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15 Jun 2011

To Peak Or Not To Peak, That Is The Question.

Looming Like A Cruel Bird Of Prey.


Rearing it's ugly head in the high-brow press again are the problems of energy and the question of 'Peak Oil'. So first of all, what is 'Peak Oil'.  There are several definitions but the commonest three are:-

a.  When global extraction is lower than global usage and the cause is literally oil fields running dry as opposed to man made shortages such as war in production regions, OPEC 'choking' etc.
This is starting to happen now.  Some oil fields are exhausted, some are so depleted that it is no longer cost effective to extract the oil unless the price rises significantly.  Global oil consumption exceeded supply by 5 million barrels a day last year, according to data compiled by BP, but this in the main was down to OPEC restricting extraction.

b.  When global refining capacity is less than global usage.
Crude oil is of no use at all unless you can crack it to it's by-products - petroleum, diesel, kerosene etc etc and to do this you need refineries.  There are no new major refineries planned and indeed over the coming decades several will be shut down due to age. This scenario actually happened briefly a couple of years ago when oil rocketed to $147 a barrel.   It only fell back because of the global economic downturn and the resulting drop in demand.  As it stands,  if/when the global economy recovers,  should it recover to 2008 usage levels then the price will again skyrocket.  It takes ten years minimum to build and activate a major refinery.   

c.  When the energy expended extracting the oil is higher than the energy contained in it.
When a well is new the oil is under it's own pressure and literally forces it's way to the surface and indeed has to be restrained.  As the oil is extracted the pressure drops until eventually pressure needs to be applied.  This is done by pumping a mixture of water and gel-producing chemicals down the well under pressure so that the resulting 'gloop' is both dense enough and forceful enough to lift the oil.  Now imagine oil wells 200km out in the Saudi desert and how much energy it would require to build water pipelines, pumping stations etc to move the water required to force tens of thousands of tonnes of 'gloop' down a well.   Equally, some oil is so difficul to get to - under the polar ice caps,  in deep deep water,  far under the earth,  that the total amount of energy expended in the operations to recover it is less then it will produce.

You can pick which ever definition you like - all will happen sooner or later.  Although it would be wrong to say oil is 'finite' it is correct to say that we are using it faster than either Mother Nature can create more of it or we can find new supplies of it.  To me it seems that 'b' is the most pressing as it's happened briefly already back in 2008.  But whichever, Peak Oil is real, will happen and will have dramatic and very fast, far reaching and permanent economic consequences if counter-measures are not in place beforehand.   (I have a theory that those who call Peak Oil a myth also call climate change a myth and vice versa. New extraction and detection technologies might postpone this by a few years, but the inevitable will eventually occur, and bleating on about 'industry' or 'global warming' orchestrated scams, won't wash when reality comes knocking on the door.)

Some very brief and current examples of the consequences of reliance on oil are the overthrow of Mubarak in Egypt, the 'Arab Spring', Libya etc.  Contrary to how it is now portrayed - as a downtrodden region seeking emancipation, what actually sparked the fires initially was the rapid increases in price of basic foodstuffs - particulalry grain -  and the major underlying cause of that was the rapidly escalating price of fertilisers caused in turn by oil prices.   People will reluctantly accept a bit of down-treading if their bellies are full but if you can't feed your people then they will turn on you and very quickly no matter how many tanks you send against them.   Closer to home think back to 2000 and recall that thanks to a blockade of refineries by a motley crew of farmers and truck drivers, the UK was just over ten days away from complete systemic collapse and the government seriously considering the ‘nuclear option’ of using troops to forcibly break the blockade.  Further back in the 1970's a sudden price rise (caused primarily by the USA suddenly shifting from being a net exporter to being a net importer)  caused the three day week and programmed power cuts and ultimately laid the foundations for the IMF bail-out, massive inflation, high interest rates and the Winter of Discontent.But back to the theme.  

The German Army's Strategic Planners observed last year in a now officially approved report:   "As people become aware that the contraction in global oil supply and economic activity is likely to be a prolonged, indefinite reality, there could be an increasing (and to some degree, self-fulfilling) loss of faith in markets, currencies, financial institutions, and the ability of governments to maintain economic and social order".   The International Energy Agency forecasts state that peak crude oil production happened back in 2006.    The US Military believes that surplus crude production could cease as early as 2012 with shortages by 2015 and an influential UK industry think-tank 'The UK Industry Task Force Peak Oil Group- who's members include Richard Branson, Stagecoach, Yahoo etc believe similar in their report.So how close are we to having a major problem?   Probably a lot closer than we think.  What we do know is that there is far less oil reserves than was originally thought.  

The 'average' date for the Peak is now 2014 however that was from a review published a couple of weeks before the wikileaks scandal in which one of the leaks stated that Saudi Arabia (amongst others) was guilty of overstating its reserves by as much as 40%.  In any case oil production has been on a plateau since 2004 and is not expected to rise much higher if at all.

The problem is very simple - politicians.  They are hooked on the idea that  economic growth is still the most desirable thing to aim for.   At the moment, the economic model to which we adhere demands infinite growth. That the self-same model is underpinned by natural resources which makes it completely vulnerable to any shortage of a range of such commodities.  You cannot, ever, have infinite economic growth based on finite resources - it is simply a nonsense.. 

Some will just say "yes but we can move to alternatives". Where they have slipped up in their understanding  of the subject is in respect of what are known as rate-constraints. Put simply, although synthetic crudes can indeed be made from bitumen (tar-sands) or kerogen (oil-shales), it involves the expense of a lot of energy, is painfully slow and is a very messy and hugely inefficient and very expensive process. Those uninterested in environmental matters can focus on "expense of a lot of energy" and " is painfully slow". In essence, this means that the rate of production, in barrels/year, month, week or whatever can never get near that of oil gushing from a well under its own pressure, and will cost far far more to extract. Bottom line is that as a consequence, trying to remain on liquid fuels of this nature will only work if you want to accept rationing.  These alternative 'gap-fillers' such as shale oil, tar sands and even algae are not going to do anything except provide something that the bulk of the population will not be able to afford.

Shale oil for instance usually refers to thermally immature kerogen that is chemically different to conventional crude, this is very very viscous so requires more than merely fracturing the porouos rocks to allow it to flow. (What thermal maturity means).  The more thermal maturity the higher the API and the less viscous the liquid (flows easier requires less energy to extract) .

The Alberta Tar Sands in Canada is an ecological nightmare.  The Green River Resources Corporation (to give it it's proper name) claims in it's mission statement  that it is "committed to solving the clean energy needs of the United States by developing a breakthrough technology for extracting naturally occurring hydrocarbons from tar sands, oil sands, and other similar types of geologic structures prevalent in the Mountain West region of North America."  Strange that a Canadian Corporation has energy production for the USA as it's primary role and many 'oil insiders' firmly believe that it will never come into serious production until the USA needs it and that Washington views it very much as a US 'strategic reserve' to be used primarily by the US in the event of a rainy day - one insider states that at $130 a barrel it starts to drizzle !!  At that point the ambition of "solving the clean enery needs"  becomes merely "solving the energy needs" and "clean" can take  running jump.  It should also be noticed that in order to 'soften' the tar sand so that it can be dug-up,  huge quantities of steam are required - quantities that can only be delivered by a nuclear power station or two.  So complicated is the process that it is really only capable of supplying one large consumer.  Step forward the organisation that is the world's largest consumer of petrols - the US Military.

Some believe other sources such as fermentation of oil-rich algae will fill the gap. Algae are primed to go and just need political impetus caused by shortages of conventional oil to be put into production.  However it is an extremely complex and therefore expensive process and so the argument goes that the price of refined oil products (such as petrol)  is entirely artificial because of government duty and taxation, so plenty of room for creative taxation to allow algae biofuel to be competitive.  However that is only applicable to this and other first world countries.  Fuel in the third world does not pay western taxes and duties – those people are already rioting and bringing governments down when they in fact pay 20p or less for a litre of petrol.  Algae will never ever be as cheap as crude oil because it is simply not as cheap to harvest, not as cheap to refine and cannot be refined into certain petro-chemical products at all.

Politicians have a real problem in bringing up this issue. As a political leader how do you tell the electorate we have a problem, a shortage of oil, and then tell them you have no solution to this problem. Far better to keep everyone in the dark carrying on as normal and hope a solution comes along. Fear not, we in the UK haven't been sleepwalking through this and back in 2008 the then Prime Minister commissioned Malcolm Wicks MP to write a report.  This task he set about with a vengeance and in 2009 he produced a magnificent 130 page extremely scary report.  Entitled  Energy Security: A national challenge in a changing world it is a wealth of data. In his introduction he states: "We have entered a decade or more of dramatic transition, heralding a century of serious energy uncertainty" .  It was supposed to be a sort of reassuring report but when you read it properly you quickly reach the conclusion that we are losing the race against time over this - that we have quite simply hid our heads in the sand for far to long and events are going to overtake us with a resounding thump.

Personally,  I think most people simply do not believe and will not accept that the days of cheap energy are coming to an end (energy is still cheap at the moment).  That very soon ordinary people will need to live, work,shop and socialise in a very small area and that 25 mile commutes will simply be unaffordable.  That because of what is happening and will continue to happen to oil and the extra demands that places on other energy sources, then the price of all energy - not just oil,  is going one way and one way only and it will be faster than wages rise. A lot faster and it will be on an accelerating curve.

Here are a couple of good videos to watch.     The first one is from ABC News in Australia. It's 12 minutes long and was made in April this year.  Watch it here.     The second one is slightly longer and is a boffins lecture and lasts about an hour.  Stick with it - it explains technical things very well.  It can be viewed here.

Mad Max - Tomorrow Is Closer Than You Think

12 comments:

Anonymous said...

Thank you for mentioning "c. When the energy expended extracting the oil is higher than the energy contained in it." - although it should be pointed out that things start to go pearshaped before then, e.g. when the (cost of the) energy expended extracting the oil gets significant, then oil is irrelevant as a general energy source, and largely unaffordable as an industrial raw material. Which will be inconvenient for those expecting life to continue as we in the West know it today.

Oil is valuable for some things besides energy for heat, electricity etc. E.g. it's not easy to replace oil as fuel for our lovely cars and trucks, or as raw material for our lovely plastic-based lifestyle, and so on.

Don't know if you or other readers have heard of the US's Silk Road Strategy Act, but a few years ago there was a follow up (which disappeared in due course). The proposed Bill Part II talked about the continuing importance of the Silk Road pathways to the security through diversity of the US's energy supplies. Afghanistan is one such area because it is on the route of a proposed gas pipeline of considerable interest to the US. Just a coincidence that the US forces (and the UK's) are out there doing their thing, nothig to do with oil and gas from/via Afghanistan to the US, obviously.

Robert said...

Electricity will be Nuclear, and one day the government will wake up and find it has to do something, India is holding down fuel costs to 50p a litre how long will that carry on, India is holding down the price, once these two wake up to the real world watch how the poorest countries get less fuel.

car will go electric like it or not because right now the world is waking up and the Asian countries will want more we will get Else hence the IRAQ war Libya wars.

never mind I can always get my wheelchair horse powered.

The Red Flag said...

You are quite correct Robert however these alternatives will never be the mass solution that oil is.

The problem with Peak Oil is not that the oil runs out, rather it's that energy of all forms becomes hideously expensive.

Cars will become 'electric' however lithium for the batteries is more finite than oil, they only have a limited life span and charge duration, and mains electricity needed to charge them will be more expensive.

Current plans are for somewhere between 25-35% of our electriacl production to be nuclear, but it's now a race against time as to whether we will have it built and in production in time. However it's not cheap and in order to subsidise it by the back door we are introducing the 'carbon floor' which in turn loads more cost onto non-nuclear so that nuclear can compete - similar to entering a one-legged man into a race and to even things out breaking everyone elses ankles.

You get the drift I'm sure - basically the age of cheap energy of anyform is drawing to a close.

kp said...

But the solution is a simple one, simple for all to see and simple for all to understand ... just use less.

The moment world-wide energy consumption starts to fall prices will plummet.

But the secret is not to use more, just get used to using less.

We'll all win in the end, the environment too.

The Red Flag said...

Using less is a 'class thing'. The big users are the middle and professional classes - second (and thord or more)cars, long distance commutes, 4x4s, boats, luxury holidays, big houses, general lifestyle etc etc.

The only way to control that sort of profligate resource waste is by taxing the hell out of it - any car bigger than an 1100 lean burn engine? Road Tax £2,000 for example. More congestion cgharging, high road tolls, high road charging. Big tax on the cubic size of a dwelling as well as the area of land it stands on etc etc.

These are supposedly intelligent people so they know what's going on but they choose to carry on regardless.


Hands up which political party is going to force the middle/professional class to reduce their standard of living? (they'll have to be forced, they're to selfish to do it voluntarily)

Hands up which Chancellor will embark on a programme of forcing down consumption of consumer goods?

kp said...

I think you'll find the professional classes are generally very responsible when it come to matters of conspicuous consumption (no, not all, and invariably not those that are 'new' to a professional class, I do agree).

But, invariably it is the 'newly rich' but poorly educated that are so profligate.

They may live in a meagre council house or they may live in a stately mansion but, either way, they are poorly educated. Fortunate enough to have made more money than their parents or peers they are, unsurprisingly, quite desperate to show it.

Now you can understand why I keep banging on about the need to improve our education system here in Wales.

Nothing wrong in having pots of money, it's what you do with it that counts.

The Red Flag said...

Me thinks you don't understand the basics of the problem we face.

I'll give you a clue:-

China. Vehicle use 2005 - 23M. Projected vehicle use 2030 - 230M

India. Vehicle use 2005 - 10M - Projected vehicle use 2030 - 125M

China's GDP projected to grow at an annual average of 6.5% between now and 2030

Indias GDP projected to grow 6.4% between now and 2030.

Figure for the middle east run in line with this and we are talking about a grand total of over 50% of the world's population.


Now think about the fact that even with that growth in both vehicles and GDP they will still consume less per capita than we do, own less vehicles per capita than we do, grow more food per capita than we do, import less food per capita than we do, use less resources per capita than we do, pollute per capita less than we do and will only have advanced to a lifestyle similar to that which we in the west had in the early 20the century.

Think of the energy demands that a GDP growth of that rate will place on dwindling resources.

Think how much oil will be needed to not only fuel that number of vehicles but also to build them.

And then consider that we can't ask them to stop because even after growth like that they will stil be behind were we are now.

And remember, India & China can walk to the middle east.

Anonymous said...

"China. Vehicle use 2005 - 23M. Projected vehicle use 2030 - 230M

India. Vehicle use 2005 - 10M - Projected vehicle use 2030 - 125M

China's GDP projected to grow at an annual average of 6.5% between now and 2030

Indias GDP projected to grow 6.4% between now and 2030."

Does the world have enough recoverable resources for these figures to be anything like plausible, or are they just the usual clueless economic predictions, disconnected from reality?

Yes there's plenty of room for improvement in the standard of living in China and India.

No it's physically not possible for their resource usage to approach Western levels of profligacy (which will have to stop soon). Their lifestyle improvements need to be done in a rather more environmentally aware way than the West did when it thought it was rich and that the bubble would last forever.

Quite how to make that happen is another question. Market forces won't make it happen, that's for sure.

"But the solution is a simple one, simple for all to see and simple for all to understand ... just use less."

Indeed. But "the markets", and in particular the unelected and anti-democratic unaccountables e.g. like Mandelson, Gates, and others at the Bilderberg conference this last few days, are financially self-motivated to ensure conspicuous consumption carries on.

The answer is?

I haven't read the 1972 document "The Limits to Growth" but it's on my todo list, as is Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed".

Pops said...

Good post RF.

You do a good job of explaining that Peak oil is about the "rate" of cheap energy flow and the small likelihood of finding a substitute. The bigger problem than just how to keep from walking is the fewer energy slaves we have available, the more expensive all commodities will become. The logical reaction then is to conserve but the more we conserve, the fewer "wasteful" items we produce and luxury services we consume and the fewer jobs there are available. Paradoxically, the less we consume, the poorer we become. Kind of the inverse of the last 200 years or so.

I'm in the US and even this level of increased energy price (10 years-500%) the resultant "stagflation" is putting the brakes to whatever little economic recovery we might have imagined was occurring after the first (of the last) oil shocks. No one will say it out loud but the consumer knows it just like she did back in '07. I hear things aren't that ducky over there either.

I'm thinking less Mad Max, more Hard Times.

The Red Flag said...

Thanks Pops - as far as I am aware you are my first trans-Atlantic reader!. I hope you enjoy my other posts.

Anon 17:28. The figures are actually bona fide figures and can be read in the UK Governments Energy Security: A national challenge in a changing world - clicakble in the post.

Anonymous said...

@RF 19:19, Anon 17:28 here again.

I'm quite happy to believe you've quoted the figures accurately, I just think they're unbelievable figures.

The whole concept of unlimited growth is ridiculous and has been for decades; it may have served the West well (and in particular the West's richest) in recent centuries but it is physically impossible for it to go on forever for an increasing proportion of the world's population, and to anyone with eyes and a brain it looks like there are big changes to come in the next few decades.

Pops sounds like someone with eyes and a brain, let's hope there are a few more out there. But words like these are not going to make anyone popular.

Are you aware of Transition Towns?

The Red Flag said...

You have to remember anon that China, India and the likes are growing from a very low base and so relatively muted economic activity gives a remarkably high figure. The EU and the USA for instance are only expected to grow by an average of just over 1% between now and 2030. At the end of it all, China etc will not have a material lifestyle anywhere near what we have now and will not be consuming as much per capita as we do now, not even energy-wise. Personally, I find the idea of the west growing by 1% wildly optimistic. I think we're knackered and will fall back and are about to undergo a prolonged and very difficult contraction of the west's economies.