Entries Tagged 'Peak Oil Shock' ↓

Fortune magazine has nailed it. The American economy was based on debt. This illusion of progress is going to break now, as it is being proven to the world that Keynesian Economics is completely flawed and destructive concept. There have been many researchers, like Elizabeth Warren, who had long concluded that the American standard of living is actually going down. But people had this illusion of invincibility, a superiority complex.

But as the US financial system begins to crumble, intelligent investors are parking their wealth in Europe and Asia, divesting from the US Dollar, which is sure to collapse under the increasing burden of interest payments and unlimited money creation out of thin air.

Here is an excerpt from the article.

We made it through the bursting of the Internet bubble and now the bursting of the real estate bubble. Next we may be approaching the end of the most worrisome bubble of all: the standard-of-living bubble.

That conclusion comes from the latest data on credit card debt. It’s growing fast, but the problem is bigger than that - and to understand what it means, we have to take a few steps back.

For the past several years, the average inflation-adjusted total pay of American workers hasn’t been increasing. That means we haven’t been building a foundation for increases in our living standard. You might be tempted to say that by definition our living standard couldn’t have increased, but that’s not quite right. Even with stagnant real incomes, we can always live a little better every year through borrowing and pretending that our living standard is still rising, just as it was for decades.

So the Great Bull Market made us feel rich, and we felt justified in saving less and borrowing - and spending - more.

After stocks collapsed, home prices took off, making us feel rich all over again. So we continued saving less and spending more, creating the illusion that our living standard was still rising. In 2005 our personal savings rate went negative, but even that didn’t slow us down, because our homes were still appreciating - and rising home values meant that household net worths weren’t declining.

You can read the rest of the article on http://money.cnn.com/2008/08/18/news/economy/Colvin_next_credit_crunch.fortune/index.htm

As Americans grapple with record oil and gas prices, politicians facing angry voters have offered up a variety of solutions on Solving the Energy Crisis. Lets look at them…

1. Expanding domestic drilling
   
   Supporters, mostly Republican lawmakers, say the United States has vast untapped oil reserves right here at home — mostly in Alaska’s Arctic National Wildlife Refuge and off the East and West coasts.
   Opening these areas to drilling would cause oil prices to fall immediately, proponents say, as oil traders would fret less about future production. They also say it would lessen U.S. dependence on foreign oil.

   Critics — along with the government’s Energy Information Administration — say any price drop would take years to materialize and be minimal at best — maybe 2 or 3 cents off a gallon of gas.

   Moreover, they say focusing on more oil drilling misses the point: The country should be figuring out a way to use less oil, not drill more, and that it’s counterproductive when it comes to reducing greenhouse gas emissions.

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2. Limiting Wall Street money into oil markets
   
   The correlation of a four-fold increase of investment money into oil futures and a four-fold increase in oil prices since 2004 has not gone unnoticed. Many lawmakers, consumer rights advocates and even some oil industry analysts say speculation is at least partly to blame.

   The commoditiy prices would continue to rise as long as the FED keeps printing money out of thin air and keeps interest rates artificially low

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3. A windfall profits tax on Big Oil
   
   Barack Obama would impose a windfall profits tax on the big oil companies whenever oil crossed the $80 a barrel mark. Some analysts feel $80 a barrel is what oil ’should’ be priced at, factoring out investment money and unfounded supply fears. The cash would be given to low income people to help them offset their energy costs.

   Another idea along these lines is eliminating oil company tax breaks and using the money to fund research into renewable sources.

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4. Capping Carbon Emissions & Carbon Trading
   
   The idea is to reduce greenhouse gases by capping carbon dioxide emissions from burning fossil fuels.The government would issue permits to emit carbon dioxide, and the number of permits each year would decline — that’s the cap part. Industry could then either invest in cleaner technology, or buy the permits from one another — that’s the trade.

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5. Creating an Apollo project (or Marshall Plan) for renewable energy
   
   Some say a real solution for the energy crisis depends on the government embarking on a massive effort to fund renewable energy — something akin to the Apollo program that put a man on the moon in the 1960s.

   Supporters are calling for the government to boost funding from about $4 billion a year now to $30 billion a year — every year for the next few decades.

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6. Getting serious about Energy conservation
   
   Ideas for promoting conservation include lowering the speed limit to 55 miles per hour, more government investments in mass transit, and tax incentives for workers to telecommute.

   It also includes plans by the government to raise mandatory efficiency levels in vehicles produced and sold in the US. But more fuel efficient cars will likely come with a trade off — namely, smaller and less powerful vehicles.

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7. Using more biofuels
   
   US Congress wants to displace the oil we use with biofuels. They plan to replace upto 1 million barrels per day of oil with home-grown plants, in the form of biofuels.

   But critics say biofuels are partly responsible for the surge in food prices, groundwater depletion and pollution, and pressure on topsoil. They also say it’s perverse to put food in gas tanks when people are starving.

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8. Tapping the Strategic Petroleum Reserve
   
   Democrats are pushing for oil to be released from the Strategic Petroleum Reserve — located in giant salt caverns along the Gulf of Mexico and holding over 700 million barrels of oil. They say it would send a message to traders that the government is not willing to let oil prices go up forever.But critics of this plan, including the Bush administration — say the reserve serves an important role as a buffer against supply disruptions from overseas, and traders would bid up prices if the reserve were smaller.

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9. Suspending the gas tax
   Analysts said doing away with the 18.4 cent per gallon federal gas tax over the summer would leave road repair dangerously underfunded, and could even lead to higher gas prices as people drove more.

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10. Lifting the ethanol tariff

    Ethanol from places like Brazil, made with sugar cane that is more efficient to make than U.S. corn-based ethanol, is currently subject to a 54-cent a gallon tariff, designed to protect the domestic ethanol industry from foreign competition.

    Since ethanol is a required component in gasoline, critics of the tariff say lifting it would mean cheaper gas for everyone.

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11. Forcing utilities to buy renewable power
    
    Currently about half the states require their utilities to buy a certain percent of their electricity from renewable sources — usually 10% to 20%.

    In addition to cutting greenhouse gas emissions, supporters say it provides a guaranteed market for renewable power, thereby spurring investment in the sector and helping reduce costs as renewable technologies develop economies of scale. They are pushing for a federal law requiring utilities in all states to buy renewable power.

    Opponents say a federal law is unfair, as some states (think Arizona for solar or North Dakota for wind) are more blessed with renewable energy sources than others.

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12. Easing refining restrictions
    
    Refiners currently have to make over 40 types of gasoline blends to meet clean air requirements in different areas, and a new one hasn’t been built in this country in over 30 years.

    Easing clean air requirements or reducing the number of blends made might bring down prices. And there have been plans floated to require the industry to build more refineries.

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13. Building more nuclear plants
    
    In a world concerned about greenhouse gas emissions and imported oil, many say nuclear power is the way to go.  Nuclear power is cheap, and produces no carbon emissions. Availability of Uranium can become a problem, though…

Mr Robert P. Murphy had posted a story, “ANWR Drilling Would Provide Quick Relief” on Mises.org.

Imagine that you are sitting on a huge oil deposit, which has (let us suppose) one billion barrels that can be brought to the surface for $20 each, so long as you don’t pump more than one million barrels per day. (If you want to pump at a higher rate, you have to spend more money per barrel, and you might reduce the total number of barrels you can extract from the deposit.) So the question is, how fast should you pump?

You might at first think that you should pump at the maximum extraction rate, without raising your marginal costs — i.e., that you should pump at one million bbls/day. But this clearly is wrong, if you expect oil prices to keep rising. Why sell 365 million barrels in 2008 at an average of $150 each, when you could postpone production for a year and then sell those same million barrels for, say, $200 each?

In light of this consideration, maybe you think you should just hold your barrels off the market forever. By letting them sit in the ground, the market value of your asset rises over time, as the market price of oil rises.

But that isn’t necessarily the right thing to do, either. What if oil prices rise an average of only 10 percent per year over the next two decades? Do you really want to put all your eggs (oil) in one basket, by leaving them sitting underground? Especially if your deposit is located in the Middle East, you might feel more comfortable selling off some of the oil now, and then using the revenue to buy stocks and bonds, not to mention a few surface-to-air missile silos. (And of course, you could be wrong in your forecasts; maybe oil prices will tank in two years.)

My point here isn’t to come up with the “optimal” extraction plan for an oil producer; since I’m not in the business, there are undoubtedly considerations I would overlook. But what I will say is that the expected price of oil in the future plays a very important role in these decisions. As always, a liquid futures market allows oil producers (and consumers) to make much more confident plans, because they can lock in prices for future transactions. For example, the oil producer doesn’t have to simply guess that he can postpone production today, in order to sell next year at $150 per barrel; he can sell futures contracts to make sure of it (assuming he can find a buyer at that price).

Now what happens if we are at an initial equilibrium, and then all of a sudden the US government relaxes the prohibitions on ANWR drilling? If oil traders really believe the policy shift is permanent, and that up to a million extra barrels will be hitting the market in a decade, then this will obviously reduce the expected world price of oil starting at that time. Consequently, any oil producers who had previously settled on a production rate with “excess capacity” — i.e., where they could have produced and sold more barrels today, but decided not to for reasons of profit — will re-evaluate their decision.

Without specifics we have no idea how much the new information will change their output plans, but surely they will pump more in the present than they had previously decided.

If we step back and survey the big picture, what would happen is that the market in a sense would be transferring some of those future ANWR barrels to the present. It’s true, the market doesn’t have recourse to time machines. But physical barrels of oil that would have otherwise sat underground in 2008, 2009, and so on, will now be brought to the surface and sold, because they have been displaced by the barrels currently buried in Alaska that will be brought to the surface and sold in 2018, 2019, and so on.

ROCKMAN has replied to this story.

I’ll fill you in on how the great majority of oil companies (especially public companies) view the concept of holding production back. But first, there is an engineering evaluation that does estimate the maximum flow rate for a well that usually focuses on well bore stability more than ultimate recovery.

You can actually produce a well so fast that you can catastrophically destroy the completion. But back to typical production rate considerations. There’s an even better reason to look at the time factor. The decision to explore for or develop a particular project is controlled by this field life vs. reserve size factor. Essentially oil patch economic decisions are dominated by “net present value”.

NPV adjusts the cash flow to take into account the time factor. A fld producing 2 millions bo over 20 years has a much lower NPV than a fld producing 1 mmbo over 4 years. The common discount rate is 15%. Think of the DR as the interest rate on a loan. A 15% loan paying back $1.15 in one year would have a NPV of $1 and thus no profit would be made. The NPV factor is used to determine the rate of return on any investment. The stock market demands y/y improvements in a public company’s position which is essentially measured in the NPV of their reserve base. As odd as it may seem virtually all public corps would chose a high NPV approach to development over a low NPV approach even if the slower production rate generated a greater ult recovery. I’ve seen many operators abandon a zone that was still producing commercial volumes of oil so the well could be completed in a shallower zone with a higher flow rate.

It’s often not viable to eventually return to that prematurely abandoned zone. This is especially true in those big Deep Water plays. During those long development phases that 15% keeps compounding. If you look at the decline curves of the initial Deep Water Gulf of Mexico flds you’ll see high initial rates and relatively rapid declines. You’ve heard it before: Time is money. And when you’ve sunk $1.5 billion into a project before it flows the first bbl of oil that time is very expensive. Because of the logistic costs and similar time lags major projects on the North Slope will be evaluated over similar protocols.

To which, Xeroid replied

Bear in mind that not all oil is produced by public companies seeking to maximise profits in the short term - if your oil fields are in desert areas and you require the oil to buy all your food and produce your water (without which you will all die) you might want to take the long view and maximise profits, and leave some oil for your grandchildren rather than rapidly depreciating paper IOUs - oh wait, didn’t the King of KSA say that’s what he’s going to do?.

I think the rules of the game will change once everybody realises we are post-peak.

IMO the oil business has recently enetered a new much more risky phase - deep water exploration is increasingly more expensive and risky and in the event of a serious economic downturn this most expensive production will become unprofitable and fail spectacularly.

ROCKMAN replied

All true xeroid. The one semi-shiining light right now for the US oil patch is natural gas. But the new resource gas plays won’t be long lived from a cash flow point of view. A big reason for the Deep Water plays is the pressure on public Big Oil to increase their reserve base. They just can’t do that with NG or small oil plays. I know it’s difficult for most here to understand, but the Big Oils like ExxonMobil are in something of a panic. Their current cash flow is great but that doesn’t secure their future. And they are having a difficult time seeing a good future. The Big Oils have reached their own PO just like the rest of the world.

This is a very interesting discussion on http://www.theoildrum.com/node/4355

Energy Innovation: What’s Here and What’s Coming

Prof. Richard K. Lester Massachusetts Institute of Technology

Download in PDF format from http://web.mit.edu/newsoffice/2008/lester.pdf

Richard Lester is director of the Industrial Performance Center (IPC) and a professor of nuclear science and engineering at the Massachusetts Institute of Technology. His research focuses on industrial innovation and the public and private management of technology. In recent years he has led several major studies of national and regional productivity, competitiveness and innovation performance commissioned by governments and industrial groups around the world. His latest books include: Innovation – The Missing Dimension (Harvard University Press, 2005), co-authored with Michael J. Piore; Making Technology Work: Applications in Energy and the Environment (Cambridge University Press, 2004), co-authored with John M. Deutch; and The Productive Edge: A New Strategy for Economic Growth (W.W. Norton, 2000). His new book on the role of universities in local and regional innovation systems will be published by Princeton University Press next year.

Richard Lester

Professor Lester is also active in research on energy technology innovation, and co-teaches a popular MIT course on “Applications of Technology in Energy and the Environment”. He is a co-author of the recent MIT reports on The Future of Nuclear Power (2003) and The Future of Coal (2007), and has published widely on the management and control of nuclear technology. He is currently leading the Energy Innovation Pathways Project, an interdisciplinary MIT assessment of the capabilities of the U.S. energy innovation system.

Transcript:

Remarks prepared for presentation to the National Governors Association Centennial Meeting Philadelphia, PA July 14, 2008

Governor Pawlenty, Governor Rendell, thank you for the privilege of speaking at this historic meeting.

I would like to discuss the role of technological innovation in solving our energy problem, and, especially, the important question of what role for policy – state as well as federal – in accelerating the innovation process.

I want to begin with three simple messages.

Recent progress in the clean technology field has been substantial. New kinds of generating capacity are being added –in some cases, notably wind, at an impressive rate. Costs are coming down, albeit sometimes more slowly than was promised.

Investment in next-generation technologies is increasing. The strong interest of the venture capital community is particularly welcome.

Ambitious targets are being set. Some of the most effective policy interventions are occurring at the state and local levels. California has been a leader. In my own state of Massachusetts, important clean energy legislation was enacted just this month. Other states are on a similar path.

That said –and here is my first message – these activities aren’t remotely close to the scale of effort that will be required to solve the problem.

My second message concerns the future of nuclear power and of coal-fired electricity with carbon capture and storage.

These two options won’t win any popularity contests, and some would fiercely dispute that they belong in the clean technology category at all. But without large-scale deployment of both, especially in the critical 2020 to 2050 timeframe, it is unlikely –to the point of implausibility –that the world will be able to avoid serious and perhaps even disastrous ecological and economic damage from climate change.

Coal is an abundant, relatively low-cost energy resource that is widely distributed around the world, and in the US we depend on it for half of our electricity. We cannot continue to burn it as we have, but we cannot afford to turn our back on it either. We must therefore find ways to capture carbon emissions from coal-fired power plants and to store the carbon dioxide safely underground, at reasonable cost.

Nuclear power is the only carbon-free energy source that is already contributing on a large scale and that is also expandable with few inherent limits. Public opinion has been gradually shifting in its favor, but the failure to demonstrate and implement an effective final disposal strategy for high-level waste remains a tremendous barrier to public acceptance, no matter how many expert panels and commissions opine that this is a technically feasible task.

The Yucca Mountain project may or may not meet the regulatory criteria that will eventually be applied to it. But there is no doubt that we can do better, and doing better should be a high priority.

No serious person would dispute the importance of these two innovation goals: affordable carbon capture and storage, and safe, implementable high-level nuclear waste disposal. But my basic message here is that in both cases current U.S. policies are putting our nation at least partly on the wrong track, and that this is almost certain to cause further delays in the availability of viable coal and nuclear power –delays that we can ill afford.

My third message is perhaps best conveyed by the poet Wallace Stevens, born not far from here in Reading, PA. Stevens wrote of ‘the lunatics of one idea . . . . in a world of ideas’. He was referring to ideologues and fanatics, who, blinded by their single idea, couldn’t see the world around them. But he might as well have been talking about the energy debate, where such lunacy has unfortunately been all too common.

The fact is that there is no single idea, no silver bullet, that will solve the problem. First and foremost, we need new ways to use energy more efficiently. But very likely also much bigger contributions from solar, wind, biomass, nuclear, and also advanced fossil fuel technologies. In our current circumstances, we can ill afford the self-indulgence of those who –however well-intentioned – like to tell the world that they are anti-this, or anti-that.

***
So far I’ve been talking about our energy problem. But this is incorrect. Because we really have three separate problems, each on its own very difficult to solve. And because the solutions to one will sometimes make the others worse, the overall difficulty is more than additive – the whole is greater than the sum of the parts.

The first problem is the projected increase in the use of energy. Unless the world goes into a deep and prolonged recession, by the middle of this century global energy use will likely have doubled, and electricity use will have tripled, placing great pressure on energy supplies and prices.

And in case there is any doubt: whatever role speculators may be playing in the current oil price spike, the underlying issue here is growing demand.

This is an era in which hundreds of millions of people, perhaps even billions, are lifting themselves out of poverty into what we in this country might recognize as at least a way-station on the road to a middle-class standard of living, all within the span of a few decades. This is an economic accomplishment that has no precedent in all of human history, and we should celebrate it.

One of the consequences is sharply increased energy use. But in case anyone thinks that a tripling of electricity demand by mid-century implies irresponsible, profligate consumption, I point out that this would mean, roughly speaking, that the richest billion of the world’s population at that time would be using electricity at about the same rate that the average American uses it today, the middle 7 billion would be using it at a rate that the average Chinese is likely to reach in just a few years (or a bit more than a third of the average American’s usage today), and the poorest billion would still have no electricity at all. That is what a tripling of electricity demand by mid-century will mean.

The second problem is that for at least the next several decades the world will remain heavily dependent on the Persian Gulf for its premium fuels.

More oil and gas will certainly be found and produced in other parts of the world – though perhaps not at a rate sufficient to offset the decline in existing fields. In any case these new supplies will generally be more costly, and because of the twist of geological fate which led much of the world’s low-cost oil and gas resources to be deposited in the Gulf region, that volatile area will continue to dominate the global supply picture for the foreseeable future.

The third problem is of course that of climate change. This may or may not be the most serious problem of all, but it is certainly the most complex when we consider the scientific, technological, economic and political aspects together – as of course we must.

Much has now been learned about this problem, but many major uncertainties remain. So when the question is asked: how fast should we move to try to slow climate change? – the answer isn’t obvious.

Figuring it out will mean finding a strategy that strikes a balance between the increased economic cost of actions to reduce emissions, on the one hand, and the benefits of those actions (in terms of ecological and economic damage averted in the future), on the other. Unfortunately almost every element in that equation is uncertain. What is certain, though, is that the longer we wait to take action, the more costly the consequences will be. The clock is ticking, and it won’t stop ticking simply because we can’t or won’t decide what to do.

The best chance we have – perhaps the only chance –of solving these problems, of breaking out of this triple straitjacket of price, climate, and security pressures, is to accelerate the introduction of new technologies for energy supply and use and deploy them on a very large scale.

Accelerate relative to what? Relative to what would happen if we left innovation entirely to the forces of the marketplace. This may be an obvious point, but it is still worth emphasizing.

Energy innovation is different from other kinds of innovation for a very important reason. The major impetus for it comes from outside the marketplace. Two of our three big problems – energy security and climate change – are not now factored into the great majority of the millions of decisions made in the marketplace every day by suppliers and consumers of energy.

So, even if innovation can help solve those problems – and there is no doubt that it can –the economic incentives created by the play of market forces alone won’t be enough to bring it about. The question is not whether to augment these forces, but how.

Some are calling for a crash program by the federal government -a Manhattan Project or an Apollo Project for energy innovation.

These calls helpfully communicate the urgency and the scale of the challenge. But in another sense they are a distraction because, if we take them literally, we will end up solving the wrong problem.

In both the Apollo and Manhattan Projects there was a single, clearly-defined (though high-risk) technical goal. There was also just one customer – the federal government. Success meant achieving a single implementation of the new technology. In both cases this took just a few years to achieve. And cost was essentially no object.

Not one of these things applies to the case of energy. Here we have multiple and sometimes conflicting goals (lower prices, reduced carbon emissions, increased security). We have many different kinds of customers – from individual tenants and homeowners to giant industrial energy users. We have multiple time-scales, from a few years to many decades. Success will come not from a single implementation but only if the technology is adopted by many firms, or by many more individuals. And finally, energy is a commodity, so cost is crucial.

In this last sense, the upcoming energy revolution is not only not like the Manhattan project, it isn’t even like the digital revolution, to which it is sometimes also compared. It is actually much harder. Because energy innovations, unlike many digital technologies, usually must compete against an incumbent technology in an existing market, and this imposes tough, nonnegotiable requirements on cost competitiveness, on quality, and on reliability from the very beginning.

So, if we don’t need a Manhattan Project for energy innovation, what do we need?

One thing we surely need is a strategy for energy prices. Many experts argue that the greatest spur to innovation would be to make sure that the full costs of energy provision and use are incorporated in the market price paid by consumers, including the cost of mitigating greenhouse gas emissions or their consequences, and the full cost of ensuring uninterrupted flows of oil from the Middle East.
Some argue, in fact, that if only we could get the price right, the market will do the rest –that a properly adjusted energy price will call forth the necessary innovations by making new technologies more attractive in the marketplace.

Price is very important, but it won’t be sufficient on its own.

Partly this is because we aren’t likely to ‘get the price right’ in that sense. For example, while the U.S. will probably have a carbon price at some point, perhaps even quite soon, this is sure to have escape ramps, exemptions for critical sectors, and other loopholes that will make it fall well short of what the economic models prescribe –that is, a uniform price across the economy which ramps up at the economically optimal rate. Even more elusive, of course, will be the ideal of a carbon price that is harmonized across the globe.

But equally important, a pricing approach won’t be sufficient because it won’t address the rest of the energy innovation system –by which I mean the entire complex of direct support, indirect incentives, regulations, public and private research and educational institutions, codes, standards, and markets within which new technologies are developed and taken up by energy suppliers and users.

In the coming decades this system will be called upon to deliver hundreds of billions of dollars of mostly private investment in innovative technologies, make hundreds of sites available for the construction of controversial new energy facilities, and every year train tens of thousands of young people with a strong background in energy systems engineering.

The evidence of the last three decades tells us that the current innovation system has fallen short. Yet the demands on it going forward will be much greater than anything we have yet seen. This system is in need of a major overhaul.

This effort must address the entire innovation process, including obstacles to commercial demonstration, to early adoption, and to large-scale deployment. This is not just about research and development.

There is no doubt that funding on a much larger scale will be needed for both fundamental research and technology development. Both government and private investment in energy R&D are far below where they should be.

But the whole point is to achieve scale in technology applications. And without attention to critical bottlenecks downstream of the R&D stage –including commercial technology demonstrations, which have often been poorly handled by the federal government –many of the potential benefits of more R&D funding won’t be realized.

In short, we must be as creative and rigorous in our thinking about how to redesign the institutions for innovation as we will need to be about the innovations themselves.

For example, we must find a way to overcome the obstacles to sound innovation strategies created by the annual government budgeting and appropriations process, by federal procurement regulations, and by shifting political winds.

Here is one idea: Suppose we adopted the principle that the public good part of the energy innovation system beyond basic research (which the Department of Energy manages quite well) should be directly funded by industry sales, rather than by general tax revenues.

Suppose that these funds were collected in the form of a small fee applied to all end-user sales in a given industry segment – electricity service, for example, or gas service –ifthe majority of the firms in that segment voted to do so (Congress would probably have to approve this.) A fee of less than three tenths of a cent per kilowatt hour – or about 60 cents per week for the average household – would generate an annual stream of revenue five times larger than the total annual DOE budget for applied energy research, development and demonstration.

Suppose, then, that the firms in this industry organized themselves into interest groups, or innovation boards, which would each be responsible for a different technological pathway – smart grid technologies, carbon capture and storage, next generation photovoltaics, and so on.

Each board would request proposals to fund work in its domain from businesses, public research laboratories, universities, and others. To qualify to receive these funds, bidders would have to agree to put the resulting intellectual property into the public domain – available to everyone.
At the beginning of each cycle, every firm in the industry would distribute the fees collected from its customers among these boards based on their work programs and its own priorities. If, say, a utility was particularly eager to see progress in carbon capture and sequestration, it might allocate funds to the carbon capture and sequestration board. Or, if it was concerned about skilled manpower shortages, it would allocate funds to the energy education and training board, which might have an ongoing scholarship program for power engineering students.

If a utility was unhappy with the progress being made by one board, it could redirect its funding to another. Or it could itself decide to form a board in a new area and fund that, perhaps in conjunction with other firms. It would in any case have to commit all of its innovation fees to one board or another.

Such a scheme would create a guaranteed stream of revenues for energy innovation, while avoiding both the Federal appropriations process and the problem of underinvestment by private free riders. It would ensure that decisions on what to do and who should be funded to do it would be made by those closest to the energy marketplace. And by requiring IP to be shared, it would avoid unfair competitive advantage.
***
Another idea: There is great potential for small, entrepreneurial firms to contribute to innovation in the energy sector, as they do in other industries.

But the energy industries are dominated by large incumbent providers who are often slow to embrace transformative or disruptive innovations. These firms typically have tightly integrated supply chains and close ties to government regulators, and they rely on highly-regulated pipelines or wires to deliver energy services to end users. This creates a formidable barrier between entrepreneurial newcomers and end users, and tends to force innovation towards the upstream end of the value chain.

But many opportunities for innovation lie right at the interface with the end-user. Most consumers are indifferent to energy itself – that is, to BTUs or kilowatt hours. What they care about are the services that energy enables: affordable comfort, mobility, lighting, and so on. The provision of energy is almost always just one part of a larger set-up in which a value-added service is delivered to the consumer.

Finding opportunities to combine energy services in creative new ways with other services and products is exactly where smaller entrepreneurial firms can be expected to shine. We need to find ways to let these firms compete and grow in this important innovation space.

***
What role for the states in all this?

Decisive progress on the major energy issues will require decisive action at the federal level. It cannot be achieved by states alone. And the longer the delay in serious leadership at the federal level, the more difficult it will be to harmonize conflicting policies.

But many of the relevant authorities – to regulate utilities, to make land-use decisions, to set building codes and zoning requirements, to support public education, and so on – reside at the state and local levels. So the task will require a partnership of federal, state, and local governments.

There is more than enough to do here for everyone. Whole new industries are likely to develop in support of the energy transition, and state-level policies promoting innovation take-up and the development of a skilled workforce will be vital.

Jobs will be generated at every skill level – not just the top end of the range –and since many of these jobs must be located close to the point of energy use, they are at less risk of outsourcing to lower-wage economies.

Just as one example, let’s suppose that by the year 2030 the U.S. was generating 5% of its electricity from small-scale photovoltaic installations – an ambitious goal, though not as ambitious as some recent targets. A rough estimate is that this would create twenty years of steady local work for 45,000-50,000 installers – mostly electricians and construction workers – and perhaps double that number if we include indirect labor. About two hundred thousand additional jobs would be created upstream in the PV value chain – some of which would also be located here in the U.S. And of course this doesn’t include the other 95% of the power sector, where many more new jobs are also likely to be created.
***

And so, to conclude, it is long past time for serious federal leadership on energy innovation. But it is also time to move beyond the Manhattan/Apollo Project metaphor. A better metaphor might be a domestic Marshall Plan for energy innovation. The original Manhattan project involved a relatively small number of people working in secret. The original Marshall Plan took everyone, working together, to rebuild the broken European economy.

Let us recapture that inspired exercise of American leadership at home. As we did once before on foreign soil, let us combine a vision of what can be with a command of hard facts and data to build an effective system for energy innovation in every one of our United States.
Thank you again for the honor of being with you this morning.

The Energy Crisis we are facing today can be summarised as below…

• The world price of oil in US dollars has doubled in the last year (June 2007 to June 2008) from US$67/barrel to over US$135/barrel
• The world price has gone up by 6 times in 6 years, from US$20/barrel in 2002 to over US$135/barrel by mid 2008
• With hindsight we can see that the great cheap oil era lasted 16 years from 1986 to 2002 when the price was mostly in the range $15 – 25/barrel, coming off a $39 peak during the “oil shock” of 1980 (equivalent to about US$95/barrel in 2008 money). The short sharp spike seen at the end of 1990 was due to the first Gulf War.

Whats happening?

Obvious questions raised by the price rises are:

1. What has caused the startling rise over the last 12 months?
2. Why has the price risen steadily for the past 6 years?
3. Why shouldn’t we get back to the $20/barrel we enjoyed in the 1990’s?
4. What caused the noticeable dip in price from mid 2006 to early 2007?
5. Why does the oil price seem to be going up at an accelerating rate since the dip in 2007?
6. Has the price stopped going up yet?
7. What prices might we expect over the next 1, 3 or even 5 years to come?

Check Out http://anz.theoildrum.com/node/4260 for the full story…

In the 12 years after Cheap Oil Crusaders stormed Kuwait in 1991, the advanced industrial economies, or First World has reaped not only the Peace Dividend from the imploded and collapsed Soviet Empire, but also the giddy delights of oil at the ‘natural’ and very low price that New Economics sets for this Sunset Commodity. However, in 1991, cheap oil gave no growth dividend to the First World economy, nor a vote dividend to George Bush 1, who was not re-elected. By a fatal error of timing, probably well noted by George Bush 2, it takes time for those courageous, pro-active consumers to crawl away from their TV entertainment console playing smart missile clips, and start spending again. Well could George Bush 1 proclaim the New World Order had now ensured the ‘free flow’ of Cheap Oil, but Its the economy, stupid was a winning line for his Clinton rival. Exactly as in 1986 (when oil prices had plunged by two-thirds) there was no upsurge in economic growth, making low unemployment, and shopping malls stuffed with cheap manufactured goods from China, SE Asia and India unpersuasive in luring fickle voters to come back for more. A few more months proved necessary before the 1990s Clinton Boom lurched into being.

In the following years of ’stable non inflationary growth’, and the near slump following George Bush 2’s arrival in the White House, world oil demand increased by about 18% or 13 Million barrels/day (Mbd), that is about 25% more than the entire production capacity of Saudi Arabia. In the period from 2003-2010, if predictions of the International Energy Agency (IEA), or of the US Energy Information Agency (EIA) are proved correct, world oil demand will expand by about 1.8 Mbd per year, that is roughly another 13 Mbd in 7 years. Yet another “new Saudi Arabia” will be needed, simply to satisft this additional demand. Such factors, surely, were taken into account by George Bush 2 and his American Century ideologues when calculating their Iraq War play. World population growth we can also note, results in about 1 Billion more consumers today, compared with 1991, and population growth will likely add about another 600 Million by 2010.

Now by definition the First World is rich, has low unemployment and even lower inflation, but its economic structure is a de-industrialised, service dominated husk totally dependent on cheap manufactured imports from the New Industrial Countries, which now include China and India, and on cheap energy imports from the world’s oil and gas exporters. The ‘mature service economy’ provides great potential for imagining the economy has little or nothing to do with farming, mining and industry. This fantasy, or lie is of course actively promoted, even presented as a proof of cultural superiority - but in fact the entire urban industrial system would collapse almost overnight without very traditional land tearing and metal bashing machines and industrial workers generating real and physical wealth from which the service economy extracts more, mostly imaginary ‘wealth’. Perhaps 60%-75% of all lower priced consumer manufactured goods in the First World are now supplied by cheap labour, industrialising economies. Without these players, and especially China, the Asian Tigers, Brazil, Pakistan and India, the First World consumer economy would plunge into severe recession. Cheap foodstuffs, including tropical foods that are often imported from countries with endemic malnutrition for a large proportion of their people, and above all cheap oil and gas, are the other two real pillars of the First World’s urban service economy, without which its fragile, degenerate kulchur would be thrown to the wind.

When not if this system collapses, probably through depleting oil and gas being impossible to maintain at ridiculous, artificially low prices, the implosion of the First World will likely be similar to that of its fallen traditional enemy and counter model - the Soviet Union or Evil Empire - which collapsed like a house of cards a few months after the Liberation of Kuwait. Exactly as for the First World, Soviet ideology proclaimed that Man’s dominion over nature and massive consumption of nonrewable fossil fuels would lead to an only marginally different Paradise on Earth. For the Soviet Union, however, those consumer goods never materialised, and it collapsed as surely as Saddam Hussein’s shrunken, impoverished regime. The First World, however, survived the Cold War, and the Oil Shocks of 1973-81, to extend its reach to the global level.

The Soviet model disappeared. It could only deliver turnip soup along with space flight and inherently unsafe nuclear reactors. It was eaten away by hi-tech war readiness and exploding personal consumption to the West, and by Moslem Fundamentalism and demographic pressure to the South. To the East, however, the People’s Republic of the world’s most populous country never pauses in its breathtaking industrial growth, its military and geopolitical expansion, and its fast growing dependence on imported oil that will surely bring it into conflict with what is so often and so wrongly called the world’s ‘only superpower’ of the USA. Pragmatism is the supreme virtue of Chinese ‘Marxism’, mirrored in its win-win model by the First World’s ‘attachment to freedom and democracy’. Both Chinese ‘Marxism’ and First World ‘democracy and human rights’ are empty doctrines. Both trace their origins to 19th century industrialisation and urbanisation, fuelled by King Coal. Almost certainly, within at most two decades, the US and China will enter open conflict for the world’ remaining oil and gas reserves.

Reaction in the First World to the impending collapse of the Soviet system in the late 1980s was of course visceral, building on heights of hysteria such as those attained in the McCarthy ‘protozoan era’ of US political history. Ronald Reagan’s hysteria slogan for the collapsing Soviet Union, the Evil Empire, is today joined by George W Bush’s Axis of Evil to describe a fluid number of countries, almost chosen by whim, that would either use Terror to threaten US leadership in its New World Order quest, deny the US and its allies of the moment access to cheap oil and gas, or both. Back in the early 1990s, the USSR or soon to be FSU (Former Soviet Union), was on the brink of collapse. Because of its large, only part-depleted resources of oil and gas, the FSU when twined with liberated oil from friendly Kuwait and continuing supply from servile Saudi Arabia, offered perspectives of ’several decades’ of Cheap Oil. After the Oil Shocks of the 1970s and early 1980s this was sweet redemption indeed for the self-adulatory No Alternative politicians of the 1990s and their clones of today, regurgitating the roaring and whining ‘Neolibreal’ slogans of the Reagan-Thatcher duo.

This comic duo of hamfisted, spouting politicians made it plain they were ’saving our civilization’, and Cheap Oil was an intrinsice, vital need in their quest. With amazing speed, therefore, the apparatus of hate that had been developed and maintained by the Neoliberal West during the Cold War against its traditional Soviet enemy was redefined and redirected. From the early 1990s any recalcitrant supplier of vital resources, firstly and notably Iraq, but then any country, state, regime, or ethnic group became a ‘targetable’ entity if it in any way menaced the supply of cheap energy and resources. Behind this new doctrine is the simple, and impossible objective of ensuring the perennity of urban industrial consumer kulchur, a mindless ‘doctrine’ of blind hedonism, greedy egoism, and the destruction of the planet’s life systems, ensuring mass dieoff within decades unless it is completely abandoned - but we are glibly told it is ‘the only thing we’ve got’. Supplementary reasoning for the particular obsession with Cheap Oil comes from the need to keep the First World’s army, its free market crusaders, operational and effective. It would indeed be discomforting, even humiliating to be short on jetfuel for bombing missions in the former Developing World, defined by Neoliberal economics as a reservoir of cheap natural resources and cheap immigrant labour: as humiliating as experiencing difficulty in lighting all 107-floors of the now disappeared but highly lamented World Trade Towers, day and night.

The New Order’s corporate structure is a fragile edifice built on a lack of democracy, a lack of personal identity and responsibility, lies, slide, inertia and smug self satisfaction in a world of ever increasing complexity in the interaction between Man’s enormous population weight and the biosphere. The complex countdown to zero of many environment and resource clocks however continues, including the ultimate in mass wipe-out of species on this planet (Reference/ ‘Ecocide’, Franz Broswimmer). Such facts are reacted to by real or feigned incomprehension by First World leaders and the vast bulk of their consumer citizens - by decree there is no threat to No Alternative economics and politics, or the fragile cultural “identity” of the First World.

Politically, the Cold War left behind an indelible strand of collective angst, of corporate paranoia in First World culture and cosmology, of menacing external forces lurking beneath the surface. This paranoia was easy to transfer to oil and energy supply threats when the demise of the Evil Empire left a vacant slot in the hate list. In simpler words - any threat of shortage for a thing so obviously a birthright and wherewithal of high-energy civilisation as the Sunset Commodity of petroleum or natural gas is and can only be due to evil intentions. By vigorous martial action, as in Desert Storm, though perhaps not in the derisory chaos created by Gulf War-2 in Iraq, the oil price will always be beaten back to ‘reasonable’ levels, goes the delirious ‘logic’. Oil War 2, in March-April 2003, like some poor selling video game, supplied a remake and repeat of the talk up in oil prices, then talk down of prices, that preceded and followed Oil War 1 in 1991. Business and financial milieux were initially radiant with joy, as can be expected, but the joy was very short-lived.

In 2003 the geological reality of depletion, like the proverbial wolf in the chicken coop, is installed and is rapidly gnawing at the ‘victory dividend’ of Cheap Oil. Those ’several decades’ of Cheap Oil won by Desert Storm and from the USSR’s collapse have telescoped. World oil demand growth, even at the sluggish economic growth rates decreed as stable and non inflationary by Neoliberal good management, has quickly cut those ‘decades’ down and back to perhaps no more than one more decade before rout and riot are the only logical results of Do Nothing, market economics and its No Alternative political twin. This time around, unlike 1991, the finance column hype about “15-dollar-a-barrel” oil has been quietly shelved almost before it was dusted off, and pumped around the finance and business columns of fit-to-print, government friendly newspapers. Iraq, albeit with the second-biggest proven reserves in the world (perhaps 115 Bn barrels), should be compared with world oil demand running at the new record high attained in March 2003, of 80.3 Mbd. That is 29.3 Bn barrels per year, or “one Iraq every 4 years”. Oil War 2, very simply, was a desperate rearguard action against geological reality and geology will win, every time.

Beyond all this, the existence of at least one Enemy must play some vital role in the tortured minds of our leaders, ever expounding the bienfaits of what they call ‘democracy’, itself a shattered relic of former society and an early victim of New World Order doctrinal engineering. We have reverted to the purest expression of the 19th century metropole-colony economic and political model. What was once called the ‘Third World’ is now defined as a cheap supplier of various Sunset Commodities, and of economic migrants to serve as menial labour in an explosion of service sector activities shaped by corporate greed, that is need to turn a profit. Any country, territory or entity stepping out of its defined and imposed role model - once permitted to the OPEC nations in the 1970s - must now be bombed, strafed and occupied, with a malleable, servile puppet regime installed, mouthing democratic slogans while it delivers cheap resources. The doctrinal base of richworld leaderships, at least since the 1980s, permits no change in price for a thing so essential, but ‘easily available’ as oil and energy - easily available to the Global Market and its well armed forces, that is. In the 1970s and 1980s there had been a kind of economic Vietnam war with the Oil Shocks, and this had required the same energetic, obsessional rewriting of history needed for the Vietnam war, using all the guile and artefacts of Hollywood’s finest scriptwriters. For oil, and its price this was done in Ivy League economics faculties and the sharpest Think Tanks musing over 21^st Century energy technology. Revisionism and denial, so important to any religious or doctrinal apparatus threatened by demonstrable reality, was rapidly applied in the environment, demographic and energy resource domains. We live with the results - confusion, disinformation and denial.

Cheap oil necessitated the rewriting of economics through the 1980s. The New World Order, more brazenly, has had to rewrite History. Its New Economy works to create and maintain structural surpluses of raw materials on commodities markets, by a range of real and fantasy procedures and measures that extend from technological progress through the recycling myth and Sunset Commodity propaganda, to economic destabilization and cruel, even savage neocolonial underdevelopment through ’structural economic adjustment’. Whenever necessary, increasingly, and exactly as in the 19th century, gunboat diplomacy or rather helicopter gunship diplomacy, is used to ensure compliance. Just as the lifetime of Hitler’s preposterous 1000-year Reich was cut to nothing not only by allied saturation bombing but also by the loss of the Baku oilfields and the huge energy inefficiency of the Fischer-Tropf process for liquefying domestic coal, the New World’s heartlands will be increasingly threatened by depletion. In the coming decade, almost certainly, several oil and gas exporter countries, if they dare, will limit and then cease their exports to satisfy domestic demand. Their irreplaceable, high grade fossil energy resources will be seen as far more valuable to national survival than cheaply printed, wilting paper dollars, yen or Euro.

Underlying all this is the simple geological reality of fossil fuel depletion, symbolised by the Hubbert Curve with the 2003-2010 period being the exact midpoint. For a host of reasons - notably current production rates and demand growth for oil and gas - the downside second half of the curve will certainly be vastly shorter than the upside. In the period since around 1860, and the first commercial production of oil, world population has increased 6-fold, and energy use about 25-fold. The world development model presented as being ’sustainable’ by New Economics in fact has a ‘useful lifetime’ measured in less than two decades. Yet it is presented as our only option. No alternative is feasible or imaginable. Debate on any alternative is swept aside as ‘idealistic’ or mischievous.

The impasse is watertight and lethal. Now that both history and economics have been rewritten we are only left with culture and religion as potential arenas for adaptation and change to what will be the greatest, probably the most chaotic and violent upheavals ever experienced by the human race. Perhaps our greatest, most rational hope should lie in the irrationality and unpredictability of human behaviour - perhaps for once Armageddon and Apocalypse will not be the automatic, default choices for the human race. We can but hope.

References:

1. F Broswimmer, “Ecocide”, Pluto Press, 2002
2. http://www.dieoff.org/page251.htm

In a situation like the coming global economic collapse, we can expect people to start prioritize their needs in energy and pay only for the more important stuff. How low can we get? Perhaps we should start categorizing consumption in a hierarchy like this.

1. Activities we do because we can, but don’t really have to. Example: going to work in a car instead of a bicycle.
2. Activities that are wasteful by design. Example: consuming object that are disposed after a single usage like butane lighters, pens and razors. Another example: planned obsolescence of devices such as electronics.
3. Activities that are optimized around metrics other than energy consumption. Example: business models involving factories in China for goods sold in Europe and North America.
4. Activities that are left when the waste in 1, 2 and 3 is optimized out but can be reduced in volume or done without for a while if in dire need. Example: the manufacture of electronic appliances.
5. Transition activities. Examples: implementing alternative energy sources, building factories near the target market.
6. Activities that must continue no matter what. Example: agriculture.

Everything is 1, 2 or 3 is waste. Once it is eliminated, we are left with 4, 5 and 6. The question is if we are brutally forced to stop doing 1, 2 and 3, do we still have enough energy to do 4, 5 and 6? If the answer is yes, we have on our hands an economic crisis and a mutation of our way of living, but civilization will survive.

Another way to ask the question is what is the minimum energy that is needed for doing 4, 5 and 6? If this is lower than the energy that remains once oil and natural gas is gone, then we have a way out of the incoming crisis. If it is higher, then we are working against a deadline to avert the collapse of our civilization. This is not the same deadline if we want to avoid the collapse of the current economy.

Item 4 is a grey zone. We can encroach on it for a while if we need to buy time to perform a transition, but not permanently.

- By
PolR

1. What is Peak Oil?

“Peak oil” is the term used to describe the situation when the amount of oil that can be extracted from the earth in a given year begins to decline because geological limitations are reached. Extracting oil becomes more and more difficult, so that costs escalate and the amount of oil produced begins to decline. The term peak oil is generally used to describe a decline in worldwide production, but a similar phenomenon exists for individual countries and other smaller areas.

2. Why would oil production begin to decline? Can’t we extract oil as fast as we want, until it finally runs out, many years from now?

What happens isn’t quite as simple as “running out”. Oil production in an oil field usually starts at a low level and increases as more oil wells are added. Eventually some of the older wells start producing more and more water mixed with the oil, and pressure declines. Oil companies do what they can to maintain production - drill new wells nearby, inject gas or water to maintain pressure, and apply other newer production techniques. Eventually, the proportion of oil in the oil/water mix becomes very low and the cost of extraction becomes very high. When it costs more to produce the oil than the oil is worth, production is abandoned.

On a worldwide basis, the phenomenon of peak oil can be thought of as a crisis in resources needed to produce oil. It’s the size of the tap, not the size of the tank. As we deplete the large, easy-to-produce fields and move to ever-more-difficult fields, it takes more and more drilling rigs, more petroleum engineers, and more investment dollars. Eventually we reach a point where we are out of equipment, out of trained personnel, and the investment cost for expanding production becomes prohibitive. When production begins to drop because of all of these pressures, we reach “peak oil”.

3. Aren’t we continuing to discover more and more oil every year?

We are continuing to discover oil, but the quantity of oil discovered is lower now than it was 50 years ago, and much lower than the amount of oil we are now using. A graph of oil discoveries by ten year periods is as shown below:

We often read in the news about finding new fields, but these fields tend to be smaller and harder to reach than those discovered in the past. We are now so concerned about finding oil that even small discoveries are reported as news.

4. Do we have any historical reason to expect that oil production will begin to decline at some point?

When we look at oil production in a given area, production tends to rise until approximately 50% of the oil that will eventually be extracted is gone, and then begins to decline. For example, Figure 1 shows oil production of the 48 states of the United States, of Alaska, and of the North Sea. Production in all these areas increases for a time, and then begins to decrease.

We have now reached the point where oil production is declining, apparently for geological reasons, in the majority of oil-producing countries. It is logical to expect that world oil production will eventually begin to decline.

5. What does world oil production look like?

Figure 3 shows recent world oil production, plus a rough estimate of future demand for oil. The future demand line assumes prices equivalent to those in early 2005 ($50 dollars a barrel for West Texas Intermediate) and an adequate supply of oil. This price level was chosen because it represents the price before the recent stall in production and the resulting escalation in petroleum costs. It also reflects the fact that there are many current reports of oil shortages around the world.

On this graph, a person can see that world oil production was rising fairly steadily, but recently has “stalled out”. Based on data of the United States Energy Information Administration (EIA), oil production for the 2005 to 2007 period is level or drifting slightly downward.

Because of this “stalled out” condition, there is a growing gap between what the world would like for petroleum production and what is actually being produced. At this point, the countries that are suffering a shortfall because the current price is too expensive are mostly third world countries from Africa and Asia. The International Energy Agency (IEA) in June 2007 expressed concern that oil production is not high enough, and wanted Organization of Petroleum Exporting Countries (OPEC) to produce more.

6. Can OPEC raise its production of petroleum?

Many people suspect that the answer to this question may be no. Some publications report that Saudi Arabia is having production difficulties, as are several other OPEC countries (Kuwait, Iran, Nigeria and Venezuela). Saudi Arabia does not admit to any production problems. EIA data indicates declining oil production for Saudi Arabia, even before OPEC production cuts were announced in the fall of 2006.

It is likely that we will learn the truth about OPEC’s ability to raise production this winter. OPEC has its next planned meeting in September. Unless something very unusual happens, there will be a need for significantly higher oil production. OPEC’s actions at that time will tell what the real situation is.

7. Doesn’t OPEC report very large oil reserves? It seems like those high reserves would assure us that OPEC can increase its production at will.

No, the high reserves aren’t all that helpful. First, there are serious doubts about the accuracy of OPEC’s oil reserves. The reserves are not audited numbers. Analyses such as this one suggest that the reserves are likely overstated.

Second, even if OPEC reserves are accurate, the reserves tell us nothing about the flow rate. If the reserves include much very viscous oil, or if there are other production difficulties, it may take years to produce a relatively small flow of oil.

One important piece of detective work regarding Saudi oil reserves was done a couple of years ago. Matthew Simmons analyzed published scientific papers relating to Saudi oil wells and determined that Saudi wells were reaching a serious state of depletion. He documented his findings in the book Twilight in the Desert. This book is now available in paperback, and has been translated into German and Chinese.

8. What is the pattern of world oil production in the next few years expected to look like?

We can’t know for certain, but Figure 4 shows three possible oil production scenarios as dotted lines.

If OPEC production is now falling, it is likely that we are at “peak oil” now, because production for the rest of the world is flat. If we are at peak oil, we might expect future oil production to follow a pattern similar to Scenario 3 (the lowest dotted line, with production falling immediately) or possibly Scenario 2 (the middle dotted line, with production falling after a plateau). Several respected energy industry insiders, including Matthew Simmons, energy investment banker and author of Twilight in the Desert, and Samsam Bakhtiari, retired Iranian oil executive, believe that we are at peak oil now.

Scenario 1 (the top dotted line) shows a scenario in which peak oil is still a few years away. Some scientists believe that this is a more likely scenario. The Newsletter of the Association for the Study of Peak Oil and Gas forecasts peak oil in 2011, four years from now. The PhD thesis of Fredrik Robelius showed that peak oil is expected to occur between 2008 and 2018. Chris Skrebowski, author of the Megaprojects analysis forecasts a worldwide peak in 2011/2012.

9. When was peak oil first predicted?

M. King Hubbert, in 1956, first predicted that US oil production for the 48 states would peak in 1970. This prediction turned out to be correct, to everyone’s surprise. He also predicted a worldwide peak around 2000.

10. Will alternative energy sources be able to make up for the shortfall in petroleum production?

At this point, it seems unlikely that they will make up the shortfall.

On Figure 4, the gap that needs to be filled is the gap between future demand (the top line) and actual future production (something in the vicinity of the dotted lines). Clearly, the sooner oil production begins to drop and the steeper the decline, the bigger the gap that needs to be filled. Even if oil production stays level, there can be a gap because demand continues to increase.

At this point, there does not seem to be any “silver bullet” for replacing lost oil production. Oil is unique in its abundance, its high energy density, and its portability. There do appear to be a number of approaches that may solve small parts of the problem, however. These include:

• ethanol from corn,
• ethanol from sugar (generally imported),
• biodiesel,
• cellulosic ethanol from biomass, and
• coal-to-liquid.

None of these appears to be able to replace more than a small fraction of the oil we use, especially in a short timeframe. In addition, there are other drawbacks — cost, environmental damage, and for coal-to-liquid, climate change issues. Indirect approaches to circumventing the shortage, like using battery operated cars, may be part of the picture as well. If these are used, they will probably need to be phased in slowly, as existing cars are retired. It is likely that conservation will need to be part of the mix.

Links by question:

Q5-1: Canaries in the Coal Mine
http://www.theoildrum.com/node/2749#comment-209910

Q5-2: Click on June 2007 IEA Highlights Report
http://omrpublic.iea.org/archiveresults.asp?formsection=highlights&formd…

Q6: Oil Market Under Pressure, Supply Not Able to Counter Demand
http://www.resourceinvestor.com/pebble.asp?relid=33010

Q7-1: “Lies, damned lies and BP statistics” by Euan Mearns
http://europe.theoildrum.com/node/2666

Q7-2: Twilight in the Desert by Matthew Simmons
http://www.amazon.com/Twilight-Desert-Coming-Saudi-Economy/dp/0471790184…

Q8-1: Matt Simmons on Bloomberg: Peak Oil is Now (video)
http://www.theoildrum.com/node/2310

Q8-2: “World Oil Production Capacity Model Suggests Output Peak by 2006-07″ by AMS Bakhtiari
http://www.energybulletin.net/147.html

Q8-3: Association for the Study of Peak Oil and Gas- Ireland Newsletter Shows Projections
http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter79_200…

Q8-4: PhD Thesis by Frederik Robelius - Giant Oil Fields and Their Importance to Future Production
http://publications.uu.se/theses/abstract.xsql?dbid=7625

Q8-5: “Magaprojects Planned Capacity Listing” by Chris Skrebowski
http://sydneypeakoil.com/downloads/PR_APR06_Megaprojects.pdf

Q8-6: “How close to peak oil are we?” by Chris Skrebowski
http://www.energybulletin.net/30930.html

Q9: Nuclear Energy and the Fossil Fuels by M. Hubbert King, 1956
http://www.hubbertpeak.com/hubbert/1956/1956.pdf

Q10-1: “Corn-Based Ethanol: Is This a Solution?” by Gail Tverberg
http://www.theoildrum.com/node/2615

Q10-2: “Lessons from Brazil” by Robert Rapier
http://www.theoildrum.com/story/2006/5/31/175512/149

Q10-3: “The Myths of Biofuels” Interview with David Fridley (45 minutes)
http://globalpublicmedia.com/the_reality_report_the_myths_of_biofuels

Q10-4: Whither Cellulosic Ethanol?
http://www.theoildrum.com/story/2006/8/15/13634/6716

Q10-5: Coal-to-Liquid Boondoggle
http://www.washingtonpost.com/wp-dyn/content/article/2007/06/17/AR200706…

PDF of Chapter 1: What is Peak Oil? (reflects edits)
What Is Peak Oil?

Source: http://www.theoildrum.com/node/2743

WHY ARE WE ADDICTED TO OIL?

“Selfish behaviors are reward driven and innate, wired deeply into the survival mechanisms of the primitive brain, and when consistently reinforced, they will run away to greed, with its associated craving for money, food, or power. On the other hand, the self restraint and the empathy for others that are so important in fostering physical and mental health are learned behaviors – largely functions of the new human cortex and thus culturally dependent. These social behaviors are fragile and learned by imitations much as we learn language”.

-Dr. Peter Whybrow

The majority of Peak Oil writing and discussion centers around the upcoming date of an all liquids peak and how steep the subsequent decline rate might be. There’s also active debate on how to best replace the coming shortfall in fossil energy with renewable flows. Fewer discussions are about relocalizing a global economy dependent on cheap transportation fuels, and how best to structure a world with lower density energy. Yet fewer still delve into who we are, how we got here, and what and why we use energy, and seemingly want more of it every year. Essentially, most of our energy conversations, at conferences, schools, institutions, and the blogosphere, focus on the means, and not the ends. The ends have generally remained unquestioned. There seems to be an implicit assumption that worldwide energy demand will continue to grow something akin to a natural law, and that solutions should focus on ways to increase supply and/or efficiency of energy. But in an economic system based on self-interest on a finite planet, the true drivers of demand will need to be better understood beyond the microeconomic mantra “price will change behavior”.

This post examines our own history on the planet, outlines how the ancient-derived reward pathways of our brain are easily hijacked by modern stimuli, and concludes that in very real ways, we have become addicted to the ‘consumptive behaviors’ linked to oil. “Traditional” drug abuse happens because natural selection has shaped behavior regulation mechanisms that function via chemical transmitters. Just as an addict becomes habituated to cocaine, heroin or alcohol, the ‘normal person’ possesses neural architecture to become habituated via a positive feedback loop to the ‘chemical sensations’ we receive from shopping, keeping up with the joneses (conspicuous consumption), pursuing more stock options and profits, and myriad other stimulating activities that a large social energy surplus provides. In order to overcome addictions, it is usually not enough to argue about which year the drug supply is going to begin its decline. It’s a better path to understand the addiction, admit it before one hits rock bottom, and either begin the cold turkey process or become addicted to something else.

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