Peak Oil News: 05/01/2005 - 06/01/2005

Tuesday, May 31, 2005

Is world's gas gauge on empty?

The Daily Times

By ALEX ROSE

First of a three-part series

Those complaining of exorbitant prices at gas pumps might never get relief, according to a new book hitting the shelves this month by James Howard Kunstler.

Worse yet, those pumps may soon become grim relics of humanity’s "golden age," empty husks in a world devoid of oil and all it drives.

This is the future Kunstler tries to prepare his readers for in "The Long Emergency," a guide to "Surviving the Converging Catastrophes of the Twenty-First Century."

The "converging catastrophes" are wide-ranging -- global warming, war, famine and disease all make cameos -- but they all revolve around, and are exacerbated by, a somewhat newer player on the doomsday stage: The phenomenon known as global peak oil.

"Above all, and most immediately, we face the end of the cheap fossil-fuel era," says Kunstler in his book.

"The world oil production peak represents an unprecedented economic crisis that will wreak havoc on national economies, topple governments, alter national boundaries, provoke military strife, and challenge the continuation of civilized life."

Some might dismiss Kunstler out of hand as a doomsaying kook in a world rife with the like. The book is, after all, mostly speculation predicated on a single event: The downturn in extraction from a finite world supply of fossil fuels.

It could either be the latest in a string of energy crisis scares since the mid-1970s, or, as Kunstler sees it, the beginning of the end of civilization as we know it.

"It is no exaggeration to state that reliable supplies of cheap oil and natural gas underlie everything we identify as a benefit of modern life," he writes.

"All the necessities, comforts, luxuries, and miracles of our time ..owe their origins or continual existence in one way or another to cheap fossil fuel."

The "peak oil" crisis is based on the presumption that the crude refined to run our society is in essence a biological byproduct of ancient plants and animals having been transformed into fossil fuels through millennia of geological pressure.

That idea has been supported by the fact that these "fossil fuels" contain trace organic signatures of their former selves.

It follows that because there were only so many dinosaurs on Earth, there can only be so much oil within. Unless, of course, oil and natural gases are abiotic in nature, meaning they are not "fossil fuels," but are instead constantly regenerated by magma interactions within the Earth.

The abiotic, or abiogenic, argument contends that because current drilling and exploration techniques are based on a fossil theory, there could be far more oil lying in places we would never think to look.

This is also known as the "Russian-Ukrainian" theory, as most of the research on and evidence for the abiotic argument comes from this region.

But David Morehouse, senior petroleum geologist with the Energy Information Administration, is aligned with many Western scientists who are unconvinced abiotic sources, even if they exist, could ever live up to what crude has brought us to thus far.

"I’m sure there’s some gas that’s produced abiotically," said Morehouse. "But I’m sure there’s very damn little of it."

Critics also say that even if the abiotic theory were true, it would not do us any good as the geological processes involved in manufacturing these fuels take millennia to come to any fruition.

The American Association of Petroleum Geologists (AAPG) will discuss both arguments at its annual meeting this June in Calgary, Alberta.

Morehouse helped pen an EIA report issued last August indicating that "all or very nearly all of Earth’s prolific petroleum basins are believed identified and partially to near-fully explored."

Since humans began extracting this crude, Kunstler says the race has enjoyed a "comfortable bubble" of abundant cheap oil that is about to pop.

His prediction for global peak oil production is 2005.

Oil production is generally represented as a bell curve, known as a "Hubbert Curve," after the late M. King Hubbert, who estimated -- correctly, between 9.5 and 11 million barrels daily, depending on who you ask -- that peak oil production in the U.S. would occur about 1970.

The Hubbert Curve has classically looked more or less like a bell, though a more recent representation has the right-hand side of that bell swooping steeply down, like a wave.

"What happens is once you hit the point with no new resources coming in and no replacement for the oil, then things drop off very rapidly," said Morehouse.

The report containing the reworked curve used a 2000 United States Geological Survey report predicting world crude oil and natural gas resource recovery, coupled with a 0- to 3-percent demand growth rate, to get a handle on when peak oil might occur.

It also hypothesized an original total 6,000 billion barrels of crude oil available worldwide, and estimated a likely recovery of about half that before extraction costs prove too prohibitive.

The 12-scenario EIA report shows earliest plausible peak oil production would be in 2021, at 48.5 billion barrels per year. The other end of the spectrum (factored with a 0-percent demand growth rate from 2000) indicates a peak in 2112, at 24.6 billion barrels per year.

The most likely scenario for peak world conventional crude oil production, according to the report, would occur around 2037, at a volume of 53.2 billion barrels per year.

Meanwhile, the U.S. continues to burn roughly 20 million barrels of oil per day, about 11 million of which are imported. The lower 48 states produced only about 5.4 million barrels per day through 2004, the lowest extraction rate in 50 years.

Usage is expected to increase, while extraction and production rates are expected to continue to decline. The International Energy Agency said earlier this month that it expects global oil consumption to grow 2.2 percent in 2005 to 84.3 million barrels a day.

Morehouse said a revised edition of the EIA report would be out soon to include non-conventional oil reserves like the Athabasca tar sands in Canada and heavy oil deposits in Orinoco, Venezuela.

But these non-conventional sources - both of which require heavy refining to be of any use - would only bump the peak forward by a couple of decades anyway, said Morehouse.

Likewise, China and India hitting their industrial strides do not affect demand very much; maybe one or two tenths of a percent.

"The point is that we’re not going to be running out next year," said Morehouse. "On the other hand, we don’t have a lot of time."


Monday, May 30, 2005

Difficult choices await a nation, and world, stuck on oil

SignOnSanDiego.com

By Craig D. Rose and Dean Calbreath

It's the stuff of American romance: summer, a big car, a tankful of gas and the endless highway.

But that fabled love is now a troubled relationship.

We can still drive where we want, if the traffic isn't too bad. And we can still drive something nice, if our credit holds out. But Americans can no longer control the cost of the gasoline that enlivened the romance.

To be sure, America long ago lost its energy independence and has at times lost control of prices, as it did when OPEC flexed its muscle in the 1970s.

But new forces in world energy markets, unrestrained consumption epitomized by the boom in sport utility vehicles and the depletion of oil have subjected the United States to buffeting by forces outside its control.

Call it the era of the permanent oil shock.

Despite a recent dip, the long-term trend for oil prices appears to be a slow but steady ascent, with just short-lived downward blips.

Just two years ago, the notion of oil rising above $40 per barrel was nearly unthinkable. Now, a consensus is developing among economists that the floor for oil prices is in the mid-$40 range, compared with the mid-$20 range that prevailed from 1985 to 2002.

"We're looking at a situation where we think that the shock that we've seen to prices is a permanent shock," said David Robinson, deputy director of research at the International Monetary Fund.

There are signs that oil has reached an era where it is beyond the power of any single entity to rein in prices.

Beyond the United States, which is beginning to lose its dominance as the world's most influential oil consumer. Beyond the Organization of Petroleum Exporting Countries, which seems to have lost its ability to keep up with demand. And beyond even the big oil companies, whose record profits disguise costly bottlenecks in oil exploration, refining and production.

As the summer traveling season begins, drivers can be thankful for one thing: The price of gas is not as high as it could have been.

In the past month, the price of a barrel of crude oil has dropped from a 20-year inflation-adjusted high of $58.28 to its current price, just above $50. A gallon of gas has dropped from an average of $2.67 in San Diego in mid-April to $2.46 last week.

Nationwide, gasoline prices are expected to average $2.17 a gallon through the end of summer and remain above $2 through the end of 2006, according to projections by the U.S. Energy Information Administration – the highest range since 1985, even after adjusting for inflation.

In San Diego, one of the nation's most expensive fuel markets, prices should average $2.50 to $2.60 throughout the summer, but could spike as high as $3, according to the Utility Consumers' Action Network, a San Diego consumer group that monitors local pump prices.

Even if the price of oil has peaked for the year, prices remain high by historical standards.

And unlike previous spikes in oil prices, which were tied to wars and unrest in the Middle East, the current spike has a more fundamental cause: the inability of oil suppliers to keep up with global demand.

OPEC is pumping more than 29 million barrels daily, its highest level in 25 years, and it is still barely able to keep up with global demand. Analysts at the International Monetary Fund say the cartel may have only about 1.5 million barrels a day of spare capacity, compared with 5.5 million spare barrels four years ago.

Supply is so tight because demand has risen so quickly in the past few years, led by surging demand from China and India – which account for more than a third of the world's population – along with unrestrained increases in the United States, still by far the world's largest energy consumer.

China and India have developed enough economic strength for a substantial number of their citizens to begin buying automobiles, said Raghuram Rajan, research director at the IMF.

In both countries, demand for oil has doubled in 10 years. Although ox-drawn carts are still common as the two nations leapfrog from the 19th century into the 21st, the impact on the oil market has been enormous.

"This demand starts taking off in a tremendous way," Rajan said. "Our sense is that the growth in transport demand will account for a very, very big chunk of the growth in oil demand going forward."

Said Stephen Levy, director of the Center for the Continuing Study of the California Economy, "They have doubled their use in a decade, and eventually that kind of doubling gets you."

But it's misleading to assign Asia sole responsibility for the surge in world oil prices. The United States uses twice as much oil as India and China, despite having a less than a sixth of the comibined population. Person for person, the United States uses 15 times as much oil as China.

In addition, Public Citizen, a consumer group in Washington, D.C., and President Bush find themselves in rare agreement on another matter: The United States does not have enough oil refinery capacity.

Bush says regulatory hurdles have made oil companies reluctant to take on new refinery construction. Public Citizen contends that oil companies made a conscious decision to maximize their profits by restraining the growth of refining capacity as demand grew.

But most observers agree that gasoline pump price hikes are still largely the result of increases in crude oil costs, driven by the stunning growth in demand.

The strain between supply and demand could push prices up indefinitely, some economists suggest.

A growing number of oil analysts say petroleum is hitting its peak as a form of energy – the point at which 50 percent of the world's oil will have been consumed, leaving an ever-diminishing amount that will not be able to match demand.

Sweden's Association for the Study of Peak Oil and Gas estimates that the global supply of gas will peak as early as 2008. The Energy Institute in London makes the same prediction. The International Energy Agency says a peak could happen by 2013.

Other oil experts say the peak could be two or three decades away. The U.S. Department of Energy, which has one of the most optimistic outlooks, estimates oil will not peak before 2040.

To extend the current supply of oil even by a few years will require huge investments whose costs will ultimately be passed on to consumers.

"There is a lot of oil out there, but the real question is whether we will make the investment to get it, and the investments are huge," said John Felmy, chief economist for the American Petroleum Institute, an industry group.

The International Energy Agency estimates $16 trillion in investment will be required by 2030 to meet projected demand for oil and natural gas. But though the world's major oil companies have reported record profits recently, they seem more interested in using those profits to merge with rivals or repurchase their stock than in making the massive investment needed for new refineries or oil wells.

"We haven't built a single refinery over the past 25 years, although we've shut down 100 during that time," said James Hamilton, an economist at the University of California San Diego who specializes in energy issues.

In the past, run-ups in oil prices have had what amounted to a self-correcting valve: economic recessions. From the Suez crisis of 1956 to the Persian Gulf War of 1990, price hikes for oil led to recessions among oil-importing countries, which led to cutbacks in oil usage, which led to drops in the price of oil.

This time, the run-up has been gradual enough to not substantially deter oil demand, and it seems unlikely to cause a recession, although it may limit economic growth.

Despite the proliferation of gas-guzzling SUVs in the United States, the nation's shift to a less energy-dependent service economy and conservation measures instituted decades ago are dulling the impact of rising oil prices.

Claude Mandil, executive director of the Paris-based International Energy Agency, says consumers globally still seem reluctant to change their energy habits, despite the higher oil prices.

"People cannot imagine they could live as well consuming less energy," said Mandil, whose agency coordinates energy policy for large industrialized countries.

He added that he hopes it is just a matter of time before demand starts to slacken and investment in the sector increases.

The Bush administration's response to the oil crisis has focused heavily on boosting supply and less on restraining demand through energy efficiency and conservation.

In a recent speech, Bush explained what he called the fundamental energy problem the nation faces: "Our supply of energy is not growing fast enough to meet the demand of our growing economy."

The speech included energy-boosting initiatives, such as support for nuclear power, building more oil refineries and tapping cleaner coal technologies.

Bush said his objective was to make the U.S. less dependent on foreign energy sources. But even within the administration, experts concede the initiatives would do little to guarantee energy independence.

An Energy Department report finds that even if the Bush energy plan passes Congress, the United States could be importing 85 percent of its oil by 2025, compared with 65 percent now.

"From the aspect of world market prices, an additional 900,000 barrels a day 13 years from now (from Alaska) would not have any dramatic impact on the supply-and-demand picture," said Jonathan Kogan, a spokesman for the U.S. Energy Information Administration.

Critics note that the bill does nothing to limit consumption – such as requiring that cars and SUVs get better gas mileage – and does little to fund projects to obtain more energy from renewable sources.

Outside the administration, Set America Free, a coalition including conservatives and liberals, labor unions and environmentalists, is pressing for a reduction in the nation's dependence on petroleum, arguing that it is a matter of national security.

The International Energy Agency, in fact, says conservation can achieve much faster benefits than oil exploration. In a report last month, the IEA recommended reducing the workweek, encouraging flex time, slashing prices on public transportation and introducing a 55-mile-per-hour speed limit worldwide, which created dramatic savings in the United States in the 1970s and 1980s.

The IEA, made up of the energy ministers of most industrialized countries, estimates its recommendations would save 6 million barrels of oil per day – enough to buy time as nations try to switch to alternative forms of energy.

But in the United States, the emphasis is still on boosting supply.

Rep. Joe Barton, R-Texas, chairman of the House Committee on Energy and Commerce, the driving force behind the House version of the energy bill, says the bill and other incentives might allow the United States to build enough new refineries to meet its need for gasoline.

Producing enough crude oil for those refineries is another matter.

"We might meet half our demand for oil," Barton said.

Severin Borenstein, director of the University of California Energy Institute, said the energy package continues to cater to the nation's expensive addiction to oil rather than telling the American public it needs to cut back on oil.

Instead of trying to maintain low gasoline prices, Borenstein said, politicians should boost the price of gas to reflect its real costs to the society and encourage the development of more efficient transportation systems and alternative energy sources.

He says the current cost of oil, as high as it is, does not reflect the true price of maintaining the supply, ranging from military operations to guarding oil fields and the unaccounted costs of environmental damage from using fossil fuels.

Barton sees things differently. The gas-burning internal-combustion engine, he says, is remarkably efficient and a boon to the U.S. economy.

"Think of the benefits that accrue from cheap gasoline," he said. "You can move a 4,000-pound vehicle down the road at 60 miles per hour listening to the stereo with the air conditioning on. That is a tremendous bang for the buck."

Some of Barton's Democratic colleagues challenge that viewpoint.

"We've got 3 percent of the world's oil reserves, and we consume 25 percent of its production," said Rep. Henry Waxman, a Los Angeles Democrat, who thinks it is a mistake to put all the focus on boosting the oil supply.

"There is no way we can continue to dig our way out of this problem."


ExxonMobil Sounds Silent Peak Oil Alarm

EV World

SYNOPSIS: The fine print of The Outlook for Energy: A 2030 View report downplays the potential of oil shale, a misnomer, and Canadian tar sands.

Without any press conferences, grand announcements, or hyperbolic advertising campaigns, the Exxon Mobil Corporation, one of the world's largest publicly owned petroleum companies, has quietly joined the ranks of those who are predicting an impending plateau in non-OPEC oil production. Their report, The Outlook for Energy: A 2030 View, forecasts a peak in just five years.

In the past, many who expressed such concerns were dismissed as eager catastrophists, peddling the latest Malthusian prophecy of the impending collapse of fossil-fueled civilization. Their reliance on private oil-reserve data that is unverifiable by other analysts, and their use of models that ignore political and economic factors, have led to frequent erroneous pronouncements. They were countered by the extreme optimists, who believed that we would never need to think about such problems and that the markets would take care of everything. Up to now, those who worried about limited petroleum supplies have been at best ignored, and at worst openly ridiculed.

Meanwhile, average consumers have taken their cue from the market, where rising prices have always been followed by falling prices, leading to the assumption that this pattern will continue forever. In truth, the market price of crude oil is completely decoupled from and independent of production costs, which average about $6 per barrel for non-OPEC producers and $1.50 per barrel for OPEC producers. This situation has nothing to do with a free market, and everything to do with what OPEC believes will be accepted or tolerated by the United States. The completely affordable market price--what consumers pay at the gasoline pump--provides magisterial profits to the owners of the resource and gives no warning of impending shortages.

All the more reason that the public should heed the silent alarm sounded by the ExxonMobil report, which is more credible than other predictions for several reasons. First and foremost is that the source is ExxonMobil. No oil company, much less one with so much managerial, scientific, and engineering talent, has ever discussed peak oil production before. Given the profound implications of this forecast, it must have been published only after a thorough review.

Second, the majority of non-OPEC producers such as the United States, Britain, Norway, and Mexico, who satisfy 60 percent of world oil demand, are already in a production plateau or decline. (All of ExxonMobil's crude oil production comes from non-OPEC fields.) Third, the production peak cited by the report is quite close at hand. If it were twenty-five years instead of five years in the future, one might be more skeptical, since new technologies or new discoveries could change the outlook during that longer period. But five years is too short a time frame for any new developments to have an impact on this result.

Also noteworthy is the manner in which the Outlook addresses so-called frontier resources, such as extra-heavy oil, "oil sands," and "oil shale." The report cites the existence of more than 4 trillion barrels of extra heavy oil and "oil sands"--producing potentially 800 billion barrels of oil, assuming a 20-25 percent extraction efficiency. The Outlook also cites an estimate of 3 trillion barrels of "oil shale." These numbers have figured prominently in advertisements that ExxonMobil and other petroleum companies have placed in newspapers and magazines, clearly in an attempt to reassure consumers (and perhaps stockholders) that there is no need to worry about resource constraints for many decades.

However, as with all advertisements, it's best to read the fine print. ExxonMobil's world oil production forecast shows no contribution from "oil shale" even by 2030. Only about 4 million barrels of oil per day from Canadian "oil sands" are projected by 2030, accounting for a mere 3.3 percent of the predicted total world demand of 120 million barrels per day. What explains this striking disconnection between the magnitude of the frontier resources and the minimal amount of projected oil production from them? Canadian "oil sands" are actually deposits of bitumen (tar), which are the result of conventional oil degradation by water and air. Tar sands are of a completely different character than conventional oil deposits; making tar sands usable is a capital-intensive venture that requires special procedures such as heating to separate the tar from the sand, mixing the tar with a diluting agent for pipeline transport, and constructing specially equipped refineries for processing.

The most serious constraint, though, is natural gas supplies. Production of oil from tar sands requires between 400 and 1,000 cubic feet of natural gas per barrel of oil produced, depending on the extraction method used. Natural gas production, despite a near doubling of drilling activity, is flat or decreasing both in Canada and in the United States--which has prompted prices to triple over the past few years. Given these high gas prices, it almost makes more sense just to sell the natural gas directly rather than use it to produce oil from tar sands.

Extracting oil from the 3 trillion barrels of oil shale cited in the Outlook presents its own challenges. The term "oil shale" is also quite misleading, since there is no oil in this mineral, but rather an organic material called kerogen, which is a precursor of petroleum. To extract oil, the shale (typically between 5 and 25 percent kerogen) must first be mined, then transported to a plant where it is crushed, then heated to 500 degrees Celsius, which pyrolyzes, or decomposes, the kerogen to form oil. After processing, most of the shale remains on the surface in the form of coarse sand, so large-scale mining operations will produce immense amounts of waste material. An estimated 1-4 barrels of water are required for each barrel of oil produced, both for cooling the products and stabilizing the sand waste. To satisfy these water requirements, petroleum companies once contemplated diverting the Columbia River--a feat that can be excluded today on political and environmental grounds.

With non-OPEC oil production reaching a plateau and frontier resources not viable, ExxonMobil proposes that increased demand be met in two ways. The first is greater fuel efficiency. (That alone should convey the seriousness of this report: When have you ever heard a petroleum company make a plea for vehicles that use less gas?) New cars in the United States are expected to go 38 miles on a gallon of gas in 2030, instead of the current value of 21 miles per gallon. This goal is actually quite modest, as new cars sold in Europe since 2003 already achieve 35 miles per gallon.

The other way ExxonMobil believes demand will be satisfied is from vastly and rapidly increased OPEC production: "After 2010, the call on OPEC increases quickly, requiring OPEC to add more than 1 MBD [million barrels per day] of capacity every year," notes the Outlook. "OPEC's resources are large enough to achieve this rate of expansion, and we expect that investments will be made in a timely manner."

This assessment is somewhat ominous. OPEC has not expanded production capacity much at all recently. Moreover, such production increases are only possible from Iraq, Saudi Arabia, Kuwait, and the United Arab Emirates. For these countries, and indeed for most OPEC members, petroleum and petroleum products are their only significant export. As such, they have a vested interest in obtaining the best possible price for their non-renewable resources. OPEC nations would be quite unlikely to increase production as rapidly as needed unless compelled to do so. To put this shortfall in perspective, in 2003 Algeria produced 1.1 million barrels per day; a new Algeria would need to be brought on line in the Persian Gulf each and every year beyond 2010 just to keep up with the projected increase in demand. Consequently, once non-OPEC production reaches a peak, conventional world oil production could peak shortly thereafter, and prices (never explicitly mentioned in the Outlook) would rise in accordance with the laws of supply and demand.

What all this means is that the petroleum industry is approaching a turning point. Conventional petroleum production will soon--perhaps in five years, ten at best--no longer be able to satisfy demand. For their part, American consumers would do well to take a cue from their Western European counterparts, who enjoy a comfortable lifestyle despite a per capita use of petroleum that is half of that in the United States. The sooner the United States begins this transition away from oil, the easier it will be. That's a far more attractive option than trying to squeeze oil from stone.


End of road for oil joyride looms as production peaks

The Standard

Could the petroleum joyride - cheap, abundant oil that has sent the global economy whizzing along with the pedal to the metal and the air-conditioner blasting for decades - be coming to an end?

Some industry observers think so. They predict that this year, maybe next - almost certainly by the end of the decade - global oil production, having grown exuberantly for more than a century, will peak and begin to decline.

And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability.

Princeton University geologist Kenneth Deffeyes predicts ``a permanent state of oil shortage.''

According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.

None of this will affect vacation plans this summer - Americans can expect another season of beach weekends and road trips to Graceland relatively unimpeded by the cost of getting there. Though gas prices are up, they are expected to remain below US$2.50 a gallon (HK$5.15 a liter).

Accounting for inflation, that is pretty comparable to what motorists paid for most of the 20th century; it only feels expensive because gasoline was unusually cheap from 1986 to 2003.

And there are many who doubt the doomsday scenario will ever come true.

Most industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.

``This is just silly,'' said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts. ``It's not like industrial civilization is going to come crashing down.''

Where you stand on ``peak oil,'' as parties to the debate call it, depends on which forces you consider dominant in controlling the oil markets. People who consider economic forces most important believe prices are high now mostly because of demand from China and other rapidly growing economies.

But eventually, high prices should encourage consumers to use less and producers to pump more.

But Deffeyes and many other geologists counter that when it comes to oil, Mother Nature trumps Adam Smith.

The way they see it, Saudi Arabia, Russia, Norway and other major producers are already pumping as fast as they can. The only way to increase production capacity is to discover more oil. Yet there just is not much left out there to be discovered.

``The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in the ground,'' said Deffeyes.

There will be warning signs before oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile.

With little or no excess production capacity, minor supply disruptions - political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example - will send the oil markets into a tizzy.

So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.

Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will follow.

Anybody who has been paying close attention to the news lately may feel a bit queasy at this stage. Could US$5-a-gallon gas be right around the corner?

``The world has never seen anything like this before and so we just really don't know,'' said Science Applications International energy analyst Robert Hirsch in Santa Monica, California.

Still, he added, ``there's a number of really competent professionals that are very pessimistic.''

But there also many experts who see no reason global oil production has to peak at all. It could plateau and then gradually fall as the economy converts to other forms of energy.

``Even in 30 to 40 years there's still going to be huge amounts of oil in the Middle East,'' said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis.

A few years ago, geologists began applying geologist M King Hubbert's methods to the entire world's oil production. Their analyses indicated that oil production would peak some time during the first decade of this century.


Crude awakening

SignOnSanDiego.com

By Craig D. Rose and Dean Calbreath

It's the stuff of American romance: summer, a big car, a tankful of gas and the endless highway.

But that fabled love is now a troubled relationship.

We can still drive where we want, if the traffic isn't too bad. And we can still drive something nice, if our credit holds out. But Americans can no longer control the cost of the gasoline that enlivened the romance.

To be sure, America long ago lost its energy independence and has at times lost control of prices, as it did when OPEC flexed its muscle in the 1970s.

But new forces in world energy markets, unrestrained consumption epitomized by the boom in sport utility vehicles and the depletion of oil have subjected the United States to buffeting by forces outside its control.

Call it the era of the permanent oil shock.

Despite a recent dip, the long-term trend for oil prices appears to be a slow but steady ascent, with just short-lived downward blips.

Just two years ago, the notion of oil rising above $40 per barrel was nearly unthinkable. Now, a consensus is developing among economists that the floor for oil prices is in the mid-$40 range, compared with the mid-$20 range that prevailed from 1985 to 2002.

"We're looking at a situation where we think that the shock that we've seen to prices is a permanent shock," said David Robinson, deputy director of research at the International Monetary Fund.

There are signs that oil has reached an era where it is beyond the power of any single entity to rein in prices.

Beyond the United States, which is beginning to lose its dominance as the world's most influential oil consumer. Beyond the Organization of Petroleum Exporting Countries, which seems to have lost its ability to keep up with demand. And beyond even the big oil companies, whose record profits disguise costly bottlenecks in oil exploration, refining and production.

As the summer traveling season begins, drivers can be thankful for one thing: The price of gas is not as high as it could have been.

In the past month, the price of a barrel of crude oil has dropped from a 20-year inflation-adjusted high of $58.28 to its current price, just above $50. A gallon of gas has dropped from an average of $2.67 in San Diego in mid-April to $2.46 last week.

Nationwide, gasoline prices are expected to average $2.17 a gallon through the end of summer and remain above $2 through the end of 2006, according to projections by the U.S. Energy Information Administration – the highest range since 1985, even after adjusting for inflation.

In San Diego, one of the nation's most expensive fuel markets, prices should average $2.50 to $2.60 throughout the summer, but could spike as high as $3, according to the Utility Consumers' Action Network, a San Diego consumer group that monitors local pump prices.

Even if the price of oil has peaked for the year, prices remain high by historical standards.

And unlike previous spikes in oil prices, which were tied to wars and unrest in the Middle East, the current spike has a more fundamental cause: the inability of oil suppliers to keep up with global demand.

OPEC is pumping more than 29 million barrels daily, its highest level in 25 years, and it is still barely able to keep up with global demand. Analysts at the International Monetary Fund say the cartel may have only about 1.5 million barrels a day of spare capacity, compared with 5.5 million spare barrels four years ago.

Supply is so tight because demand has risen so quickly in the past few years, led by surging demand from China and India – which account for more than a third of the world's population – along with unrestrained increases in the United States, still by far the world's largest energy consumer.

China and India have developed enough economic strength for a substantial number of their citizens to begin buying automobiles, said Raghuram Rajan, research director at the IMF.

In both countries, demand for oil has doubled in 10 years. Although ox-drawn carts are still common as the two nations leapfrog from the 19th century into the 21st, the impact on the oil market has been enormous.

"This demand starts taking off in a tremendous way," Rajan said. "Our sense is that the growth in transport demand will account for a very, very big chunk of the growth in oil demand going forward."

Said Stephen Levy, director of the Center for the Continuing Study of the California Economy, "They have doubled their use in a decade, and eventually that kind of doubling gets you."

But it's misleading to assign Asia sole responsibility for the surge in world oil prices. The United States uses twice as much oil as India and China, despite having a less than a sixth of the comibined population. Person for person, the United States uses 15 times as much oil as China.

In addition, Public Citizen, a consumer group in Washington, D.C., and President Bush find themselves in rare agreement on another matter: The United States does not have enough oil refinery capacity.

Bush says regulatory hurdles have made oil companies reluctant to take on new refinery construction. Public Citizen contends that oil companies made a conscious decision to maximize their profits by restraining the growth of refining capacity as demand grew.

But most observers agree that gasoline pump price hikes are still largely the result of increases in crude oil costs, driven by the stunning growth in demand.

The strain between supply and demand could push prices up indefinitely, some economists suggest.

A growing number of oil analysts say petroleum is hitting its peak as a form of energy – the point at which 50 percent of the world's oil will have been consumed, leaving an ever-diminishing amount that will not be able to match demand.

Sweden's Association for the Study of Peak Oil and Gas estimates that the global supply of gas will peak as early as 2008. The Energy Institute in London makes the same prediction. The International Energy Agency says a peak could happen by 2013.

Other oil experts say the peak could be two or three decades away. The U.S. Department of Energy, which has one of the most optimistic outlooks, estimates oil will not peak before 2040.

To extend the current supply of oil even by a few years will require huge investments whose costs will ultimately be passed on to consumers.

"There is a lot of oil out there, but the real question is whether we will make the investment to get it, and the investments are huge," said John Felmy, chief economist for the American Petroleum Institute, an industry group.

The International Energy Agency estimates $16 trillion in investment will be required by 2030 to meet projected demand for oil and natural gas. But though the world's major oil companies have reported record profits recently, they seem more interested in using those profits to merge with rivals or repurchase their stock than in making the massive investment needed for new refineries or oil wells.

"We haven't built a single refinery over the past 25 years, although we've shut down 100 during that time," said James Hamilton, an economist at the University of California San Diego who specializes in energy issues.

In the past, run-ups in oil prices have had what amounted to a self-correcting valve: economic recessions. From the Suez crisis of 1956 to the Persian Gulf War of 1990, price hikes for oil led to recessions among oil-importing countries, which led to cutbacks in oil usage, which led to drops in the price of oil.

This time, the run-up has been gradual enough to not substantially deter oil demand, and it seems unlikely to cause a recession, although it may limit economic growth.

Despite the proliferation of gas-guzzling SUVs in the United States, the nation's shift to a less energy-dependent service economy and conservation measures instituted decades ago are dulling the impact of rising oil prices.

Claude Mandil, executive director of the Paris-based International Energy Agency, says consumers globally still seem reluctant to change their energy habits, despite the higher oil prices.

"People cannot imagine they could live as well consuming less energy," said Mandil, whose agency coordinates energy policy for large industrialized countries.

He added that he hopes it is just a matter of time before demand starts to slacken and investment in the sector increases.

The Bush administration's response to the oil crisis has focused heavily on boosting supply and less on restraining demand through energy efficiency and conservation.

In a recent speech, Bush explained what he called the fundamental energy problem the nation faces: "Our supply of energy is not growing fast enough to meet the demand of our growing economy."

The speech included energy-boosting initiatives, such as support for nuclear power, building more oil refineries and tapping cleaner coal technologies.

Bush said his objective was to make the U.S. less dependent on foreign energy sources. But even within the administration, experts concede the initiatives would do little to guarantee energy independence.

An Energy Department report finds that even if the Bush energy plan passes Congress, the United States could be importing 85 percent of its oil by 2025, compared with 65 percent now.

"From the aspect of world market prices, an additional 900,000 barrels a day 13 years from now (from Alaska) would not have any dramatic impact on the supply-and-demand picture," said Jonathan Kogan, a spokesman for the U.S. Energy Information Administration.

Critics note that the bill does nothing to limit consumption – such as requiring that cars and SUVs get better gas mileage – and does little to fund projects to obtain more energy from renewable sources.

Outside the administration, Set America Free, a coalition including conservatives and liberals, labor unions and environmentalists, is pressing for a reduction in the nation's dependence on petroleum, arguing that it is a matter of national security.

The International Energy Agency, in fact, says conservation can achieve much faster benefits than oil exploration. In a report last month, the IEA recommended reducing the workweek, encouraging flex time, slashing prices on public transportation and introducing a 55-mile-per-hour speed limit worldwide, which created dramatic savings in the United States in the 1970s and 1980s.

The IEA, made up of the energy ministers of most industrialized countries, estimates its recommendations would save 6 million barrels of oil per day – enough to buy time as nations try to switch to alternative forms of energy.

But in the United States, the emphasis is still on boosting supply.

Rep. Joe Barton, R-Texas, chairman of the House Committee on Energy and Commerce, the driving force behind the House version of the energy bill, says the bill and other incentives might allow the United States to build enough new refineries to meet its need for gasoline.

Producing enough crude oil for those refineries is another matter.

"We might meet half our demand for oil," Barton said.

Severin Borenstein, director of the University of California Energy Institute, said the energy package continues to cater to the nation's expensive addiction to oil rather than telling the American public it needs to cut back on oil.

Instead of trying to maintain low gasoline prices, Borenstein said, politicians should boost the price of gas to reflect its real costs to the society and encourage the development of more efficient transportation systems and alternative energy sources.

He says the current cost of oil, as high as it is, does not reflect the true price of maintaining the supply, ranging from military operations to guarding oil fields and the unaccounted costs of environmental damage from using fossil fuels.

Barton sees things differently. The gas-burning internal-combustion engine, he says, is remarkably efficient and a boon to the U.S. economy.

"Think of the benefits that accrue from cheap gasoline," he said. "You can move a 4,000-pound vehicle down the road at 60 miles per hour listening to the stereo with the air conditioning on. That is a tremendous bang for the buck."

Some of Barton's Democratic colleagues challenge that viewpoint.

"We've got 3 percent of the world's oil reserves, and we consume 25 percent of its production," said Rep. Henry Waxman, a Los Angeles Democrat, who thinks it is a mistake to put all the focus on boosting the oil supply.

"There is no way we can continue to dig our way out of this problem."


You call this tough? Think '70s

SignOnSanDiego.com

By Dean Calbreath

At the North Park Service Center in San Diego, Joe Balistrieri hates how much he has had to raise the price of gasoline the past year.

"I feel sorry for the customers," said Balistrieri, 79, who has been selling gas in San Diego for 50 years. "I don't know how some of them cope with these price rises, especially when they have to buy food and rent. This has been the worst I've seen in a long time."

But there have been worse years. In the 1970s, gasoline was rationed so tightly that drivers had to queue up in long lines, and stations had only enough fuel to stay open a few hours a day.

"Everybody suffered back then," said Balistrieri, who worries that the oil market may be heading in a similar direction today.

Although the price of oil has doubled in two years, most economists think the rise has been gradual enough to avoid the kind of shocks that roiled the global economy in the 1970s.

"People are complaining about the price of oil, but we're nowhere near the psychological barrier that we hit in the past, when people suddenly realized there was a crisis," said Tapan Munroe, an economist with the Law and Economics Consulting Group in Moraga.

Nevertheless, the recent price rises, which are tied to long-term trends in population growth and oil field declines, seem fated to have a longer-lasting impact on the world economy than the short-lived shocks of the 1970s did. And the 1970s still stand as an example of what to do – and mostly what not to do – as prices rise.

The 1960s and early 1970s in the United States represented an era of cheap fuel. In early 1973, gasoline was selling for an average of 39 cents a gallon – the equivalent of $1.70 today after adjusting for inflation. U.S. freeways were crowded with such road yachts as the Lincoln Continental and the Ford Galaxy, which gulped down roughly as much gas as today's Hummers and sport utility vehicles. Factories and office buildings ran on cheap electricity provided by oil-burning plants.

That era came to an abrupt end in late 1973. Angry over Western support for Israel in the Yom Kippur War, the Arab-dominated Organization of Petroleum Exporting Countries doubled the price of its exports and imposed an oil embargo on the United States and the Netherlands, Israel's chief allies.

The resulting shortage was so bad in the United States that the government stepped in to ration gas. Drivers with odd-numbered license plates could buy gas only on odd-numbered days. Drivers with even-numbered plates could buy only on even-numbered days.

As oil prices shot up, President Nixon took far-reaching actions to conserve fuel. Among other things, he extended daylight-saving time through the middle of winter to cut down on lighting and heating and imposed a national speed limit of 55 miles an hour to save gasoline.

Though both measures saved substantial amounts of energy, neither was popular. Drivers routinely violated the reduced speed limit, which was repealed in 1995, and parents loudly protested having to send their children to school in the predawn darkness because of the lack of a seasonal clock change.

Most controversially, Nixon imposed price controls on gasoline. Some economists say the price controls, lasting from 1973 to 1979, exacerbated the nationwide shortages because petroleum companies believed they were not making enough money refining crude oil.

A year after Nixon's resignation in 1974, Congress came up with a more effective tool to conserve gasoline: the Corporate Average Fuel Economy standard, or CAFE, which forced automakers to double the fuel efficiency of new vehicles from the average of 13.4 miles per gallon of 1973 to 27.5 mpg by 1985.

When CAFE passed during the Ford administration, a growing number of drivers were already trading their U.S.-built road yachts for cheap, fuel-efficient Japanese imports flooding into the market. Although Detroit lobbied hard against CAFE, the law pushed the American auto industry to meet the Japanese competition head-on.

To President Carter, the issue of energy was so important that 13 days after taking office, he devoted a nationwide address to energy conservation. Clad in a cardigan sweater, he told the nation that he had turned the thermostat on the White House heater down to 68 degrees to save on fuel and suggested that all homeowners do the same.

Two months later, he unveiled an ambitious package of conservation and alternative energy programs. In what now seems like an early warning of today's oil market, Carter warned that the days of cheap oil were numbered and that America was contributing to oil depletion with its fondness for "large and inefficient" automobiles.

"Ours is the most wasteful nation on Earth," Carter said. "We waste more energy than we import. With about the same standard of living, we use twice as much energy per person as do other countries like Germany, Japan and Sweden."

Carter created the Department of Energy, established the national strategic petroleum reserve and launched a conservation program that eventually led to a noticeable decline in U.S. oil consumption.

But global politics overtook his agenda. The 1979 revolution and hostage crisis in Iran and the Iran-Iraq War, which began in 1980, pushed the price of oil to an all-time high of $38.31 that, adjusted for inflation, would be $85.85 per barrel, with gasoline selling $1.38, the current equivalent of nearly $3 per gallon. The price spike threw an already shaky economy into recession, and Carter lost his job.

Even after President Reagan took office, it took six years for gasoline prices to fall to the inflation-adjusted range of $1.50 to $2 per gallon, where it remained largely until prices began to take off last year.

Nowadays, with a barrel of oil hovering above $50, some bearish voices on Wall Street are warning that high oil prices could bring on another bout of stagflation – the stagnant, inflation-ridden economy last seen in the oil-shocked 1970s.

Most economists downplay such worries.

They note that after adjusting for inflation, oil prices are still far below where they were in the late 1970s. And the economy is less dependent on oil than it was then.

Thanks to the decline of the energy-intensive factories, the introduction of Corporate Average Fuel Economy standards and the switch to natural gas, the United States now uses about half as much oil in proportion to the gross domestic product as it did in the early 1970s. And the recent, more gradual price hikes have given consumers time to adapt.

But economist Munroe adds that the lack of a crisis atmosphere carries its own threat because people have not yet felt the need to radically alter their energy consumption.

"We're still happy to buy bigger and bigger Hummers," he said.


Friday, May 27, 2005

Oil production to hit peak soon

The Modesto Bee

MARCUS KARR

This is a warning to my fellow citizens regarding the imminent crisis of peak oil, a term we're going to be hearing more of soon.

World oil production is set to peak by 2020 at the latest, though most likely it will occur by 2010 and it might have occurred already. This doesn't mean that we're about to run out of oil; it means that the production of oil is going to steadily decline. It means our petroleumbased economy will be unable to grow, undercutting the basis of industrial capitalism and our way of life.

Our fossil fuel-subsidized standard of living cannot be sustained; therefore it will not be sustained.

Warning signs include our precious real estate spike. As capital is unable to make returns elsewhere, it's turning to real estate out of desperation; and in those wealthy countries where the economy is less vibrant, such as the United Kingdom and Spain, real estate prices have jumped higher than they have here.

Please do not take my word on this. Do not dismiss it out of hand. Look into it yourself — you might be surprised.


Are we there yet? Some see the beginning of the end of the road for oil

The Daily News

Could the petroleum joyride -- cheap, abundant oil that has sent the global economy whizzing along with the pedal to the metal and the AC blasting for decades -- be coming to an end?

Some observers of the oil industry think so. They predict that this year, maybe next -- almost certainly by the end of the decade -- the world's oil production, having grown exuberantly for more than a century, will peak and begin to decline.

And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability. Princeton University geologist Kenneth S. Deffeyes predicts "a permanent state of oil shortage."

According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.

None of this will affect vacation plans this summer -- Americans can expect another season of beach weekends and road trips to Graceland relatively unimpeded by the cost of getting there. Though gas prices are up, they are expected to remain below $2.50 a gallon. Accounting for inflation, that's pretty comparable to what motorists paid for most of the 20th century; it only feels expensive because gasoline was unusually cheap between 1986 and 2003.

And there are many who doubt the doomsday scenario will ever come true. Most oil industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.

"This is just silly," said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Mass. "It's not like industrial civilization is going to come crashing down."

Where you stand on "peak oil," as parties to the debate call it, depends on which forces you consider dominant in controlling the oil markets. People who consider economic forces most important believe that prices are high right now mostly because of increased demand from China and other rapidly growing economies. But eventually, high prices should encourage consumers to use less and producers to pump more.

But Deffeyes and many other geologists counter that when it comes to oil, Mother Nature trumps Adam Smith. The way they see it, Saudi Arabia, Russia, Norway and other major producers are already pumping as fast as they can. The only way to increase production capacity is to discover more oil. Yet with a few exceptions, there just isn't much left out there to be discovered.

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground," Deffeyes said.

There will be warning signs before global oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile. With little or no excess production capacity, minor supply disruptions -- political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example -- will send the oil markets into a tizzy. So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.

Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will rear its ugly head.

Anybody who has been paying close attention to the news lately may feel a bit queasy at this stage. Could $5-a-gallon gas be right around the corner?

"The world has never seen anything like this before and so we just really don't know," said Robert L. Hirsch, an energy analyst at Science Applications International Corp., a Santa Monica, Calif., consulting firm.

Still, he added, "there's a number of really competent professionals that are very pessimistic."

The pessimism stems from a legendary episode in the history of petroleum geology. Back in 1956, a geologist named M. King Hubbert predicted that U.S. oil production would peak in 1970.

His superiors at Shell Oil were aghast. They even tried to persuade Hubbert not to speak publicly about his work. His peers, accustomed to decades of making impressive oil discoveries, were skeptical.

But Hubbert was right. U.S. oil production did peak in 1970, and it has declined steadily ever since. Even impressive discoveries such as Alaska's Prudhoe Bay, with 13 billion barrels in recoverable reserves, haven't been able to reverse that trend.

Hubbert started his analysis by gathering statistics on how much oil had been discovered and produced in the Lower 48 states, both onshore and off, between 1901 and 1956 (Alaska was still terra incognita to petroleum geologists 50 years ago). His data showed that the country's oil reserves had increased rapidly from 1901 until the 1930s, then more slowly after that.

When Hubbert graphed that pattern it looked very much like America's oil supply was about to peak. Soon, it appeared, America's petroleum reserves would reach an all-time maximum. And then they would begin to shrink as the oil companies extracted crude from the ground faster than geologists could find it.

That made sense. Hubbert knew some oil fields, especially the big ones, were easier to find than others. Those big finds would come first, and then the pace of discovery would decline as the remaining pool of oil resided in progressively smaller and more elusive deposits.

The production figures followed a similar pattern, but it looked like they would peak a few years later than reserves.

That made sense too. After all, oil can't be pumped out of the ground the instant it is discovered. Lease agreements have to be negotiated, wells drilled, pipelines built; the development process can take years.

When Hubbert extended the production curve into the future it looked like it would peak around 1970. Every year after that, America would pump less oil than it had the year before.

If that prognostication wasn't daring enough, Hubbert had yet another mathematical trick up his sleeve. Assuming that the reserves decline was going to be a mirror image of the rise, geologists would have found exactly half of the oil in the Lower 48 when the curve peaked. Doubling that number gave Hubbert the grand total of all recoverable oil under the continental United States: 170 billion barrels.

At first, critics objected to Hubbert's analysis, arguing that technological improvements in exploration and recovery would increase the amount of available oil.

They did, but not enough to extend production beyond the limits Hubbert had projected. Even if you throw in the unexpected discovery of oil in Alaska, America's petroleum production history has proceeded almost exactly as Hubbert predicted it would.

Critics claim that Hubbert simply got lucky.

"When it pretty much worked," Lynch said, "he decided, aha, it has to be a bell curve."

But many experts see no reason global oil production has to peak at all. It could plateau and then gradually fall as the economy converts to other forms of energy.

"Even in 30 to 40 years there's still going to be huge amounts of oil in the Middle East," said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis.

A few years ago, geologists began applying Hubbert's methods to the entire world's oil production. Their analyses indicated that global oil production would peak some time during the first decade of the 21st century.

Deffeyes thinks the peak will be in late 2005 or early 2006. Houston investment banker Matthew Simmons puts it at 2007 to 2009. California Institute of Technology physicist David Goodstein, whose book "The End of Oil" was published last year, predicts it will arrive before 2010.

The exact date doesn't really matter, said Hirsch, because he believes it's already too late. In an analysis he did for the U.S. Department of Energy in February, Hirsch concluded that it will take more than a decade for the U.S. economy to adapt to declining oil production.

"You've got to do really big things in order to dent the problem. And if you're on the backside of the supply curve you're chasing the train after it's already left the station," he said.

For example, the median lifetime of an American automobile is 17 years. That means even if the government immediately mandated a drastic increase in fuel efficiency standards, the conservation benefits wouldn't fully take effect for almost two decades.

And though conservation would certainly be necessary in a crisis, it wouldn't be enough. Fully mitigating the sting of decreasing oil supplies would require developing alternate sources of energy -- and not the kind that politicians and environmentalists wax rhapsodic about when they promise pollution-free hydrogen cars and too-cheap-to-meter solar power.

If oil supplies really do decline in the next few decades, America's energy survival will hinge on the last century's technology, not the next one's. Hirsch's report concludes that compensating for a long-term oil shortfall would require building a massive infrastructure to convert coal, natural gas and other fossil fuels into combustible liquids.

Proponents of coal liquefaction, which creates synthetic oil by heating coal in the presence of hydrogen gas, refer to the process as "clean coal" technology. It is clean, but only to the extent that the synthetic oil it produces burns cleaner than raw coal. Synthetic oil still produces carbon dioxide, the main greenhouse warming gas, during both production and combustion (though in some scenarios some of that pollution could be kept out of the atmosphere). And the coal that goes into the liquefaction process still has to be mined, which means tailing piles, acid runoff and other toxic ills.

And then there's the fact that nobody wants a "clean coal" plant in the backyard. Shifting to new forms of energy will require building new refineries, pipelines, transportation terminals and other infrastructure at a time when virtually every new project faces intense local opposition.

Energy analysts say coal liquefaction can produce synthetic oil at a cost of $32 a barrel, well below the $50 range where oil has been trading for the past year or so. But before they invest billions of dollars in coal liquefaction, investors want to be sure that oil prices will remain high.

Investors are similarly wary about tar sands and heavy oil deposits in Canada and Venezuela. Though they are too gooey to be pumped from the ground like conventional oil, engineers have developed ways of liquefying the deposits with injections of hot water and other means. Already, about 8 percent of Canada's oil production comes from tar sands.

Unfortunately, it costs energy to recover energy from tar sands. Most Canadian operations use natural gas to heat water for oil recovery; and like oil, natural gas has gotten dramatically more expensive in the past few years.

"The reality is, this thing is extremely complicated," Hirsch said. "My honest view is that anybody who tells you that they have a clear picture probably doesn't understand the problem."


Saudi geologists' papers spell lower output

Reuters

By Timothy Gardner

NEW YORK (Reuters) - Research by Saudi Arabian geologists indicate oil production in the kingdom is at or near its peak and likely near-term declines could lead prices to $100 a barrel in the next three years, a U.S. author claims.

Matthew Simmons, an investment banker specializing in energy for 30 years, tapped more than 230 technical papers published by international research group the Society of Petroleum Engineers, many of them written by current Saudi Arabian nationals, for his book, "Twilight in the Desert," to be published in June.

He concludes that production by state-owned Saudi Aramco, which as a company produces more than any other country, is at or near a peak. When the problem is joined by falling production in North America and the North Sea, oil could spike to $100 a barrel in the next three years, he said.

Simmons said in an interview that the last 50 years of U.S. energy policy has focused on the wrong thing.

"We essentially thought we could always rely on oil in Middle East as long as there was peace in the Middle East. In consequence, oil policy was about geopolitics instead of examining what the oilfields are really like."

A few years ago, Simmons first suspected that Saudi Arabia's oil was being overproduced when a friend in Washington, D.C. told him about an April 1979 U.S. Senate staff report.

The report detailed that water seepage into Saudi oilfields forced Aramco's original owners Exxon, now Exxon Mobil , and the now-merged Texaco and Chevron, to downgrade Saudi's production potential from 20 million barrels per day to 12 million bpd.

Simmons visited a major oil center in Saudi Arabia in early 2003 where the amount of water being processed out of crude shocked him.

With Western geologists who formerly worked for Aramco, he then combed through SPE papers from the late 1990s and early 2000.

Wayne Spence, senior manager at SPE in Dallas, said the group has no opinion of Simmons' work. "It just depends on what side of the argument you're on. There are just as many people at SPE that aren't on the peak oil side of things."

But Saudi Arabia has already made its geological data public, and to reveal any more of it risks "giving terrorists a road map" into the inner working of its most precious resource, said Nail al-Jubeir, director of the Saudi Information Office in Washington.

Simmons said Saudi Arabia has revealed only "skimpy data," in line with a tradition of secrecy at Aramco. Such an atmosphere was initiated by the original multinational owners so they could maximize output before handing the company fully over to the kingdom in 1980.

He said Aramco does not officially discuss its falling production as a whole, but that if read carefully, the kingdom's own geologists, in SPE paper after SPE paper, spell out the decline of its five key fields.

HEAVIER OIL

"There's no way that Aramco would give the wrong information (on oilfield production levels) to the Saudi leadership," said Nawaf Obaid, a Riyadh-based security consultant to the Saudi government, who spoke with Reuters in Washington on Friday.

"That would be inconceivable ... It would be like the (U.S. Energy Department) giving the wrong information on nuclear labs to the White House."

Saudi Arabia is spending $50 billion in an effort to increase its production capacity to 15 million barrels, a level Jubeir said the kingdom can maintain for 75 to 100 years.

But even Jubeir said the quality of Saudi oil is getting heavier and harder for refiners to process. He said the kingdom is hoping to form a producer/consumer group based in Riyadh.

"We need to know how to work together to solve some of these issues," he said.

Simmons said only field-by-field well bore studies approved by third-party auditors can prove how much oil producers have.

He drew a picture of Ghawar, Saudi's largest oilfield, on the sports section of the New York Times for a visitor and furiously dotted the northern end.

He said when he visited Saudi Arabia, Aramco showed him a map of Ghawar which revealed scores of wells had already been bored in the northern section, which holds by far the most oil. Aramco told him, he said, declining rates have forced it to move south in the field, which holds less oil.

"He makes an excellent case for better transparency, and he is starting a movement that will hopefully reshape the industry," said Obaid.

"But he's using the wrong case study. Matt, with his book, has basically shot himself in the foot."


The neurobiology of mass delusion

The Willits News

Perceiving the realities of a changing environment

By Jason Bradford

History is replete with examples of social organizations, whether a business or a nation, that failed to perceive the realities of a changing environment and didn't adapt in time to prevent calamity. Hubris and a self-reinforced dynamic of mass delusion characterize the waning phases of these once powerful groups. In hindsight we ask, "What were they thinking? Wasn't the situation obvious to everyone? The evidence is so clear!" Here's the question we should ask next: "Is history now repeating itself?"

Anyone familiar with the concepts of overshoot, resource depletion, global climate change, mass extinction, and related ills, wonders why the media, church groups and political leaders do not vigorously discuss these topics. By contrast, those unfamiliar with these issues assume that because they are not covered closely, the problems must not be too worrisome. My view is that science and history are correct, and we are headed for a major planetary disaster as far as humans are concerned.

I've tried to understand why the human brain, on a collective level at least, is apparently incapable of dealing with obvious problems. Here's what I've learned.

For a clue to how the mind works, imagine getting startled in your own home. A shadowy figure lurking in a doorway elicits a powerful jolt to your system. It is only your spouse, of course, but it takes about half a second to realize that. This reveals what neurobiologists can now see with modern imaging techniques: visual signals get processed in more than one brain region, and the signal first arrives at the primitive hindbrain where it can respond before we are conscious of the threat. Playing runner up is the neocortex, our lumbering master of rational thought. A false alarm is inconvenient, yes, but a necessary burden. Without that startle response, a lion may have eaten us.

Emotions motivate and guide us. Fear of the lion prepares the body for fight or flight. Love binds individuals into cohesive units greater than the sum of their parts. When we succeed or fail at a task, or are praised or scorned for a particular behavior, emotional reactions are our rewards (feels good) or punishments (feels bad) and become the guideposts for our future thoughts and actions. The neocortex works with our emotions to solidify our plans. We dream about a goal and anticipate the emotional rewards of realizing it. Our self-esteem can be wrapped up in these goals and plans. They become our "mental models," setting what is important in life and largely defining who we think we are. This is how we become determined to "stick with the program." Mental models may range from the very short term and mundane, such as a plan to jog 12 laps, to lifetime goals and worldviews, such as a career path and religious beliefs.

Another clue about how the mind works comes from a famous experiment on the nature of the brain duality. Two films were made; both included a basketball team passing a ball among them. In one film a woman with an umbrella walks through the scene, in the other film it's a gorilla. People were randomly shown one of the films and randomly told either to count the number of ball passes made or just watch. Now consider the mindset of the counters. They have a goal, they bind this goal to an emotional reward, and they anticipate getting the "right answer" and "feeling good." All of those told to just watch and report anything interesting about the film recall either the woman with an umbrella or the gorilla. Over a third of those counting missed the woman and over half missed the gorilla.

When mental models are tied to rewards, we fear and rebel against their disruption, aiming to avoid disappointment or disillusionment. Because it receives and processes sensory input faster, our emotional mind can censor from conscious awareness information that may interfere with the task required to make the goal. If a gorilla isn't involved in actually passing the ball, then don't pay attention to the gorilla. Depending upon circumstances, this focus can be advantageous or dangerous. If a mathematician is working on the proof of a theorem in the safety of his office that is fine, but doing so on a busy street can be deadly.

A changing environment, such as a busy street, requires us to be open to new sensory inputs and to be willing to modify or even dismiss outmoded mental models. Rigidity of mental models in the face of countervailing information is called denial. Given what we now know about the structure and function of different brain regions, we can understand the physiological roots of denial. The data nullifying a cherished mental model are systematically filtered out before the conscious brain is even aware of them. The expression, "Hear no evil, see no evil, speak no evil," exemplifies this censoring process.

The conscious brain is not a simple dupe however. It can actively participate in the act of denial. This is termed "rationalization," and involves complex neocortical functions. People can erect fancier houses of cards and hold on to their cherished beliefs even in the face of overwhelming contrary evidence. Many will admit that is what they are doing by resorting to the expression, "Well, I just have faith," even when the subject is not overtly religious. This point in a discussion signals that the mental model being challenged is very important for the person, and to remove it would cause a serious and painful identity crisis. Who wants that kind of grief?

You can witness this brain duality in operation while watching debates between some of the dominant personalities of our culture, mainly those representing large financial and business interests, and the concerned watchers and interpreters of physical reality, mainly scientists in the realms of ecology, geology and climatology. Because the scientists are challenging fundamental assumptions of our culture, such as the basis for "progress" and the consequences of "economic growth," many cannot agree with the scientists without losing their identity. This threat to the mental model is simply too great to accept. Hence you encounter two modes of response from those accepting of the prevailing paradigm: (1) the scientific data are not reliable, and (2) faith in technological progress and/or human ingenuity.

So when wondering why so many people just "don't get it," (oil depletion, overshoot etc.) whether they are your local politician or great aunt, realize there is a physiological mechanism that may preclude having a rational discussion on certain topics. The truth can only be pushed so far before rebellion occurs, hence the phrase, "To kill the messenger." Before many folks can learn and incorporate the lessons of ecology, most could use the services of a good shrink. Someone to call them on their bull and get them to face their faulty, contradictory, and destructive thought patterns.

I fear the world has neither enough shrinks nor enough time to wait for the long process of psychotherapy to work. Furthermore, enshrined institutions embody dangerous mental models within their various charters, goals and mission statements. If anyone happens to have a crisis of confidence, these institutions work to reassimilate the disenchanted, quietly dismiss them, or destroy their reputations. Of course these are the worst possible responses. As Jared Diamond explains in his book Collapse, history is replete with societies that failed to question their own assumptions and create new paradigms. Instead of making life possible in a changed environment, they are part of archeology's trash heap.

Those who know about "peak oil," monetary debts, climate change, militarism, overpopulation, corporatism, soil loss, aquifer depletion, persistent organic pollutants, deforestation, etc., realize we are at a major historical juncture now. Since we know it is past time to change our culture, the question we have is whether most people will bother to listen and create the necessary transition in a rational, nonviolent manner.

For those who find the terms in the previous paragraph somewhat mysterious, try this. Research the "laws of thermodynamics" and compare them to the cultural imperative for "economic growth." See if you can recognize and then resolve the tension between the two in your mind. If you can't resolve the tension, decide which one of these has to go. Look back at the terms in the previous paragraph and ask how they relate to what you've just learned. Caution: afterwards you may need a good shrink.

ABOUT THE AUTHOR: Jason Bradford, Ph.D., of Willits has been a research scientist for the Missouri Botanical Garden,a research associate at the UC Davis Herbarium, and a visiting scholar with the UC Davis Department of Environmental Sciences and Policy.


Thursday, May 26, 2005

Sleepwalking into the Future

Pulse of the Twin Cities

Excerpted from “The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century,” by James Howard Kunstler.

Carl Jung, one of the fathers of psychology, famously remarked that “people cannot stand too much reality.” What you’re about to read may challenge your assumptions about the kind of world we live in, and especially the kind of world into which time and events are propelling us. We are in for a rough ride through uncharted territory.

It has been very hard for Americans—lost in dark raptures of non-stop infotainment, recreational shopping and compulsive motoring—to make sense of the forces gathering that will fundamentally alter the terms of everyday life in technological society. Even after the terrorist attacks of September 11, 2001, that collapsed the twin towers of the World Trade Center and sliced through the Pentagon, America is still sleepwalking into the future. We have walked out of our burning house and we are now headed off the edge of a cliff. Beyond that cliff is an abyss of economic and political disorder on a scale that no one has ever seen before. I call this coming time the Long Emergency.

What follows is a harsh view of the decades ahead and what will happen in the United States. Throughout this book I will concern myself with what I believe is happening, what will happen, or what is likely to happen, not what I hope or wish will happen. This is an important distinction. It is my view, for instance, that in the decades to come the national government will prove to be so impotent and ineffective in managing the enormous vicissitudes we face that the United States may not survive as a nation in any meaningful sense, but rather devolve into a set of autonomous regions. I do not welcome a crack-up of our nation but I think it is a plausible outcome that we ought to be prepared to face. I have published several books critical of the suburban living arrangement, which I regard as deeply pernicious to our society. While I believe we will be better off living differently, I don’t welcome the tremendous personal hardship that will result as the infrastructure of that life loses its value and utility. I predict that we are entering an era of titanic international military strife over resources, but I certainly don’t relish the prospect of war.

If I hope for anything in this book, it is that the American public will wake up from its sleepwalk and act to defend the project of civilization. Even in the face of epochal discontinuity, there is a lot we can do to assure the refashioning of daily life around authentic local communities based on balanced local economies, purposeful activity, and a culture of ideas consistent with reality. It is imperative for citizens to be able to imagine a hopeful future, especially in times of maximum stress and change. I will spell out these strategies later in this book.

Our war against militant Islamic fundamentalism is only one element among an array of events already underway that will alter our relations with the rest of the world, and compel us to live differently at home—sooner rather than later—whether we like it or not. What’s more, these world-altering forces, events and changes will interact synergistically, mutually amplifying each other to accelerate and exacerbate the emergence of meta-problems. Americans are woefully unprepared for the Long Emergency.

Your Reality Check is in the Mail

Above all, and most immediately, we face the end of the cheap fossil fuel era. It is no exaggeration to state that reliable supplies of cheap oil and natural gas underlie everything we identify as a benefit of modern life. All of the necessities, comforts, luxuries and miracles of our time—central heating, air conditioning, cars, airplanes, electric lighting, cheap clothing, recorded music, movies, supermarkets, power tools, hip-replacement surgery, the national defense, you name it—owe their origins or continued existence in one way or another to cheap fossil fuel. Even our nuclear power plants ultimately depend on cheap oil and gas for all the procedures of construction, maintenance, and for the extracting and processing of the nuclear fuels. The blandishments of cheap oil and gas were so seductive, and induced such transports of mesmerizing contentment, that we ceased paying attention to the essential nature of these miraculous gifts from the earth: that they exist in finite, non-renewable supplies, unevenly distributed around the world. To aggravate matters, the wonders of steady technological progress under the reign of oil have tricked us into a kind of “Jiminy Cricket Syndrome,” leading many Americans to believe that anything we wish for hard enough can come true. These days, even people who ought to know better in our culture are wishing ardently that a smooth, seamless transition from fossil fuels to their putative replacements—hydrogen, solar, whatever—lies just a few years ahead. I will try to demonstrate that this is a dangerous fantasy. The true best-case scenario may be that some of these technologies will take decades to develop—meaning that we can expect an extremely turbulent interval between the end of cheap oil and whatever comes next. A more likely scenario is that new fuels and technologies may never replace fossil fuels at the scale, rate and manner that the world currently consumes them.

What is generally not comprehended about this predicament is that the developed world will begin to suffer long before the oil and gas actually runs out. The American way of life—which is now virtually synonymous with suburbia—can only run on reliable supplies of dependably cheap oil and gas. Even mild-to-moderate deviations in either price or supply will crush our economy and make the logistics of daily life impossible. Fossil fuel reserves are not scattered equitably around the world. They tend to be concentrated in places where the native peoples don’t like the West in general or America in particular, places physically very remote or places where we realistically can exercise little control (even if we wish to). For reasons I will spell out, we can be certain that the price and supplies of fossil fuels will suffer oscillations and disruptions in the period ahead that I am calling the Long Emergency.

The decline of fossil fuels is certain to ignite chronic strife between nations contesting the remaining supplies. These resource wars have already begun. There will be more of them. They are very likely to grind on and on for decades. They will only aggravate a situation which, in and of itself, could bring down civilizations. The extent of suffering in our country will certainly depend on how tenaciously we attempt to cling to obsolete habits, customs, and assumptions, for instance, how fiercely Americans decide to fight to maintain suburban life-ways that simply cannot be rationalized any longer.

The public discussion of this issue has been amazingly lame in the face of America’s post-9-11 exposure to the new global realities. As of this writing, nobody in the upper echelon of the federal government has even ventured to state that we face fossil fuel depletion by mid-century and severe market disruptions long before that. The subject is too fraught with scary implications for our collective national behavior, most particularly the not-incidental fact that our economy these days is hopelessly tied to the creation and servicing of suburban sprawl.

Within the context of this feeble public discussion over our energy future, some wildly differing positions stand out. One faction of so-called “cornucopians” asserts that mankind’s demonstrated technical ingenuity will overcome the facts of geology. (This would seem to be the default point-of-view of the majority of Americans, when they reflect on these issues at all.) Some cornucopians believe that oil is not fossilized, liquefied organic matter but rather a naturally occurring mineral substance that exists in endless abundance at the earth’s deep interior like the creamy nougat center of a bonbon. Most of the public simply can’t entertain the possibility that industrial civilization will not be rescued by technological innovation. Well, the human saga has indeed been amazing. We have overcome tremendous obstacles. Our late 20th-century experience has been especially rich in technologic achievement (though their insidious diminishing returns are far less apparent). How could a nation who put men on the moon feel anything but a nearly God-like confidence in their ability to overcome difficulties?

The computer I am sitting in front of would surely have been regarded as an astounding magical wonder by someone from an earlier period of American history, say Benjamin Franklin, who helped advance the early understanding of electricity. The sequence of discoveries and developments since 1780 that made computers possible is incredibly long and complex and includes concepts that we may take for granted, starting with 110-volt alternating house current that is always available. But what would Ben Franklin have made of video? Or software? Or broadband? Or plastic? By extension, one would have to admit the possibility that scientific marvels await in the future that would be difficult for people of our time to imagine. Mankind may indeed come up with some fantastic method for running civilization on seawater, or molecular organic nano-machines, or harnessing the dark matter of the universe. But I’d argue that such miracles may lie on the far shore of the Long Emergency, or may never happen at all. It is possible that the fossil fuel efflorescence was a one-shot deal for the human race.

A coherent, if extremely severe, view along these lines, and in opposition to the cornucopians, is embodied by the “die-off” crowd. They believe that the carrying capacity of the planet has already exceeded overshoot and that we have entered an apocalyptic age presaging the imminent extinction of the human race. They lend zero credence to the cornucopian belief in mankind’s godlike ingenuity at overcoming problems. They espouse an economics of net entropy. They view the end of oil as the end of everything. Their worldview is terminal and tragic.

The view I offer places me somewhere in between these two camps, but probably a few degrees off center and closer to the die-off crowd. I believe that we face a dire and unprecedented period of difficulty in the 21st century, but that mankind will survive and continue further into the future—though not without taking some severe losses in the meantime, in population, in life expectancies, in standards of living, in the retention of knowledge and technology, and in decent behavior. I believe we will see a dramatic die-back but not die-off. It seems to me that the pattern of human existence involves long cycles of expansion and contraction, success and failure, light and darkness, brilliance and stupidity, and that it is grandiose to assert that our time is so special as to be the end of all cycles (though it would also be consistent with the narcissism of Baby Boomer intellectuals to imagine ourselves to be so special). So I have to leave room for the possibility that we humans will manage to carry on, even if we must go through this dark passage to do it. We’ve been there before.


Wednesday, May 25, 2005

The sands of Nye County time

Pahrump Valley Times

By BOB MCCRACKEN

The Current Era: 1970-2005

This most recent period of Nye County history is characterized by two trends. The first is the growth of Pahrump from a tiny farming community to a small rural city, substantially altering county demographics.

The majority of Nye County residents now live in the Pahrump Valley. The second trend, if it can be called that, is the application of modern open-pit mining methods to mineral deposits first discovered 70 or more years earlier. The current huge gold mining operation at Round Mountain is the best example of this trend. Open pit mining north of Tonopah in the 1980s and at Rhyolite in the 1990s are the two other important examples.

Ranching and farming in Nye County have declined due to unfavorable economics. The availability of water, but not land, will likely set the upper limits of Pahrump's growth. Inevitably, the gold deposit at Round Mountain will be exhausted and they will need a new economic engine.

Nye County's future: After 2015 and the end of oil

Predicting the future, which is history that has not yet happened, is a dangerous game. But here goes.

Most people don't yet realize it, but the world is on the fast track to depletion and eventual exhaustion of oil supplies. Experts believe world oil production is going to peak soon, perhaps this year, and just at a time when world needs for petroleum are rising dramatically - think China and India.

It is almost inevitable that oil supplies will fall precipitously in the coming generation. Shortages at the anticipated magnitude likely will shock, perhaps profoundly, the U.S. and world economies. Nothing like this has ever happened to industrial society before, experts who have looked at the problem say.

Analogous disruptions have hit the economic bases of non-industrial societies in the past, and those societies have either completely collapsed, or, if they did survive, never regained their pre-shortage levels. Keep in mind the U.S. currently uses about 21 million barrels of oil per day, approximately 25 percent of the world's oil production, roughly the same volume as the entire world consumed daily only four decades ago.

Considerable quantities of natural gas remain - enough for 50 years, but supplies are likely to become tight, even unpredictable, and prices will probably be high and volatile in the coming decades.

Unfortunately, North America, including Mexico, possesses less than 2 percent of the world's gas deposits. (Russia and Iran together hold about 50 percent.) Further, gas is detrimental to the world's climate, though not as bad as oil or coal, which is the worst of all. Great quantities of coal remain, but its use will become increasingly risky due to its negative effect on the world's climate.

Difficult as these changes may be for so many, they hold the opportunity of a new dynamic economy for Nye County. The anticipated oil shortage in the years ahead and the increasing recognition of the dangers of global warming almost certainly will lead to a growing emphasis on nuclear power. Increasingly, nuclear power will be recognized as a "green" energy source, one that is clean and cost-effective, producing minimal pollution and, crucially, having no negative effect on the earth's climate.

Moreover - and this is of critical importance for Nye County and the future of nuclear power - technology is on the horizon of solving the nuclear waste storage problem. Spent nuclear fuel from nuclear power plants will soon be reprocessed, then transmutated into forms that can be "reburned," reducing the original spent fuel volume by 90 percent, and leaving residues that are dangerous for only 300 years, as opposed to the 10,000 or more years now required.

Science is solving the nuclear waste problem. Processing nuclear waste in a transmutation burner produces vast quantities of heat, which can be turned into large amounts of electric power for use by society.

Any number of new technologically advanced nuclear power plants and transmutation burners can be constructed in Nye County. We have the Nevada Test Site and an abundance of federal land on which to place them. They will produce enormous quantities of safe electric power for use throughout the West, just as a prolonged world energy shortage grips our nation's economy.

The revenue and the number of high-paying jobs that will be created under this scenario could potentially transform Nye County into an island of prosperity.

And, even more inspiring, at least for me, is that the presence of such power-producing facilities can lead to Nye County becoming a world center for energy research where the best scientists in the world explore new ways to produce and store energy.

Readers of this column might recall that John S. Herrington, Secretary of Energy under President Ronald Reagan, proposed a multi-billion dollar research facility "that would employ more Nobel Prize winners than any university on Earth," for the Nevada Test Site - Nye County - nearly 20 years ago, according to former Nevada Sen. Chic Hecht. So this idea is not new.

Such research would take place at Science City, the city on the hill, located in Nye County, where the best of humanity will be expressed.

Keep in mind that whether Nye County contributes or not, the world's energy economy is going to have to be reinvented in the next 40 years. The potential exists for Nye County to play a significant role in this reinvention. If we pool our energies and make this the next stage of Nye County history, our children and grandchildren will thank us. And I know that every miner, rancher, and farmer who ever tried to make a dollar in this place would be damn proud of the result, or, as an old miner would put it, "how it assayed out."

References:

Nicholas D. Kristof. "Nukes are Green." The New York Times, April 9.

James Howard Kunstler. "The Long Emergency." Due out May 15; excerpted in "Rolling Stone" April 7.

Paul Roberts. "The End of Oil: On the Edge of a Perilous New World." New York: Houghton Mifflin Company, 2004.

Kamil Tucek. "Neutronic and Burnup Studies of Accelerator-Driven Systems Dedicated to Nuclear Waste Transmutation." Doctoral Thesis. Department of Physics, Royal Institute of Physics, Stockholm, Sweden. 2004. Available through the Los Alamos National Laboratory, Los Alamos, New Mexico Web site.