Monday, April 18, 2011

Peak Oil question and answer ...

Back in January, an acquaintance asked some good questions about oil supply - "Why worry?" kindof stuff.  Questions about Peak Oil are valuable because they indicate where the communication is breaking down, where folks are having a hard time understanding the concepts.  In this case, my acquaintance is a highly-educated person who works in an alternative energy field - so one would think he would be biased towards believing the concepts, anyway.  That makes his questions that much more valuable, and it shows his honesty with himself.

i was just reading your blog. i know you are convinced by the peak oil thesis and find its consequences likely to be pronounced. you are also in the industry, a generally smart guy around town, so i ask you to straighten me out on this.

i'm not a doomer on this topic. in general, i'm not a doomer on any topic. i find our current moment the best in history, and the forces to accelerate that unprecendented. most of this follows from communication tech, most specifically, the web. the positive consequences of the web for me trump all other negatives around us. i could go on and on about all the pro good forces unleashed by the democratization of knowledge and communication access, but i'll resist. still, it is the biggie. like the brain that distinguished humans from all the more powerful and more numerous beasts that contended with our forebearers for food and real estate.

so back to the point.

on peak oil, i agree we may be at it, probably already past it, but i don't find the consequences anywhere near dire. in fact, i'm sad they are so soft and so slow. energy is currently way underpriced in relation to the value we get from it, and doubling its cost wouldn't do much. we already see many countries existing with more than 2x energy costs as the us, and they do fine. the world has not collapsed in any european country with $7/gal gasoline.

this is possible because no one needs to be inefficient with energy anymore. back when we had no choice, cheap energy was important. now i find it much less so. we can use a small amount of expensive energy to get the same industrial value that we used to get by cheap energy used inefficiently. our value produced per energy unit inserted has made lots of progess since 1900s england. so i welcome the increased price signal. i don't see doom in it.

at 2x the price point, so many other options become realistic that the market will make the others happen finally. we are overwhelmed with tech choices on the energy front. a price signal is most of what is needed. some political signal would help too, but is minor in the larger calculus.

problem is i think we're not going to get this price signal for a very long time. there are too many currently "unextractable" resources that become thinkable at just slightly higher prices. the canadian tar sands and venezuelen bitumen resources seem massive to me. if we get serious about extracting those, they seem large enough to blunt much of the peak decline. add into this the tremendous amount of nat gas we have everywhere, and our ability to reform it into near anything, and i'm not seeing the pinch.

on top of this add the proven human inability to know much about complex future predictions, and to date our "extractable" resources continuing to grow vastly beyond what was considered possible just a decade previous. putting all this together, i end up a non-believer in our going into cataclysmic fossil decline in any helpful manner.

admitedly the above is all handwaving. i don't have numbers on any of this. i have not read the literature closely and critically enough to really believe my assessment. i am a news consumer on this topic, thus lack full faith in my assessment. but nonetheless, that is my assessment.

this makes me sad, as i want to run out of oil on a faster slope. i think this transition is going to do massive good on near all fronts. fossil fuels are currently one of the most distorting financial, political and environmental forces on the planet. if i could change one thing in the world, it would be to not have this massively source dense and lucrative resource available. it tends to do bad things wherever it is found or overused.

of course i am partial to giving half of the planet their own personal scale power device, and let them run it off the already distributed fuel found around them. i think a pc of personal energy can deal with most of the power and products that we worry about in peak oil.

a multi-modal gasification machine can give you electricity, heat, cooling, shaft power, liquid fuels and biochar for ag. and it can do so on the waste that is already around us, sans the distorting impacts of a highly centralized and empowered fossil energy cartel.

yeah, we all have a few problems yet to solve before we have the fuel agnostic, fully automated, multi-modal gasification machine. but still, we see the solution is accessible. as are many others on other energy fronts.

so what's the problem? why are we worrying about fossil fuels so much? 

I am glad you outlined all those points, the thought process you are going through - that is helpful to all, I think. Perhaps you are just playing the "straight man", the "shill" here, and want some Peak Oil stuff for the group. Either way, my wife would have told you, "Don't ask him about Peak Oil, whatever you do!" So here goes, you asked for it!

I will segregate some of your points/questions:

Collapse/Doomer stuff
First, like you, I refuse to be a "doomer". (the link you included discusses this, as well). I am fascinated by man's ingenuity, and by the ingenuity of this group. "Our" group, I'll say, because I am proud to be a part of it, even though I have only made drawings of gasifiers, so far, and have only made a few contributions to the group. I had the blessing of meeting you, Mike L., Ron O., Bear, Jay, Markus, Ray M., Donna M. and others, in a short period of time. Then, by coincidence a couple of years ago I helped put together a coal bed methane project around the corner from where Wayne lives, so I dropped in to see him while I was over there,in November I guess it was. So, all this within a month or so. Wow. Blew me away. How many other homemade windturbine, alcohol, poor boy concentrating solar thermal, small steam, stirling, or whatever yahoo groups are there, out there??? We are a nation of tinkerers, and of course these groups transcend nationality. That gives me a lot of hope. On the other hand, we tinkerers are a bit "weird" (in a nice and important way) - we're not your normal folks. As a matter of fact, a guy told me that today, said I didn't like "normal" stuff like everyone else! (of course I was proud of that). But even though these groups now let us meet up in wonderful and synergistic ways, the fact is, there are far more consumers than there are tinkerers; we are a minority.

The reality is, most of our transportation, neighborhoods, cities, whatever were built on "cheap oil". Oil supplies 40 % of the US overall energy, and 60 % of that is imported. 70 % of the oil the US uses goes for transportation uses. Gasoline makes up 9 MMBO/D of the 20 MMBO/D (2007 high number) we use in the US. We're a lot different than Europe. And they are not necessarily smarter or even more forward-thinking - much of what they did was out of necessity or as a result of geography or politics. Europe is not exactly prospering right now, either. The unfortunate bottom-line is that neither natural gas, electric vehicles, biofuels, tar sands, coal to liquids, algae or any other fossil or renewable partial solution seen so far will replace liquid hydrocarbons in a timely enough fashion such that current lifestyles can be maintained as is; at the least, there will be disruption and hardship. As Dr. Hirsch et al put it, "you have zero chance of not getting burned by this." I would not say, either, that there is a zero chance of even an Olduvai Theory thing - anything can happen, collapse has happened before, will likely happen again. I don't have to accept it sitting down, though.

Even though we should have caught on to this a lot sooner, there is little we can do about the past. And it is so easy to lay blame, point the finger at corporations, politicians, the government, etc. But think of this - even you (until you finish reading this) don't believe there will be any problem! I estimate only about 25 % of the people have even heard of the Peak Oil concept, and only maybe 10 % (likely optimistic) understand what it is, or get the ramifications. Why? See this link:

What about the tar sands?
So, with respect to tar sands, you can't replace a large SIZE field of ancient AGE and excellent QUALITY (Middle East, US, etc) with even an enormous SIZE, new in AGE field of very poor (melt or dissolve it) QUALITY (Alberta tar sands). I call it the SAQ model, ie using SIZE, AGE and QUALITY of a field/reserve to normalize it for comparison, so to speak. See also this link, where on slide 10, "The SAQ Model - Example 1" it shows the downward revisions of earlier, rosey forecasts of increasing tar sand production rate (even in a substantially high price environment):

Consumption versus Reserves:
Replacing fossil fuels, or liquid fuels in particular, is a problem of SCALE, and TIME. Namely the scale of how much oil the world consumes, versus how much we discover - both currently and even since the 60's!

So, take a look at the Annual Discovery Curve:

This Annual Discovery Curve is representative of the RESERVES the world discovered, in each year, collectively. Notice it peaked in the 60's. Today, even with substantial advances in technology, we discover about 10 B bbls or less, annually. At 85 MMBO/D of consumption, we burn up 10 B bbls in ... 118 days. Yes, this is the issue. Far more is being used than discovered, and it has been that way for almost 50 years now ...

And even if we could through up nuclear plants all over, which of course we can't takes TIME, it would take a long time to manufacture enough electric cars and trucks to replace any significant portion of the fleet we all depend on. (and this doesn't address the fact that there are still electrical storage issues - cost, reliability and supply of lithium). So, SCALE, and TIME.

Read the Hirsch Report when you get a chance:

and read Hirsch et al's new book:

So, if the Peak has happened, why haven't we seen more effects?
Well, in my opinion, $147 oil provided the pin that pricked the destined to collapse consumption and housing and credit bubble, so I'd say you have seen effects. The magnitude of this recession is a SCALE issue, as well, and it is not well understood/reconciled. I used to worry about inflation. Then I finally began to understand that you couldn't reflate a maybe $500T bubble, without the same multiplying effects that you had previously. Namely, you can print up and hand out a few trillion, but that is small potatoes compared to the bubble. You can't reinflate the balloon, or even come close, without the multiplying effects of the previous goings on; you can give this money to banks, but unless you have the same funny business going on in all directions, you can't catch up to what it was. Which is not to say that we can't have some kind of "banana republic" inflation at some point, if we continue to destroy our currency. Enough on that.

Bottom line is that consumption dropped maybe 10 % from 2007 - 2009 (but not on gasoline). Doesn't seem like much, but what is also little understood is that "at the margins" is where the major commodity pricing spikes happen, ie the pricing is not stable there, not 10 %, 20 %, 30 % increases. Just a little too much supply, and if it is all marketed, the price tends to zero, in a "calculus sort of way". Likewise, not quite enough when you have to have it, and the price tends towards infinity. Oil supply is not fully elastic, anymore. And there are not elastic replacements that will work, "if we just had higher prices." (Dr. Webber at UT tells the joke about coal to liquids being priced at "oil price plus $10/barrel" forever, ie when oil prices go up, so does the cost of the CTL, it never becomes "economic". Like going to Joe's Crab Shack where there is a painted sign, "Free Crab Tomorrow", but tomorrow never comes. On the other hand, CTL will be important in an era where liquid fuels don't have to compete with oil prices, because we simply won't have enough oil and oil/gasoline/diesel will be rationed.)

The consensus at the ASPO meeting in Denver, in fall 2009 was that you'd see a series of whipsaws, where oil prices went up, shut down some portion of the economy/demand, then the economy declined as would prices, for a time. But ultimately the subsequent declines in prices would be smaller, over time, as depletion caught up, unless economic activity took on new, drastic lows.

We need to continue to develop oil and gas, or else the situation will be even worse. The deepwater hiatus is already baked in, will make matters worse. The right hand side of "Hubbert's Peak" anticipates "peddling faster for less", as we are doing with much of our oil industry efforts. If we don't then declines will be even worse, and Hubbert's Peak may become Hubbert's Cliff.. Meanwhile, we need to do more in terms of liquid fuels conservation (where we can have the biggest effect, the soonest). We really needed to get going on natural gas vehicle infrastructure and vehicles ... yesterday. And of course, for us weird mechanics, there is woodgas. I imagine we'll be less weird, everybody's friend, before long!

So there, you asked for it! My contribution, for now!

Conserve Baby Conserve,
Drill Baby Drill,

Follow-up Questions
nope, i'm not being a shill here. i really don't believe it, but don't really believe myself on this one either.

i'll go read the links with interest. you seem to see clear evidence of our discovery rate vs consumption have a meaningful collison ahead.

i have yet to be convinced here. i see discovery rate mostly a financial question. you know we've been predicting discovery depletion since 1910 or so. what we consider discoverable keeps changing profoundly. you know this. so you must see something new in these graphs that i don't yet.

the wildcards for me are.

1. tar sands
2. bitumen
3. deep sea drilling. like the entire ocean
4. natural gas
5. coal to liquids

not to say any of these are particularly good ideas. actually most of them are very bad. but they are going to get engaged when the price makes sense, which is likely soon.

now it is unfair to poo poo all the gtl tech as forever price + $10. these are not mysterious techs. used many times. we need to reinvent the industrial infrasture for current use, but the price point for this is little different than much petro tech. we'll do them just fine, but at terribly co2 cost.

the rate of infrastructure change doesn't scare me at all. when needed, we can change infrastructure radically in a few years. look at china for a recent example of what can be done in 10 years when it is imporatant. wwII. railroads, the internet. etc etc. govt command, market command, or war can do wonders fast. a decade is a near eternity when the need is clear and compelling.

any strong case peak scenario seems to me to play out over a couple decades at mininum. this is already half the life expectancy of most power infrastructure. just replacement cycle will deal with most of it. no?

08 for me showed speculation to have about doubled the "real" value of the commodity oil. that was fleeting. now we're back to a regular price rise with economic activity. the spike ramp in 08 was not the peak oil end scenario as we liked to entertain ourselves with back then. the end did not come. though it did somewhat for the speculative engines that created it. not sure how long that will last though.

the core of this is i can't answer or well understand the real flexibility we have in "discoverability". at 2x the price, i'm sure the world will do just fine without collapse. and at 2x the price in real demand, not speculative fluff, what is now reasonable to discover and extract?

isn't the claim that the tar sands and bitumen alone are each their own saudi arabia scale reserve?

nat gas costs 1/5 liquid per btu, given it is everywhere and barely worth not burning off in fields. so have so much nat gas at our disposal its depressing.

i think we're going to burn this planet to a crisp before we're anywhere near taxed on finding, buying and using fossil fuels.

thus i'm trying to get some numbers and assessements of these other resources. i'm not sure if my anecdotes have any substance.

i'll start with your paper cites tomorrow. thank you for them. 

Answers to Follow-up Questions

Discovery on a small scale is a financial issue. On the worldwide scale, it is ... physics - when you have found most all the big reserves.

Take the US as a poster child. The US peaked at about 10 MMBO/D in about 1970. (there is a slide on this in one of those links). Currently the US is doing just about half of that, just over 5 MMBO/D, despite substantially higher prices, substantial "access" and lots of technological advances in 3D seismic and horizontal drilling (hint: those things find and develop fields you can't find with 2D seismic or vertical wells. Why couldn't we find them before? Because they are smaller ...). The Bakken play in North Dakota is wonderful, and important to our nation. Today it is making about 350,000 BO/D. That's a lot, but remember SCALE. It's small in the scheme of things. It will grow, but remember, one of the giants that typifies what us peak guys are worried about, ONE field, in Mexico, Cantarell, has declined from 2.1 MMBO/D in 2005 to less than 500,000 BO/D today. Repeat that across the world and try to replace those fields with tar sands or Bakken plays ... it's that SCALE thing.

Remember in school, in math, where you added curves together to get one curve? Well, do the reverse. Look at the countries that have peaked (most of them, there is a slide in that same presentation). So, take away the countries that have peaked, where it is highly unlikely that they will ever produce at a greater rate. That doesn't leave many countries. No, we will never "run out" of oil, that is a common argument, albeit not really an argument. Oil will be dripping out, we will be producing it at some rate, forever. But that's not what is important. What's important is what kind of rate can you get it out of the ground, compared to the world's demand for it. And RATE is not arbitrary. The available RATE is dependent on the given RESERVE's SIZE, AGE and QUALITY. As in one of those links.

It would be hard to find a bigger "bull" on natural gas. It is a wonderful transition fuel, and one that will be around for a long time. We should be building vehicles and manufacturing facilities and infrastructure at warp speed (while we cut down on vehicles, add mass transit retrofits, at the same time). Although the government really shouldn't be doing it in the first plaace, if we are going to spend TARP or QE money, it should be spent on infrastructure or manufacturing, thereby creating jobs, thereby having a chance at getting us out of this mess. These are the things that have multiplying effects, not just giving the money to the bankers.

See the slide on tar sands projected production rates. These are the numbers from the "Canadian tar sands board", not someone who is anti-tar sands. It's that RATE thing.

I respect those who are concerned about global warming. To what extent is it man made versus natural? It is a modeling problem that is infinitely more complex than peak oil. We know that the climate has changed dramatically, and over fairly short geologic time, prior to industrialization. I suspect our great energy source, the sun, and the wobbles and movements of Earth, Sun, and more have a great impact. Mike L. might vote for warming, about now.

Exogenous events as "game changers", things like war as accelerants for change? That will do it, all right. But that's not what you would call "smooth, gradual, painless transition". We have not really had a war that has disturbed our lifestyles on a large scale since WWII. Pick up a copy of The Fourth Turning when you get a chance.

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