a finite resource and so, the real debate is over the timing of peak oil production for the world as a whole. Some say the peak is nearby. Others say it is two or three decades away. But no credible expert says that there will never be a peak.

The cases for and against a near-term peak would be difficult to relate in detail here. But, it’s worth noting that the optimists have been consistently wrong about prices and supplies in the last decade, and those predicting a near-term peak have been much closer to the mark.

That doesn’t mean that the peak must be nearby. But it suggests that the models and assumptions of the optimists are badly flawed.

There are so many other misconceptions about energy which remain that it would take a dozen seven-item lists just to begin to address them. But, I offer these seven as a starting point for a clearer and more honest discussion of our energy future in the coming year.

 

WTI Trades Near Two-Month High Above $100 on Stockpiles – Bloomberg

WTI Trades Near Two-Month High Above $100 on Stockpiles – Bloomberg.

West Texas Intermediate traded near a two-month high above $100 a barrel after U.S. crude and distillate stockpiles fell more than forecast, while exports from Libya remained curbed by port closures.

Futures were little changed near the highest settlement since Oct. 18. Crude inventoriesdropped by 4.73 million barrels to the lowest level since September last week amid an increase in refinery operations, while distillate supplies, including diesel and heating fuel, fell by 1.85 million barrels to 114.1 million, the Energy Information Administration reported Dec. 27. A possible agreement with rebels to reopen the Libyan port of Hariga collapsed, the oil ministry said Dec. 28.

“The recovery of the U.S. economy is fueling expectations of higher oil demand in the U.S.,” saidOlivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. “Distillate stocks will end 2013 at a multi-year low for the season and that should translate into very low stocks by spring.”

WTI for February dropped 7 cents to $100.25 a barrel in electronic trading on the New York Mercantile Exchange as of 11:43 a.m. London time. It closed at $100.32 on Dec. 27, settling above $100 a barrel for the first time since October. The volume of all contracts traded was about 56 percent below the 100-day average. Prices have climbed 9.2 percent in 2013, set for a fourth annual gain in five years.

Brent for February settlement was down 2 cents at $112.16 a barrel on the London-based ICE Futures Europe exchange. Prices have advanced 1 percent this year. The European benchmark crude was at a premium of $11.91 to WTI. The spread closed at $11.96 on Dec. 27, narrowing for a third day.

Oil Supplies

While there is currently no deal to reopen the port of Hariga, negotiations with rebels holding the terminal continue, Ibrahim Al Awami, head of measurement and inspection at Libya’s oil ministry, said by phone Dec. 28. The country is pumping 233,889 barrels of crude a day, compared with a daily capacity of about 1.6 million, the oil ministry said Dec. 21.

WTI has increased 8.2 percent in December amid reduced crude stockpiles in the U.S., the world’s biggest oil consumer. The country will account for about 21 percent of global demand this year, according to the International Energy Agency.

Inventory Drop

Crude inventories slid for a fourth week to 367.6 million barrels, according to the EIA, the Energy Department’s statistical arm. A median decline of 2.65 million barrels was forecast by analysts in a Bloomberg News survey. Refineries operated at an average 92.7 percent of capacity, the highest rate since July 12. Consumption of distillates climbed 2 percent to 4.17 million barrels a day.

“We saw some strength on West Texas based on the better-than-expected figures” from the EIA, Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone today. “There’s potential for the market to rally further if it gets more good news. The U.S. may see further improvement in economic statistics in the next few weeks.”

The EIA will next report weekly data on inventories and demand levels on Jan. 3, two days later than normal because of the New Year holiday.

Brent will drop for a second year in 2014 as U.S. oil production expands and supply threats ease in the Middle East and North Africa, a separate Bloomberg survey showed. Futures will decline to $105, down from $108.70 in 2013, according to the median estimate of the seven analysts who most accurately predicted this year’s level. Prices averaged $111.68 in 2012.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

 

The Man Who Predicted the Future for BP Says Peak Oil Is Nigh | Motherboard

The Man Who Predicted the Future for BP Says Peak Oil Is Nigh | Motherboard.

By Brian Merchant

One of the more famous portraits of peak oil. Image: Wikimedia

In a year that saw the United States reach near-historic levels of fossil fuel production, it seemed that the words ‘peak oil’ were scarcely uttered. But it’s still a looming question, that we have yet to satisfactorily answer—when are we going to run out of oil? Have we already started to? A renowned geologist, and a former top analyst for BP no less, says the answer is yes.

“We are probably in peak oil today, or at least in the foot-hills,” Dr. Richard Miller said recently at a talk in London. According to the Guardian, Miller “prepared BP’s in-house projections of future oil supply for BP from 2000 to 2007,” and is bringing peak oil back into focus at the end of a petroleum-soaked year. He says that oil production has already peaked in 37 oil-producing countries, and that global production is declining at about 3.5 million barrels every year. Continued reliance on oil, and the coming shortage, will do nothing less than “break economies.”

Per the Guardian

“We need new production equal to a new Saudi Arabia every 3 to 4 years to maintain and grow supply… New discoveries have not matched consumption since 1986. We are drawing down on our reserves, even though reserves are apparently climbing every year. Reserves are growing due to better technology in old fields, raising the amount we can recover– but production is still falling at 4.1% p.a. [per annum].”

Bottom line being, oil companies and governments are jazzed on new technologies and extraction techniques like fracking and tar sands—Exxon and co are running shiny ads touting domestic energy production—but none of that changes the fact that oil is running out. We’re getting better at scraping the bottom of the barrel, but you can only get so much.

“Production of conventional liquid oil has been flat since 2008,” Miller said. “Growth in liquid supply since then has been largely of natural gas liquids [NGL]—ethane, propane, butane, pentane—and oil-sand bitumen.”

Add Miller’s warnings to a long list of geologists, economists, and environmentalists who say we’re outrunning our dependence on the black gold. In 2008, the Germany-based Energy Watch Group proclaimed “peak oil is now.” In 2005, a group of respected geologists and physicists started the Oil Drum, and warned that demand had begun to outpace production. Their prognosis was repeatedly vindicated.

In 2009, the UK Energy Research Centre concluded that “A global peak is inevitable. The timing is uncertain, but the window is rapidly narrowing.” And even the US Department of Defenseforecast a shortage of oil as soon as 2015.

Which is to say, Miller finds himself in some pretty sterling company, and in a year where the nation had fossil fuels on the brain, his cautions are especially worth considering.

 

The U.S. Monthly Energy Review, US Oil Production, Peak Oil, CrudePeak Oil Barrel

The U.S. Monthly Energy Review, US Oil Production, Peak Oil, CrudePeak Oil Barrel.

The US Monthly Energy Review is now up with all the US Oil and Gas data for November. US (estimated) Crude + Condensate production was 8,002 kb/d for November. I think that will be revised later because the Bakken had a bad month in November.

Crude Oil Total

The average, so far this year, has been 7,438 kb/d and if December production is as much as November then the average for 2013 will be about 7,485 kb/d. AEO 2014 estimated 2013 production at 7,756 kb/d so it would appear that they are already a bit high with their prediction.

Natural gas liquids, along with natural gas is supposed to be a major player in our drive for “energy independence”, is up about 1 million barrels per day since 2006.

NGLs

In the chart below I have charted Net Imports along with Total Field Production, (NGLs + Crude) and Petroleum Products Supplied. The difference between Total Field Production and Petroleum Products Supplied is the distance we must go to reach energy independence.

Products Supplied

Although most of my charts are not zero based, because I like to amplify change, I have made this one zero based because I wanted to show how far we have come and how far we have to to attain energy independence.

Products Supplied increased by 614 kb/d in November and is up 1,864 kb/d since last December. And notice also that we are back to 20 million barrels per day of consumption.

Important Notice: The only reliable monthly world crude oil production numbers has come from the EIA. I find it extremely frustrating however that the EIA does not see world oil production as a priority. They seem to get later and later each month with their updates. When the old International Petroleum Monthly was published the data was only two months behind at most. Now we must rely on theInternational Energy Statistics page. Their last update was about 5 weeks ago with the July data. Now they are almost 5 months behind and I don’t expect anything before the first of the year. Friday I posted Patricia Smith, the EIA person who posts the data, though she does not compile it. Here is the exchange:

 To: Patricia Smith
Patricia, every day I check, several times, to see if the International Energy Statistics has been updated. And every time I am disappointed. Do you have any idea when it will be posted? And I am worried, is there a chance that this report will be cancelled?
Thanks and I am anxiously awaiting your reply,
Ron Patterson
Here is the reply I received Monday:
Hello Ron,

Due to a staff shortages, technical and database issues, and other priorities, some of the data are late getting posted to the web.  There have been so many changes, but hopefully the international program will not be cancelled.  Please be assured that we are working very hard to get the thousands of data records updated, I just can’t tell you an exact date.  What specifically are you looking for?

Pat

I replied and thanked her for her reply and told her I was looking for world crude oil production data from all oil producing nations. But from the tone of her post I am not hopeful.

 

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