The Oil Drum: Local

In this analysis, Samuel Foucher (“Khebab”) and I (Tony Eriksen or “ace”) present an update of Wikipedia Megaprojects data. We also provide forecasts of future oil production, reflecting the Megaprojects data. The IEA uses megaprojects in its analysis and we reconcile our Megaprojects information to the data they provide in their report.

A wide variety of methods can be used to forecast future oil production. Each will provide different indications. Sam and I each make projections with megaprojects data, using somewhat different methods. Sam’s projections are shown in Figure 6. My forecasts are shown in Figures 8, 9, and 10. Despite our differing methods, the indications we produce are all substantially lower than the indications of the IEA.

Until quality data about production history, reserves and future development plans including capacities are obtained for fields in secretive OPEC countries, forecasts beyond 2012 are highly uncertain, regardless of the source. While quality data remain unavailable, the world's future energy security, in particular liquid fuels supply security, remains an extremely high risk.

This chart shows the IEA WEO 2008 forecast together with Sam's forecast derived from using Megaprojects sanctioned capacities and yet to be sanctioned capacities (including yet to find oil - YTF). By 2020, the IEA's forecast is significantly greater than Sam's forecast.

Fig 1 - Possible Future Supply Capacity Scenario for Crude Oil and NGL

I recently looked through news articles to see which energy sectors were being affected by the credit crisis. I was amazed at how widespread and how devastating the impact is.

There are really two closely related problems. One is reduced access to credit, making new borrowing difficult for nearly every business that requires debt. Prices for all commodities have been dropping as well. At least part of the reason for this price decline is the lack of availability of credit—many of the less credit-worth buyers drop out of the market. This leaves fewer buyers and almost the same number of sellers, so the price drops.

In this post, I examine how reduced access to credit and the concomitant decline in commodity prices is affecting energy companies.

Recently, two major actuarial organizations asked members to submit essays on the financial crisis. The only limitation was that the papers had to be very short--they should fit on two typewritten sheets of paper.

Since I have written in the past on the financial crisis, I took the opportunity to respond. This was my summary of the current financial situation, its connection to our limited resources, and what we need to do to solve the crisis. I never actually use the words "peak oil" and, in fact, the precise timing of peak oil is irrelevant. The issue is really the financial squeeze that occurs when resources starts to become expensive to deliver, and that doesn't really require peak oil.

Our World Is Finite

We all know the world isn’t flat. Any of us would be laughed out of the room if we built a model with a flat earth as one of its major assumptions.

We also know that the world isn’t infinite. There are a finite number of atoms in the earth and its atmosphere. The ability of our atmosphere to absorb pollutants is limited. The ability of our soil to withstand repeated mistreatment is limited. The amount of our non-renewable resources is limited.

Fossil fuels, especially oil, are a particular problem. Even though the amount of resources seems huge, the cost of extraction (in terms of fossil fuel resources, man-hours, and fresh water) increases greatly after we have extracted the easy-to-extract oil, natural gas, and even coal. Substitutes (such as ethanol and solar voltaic) are expensive in terms of fossil fuel use, man-hours, and fresh water. It is also difficult to ramp up quantities to the level needed to substitute for fossil fuels.

In the second post in this series on suburbia and peak oil, I’ll consider one of the threats that peak oil poses to suburbia: the increasing cost of commuting to and from work for suburban residents. My conclusions may surprise readers: suburbanites aren't particularly vulnerable to the rising cost of gasoline. Instead, like all of us, they are vulnerable to general economic shocks that may be caused by peak oil, but the elasticity of their commuting budgets may better position them to deal with these shocks than urban residents.

Last week saw the publication of The Oil Crunch, securing the UK's energy future (discussed on TOD here). This is the first report from a taskforce of leading UK companies and sounds the alarm bell on peak oil. The group formed around 18 months ago through a common concern that peak oil and energy security are not receiving the attention they deserve.

Jeremy Leggett, Chairman of Solarcentury and taskforce member has provided The Oil Drum with an interview with "an anonymous cynical journalist". He discusses the thinking behind the report, the credit crunch, the global oil industry's culture towards the future and the report's recommendations.

Jeff Rubin, Chief Economist at CIBC World Markets, in a recent report, is now saying that the current recession is caused by high oil prices. Defaulting mortgages are only a symptom of the high oil prices. We should be blaming the underlying cause--higher oil prices--rather than the symptom. These higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn't be too surprised if they started this one also.

Figure 1 - Shows that four out of the past five recessions have followed spikes in oil prices

Many argue that suburbia was a terrible idea—a giant waste of land, capital, and culture. I largely agree. But there you have it: suburbia happened, with no refund available. It is a sunk cost—not only the millions of homes, but the vast infrastructure for transportation, employment, governance, and distribution that is fundamentally intertwined with the suburban model. Looking into a future of energy scarcity and economic challenge, it is time for the discussion to shift from “suburbia sucks” to “what are we going to do about it?” Is it possible to build a vibrant, sustainable, and self-sufficient civilization on the framework of existing suburban development? More importantly, is there any viable alternative? This four-part series will take a critical look at suburbia in an environment of peak oil, beginning with this post’s discussion of sunk costs and credit markets as they impact our options.

This is a guest post by André Angelantoni, known on TOD as aangel. He is co-founder of PostPeakLiving.com and co-founder of Post Carbon Marin, his community's effort to prepare for peak oil, and a former executive coach and business consultant. He wrote this article to give people one way to navigate through the forced transition to a post peak world we are all going to experience.

The future most people are living into is beginning to disappear. The financial crisis threw the first punch, but oil depletion will deliver the knockout blow. The moment people realize that the society they have known their whole life can no longer function the same way without the energy provided by oil, it will become glaringly apparent that the future will be very, very different. It’s not just that we will no longer have fresh food flown in from around the world. Some of the fundamental assumptions held by people living in the rich countries will no longer hold:

• many jobs that have never existed before will once again no longer exist
• retirement, a phenomenon only a century old, will disappear
• accumulating “wealth” will be out of reach for most people
• most children will no longer be able to attend institutions of higher education
• diseases and conditions that are easily treated now will once again claim lives

Once a person has realized that these and many more futures will no longer exist, they will ask themselves the following question: If the future I’ve lived with my whole life will not longer occur, what will my future be?

This is the executive summary of a briefing paper by Stewart Smith, published by the Research Service of the Library of the Parliament of NSW. The full paper can be found here (pdf).

The transport sector consumes 41 percent of final energy consumption in Australia, with the demand for transport energy growing at about 2.4 percent per year. Road vehicles moving passengers and freight account for 75 percent of transport fuel use. The Australian and international economy are deeply reliant on the supply of abundant petroleum resources at reasonable prices. However, significant challenges are confronting the petroleum and transport industry, both domestically and internationally. The first of these is tight supplies of crude oil, coupled with a growing market base of emerging economies. The second is the necessity to reduce greenhouse gas emissions to prevent dangerous climate change. This paper focuses on the former issue, and explores the factors contributing to the price of petrol in Australia.

The proven world oil reserves at the end of 2007 were 1,237.9 thousand million barrels, enough to supply the world at 2007 levels of consumption for 41.6 years. World distribution of proven oil reserves is heavily weighted to the Middle East (61%). The Asia Pacific region has the least, with just 3.3% of total proven reserves. At the end of 2007, Australia had proven reserves of 4.2 thousand million barrels of oil, which at present rates of production would last 20.3 years.

It gets depressing hearing about our financial problems every day. I am sure a lot of people would rather talk about oil and natural gas, and about better prospects for the future. Improved technology is one factor that might make future production better than the bleak future that most of us are foreseeing today. It might even reduce costs, so that more oil and gas can be produced at the lower prices we are seeing today.

What kinds of technology advances are you hearing about? Which ones really have promise? Which ones will not be hurt too badly by the financial crisis, and in fact, may help production in spite of the crisis?

To get people started, below the fold I quote paragraphs about technologies I have read about, mostly from articles in the Next Generation Oil & Gas Journal.