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Peak Oil: Sobering Realities – Peak Oil Matters

Peak Oil: Sobering Realities – Peak Oil Matters.

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Expenditures for finding and developing oil fields have tripled in the last decade and the return from these expenditures has not been enough to justify the costs. Nearly all of the major oil companies have announced major reductions in their exploration and drilling programs and several are selling off assets as they are caught in a trap between steady oil prices and rapidly rising operating costs.

Tom Whipple, a former CIA analyst and highly-respected editor of the daily Peak Oil News and the weekly Peak Oil Review [published by ASPO – the Association for the Study of Peak Oil] offered that observation, [and the other quotations here], in an informative,  straightforward, and necessarily sobering assessment of the current state of fossil fuel production.

His efforts won’t gain him rapid admittance into the Happy Talk Misleading Hall of Fame. What his observations will do (coupled with those of other esteemed analysts and commentators on the subject of peak oil) is to interject a much-needed awareness of facts and reality into public discussions about our future and the energy supplies we’ll all be relying upon.

That awareness cannot come too soon, burdened as most citizens are by a steady parade of foggy assertions bearing a reasonable but incomplete relationship to truth. We need more than passing acquaintance with facts that so clearly affect each and every one of us. Few of us appreciate just how much we rely upon inexpensive, readily-available supplies of energy to live our lives.

Taking this for granted shouldn’t come as a surprise to anyone. It’s pretty much all any of us and our immediate prior generations have ever known. Who among us considers the air we breathe thousands of times each day?

The simple fact, however, is that there is one vital aspect to this great body of fossil fuels which has powered us from the time of our Founding Fathers to this extraordinarily complex and awe-inspiring technologically-advanced 21st Century. These are finite resources.

We’ve drawn the cheap and easy supply in ever-more innovative and ingenious ways for nearly two centuries. Our go-to supplies are now harder to extract, more costly, less efficient. An engineering degree is not required to appreciate that this combination does not bode well for societies blindly pursuing more of everything without a pause to consider an alternate plan or two.

The world’s existing fields are depleting at rate of circa 4 million b/d each year so without constant drilling of new wells in new fields global production will quickly wither and prices will climb still more….
To keep the oil flowing, the world’s oil companies have invested some $4 trillion in the last nine years to drill for oil. About $2.5 trillion of this was spent on simply replacing production from existing oil fields. Even this gigantic expenditure was not enough since conventional oil production fell by 1 million b/d during the period.

Pause for a moment to consider that current state of affairs. For all the hype about the marvels of fracking and the energy boom tight oil production unleashed, the investments and returns aren’t adding up as bottom-line admirers hope. We consumers aren’t delighted with paying the higher prices needed to support the more extravagant energy production costs associated with unconventional energy supplies being relied upon more and more. (Worth mentioning again that the decline rates of fracked wells, and thus the need to drill more and more wells, at higher and higher prices, for less efficient products, are facts all conveniently omitted from the cheers offered by the oil industry’s media shills.)

A reckoning on both scores will come soon. Tom Whipple was succinct in that regard:

[I]nvestments in future production are going down, meaning that in a few years depletion likely will overwhelm new production and output of conventional oil will drop.

His inquiry was as good as any:

What is going to happen in the next few years?

Contemplating an answer or two might be a good investment.

~ My Photo: “Know The Risks” – Newport Beach, CA  02.16.14

 

I invite you to enjoy my two new books [here and here], and to view my other work atrichardturcotte.com :
 

       Looking Left and Right

blog examining the liberal vs. conservative conflicts in our society

 

       Life Will Answer

Thought-provoking inquiries & observations about how (and why) Life does … and does not, work for everyone. [Inspired by my book of the same name]

 

       * The Middle Age Follies

column offering a slightly skewed look at life for those of us on the north side of 50.

 

Looking Left and Right:
Inspiring Different Ideas,
Envisioning Better Tomorrows

Peak Oil Matters is dedicated to informing others about the significance and impact of Peak Oil—while adding observations about politics, ideology, transportation, and smart growth.

 

The Peak Oil Crisis: Our Harsh Winter Continues

The Peak Oil Crisis: Our Harsh Winter Continues.

MARCH 19, 2014 7:15 PM
By Tom WhippleTwo weeks ago we discussed the impact that the polar vortex was having on our natural gas supplies and noted that our stocks of natural gas were already 500 billion cubic feet below where they should be for this time of year. Two weeks ago the forecasters were optimistic that the record winter of 2013-2014 was over and that things would soon be warming up.

It turned out however that the forecasts were wrong and yet more frigid weather poured down across the U.S., drawing down our stocks of natural gas and heating oil still further and interrupting the drilling and fracking of new shale gas and shale oil wells. New forecasts say that the abnormally cold weather is likely to continue through the rest of March and on into early April.

We won’t have the final figures on how much natural gas was drawn from our stocks this winter for another month, but it is starting to look as if our stocks, which normally range from a high of 3.8 trillion cubic feet to a low of 1.8 trillion, could fall to as low as 750 billion and that the total drawdown this winter will be close to 3 trillion cubic feet as compared to the normal 2 trillion. Since November the U.S. has been consuming an average of 91 billion cubic feet of natural gas each day which is 13 percent higher than the five-year average for this time of year.

The key question is whether this can be replaced in time for the next heating season or the ones after that.

In addition to increasing our consumption, the cold weather has also slowed our domestic production of natural gas. Our natural gas imports from Canada, about 7 billion cubic feet per day, are down about 10 percent from last year. It is even colder in Canada and they need their gas to keep warm before exporting any surplus to the U.S.

You will recall that our shale gas wells, which now supply about 40 percent of our total natural gas consumption, deplete very quickly so that many new wells need to be drilled and fracked each year just to keep production level. There are very few conventional gas wells being drilled these days and production of shale gas other than from the Marcellus shale in the Appalachians is nearly flat. The rapid pace our gas wells are depleting means that the U.S. now needs about 19 billion cubic feet per day of new gas production just to keep up with our annual average consumption of 71 billion cubic feet per day.

As a goodly share of this 19 billion cubic feet per day of new natural gas production must come from the mountains of Pennsylvania and West Virginia, it should be apparent that this location is not conducive to drilling and fracking during the cold and snowy winter months. A recent weekly EIA report shows natural gas production in the eastern U.S down by 30 percent from last year.

Last week the Department of Energy issued a report discussing how we are going to overcome this trillion cubic foot deficit in our natural gas stockpiles before the beginning of next November’s withdrawal season. The Department starts with the assumption that the drawdown is not going to be as bad as it currently seems and then posits that if everything goes right – higher production and lower consumption – we might be able to inject a record 2.5 trillion cubic feet into our storage caverns this summer. Even this will leave us about 500 billion cubic feet below where we would like to be next fall.

Natural gas consumption during the next seven months is problematic. If temperatures are unusually high, a lot of natural gas will go into electric power stations to keep us cool. If it is a cool summer, then we might have considerable surpluses that could be injected into our storage caverns. The relatively low price of natural gas, currently about $4.50 per million BTU’s, is another problem.

Some independent analysts say this is well below what it costs to produce shale gas these days and that producers are solvent only because they are making an effort to produce “wet” gas that contains valuable natural gas liquids such as propane which can be sold for enough to offset the loss on the “dry” gas which is what keeps us warm. Gas coming from the Marcellus shale, mostly in Pennsylvania, is generally dry so that there is a good chance that many producers are simply losing money on their natural gas production while waiting for higher prices that will allow profitability.

Looking ahead for the next few years, questions are starting to arise about the long-term sustainability of our natural gas production. This winter will leave us with a major deficit in our stockpiles which unless the weather cooperates is not likely to be made up in the immediate future. Unusually hot summers or cold winters will make rebuilding of inventories difficult or even impossible.

Thanks to the hype about the 100 years-worth of natural gas we are supposed to have in reserve, everybody seems to have an idea as to how to use this bonanza more quickly. Some want to send LNG to Europe so it can reduce reliance on Russian gas. This of course requires liquefaction facilities to make LNG that can’t become operational for many years. Our imports from Canada are shrinking. Our exports via pipeline to Mexico are increasing. Many want to convert our fleet of 18-wheelers to natural gas. The EPA wants to replace the dirtiest of our coal burning power plants with natural gas and there are those who believe that nuclear power plants are too dangerous to keep around.

If even some of these additional uses come to fruition before the end of the decade, our natural gas could become very expensive and even scarce.

The Peak Oil Crisis: A Winter Update

The Peak Oil Crisis: A Winter Update.

Posted Feb 20, 2014 by Tom Whipple

As the years go by, those studying peak oil are beginning to develop a better understanding of what has been happening since the concept of limits to oil production came to widespread attention. First of all, it is important to understand that in one sense, production of what had been thought of as “conventional oil” really did peak back in 2005. While there has been growth in certain sectors of the “oil” industry in the last nine years it has come in what are known as “unconventional liquids”; and, as we shall see, the maintenance of existing conventional oil production has come at a very high price.

The recent growth in the “oil” production has been nowhere near what had been normal prior to the “Great Recession,” so that if anyone should wonder why our economy has been stagnant in recent years, one can take the price and availability of oil as a good starting point. US consumption has been falling at 1.5 percent a year since 2005 as opposed to a normal growth rate of 1.8 percent in prior years.
In the last decade global oil production grew by only 7.5 percent and not the 23 percent that would have been needed to support the growth in the world’s GDP at a rate we would have liked to have seen. Since 2005, total “oil” production has grown by 5.8 million b/d, of which 1.7 million consists of natural gas liquids (NGL). While NGL’s are valuable and a useful form of what we now call “oil” they do not contain the same energy as crude and have a more limited range of uses, thereby contributing less to economic growth.
US unconventional liquids (shale oil and NGL’s) are up by 5.1 million b/d since 2005. Along with an additional million b/d from the Canadian tar sands, North American non-conventional liquids constitute nearly all the growth in the world’s oil supply in recent years. Production of conventional crude has remained essentially flat during the period. Moreover, OPEC production has dropped by nearly two million b/d in the last three years largely due to wars, insurgencies, and embargoes, and another 1.7 million b/d of its “oil” production has been NGL’s and not crude.
The world’s existing fields are depleting at rate of circa 4 million b/d each year, so without constant drilling of new wells in new fields global production will quickly wither and prices will climb still more. A good estimate is that the oil which now costs about $110 a barrel will be at $140 or above by the end of the decade unless some major geopolitical upheaval sends it still higher.
To keep the oil flowing, the world’s oil companies have invested some $4 trillion in the last nine years to drill for oil. About $2.5 trillion of this was spent on simply replacing production from existing oil fields. Even this gigantic expenditure was not enough since conventional oil production fell by 1 million b/d during the period.
About $350 billion went to drill shale oil and gas wells in the US, and increase Canadian oil sands production. This was clearly a bargain as compared to maintaining conventional oil production which is now focused on ultra-expensive deep water wells.
Recent announcements by the major oil companies indicate that they have reached their limit. Profits and production are falling. Expenditures for finding and developing oil fields have tripled in the last decade and the return from these expenditures has not been enough to justify the costs. Nearly all of the major oil companies have announced major reductions in their exploration and drilling programs and several are selling off assets as they are caught in a trap between steady oil prices and rapidly rising operating costs.
Note that the major oil companies do not constitute the whole oil industry as most of the world’s oil production is now in the hands of state-owned companies and small independent producers. These firms are obviously facing the same problems as the large publicly traded companies, without as much publicity.
What is going to happen in the next few years? First, investments in future production are going down, meaning that in a few years depletion likely will overwhelm new production and output of conventional oil will drop.
Then we have the Middle East which, to put it mildly, is coming unglued. Oil exports from several countries have nearly disappeared and the spreading sectarian violence is likely to reduce exports from other countries before the decade is out.
Venezuela, from which the US still imports some 800,000 barrels of crude a day, is not transitioning to the post-Chavez era gracefully. The current student riots could easily morph into reduced oil exports.
With much of the growth in global oil production coming from US shale producers, a fair question is just how long fracked shale oil production will continue to grow. Opinions vary. Some foresee the possibility that growth will slow considerably this year, while others think there are two or three years of large production increases ahead. The three months of extremely cold and snowy weather we have had this winter is already hurting production, but most believe production will rebound in the spring.
Even though production of conventional oil peaked nine years ago, massive investment and a five-fold increase in oil prices has allowed the economical production of shale and deepwater oil at a profit since 2005. Further growth in shale oil production, however, clearly has a half-life, be it one, three or five years.
Recent news concerning deepwater oil production is not encouraging. Brazil’s deepwater oil fields which are thought to contain many billions of barrels of oil are not looking too good at the minute due to the very high costs and risks of production. All in all, the recent news from the oil industry tends to be one of growing pessimism.
Originally published at Falls Church News-Press
Barnett peak image via Post Carbon Institute
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