Techtrend

Toyota’s Bill Reinert on Peak Oil

I was fortunate to have the opportunity to hear University of Colorado graduate Bill Reinert speak at last week’s 62nd Annual Conference on World Affairs at CU. Reinert is the national manager of advanced technology for Toyota Motor Sales, USA. His primary function is to coordinate Toyota’s various research, development, and marketing activities related to alternative fueled vehicles and emerging technologies. Before taking over Toyota’s North American fuel cell efforts, Reinert and his team were responsible for product planning of the current generation Prius.

Since I have been following the subject of peak oil fairly closely for a number of years I found this talk to be surprisingly, refreshingly, and frighteningly candid, as I’d categorize this brilliant man as an overall “doomer” after listening to his presentation and his answers to audience questions about the timing of peak oil and prospects for alternative energies. He stated that Toyota has researched and understands peak oil as well as anybody. To follow, is my summary of his talk.
–Kalpa

“People drive an amount equivalent to their dispensable income.”

Demand destruction
Reinert expects gasoline demand destruction to hit at about $6/gallon. At $3.50/gallon behavior begins to change, and even more so at $4.20/gallon. When the price of gas went up in 2008 Prius sales increased as much as SUV sales declined and then when it went back down, SUV sales increased even more.

Peak Oil
He said we are at or near “peak oil,” and that it will hit the second half of this decade. At Toyota they don’t discuss peak oil, they discuss peak liquid fuels. A half barrel of oil goes towards the production of gasoline.

* In 2015-20 demand starts to exceed supply.
* OECD has peaked and is in decline.
* In ’09 USSR production started declining which has geopolitical implications.
* The lowest cost-to-produce oil is in the Middle East (at $13-30/barrel. They manage their fields better than we do.)
* Of the above, Iraq & Saudi are the two biggest and stablest areas of production.
* Our U.S. oil is some of the most expensive to produce ($60/barrel and we run our fields to exhaustian).
* OPEC and Iraq won’t meet India, China, and Brazil’s demands.
* If we don’t buy the oil produced, somebody else will.

Reinert expects our government to eventually regulate activity to control use when there is limited oil availability. Since China and India subsidize their energy they will have a real problem down the road. He poses the question of whether governments will hoard oil. And he warns us that we haven’t seen noth’n yet when it comes to environmental degradation to go after remaining fossil fuels.

Trucks and overnight air freight (think out-of-season foods) will be hit hard when peak oil arrives. Our current food system will “become too expensive for the lifestyle we’re used to.” Cheap transportation allows access to many goods at reasonable prices.

Corn Ethanol
He explained why corn ethanol is a political game and not a rational choice because the amount of gasoline it offsets after inputs is minimal. He does think bioplastics make more sense since they offset another part of oil use. He has some hope for algae.

His concerns
Reinert’s number one concern is that the government is not putting money into oil development or upstream refineries. (Refineries are shutting down due to currently low profit margins.) Within a few years we’ll have lost 30% of our refining capacity while other nations have built or kept theirs up.

His best hope is
It was clear that Reinert’s vision of the most reasonable solution for auto transportation lies in efficiency gains. “The I.C. engine is not dead,” he said. The Prius engine is 38-44% efficient. He pointed out that vehicle efficiency gains in saving gas are on the lower end (20-30mpg) vehicles more than what is gained on the higher end (40mpg to 50mpg) range.

One audience question was about on-board catalytic reformer action producing incredible efficiency with the ability to take a 30mpg vehicle and turn it into a 130mpg vehicle by converting a hydrocarbon stream to a reformate fuel stream. His response was that platinum based catalytics have a sulfide poison problem, and also said that he was not at liberty to talk about the subject.

Fuel Cell technology
Reinert is bullish on hydrogen fuel cells, on which the government has turned its back. He said that we could get the hydrogen technology infrastructure set up in six years on the amount of money given to the ethanol industry (at a scale equivalent to diesel now). He likes the idea of hydrogen combined with biomass.

Toyota has hydrogen fuel cell technology ready to roll in 2015. They’d like government policy to support it. Manufacturers have developed technology but there is a platinum problem. Every oil company has a hydrogen plan but there is no government support. The car companies are building hydrogen stations in California now. Hydrogen from natural gas can be transitioned renewably.

His view of Electric Vehicles
He pointed out that fueling EV’s charged with our current grid is dirtier than a high efficiency car. EV’s are way more expensive than hybrids, beyond what the consumer is able and willing to pay. (See Bloomberg article linked below for more on his negative outlook on electric vehicles ’09). He especially doesn’t think the grid infrastructure upgrades required are realistically attainable.

Alternative energies
Alternative energies need to be “life cycle efficient.” A windmill only operates 20% of the time. One coal mine in Kentucky produces the energy equal to all of the alternative energy we have today. Coal is getting the most subsidy, for carbon sequestration, followed by wind and solar, while natural gas gets nothing in subsidies. Due to the lack of achievable scale for alternatives as compared to the energy density in fossil fuel, conservation and gain in efficiency is the most logical goal.

Natural Gas cars and other car comments
There are problems with cars fueled by natural gas such as the tank requirements and danger of collisions. There is no infrastructure or government support for it. Using natural gas in cars has been accomplished in Italy.

The reason that mileage isn’t much higher on newer cars than fifteen years ago is partly because heavy safety features add mass to cars making them less efficient. He also noted that diesel cars which are generally more fuel efficient have trouble meeting environmental standards.

Lithium batteries
There are 3-4 types of lithium batteries and several types of packaging. There are carbon nanotube batteries. Toyota is looking at lithium air batteries. He predicts that in 3-4 years the supply of lithium batteries will exceed demand, resulting from current government subsidization. Even so, manufacturers have been unable to bring down the costs of lithium batteries.

What we need

* Serious political discussions.
* To educate everybody about peak oil.
* He advised the audience to help spread the word and email everybody “you know.” Do your part.
* Hold your politicians accountable at the state and local level.
* We need good electrochemical storage.
* We need the U.S. to manufacture PV.
* We need a carbon tax.
* We need to ramp up manufacturing again in this country since jobs have gone offshore.
* We need to train engineers and qualified workers for manufacturing (a millwrights average age in the US is 60).
* We need to switch from a service based economy to a production based economy.

Nuclear
He is open to small scale nuclear plants.

Politics
We lack political will. Reinert is pessimistic, cynical and skeptical about politics doing anything about a problem until we face a crisis.

In response to another audience question about what to invest in, Reinert said that he has no idea what to invest in for the future as he personally has squandered his own money in old cars.

The audience questioning concluded when a young audience member begged of Reinert to give some hope for future technology. Reinert rephrased the question by saying, “You mean will there be a magic bullet?”

“I’m out of bullets,” Reinert said.

Original article available here:
http://financialnewsexpress.blogspot.com/2010/04/toyotas-bill-reinert-on-peak-oil.html

The peak of oil production is passed
by Dr Michael Lardelli

Dr Michael Lardelli from the University of Adelaide looks at how the bulk of the world’s oil production comes from a relatively small number of very large fields discovered decades ago. The rate of world oil production has been maintained at current levels only by finding and bringing on line an increasing number of smaller fields, but the financial cost and the energy required to find and develop these new fields is constantly increasing. According to Dr Lardelli the so-called peak of oil production was actually in 2008.
The peak of oil production is passed (transcript)

Robyn Williams: This week, Professor Peter Newman of Curtin University in Perth, said that Peak Oil has happened. It occurred in 2008 and was directly linked to the GFC. As oil and therefore petrol became more costly, so those stretched by mortgages that they couldn’t pay, went broke. The Global Financial Crisis, says Professor Newman, had an oily origin.

Is he right? Well here’s Michael Lardelli, senior lecturer in genetics at the University of Adelaide.

Michael Lardelli: For six years in the 1990s, I lived and did postdoctoral work in genetics in Sweden. For a time I worked at Uppsala University, Scandinavia’s oldest university that was established in 1477. Uppsala is a beautiful small European city 50 kilometres north of Stockholm. The area around Uppsala is famous for its Viking heritage and, on back roads in the area, you can still stop to examine rune stones erected 1000 years ago. In 1997 I returned to Australia but I have re-established a connection to Uppsala in an unexpected way. Most nights once my young children are asleep, I sit down to translate into English the blog of a Swedish professor of Physics. His name is Professor Kjell Aleklett, and he works at Uppsala University, and he is president of the international arm of the Association for the Study of Peak Oil and Gas, otherwise known as ‘ASPO’. This is a story about oil, his research, and our future.

Anything that happens in the universe happens because energy is being converted from one form to another. The world economy is part of our universe and so it too requires energy for anything to happen. Without energy there would be no food, no mining, no manufacturing, no commuting, nothing. For the world as a whole, 85% of the energy that drives the economy comes from converting the energy in the chemical bonds within fossil fuels into heat and motion energy. Of the fossil fuels, the most useful is oil because it is easy to transport and has the most concentrated energy. Indeed, burning one litre of oil releases energy equivalent to 20 days of hard human labour. A fully-tanked jumbo jet contains energy equivalent to around 13,000 years of human labour.

In July 2008 the price of a barrel of oil spiked up to a record $US147 per barrel. It had been only half that price one year earlier. The reasons for the price spike are complex. China, it seems, was willing to pay almost any price to expand its oil stockpile before hosting the Olympic Games in August of 2008. Speculators had also noticed the rapid rise in the price of oil and were bidding up the price. The spike in the oil price was followed in September by the crash of the investment bank Lehman Brothers that marked the start of the world financial crisis. Interestingly, an analysis by Professor James Hamilton of the University of California, suggests that it was the oil price spike of July 2008 that pricked the US debt bubble and hastened the inevitable financial crash. If you look at the history of economic recessions in the last 50 years you will see that most are preceded by a rise in the price of energy.

As economic activity around the world fell in late 2008 the price of oil fell too, from July’s $146 down to as low as $32 per barrel five months later. Less consumption of manufactured goods means less energy is required for mining, manufacturing and distribution. People who lose their jobs don’t need to drive to work. When the price of oil hit $US147 per barrel the world was using around 86 million barrels of oil every day. Today oil consumption is about 84 million barrels per day, a decrease of more than 2%.

There is a tendency to dismiss the high oil prices of 2008 as entirely due to speculation but that cannot be true. Throughout the 1990s oil had hovered around or below $20 a barrel but after 2002 it began to rise steadily. The price hit $50 in 2005 and doubled again to $100 by 2007. Why? Well, the world economy was growing rapidly during this period and more real economic activity can only occur if more energy is used. But the simple truth is that the world could not expand its use of energy as quickly as needed, and after 2005 it ran into real problems. If you look at the history of world oil production you can see that production was basically flat from 2005 until 2008 despite the tripling of oil prices in this period. According to economic theory, this should not have happened. The high oil prices should have stimulated oil production. They should have increased the supply and so reduced the price of oil. Instead the world economy ran into a brick wall. What went wrong?

The flat oil production plateau of 2005 to 2008 was a brilliant illustration of the fact that the predictive powers of economic theory are very limited. In spite of its technical jargon and its liberal use of mathematics, economics is more art and guesswork than a science. That’s why the First Law of Economics states that for every economist there exists an equal and opposite economist.

On the 27th August last year the world celebrated 150 years since the first commercial oil well was drilled by Colonel Edwin Drake in Pennsylvania. The oil industry has now seen over a century of massive investment and astonishing technological development. The modern accomplishments of the oil industry sound more akin to science fiction than reality. The latest discoveries of oil off the coast of Brazil are a good example. Amid huge ocean swells a gargantuan exploratory oil rig costing nearly $1 million per day to lease, floats two kilometres above the seabed. Its drill-bit descends through the ocean depths, then grinds its way down through another five kilometres of seabed before finding oil trapped for millions of years under a two kilometre thick layer of ancient salt. This oilfield, named Tupi, is the biggest discovery in the past decade. One day its yield may total 8-billion barrels although extracting it will require a huge amount of investment and a great deal of time. The first well drilled into Tupi cost almost a quarter of a billion dollars. Subsequent wells have cost $60 million each.

Every time a so-called ‘giant’ oilfield is discovered – and ‘giant’ means anything over half a billion barrels of oil – our media trumpet it as the solution to any concerns we may have over future oil supplies. But what most people don’t appreciate is that the rate at which humanity is using oil almost beggars belief – we consume 1,000 barrels of oil per second, which amounts to almost 30-billion barrels per year. So half a billion barrels from a ‘giant’ field could supply the world for about one week, and the Tupi field might eventually yield enough oil to supply the world for less than four months at current consumption rates.

Herein lies the problem. For the world economy to grow current consumption rates are not enough. To grow the economy we need to increase the rate at which we use energy. Economic growth simply cannot be separated from energy growth. Even the world’s highest advisory body on energy, the International Energy Agency, acknowledges this. Indeed, for most of its history the economists at the IEA have actually predicted future increases in the rate of oil production based on the rates of economic growth they were expecting. This ‘economy-based’ method of predicting future oil production worked fairly well until, in 2005, our finite planet Earth stopped co-operating. After 2005 it refused to yield ever increasing flow rates of oil to power the economic growth. In response to growing scepticism about its predictions the IEA then changed its methodology, and in 2008, it published a so-called ‘bottom up study’. It no longer used anticipated economic growth to predict oil production growth. Instead, it predicted future production based on an oilfield-by-oilfield analysis of what it thought individual oilfields could produce.

The bulk of the world’s oil production comes from a relatively small number of very large fields discovered decades go. Most of these very large fields now show declining production. The total rate of world oil production has only been maintained at current levels by finding and bringing online, an increasing number of smaller fields. The financial cost, and the energy required to find and develop these new, smaller fields is constantly increasing. In 2008 the IEA looked at the production from all current fields and how rapidly it would decline. They also predicted how much oil would be produced in future years from as yet undeveloped fields and fields that might yet be discovered. The result? They saw less future oil production than their previous estimates but, nevertheless, oil production in 2030 would be higher than today, so there was a little room for economic growth.

But was the IEA correct? This is where the story gets very interesting and Professor Aleklett in Uppsala re-enters the picture. Professor Aleklett heads a group of research scientists called the Global Energy Systems group at the Angstrom Laboratory of Uppsala University. In recent years these scientists have been developing mathematical models of oil production from individual oil fields. They re-analysed the numbers in the IEA’s field-by-field bottom-up analysis. They found that they could agree with most of what the IEA predicted – namely the decline rate of existing fields and the volumes of accessible oil in known but undeveloped fields and in fields that might yet be discovered. However, they found a glaring error. The IEA had predicted future rates of oil production from undeveloped and yet-to-be-discovered fields that were far, far too high. When they took the IEA’s data and imposed rational but nevertheless extremely optimistic limits on future production rates, they saw to their astonishment, that the maximum rate of oil production that the world would ever achieve was in 2008. That’s right – the so-called ‘peak’ of oil production was actually two years ago and we have now begun the long downward trend in oil production that will characterise the second half of humanity’s oil era.

The re-analysis of the IEA’s own data by the Global Energy Systems group showing that we have passed the peak of oil production is the scientific equivalent of a ‘slam dunk’. It is a beautiful piece of work and I have been privileged to help them prepare it for publication. I find it fascinating to see other analyses are also giving similar results. Indeed, an analysis by Australia’s own Macquarie Bank, not of actual oil production but of oil production capacity, predicted declining capacity after last year, 2009.

Since the IEA produced its bottom-up analysis the financial crisis has hit the oil industry hard. Much oil exploration and oilfield development has been cancelled and this will accelerate the decline in world oil production. The implication is that, when or if the world economy tries to grow out of its current slump, we will see demand exceed supply and oil prices will spike to a level that will, once again, cause an economic fall. Unfortunately, unless alternative sources of energy are found and developed, and quickly, the importance of oil to the world economy means that economic growth will follow the declining production of oil downwards for many years and probably decades. From a scientific point of view, there can be no return to the long and heady days of economic growth seen earlier this decade, no matter what leading economists of heads of reserve banks may think to the contrary. As a scientist, and with my two young children in mind, I think we need to be looking urgently at the implications of energy decline for the most important things in life. This is especially true for food production which, in industrialised nations, is highly dependent upon abundant supplies of oil.

We can no longer afford to sit around discussing whether or not we have passed the peak of oil production. We cannot wait, complacently, for price signals to stimulate the development of alternative sources of energy since oil prices will fluctuate wildly. Every time the economy tries to grow, oil demand will exceed supply, causing the oil price to spike up. This will strangle the economy, reduce oil demand and cause the price to fall. Oil companies cannot invest in the face of these wild fluctuations in price. Most importantly, we must remember that to do anything at all requires energy. So, while oil is still relatively abundant, we must invest as much as we can to develop the energy sources of the future. Once the oil supply starts to decrease significantly, we will be too busy just trying to keep food production and essential services running to have any energy left over for building expensive high-tech alternative energy infrastructure.

The peak of oil production was two years ago. For the sake of my children, and your children, we need to just accept that fact and deal with it. When it comes to investing in energy alternatives, do it now, because it will not be possible later.

Robyn Williams: And you might like to listen to this week’s Science Show in which two potentially huge new sources of energy are featured: Geothermal in Victoria and Craig Venter’s newly created organisms, as a basis for algal oil. That was Michael

Original article available here:
http://www.abc.net.au/rn/ockhamsrazor/default.htm

Officials Wake Up to Peak Oil, Part 2

Governments Worried about Peak Oil – But Not Enough to Tell You the Truth

By Chris Nelder
Friday, April 16, 2010

In the first part of this series, I reviewed a series of reports from March supporting the peak oil view, and warning that world oil production very well may go into terminal decline by 2015 or sooner. The sources included the UK Industry Task Force on Peak Oil and Energy Security and officials within the British government; researchers within the College of Engineering and Petroleum at Kuwait University; researchers from Oxford University; and ConocoPhillips, the third-largest oil company in the U.S.

On March 25 the U.S. Department of Energy (DoE) joined the officially worried, with a report in French newspaper Le Monde titled “Washington considers a decline of world oil production as of 2011.”

The author had pestered Glen Sweetnam, director of the International, Economic and Greenhouse Gas division of the Energy Information Agency (EIA), for details about a presentation he had given at a semi-public DoE round-table with oil economists in April 2009. How he got wind of it, I don’t know, but I admire his persistence.

The zinger was this chart:

Source: Glen Sweetnam, “Meeting the World’s Demand for Liquid Fuels – A Roundtable Discussion,” EIA 2009 Energy Conference, April 7, 2009, Washington, DC

The implication was obvious: The EIA has no idea how production could increase after 2012. In the absence of these “unidentified projects,” they expect global oil supply to decline by about 2% per year, from 87 million barrels per day (mbpd) in 2011 to 80 mbpd by 2015, while demand rises to 90 mbpd.

Within five years, then, there will be a 10 mbpd gap between supply and demand–roughly a Saudi Arabia’s worth of production (currently 10.8 mbpd).

(I should note that although Sweetnam’s chart gives the EIA’s Annual Energy Outlook 2009 as the source, I found no such chart, nor even the data that might produce it, in my copy of that publication. I am unable to explain that discrepancy.)

The agency officially continues to lay any concerns about future supply at the feet of insufficient investment. In Sweetnam’s interview with Le Monde, he put it this way: “’a chance exists that we may experience a decline’ of world liquid fuels production between 2011 and 2015 ‘if the investment is not there.’”

It’s a weak position to take in the wake of the oil price blow-off of 2008. The world’s developed economies simply cannot tolerate the high prices that would entice that investment (see “‘Peak Demand,’ Yes; But Not the Nice Kind”), and I’m sure the EIA knows it.

You’d think the American media would have been all over the story, as it signaled a major about-face in the official U.S. position on peak oil. As recently as 2008, the EIA’s base case scenario was for oil supply to rise through 2030, and not decline until 2090!

Yet five days later when I Googled it, there was not one story from a major domestic publication. Only blogs and the usual peak oil sites had picked it up.

In my seasoned judgment, the American media blackout is deliberate.

And speaking of media blackouts…
Media Blackout at the World’s Biggest Energy Forum

On March 30-31, the biennial International Energy Forum (IEF) summit took place in Cancun. Attendees at the world’s largest energy forum included ministers from 64 countries, members of the IEA and OPEC, and other dignitaries. In parallel, Cancun also hosted the International Energy Business Forum, attended by some 36 companies including the top executives of China National Petroleum Corp (CNPC), ExxonMobil and Royal Dutch Shell.

In short, the twin conferences were a Very Big Deal.

But when I searched Google News for stories containing the exact phrase “International Energy Forum” and published during the conference, it wasn’t until the seventh page of results that I found any stories from major American media outlets, and those stories were strictly focused on specific issues like oil and gas prices. They said not a word about peak oil.

A journalist from the oil and gas media organization Platts explained what happened on his blog. All media were barred from the IEF conference room, and exiled to a press room where the presentations were shown on monitors with no sound. When reporters asked for sound, the monitors were turned off. All sessions were then declared to be private, and the reporters that had come from around the globe to cover the conference were simply shut out.

According to journalist Matthew Wild, the presentations included one from PFC Energy titled “Unpacking Uncertainty: Investment Issues in the Petroleum Sector.” The document reviews three forecasts for oil supply: The IEA’s, which shows it reaching 109 mbpd by 2030; OPEC’s, which expects it to reach 111 mbpd; and PFC’s own, which expects supply to peak around 2020-2025 at 95 mbpd, then decline to 90 mbpd by 2030.

Although it sees the decline of mature fields proceeding at a slower rate than the IEA, PFC Energy still believes it will be “rapid enough to produce a world energy picture that differs vastly from previous long-range energy assessments,” and goes on to explain:

This is not a world of “peak oil” where global hydrocarbon potential is exhausted, but rather of peak production, where the petroleum industry’s ability to continue to increase—or even maintain—production of conventional oil (and eventually gas) is constrained. Exploitation of unconventional oil will provide additional liquids, but in all probability only at increasingly higher costs, and it will depend on significant investments to develop appropriate technologies to convert today’s resources into tomorrow’s reserves.

The exact timing of both the plateau and onset of irreversible decline will be influenced by the factors that determine long-term changes in supply and demand. Nevertheless, the challenge is coming, and this emerging world of limited conventional production will require major adjustments on the part of both consumers and producers.

The phrasing of the first statement is curious. Serious observers know that “peak oil” has never meant the exhaustion of hydrocarbon potential, and has always meant the peak of production flow rates. I covered a presentation by Michael Rodgers of PFC Energy at last year’s peak oil conference, so I must believe that PFC Energy knows better than to characterize peak oil that way and simply chose to do so for the appeasement of its IEF audience.

In any case, we now know that the world’s top energy ministers have seen a serious presentation on peak oil, and heard the warning about its seriousness, albeit a somewhat soft-pedaled one.

Most reports on the conference featured the theme that better data and transparency on reserves reporting is needed–a bell that peak oil mavens like Colin Campbell have been ringing for over a decade. Without it, the world is in the dark about the true future of oil supply.

To reinforce that point, IEA head Nobuo Tanaka told the Financial Times at the conference that it has invited China to join the IEA because global oil demand has shifted to the East. “Our relevance is under question,” he worried, as the opacity of data on Chinese oil demand and inventory threatens to blind the agency to the true state of the world’s oil markets.

Another key theme was an evident widespread concern about the volatility of oil prices. By the end of the conference, IEA, OPEC, and the IEF were expected to announce a “joint action plan” to control volatility and ensure that prices remain stable enough to encourage new production.

While the IEF was under way, the chairman of the Intercontinental Exchange (ICE) told Reuters that blaming speculators for price spikes was a “crutch” used to avoid looking at the realities of oil supply and demand. As I explained in July 2009, traders have turned to the ICE to skirt the stricter position limits on the NYMEX. The Commodity Futures Trading Commission (CFTC) has now proposed new regulations to limit the influence of speculators in the energy markets, which are up for public comment until April 26.
You (Still) Can’t Handle the Truth

By any measure, March was a watershed month for the truth about peak oil.

Estimates on the timing of the peak have narrowed dramatically, and now center on the 2012-2015 time frame. The range of estimates on the peak rate of production remain a bit broader and shrouded in caveats, but they are rapidly drawing closer to 90 mbpd. And the globally averaged, post-peak annual decline rates are settling in around 2%.

In other words, industry and governments appear to be coming around to what my call has been all along: 2012, at 90 mbpd or less, then declining at about 2.5% per year.

Now we know that the oil and gas industry, and the world’s governments, are not only aware of the peak oil threat but deeply worried about it. Worried enough to huddle behind closed doors, away from the press. Worried enough to formulate plans to control price volatility. Worried enough to agitate for more transparent data. Worried enough to begin planning for a future of relentlessly declining energy.

But not worried enough to tell the American people the truth–not just yet.

Until next time,
Chris

Officials Wake Up to Peak Oil, Part 1

The End of Peak Oil Denial

By Chris Nelder
Friday, April 2, 2010

When I began writing about peak oil professionally in 2006, it was generally considered a tinfoil hat theory. The notion that oil production might peak around 2012, plus or minus, was only taken seriously by a few analysts who were considered extremely pessimistic.

Official forecasts had no cognizance of it whatsoever. All were confident that oil supply would continue to grow steadily to 130 million barrels per day (mbpd) and beyond, at prices that would be considered astoundingly cheap by today’s standards. Oil companies rarely mentioned peak oil, and when they did, it was in a casually dismissive way.

But as time marched on, the cornucopian arguments fell one by one. My longtime readers have seen the story unfold, but for the benefit of new readers, here’s a quick summary.

Forecasts grew more and more pessimistic as it became apparent that regular conventional crude supply had peaked at the end of 2004. Even as the biggest oil price spike in history ensued from 2005-2008, crude production remained flat and unresponsive.

OPEC scaled back some of its development plans as costs soared. Non-OPEC production not only failed to deliver any actual increase, but began to decline. Forecasts were revised lower.

Corn ethanol boomed and busted, as it was revealed to be the net energy non-starter that serious analysts always knew it was. It also was suspected of adding pressure to food prices at a most inopportune time.

Unconventional production from oil shale and tar sands failed to grow as expected, as producers shied away from high-cost, low-production projects.

The International Energy Agency (IEA) finally included the depletion of mature fields in its analysis, and became increasingly shrill in its warnings about future supply.

A few current and former oil industry executives began making public statements about the diminishing prospects for new supply, and a few even acknowledged that it would be hard to increase production much beyond current levels.

Then high oil prices proved intolerable to an economy stretched thin by the bursting of the bubbles in the real estate and financial sectors.

Yet official recognition of the peak oil threat remained muted, couched in warnings about “adequate investment” and blithe assertions that demand would soon peak, averting any supply shortage.

All that seems to have changed in the last month. A sudden deluge of reports and summit meetings suggest that the oil industry and energy officials are now taking peak oil very seriously indeed.
UK Task Force on Peak Oil: Shortages by 2015

The first bombshell was actually dropped on February 10, when the UK Industry Task Force on Peak Oil and Energy Security issued a report called “The Oil Crunch: A wake-up call for the UK economy.” I only mentioned it in passing at the time, but it was a stern warning that “oil shortages, insecurity of supply and price volatility will destabilise economic, political, and social activity potentially by 2015.”

It only made the news because Sir Richard Branson personally endorsed it, but the fact that the task force comprised top UK executives and energy experts lent it enough weight to be rather widely circulated in the press.

The British government, including energy minister Lord Hunt, responded by staging a closed-door summit meeting with the taskforce on March 22. As the UK’s Guardian reported, the government intended to develop an action plan to contend with a near-term peak, and to “calm rising fears over peak oil.”

Veteran peak oil analyst and taskforce member Jeremy Leggett explained: “Government has gone from the BP position – ‘40 years of supply left, the price mechanism works, no need to worry’ – to ‘crikey’.” He urged the assembly to properly assess the risks of peak oil, and to immediately begin preparing for the end of globalization and an era of oil shortages in the West.

According to reports from attendees, the summit yielded some important conclusions:

* Peak oil is either here, or close enough.
* Prices will have to go higher as demand outstrips supply.
* Governments will be forced to intervene to maintain critical levels of oil supply, and limit volatility.
* Rationing measures may be unavoidable.
* Electrification of transport must be pursued in order to reduce demand.
* Communities will need to work quickly to reorganize around walking instead of driving, producing food and energy locally instead of importing, and generally try to reduce their need for oil.

However, the notion that peak oil will mean the end of economic growth, as I have argued, apparently fell on deaf ears. Still, the very fact that the government has engaged with the peak oil community and formed a parliamentary group to study the issue offers a sliver of hope that, at least in the UK, we’ll have some measure of consciousness about the issue and an idea of what to do about it as we drive off the peak oil cliff.
Kuwait Report: Peak by 2014

The next was a report that surfaced around March 12. Three authors from the College of Engineering and Petroleum at Kuwait University had applied advanced mathematics to reserve and production data for the top 47 oil producing countries using a multi-cycle Hubbert model, which demonstrated a much better fit to historical data than single-cycle Hubbert Curve analyses.

The model estimates the world’s ultimate crude oil production at 2140 billion barrels, with 1161 billion barrels remaining to produce as of the end of 2005. It forecast that world production would peak in 2014 around 79 mbpd. The annual depletion rate of world reserves was estimated to be around 2.1%.

The results weren’t really news to the peakists, for they matched up quite well with the models of Colin Campbell, Jean Laherrère and other analysts who have warned about peak oil since 1995. What made this report interesting was that first, it was from Kuwait, and second, it brought a new level of mathematical rigor to the study.

The model indicated that non-OPEC production peaked in 2006 at 39.6 mbpd. It forecasts that OPEC production will peak in 2026 at 53 mbpd, up from 31 mbpd in 2005, with the majority of the increase coming from Iraq, Kuwait, and the United Arab Emirates. Then OPEC production is expected to decline to 29 mbpd by 2050.
Oxford Report: Reserves Exaggerated by One Third

On March 22, another bombshell exploded in the press as former UK chief scientist David King and researchers from Oxford University released a paper claiming that the world’s oil reserves had been “exaggerated by up to a third,” principally by OPEC.

Their “objective analysis” showed that conventional oil reserves stand at just 850-900 billion barrels, not the 1,150-1,350 billion barrels that are officially claimed by oil producers and accepted by the politically influenced IEA.

They anticipated that demand could outstrip supply by 2014-2015.

In a statement that sounded like a direct echo of what peak oil analysts like me have been saying for years, co-author Dr. Oliver Inderwildi remarked, “The belief that alternative fuels such as biofuels could mitigate oil supply shortages and eventually replace fossil fuels is a pie in the sky. Instead of relying on those silver bullet solutions, we have to make better use of the remaining resources by improving efficiency.”

Again, it was hardly a revelation. I detailed the “political reserves” additions of OPEC producers in 2007, when I was writing Profit from the Peak. But the fact that it was recognized widely in the press was a marked change from the past.
ConocoPhillips Gives Up on Growth

On March 25, ConocoPhillips CEO Jim Mulva admitted that pursuing new oil reserves just doesn’t pay. The remaining resources have become too marginal and too expensive, and the competition for them has become too intense.

Rather than keep slugging it out with bigger and better-funded players in pursuit of growth, Conoco has decided to sell $10 billion worth of its assets over the next two years, all of them in the marginal category, and concentrate on producing its core assets.

The proceeds will be used to buy back its stock, reduce its debt, and raise dividends–just as rival ExxonMobil has been doing for the last five years or so.

When I inferred in Profit from the Peak that the oil majors were spending vastly more money on buying back stock than investing in new exploration because reserves were getting too expensive and risky, veterans of the Street greeted the idea with extreme skepticism.

Now it’s a plain fact. A Rice University study released in July 2008 found that the five largest international oil companies spent about 55% of their profits on stock buybacks and dividends in 2007, but only about 6% on new exploration and production. “Could we spend $20 billion or $25 billion [on exploration]? Absolutely,” Conoco spokesman Gary Russell said at the time. “Could we do it effectively, in a way that provides ultimate value to our shareholders? Probably not.”

Those of us who have been observing the trend for years greeted the latest Conoco comments with little more than a shrug, but it did get the attention of the laggard mainstream press.

In my next Energy and Capital column two weeks from now, we’ll see how the U.S. Department of Energy is now considering the possibility of a decline in world liquid fuels production by 2015, and pick up a few more clues from the International Energy Forum held this week.

Until next time,

Chris

Original Subscript:
http://www.getreallist.com/officials-wake-up-to-peak-oil-part-1.html

A ‘watershed month for the truth about peak oil’

A ‘watershed month for the truth about peak oil’
by Matthew Wild

Recent weeks have seen an explosion of information on peak oil – everywhere it seems except in the mainstream media. It may be in the business sections, but not the news pages.

Within the last two months, a variety of sources have come out with warnings about both the immediacy of peak oil and the implications of what happens when demand of such a vital resource becomes greater than supply. What’s more, these various an unconnected sources are presenting this as an immediate problem, something requiring urgent and large scale efforts in order to avoid possibly dire economic consequences. You don’t get a better definition of news than that (to which you could add the consideration that if news is anything someone doesn’t want you to know it doesn’t get bigger than this.) Just look at the recent peak oil publications and briefings:

In February, the UK Industry Task Force on Peak Oil and Energy Security issued a report predicting an “oil crunch” within five years. It was followed in mid-March by a behind-closed doors energy briefing called by the British government (which heard “2004 was . . . the beginning of the global production plateau for conventional oil.”)

March also saw a report from scientists in Kuwait predicting that world conventional crude oil production will peak in 2014. Around that time, researchers from Oxford University suggested that oil reserves have been over-estimated by up to one-third, and demand will likely outstrip supply as soon as 2014. In mid-March, French newspaper Le Monde stated that the Energy Information Agency was looking at oil production declining by 2011.

The month ended with a meeting of the world’s energy ministers from oil producing and consuming nations, the International Energy Forum. Despite a virtual media blackout about what took place at the meeting, papers listed on-line ahead of event forecast of global oil supplies “peaking between 2020-2025” with demand outstripping supply sometime ahead of this.

In April, the US Joint Forces command dropped a bombshell with its Joint Operating Environment report that the military should have contingency plans as surplus oil production capacity could disappear within two years and that there could be serious shortages by 2015. (“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day.”)

Considering this information is timely, with wide-ranging results, and from highly placed sources – industry leaders, academics, scientists, government and the military – then why hasn’t there been more media coverage?

Chris Nelder, in his Seeking Alpha column Governments Starting to Worry About Peak Oil, suggests that “In my seasoned judgment, the American media blackout is deliberate.”

He writes:

By any measure, March was a watershed month for the truth about peak oil.

Estimates on the timing of the peak have narrowed dramatically, and now center on the 2012-2015 time frame. The range of estimates on the peak rate of production remain a bit broader and shrouded in caveats, but they are rapidly drawing closer to 90 mbpd. And the globally averaged, post-peak annual decline rates are settling in around 2%.

In other words, industry and governments appear to be coming around to what my call has been all along: 2012, at 90 mbpd or less, then declining at about 2.5% per year.

Now we know that the oil and gas industry, as well as the world’s governments, are not only aware of the peak oil threat… they too are deeply worried about it.

Worried enough to huddle behind closed doors, away from the press. Worried enough to formulate plans to control price volatility. Worried enough to agitate for more transparent data. Worried enough to begin planning for a future of relentlessly declining energy.

It is interesting to note that peak oil only gets news time on the business pages – which is what Seeking Alpha is. Often it’s hidden in business-speak, but it’s there, if you look hard enough.

For instance, an essay earlier in the month on Forbes titled Oil Reality Check: It’s Going Higher suggests we will see oil above “the magic $100 number” this year, due to simple market forces – rising demand. Writer Mark Mills states:

Whatever the debate about the ultimate total physical hydrocarbon resources on this planet, using technology we have, equipment and infrastructure that exists or could be built under any scenario in a few years, 2010 probably marks “the peak” production of oil as we know it today. You don’t have to be an economist or pundit to know the implications of demand continuing to grow against an essentially fixed supply base.

He notes that discussion, post-peak, will not be about best alternatives to oil, such as biofuels and synfuels, because all possible alternatives will need to be pressed into use. Not that he sees these as offering salvation, as “vehicle fleets take time to turn over, and we already use one-third of our corn crop to make biofuel that supplies only a few percent of U.S. transportation needs.”

Then things take an apocalyptic turn:

With no short-term salvation derived from a dramatic growth in oil production, then all the world has to do to avoid the next oil price apocalypse is cut demand, or find alternatives.

Cut demand? We did that experiment. It’s called a recession. The only other short-term fixes are all behavioral, few of them pleasant. President Nixon tried that with the infamously unpopular and wildly ignored imposition of a national 55 m.p.h. speed limit.

Absent a nuclear war, a pandemic or another Great Recession, there’s little that can be done about the near future demand-supply balance. Demand is going back up faster than supply.

The best solution he can find to keep America safe from such expensive oil “will be a growing economy rendering energy costs in general, a declining share of GDP.” Quite how to make the economy boom at a time of spiraling energy costs is not suggested, of course.