Year: 2015

http://articles.sae.org/12666/

“If we’re doing things like fracking, it just shows how little is left of all this stuff, and how desperate we are to get at it.” — Anonymous

Global production of conventional oil is past its peak and is now beginning its decline. A mixed bag of unconventional fuels (shale oil, tar-sands oil, natural-gas-liquids, etc.) is keeping the total on a slight rise or a rough plateau.

The hottest discussion in the US over the last few years has involved the fracturing (“fracking”) of shale to extract both oil and gas, but production by this method is already slowing or in decline. The costs of fracking are considerable, and so is the environmental damage.

The price of oil is still about $100 a barrel, far above that of the 1990s, in terms of both nominal and real dollars. The failure of the price to go down is an embarrassment to those who think unconventional oil is really solving any problems. But the high price is due not just to increased demand or to geopolitical risk. It is because of trying to squeeze oil out of places where it makes little sense to be squeezing.

The following data are “annual” and “global” and are from BP’s 2013 report unless described otherwise.

Laherrère: “The plots of these data start flattening in 2005, followed by a bumpy plateau. The post-2010 increase is mainly caused by the increase of liquids from US shale gas and US shale oil.”

Hughes: “. . . Politicians and industry leaders alike now hail ‘one hundred years of gas’ and anticipate the U.S. regaining its crown as the world’s foremost oil producer. . . . The much-heralded reduction of oil imports in the past few years has in fact been just as much a story of reduced consumption, primarily related to the Great Recession, as it has been a story of increased production.”

RATE OF SUPPLY; NET ENERGY

Hughes: “The metric most commonly cited to suggest a new age of fossil fuels is the estimate of in situ unconventional resources and the purported fraction that can be recovered. These estimates are then divided by current consumption rates to produce many decades or centuries of future consumption. In fact, two other metrics are critically important in determining the viability of an energy resource:

“• The rate of energy supply — that is, the rate at which the resource can be produced. A large in situ resource does society little good if it cannot be produced consistently and in large enough quantities. . . . Tar sands . . . have yielded production of less than two percent of world oil requirements.

“• The net energy yield of the resource. . . . The net energy . . . of unconventional resources is generally much lower than for conventional resources. . . .”

GLOBAL OIL PRODUCTION

For conventional oil, the peak annual global production was about 27 billion barrels, or about 73 million barrels per day. The peak date of production was about 2010.

BP shows global oil production still increasing in 2012, although much more slowly than before — an annual increase of about 1 percent between 2002 and 2012, as opposed to about 9 percent annually between 1930 and 2001. Laherrère’s Figure 10, on the other hand, shows an actual peak at 2010. The difference is due to the fact that the BP figures include unconventional oil (shale oil, tar-sands oil, natural-gas-liquids, etc.).

According to most studies, the likely average rate of decline of oil production after the peak date is about 3 or 4 percent, resulting in a fall from peak production to half that amount between 10 and 20 years after the peak. However, there is also evidence (Höök et al., June 2009; Simmons, 2006) to suggest that the decline rate might be closer to 6 percent, i.e. reaching the halfway point in about 10 years after the peak.

Per capita, the peak date of oil production was 1979, when there were 5.5 barrels of oil per person annually, as opposed to 4.4 in 2012.

Laherrère: “The confidential technical data on [mean values of proven + probable reserves] is only available from expensive and very large scout databases. . . .

“There is a huge difference between the political/financial proved reserves [so-called], and the confidential technical [proven + probable] reserves. Most economists do not believe in peak oil. They rely only on the proved reserves coming from [the Oil and Gas Journal, the US Energy Information Administration], BP and OPEC data, which are wrong; they have no access to the confidential technical data. . . .

“The last [International Energy Agency] forecasts report an increase in oil production from 2012 to 2018 of 8% for Non-OPEC (+30% for the US) and of 7% for OPEC, which is doubtful. . . .”

US OIL PRODUCTION peaked in 1970 at 9,637 thousand barrels daily, declined in 2008 to 5,000, and rose in 2013 to 6,488.

NATURAL GAS PRODUCTION

GLOBAL GAS PRODUCTION rose from 2,524 billion cubic meters in 2002 to 3,370 billion cubic meters (95 trillion cubic feet) in 2012, an average annual increase of 3%.

Laherrère: “. . . [Global] production will peak around 2020 at more than [100 trillion cubic feet per year].”

“Outside the US, the potential of shale gas is very uncertain because the “Not In My Back Yard” effect is much stronger when the gas belongs to the country and not to the landowners. . . . Up to now, there is no example of economical shale gas production outside the US. The hype on shale gas will probably fall like the hype on bio-fuels a few years ago. . . .

US GAS PRODUCTION rose from 536 billion cubic meters in 2002 to 681 in 2012, an average annual increase of 2.5%.

Laherrère: “Natural gas production in the US, which peaked in 1970 like oil, is showing a sharp increase since 2005 because of shale gas. In 2011 unconventional gas production ([coal bed methane], tight gas and shale gas . . . .) was higher than conventional gas production . . . .

“This . . . leads to a peak in 2020 at 22 [trillion cubic feet] and the decline thereafter of all natural gas in the US . . . should be quite sharp. The goal of exporting US liquefied natural gas seems to be based on very optimistic views. . . .

“The gross monthly natural gas production in the US has been flat since October of 2011, after its sharp increase since 2003, with only shale gas production rising. . . .

“Some claim that the US can export its shale gas as [liquid natural gas] even though conventional gas . . . is declining fast and will be quite small in just a few years.”

Hughes: “Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2011. . . . The very high decline rates of shale gas wells require continuous inputs of capital — estimated at $42 billion per year. . . . In comparison, the value of shale gas produced in 2012 was just $32.5 billion.”

TIGHT OIL (SHALE OIL) PRODUCTION

Laherrère: “Shale oil is now called light tight oil because the production in Bakken is not from a shale reservoir, but a sandy dolomite reservoir between two shale formations. . . . In Montana, production from Bakken is mainly coming from the stratigraphic field called Elm Coulee, which is decline since 2008. In North Dakota, production from Bakken has sharply increased.”

Hughes: “Tight oil production has grown impressively and now makes up about 20 percent of U.S. oil production. . . .More than 80 percent of tight oil production is from two unique plays: the Bakken in North Dakota and Montana and the Eagle Ford in southern Texas. . . . Tight oil plays are characterized by high decline rates. . . . Tight oil production is projected to grow substantially from current levels to a peak in 2017. . . .

TAR-SANDS OIL PRODUCTION

Hughes: “Tar sands oil is primarily imported to the U.S. from Canada. . . It is low-net-energy oil, requiring very high levels of capital inputs (with some estimates of over $100 per barrel required for mining with upgrading in Canada). . . . The economics of much of the vast purported remaining extractable resources are increasingly questionable. . . .

NATURAL GAS PLANT LIQUIDS (NGPL) PRODUCTION

Laherrère: “World NGPL production . . . may peak in 2030 at over 11 [million barrels per day]. . . .”

OTHER RESOURCES

Hughes: “Other unconventional fossil fuel resources, such as oil shale [kerogen], coalbed methane, gas hydrates, and Arctic oil and gas — as well as technologies like coal- and gas-to-liquids, and in situ coal gasification — are also sometimes proclaimed to be the next great energy hope. But each of these is likely to be a small player. . . .

“Deepwater oil and gas production . . . would expand access to only relatively minor additional resources.”

CONCLUSIONS

Laherrère: “Peak oil deniers claim that peak oil is an unscientific theory, ignoring that peak oil has actually happened in several countries like France, UK, Norway. They confuse proved reserves with the [proven + probable] mean reserves. . . . It seems that world oil (all liquids) production will peak before 2020. . . The dream of the US becoming independent seems to be based on resources, but not on reserves.”

REFERENCES AND FURTHER READING

BP. (2013). Global statistical review of world energy. Retrieved from http://www.bp.com/statisticalreview

Heinberg, Richard. (2013). Snake oil: How fracking’s false promise of plenty imperils our future. Santa Rosa, California: Post Carbon Institute.

Höök, M., Hirsch, R., & Aleklett, K. (2009, June). Giant oil field decline rates and their influence on world oil production. Energy Policy, Volume 37, Issue 6, pp. 2262-72. Retrieved fromhttp://dx.doi.org/10.1016/j.enpol.2009.02.020

Hughes, J. D. (2013, Feb.) Drill, baby, drill; Can unconventional fuels usher in a new era of energy abundance? Executive Summary. Post Carbon Institute. Retrieved from http://www.postcarbon.org/reports/DBD-report-FINAL.pdf

http://peakoil.com/geology/oil-and-gas-how-little-is-left

Something has bothered me of late: why is the price of crude oil still elevated? Other commodities have taken a battering since 2011. Gold, copper and iron ore – all are way down off their peaks. But oil has seemingly defied gravity. And that’s despite increased supply from shale oil in the U.S., still soft demand particularly in the developed world and declining rates of inflation growth across the globe.

What gives? Well, shale oil proponents will say falling oil prices are just a matter of time. And that the boom in shale oil will reduce U.S. reliance on foreign oil, leading to cheaper local oil, which will free up household budgets and spur consumption as well as the broader economy. Perhaps … though I’d have thought all of that would be already reflected in prices.

On the other side, you have “peak oil” supporters who suggest high oil prices are perfectly natural when oil production has peaked, or at least the good stuff has disappeared. Yet the boom in U.S. shale oil appears to put at least a partial dent in this thesis.

There may be a better explanation, however. It comes from UK sell-side analyst, Tim Morgan, in an important new book called Life After Growth. In it, he suggests that the era of cheap energy is over. That the new unconventional forms of oil are far less efficient than old ones, meaning they require significant amounts of energy to produce. In effect, the energy production versus energy cost of extraction equation is rapidly deteriorating.

Morgan goes a step further though. He says cheap energy has been central to the extraordinary economic growth generated since the Industrial Revolution. And without that cheap energy, future growth will be permanently impaired.

It’s a bold view that’s solidified my own thinking that higher energy prices are here to stay. And the link between cheap energy and economic growth is fascinating and worth exploring further today. Particularly given the implications for the world’s fastest-growing and most energy-intensive region, Asia.

Real vs money economy

First off, a thank you to Bob Moriarty of 321gold for tipping me off to Morgan’s work in this well-written article. Morgan’s book is worth getting but if you want the skinny version, you can find it here.

Morgan begins his book outlining four key challenges facing economies today:

1. The biggest debt bubble in history
2. A disastrous experiment with globalisation
3. The massaging of data to the point where economic trends are obscured
4. The approach of an energy-returns cliff edge

The first three points aren’t telling us much new so we’re going to focus on the final one.

Here, Morgan makes a key distinction between what he terms the money economy and the real economy. He suggests economists around the world have got it all wrong by focusing on money as the key driver of economies.

Instead, money is the language rather than the substance of the real economy. The real economy is a surplus energy equation, not a monetary one, and economic growth as well as the increase in population since 1750 has resulted from the harnessing of ever-greater quantities of energy.

In fact, society and economies began when agriculture created surplus energy. Before agriculture, in the hunter-gatherer era, there was an energy balance where the energy which people derived from food was largely equivalent to the energy that they expended in finding the food.

Agriculture changed that equation. It allowed for the creation of surplus energy. In essence, three people could be supported by the labor of two people, allowing one person to engage in non-subsistence activities. This person could make better agricultural tools, build bridges for better infrastructure and so on. In economic parlance, this person didn’t have to concentrate on products for immediate consumption but rather the creation of capital goods. The surplus energy equation allowed for that.

The second key development was the invention of the heat engine by Scottish engineer James Watts in 1769, although a more efficient version was produced later in 1799. This invention allowed society to access vast energy resources contained in oil, natural gas, coal and so forth. In other words, the industrial revolution allowed the harnessing of more energy to apply vast leverage to the economy.

In sum, the modern economy is the story of how society overcame the limitations of the energy equation. Or as Morgan puts it: “…all goods and services on which money can be spent are the products of energy inputs, either past, present or future.”

The creation of surplus energy during the Industrial Revolution and subsequent explosion in economic and population growth isn’t an accident. They’re tied at the hip.

Understanding the distinction between the money economy and the real economy can also help us better understand debt. Debt is a claim on future energy. The ability of indebted governments to meet their debt commitments will partially depend on whether the real (energy) economy is large enough to make this possible.

Era of cheap energy is over

Morgan goes on to say that the era of surplus energy, which has driven economic growth since 1750, is over. The key isn’t to be found in the theories of “peak oil” proponents and the potential for absolute declines in oil reserves. Instead, it’s to be found in the relationship between the energy extracted versus the energy consumed in the extraction process, also known as the Energy Return on Energy Invested (EROEI) equation.

The equation maths aren’t difficult to understand. If the EROEI is 10:1, it means that 10 units are extracted for every 1 unit invested in the extraction process.

From 1750-1950, the EROEI of oil discoveries was very high. For instance, discoveries in the 1930s had 100:1 EROEIs. That ratio declined to 30:1 by the 1970s. Today, that ratio is at about 17:1 with few recent discoveries above 10:1.

Morgan’s research suggests that going from EROEIs of 80:1 to 20:1 isn’t disruptive. But once the ratio gets below

15:1, energy becomes a lot more expensive. He suggests the ratio will decline to 11:1 by 2020 and the cost of energy will increase by 50% as a consequence.

Non-conventional sources of oil will provide little respite. Shale oil and gas have EROEIs of 5:1 while tar sands and biofuels are even lower at 3:1. In other words, policymakers who pin their hopes on shale oil reducing energy prices are seriously deluded.

And further technological breakthroughs to better locate and extract oil are unlikely to help either. That’s because technology uses energy rather than creates it. It won’t change the energy equation.

While some unconventional sources offer hope, such as concentrated solar power, they won’t be enough to offset surplus energy turning to a more balanced equation.

Oeuvre to growth tool

If the real economy is energy and the days of surplus energy are coming to an end, then so too is economic growth, according to Morgan. In his own words:

“…the economy, as we have known it for more than two centuries, will cease to be viable at some point within the next ten or so years unless, of course, some way is found to reverse the trend.”

This terribly pessimistic conclusion requires some further explanation. Morgan explains the link between energy and the economy thus. If your EROEI sharply declines, it means more energy is needed for extraction purposes and less energy is available to the economy. Ultimately, this results in the cost of energy rising as a proportion of GDP, leaving less value for other things. Put another way, with the leverage from surplus energy diminished, there’s less energy available for discretionary uses.

Implications

Now I don’t have total buy-in to Morgan’s thesis. It certainly solidifies my thinking that the era of cheap energy is indeed over. It provides a unique and compelling way to think about this. And the proof is seemingly all around us. It explains the high oil prices and the surge in agriculture prices (agriculture relies on energy inputs).

You can’t help but being more bullish on energy and agriculture plays in the long-term. Oil drillers for one as they’re more reliant on increased work than the price of oil. Also, the likes of fertiliser companies given agriculture land is tapped out, making an increase in output essential and thereby requiring greater quantities of fertiliser.

Morgan thinks inflation is on the way given a squeezed energy base with still escalating monetary bases. Regular readers will know that I am a deflationist over the next few years. But nothing is certain in this world and Morgan’s arguments on this front have some credibility.

As for whether this spells the end of a glorious 250 year period of economic growth, well, I’m not so sure. The link between energy and economies is compelling. But whether we’re at a tipping point where surplus energy disappears is a guess. I’m convinced that we’re coming up against resource constraints that will inhibit economic growth. To say that we’re imminently coming to the end of economic growth requires further evidence, in humble opinion.

Impact on Asia

Asia has been the largest demand driver for energy over the past decade. The region’s net oil imports total 17 million barrels of oil a day. China is now the largest net oil importer, having recently overtaken the U.S.. Other large net oil importers in Asia include India and Indonesia. Obviously, higher oil prices would be detrimental to these net importing countries.

It may be somewhat offset by agricultural prices staying higher for longer. China and India are agricultural powerhouses. And the impact of agriculture on their economies is still profound (agriculture accounts for 14% of Indian GDP and 10% of China).

On the other hand, higher agricultural prices mean higher food prices. And given lower incomes in Asia, the proportion of household budgets dedicated to purchasing food is much higher than the developed world. Therefore higher food prices has a larger impact on many Asian countries. Witness periodic recent protests on this issue in Indonesia, Thailand and India. So net-net, higher energy prices would still be a large negative for Asia.

Turning to resource constraints potentially inhibiting future economic growth: given Asia has the world’s strongest GDP growth, it would be disproportionately hit if this scenario is right. The past decade may represent a peak in the region’s economic output. Whether there’s sharp drop or gradual fade is impossible to forecast.

These are but a few of the potential implications for Asia.

AC Speed Read

– The real economy is a surplus energy equation, or the harnessing of ever-greater quantities of energy.

– That equation has deteriorated to such an extent that one can now declare the era of cheap energy over.

– If the economy is energy and cheap energy is gone, future economic growth will be inhibited.

– Consequently, higher energy and agricultural prices can be expected in the long-term.

– The impact on Asian growth may be disproportionately large.

http://peakoil.com/consumption/why-shale-oil-boosters-are-charlatans-in-disguise

Scheduled to sell for less than half the price of the current cheapest car in America, the Elio is a 3-wheeled “car” that hopes to shake up the automotive world. It eschews the trendy electric powertrain for a small gas system, but thanks to its small, light, aerodynamic design, it promises to keep drivers away from the gas pumps for as long as possible.

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The 2-seat (1+1) Elio uses a 70-hp 1.0-liter 3-cylinder engine, which is in the front. While that may sound entirely impotent compared to pretty much every other car on the road, the small 3-wheeler is able to hit speeds of up to 100 mph (161 km/h), which should be plenty for all highway driving. It can hit 60 mph (96.5 km/h) in 9.6 seconds.

More importantly, the small powertrain sips gas like it’s using a tiny straw and a shot glass, delivering a highway fuel economy of up to 84 mpg (2.8 l/100 km) and a city fuel economy of 49 mpg (4.8 l/100 km). With just 8 gallons (30 liters) of gas onboard, the Elio can drive up to 672 miles (1,081 km) – that’s a trip from New York to Detroit without ever filling up.

Other Elio equipment includes disc brakes with ABS; 15-inch wheels; a 5-speed automatic transmission; and independent suspension with unequal length control arms, coil-over-spring and shock in the front, and mono-shock with coil-over-spring and shock in the rear. The car measures 160.5 inches (4.1 m) long and has a 110-inch (2.8-m) wheelbase and 66.8-inch (1.7 m) front track. Despite the car’s diminutive package, Elio Motors claims that it can fit 95 percent of men and has even tested it with 6-foot 8-inch (2 m) and 325-pound (147-kg) occupants. It promises that trunk space will be at least 27 x 14 x 10 inches (68.6 x 35.6 x 25.4 cm).

Elio Motors isn’t ready to send its 3-wheeler out to dealers just yet, but it is claiming that the car will cost US$6,800 when it hits the market. The sub-$10,000 car disappeared from the United States a couple years ago, and the $12,000 2013 Nissan Versa currently holds the title of cheapest in the country. That’s a big price drop if you’re willing to forgive the lack of a fourth wheel.

Elio’s price isn’t one of those obnoxious base prices that excludes radio, air conditioning, seats, door handles … it includes all those things, plus a heater, defroster, power windows, power door locks and three airbags.

Of course, while the Elio is super-cheap compared to other cars, it isn’t quite a car. Even in Elio’s home state of Louisiana, 3-wheeled vehicles are classified as motorcycles, requiring a motorcycle license and helmet. Elio is working with the legislature in getting HB218 passed into law. The bill, which passed the Louisiana Senate earlier this week and was sent back to the House with amendments, would exempt vehicles like the Elio from motorcycle requirements.

Even if it’s successful in Louisiana, however, the vehicle will face similar issues in other states – we don’t see many people buying it if they have to get a separate motorcycle license and wear a helmet inside the cabin. Elio told us that it does plan to sell the car in all 50 states and has a government affairs team working on similar legislation in other states where vehicle laws threaten the Elio’s status and acceptance.

As for its claim that this is a car and not a 3-wheeled motorcycle, Elio Motors points to the enclosed cabin and its underlying structure, which includes a reinforced roll cage and 50 percent larger crush zones than similar vehicles. The company even anticipates it getting a 5-star safety rating.

“What do you see when you look at the Elio?” Elio inquires on its website. “Fully enclosed, power windows, wiper blades, steering wheel, gas and brake pedals … you be the judge.”

Of course, it also mentions that the vehicle is considered a motorcycle by the Federal Motor Vehicle Safety Standards. Its executives and lobbyists have some work to do in making the case that it is indeed a car and can be driven as such.

Elio Motors plans to begin production on the Elio by July 2014 in Shreveport, Louisiana. It held a press conference last week to announce its supply partners, and promised that not only will production be in the U.S., but 95 percent of materials will also be American-made. The more than 20 suppliers include Altair Engineering, IAV, NEWTECH 3, and Comau. It will provide more details about its plan for distribution and retail later this year.

With a few questions hanging over the Elio – including whether it will be able to finance its operations – it seems a bit early to start making reservations. The opportunity is available, however, starting at $100.

http://www.gizmag.com/elio-motors-84-mpg-three-wheeler/27454/

Every year in August there is a weeklong event — “The Oil & Gas Conference” in Denver, and it draws an international audience. By most accounts, EnerCom is the best on the schedule.

This year 107 companies made presentations. If I were only allowed to hear one presentation and attend one breakout session, it would be Core Labs — hands down.

“The maximum yearly oil production of the planet is taking place now!” That came from the CEO of a Netherlands-based company that has 70 offices in 50 countries worldwide. Their business is analyzing drilling results for all major, and 100s of smaller companies in the global energy finding industry. Annual revenues are $1 billion.

The company, Core Labs (CLB $155), has a unique view of the big picture few could envision. As a byproduct of their normal business activities, CLB scientists accumulate data about the current production of all major oil and gas basins on the planet.

While an exploration company is drilling, CLB analyzes “down hole” rock samples and estimates the probability of finding oil and gas below. After a field is producing, CLB helps the well operators to extract the maximum amount of hydrocarbons from the reservoir. Information that extensive about all the major energy basins in 50 countries is a unique collection of data.

Never very bashful in the breakout session, CEO Dave Demshur readily offered his thoughts about the big energy picture. When queried about predictions of increased oil production he took the under in most cases.

Demshur is a “peak oil” proponent — translated it means that at some point the oil production of the planet will maximize, flatten, and then diminish. For the first time I can recall, he said we have reached the peak area.

He estimates planetary oil production in 2014, 2015, and maybe 2016 to be at the peak level we shall ever be able to generate. When asked about future oil independence here in the US, he just smiled — and added “no chance”.

http://peakoil.com/production/core-labs-ceo-thinks-we-may-have-arrived-at-peak-oil