Soon after we posted the piece on April 18 regarding the report from the Saudi Oil Minister, Ali al-Naimi, we discovered an article we'd clipped from the Oil & Gas Journal, sourced from the Oil & Gas Journal Online, dated March 28 (two days before the President's energy speech). So, this March 28 article actually contained the news of the "output cut", which Mr. Naimi re-delivered on April 18. The article quotes Barclays Capital managing director Paul Horsnell, and he paints a far different picture of the worldwide supply, demand and capacity issues than did Mr. Naimi:
"Saudi Arabia's production is estimated at 8.2 million b/d. [which is what Mr. Naimi said they had indeed produced in March, some four weeks later] However, Horsnell said, recent data are pointing to Saudi output close to 9 million b/d in December and "and at that level in January and February." [Mr. Naimi confirmed the 9 million b/d, as to February]
"He said, "This has two main implications. First, it is the source of another downward revision of start-of-year spare capacity levels, since Saudi Arabia's output has been higher than was originally reported. The second implication is in what it suggests to us about how much Saudi Arabia needs to produce to balance the market."
In other words, Mr. Horsnell is saying that since the world previously thought that the Saudi's were producing less in December than they actually were, then the estimated worldwide "buffer" production capacity was significantly less than believed, as well. Also, his observation that the Saudi's evidently needed to produce at 9 million b/d in order to balance the market is the exact opposite of what Mr. Naimi said, four weeks later.
Mr. Horsnell went on to say:
"Even producing 9 million b/d, Saudi Arabia still has left "a significant deficit at the margin of the market with inventories falling faster than normal, even before Libyan exports came off the market. Allowing for a normal second quarter global inventory build and replacing lost volumes from elsewhere seems likely to require Saudi Arabia to move up to 10 million b/d, in connection with higher volumes from the other holders of spare capacity ..."
This doesn't sound much like a market which is oversupplied ...
Earlier in the same article, with respect to demand, Mr. Horsnell said:
"Oil demand growth in 2010 earlier was estimated at 2.57 million b/d, with 2011 growth previously forecast at 1.56 million b/d. Now 2010 demand growth is put at 2.83 million b/d-making it "the strongest year for global oil demand growth over the past 30 years."
This doesn't seem to jive with the drop in demand/oversupplied market to which Mr. Naimi referred ...
Tom Whipple, a former government analyst and current Peak Oil news aggregator came out soon after the Naimi announcement, outlining the oversupply scenario. However, on April 25, Mr. Whipple supplied some alternate explanations for the Saudi cutback. One of his explanation's revolved around the fact that Saudi oil production has finally reached the practical limits to its growth, and that the Saudi's could not sustain the 9+ million b/d rate comfortably. Stuart Staniford, a PhD physicist and analyst of Saudi production, provided some interesting graphs on April 13. Looking at one of those graphs in particular, what stands out is the substantial rate variation in the 2003-2011 period. Of course, Saudi is the ultimate swing producer. But with the exception of a period in 2005, it appears that rates never stay above 9 million b/d for very long; that is, even in face of high prices and a tight market the rates come down substantially, after a brief peak. One might worry that the "maximum reservoir contact" (MRC) wells in Ghawar and elsewhere are tending to cone water after a short run at high rates, and that some wells might be threatening to water out if these high rates are sustained. If this is the case, this would mean that the often touted "worldwide spare capacity" of 3 million b/d or so ... is just not there (as it derives primarily from the Saudi's). In turn, if the Saudi's can't really sustain even 9 million b/d, then this would have serious implications for the world in that the next, more intense manifestations of Peak Oil may be nearer than we think.
(Mr. Whipple also offered an alternate explanation in terms of "the Saudi's making a political statement" in their cutting of production. This theory would suggest that the Saudi's were upset with the flip-flops in US support for some of the other Arab regimes, and cut production as a result. This might be, but in light of the prior, substantial fluctuations shown by Staniford, it seems that some production capacity-related explanation is a better fit.)
Showing posts with label Tom Whipple. Show all posts
Showing posts with label Tom Whipple. Show all posts
Wednesday, April 27, 2011
Friday, October 15, 2010
Dr. Hirsch's new book: The Impending World Energy Mess
Several folks have asked, "What's up with Peak Oil?".
Well, largely, the "coming energy mess" is masked by the "current economic mess". Namely, when you reduce growth in oil demand - as the world has done over the last several years - you don't notice the fact that the oil production rate really can't grow too much, anyway. At some point, though, the decline in oil production rate and/or the growth in demand ... meet. Or collide, we should say. When? Maybe 6 months, maybe a couple of years. It really depends on oil consumption, which in turn depends on the poor economic conditions that most of the world continues to experience. However, when demand does meet falling supply - look out. Another price shock will occur, then the economy will retract again, and demand will fall - a little, perhaps. But at some point we are down to bare bones - we've cut all discretionary demand, or at least all semi-comfortable, discretionary demand.
You may recall previous posts discussing Dr. Robert L. Hirsch, or the report which bears his name - the "Hirsch Report" - which was completed in 2005. This carefully written, non-sensational, 92 page pdf was entitled "Peaking of World Oil Production: Impacts, Mitigation, & Risk Managment". The Hirsch Report became semi-famous due to its quality, its content and also due to "who wrote it for whom". Namely, Dr. Hirsch, Dr. Bezdek and Mr. Wendling wrote the report for SAIC, who in turn was fulfilling a contract with the U.S. Department of Energy (DOE). (SAIC is a government contractor who some call "the biggest company you've never heard of". A few years ago SAIC went public; they have around 40,000 employees.) Initially the report was kept a "secret" to some extent. That is to say, initially the Hirsch Report could only be found on the website of a California high school! I would suspect that the DOE, etc. felt like it would send out shockwaves when folks read it. What they didn't understand was that since it wasn't a reality TV show, a lot of folks would never hear of it. Namely, a lot of folks just don't read. Further, there is a substantial amount of "thought inertia" out there - people have a hard time wrapping their minds around something so transformative. The Hirsch Report was ultimately placed on the DOE website, and it is currently linked on this blog (as is an interview with Dr. Hirsch, regarding the report).
Dr. Hirsch has been a speaker at the last several conferences held by the Association for Study of Peak Oil, or ASPO-USA. As an attendee at those conferences in 2007-2009, I listened intently to Dr. Hirsch's talks. I also had a few chances to chat with him. Last year I was able to ask him a question from the floor regarding the potential for natural gas vehicles to serve as a partial solution to the coming liquid fuels crisis (Peak Oil).
In observing his mannerisms over the last 3 years, and from his total focus on Peak Oil, it is my belief that the Hirsch Report had a profound effect on Dr. Hirsch himself. And realize that Dr. Hirsch has "done it all" - almost - in the energy business. He has a doctorate in engineering and physics, and has 40 years of experience, 15 patents and 50 technical publications. Dr. Hirsch was director of fusion research at the Atomic Energy Commission (AEC), Manager of Petroleum Exploratory Research at Exxon's Production Research, Manager of Exxon's synethetic fuels lab, VP and Manager for oil and gas research at ARCO, and then a senior staff member at RAND and SAIC.
The key takeaway from the Hirsch Report was that Peak Oil should be "prepared for", not "reacted to". Namely, the Hirsch Report posited that our nation could effectively deal with Peak Oil, given 20 years of intense transition efforts; that is, if we initiated efforts 20 years in advance of the peak. However, if only ten years of transition time are available, the Report predicted a painful transition process. And finally, according to the Report, if serious transitioning is not begun until after the Peak then "serious consequences" will result.
Dr. Hirsch, Dr. Bezdek and Mr. Wendling have now written The Impending World Energy Mess, which was released around October 1, 2010.
The book includes a forward by Dr. James R. Schlesinger, the first U. S. Secretary of Energy, former Chairman of the Atomic Energy Commission, former Director of the Central Intelligence Agency and former Secretary of Defense.
The book doesn't plow a lot of new ground for those of us that have been familiar with Peak Oil. However, the book is an important "signpost" or "threshold" - the first book regarding Peak Oil from a very sophisticated, highly respected, former government analyst. The book is well-written, side-barred and highlighted. It is easy to read, and easy to refer to. The book also goes into substantial detail on various "partial solutions", as well as those which have been "ruled out". Included are excellent discussions on fusion, biomass, ethanol, and coal and gas-to-liquids.
Some of the most valuable content is that of the discussion of possible rationing plans - for gasoline and diesel. Not voluntary rationing - mandatory rationing. Given the circles in which the authors travel, I would imagine that what they have written is similar to what the government might invoke. Some might wonder why a Prius might be better to have than a Corolla, given that the economics never seem to catch up at say, $3 gasoline. However, in addition to being a means to contribute to conservation, an excellent piece of overall fuel efficiency engineering and a highly drivable vehicle, the Prius will go a lot further on a gallon of gas than will a Corolla. This may equalize the economics, somewhat, when it means another ten trips to the grocery store or school, or perhaps an additional 100 miles per ten gallon tankful, vis-a-vis the Corolla.
The Impending World Energy Mess should create additional awareness of Peak Oil - we will see what the reaction/consequences are.
Shown below are a two interviews with Dr. Hirsch, regarding the book, and a book review:
Steve Andrews of ASPO-USA interviews Dr. Hirsch regarding his book
Matthew Auzanneau interviews Dr. Hirsch regarding his book
Tom Whipple reviews Dr. Hirsch's book
Well, largely, the "coming energy mess" is masked by the "current economic mess". Namely, when you reduce growth in oil demand - as the world has done over the last several years - you don't notice the fact that the oil production rate really can't grow too much, anyway. At some point, though, the decline in oil production rate and/or the growth in demand ... meet. Or collide, we should say. When? Maybe 6 months, maybe a couple of years. It really depends on oil consumption, which in turn depends on the poor economic conditions that most of the world continues to experience. However, when demand does meet falling supply - look out. Another price shock will occur, then the economy will retract again, and demand will fall - a little, perhaps. But at some point we are down to bare bones - we've cut all discretionary demand, or at least all semi-comfortable, discretionary demand.
You may recall previous posts discussing Dr. Robert L. Hirsch, or the report which bears his name - the "Hirsch Report" - which was completed in 2005. This carefully written, non-sensational, 92 page pdf was entitled "Peaking of World Oil Production: Impacts, Mitigation, & Risk Managment". The Hirsch Report became semi-famous due to its quality, its content and also due to "who wrote it for whom". Namely, Dr. Hirsch, Dr. Bezdek and Mr. Wendling wrote the report for SAIC, who in turn was fulfilling a contract with the U.S. Department of Energy (DOE). (SAIC is a government contractor who some call "the biggest company you've never heard of". A few years ago SAIC went public; they have around 40,000 employees.) Initially the report was kept a "secret" to some extent. That is to say, initially the Hirsch Report could only be found on the website of a California high school! I would suspect that the DOE, etc. felt like it would send out shockwaves when folks read it. What they didn't understand was that since it wasn't a reality TV show, a lot of folks would never hear of it. Namely, a lot of folks just don't read. Further, there is a substantial amount of "thought inertia" out there - people have a hard time wrapping their minds around something so transformative. The Hirsch Report was ultimately placed on the DOE website, and it is currently linked on this blog (as is an interview with Dr. Hirsch, regarding the report).
Dr. Hirsch has been a speaker at the last several conferences held by the Association for Study of Peak Oil, or ASPO-USA. As an attendee at those conferences in 2007-2009, I listened intently to Dr. Hirsch's talks. I also had a few chances to chat with him. Last year I was able to ask him a question from the floor regarding the potential for natural gas vehicles to serve as a partial solution to the coming liquid fuels crisis (Peak Oil).
In observing his mannerisms over the last 3 years, and from his total focus on Peak Oil, it is my belief that the Hirsch Report had a profound effect on Dr. Hirsch himself. And realize that Dr. Hirsch has "done it all" - almost - in the energy business. He has a doctorate in engineering and physics, and has 40 years of experience, 15 patents and 50 technical publications. Dr. Hirsch was director of fusion research at the Atomic Energy Commission (AEC), Manager of Petroleum Exploratory Research at Exxon's Production Research, Manager of Exxon's synethetic fuels lab, VP and Manager for oil and gas research at ARCO, and then a senior staff member at RAND and SAIC.
The key takeaway from the Hirsch Report was that Peak Oil should be "prepared for", not "reacted to". Namely, the Hirsch Report posited that our nation could effectively deal with Peak Oil, given 20 years of intense transition efforts; that is, if we initiated efforts 20 years in advance of the peak. However, if only ten years of transition time are available, the Report predicted a painful transition process. And finally, according to the Report, if serious transitioning is not begun until after the Peak then "serious consequences" will result.
Dr. Hirsch, Dr. Bezdek and Mr. Wendling have now written The Impending World Energy Mess, which was released around October 1, 2010.
The book includes a forward by Dr. James R. Schlesinger, the first U. S. Secretary of Energy, former Chairman of the Atomic Energy Commission, former Director of the Central Intelligence Agency and former Secretary of Defense.
The book doesn't plow a lot of new ground for those of us that have been familiar with Peak Oil. However, the book is an important "signpost" or "threshold" - the first book regarding Peak Oil from a very sophisticated, highly respected, former government analyst. The book is well-written, side-barred and highlighted. It is easy to read, and easy to refer to. The book also goes into substantial detail on various "partial solutions", as well as those which have been "ruled out". Included are excellent discussions on fusion, biomass, ethanol, and coal and gas-to-liquids.
Some of the most valuable content is that of the discussion of possible rationing plans - for gasoline and diesel. Not voluntary rationing - mandatory rationing. Given the circles in which the authors travel, I would imagine that what they have written is similar to what the government might invoke. Some might wonder why a Prius might be better to have than a Corolla, given that the economics never seem to catch up at say, $3 gasoline. However, in addition to being a means to contribute to conservation, an excellent piece of overall fuel efficiency engineering and a highly drivable vehicle, the Prius will go a lot further on a gallon of gas than will a Corolla. This may equalize the economics, somewhat, when it means another ten trips to the grocery store or school, or perhaps an additional 100 miles per ten gallon tankful, vis-a-vis the Corolla.
The Impending World Energy Mess should create additional awareness of Peak Oil - we will see what the reaction/consequences are.
Shown below are a two interviews with Dr. Hirsch, regarding the book, and a book review:
Steve Andrews of ASPO-USA interviews Dr. Hirsch regarding his book
Matthew Auzanneau interviews Dr. Hirsch regarding his book
Tom Whipple reviews Dr. Hirsch's book
Thursday, June 25, 2009
Oil Demand
As someone who seeks to determine what is "really" going on - oil supply and demand-wise - this author finds the constant barrage of varying petroleum statistics to be confusing and essentially useless. Most useless are the inventory stats that show "gasoline inventories up", "distillate inventories down", "crude up", etc. - and usually by only a few percentage points. However, these are often picked up by the media to explain some minor movement in oil prices.
We are constructing a "reported demand matrix" which summarizes reported demand drops over the last few years, across a number of categories. However, this "demand matrix" currently remains a "confusion matrix".
In the meantime, here are some stats from Tom Whipple of ASPO-USA and the Falls-Church News-Press, from June 25, 2009:
Total demand for petroleum products in the US: down 6.6 % YOY
Distillate demand (which is mostly diesel at this time of year): down 9.3 % YOY
Jet fuel demand: down 13.9 percent, YOY
Gasoline consumption: up slightly (prices $1.40 less than last year)
Many of us believe liquid production peaked in 2008, and that initial declines should be in the 4-5 % per year range. So it looks like, on a gross estimate basis, demand destruction is outrunning Peak Oil, for now. On the other hand, Mexico, Venezuela and Nigeria - the third, fourth and fifth largest suppliers of imported crude to the US (not necessarily in that order) are experiencing catastrophic declines or loss of production for other reasons. More on that in the future.
We are constructing a "reported demand matrix" which summarizes reported demand drops over the last few years, across a number of categories. However, this "demand matrix" currently remains a "confusion matrix".
In the meantime, here are some stats from Tom Whipple of ASPO-USA and the Falls-Church News-Press, from June 25, 2009:
Total demand for petroleum products in the US: down 6.6 % YOY
Distillate demand (which is mostly diesel at this time of year): down 9.3 % YOY
Jet fuel demand: down 13.9 percent, YOY
Gasoline consumption: up slightly (prices $1.40 less than last year)
Many of us believe liquid production peaked in 2008, and that initial declines should be in the 4-5 % per year range. So it looks like, on a gross estimate basis, demand destruction is outrunning Peak Oil, for now. On the other hand, Mexico, Venezuela and Nigeria - the third, fourth and fifth largest suppliers of imported crude to the US (not necessarily in that order) are experiencing catastrophic declines or loss of production for other reasons. More on that in the future.
Sunday, August 31, 2008
Oil Prices Versus Contracting Economies
Here is something to keep in mind as you try to make sense of what is going on in the world, in terms of geopolitics, oil prices and macroeconomics:
"There is a world wide race going to between contracting economies and world oil production, the score of which will be kept in the price of oil."
Tom Whipple, 8/28/08
Tom Whipple is the editor of the Falls Church News-Press, in Falls Church, Virginia
Whipple goes on to say that a wildcard could exist in terms of OPEC's willingness to accept less than "X" dollars for a barrel of oil. In other words, if and when demand destruction and economic contraction drop overall demand and thus the price for oil, OPEC could once again begin restricting production to increase prices.
In summary, a short term drop in oil prices (6 months? 2 years?) does not mean that the effects of worldwide giant oilfield depletion (aka Peak Oil) are over, only that other macroeconomic events have taken precedence, for a bit. Let's hope that the efforts being slowly set in motion (conservation, mass transportation retrofits, natural gas vehicles, expanded natural gas drilling, wind energy, battery/electrical storage research, design/production of more efficient cars, offshore drilling, biofuels research, nuclear plants, coal plants, solar thermal innovations) are not slowed as we enter a possible "eye" of the Peak Oil hurricane.
"There is a world wide race going to between contracting economies and world oil production, the score of which will be kept in the price of oil."
Tom Whipple, 8/28/08
Tom Whipple is the editor of the Falls Church News-Press, in Falls Church, Virginia
Whipple goes on to say that a wildcard could exist in terms of OPEC's willingness to accept less than "X" dollars for a barrel of oil. In other words, if and when demand destruction and economic contraction drop overall demand and thus the price for oil, OPEC could once again begin restricting production to increase prices.
In summary, a short term drop in oil prices (6 months? 2 years?) does not mean that the effects of worldwide giant oilfield depletion (aka Peak Oil) are over, only that other macroeconomic events have taken precedence, for a bit. Let's hope that the efforts being slowly set in motion (conservation, mass transportation retrofits, natural gas vehicles, expanded natural gas drilling, wind energy, battery/electrical storage research, design/production of more efficient cars, offshore drilling, biofuels research, nuclear plants, coal plants, solar thermal innovations) are not slowed as we enter a possible "eye" of the Peak Oil hurricane.
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