Monday, October 01, 2007

Are we There Yet? - A Peak Oil Snapshot

Where are we currently relative to peak oil? I do not like to track the progress of peak oil on a daily basis. I do, however, like to take a snapshot such as this every few months. That allows time to differentiate between anomalies and trends, time for the trends to develop, time for the euphoria over new discoveries and new technological developments to calm down in the cold light of reality.

This has been an interesting summer from a peak oil perspective. The hurricane season in the Caribbean and Gulf of Mexico did not materialize as expected and the disruption of Gulf of Mexico oil supply and the U.S. oil import infrastructure on the Gulf was minimal. This should have meant plenty of supply for the North American summer driving season and helped to disguise the current reality of supply shortages. It did not do that.

* Refined gasoline imports were up. Crude availability is of the type not suited to most western refineries.
* Oil-producing countries have begun investing heavily in local refineries to process crude oil not suited to established refineries, selling more finished product instead.
* We continue to have no new refinery capacity in North America and every news item talking about planned new refinery capacity have has a follow-up where that new capacity is delivered. They projects are often stopped because of poor economic outlooks and the reality of future shortages in crude oil supplies.
* Oil corporation reserves are steadily declining as a percentage of global reserves. Most reserves are now being held by national petroleum companies such as Saudi Aramco and Pemex.
* Strategic reserves are steadily declining as they are dipped into to make up input and production shortfalls. Increasingly the drawdowns are not replenished due to the high spot market price for crude oil.
* Saudi Arabian exports are still down, as they have been for two years, despite incessant promises to increase production in response to pleas and demands from oil-importing countries.
* Exports from oil-exporting countries are declining as those countries scramble to satisfy their own oil needs.
* Economists don't seem yet to allow for the reality that oil is like no other product in that all of the production is not for sale because producers are also consumers of their own product. The more they use, the less they have for sale.
* Increasing affluence in petroleum exporting countries due to the inflow of petroleum money, coupled with the increasing energy demands of extraction and processing, increases the hold-back to satisfy internal needs.
* Most production growth over the past three years has been made up from alternative sources like tar sands, oil sands, bio-fuels and synthetics from CTL and GTL.
* China and India, the two most populous nations on the planet, both continue to increase their oil imports by double digit rates each year. China, though very skeptical of western motivation behind globalization, continue to ride a tremendous wave of economic expansion that is rapidly pushing them toward becoming the world's largest economy.
* Russia, supposedly with the world's second largest oil reserves behind Saudi Arabia, despite their continued belief in the Abiotic oil theory, are having consistent problems maintaining production rates and may soon slip into irreversible decline.
* Brazil, the largest economy in Latin America, are already satisfying the bulk of their liquid fuel needs through bio-fuels made from sugar cane, thus effectively reducing global crude oil demand by the amount of their bio-fuel usage.
* Official oil statistics have been increasingly broadened to include alternative sources. Peak oil has always referred to peaking of conventional crude oil. Alternatives cannot keep up with demand.
* Lack of oilfield equipment and experienced workers is claimed to be holding back reserve expansion. Whether this is reality or a smoke-screen to hide declining reserves is unclear.
* Lack of oilfield workers grows as fewer people go into the business because they see no future in it. Many seasoned oilfield veterans were driven out of the business in oil production cutbacks in the 1990s.
* Official rhetoric in North America and Europe is increasingly leaning toward bio-fuels. This makes oil companies nervous (publicly) but they are all quietly diversifying into bio-fuels, wind and solar.
* The push for bio-fuels is already creating a global food crisis as global emergency food-grain reserves shrink to their lowest level in decades (53 days from 129 days in the past eight years) and poor nations and people are being priced out of the global food-grain markets.
* The supposed vast reserves of alternative fuels such as coal, natural gas, methane, uranium and even bio-fuels are increasingly seen as illusory as they are revealed to be incapable of replacing any more than a small portion of our oil consumption.
* Huge tracts of virgin forest continue to be cleared to make room to plant corn, soy, sugar cane, palm oil trees and anything else that can be turned into bio-fuel.
* Politicians continue to push the hydrogen economy and electric cars while the electricity infrastructure falls further into disrepair and runs steadily close to operating capacity. The majority of new power plants being constructed in countries like China and India employ old, dirty-coal technology, despite new technology being available. New technology power plants cannot be delivered fast enough to keep pace with rapidly increasing demand, nor at a price that governments are willing to pay.
* The government and corporate world have revitalized the nuclear rhetoric despite no new North American plants having been built in three decades. The rhetoric continues to ignore the yet-to-be-solved problem of safe, long-term disposal and storage of nuclear waste.
* There is a growing scarcity of the higher grades of uranium needed for nuclear power plants.
* More and more oil industry executives have recently been conceding the reality of peak oil but continue to claim it is decades in the future. At the same time they increasingly lump alternative sources into claimed reserves and push for new rules for reserve reporting to allow them to claim questionable reserves in their proven reserve numbers.
* Government commitments for decommissioning coal-fired power plants have been back off because of a lack of alternative fuel stocks like natural gas and "clean" coal.
May 2005 continues to be the month of highest global oil production and may very well prove to have been the point of peak oil.
* Mexico's oil production has fallen off a cliff over these past two years, largely due to production declines in their Cantarell field, with no apparent hope of recovery.
* Production in two of the three largest oil fields in the world - Burgan in Kuwait and Cantarell in Mexico - are now officially admitted to be past their peak of production and declining in production at double-digit rates.
* The largest oil field in the world - Gahwar in Saudi Arabia - relies on such heavy injections of water to maintain wellhead pressure that water-cut rates of more than 75% are being experienced, all of which suggests that that aging field is past its natural peak in production.
* Project after project in Canada's tar sands is being cut back, delayed or cancelled due to massive cost increases and overruns. They are now being beset by aggressive new environmental legislation that may, in time, cause tar sands production to be abandoned unless vastly superior and environmentally-friendly processing technology can be developed. This is being hidden behind the debate over aggressive new royalty demands from the Alberta government which has a bad habit of squandering royalties on buying votes rather than on environmental protection. Tar sands operators are now also having to look at new sources other than natural gas for the energy used in processing. The best option, nuclear, will be a hard sell.
* Fields and oil provinces that have peaked in recent years - North Sea, Indonesia, Alaska's North Slope for example - are experiencing double-digit production decline rates well in excess of those of 3-5% used in peak oil models. This suggests that the post-peak downslope will be much steeper than previously thought.
* Because of lack of transparency, production numbers for OPEC countries has generally been estimated based on shipments. The gap between production and shipments. because of internal use of their own oil to satisfy rising affluence, is growing year by year.
* The amount of oil available for export by producing countries and for import by importing countries is beginning to decline at a faster rate than production and is going to force rethinking of global oil markets. Production will need to increase at a rate faster than previously estimated just to keep import levels steady.

Has peak oil arrived yet? I would say so. The pattern in all of the above strongly supports that view.

Are we starting to feel it yet? The price of oil continues to hover around or above US$80. a barrel, despite no significant supply disruption, hurricane or other factors. The world price of food grains has increased as much as 60% and more over these past two years as more and more of those crops are being diverted into bio-fuels. Transport costs are rising steadily as carriers are forced to seek survival by passing on fuel costs to their customers. These and a thousand other signs say we are definitely beginning to feel it, and will feel it ever more over the coming years.

Has the average person on the street realized that we are at peak oil and started adjusting their life and their expectations accordingly? Of course not! As long as the official party line continues to be, "Don't worry, be happy and consume!" Why should they? Those who do recognize peak oil and have given consideration to the implications of what will follow still have a decided advantage and head start over their neighbours who continue to buy into the consumer/credit culture.

1 comment:

Richard said...

Hi Richard, good post. Completely forgot you had a blog!! Will catch up. There's so much out there to read and keep informed.

You have solidified what I have suspected with the bits I've read from other sources.

One thing you did leave out is the current debt crisis that is emerging in the US and spilling over to other countries. Appearently according to the Toronto Star the Big Banks here in Canada are on the hook for some $150BILLION due to debt selling.

The current debt crisis in the US can be linked with oil skyrocketing since 2005, putting the average American in the hole more so due to higher energy costs. The economic collapse may proceed the oil collapse there.

The US's trade deficit is currently some $500,000 PER family or per person, can't recall. But not good. If the oil producing countries get their wish to trade in Euros not dollars, the US economy is in serious trouble.

Bottom line is time is running out. There's no time left for alternatives, almost no time left to prepare. Do we even have 5 years left? I'm beginning to doubt it, but hope for it.

Richard Wakefield