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Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity
Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity.
Richard Heinberg: The Oil ‘Revolution’ Story Is Dead Wrong
With all the grandiosity of the media headlines touting our destiny as the new “Saudi America”, many pundits have been quick to pronounce Peak Oil dead.
Here at PeakProsperity.com, one of the most frequent questions we’ve received over the past two years is: will the increased production from new “tight” oil sources indeed solve our liquid fuels emergency?
Not at all, say Chris and this week’s podcast guest, Richard Heinberg. Both are fellows at the Post Carbon Institute, and you are about to hear one of the most important and most lucid deconstructions of the false promise of American energy independence:
I recently went back and reread the first edition of The Party’s Over because it was the tenth year anniversary. And I was actually a little surprised to see what it really says. My forecasts in The Party’s Over were really based on the work of two veteran petroleum geologists—Colin Campbell and Jean Laherrère. So they were saying back before 2003, because it published in 2003, so it was actually written in 2001 and 2002. So they were saying back in 2000 and 2001 that we would see a peak in conventional oil around 2005—check—that that would cause oil prices to bump higher—check—which would cause a slowdown in economic growth—check. But it would also incentivize production of unconventional oil in various forms—check—which would then peak around 2015, which is basically almost where we are right now and all the signs are suggesting that that is going to be a check-off, too. So amazing enough, these two guys got it perfectly correct fifteen years ago.
The big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.
So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.
But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. I think Gail Tverberg is saying this is the beginning of the end. I think she’s right.
If we [continue along with our current policies and dependence on petroleum] then everything will eventually change — as a result of the economy coming apart, the debt bubble bursts, you know, agriculture declines because of the expense of oil and because of depletion of topsoil and because you cannot trust the weather anymore. And we have a very dystopian future if we do not do anything.
So it has never been more important for the average person to understand energy issues than it is right now. But I doubt if there has ever been a time when energy issues have been so deliberately confused by the people who should be explaining it to us.
Click the play button below to listen to Chris’ interview with Richard Heinberg (49m:43s):
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today, I am really excited to introduce a man who needs no introduction, Richard Heinberg, author, educator, speaker, writer now of eleven books including Party’s Over, the one that got me started on the peak oil story, The End of Growth, and Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future.
Richard Heinberg: Try say that fast five times.
Chris Martenson: [Laugh] I did, and that is the best I could do [laughter]. Welcome, Richard.
Richard Heinberg: Good to be with you, … read more
ABOUT THE GUEST
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Richard Heinberg: Why The Oil 'Revolution' Story Is Dead Wrong | Peak Prosperity
Richard Heinberg: Why The Oil ‘Revolution’ Story Is Dead Wrong | Peak Prosperity.
Richard Heinberg: The Oil ‘Revolution’ Story Is Dead Wrong
With all the grandiosity of the media headlines touting our destiny as the new “Saudi America”, many pundits have been quick to pronounce Peak Oil dead.
Here at PeakProsperity.com, one of the most frequent questions we’ve received over the past two years is: will the increased production from new “tight” oil sources indeed solve our liquid fuels emergency?
Not at all, say Chris and this week’s podcast guest, Richard Heinberg. Both are fellows at the Post Carbon Institute, and you are about to hear one of the most important and most lucid deconstructions of the false promise of American energy independence:
I recently went back and reread the first edition of The Party’s Over because it was the tenth year anniversary. And I was actually a little surprised to see what it really says. My forecasts in The Party’s Over were really based on the work of two veteran petroleum geologists—Colin Campbell and Jean Laherrère. So they were saying back before 2003, because it published in 2003, so it was actually written in 2001 and 2002. So they were saying back in 2000 and 2001 that we would see a peak in conventional oil around 2005—check—that that would cause oil prices to bump higher—check—which would cause a slowdown in economic growth—check. But it would also incentivize production of unconventional oil in various forms—check—which would then peak around 2015, which is basically almost where we are right now and all the signs are suggesting that that is going to be a check-off, too. So amazing enough, these two guys got it perfectly correct fifteen years ago.
The big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.
So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.
But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. I think Gail Tverberg is saying this is the beginning of the end. I think she’s right.
If we [continue along with our current policies and dependence on petroleum] then everything will eventually change — as a result of the economy coming apart, the debt bubble bursts, you know, agriculture declines because of the expense of oil and because of depletion of topsoil and because you cannot trust the weather anymore. And we have a very dystopian future if we do not do anything.
So it has never been more important for the average person to understand energy issues than it is right now. But I doubt if there has ever been a time when energy issues have been so deliberately confused by the people who should be explaining it to us.
Click the play button below to listen to Chris’ interview with Richard Heinberg (49m:43s):
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson, and today, I am really excited to introduce a man who needs no introduction, Richard Heinberg, author, educator, speaker, writer now of eleven books including Party’s Over, the one that got me started on the peak oil story, The End of Growth, and Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future.
Richard Heinberg: Try say that fast five times.
Chris Martenson: [Laugh] I did, and that is the best I could do [laughter]. Welcome, Richard.
Richard Heinberg: Good to be with you, … read more
ABOUT THE GUEST
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A cascade of woes hitting Venezuela’s oil industry « The Barrel Blog
A cascade of woes hitting Venezuela’s oil industry « The Barrel Blog.
By John Kingston | February 28, 2014 10:11 PM
At a conference that annually celebrates–for the most part–the explosion of North American supply, a panel that featured two PDVSA alumni turned into a bleak review of an almost unfathomable crisis gripping the Venezuelan oil industry.
The strife in the streets of Caracas, and the lines of people waiting to buy the basic stuff of life, are almost secondary to the fact that, as the panelists noted, the Venezuelan government has mortgaged the future of its oil industry. Waiting for the country’s rapidly sinking ship of state to be righted by an increase in production, and maybe a boost in prices too, increasingly appears to be a pipe dream.
The two panelists discussing this on day two of the Platts Crude Oil Market-Americas conference in Houston were Alberto Cisnernos Lavalier, CEO and president of Caracas-based Global Business Consultants, and Ramon Espinasa, the lead oil and gas specialist in the Infrastructure and Environment Department at the Interamerican Development Bank.
One of the topics to be discussed at the panel was whether Venezuela was ripe for a “mini-apertura,” an opening into new investment in the country’s oil sector. The initial apertura of the 90′s was squashed by the election of Hugo Chavez as Venezuelan president, and it started the downward spiral of Venezuelan production that sent output down to 2.1 million b/d from 3.6 million b/d at its peak.
After listening to the panelists, one could only conclude that the industry is ripe for total collapse, not a surge in foreign investment.
Cisnernos noted Venezuela’s series of financial deals with China, in which loans from the Asian country are sent to Caracas in exchange for oil. The oil is sold at fixed-price numbers, which don’t look all that bad at first glance, up in the $90-$100 level, but in which the prices are CIF China and Venezuela absorbs the shipping cost. He reviewed the complicated structures of the various deals, ultimately describing them as “mortgaging the future.”
The Venezuela-China deals also violate the market’s “iron law” that usually sees oil marketed regionally, Cisnernos said. Instead, shipments taking 35-45 days to China are replacing one-week voyages into the US, Cisnernos said. And since most of the shipments are of lesser-value heavy oil or fuel oil, the shipping costs are deducting a higher percentage from the final netback than if a higher-value crude was being moved.
Venezuelan shipments to China stood at 66,000 b/d in 2008, Cisnernos said, but had averaged 326,000 b/d through the first eight months of 2013; he said he drew those figures from unofficial–and undisclosed–sources. But they’ve been as high as 488,000 b/d, he added, and “it’s roller-coaster behavior. There is no relation to production.” By contrast, the decline in exports to the US very much tracks Venezuela’s sliding output.
And the debts to China are just one of the obligations facing Venezuela. The joint ventures in the Orinoco belt each need upgraders that cost anywhere from $8 billion to $10 billion each. PDVSA must put up about 60% of the costs. “How in the world are they going to be able to pay for this?” Cisnernos said.
And Espinasa echoed what Platts Oilgram News reported a few weeks ago (and which The Barrel published in this post): financing the required PDVSA contributions to the Orinoco projects have been paid for to some degree by promising future oil shipments that would otherwise have gone to the Venezuelan coffers. “For a number of PDVSA deals they have paid for them with future supply,” he said.
The list of lamentations went on, few of them particularly shocking: the enormous brain drain from PDVSA “which will take a long time to recover,” as Espinasa said; a safety record at PDVSA refineries that could charitably be described as appalling; and a refinery operating rate that may at best top out at 60%, requiring the country to import lots of things it previously had exported, like gasoline blending components.
And with the growing street unrest in the country, forget any chance of ending the subsidy of gasoline prices that keeps retail numbers at less than 10 US cents per gallon, and leads to smuggling of what Espinasa said was about 100,000 b/d of product through Colombia and other parts of the Caribbean. The government had considered it, but given street protests, that move would be—pun clearly intended–like “throwing gasoline on the fire.”
Yet Cisnernos actually showed some optimism. He said that if there was “light at the end of the tunnel”—though why there would be was not clear—then production could be like a “hammock,” continuing to slide now but rebounding by 2020.
Espinasa offered sobering numbers on the task ahead. Twice in its history as an oil producer, Venezuela produced annual average growth rates of 110,000 b/d. The first was in the post World War II period, ending in about 1958; the second was during the Luis Guisti-led apertura of the 90’s. For Venezuela to get back to its peak output of 3.6 million b/d, reached around 1997, it would need to hit that average growth rate and sustain it for at least ten years, maybe more depending on the rates of decline in existing fields.
And he didn’t say this, but that would have to be done while some of the output that would otherwise finance that growth has already been put up as a sort of petroleum dowry to China and the Orinoco partners.
Grim, indeed.
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Survive Peak Oil: Oil and Gas: How Little Is Left
Survive Peak Oil: Oil and Gas: How Little Is Left.
Tuesday, February 4, 2014
Oil and Gas: How Little Is Left
“If we’re doing things like fracking, it just shows how little is left of all this stuff, and how desperate we are to get at it.” — Anonymous
Global production of conventional oil is past its peak and is now beginning its decline. A mixed bag of unconventional fuels (shale oil, tar-sands oil, natural-gas-liquids, etc.) is keeping the total on a slight rise or a rough plateau.
The hottest discussion in the US over the last few years has involved the fracturing (“fracking”) of shale to extract both oil and gas, but production by this method is already slowing or in decline. The costs of fracking are considerable, and so is the environmental damage.
The price of oil is still about $100 a barrel, far above that of the 1990s, in terms of both nominal and real dollars. The failure of the price to go down is an embarrassment to those who think unconventional oil is really solving any problems. But the high price is due not just to increased demand or to geopolitical risk. It is because of trying to squeeze oil out of places where it makes little sense to be squeezing.
The following data are “annual” and “global” and are from BP’s 2013 report unless described otherwise.
Laherrère: “The plots of these data start flattening in 2005, followed by a bumpy plateau. The post-2010 increase is mainly caused by the increase of liquids from US shale gas and US shale oil.”
Hughes: “. . . Politicians and industry leaders alike now hail ‘one hundred years of gas’ and anticipate the U.S. regaining its crown as the world’s foremost oil producer. . . . The much-heralded reduction of oil imports in the past few years has in fact been just as much a story of reduced consumption, primarily related to the Great Recession, as it has been a story of increased production.”
RATE OF SUPPLY; NET ENERGY
Hughes: “The metric most commonly cited to suggest a new age of fossil fuels is the estimate of in situ unconventional resources and the purported fraction that can be recovered. These estimates are then divided by current consumption rates to produce many decades or centuries of future consumption. In fact, two other metrics are critically important in determining the viability of an energy resource:
“• The rate of energy supply — that is, the rate at which the resource can be produced. A large in situ resource does society little good if it cannot be produced consistently and in large enough quantities. . . . Tar sands . . . have yielded production of less than two percent of world oil requirements.
“• The net energy yield of the resource. . . . The net energy . . . of unconventional resources is generally much lower than for conventional resources. . . .”
GLOBAL OIL PRODUCTION
For conventional oil, the peak annual global production was about 27 billion barrels, or about 73 million barrels per day. The peak date of production was about 2010.
BP shows global oil production still increasing in 2012, although much more slowly than before — an annual increase of about 1 percent between 2002 and 2012, as opposed to about 9 percent annually between 1930 and 2001. Laherrère’s Figure 10, on the other hand, shows an actual peak at 2010. The difference is due to the fact that the BP figures include unconventional oil (shale oil, tar-sands oil, natural-gas-liquids, etc.).
According to most studies, the likely average rate of decline of oil production after the peak date is about 3 or 4 percent, resulting in a fall from peak production to half that amount about 20 years after the peak. However, there is also evidence (Höök et al., June 2009; Simmons, 2006) to suggest that the decline rate might be closer to 6 percent, i.e. reaching the halfway point about 10 years after the peak.
Per capita, the peak date of oil production was 1979, when there were 5.5 barrels of oil per person annually, as opposed to 4.4 in 2012.
Laherrère: “The confidential technical data on [mean values of proven + probable reserves] is only available from expensive and very large scout databases. . . .
“There is a huge difference between the political/financial proved reserves [so-called], and the confidential technical [proven + probable] reserves. Most economists do not believe in peak oil. They rely only on the proved reserves coming from [the Oil and Gas Journal, the US Energy Information Administration], BP and OPEC data, which are wrong; they have no access to the confidential technical data. . . .
“The last [International Energy Agency] forecasts report an increase in oil production from 2012 to 2018 of 8% for Non-OPEC (+30% for the US) and of 7% for OPEC, which is doubtful. . . .”
US OIL PRODUCTION peaked in 1970 at 9,637 thousand barrels daily, declined in 2008 to 5,000, and rose in 2013 to 6,488.
NATURAL GAS PRODUCTION
GLOBAL GAS PRODUCTION rose from 2,524 billion cubic meters in 2002 to 3,370 billion cubic meters (95 trillion cubic feet) in 2012, an average annual increase of 3%.
Laherrère: “. . . [Global] production will peak around 2020 at more than [100 trillion cubic feet per year].” [emphasis added]
“Outside the US, the potential of shale gas is very uncertain because the ‘Not In My Back Yard’ effect is much stronger when the gas belongs to the country and not to the landowners. . . . Up to now, there is no example of economical shale gas production outside the US. The hype on shale gas will probably fall like the hype on bio-fuels a few years ago. . . .
US GAS PRODUCTION rose from 536 billion cubic meters in 2002 to 681 in 2012, an average annual increase of 2.5%.
Laherrère: “Natural gas production in the US, which peaked in 1970 like oil, is showing a sharp increase since 2005 because of shale gas. In 2011 unconventional gas production ([coal bed methane], tight gas and shale gas . . . .) was higher than conventional gas production . . . .
“This . . . leads to a peak in 2020 at 22 [trillion cubic feet] and the decline thereafter of all natural gas in the US . . . should be quite sharp. [emphasis added] The goal of exporting US liquefied natural gas seems to be based on very optimistic views. . . .
“The gross monthly natural gas production in the US has been flat since October of 2011, after its sharp increase since 2003, with only shale gas production rising. . . .” [emphasis added]
“Some claim that the US can export its shale gas as [liquid natural gas] even though conventional gas . . . is declining fast and will be quite small in just a few years.”
Hughes: “Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2011. . . . The very high decline rates of shale gas wells require continuous inputs of capital — estimated at $42 billion per year. . . . In comparison, the value of shale gas produced in 2012 was just $32.5 billion.”
TIGHT OIL (SHALE OIL) PRODUCTION
Laherrère: “Shale oil is now called light tight oil because the production in Bakken is not from a shale reservoir, but a sandy dolomite reservoir between two shale formations. . . . In Montana, production from Bakken is mainly coming from the stratigraphic field called Elm Coulee, which is decline since 2008. In North Dakota, production from Bakken has sharply increased.”
Hughes: “Tight oil production has grown impressively and now makes up about 20 percent of U.S. oil production. . . .More than 80 percent of tight oil production is from two unique plays: the Bakken in North Dakota and Montana and the Eagle Ford in southern Texas. . . . Tight oil plays are characterized by high decline rates. . . . Tight oil production is projected to grow substantially from current levels to a peak in 2017. . . . [emphasis added]
TAR-SANDS OIL PRODUCTION
Hughes: “Tar sands oil is primarily imported to the U.S. from Canada. . . It is low-net-energy oil, requiring very high levels of capital inputs (with some estimates of over $100 per barrel required for mining with upgrading in Canada). . . . The economics of much of the vast purported remaining extractable resources are increasingly questionable. . . .
NATURAL GAS PLANT LIQUIDS (NGPL) PRODUCTION
Laherrère: “World NGPL production . . . may peak in 2030 at over 11 [million barrels per day]. . . .”
OTHER RESOURCES
Hughes: “Other unconventional fossil fuel resources, such as oil shale [kerogen], coalbed methane, gas hydrates, and Arctic oil and gas — as well as technologies like coal- and gas-to-liquids, and in situ coal gasification — are also sometimes proclaimed to be the next great energy hope. But each of these is likely to be a small player. . . .
“Deepwater oil and gas production . . . would expand access to only relatively minor additional resources.”
CONCLUSIONS
Laherrère: “Peak oil deniers claim that peak oil is an unscientific theory, ignoring that peak oil has actually happened in several countries like France, UK, Norway. They confuse proved reserves with the [proven + probable] mean reserves. . . . It seems that world oil (all liquids) production will peak before 2020. . . The dream of the US becoming independent seems to be based on resources, but not on reserves.”
REFERENCES AND FURTHER READING
BP. (2013). Global statistical review of world energy. Retrieved fromhttp://www.bp.com/statisticalreview
Heinberg, R. (2013). Snake oil: How fracking’s false promise of plenty imperils our future. Santa Rosa, California: Post Carbon Institute.
Höök, M., Hirsch, R., & Aleklett, K. (2009, June). Giant oil field decline rates and their influence on world oil production. Energy Policy, Volume 37, Issue 6, pp. 2262-72. Retrieved fromhttp://dx.doi.org/10.1016/j.enpol.2009.02.020
Hughes, J. D. (2013, Feb.) Drill, baby, drill; Can unconventional fuels usher in a new era of energy abundance? Executive Summary. Post Carbon Institute. Retrieved fromhttp://www.postcarbon.org/reports/DBD-report-FINAL.pdf
Klare, M.T. (2012).The race for what’s left: The scramble for the world’s last resources. New York: Picador.
Laherrère, J. H. (2013, July 16). World oil and gas production forecasts up to 2100. The Oil Drum. Retrieved from www.theoildrum.com/node/10009
Simmons, M. R. (2006). Twilight in the desert: The coming Saudi oil shock and the world economy. Hoboken, New Jersey: John Wiley & Sons.
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Shale gas, peak oil and our future
Shale gas, peak oil and our future.
The following interview with Richard Heinberg was originally published in Flemish at the Belgian website De Wereld Morgen. The interview was given in conjunction with the release of the Dutch translation of Richard’s Book Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future. The Dutch title is Schaliegas, piekolie & onze toekomst.
Josh Fox, director of the Gasland documentaries, recently said that the fossil fuel industry is so powerful that “democracy in the 21st century is impossible as long as we rely on fossil fuels”. What are your thoughts?Share this:
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).
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.
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.
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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.
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.
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.
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:
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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Oil Price Volatility on the Way? – Our World
Oil Price Volatility on the Way? – Our World.
Predictive relationships appear to occur between large, rapid swings in oil price and recessions, stock market crashes and shifts in political polls, as I have previously discussed in articles published in 2010 and 2011. Given the economic disruptions that nearly always happen in the aftermath of oil shocks, it seems important to understand what is behind the timing of transient instabilities in the oil markets.
Last time, I examined whether repetitive patterns could be found in the ebb and flow of oil price changeability (volatility) between 2000 and 2010. To do this, I calculated rolling standard deviations (for explanation, please see Figure 2 in this post) for a 120-month series of monthly oil prices starting from January 2000. A mathematical tool called Fast Fourier Transform then scanned for repeating patterns in this rolling 10-year sequence.
What I found was that from the mid-2000s, changes in oil price showed evidence of a multi-year oscillation. This pattern was marked by a single dominant frequency that peaked at 2.8 years (~32 months). In other words, during the first decade of the new millennium, volatility in the price of oil appeared to spike every two to three years.
Confirming the potential emergence of a long-term rhythmic pattern, oil price variance spiked again in April 2011, precisely 32 months after the last major round of volatility had topped out in July 2008.
It is coming up on 30 months since the now largely forgotten market turbulence of mid-2011. If oil price volatility is oscillating in a repeating two to three-year cycle, then can we expect to see another wave of instability in oil prices occur in late 2013 or early 2014.
Oil price has lately begun showing signs of increased twitchiness — although the increase in volatility is so far modest. Recently, a crisis triggered by the use of chemical weapons in Syria, is the cause du jour that is being blamed for oil prices ramping up from the mid US$90s to over US$110 per barrel — an explanation that I find doubtful, by the way.
It remains to be seen whether the oscillatory signal described in my 2011 article will continue into the future. However, I have used oil price data that has accumulated since my earlier articles to extend the analysis, presented below.
To improve resolution of changes in oil price volatility over the last 10 or so years, I used a slightly different approach. Instead of scanning through monthly averages, a rolling 3-day standard deviation was calculated using daily prices of West Texas Intermediate (WTI) crude oil from 5 January 2004 to 30 July 2013.
The time series for the daily price of WTI oil (grey line) and its corresponding rolling 3-day standard deviation (orange line) for the period are shown in Figure 1. For those who follow oil prices, the grey line on the plot is all too familiar — distinguished as it is by the scary, vertiginous peak of 2008.
To scan for evidence of repeating signatures in the serrate orange line that traces oil price volatility on the figure, I again used Fast Fourier Transform. The results of this analysis are summarized in Figure 2. From this plot it can be seen that during the last 8 years price volatility has occurred roughly every 2.9 years (33 months).
This 2.9-year estimate for the period between spikes, based on daily oil prices, is in agreement with my 2011 estimate, calculated using monthly prices. Thus, the updated analysis accords with the previous finding — namely, that between 2004 and 2013, variance in the price of oil demonstrated a tendency to spike at a frequency of every two to three years.
Readers of my previous articles will know that I suspect that the “rinse and repeat” volatility cycle suggested by my analyses results from a global plateau in oil production being reached in 2005. I favor the hypothesis that an autonomous (e.g., like a heartbeat) oscillation in price volatility has emerged as a result of imbalances between supply and demand at this production plateau. Interestingly, similar oscillatory phenomena have been noted as an emergent property of predator-prey relationships in nature.
A major new development in the hunt for oil is the rise of “fracking” — the hydraulic fracturing extraction technology that has pushed the United States to the forefront as a major producer. It will be interesting to watch and see whether fracking alters the dynamics of oil price changeability in the next few years — perhaps temporarily damping the amplitude of its oscillatory behavior.
If a new spike in price variance does occur in coming months, then it would pay to keep an eye on stocks, given the tendency of the market to react to oil shocks. Also, if a new wave of instability in the oil market sweeps in, then the 2014 congressional elections could have surprises in store. Stay tuned to this frequency.
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Crude Oil Spikes Most In 7 Weeks As Iran Nuclear Deal Hopes Fade | Zero Hedge
Crude Oil Spikes Most In 7 Weeks As Iran Nuclear Deal Hopes Fade | Zero Hedge.
With the WTI-Brent spread at 8-month wides, RINs having collapsed, and US investors buoyed by gas prices at the pump near recent lows, the surge in crude oil prices today – by their most since October 2nd – may take some of the ‘tax-cut’ punch from the party (remember gas prices are still 11.4% above recent seasonal norms). The 2% jump in WTI (and 1.85% rise in Brent over the last 2 days) may have only pushed it back to one-week highs but breaks a trend of lower prices that many have hoped would persist. Desk chatter is that much of this move is a re-up of middle-east premia as Iran’s nuclear negotiator says no deal today.
Bear in mind that despite the euphoria over lower gas prices, they are still 11.4% above seasonal norms of the last 5 years…
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Guest Post: Peak Oil, Fact or Fraud? Climbing Mt. Hubbert : SRSrocco Report
Guest Post: Peak Oil, Fact or Fraud? Climbing Mt. Hubbert : SRSrocco Report. (source)
This post is written for those who hold the view, understandably, that peak-oil may be a hoax. I sometimes forget that skepticism of corporate power distorted by bubble-vision makes the study of peak-oil seem like the quest of a knave.
But if it’s not a ruse, the ramifications are vast. And it’s my contention that most people view technology, energy, and its related solutions with an irrational, often theocratic belief. I want to skip the numbers, if possible, and simply suggest that the issue called peak-oil deserves serious reflection.
Some things just stick in your mind… I remember finishing Matthew Simmons’ Twilight in the Desert before the book was actually released in Great Briton. Apparently, I considered it thatimportant. It was the most difficult book I’d ever read. Well written for the subject matter, but it was a mountain of data and dry as hell. I’d already digested other peak-oil related books; Kunstler’sThe Long Emergency was the most enjoyable. But I needed to scrutinize Simmons to eliminate possible misinterpretations. His extensive and conservative background, as a high powered energy investment banker, was essential for balance. I’ve also read a few books regarding economic collapse and, in my view, the two are hopelessly interconnected.
First, the definition. Peak refers to the top of a standard bell curve, of production, formed on a chart. It goes up, rolls over, and then goes down. Oil refers to crude, coming out of the ground. It does not represent coal, tar-sand, corn, or solar cells. Peak-oil refers to the irrefutable fact that oil-wells are discovered, tapped, drained, then abandoned. And if something like “abiotic” oil is mysteriously refilling them, it’s painfully slow. Once you acknowledge a limit, the question on peak-oil becomes when – not if.
US oil production peaked around 1970, and it did this because America was first to explore and exploit crude-oil in a big way. This massive historical trend is essentially unaffected by environmentalists and regulation. US/Peak-oil/Historical fact; short & simple, but also understand that peak-production follows peak-discovery.
There’s no getting around it, the same fate awaits the rest of the world; as the planet wide drop in discoveries and aging production begin to confirm. But it’s the resurgence of nuclear and coal, plus the recent assumed cost effectiveness tar-sand and other solutions that sound the alarm. Regardless, the fact remains; no alternative exists to replace any reasonable fraction of 80+ million barrels of crude oil per day, every day.
It’s a bit early to check the rear-view-mirror, but… “Energy Information Administration data showed world supply of crude oil has declined to 83.98 million barrels per day in the second quarter after hitting 84.35 million bpd in the fourth quarter of 2005.” When the drop off occurs and continues, the affects cascade.
Obscuring this unfolding reality is a less-than-obvious industrial complex that renders copper, suburbia, wind turbines, and modern food production as products of a fossil fuel infrastructure.The list is long, the interconnections incomprehensible; because much of technology itself is a byproduct of energy derived from oil. Adding insult to injury, unrealistic expectations are propagated by failures to discern false alternatives. Case in point, tropical sugar cane biofuel for a country with a few cars vs. temperate corn biofuel for a country with a lot of cars.
Our civilization doesn’t just run on oil; it was built on, maintained with, and continues to function as a result of cheap-oil; and lots of it. Picking the low hanging fruit doesn’t mean you’re out, it means continued harvesting requires more work for the same yield. Regarding crude, once you’ve harvested half the deposit, energy input increases as petroleum output decreases. Energy Returned over Energy Invested.
We’ve been pulling oil from the earth for over a hundred years, and the current rate of over eighty million barrels per day is more than any period in history. Clearly the opposite of running out; butrunning-out isn’t the problem, at this time. It’s producing less that can be catastrophic. Remember, peak-oil refers to crude-oil max production; not tar-sands or coal. In some respects, it’s even a distraction to think of the down-slope as costing more money; as in money to produceoil-energy. More importantly, it costs more energy to produce energy. ERoEI
Notice also that the concepts of energy and technology are often used interchangeably. They go hand in hand, but they’re not synonymous. And how much clean natural gas are we willing to squander fabricating usable liquid fuels from tar sands? As I recently read, this may be akin to using “caviar to make fake crab-meat.” The upside of Hubbert Peak grew human population to levels never-before possible. On the downside we deal with it; a commodities bullfight.
History provides myriad examples of market bubbles. At the end of 2006 we consider the housing bubble. A larger bubble yet is the bubble economy itself, and an argument could be made for the largest bubble of all time. Spending half the earth’s endowment of ancient sunlight, in synergistic combination with an international, century long expansion-of-credit, produced the jet-powered Keynesian misallocation of resources – that is, the Bubble of Civilization.
Related articles
- Peak Oil Was A Lie (peakoil.com)
- No need to panic about ‘peak oil’ (peakoil.com)
- Researchers address economic dangers of “peak oil” (rdmag.com)
- Tragedy of the Commons- Peak Oil (greenznthingz.wordpress.com)
Olduvaiblog: Musings on the coming collapse 