Posts Tagged ‘Peak oil’

Fossil Fuels Will Save the World (Really)

March 17, 2015

Matt Ridley has an opinion piece in the WSJ which says many things far better than I can.

The environmental movement has advanced three arguments in recent years for giving up fossil fuels: (1) that we will soon run out of them anyway; (2) that alternative sources of energy will price them out of the marketplace; and (3) that we cannot afford the climate consequences of burning them.

These days, not one of the three arguments is looking very healthy. In fact, a more realistic assessment of our energy and environmental situation suggests that, for decades to come, we will continue to rely overwhelmingly on the fossil fuels that have contributed so dramatically to the world’s prosperity and progress. …….

The article is well worth reading. Fossil Fuels Will Save the World Ridley WSJ

Ground zero is that fossil fuels will eventually be replaced only when a cheaper, more reliable source of energy (electricity production) is found. There is no foreseeable “peak” for fossil fuels and availability is not a constraint. Solar and wind technologies have small, clear niches which they can well fill but practical and affordable energy storage is needed before they can be any significant source of our energy consumption. And Li-ion batteries will not cut it. As Ridley points out they provide about 1% of our energy consumption today while fossil fuels still reign supreme at about 87%. Nuclear power could make a severe dent in fossil fuel consumption, but only if the costs and the construction time due to the regulatory process can be drastically reduced – and that does not seem likely as long as alarmists and doom-sayers hold sway. (I estimate that around 30% of the capital cost of nuclear plants is unnecessary and due to CYA regulations which are driven by fear). Small, safe, pre-approved, modular, fifth-generation nuclear power plants could take-off but that requires many alarmists to give up their faith.

(As an aside, I observe that climate and energy politics have become the politics of fear, but I am an optimist and I expect the pendulum will swing to return to energy politics based on courage. It is a form of cowardice which drives energy politics today where I take cowardice to be actions subordinated to fear and courage to be fears subordinated to purposeful actions).

Perhaps fusion (probably hot rather than cold) will come – but a breakthrough is not in sight (though by definition breakthroughs are never generally in sight). We can fantasise that we will someday be able to tap into the gravitational energy of the solar system (which would be solar energy in another form). I don’t doubt that some new, cheap, energy source or energy conversion technique will appear – but until then fossil fuels will provide the basis for human development. And if we are on our way into a new ice age it is fossil fuel which will ensure our survival.

I dismiss the hypothesis – and it is still only a hypothesis – that man-made emissions of carbon dioxide are of any significance for “global temperature”. In fact the carbon dioxide concentration in the atmosphere (and man-made emissions are a tiny contributor to that) has a very small effect on “global temperature”. Instead it is “global temperature” which has a very large effect on carbon dioxide concentration through the balance of absorption and emission from the oceans and from the biosphere. Carbon dioxide concentration lags rather than leads “global temperature”. The sun and clouds and ocean currents and winds (also driven by the sun) dwarf any effects of carbon dioxide. The hypothesis looks broken considering that over the last 18 years man-made carbon dioxide emissions have increased sharply but “global temperature” has been static. Even the assumed “global warming” that is supposed to have taken place over the last 100 years are to a significant extent “manufactured” by “adjusting” temperature data and choosing weighting and averaging algorithms which are biased to show a pre-determined result. There is a shortage of “science” and far too much confirmation bias in what passes for “climate science” these days.

Can consumer countries fuel global growth with sharply reduced oil prices?

October 20, 2014

Oil prices have “crashed”.

Currently prices are at less than $80 per barrel compared to over $110 in June and the peak of $147 just before the financial bubble burst in 2008. It seems that it is due to the oil glut brought about by the shale oil revolution in the US together with a downturn in global growth. The $147 peak was, I think, more of a trial balloon by the oil producers to test where the resistance lay and the producers concluded that a level of a little over $100 would maximise profits and was sustainable. But I suspect that this $100 level itself has contributed to delaying and prolonging the recovery. Not only because of the increased direct costs to the oil consumer but also due to its knock-on effects which have unnecessarily raised the cost to all electricity consumers. The prolongation of the path to recovery in Europe is certainly – if only partly – due to the very high energy prices that prevail. But right now it is the abundance of shale oil and gas which seems dominant.

BloombergBut the bigger factor appears to be surging global oil production, which outpaced demand last year and is shaping up to do so again in 2014. To try to keep prices high, Saudi Arabia, the world’s biggest petroleum exporter, has reduced its oil production from 10 million barrels a day—a record high—in September 2013 to 9.6 million as of Sept. 30. That hasn’t done much to raise prices, mostly because other OPEC countries are pumping more crude as the Saudis try to slow down. Sharply higher production increases from Libya and Angola, along with surprisingly steady flows out of war-torn Iraq, have pushed OPEC’s total output to almost 31 million barrels a day, its highest level this year and 352,000 barrels a day higher than last September. Combined with the continued increase in U.S. oil production, the world has more than enough oil to satisfy current demand.

crude oil price history 2000-2014

crude oil price history 2000-2014

But this crash in oil prices is probably a “good thing”.

The additional revenues from increasing oil price to the few in the oil producing countries have not been sufficient to counter the hit to the many in the consuming countries. Much of the additional revenue has gone not to fuelling growth but in blowing up new real-estate bubbles.

The additional spending power in consumer countries with reducing oil price is spread among the many (at the lower end of the wealth scale) whereas the reduction in producer oil revenues is generally spread among an affluent few. My contention is that the additional revenues with high oil price in – for example –  the Middle East does not need to be spent on real things which could fuel growth. Revenues in Saudi Arabia and Qatar and other countries have fuelled bubbles and jihad instead of just growth. A great deal went instead into very high margin, weapons systems and to the imaginary values of real estate. In Russia the oil revenue did contribute to some growth but there was still a large proportion spent on imaginary values of various bubbles (which by definition cannot contribute to growth). My simple calculation tells me that 1000 people buying washing machines in China contribute more to global growth than one person spending the same amount on an apartment (his second or third home) in London. A $10 drop in oil price is said to shift 0.5% GDP growth from producer countries to consumer countries. But the pattern of consumption where the “few” fuel the bubbles of imaginary value while the “many” consume mundane goods and services means that the real effect on growth is greater than a net zero. It is shifting an ineffective 0.5% to a more efficient consumption for growth. The net effect is probably a growth in global GDP of 0.2 – 0.3%. Similarly the purchase of large-volume, low-margin goods and services provides more growth and jobs than spending the same amount on low-volume, high margin goods and services. Spending $1000 on an 80% margin Gucci handbag provides less direct growth and fewer direct jobs than buying ten $100, 10% margin travel bags.

Historically – though it is a relatively crude generalisation – low oil price has usually given – or coincided with – consumer-led growth and stability.

crude oil price history 1970-2014

crude oil price history 1970-2014

Some oil producers are more vulnerable than others to the fall in expected revenues. Russia’s budget needs an oil price of over $100 to be balanced. Venezuela spends nearly all of its revenues as it is generated and has nothing put by. The war-torn areas of the Middle East also have nothing put by. Saudi Arabia and the Gulf States have put by vast reserves though some of it is in “bubble” values. A pricking of some of the bubbles they have inflated is probably no bad thing. It is also no bad thing if they have to fall back on reserves and have less excess cash to fund jihadists from Afghanistan to Libya.

Most Asian countries are oil importers and gain from a low oil price.

Clarion Ledger: The picture is reversed in Asia, where most countries are major importers and some subsidize the price of fuels.

China is the second-largest oil consumer and on track to become the largest net importer of oil. Falling prices will provide China’s economy some relief, according to Huang Bingjie, professor from the School of Economics and Management at China University of Petroleum. But lower oil prices won’t fully offset the far wider effects of a slowing economy.

India imports three-quarters of its oil and analysts say falling oil prices will ease the country’s chronic current account deficit. Samiran Chakraborty, head of research in India for Standard Chartered Bank, also says the cost of India’s fuel subsidies would fall by $2.5 billion during its current fiscal year if oil prices stay low.

Japan imports nearly all of the oil it uses. Following the accident at the Fukushima Dai-Ichi nuclear power plant in 2011, Japan has turned more to oil and natural gas, which is priced based on oil, to generate electric power.

The picture is a little more mixed in the Americas and Europe:

Low prices could eventually threaten the boom in oil production in such countries as the U.S., Canada, and Brazil because that oil is expensive to produce. Investors have dumped shares of energy companies in recent weeks, helping to drag global stock markets lower.

For now, lower crude oil and fuel prices are a boon for consumers. In the U.S., still the world’s biggest oil user, consumer spending accounts for two-thirds of the U.S. economy, and lower energy prices give consumers more money to spend on things other than fuel.

The same is true in Europe. Christian Schulz, senior economist at Berenberg Bank, says that a 10 percent fall in oil prices would lead to a 0.1 percent increase in economic output. That’s meaningful because the 18-country currency union didn’t grow at all in the second quarter.

There could be another market crash coming though it is not likely to be as deep as the 2008 crash. But to get back onto a solid, sustainable growth path again it does need the oil consumer countries to grow. And that probably needs a steady oil price at less than $70 per barrel. The oil producer countries will have to revamp their economies to live with the loss of their monopoly as the production of oil from shale spreads.

Oil reserves to rival Saudi Arabia’s found in the Russian Arctic

September 28, 2014
Kara Sea - Arctic  Google maps

Kara Sea – Arctic Google maps

So much for peak oil!

And that’s even without taking shale oil and shale gasand methane hydrates into account.

World BulletinA joint venture between Rosneft and ExxonMobil has discovered a huge amount of oil under the Arctic. The state-run Russian oil company announced on Saturday that the University-1 well struck oil in the Kara Sea.

Igor Sechin, the head of Rosneft, said the “oil trap” has 338 billion cubic meters of gas and more than 100 million tonnes (733 million barrels) of oil. The total resources in the area are estimated at 13 billion tonnes (87 billion barrels) of oil equivalent, according to the Rosneft statement. According to experts, the amount of oil and gas is comparable to the resource base of Saudi Arabia.

Rosneft and ExxonMobil started drilling the University-1 well, the world’s northernmost well, in August. The field will be named Pobeda, which means “victory” in Russian

Sanctions against Russia could deprive ExxonMobil of some of the benefits due to them. Even if sanctions are relatively short-lived the Russians will surely extract their pound of flesh while they can.

ExxonMobil announced last Friday that the U.S. Treasury Department has granted it a licence to “wind down” operations at the well, in response to U.S. and EU sanctions imposed on Russia over the unrest in Ukraine.

However the Russians are still dependent on technology from the large oil companies for drilling and exploitation in these frigid conditions. They also have vast quantities of oil and gas shale in Siberia the value of which needs to be protected. The timing for the development of Arctic reserves then becomes a geopolitical and economic strategy call. It makes most sense for Russia not to flood the market and to keep gas prices to Europe high and growing. But the potential availability of this Arctic reserve – even if production is at least a decade away – adds another arrow in the Russian quiver.

But the doomsday scenarios of “peak oil” or catastrophic depletion of gas and oil reserves have vanished over the horizon – at least for the foreseeable future,


Now “peak-copper”- like “peak oil” and “peak gas” – disappears from view

July 6, 2013

Following peak oil and peak gas  it now seems that “peak copper” is also disappearing over the horizon. Researchers at Monash University show that known copper reserves with existing recovery technologies are sufficient at least for 100 years and not just 30.

The fundamental fault with the alarmist image of resources running out – following a classic M. King Hubbert curve – is that alternatives to the resource and new discoveries of the resource are not taken into account. Added to this is the changes to consumption patterns that come about with changes of technology and with changes of price as a resource dwindles in availability. In fact it is the price change which itself acts a spur to the finding of alternatives and new technologies which do not even need that particular resource. “Peak” scenarios are a consequence of using numbers without the exercise of mind.

MU Press ReleaseNew research shows that existing copper resources can sustain increasing world-wide demand for at least a century, meaning social and environmental concerns could be the most important restrictions on future copper production. 

Researchers from Monash University have conducted the most systematic and robust compilation and analysis of worldwide copper resources to date. Contrary to predictions estimating that supplies of this important metal would run out in around 30 years, the research has found there are plenty of resources within the reach of current technologies.

The database, published in two peer-reviewed papers, was compiled by Dr Gavin Mudd and Zhehan Weng from Environmental Engineering and Dr Simon Jowitt from the School of Geosciences. It is based on mineral resource estimates from mining companies and includes information vital for carbon and energy-use modelling, such as the ore grade of the deposits.

Dr Jowitt said the database could change the industry’s understanding of copper availability.

“Although our estimates are much larger than any previously available, they’re a minimum. In fact, figures for resources at some mining projects have already doubled or more since we completed the database,” Dr Jowitt said. 

“Further, the unprecedented level of detail we’ve presented will likely improve industry practice with respect to mineral resource reporting and allow more informed geological exploration.”

Dr Mudd said the vast volumes of available copper meant the mining picture was far more complex than merely stating there were ‘x’ years of supply left. …..


The researchers will now undertake detailed modelling of the life cycles and greenhouse gas impacts of potential copper production, and better assessment of future environmental impacts of mining.

They will also create similar databases for other metals, such as nickel, uranium, rare earths, cobalt and others, in order to paint a comprehensive picture of worldwide mineral availability.

The impact of fracking Eagle Ford shale in Texas

July 5, 2013

It is seen as a “game changer” and the numbers are persuasive. It is certainly a step-change – and what a step!

Oil: Production data for April show how fracking has shattered not only the shale rock in formations like Texas’ Eagle Ford and Permian Basin but also the myths of “peak oil” and petroleum as an energy source of the past.

As Mark Perry notes on his Carpe Diem blog, Texas produced an average of 2.45 million barrels a day (bpd) of crude oil in April, according to the Energy Information Administration (EIA). That’s the highest average daily output for Texas in any month since April 1985 — 28 years ago.

In only 2-1/2 years, the Lone Star State has doubled its crude output, making it what Perry dubs Saudi Texas and reversing a 23-year decline that fueled speculation that the maximum rate of petroleum extraction has been, or will soon be, reached.

In only 2-1/2 years, the Lone Star State has doubled its crude output, making it what Perry dubs Saudi Texas and reversing a 23-year decline that fueled speculation that the maximum rate of petroleum extraction has been, or will soon be, reached.

As of February, the most recent month for which international oil production data are available, Texas would be the 12th largest oil producer in the world if it were a separate country, only slightly behind Kuwait and Venezuela. This is due to an oil boom that’s added the equivalent of the Bakken formation in North Dakota to the state’s output in just the past 16 months.

At the current pace of output gains, Texas’ production will likely surpass 3 million bpd by year-end, pulling it ahead of Venezuela, Kuwait, Mexico and Iraq to become the equivalent of the ninth largest oil-production “nation” in the world.

The Eagle Ford shale formation, a 400-mile-long, 50-mile-wide, crescent-shaped field in the south central part of the state, is still brimming with crude. Its production in March rose 77% from a year earlier to 529,900 bpd, the Texas Railroad Commission reported.

This of course has contributed to a job boom, just as in North Dakota. Over the 12 months ended in May, Texas payrolls swelled by 325,000 positions, equivalent to a 3% annual increase. Every business day over the past year, almost 1,500 new jobs were created in the Lone Star State.

A report by the University of Texas, San Antonio, showed that in 2011 alone Eagle Ford supported 38,000 full-time jobs, generated $10.8 billion in gross regional product and poured millions into state and local tax coffers.

Read More At Investor’s Business Daily: 

Global proven oil reserves have never been as high as now

June 19, 2013

So much for peak oil!

Proven oil reserves have increased by 144% since 1980 and 60% since 1992!

BP’s Statistical Review of World Energy 2013 is now out.

These two images are from Power Line’s Steven Hayward

Like the end of the whole peak oil hypothesis.  The first figure below displays the 60 percent growth in proven global oil reserves over the last 20 years.  This is not just the result of recent technological advances such as directional drilling and fracking: the second figure takes BP’s data back to 1980, which shows a steady increase in reserves throughout the period amounting to a 144 percent increase.  (That kink in the line in the late 1990s corresponds to the collapse in oil prices down to about $10 a barrel at the time.  Simple lesson: price matters.)  

global oil reserves 1992 - 2012 graphic hayward power line

global oil reserves 1992 – 2012 graphic hayward power line

Global oil reserves  1980 -2012 graphic hayward power line

Global oil reserves 1980 -2012 graphic hayward power line

Massive shale oil reserves in Utah and Colorado

November 14, 2012

The reserves are massive but not yet technologically exploitable. I have little doubt that human ingenuity will prevail and before too long. It is just a matter of time and engineering before this oil starts flowing.

Malthusians must be gnashing their teeth as “Peak Oil”  is pushed back – again – by a few hundred years!!

ABC News:

Drillers in Utah and Colorado are poking into a massive shale deposit trying to find a way to unlock oil reserves that are so vast they would swamp OPEC.

A recent report by the U.S. Government Accountability Office estimated that if half of the oil bound up in the rock of the Green River Formation could be recovered it would be “equal to the entire world’s proven oil reserves.”

Both the GAO and private industry estimate the amount of oil recoverable to be 3 trillion barrels.

“In the past 100 years — in all of human history — we have consumed 1 trillion barrels of oil. There are several times that much here,” said Roger Day, vice president for operations for American Shale Oil (AMSO).

The Green River drilling is beginning as shale mining is booming in the U.S. and a report by the International Energy Agency predicts that the U.S. will become the world’s largest oil producer by 2020. That flood of oil can have major implications for the U.S. economy as well as the country’s foreign policy which has been based on a growing scarcity of oil. …..

The cost of extracting the Green River oil at the moment would be higher than what it could be sold for. And there are significant environmental obstacles. ….. Nevertheless, the federal government has authorized six experimental drilling leases on federal land in an effort to find a way to tap into the riches of the Green River Formation. …….

Getting oil from Green River shale is a different proposition than getting gas and oil from other sites by using the controversial method of “fracking,” fracturing the underground rock with pressurized, chemical-infused water.

The hydrocarbons in Green River shale are more intimately bound up with the rock, so that fracking cannot release them. The shale has to be heated to 5,000 degrees Farenheit before it will give up its oil. ….

“Peak Oil” vanishes and even OPEC bows to shale fracking technology

November 9, 2012

The various catastrophe scenarios based on the depletion of a limited resource (peak-oil, peak-gas, peak-energy, peak-food……….) have a fundamental weakness – they fail to account for human ingenuity and technological advance. History has shown that such Malthusian scenarios just do not come to pass. New discoveries change the availability of the resource, innovation and technology find alternatives and economics changes pricing and the supply/demand dynamics.

Moving peaks

In February this year I posted:

In recent times the development of fracking technology and the discovery of huge deposits of gas-bearing shales together with the discovery of new deep-sea sources of natural gas have pushed the “peak” for gas production beyond the visible horizon and into the distant future (a few hundred years). When – rather than if – methane hydrates become available for gas production, the “peak” will shift further into the future.

Reuters now reports on Opec’s latest World Oil Outlook 

OPEC acknowledged for the first time on Thursday that technology for extracting oil and gas from shale is changing the global supply picture significantly ……

In its annual World Oil Outlook, OPEC cut its forecast of global oil demand to 2016 due to economic weakness and also increased its forecast of supplies from countries outside the 12-nation exporters’ group.

“Given recent significant increases in North American shale oil and shale gas production, it is now clear that these resources might play an increasingly important role in non-OPEC medium- and long-term supply prospects,” the Organization of the Petroleum Exporting Countries said in the report.

OPEC has been slower than some to acknowledge the impact that new technologies such as hydraulic fracturing – known as “fracking” – may have on supply.

As with peak gas, peak oil and rampant pessimism need to be postponed

July 9, 2012

Recovery of gas and oil from shale is more than just a game changer – it is a mind-changer. The recoverability of oil and gas from shale postpones “peak oil” and “peak gas” indefinitely. For 3 decades we have suffered from the rampant pessimism of the alarmists and the coercive politics of fear. A change of mind-set from pessimistic environmentalism and backward-looking conservationism is called for. A shift of attitude from the joyless “glass half-empty and we are doomed” to the entrepreneurial “glass half-full but can be filled”  is over-due.

Resource depletion with usage is a trivial truth  – though matter at the elemental level is never destroyed by human use. However utilisation of resources does alter the composition and concentration of materials remaining available. But every alarmist and doom-sayer who has ever lived and has forecast impending catastrophe has been proven spectacularly wrong. Human ingenuity has faced every challenge and trumped the doom-sayers – every time.

The pictures say it all:

The scope of the US oil shale resource

The scope of the US oil shale resource

Related: “Peak Oil” hypothesis is following “Peak Gas” into oblivion

Moving peaks

“Peak Oil” hypothesis is following “Peak Gas” into oblivion

February 20, 2012

Oil production from oil shales in North Dakota is increasing rapidly and the much-heralded “peak” of oil production may have to be postponed. Alarmists will not be pleased.

“Peak Oil” and “Peak Gas” are the points in time where the production of oil and gas respectively reach a peak and then decline to zero. The concept is based on the normal production cycle of an individual well extrapolated to all the oil and gas existing. The fundamental flaw in these hypotheses when trying to apply them to “finite” and exhaustible resources of any product is of course that:

  • new sources of the product are discovered
  • new extraction technologies enhance what can be recovered from existing sources,
  • new technologies make non-viable sources viable
  • new technologies allow the synthesis or alternative production of the product (price driven)
  • consumption is modified by pricing

Moving peaks

In recent times the development of fracking technology and the discovery of huge deposits of gas-bearing shales together with the discovery of new deep-sea sources of natural gas have pushed the “peak” for gas production beyond the visible horizon and into the distant future (a few hundred years). When – rather than if – methane hydrates become available for gas production, the “peak” will shift further into the future.

In the case of oil there are already many feasible alternatives which are technically feasible but where commercial production by these methods can only be triggered by the sustainable price being higher than the production cost. For example bio-diesel costs are commercial with oil prices above about $70 per barrel but there is a hidden cost in decreased or disrupted food production. Coal liquefaction would need oil prices above $120 per barrel while oil extraction from oil shales and oil sands become commercial at about $90 and $100 respectively. Deep sea wells (new exploration) are increasingly commercial as the price increases.

The alternatives are now coming into play:


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