Peak Oil News: 08/01/2006 - 09/01/2006

Thursday, August 31, 2006

The Peak Oil Crisis: Labor Day 2006

Falls Church News-Press

By Tom Whipple

What a difference a month makes. Just four weeks ago Hezbollah and the Israelis were engaged in the heaviest fighting the world has seen since the US overran Iraq.

When the fighting started, oil prices jumped on concerns that oil exports might be affected. In July there were fears US motorists might draw down the country’s gasoline reserves during the summer driving binge. Soon thereafter, BP noticed that some of its Prudhoe oil pipelines were rusting through, threatening an important share of the US’s West Coast oil supply. Finally, the hurricane season was about to begin.

Here we are at the end of August and everything looks downright serene. Israel and Hezbollah appear happy the fighting is over. A large contingent of troops from the major European powers is on the way to watch over Southern Lebanon. The US driving season has only a weekend to go and gasoline stocks look healthy. It looks like we will get through the first months of hurricane season without damage to oil production.

With all this good news, or more precisely lack of bad news, oil prices tumbled to circa $70 per barrel and nationwide gasoline prices dropped by 15 cents a gallon. As the crunch point in the nuclear enrichment confrontation with Iran still seems to be some weeks away, many US financial analysts are telling their clients oil will be $60 or maybe even $50 a barrel later this year – provided those pesky hurricanes will stay away from the oil fields.

The US mid-term elections are now two months away. Unless a really big hurricane tears up oil production in the next two months or something in the Middle East goes sour really fast, high gas prices and the looming prospect of oil depletion are unlikely to have much of an impact at the polls.

Thus far the government’s response to $3 gasoline has consisted of drilling in “off limits” areas and touting ethanol. The latest “energy bill” to pass the Senate was hyped as “enhancing the energy independence and security of the United States.” The backers raised the possibility of finding 1.2 billion barrels of new oil off the Florida coast.

What the supporters don’t mention of course is that the US’s current oil consumption is now approaching 8 billion barrels a year so the prospective find is only about 110 days worth. Also unmentioned is the worldwide shortage of deepwater drilling rigs to exploit this impressive-sounding bonanza and the opinions of knowledgeable observers that while there may be some natural gas off the coast of Florida, the prospects for finding the 1.2 billion barrels may not be that good.

What we have here is not a real effort to deal with looming energy problems, but a political chimera designed to answer voter concerns about $3 gasoline. Usually, bills such as this would be one of many harmless exercises in political deception. These “brochure bills” allow legislators to assure voters that they have already dealt with the issue and the situation will be getting better shortly. After all, who can argue with a billion barrels of new “American” oil?

The danger is that by pretending to do something rather than leveling with the voters and taking decisive, controversial, and perhaps unpleasant action, the Congress is making the coming hardships much worse. As anyone who studies peak oil soon learns, it will take decades of “adjustments” to the world’s economy and lifestyles to compensate for all that will come with declining oil production.

If there is some sort of upheaval in the November congressional elections, it currently appears that it will have something to do with the situation in Iraq rather than the price or availability of gasoline. But what about the 2008 Presidential election?

In the last year we have learned it is going to take more that $70 or $80 a barrel oil to get the undivided attention of the Congress and the majority of the American people. What it will take to get this attention is hard to say. Perhaps $5 a US gallon will do it; perhaps $10. A major economic downturn coupled with unambiguous statements from the International Energy Agency, the US Department of Energy and the major world governments that indeed worldwide oil production was on the decline and there were no prospects it would ever increase again should be enough.

The most prominent calculators of the coming peak —not wishful thinkers— are coming around to 2010 plus or minus a couple of years as the year of actual peaking. There could, of course, be foreshocks such as marked reductions in world oil exports that could have serious economic consequences. If fact, some people think we are seeing these foreshocks or perhaps even the actual peak right now.

All this suggests that by 2008 there is a very good chance the reality of peak oil will be widely recognized and will be causing such economic hardships that politicians can neither ignore nor pretend a cure with yet another meaningless “energy bill.” If this is indeed the case, by 2008 ways to mitigate the effects of declining oil supplies could become the central issue of elections in America and around the world for many decades to come.


Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

Bloomberg.com

By Deepak Gopinath

On a sweltering Tuesday in mid-July, in the fields outside Pisa, Italy, Willem Kadijk scribbles notes as a ragtag troupe of doomsayers predict the end of the Oil Age.

With his shaved head, jeans and sandals, Kadijk, 48, blends into a crowd gathered under a white tent to hear of the coming calamity. The death of cheap, abundant crude, the forecasters warn, might unleash war and plunge the world into a second Great Depression.

That's not the prophecy of some apocalyptic cult. Kadijk, a hedge fund adviser, had flown from Amsterdam to attend a conference on a geologic theory known as peak oil.

Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow.

``Peak oil is a reality,'' says Kadijk, a senior equity salesman at Kepler Equities, an Amsterdam-based brokerage. He plans to start a fund to capitalize on what he sees as a looming crisis for the world's fossil fuel-based economy and the ultimate bull market in oil.

As energy prices soar and violence convulses the Middle East, the peak-oil movement -- an unlikely alliance of geologists, physicists, oil industry consultants and environmental activists -- is winning converts. Peak-oil ideas are bubbling up from scientific journals and offbeat Web sites, much the way warnings of global warming did a decade ago. For the first time, the peaksters have begun to grab the attention of Washington and Wall Street.

Congressional Caucus

U.S. Energy Secretary Samuel Bodman, former boss of Boston- based Cabot Corp., an oil and chemicals company, has asked the National Petroleum Council, which advises him, to investigate whether oil supplies can keep pace with demand. The U.S. Government Accountability Office, the nonpartisan congressional watchdog, is due to release a study on peak oil this November. Rep. Roscoe Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to sound the alarm.

``The world has never faced a problem like this,'' Bartlett says.

Everyone agrees we'll run out of crude eventually. Oil, after all, is a finite resource: The Earth holds only so much of it. The controversial issue is when a global peak will occur -- and what will happen then.

Colin Campbell, a British geologist who popularized the peak- oil theory in his book ``The Coming Oil Crisis'' (Multi-Science Publishing Co. and Petroconsultants SA, 1997, 210 pages) says world production of conventional oil, the kind that comes from gushing wells, is reaching its apex.

End of Oil Age

Society isn't prepared for the consequences, Campbell, 75, says. It's too late to develop alternative sources of power, such as solar cells, nuclear reactors and windmills, to fill the oil gap before energy prices soar, says Campbell, who has a doctorate in geology from the University of Oxford and more than 40 years of experience in the oil industry.

``We have come to the end of the first half of the Oil Age,'' Campbell says.

Nonsense, says Russ Roberts, a spokesman for Exxon Mobil Corp., the world's largest oil company. Exxon Mobil, which has reaped record profits as the price of oil has surged, has taken out ads dismissing peak oil in U.S. newspapers such as the New York Times.

The Irving, Texas-based oil giant says the peaksters are being alarmist. In all, the world probably has 4 trillion barrels of oil left, four times the amount we have used so far, the ad says.

Time to Think

``The world is nowhere near running out of oil,'' Roberts says. Exxon Mobil geologists believe global oil production will keep rising through 2030, he says.

Cambridge Energy Research Associates, whose chairman, Daniel Yergin, is a leading peak-oil critic, says production will reach an ``undulating plateau'' sometime in the future.

``Our outlook goes to 2020, and we see no evidence of a peak,'' CERA geologist Peter Jackson says. ``Eventually, we will start to see a decline. There is still time to think about alternatives.''

Predictions of an imminent oil famine are as old as the industry itself. When production at the first U.S. wells, located in western Pennsylvania, began to decline in the late 19th century, some people predicted the country would soon run out of oil. Then crude was discovered in east Texas, whose oil fields yielded so much black gold that the Texas Railroad Commission capped production to support prices.

Peak Moment

In the past, Campbell or his disciples have forecast the oil peak down to the year or even the day only to push back the fateful moment. In 1997, Campbell said it would occur in 2001. Now, he says total production, which includes oil from deep-water wells and fuel derived from natural gases, will reach its height sometime after 2010.

Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.

Campbell says the exact day or year isn't important. What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

U.S. Addiction

At a time when U.S. President George W. Bush has urged the country to break its addiction to foreign oil, the fact is, the U.S. is becoming ever more dependent on overseas crude. U.S. oil production peaked 36 years ago, in 1970, at 11.3 million barrels a day. Since then, output has fallen 39 percent, to 6.8 million barrels a day, or 8 percent of the world total, in 2005, according to BP.

Investors have started to listen to the peaksters. Billionaire Boone Pickens says he's a peak believer. So does Peter Thiel, who co-founded PayPal Inc. and now runs Clarium Capital Management LLC, a $2.1 billion hedge fund firm. Pickens, Thiel and other investors are positioning themselves to profit from what they say will be the biggest oil squeeze of all time.

Even some oil companies and industry veterans sound nervous. Chevron Corp. has run a series of full-page ads in U.S. newspapers that highlight surging oil consumption and declare, ``The era of easy oil is over.''

Chicken Littles

Thierry Desmarest, chief executive officer of Paris-based Total SA, told the World Gas Conference in Amsterdam in June that global oil production would peak in 2020. Matthew Simmons, whose Houston-based investment bank, Simmons & Co., trades oil and gas stocks, says Saudi Arabia's production may decline soon.

Alex Cranberg, chairman of Denver-based independent oil company Aspect Energy LLC, calls the peaksters Chicken Littles -- misguided souls who think the sky is falling.

In fact, Cranberg hired two people to dress in chicken costumes and hand out fliers dismissing peak oil at the conference Kadijk attended in July.

Like many oil-industry vets, Cranberg, 51, says market forces and technological advances will ultimately cure our energy ills. As oil prices rise, companies will be more willing to hunt for crude and extract it. They'll invest in expensive deep-water wells and new technologies to wring more oil from existing fields. Consumers will start conserving energy. Even now, stock market investors and Silicon Valley venture capitalists are pouring billions of dollars into companies developing ethanol, solar power and other alternative sources of energy.

$3-a-Gallon Gas

More and more, however, the peaksters are drowning out everyone else, Cranberg says. ``You can't turn around without seeing or hearing these ideas,'' he says. ``I think they are gaining.''

You don't have to be a geologist to understand why. The price of crude has tripled since 2000. In the U.S., $3-a-gallon gasoline has sapped consumers' confidence. Nearly half of Americans believe the economy is doing poorly, according to a July 28-Aug. 1 Bloomberg/Los Angeles Times poll. Fifty-nine percent of Americans expressed a negative view of Bush's handling of the economy.

``If oil was still at $20, no one would be talking about peak oil,'' says Manouchehr Takin, senior petroleum upstream analyst at the Centre for Global Energy Studies, a London-based consulting firm.

High oil prices are only part of the story, however. The world is straining to feed its energy habit. Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.

Big Question Mark

No one knows for sure how much oil the world has. That's a big question mark because the peaksters say production will max out once half of the oil has been pumped. So far, we've extracted about 1 trillion barrels in all. In 2000, the U.S. Geological Survey estimated global resources at 3 trillion barrels, enough to push peak production out to 2037, according to the EIA. Campbell puts the total lower, at 2.5 trillion barrels.

Oil is certainly getting harder -- and more expensive -- to find and extract. Oil discoveries plummeted to 5 billion barrels in 2005 from 90 billion barrels in 1964, according to Campbell.

``Discovery is in long-term decline, and spending more money won't increase it,'' says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.

OPEC's Stash

Oil companies have to find enough crude to offset dwindling production at existing fields, which can decline by more than 8 percent a year, and to keep pace with rising demand. Most of that increase will have to come from members of the Organization of Petroleum Exporting Countries, which are often cauldrons of discontent, war and terror.

The cartel's members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- together sit atop 75 percent of the world's reserves and account for about 42 percent of total production, according to BP.

OPEC countries are hardly paragons of economic and political stability. Most of the terrorists who attacked the U.S. on Sept. 11, 2001, came from Saudi Arabia. The war in Iraq has hurt that country's ability to pump oil. Bush says Iran is trying to develop nuclear weapons. In Venezuela, President Hugo Chavez has said he wants to diversify oil exports away from the U.S.

In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day -- almost 57 percent more than it did last year -- to satisfy the world's needs, the report says.

Meeting the Call

``We believe the resource base will support this increase, assuming that investments in development are made in a timely fashion,'' the report says.

OPEC countries will invest a combined $100 billion in the five years through 2010 so they can increase output, OPEC spokesman Omar Ibrahim says. ``We are set to meet the extra call on OPEC to 2030,'' Ibrahim says.

Yet even now, OPEC nations are struggling to keep up. Since 2000, OPEC has gradually lost the spare pumping capacity its members can use as an emergency reserve to moderate prices. The cushion has dwindled to about 1.5 million barrels a day from 6 million barrels a day, Takin says.

What's more, neither the peaksters nor oil industry executives know for sure how much oil OPEC has and how much it can actually produce. OPEC countries haven't been transparent about their reserves or production capacity, says Mike Rodgers, a partner at PFC Energy, a Washington-based oil industry consulting firm. ``OPEC is the big unknown,'' he says.

Overstated Reserves

Many energy analysts believe OPEC nations began overstating their resources in the 1980s, when the cartel linked members' production quotas to the size of their reserves, says Mamdouh Salameh, an independent oil economist. In the late '80s, cartel members raised their reserve estimates by a combined 300 billion barrels even though none of them had actually found much more oil.

In his 2005 book ``Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy'' (John Wiley & Sons, 448 pages, $24.95), Simmons says the Saudis have pumped so much oil so fast that the country's biggest oilfields face declining output.

``Saudi Arabia is keeping everything in the dark,'' Simmons, 63, says.

Saudi officials have dismissed peak-oil theorists and suggestions that their country is running on empty.

Saudi Assurances

``We currently manage approximately 260 billion barrels of oil,'' Abdallah Jum'ah, CEO of Saudi Aramco, the government-owned oil giant, said at an oil and gas conference in June. ``We continue to expand our reserve base, and conservatively estimate our additional potential of recoverable oil to be in the range of 200 billion barrels. At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce.''

Herman Franssen, former chief economist at the Paris-based International Energy Agency, says some OPEC members, such as Iran, Iraq, Kuwait and Venezuela, may be reluctant or unable to produce more oil even as prices soar, largely for political reasons.

``We may never see the volumes of conventional oil production that we see in official forecasts,'' says Franssen, who's now an oil industry consultant in Chevy Chase, Maryland.

Sadad al-Husseini, who spent 35 years working for Saudi Aramco, says Saudi Arabia's reserves are sound but that Kuwait, which says it has reserves of 101.5 billion barrels, probably has half that much. Iran, with official reserves of 132.5 billion barrels, has likewise overstated its reserves, says Husseini, who was an executive vice president at Saudi Aramco before retiring in 2004.

Assume the Worst

``Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next 10 years,'' he says. That's millions of barrels a day short of what the EIA says the world will need in 2015.

Political leaders, business executives and investors should assume OPEC won't be able to satisfy future demand, Rodgers says. ``From an energy-security point of view, if you believe in a non- OPEC peak and OPEC is not being transparent, we have to assume they don't have it,'' he says.

The precarious balance of supply and demand in the oil markets became even clearer in early August when London-based BP Plc announced it would temporarily shut down its Prudhoe Bay oil field on the North Slope of Alaska because of pipeline corrosion. The news drove already-high oil prices up more than $2 to almost $77.

Alaskan Decline

Prudhoe Bay, the largest oil field in the U.S., is part of the peak-oil story. The field was discovered in 1968 and came onstream in 1977. Since then, it has yielded more than 11 billion barrels of oil.

Yet even before the August mishap, this vast field had begun to die. Its output has fallen 73 percent to 400,000 barrels a day from a height of 1.5 million barrels a day in 1989.

Prudhoe Bay is following the life cycle of oil fields across the U.S. and around the world, a phenomenon known as the Hubbert Curve, which takes its name from M. King Hubbert.

Fifty years ago, Hubbert, then a geologist at Shell Oil Co.'s research lab in Houston, postulated that U.S. oil production would follow a bell-shaped curve.

At the 1956 meeting of the American Petroleum Institute in San Antonio, Hubbert predicted that total annual U.S. output would climb steadily, level off sometime between 1965 and '70 and then decline after about half of the country's reserves had been depleted.

Hubbert's Peak

The U.S. reached what geologists now refer to as Hubbert's Peak in 1970. Hubbert died in 1989 at the age of 86.

It wasn't until the late 1990s when Hubbert's ideas, which had percolated for decades in academia and oil circles, began to reach a wide audience via Campbell, the British geologist.

Now in his eighth decade, Campbell is a grandfatherly man with a shock of gray hair. He hardly comes across as a doom- monger. He works out of a two-story house in Ballydehob, a village on the western edge of Ireland.

Campbell spent 40 years exploring for oil for Amoco Corp. and other companies. He helped Amoco search for oil in Ecuador and then, during the 1980s, led its exploration in Norway. He later joined PetroFina SA, the oil exploration company now owned by Total.

After retiring from PetroFina in 1990, Campbell joined forces with Jean Laherrere, a retired French geophysicist who had spent 25 years working at Total, to analyze production profiles for the world's countries.

Campbell says he and Laherrere, now 75, looked at their data and concluded global oil production was approaching its zenith. In 1998, they co-wrote an article for Scientific American magazine titled ``The End of Cheap Oil'' that helped popularize their cause.

Coming Crunch

``The world is not running out of oil -- at least not yet,'' Campbell and Laherrere wrote. ``What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.''

In 2000, Campbell founded the Association for the Study of Peak Oil and Gas, an informal organization for fellow travelers. Now known as ASPO International, the group has sponsored five annual conferences, including the one in Pisa in July, which drew more than 230 people. It's now run by Kjell Aleklett, a physics professor at Uppsala University in Sweden. Twenty independent national ASPO groups have sprung up around the world, from Australia to France, to the U.S.

Many peaksters are driven by a moral imperative to spread the word. Campbell says he's a scientist, not a social or environmental crusader. Even so, he says he's worried that oil has harmed human society and the planet. Since the Oil Age dawned, nearly 150 years ago, the Earth's population has soared six-fold, he says.

Man Alone

``Man is the only animal that uses external energy,'' Campbell says.

Asked why he has championed the peak-oil theory, Laherrere quotes Antoine de Saint-Exupery, author of ``The Little Prince'': ``We don't inherit the Earth from our ancestors; we borrow it from our children.''

Activists have jumped on the peak-oil bandwagon and added their own, often strident, voices to the debate over the future of oil.

Jim Kunstler, a writer-activist who lives in Saratoga Springs, New York, says peak oil will ultimately destroy suburbia and plunge the U.S. into a violent dark age of feudalism.

``The question is, Can we run our shit the way we are running our shit?'' Kunstler, 57, says. In 2005, Kunstler wrote ``The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century'' (Atlantic Monthly Press, 320 pages, $23), which warns of the havoc to come.

Dieoff.com

Lifeaftertheoilcrash.net, a Web site run by lawyer and peak- oil entrepreneur Matt Savinar, warns, ``Civilization as we know it is coming to an end soon.'' The site sells peak-inspired books and products, including an investor's guide to peak oil.

Another site, dieoff.com, says wars over oil and other natural resources will eventually erupt and millions of people will be wiped out.

Stephen Andrews, a Denver-based energy consultant who founded ASPO-USA in June 2005, says the alarmists have hurt the peak-oil movement.

``The peak-oil tent has different voices -- some shrill, some more sober -- reaching different conclusions from the same facts,'' Andrews, 59, says.

Andrews has attracted more-sober voices to the movement. Last November, Denver Mayor John Hickenlooper helped co-sponsor a two- day peak-oil conference organized by Andrews.

``I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say that there is no peak is shortsighted,'' Hickenlooper says.

Crash Program

The world would have to embark on a crash mitigation program 20 years in advance to prevent peak oil from hobbling the global economy, says Robert Hirsch, a senior energy program adviser at San Diego-based research and engineering firm Science Applications International Corp. ``And I consider myself an optimist,'' says Hirsch, 71, who included his findings in a 2005 study on peak oil for the U.S. Department of Energy and estimates such a program would cost the world $1 trillion a year.

Some investors and analysts see lots of opportunities in a post-peak world.

Charles Maxwell, senior energy analyst at Weeden & Co., an independent research firm based in Greenwich, Connecticut, says high oil prices will spur companies to invest in unconventional sources. Few people, however, realize how much such projects will cost or how long they will take to come onstream, he says.

Take the Canadian oil sands. This region in Alberta holds 175 billion barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP), the world's second-largest reserves.

`Really Big'

``It's big. It's really big,'' Neil Camarta, senior vice president for oil sands at Calgary-based Petro-Canada, says of the region. ``It can keep America going for 25 years.''

The oil sands hold vast stores of bitumen, a tarlike substance that is mined, rather than pumped, and then processed into oil that can be refined. The process is expensive -- and getting more so. Rising operating and capital costs have driven the price of mining and upgrading bitumen to as much as $40 a barrel, Camarta says.

By 2020, Canada's oil sands will yield 4 million barrels a day, almost four times what they do now, according to CAPP. That sounds like a lot until you realize that 4 million barrels is just over a third of what Saudi Arabia produced per day in 2005.

Pickens, who built Mesa Petroleum Co. into one of the world's largest independent oil and gas producers, says he sees trouble -- and opportunity -- in peak oil. Pickens, who collected a degree in geology from Oklahoma State University in 1951, has called for the construction of more nuclear power plants and the promotion of alternative energy. He says he's invested in the Canadian oil sands.

Pickens's Picks

``I'm a disciple of Hubbert,'' Pickens, 77, says. ``I think we've peaked and we are going to see an undersupply of oil.''

Clarium Capital's Thiel says he began thinking about peak oil in 1999. As the Internet bubble grew that year, Thiel, 38, says he started to wonder about other risks that investors might be ignoring and seized on the uncertain future of oil.

``Energy will be systematically undervalued until peak oil is priced in,'' Thiel says. He's bought shares of Calgary-based EnCana Corp., which has invested in exploration and new production, and of oil services companies like New York-based Schlumberger Ltd. and Houston-based Weatherford International Ltd., which stand to profit as explorers hunt for oil and drill wells. Thiel says he's leery of U.S. oil majors, such as Exxon Mobil, because they may become targets of new taxes once the government wakes up to peak oil.

Thiel himself says the peak will come by 2008 -- if it hasn't already. ``Geology will trump technology,'' he says.

Coal, Uranium

Eric Sprott, CEO of Toronto-based Sprott Asset Management Inc., says he became a peak-oil convert after hearing Campbell speak in 2004. Sprott, who helps manage 3.6 billion Canadian dollars (US$3.2 billion), says the bull market in energy has only just begun. He's invested 36 percent of his firm's assets in a variety of areas that could benefit from peak oil. His flagship hedge fund returned 41 percent in 12 months ended July 31, he says.

Sprott's investments include St. Louis-based Arch Coal Inc. and Brisbane, Australia-based Macarthur Coal Ltd. His oil and gas picks include Halifax, Nova Scotia-based Corridor Resources Inc.; Denver- based Delta Petroleum Corp.; and Houston-based Ultra Petroleum Corp. He has also invested in Australian uranium companies Energy Resources of Australia Ltd. and Paladin Resources Ltd.

Midnight Ride

Meanwhile, the peaksters aren't about to let up. They'll convene in Boston on Oct. 25-27 to sound their alarm at a conference called ``Time for Action: A Midnight Ride for Peak Oil.'' The title is a reference to the American patriot Paul Revere, whose horse ride in 1775 warned Massachusetts colonists that British soldiers were advancing. The battle that followed, at Lexington and Concord, marked the beginning of the American Revolution.

It was just 84 years after Revere took his ride, on Aug. 27, 1859, that Edwin Drake struck oil in Titusville, ushering in the Oil Age. Exxon Mobil says the era of oil isn't about to end. In one of its ads, the company says, ``Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year or for decades to come.'' The ad depicts a man looking through binoculars at a snowcapped mountain whose summit is hidden by clouds.

Campbell says the illustration actually drives home the point Exxon Mobil is trying to avoid. ``Even though it is obscured by clouds, we know there is a peak,'' Campbell says. His investor followers are betting he's right.

To contact the reporter on this story: Deepak Gopinath in New York at dgopinath@bloomberg.net .


Will the End of Oil Be the End Of Food?

AlterNet

By Jason Mark

American agriculture is fatally dependent on oil. A few forward-thinking farmers are trying to reduce their reliance on fossil fuels.

Farmer Richard Randall doesn't believe in the notion of "peak oil," the argument that civilization will soon experience an acute -- and irreversible -- petroleum scarcity that will fundamentally alter our way of life. A 61-year-old wheat and sorghum grower from Scott City, Kan., Randall says he's seen high oil prices before, and that today's expensive petroleum is just part of a natural market cycle that will eventually adjust itself, leading to lowered fuel costs.

"I think there's plenty of oil there," Randall said recently. "I feel that if we allow the marketplace to work without interruption in the supply, we will find a level. It's not going to be as low as it was, but it will come down. We do need to produce oil where we can."

Randall may not be certain when oil prices will level out, but it's abundantly clear to him that $70/barrel petroleum is taking a huge bite out of his business. Nearly every part of his farming operation is being impacted. The price for the diesel fuel that runs the tractors and trucks on his 4,500-acre farm have more than tripled in the last four years, rising from 80 cents per gallon to close to $3. Fertilizer prices are also up sharply. Since synthetic fertilizers are made from natural gas, they too are impacted by higher fossil fuel prices; the cost of fertilizer has gone from about $160 per ton to $460 per ton in the last three years. Smaller, organic growers are also feeling a pinch from costlier petroleum. The price for the plastic drip irrigation tape commonly used on organic fruit and vegetable farms is up 20 percent from two years ago.

Because farmers operate in a commodity market where buyers and brokers dictate the price of the harvest, high oil costs have been particularly painful. Unlike other businesses, farms have no way to pass their rising costs on to consumers.

"All of our expenses have gone up pretty well, but we can't put on a surcharge for fuel like everyone else can." Randall said. "It's made it a lot tougher."

Tomorrow's crises

For farmers like Randall, today's challenges may be tomorrow's crises. The problems of coping with high oil prices reveal how utterly dependent our food production system is on nonrenewable fuels. As long as oil is plentiful, that dependence isn't a concern. But in some circles fears are growing that if global petroleum production begins a steady decline, our entire food system will be strained, testing our ability to feed ourselves.

"How dependent on oil is our food system?" Richard Heinberg, a leading "peak oil" scholar and the author of The Party's Over: Oil, War and the Fate of Industrial Societies said in an interview. "Enormously dependent. Fatally dependent, I would say."

Of course, you won't find any oil on your dinner plate, but petroleum and other fossil fuels are inside of every bite you eat. About one-fifth of all U.S. energy use goes into the food system. The synthetic nitrogen fertilizers that are essential for high crop yields are a byproduct of natural gas. Gasoline and diesel fuels power the combines that rumble through the grain fields. Countless kilowatts of electricity are burned up in the factories that process all of the packaged goods that line the supermarket shelves. And then there's the gasoline required simply to get food to market. We now have a globalized food system, one in which the typical American meal travels 1,500 miles from farm to fork. Organic products -- though they may have a more sustainable veneer -- are in many respects no different; 10 percent of organic products come from abroad. Without oil, we would all be on one harsh diet.

"We've created an agricultural system where, on average, for every energy of food calorie we produce, we need to expend about 10 calories of fossil fuels," Heinberg said.

Such an imbalance would not be worrisome if there were an inexhaustible supply of oil. But, as every child learns in elementary science class, petroleum is a nonrenewable resource. A heated debate is under way about when that resource will begin to decline. Some say that we have already passed the summit of peak oil and point to a leveling of global petroleum production as proof. The U.S. government argues that we have decades before oil extraction begins to decline. Others calculate that we will hit the peak oil mark sometime in the next 10 years. Regardless of when exactly oil production starts to drop, it's clear that in this century humanity will have to learn to live without cheap, abundant oil.

What this means for our food system is also up for debate. At the very least, costlier oil will lead to more expensive food, especially for processed and packaged goods. At the very worst, peak oil could seriously disrupt agriculture, especially in highly industrialized nations like the United States, where food systems are heavily reliant on oil.

"This era of increasing globalization of our food supply is going to draw to a close here in the next decade or so," Ronnie Cummins, executive director of the Organic Consumers Association, said. "I think it (eventual oil scarcities) is going to mean the end of importing billions of dollars of food from overseas. It's going to mean the end of relatively cheap food in the U.S. And it's going to mean a significant increase in starvation and malnourishment across the world."

Fuel vs. food

In response to alarms about the fragileness of the food system, some farmers are taking initiatives to wean themselves from petroleum and find more sustainable ways of growing food. One of the most popular approaches is biofuels. For farmers, it's a solution to high oil prices that makes intuitive sense, as it raises the possibility of growers cultivating their own fuel, just as most farmers did a century ago when they harvested oats to feed their horse teams.

Phil Foster is one farmer who has made a commitment to reducing his farm's reliance on fossil fuels. A prominent California organic fruit and vegetable grower who is a supplier to Whole Foods, Foster runs nearly all of the trucks and tractors on his 250-acre farm on B100-pure biodiesel. The remainder of his machines -- older tractors with more finicky engines -- operate on B30, which is a blend of biodiesel and conventional petroleum diesel. At the same time, Foster is trying to reduce the amount of electricity his farm pays for. Several years ago he installed a bank of solar panels to help power his packing shed, refrigerators, irrigation pumps, and sales office. He calculates that the sun provides about 20 percent of his energy.

For Foster, using biodiesel and employing solar technology isn't just an effort to be environmentally correct. It's simply smart business, he says, a way to ensure that his farm will be economically sustainable over the long run.

"It was kind of a no-brainer for me to move in that direction," Foster said. "Especially in a business like ours, customers that buy organic would tend to like their growers to be kind of on the forefront. As a business that wants to think about longevity, I want to know how we can position ourselves."

Organic growers aren't the only ones bullish on the future of biofuels. Large, conventional grain farmers are also looking at biofuels as a way to reduce their costs, and many corn growers are hoping to make money by selling their surplus harvest to ethanol processors.

"Diesel fuel used to be a minor cost, but now it's become a major cost," said Paul Penner, who farms 1,000 acres of wheat north of Wichita. "It looks like biodiesel is going to become a long-term solution. So I think we are going to be seeing some bigger switches across the country."

Some people, however, caution that biodiesel is unlikely to evolve into a permanent fix. Though biofuels may be useful in reducing petroleum dependence in the near future, it's doubtful that fuels made from plants could completely unhitch us from oil. Why? For the simple reason that making biofuels requires lots of land, and at some point -- were biofuels to become widely popular -- the nation would face a choice between growing food and growing fuel.

"As good as it sounds, you're taking crops that initially were being used as a food source and now are being used as fuel sources," said a U.S. Department of Agriculture scientist who asked to remain anonymous. "So where will all the additional food crops come from to feed the demand from American consumers? I expect some problems coming."

Problems involving the trade-off between cultivating food and cultivating fuel are already appearing. According to Ferd Hoefner of the Sustainable Agriculture Coalition, last year farmers in North Dakota sold a large portion of their corn harvest to ethanol processors. But that left local cattle ranchers short of grain to feed their cows, and so they had to import corn from Canada to beef up their herds, corn that was more expensive that the locally grown stuff.

Freewheelin'

As the North Dakota experience shows, there are no simple solutions to agriculture's deep reliance on oil. The fundamental challenge facing farmers -- and, by extension, everyone who likes to eat -- is how to reduce off-farm inputs and make farms more self-sufficient. That will likely require a dramatic overhaul of the food system, a wholesale restructuring that would return agriculture to a system of local production for local consumption.

"The only good thing about this is that there will be a massive stimulus for rebuilding local and regional food and farming systems, and a big increase in organic and sustainable farms, which are less energy intensive," the Organic Consumer Association's Cummins said.

Amy Courtney is a farmer who is pioneering less energy-intensive ways of farming. Courtney is the owner and sole employee of Freewheelin' Farms, a tiny operation on California's Central Coast. Four years ago Courtney, 31, started farming by herself on a one-acre plot just a few hundred yards from the Pacific Ocean. On her oceanview parcel she grows strawberries, blackberries, hothouse tomatoes, cabbage, squash, leeks, and a range of other vegetables. Her produce goes to 16 households in a Community Supported Agriculture (CSA) program and some restaurants in a nearby town, all of which she delivers on her bicycle after a seven-mile ride.

"I was a bike activist and chose not to have a car in my life," Courtney said on a recent sunny afternoon as she stood near the chicken flock that supplies eggs to her CSA members. "Then I got involved with agriculture and saw how much we were spending on diesel and oil spills on the fields, and the whole thing was kind of gross to me. I don't want to support that with my life. Or at least I want to unplug as much as possible. And now, with everything in the Mideast, it's like, duh."

Courtney does use some petroleum. She employs a gasoline-powered rototiller to supplement her hand digging of the soil, and she has a biodiesel truck for hauling manure from a nearby ranch so that she can make her own compost. But she estimates that her farm's annual fuel use is less than 30 gallons. She also tries to be more sustainable by using as many recycled materials as possible. She inherited her greenhouse, and the bike trailer she uses for delivering her produce was scavenged from a junk pile.

"There's stuff out there that people aren't using, including land and equipment," she said. "I'm amazed how much food you can grow on a little piece of land. I don't care if they can't make Pez as cheap as they used to. I don't care if GM can't keep it together anymore. If we can't feed ourselves, we're fucked."

Freewheelin' Farms may not be scaled to feed a country of 300 million people. But it is an illustration of the basic principles that will be required to grow food in a post-oil age: Muscle-powered, localized, dependent on personal relationships. Courtney's model -- in which it takes one person to feed about another 20 -- also reveals one other change that will likely have to occur with the agricultural system: More people will have to start growing their own food. Currently less than two percent of the U.S. population are farmers. If we can no longer rely on the muscle of carbon energy, that number will need to grow.

Author Heinberg says the island nation of Cuba offers a model for how such a transition can occur. After the collapse of the Soviet Union, the Communist nation found itself cut off from the subsidized petroleum it had long depended on. In order to feed itself, the government launched a sweeping program to enlist citizens in urban gardening and composting. In the last decade, the country has become an internationally recognized model of sustainable agriculture.

"[Cuba] basically had an oil famine in the early '90s, and they had to break up the big state-owned farms and start smaller farms," says Heinberg. "They included farming as part of the curriculum in our schools. They raised the salaries of farmers.

"And they had to do these things, or otherwise they simply would not have survived as a society."

Jason Mark lives and works on an organic farm in California. He is the coauthor, with Kevin Danaher, of "Insurrection: Citizen Challenges to Corporate Power."


Wednesday, August 30, 2006

Peak Oil and the Fall of the Soviet Union

EnergyBulletin.net

By Douglas B. Reynolds

After over 70 years in power, the mighty Soviet Empire unexpectedly vanished overnight and almost the entire communist tradition there dissolved. Was the cause of this cataclysmic collapse really the result of communist inefficiency and U.S. president Ronald Reagan’s Cold War military build up? Or was there an oil crisis that shocked the Soviet system? Or if Marxist-Leninist communism was so inefficient, then why did it last for over 70 years, through World War II and early Cold War tensions that were arguably also strong enough to have toppled it?

This subject is addressed in my book, Scarcity and Growth Considering Oil and Energy: An Alternative Neo-Classical View, and in a forthcoming article co-authored with Marek Kolodziej. Our evidence shows that an oil production decline preceded the GDP decline of the Soviet Union, and therefore that the fall of the Soviet Union was not caused by President Ronald Reagan’s cold war military build up or by Soviet economic mismanagement, as many conservative pundits would like us to believe. Rather it was caused by an oil crisis.

The Soviet Union experienced peak oil first hand—a 43% decline in domestic oil production between 1987 and 1996. This crisis caused Soviet society to fall into devastating economic impoverishment. Can this be proven? Yes. Here is the quick story: The oil decline in the Soviet Union preceded the GDP decline. A statistical test, Granger causality, shows this. Oil decline did not follow the GDP decline, it was ahead of it, and therefore it caused it. However, Granger causality is not always sufficient proof; more evidence is needed.

For example, you could argue that the oil decline happened because of internal economic chaos – independent of oil scarcity. It is possible that due to spending so much of the Soviet GDP on military build-ups, the Soviet Union didn’t have money to pay oil workers. But, Soviet coal production declined after GDP started declining. How could this internal chaos have caused reductions only in oil production but none in coal production prior to the GDP decline? If you argue that Cold War military expansion precluded oil sector spending to keep oil production high, then why would not it have also precluded coal sector spending at the same time? Also, natural gas production was not affected during the Soviet collapse. Again, why would internal chaos arbitrarily affect oil before the collapse, but not natural gas? Thus it was scarcity of oil and not internal inefficiency that caused the oil to decline.

Still, why did oil production increase after post-Soviet markets were freed? After all, if oil production increased after the fall of the Soviet Union then surely that proves the oil production decrease was due to Soviet inefficiency. The answer is that the Soviet Union was a closed system and had its own technologies and market mechanisms within that system. Thus the Soviets hit against scarcity within the confines of their own technological and political world. After the political system changed, their oil fields were reinvigorated with new technology and management from outside the old Soviet system. Under the old system the Soviets were only able to extract about two thirds as much oil as modern western technologies. But that doesn’t mean scarcity did not cause their decline. Scarcity caused the decline within their system.

Remember, Soviet oil production increased from 1930 all the way to 1987 under a Soviet system using Soviet technology. If Soviet inefficiency caused the post-1988 oil decline then why didn’t it also cause oil production to decline during the 1950s and 1960s? Clearly their inefficient technology was efficient enough to increase production as long as their reserves were vast enough. Once the reserve base was less bountiful, their technology reached its limits and scarcity ensued. Any region with a given technological and economic system would eventually peak, such as the United States itself where we produce half as much oil now as we did in 1970 even with the best technologies and economic system available.

Like the Anasazi, the Mayans and the Romans themselves, the Soviet Empire fell as our own economy may. Our fall could be exactly like the Soviet fall if we don’t prepare now. We are faced like the Soviets with Jared Diamond’s scenario where Diamond in his book, Collapse, shows that many civilizations faced economic decline. I think people don’t want to believe the Jared Diamond “collapse scenario” is upon us because they expect that technology will save us… and it might. However, what the Soviet collapse shows is how quickly and how severely an economy can be hit by oil scarcity. And in fact, the Soviets were aware of possible problems and did invest in such alternative technologies as solar energy and geothermal power before the fall, but were still unable to stop the collapse. It is easy now to give Soviet communism short shrift, even though we ourselves were once terrified of the Red Scare. Yet the Soviet fall may be a precursor to our own.

Douglas B. Reynolds, PhD., is an associate professor of oil and energy economics at the University of Alaska at Fairbanks. Author of several books and numerous articles, he has also served as a consultant to Alaska’s state legislature about the proposed natural gas pipeline.


Tuesday, August 29, 2006

Blistering Drought Ravages Farmland on Plains

MSNBC.com

(What does this have to do with peak oil? Abundant crops, esp. corn, are supposed to be the new source of ethanol fuel. If we don’t have enough to eat we won’t have enough to burn. MK)

With parts of South Dakota at its epicenter, a severe drought has slowly sizzled a large swath of the Plains States, leaving farmers and ranchers with conditions that they compare to those of the Dust Bowl of the 1930's.

The drought has led to rare and desperate measures. Shrunken sunflower plants, normally valuable for seeds and oil, are being used as a makeshift feed for livestock. Despite soaring fuel costs, some cattle owners are hauling herds hundreds of miles to healthier feedlots. And many ranchers are pouring water into "dugouts" — natural watering holes — because so many of them (up to 90 percent in South Dakota, by one reliable estimate) have gone dry.

Gov. Michael Rounds of South Dakota, who has requested that 51 of the state's 66 counties be designated a federal agricultural disaster area, recently sought unusual help from his constituents: he issued a proclamation declaring a week to pray for rain.

"It's a grim situation," said Herman Schumacher, the owner of a livestock market in Herreid, S.D., a small town near the North Dakota line where 37,000 head of cattle were sold from May through July, compared with 7,000 in the corresponding three months last year. "There's absolutely no grass in the pastures, and the water holes are all dried up. So a lot of people have no choice but to sell off their herds and get out of the business."

Drought experts say parts of the states most severely affected — Nebraska, the Dakotas, Montana and Wyoming — have been left in far worse shape because of recent history: several years of dry conditions, a winter with little snow and then, with moisture reserves in the soil long gone, a wave of record heat this summer.

By late August, rain had fallen several times in some areas, but Bob Hall, an extension crops specialist at South Dakota State University, said it amounted to "a drip in a bucket."

"The bottom line is that even if we got relief starting today, at this minute," Dr. Hall said, "it would take a few years economically to recover."

As if earless, shriveled cornstalks were not enough, farmers and ranchers say they carry a sense that their counterparts elsewhere seem to be doing just fine, leaving them with what feels like an invisible disaster, unnoticed by the outside world. Some farmers in Midwestern states like Illinois, Indiana and Ohio, as well as some in the eastern sections of South Dakota and Nebraska, tell of a respectable growing season.

Even here in Mitchell, about 70 miles west of Sioux Falls, some residents did not grasp the scope of the drought until the Corn Palace, this city's tourist-luring castlelike civic center wrapped in hundreds of thousands of ears of corn, announced that because there was not enough of the crop, it would not redecorate this year for the 2007 season.

"We don't have any record of anything like this happening before," said Mark Schilling, the director of the Corn Palace, a campy, 114-year-old landmark promoted on highway billboards with endless corn puns.

"But if there's not a crop, there's not a crop," Mr. Schilling said quietly.

After weeks and weeks with little rain and high temperatures, one farmer, Terry Goehring, watched the mercury spike to 118 degrees in his Mound City, S.D., field one day in July. That was it. Mr. Goehring, who has farmed since 1978, sold half his 250 head of Angus cattle.

"There was no corn," he said. "There was no hay. We had nothing. And in that moment, I knew there was no choice."

Climatologists with the National Drought Mitigation Center at the University of Nebraska-Lincoln said scientists deemed the weather conditions and its effects in the areas of the worst drought a once-in-50-years experience.

In some cases, it has been worse than that. On July 15, a weather station in Perkins County, S.D., near North Dakota, recorded a temperature of 120 degrees. That matched the highest ever reported in the state since the start of such record-keeping in July 1936, said Brian Fuchs, a climatologist at the Nebraska center.

Given such conditions, it is hardly a surprise that crop estimates are so gloomy. Steve Noyes, deputy director at the South Dakota field office of the government's National Agricultural Statistics Service, said the winter wheat crop here had shrunk by 43 percent from last year's; alfalfa hay is expected to be down by 35 percent; and 22 percent of pasture land is deemed "very short," with 35 percent "short," figures significantly worse than those of a year ago.


Saturday, August 26, 2006

DOE predicts gasoline shortages

The New Mexican

By Andy Lenderman

Gasoline shortages and even higher prices loom, a new government report says, and it will take decades and trillions of dollars to replace American dependence on foreign oil.

The U.S. Department of Energy report directly addressed the concept of peak oil and how to deal with it. Peak oil means oil production is maximized and supply goes down from that point forward. Coupled with a surge in demand from countries like China and India, some energy experts say this could be a problem for America's economy.

"The world is consuming more oil than it is finding, and at some point within the next decade or two, world production of conventional oil will likely peak," the report says.

In Congress, U.S. Rep. Tom Udall, D-N.M., has co-founded the House Peak Oil Caucus aimed at tackling this issue. "I have a sense that the frustration is building, and whenever that happens, that's the opportunity to get something done," he said Thursday.

Udall said with gas at $3 a gallon, people are nervous and anxious about how they will meet their budgets.

The July report was written by Robert Hirsch of Science Applications International Corp., and Roger Bezdek and Robert Wendling of Management Information Services Inc., based in Washington, D.C.

The report also said many new American jobs could be created in the effort to replace imported oil with positive effects on the economy.

Popular alternatives -- such as ethanol fuel, biodiesel and electric cars -- were dismissed as having minimal overall impacts in the next 20 years. However, the study noted that new technology in these areas could make them more significant.

The country currently consumes more than 20 million barrels of oil a day, and of that, about 60 percent comes from other countries. Current ethanol technology, with maximum production, could give the country up to 8 percent of its fuel supply, one industry official has said. Ethanol supplies about 3 percent of the fuel supply now, Chris Standlee of Abengoa Bioenergy Corp. said in a recent interview.

The report analyzed four options to produce large amounts of liquid fuels in the U.S.: increasing vehicle efficiency; creating petroleum from coal, called coal liquefaction; oil shale, which is rock that can be distilled to produce oil; and enhanced oil recovery, which means better ways to get oil from existing fields.

"It is important to note that initiation of all of the options simultaneously does not even satisfy half of the U.S. liquid fuels requirements prior to 2025," the report says. "If the peaking of world conventional oil production occurs before 2025, the U.S. may not have a choice in terms of a massive national physical mitigation program."

That means options designed to save or make large amounts of liquid fuels, which require big investments and consumer spending, the report explained.

Udall said he's heard from his constituents in Northern New Mexico's 3rd Congressional District. "I think they're very frustrated with the lack of policies from the federal government," Udall said of his constituents. "They don't think that the Republican-led Congress has been interested in renewables and alternative forms of energy and conservation."

U.S. Sen. Pete Domenici, R-N.M., has promoted alternatives in the Energy Policy Act of 2005, such as incentives for oil shale research, wind power, ethanol production, nuclear power and new research in the ethanol arena


Thursday, August 24, 2006

The Peak Oil Crisis: Conserving Light

Falls Church News-Press - The Peak Oil Crisis: Conserving Light

By Tom Whipple

This week the UN is to come up with a sanctions resolution that will keep Iran's two million barrels a day of exports flowing and at the same time convince Tehran to give up on uninspected nuclear enrichment.

Crafting such a resolution is likely to take some doing as the Chinese, who are more concerned about losing oil imports than whether or not Tehran comes up with an atomic bomb, have to sign off on any sanctions plan.

Therefore, there is still time to explore some of the things we are going to have to do to keep functioning in the post-peak oil world. This week I would like to talk about our electric lights. Discussion of this topic is occasioned by the recent release by the International Energy Agency (IEA) of a 500-page report exhaustively exploring the world's electric lighting and the energy it takes to keep it glowing.

The IEA contends that in the 100 years or so we have had electricity, we have let massive waste creep into the lighting of our buildings, streets and open spaces. The fundamental cause of this waste was the abundance of cheap electricity, cheap fixtures and cheap bulbs. The cost of over-lighting an individual room, structure or area was small. It is only when we realize there are billions of us on the earth consuming many times more electric light than we actually need, that it becomes apparent that collectively our lighting systems are wasting very large quantities of fossil and other electricity-generating fuels we will soon need desperately.

As is the case with liquid fuels, here in America we are at the top of the lumen per capita consumption list: the average American uses 101 megalumen-hours per year, while the average Englishman gets by with 60. Worldwide, the average person connected to an electric grid uses 20 megalumen-hours but the average Indian gets by with only three per year.

Energy waste through improper lighting can take many forms. It can be as simple as leaving lights burning in an empty room, or equipping a room with oversized or too many lights, or continuing to use obsolete and inefficient lighting technology. Where a standard incandescent bulb will provide only 6-18 lumens per watt, a compact fluorescent will provide 35 to 80, and modern fluorescent tubes can approach 100 lumens per watt. On the horizon are white light-emitting diodes that may be capable of 150 - 200 lumens per watt and have lifetimes of 50-100,000 hours.

An important factor in efficient lighting is the switching. In too many rooms a single switch controls a large bank of lights. Providing more switches, timers, and light and motion sensors would save considerable energy each year by ensuring that light is used only when and where it is needed. I recently visited Italy and was surprised to find that in recently renovated hotels, the room door key-card also doubles as an electricity activation card. Leave your hotel room and you have no choice but to kill every light, TV, and appliance in the room until you return.

One day, our civilization will be remembered for its outdoor lighting. A flight across America on a clear night is a thing of beauty for there is light, and light pollution, everywhere— streets, highways, sidewalks, parking lots, malls, signs, freeways, thruways, toll roads and even 400 million car and truck headlights all twinkling in the darkness. We sure know how to light up the night.

From the peak oil perspective, however, all this excess luminescence is a major asset. By turning off unnecessary lights and dimming down the rest to only what is really needed, we can have a quickly available and inexpensive source of electrical energy that can partially substitute for reductions in the availability liquid fuels.

Lighting currently consumes about 19 percent of total global electrical production. There is no reason why major reductions in the consumption of lighting couldn’t take place immediately in the case of an energy emergency. Considerably larger reductions in the energy used for lighting could take place over the next 10-20 years as more efficient systems and appliances come into common use. Over the long run, we should be able to have adequate lighting using only a few percent of the electricity we currently use.

There are still some 1.6 billion people on earth who do not have access to lights from an electric grid. Most of these use highly inefficient kerosene or small diesel electric generators for their lighting. As subsidies are removed from kerosene, many are going to be priced out of lighting altogether. However, the IEA believes the recent development of book-sized photovoltaic panels coupled to highly efficient LED nights may soon offer a cost-competitive substitute for the kerosene lamp.

In most cases, replacing older lighting systems makes economic sense, as payback periods can be very brief. There are a number of structural obstacles, however, to the widespread deployment of efficient lighting systems that may require increased government regulation— especially when energy becomes tight.

In the case of commercial real estate, the organization paying the lighting bill usually is not the one that owns the building and pays the capital cost of the lighting. While it may be easy for a homeowner to screw in a compact fluorescent bulb, more extensive changes involving ballasts or fluorescent fixtures may require expensive professional help. More incentives and better standards may be necessary.

Lighting, of course, is not the only way to cut back electricity consumption. Continuously operating home computers, ventilation systems, clothes dryers, and central air conditioners are prodigious users of power. When peak oil forces the world to power down, much more efficient use of our existing electricity supply is likely to be the only readily available source of additional energy for a while.


Wednesday, August 23, 2006

Oil output set to peak, but no fuel shortage-UBS

Reuters.com

Oil production looks set to peak in the mid-to-late 2020s, but the decline will be offset as high fuel costs accelerate the quest for other energy sources, notably natural gas, UBS said in a study published on Wednesday.

Advocates of the peak oil theory that supplies are close to their maximum levels say it is gaining credence in the investment community.

"The cry of peak oil production has been made several times and on each of these occasions the prediction was incorrect," the UBS report said.

"Exactly when it will occur is very difficult to estimate ... However, the fact that consumption is outstripping new discoveries by more than 400 percent suggests that further increases in global reserves may be nearing an end."

It will take time for high prices to aid the shift to alternative energy, including renewables and natural gas.

Oil consumption will remain strong in the near term, driven by a growing global population and economic growth in nations such as China and India.

But UBS predicted natural gas, still in its early stages of becoming a globally-traded commodity, would eclipse oil production by 2030 or even sooner.

For those seeking to capitalise on accompanying price movements, the Swiss investment bank, which is the world's largest wealth manager, advised investors to take an active rather than passive investment approach.

That would mean using hedge funds, which play the market from long and short positions, rather than opting for an index, or basket of commodities, which tends to be long only.

"Given the changing influences on commodity prices, investors may want to engage in more active investment strategies in this asset class," the bank said.

"In this case, commodity hedge funds may provide a valuable alternative to a passive index-orientated investment in commodities."


CERA's Rosy Oil Forecast - Pabulum to the People

EnergyBulletin.net

By Randy Udall and Matthew R. Simmons

At a moment when a tank full of gasoline costs $75, the Chinese are eagerly trading bicycles for cars, and Americans are consuming their body weight in petroleum each week, it would be nice to know how much oil will be readily available a decade from now. In a thirsty world, will supply be adequate to satisfy demand?

A new study from Cambridge Energy Resources Associates, a prominent research firm, says not to worry. “Capacity growth will accommodate rising world oil demand so long as there are no major disruptions in the actual flow of oil,” said CERA’s Chairman Daniel Yergin. Global supply could increase 25% by 2015 to 110 million barrels a day, he says. This surge of new oil would meet forecast increases in demand, with a surplus to spare, putting downward pressure on prices, the study notes.

The report might be reassuring if CERA did not have a checkered forecasting record, and if its findings were not hedged six ways to Sunday. “Our focus is on physical capacity, not actual production which can fluctuate for political, economic, or technical reasons,” Yergin explains. In CERA’s feel-good scenario, “there are no problems below ground” and the myriad problems aboveground, although real, are likely to be short-lived, and thus can be ignored in their Reference Case. This is an absurd and dangerous nostrum, false on both counts.

In truth, the energy business is plagued by problems in Nigeria (violent insurgency), Venezuela (Chavez), Alaska (pipeline corrosion), the Gulf of Mexico (hurricane damage), Canada (cost overruns), Iraq (civil war), Sudan (ditto), Mexico (declining production), the North Sea (ditto), and Iran (new project delays, saber rattling). While prices should remain volatile in the short term, it’s exceedingly difficult to foresee a return to anything resembling CERA’s orderly market, abundantly supplied with a surplus of cheap oil for the next decade. Indeed, we think oil will be in shorter supply and much more costly in 2015 than it is today.

For the past decade, CERA, the U.S. Energy Information Administration, and the Paris-based International Energy Agency have produced important forecasts whose predictions would be comic if they hadn’t been so tragically misleading. In an effort to reassure politicians, these groups have become purveyors of petro-prozac.

In 1998, the IEA, struggling to balance its forecasts of future demand with supply, created a mysterious new category of “unidentified unconventional” oil which would supposedly provide 19 million barrels a day by 2020. When independent analysts ridiculed this fudge factor, the agency deleted the category, but continued to insist that the 11 OPEC nations could double supply, a geopolitical improbability and a geological impossibility, since production in half of them has already peaked.

At home, the EIA has surrendered serious credibility since its late 1990s predictions that natural gas would sell for $2.50 +/- in 2015. Tell that to grandma in Duluth, since the futures market expects gas to bring 12 bucks next March. For its part, in 2002 CERA forecast that North American gas supply would increase by 15 percent. In reality, production has fallen by 4 percent, forcing CERA to admit that “gas production in the United States appears to be in permanent decline.”

These erroneous forecasts are not just embarrassments, they have had profound real world impacts, misleading politicians, misallocating capital, and obscuring the growing dangers that energy shortfalls pose to national prosperity. The EIA’s don’t-worry, be-happy forecasts of cheap natural gas prices helped entice independent power producers to spend $150 billion on gas-fired power plants, some of which have now become too costly to operate. IEA and CERA’s forecasts of long-term cheap oil have misled automakers like Ford and GM into believing their markets for gas guzzling SUVs were secure, even as Toyota and Honda hit the market with fuel thrifty, gas-electric hybrids. .

What's going on here, how can so many bright people get it so wrong?

In the EIA’s case, it turns out that the computer model it used to forecast natural gas supplies lacked serious resource constraints. CERA, too, seems to have difficulty grasping the havoc that declines in production are wreaking on aging oil fields. Petroleum engineers are intimately familiar with depletion; it’s what keeps them awake at night. But depletion is inexhaustible; it’s an implacable foe that never sleeps, yet grows stronger each day. Even if CERA’s forecasted 21 million barrels a day of new supply were to appear, world oil supplies might grow only a bit or perhaps not at all due to depletion in existing fields.

Despite a growing body of evidence to the contrary, CERA has concluded that world oil production will not peak until after 2020, that “peak oil remains firmly out of sight.” Meanwhile a long list of informed observers, including T Boone Pickens, Henry Groppe, Charlie Maxwell, Jeremy Gilbert, Tom Petrie and Chris Skrebowski, have come to believe that a peak is likely between now and 2015. The Chinese agree, and there’s nothing inscrutable about what they are doing, in their race to secure petroleum assets all around the world.

At peak, the world will not be “running out.” Indeed, more than half the world’s conventional oil and a larger share of its unconventional oil will remain to be extracted. . What the world is running out of is cheap oil, the $20 oil we built our civilization around. Suggesting that there are no insurmountable problems for the oil industry above or below ground and that a return to inexpensive oil and orderly oil markets is in the cards is a fool’s forecast. Taking such Pollyannish scenarios at face value threatens economic prosperity and national security.

Abe Lincoln once said, “I’m a firm believer in the people. If given the truth, they can be depended upon to meet any national crisis. The great point is to bring them the real facts, and beer."

CERA offers us a stout panacea, but on closer inspection it’s not so much a forecast as a vision in search of reality. Its predictions for Russian additions are larger than those of the Russian government, its forecast for OPEC higher than OPEC's own.

What are the real facts? Today, twenty nations produce 85% of the world’s oil, and production in half of these nations has already peaked, as it did in the United States 35 years ago. Despite new production in places like Angola, Kazakhstan and Brazil, two thirds of the world’s remaining conventional oil is in the tinderbox of the Middle East. Oil is becoming more difficult to find; 2005 was the worst exploration year since World War II. Globally, new discoveries turn up only one barrel for every three barrels we use, which is the reason large oil companies continue doing much of their prospecting on Wall Street. As Chevron notes in its recent ad campaign, “the era of easy oil is over.”

As they struggle to afford the next fill-up, Americans deserve a frank appraisal of our energy circumstances, not pablum and happy talk. With respect to petroleum, America has been sleepwalking toward disaster for twenty years. The nation desperately needs a wakeup call, not a fairy tale masquerading as a forecast.

Randy Udall directs the Community Office of Resource Efficiency in Aspen (CO) and co-founded ASPO-USA. Matthew R. Simmons is Chairman of Dallas-based Simmons & Company International—an investment bank specializing in the energy industry—and a member of ASPO-USA’s Advisory Board.


Thursday, August 17, 2006

Bye Bye Petroleum

Corporate Watch

With demand for oil soaring yet supply stable at best, the idea that oil stocks have 'peaked' is increasingly influential. So what are the latest theories around peak oil? B Leamy reports.

Around two hundred scientists, economists, analysts and academics attended the 5th International Workshop on Oil and Gas Depletion in Italy this month. Organized by the Association for the Study of Peak Oil (ASPO), this event moved on from their previous conferences, which concentrated mostly on providing evidence and attempting to forecast an actual date. This year, most of the invited speakers considered that the argument had now been won and were instead focusing more on possibilities for mitigating the consequences of the coming end of cheap oil.

Colin Campbell, honorary chairman of ASPO international, began the conference with a prediction that peak oil would bring a succession of price spikes followed by global recession. He warned that current financial structures would be threatened, as the power to control money shifts, and suggested that a new era of geopolitics would emerge, with energy rich Russia ascending while energy depleted US and Europe compete with China for finite resources.

Charles Hall, a professor at the State University of New York, told those gathered that oil production is beginning to experience diminishing energy returns as crude becomes harder and more expensive to find. A yield of 100 barrels for every barrel invested was typical in 1930; the ratio had dropped to 30 to 1 by the 1970s and has now plummeted to 15 to 1 or less. 'It doesn’t matter how much you find if it costs you a barrel to get that barrel', he said.

Commenting on the conference, Chris Skrebowsky, editor of Petroleum Review, said, 'What is becoming ever clearer is that Peak Oil is just one component of a range of challenges confronting our societies and our way of life - climate change, food supply, water resources and energy resources.'

Dennis Meadows, author of Limits to Growth, told ASPO-5 that almost all of his 35 year old predictions of ecological collapse are coming true. 'We're facing a lot of peaks and oil is just one of them. We are also drawing down our fertile soils, groundwater, and forest stocks.' Meadows is pessimistic about our collective ability to address these issues. 'Politics, with its short-term election cycles, just isn’t equipped to deal with problems that demand short- term privation. That’s why collapse occurs. We are fundamentally unable to do the things we must do to avoid collapse. Sustainable development is possible, but not likely, and probably too late', he said. Meadows claims that collapse is not inevitable, but it will very tough to avoid. 'There is no possibility that alternative energy sources will rise fast enough to offset the decline in oil', he said. According to Meadows, 'Global society will most likely adjust to limits by overshoot and collapse, not by growth.'

Richard Heinberg, author of The Party's Over: Oil, War and the Fate of Industrial Societies and Powerdown: Options and Actions for a Post-Carbon World was on hand to promote his new book, or more importantly, to promote what he hopes is a plan for a sensible energy future in the form of the 'Oil Depletion Protocol'. This protocol was originally put forward in 2002 by the prominent petroleum geologist Dr Colin Campbell and aims to obtain agreements from countries to reduce oil imports and exports by a specified amount each year, about 2.6 percent. By doing so signatory nations would help mitigate the negative consequences of an over-reliance on cheap oil and help prepare for a global decline in the world’s oil supply.

According to those backing the idea, if the entire world adopted the Protocol, global consumption of oil would decline by almost 3 percent per year, stabilize prices and reduce competition for remaining supplies. Personally I find it highly unlikely that the more powerful nations would choose to sign up for such an agreement rather than attempt to utilise economic or military force in order to secure their own self interest.

Chris Skrebowski, the editor of Petroleum Review, said, 'collectively, we're still in denial.' Based on projections focusing on oil flows instead of reserves, he boldly stated that, 'We have 1,500 days until peak and tomorrow we'll have one day less.'


Economist reports Saudi oil production can continue unabated

Wikinews

In its August 10 edition, The Economist magazine asserts that Saudi Arabia can continue producing oil at its current production levels for 70 years, without having to look for another drop. Further, the magazine claims that the nation could find "plenty more if they look", calling for privitisation of national oil companies to help increase oil production.

The language is provocative - the world has plenty of oil, and only requires sufficient investment and exploration to find it. This is a line that The Economist has held for some time, certainly since before its now infamous March 1999 issue proclaiming that we were "drowning in oil" and featuring a prediction of US$5 per barrel. That issue was followed by an embarrassing retraction in December of that year, as oil started its steady climb. It now sits above US$70 per barrel.

However, petroleum geologists and energy investment specialists maintain a different view of oil reserves. They say that there is a limit to what is in the ground, and further to that, a limit to how much of it we can retrieve even with advancing technology. Just how much is down there can't be said with any certainty, for a variety of reasons. A big one is the suspicious reserves figures given by producers in the Middle East, including Saudi Arabia. Since OPEC starting using a quota system based on reserves, the estimated reserves for member nations has magically risen, and even continued rising in the face of increased extraction from those reserves.

Amongst those who deal with the physical realities of oil fields, forecasts of a peak in production vary between 30 years, as the USA's Energy Information Administration suggest, and now, as suggested by the Association for the Study of Peak Oil and Gas and other more pessimistic forecasters. A peak in production would then be followed by decline. Certainly, in the petroleum world, there is no serious suggestion of sustaining the current level of oil production for 70 years.


Friday, August 11, 2006

New Website Examines Health Care Options after Peak Oil

PR.com

A new blog [Peak Oil Medicine Blog] launched recently seeks to explore health care options after peak oil. "Because modern medicine runs on fossil fuel, just like the rest of our society, it is vulnerable to rising oil prices and supply disruptions", says blog founder Paul Roth, a medical professional in Australia.

While there is a growing awareness about peak oil, relatively little has been written about the potential health impacts. "I spent several months scouring the internet for information about peak oil, but only found a few sites specifically covering the possible health effects," he said.

"We need to look at our current health system, where it is most vulnerable to the effects of peak oil, and what we can do to begin changing things now, rather than waiting for a crisis," he concluded.

A growing number of experts predict that peak oil will occur within the next five years. Peak oil is when half the world's oil is gone. While half will still be left, it is the hardest and most expensive to extract. Coupled with increasing world demand, prices are likely to continue increasing, with some experts predicting that oil will reach $200 a barrel within the next 10 years. You can register for free at the website and contribute to the discussion about the future of health care.

Peak Oil Medicine Blog


Wednesday, August 09, 2006

When Oilmen Turn Sour on Crude

San Antonio Current

By Greg Harman

It's a small group: three members of the Unitarian church we're gathered in, an engineer from Mexico, a smattering of activists, and a Pacifica Radio reporter. The meeting opens - the second of the just-hatched Houston Climate Protection Alliance - by talking about what each at the table has done to cut down on their fossil-fuel use.

Bringing down Energy City, from within: Former oilman Jeffrey Brown and activist Nan Hildreth have been spreading the Peak Oil message. They're part of a Peak Oil mini-conference this Sunday in Houston.

From there on out it's what you would expect in such company: One rode a bike to the meeting; another hopped a bus; yet another cut down on her meat intake. Small sacrifices - and just the type that so often rankle the uninitiated with their odor of do-goodery. Talk turns to launching a campaign to encourage Houston Mayor Bill White to join a national movement of U.S. mayors fighting global warming. That's when it occurs to you something deeper is at work here. A few miles from where you sit are the national headquarters for some of the richest, oiliest companies on Earth. Halliburton, ConocoPhillips, Reliant Energy, Shell's U.S. oil division - all make their homes here. This is Houston, Texas, by God. Why haven't these people been locked up?

Has global-warming-think sunk in this deeply? Have climate fears finally saturated our country to the point that even Houstonians are mobilizing? When one recovers from the remarkable fact that a campaign to fight global warming has infiltrated Energy City, the rebounding tremor comes quickly with the realization that the movement isn't an aberration. It's actually growing.

A central plank of the movement involves "Peak Oil," the belief that world oil supplies, as a finite resource, have a "peak" point the world's production capacity will never exceed. The peak could come suddenly, with terrible energy upsets shocking the market on the way down, or it could be drawn out for decades, providing an easier buffer period for the world's petroleumbased economies.

Nan Hildreth is refilling printer cartridges over a low, round coffee table in her South Houston home. Brandishing stained fingers, she recalls one of the forces that propelled her into forming a climate group in Houston. It was a comment made by the Houston mayor's health and environmental advisor, Elena Marks. It happened at a global-warming conference, of all things, hosted by Rice University. She remembers Marks telling the crowd, "We don't say global warming in Texas. We talk about sustainable development." It got under Hildreth's skin.

Bringing down Energy City, from within: Former oilman Jeffrey Brown and activist Nan Hildreth have been spreading the Peak Oil message. They're part of a Peak Oil mini-conference this Sunday in Houston.
Then came hurricanes Katrina and Rita, the highway deaths and chains of human misery stretching in all directions from New Orleans. By the new year, the idea of forming a Houston climate group, leavened by the growing scientific evidence that global warming was intensifying the frequency of these powerful storms, became tangible. Hildreth thought at the time, "I can help the mayor say, 'Climate change,'" she recalled. "Integrity will do that to you. It will make you say strange things, like 'global warming.'

The climate-protection mindset isn't restricted to activists, either. In recent years, prominent and not-so-prominent members within the oil and gas industry have stepped away from the herd - the most often cited (and criticized) of these being a former energy advisor to President George W. Bush, Matthew Simmons.

It was only a few months after the hurricanes of '05 ripped through drilling rigs and production platforms and damaged refineries across the Gulf of Mexico. Simmons, who now serves as CEO of a major Houston energy-investment bank, told members of The Petroleum Club of Houston that Hurricane Katrina was "our energy 9-11," that the world oil supply was "peaking," and that the industry needed to get on "war footing."

Two months later, an article appeared in Fortune magazine featuring another Bush confidante: Richard Rainwater, who made his billions in oil and Houston real estate. It was titled simply "The Rainwater Prophecy," and it forecast an economic tsunami that was about to rip through the world as a result of the peak-oil crash.

“I don’t want the world to
wake up one day and say,
‘How come some doofus billionaire
in Texas made all
this money by being aware
of this, and why didn’t
someone tell us?’”

— Richard Rainwater

A few hundred miles to the north, Jeffrey Brown, an independent geologist living in the Dallas suburbs, is waiting for his daughter outside Forth Worth's Kimbell Art Museum. As much a product of Texas A&M as his family's West-Texas oil business, Lucero Oil & Gas, Brown still strikes the quiet and assured mannerisms of the power elite. His gaze is direct. Though we stand outside one of the country's most recognized art museums, Brown is far more interested in talking about Peak Oil and something called Heather's House, a nearby home built to function almost totally off-grid. "You should see it," he says.

It was only a decade or so ago that Brown was still in the West-Texas oil patch. Though the lingering pockets of petroleum around San Angelo are worth some serious green today, Brown got out when oil dropped to $10 per barrel following the Gulf War. He set himself up as an independent geologist. Soon, prices were recovering. He began hearing the term "Peak Oil" tossed around. The thought, along with the corresponding dressed-up returns, made Brown, and many, many others in his position, giddy. In fact, when Kenneth S. Deffeyes's book Hubbert's Peak appeared, explaining in calculated detail why the world was in for a long, drawn-out scramble in its hunt for petroleum energy, Brown went on a buying spree.

"Literally, I was buying copies of the book and handing it out," he said. "I was basically encouraging investment in looking for these small [West Texas] fields." It wasn't long before the other side of the Peak Oil coin rolled over in Brown's head.

Peak Oil, if true, may make one rich today, but it comes at a terrible price, he realized. "I started reading up on this because I thought it was just good news for oil prices," he said. "Then the reality dawned on me that, well, it's good news for oil prices but it's incredibly bad news for the overall economy and the world."

Brown became a true believer, organized a Dallas conference on the topic with Simmons as one of the speakers, and started visualizing what a sustainable society will look like, post oil-crash. He began holding private screenings of Peak- Oil movies for friends.

Somehow during this period, Brown connected with Hildreth and he's since come several times to eavesdrop on the Peak-Oil community in Houston. This week's conference will be the first time he has appeared as a speaker. His topics will be about farming and ensuring a stable food supply into the future. Think Quakers with 12 gauges.

Brown says, "I was, you know, like Rush Limbaugh. 'The environmentalists are out to get us. They're a bunch of crazies.' The hard, cold reality is the environmentalists had it right. We live in a world of finite resources.

"It took close to 65 years to fully deplete the East-Texas oilfield" where the first true gusher announced the birth of the oil age, says Brown. Now we burn that much petroleum every 30 days. "It gives you an idea of how unsustainable our lifestyles are."

Greg Harman is a freelance writer and the editor of Earthhouston.net, an environmental- news website focusing on Houston and the entire South Coast.


Oil supply can outpace future demand, CERA says

canada.com

By Paul Haavardsrud

Global oil capacity can rise faster than demand for the next decade and beyond according to a fresh study of world oil fields that works to puncture views that higher prices are imminent as supplies near a peak.

The call from a well-respected international energy consultancy comes as oil prices trade near a record, pushed this week by problems that are forcing Alaskan producers to shutter 400,000 barrels a day.

Immediate disruptions aside, worldwide production capacity could increase nearly 25 per cent by 2015, according to Cambridge Energy Research Associates.

"In the short term, as we all know, this is a world oil market that is labouring under stress and apprehension, but the growth that we see there is very substantial," said Dan Yergin, CERA chairman and Pulitzer Prize-winning author of The Prize: The Epic Quest for Oil, Money & Power.

Updating and extending a study released last year, CERA now believes world supply can hit 110 million barrels a day in the next nine years up from 89 million barrels a day currently.

It's a far cry from projections from the so-called ``peak oil camp'', who believe cresting oil supplies will spur a rude comeuppance for a world hooked on oil.

Counterpunching that notion, CERA's field-by-field analysis and look at 360 new projects suggests global supply can keep climbing for decades.

"You have to ask yourself, why wouldn't you see further growth with prices where they are, why would you not see tremendous levels of investment, unless economic laws were abolished," Yergin told reporters on a conference call.

After jumping three per cent to start the week, oil closed off 67 cents in New York trading at $76.31 US.

Already jittery due to instability in the Middle East, markets were further roiled this week when pipeline corrosion forced BP Plc. to shut-in 400,000 barrels a day from Alaska for several months.

In an energy world with little buffer between supply and demand, even the spectre of lost barrels is enough to send prices higher. CERA argues that dynamic won't last forever.

Bringing on meaningful amounts of oil is a long process and one that had slowed dramatically in the late 1990s due to low prices, plentiful supply, and sluggish demand.

A growth surge earlier this decade caught the industry flat-footed. When consumption was, in the span of a few short years, pushed higher by some six million barrels to the current level of about 85 million barrels a day, oil markets were forced to respond with the record prices seen today.

Coming soon, though, investments in big projects such as those in Canada's oilsands will start to give oil markets more breathing room.

Oilsands production is set to more than triple to 3.5 million barrels a day by 2015, according to CERA's estimates. The increase represents about 12 per cent of the total growth in oil supply envisioned by CERA over the next nine years.

Unfortunately for those who would like to see prices head lower, adding production from a stable country such as Canada is hardly the norm. Much of the pending capacity is being counted on from places where political uncertainty is the rule rather than the exception.

On this point, CERA is quick to note that its analysis is based on what's geologically possible, and may well be derailed by above-ground politics.

Regardless, for some energy experts, the choice to gloss over political realities is a flaw that marginalizes CERA's work.

"When they talk about OPEC increases, how much is in Iraq and Nigeria?" Jan Stuart, a global oil economist with UBS Securities LLC told Bloomberg News.

"How is this remotely relevant or realistic or useful would be the key question I have."

In the context of dire predictions from the ``peak oil crowd'', CERA's study does offer a counterbalance that can be lost when oil prices rush higher.

A look at Saudi Arabia, for instance, shows that new projects and a fresh emphasis on exploration will shortly lift capacity there to 12.5 million barrels a day from about 10 million.

The finding directly refutes claims made by Houston-based investment banker Matthew Simmons who posited in his 2005 book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, that production from the Kingdom was set to fall sharply taking the global economy along for the ride.

"I have no reason to suppose that Saudi Arabian productive capacity is really in any danger and might start falling off rapidly anytime soon," said Peter Jackson, a co-author of the CERA report.

"The peak in oil production that is being debated, ostensibly, at the moment, is many decades away."

phaavardsrud@theherald.canwest.com


Saturday, August 05, 2006

Peak Oil Passnotes: A Peak Oil Critique

Resource Investor

By Edward Tapamor

We all believe in peak oil. Everyone believes in peak oil. Yes, apart from the whacko brigade that say oil reservoirs fill up again due to abiosis. Sensible people can stop giggling now please. Abiotic oil is sheer lunacy.

So, everyone believes in peak oil. Yes, even Daniel Yergin and his band of merry persons at Cambridge Energy Research Associates. They admit to an “undulating plateau.” Even Jeroen van der Veer, head of Royal Dutch Shell [NYSE:RDS-B] said there would be “many peaks.” In other words oil would be one of them.

The “undulating plateau” is also part of peak oil. It is not a magic moment when oil reaches a maximum then descends like a child’s drawing of a mountain. It will reach a maximum one day and it will descend but most likely it will have a long tail. A pleateauing, undulating kind of tail if you get my graphic drift.

Even Michael Lynch, the anti-peaker in chief, believes in peak oil. He does think that there will be a maximum level of production, he just thinks it will not be until next century.

Because what happens with peak oil is that everyone starts to argue about the date. It is now, last year, next year, in 2010, 2030 or in Mr. Lynch’s case 2130.

The arguments over peak oil are also thrown into doubt by some, or many, of its proponents. The Association for the Study of Peak Oil last year published an article by a neo-fascist – actually that’s too kind he was just a regular fascist – that rambled hysterically about some kind of Darwinist, eugenicist fantasy. Where the weak would die off in the peak oil tumult and some kind of stronger race of people would survive, without the aid of nasty liberal wishy-washy things like hospitals, medicine and social benefit. And oil.

Overnight it tarnished the name of a group who up to then had seemed relatively coherent and approachable. One TV reporter was telling me about a meeting with a man who has spoken widely on peak oil events – not an ASPO representative - who turned to him and said “you know six million didn’t die don’t you?”

I myself have had peak oil advocates telling me 9-11 was an inside job. One telling me how his “prophecy” was ignored by the mainstream media. Telling me the CIA are tapping their phones, using x-rays to view into their houses and so on.

Then we get people like James Kunstler who has to be the chief ranter of the peak oil movement. He really cusses a lot. That’s right … swears!! Richard Heinberg who just has a hopeless, you-are-ducked, smile about him. Matt Savinar the expert doomer who trained to be a lawyer. No!! Not a lawyer. Paul Roberts who was horrified that he saw a 30% water cut in one field or another. No not 30%!!

One thing unites those men. Publishing revenue.

Matt Simmons’ book Twilight in the Desert made some good points. But it also made some really bad ones. After people trawled through it, once again, we were faced with, well, conjecture.

So let’s look at these figures from this week. Real nice figures. No swearing, no trainee lawyers, no smug academic grins.

In May U.S. production fell 459,000 barrels a day year on year. In May U.K. production fell 292,000 barrels a day. Mexican data saw a 150,000 barrels a day slide and statistics from Norway saw a 226,000 barrel a day fall.

For 2006 as a whole production is down by 196,000 barrels a day in the U.K. and 503,000 barrels a day in the U.S., 229,000 barrels a day in Norway and by 24,000 barrels a day in Mexico.

French company Total [NYSE:TOT] saw production – which may well rise again it is true – fall 9% year on year. BP [NYSE:BP] said it will struggle to meet its targets for 2006, 4.2 million barrels a day despite 1 million barrels a day from its venture with TNK [OTCPK:TNKBF] in Russia. Shell [NYSE:RDS-B] produced more in 2003 than it does now and the only companies who have put on big production outside of Eni [NYSE:E] in Italy have done it by buying other companies, ConocoPhillips [NYSE:COP], Chevron [NYSE:CVX] and so on.

Everyone believes in peak oil. But maybe they could just stick to the figures.