Peak Oil Update and Review of Recent Energy Policy Proposals

John Rawlins has a B.S. in physics and a Ph.D. in nuclear physics. He retired in 1995 from the Westinghouse Hanford Co. at the Hanford site in Eastern Washington. He recently retired from teaching physics and astronomy at Whatcom Community College.

It’s been quite a while since the last update on world oil production, and Dave Cohen of ASPO-US (Association for the Study of Peak Oil & Gas – USA) recently provided a concise and well-documented basis for an update. (http://www.aspo-usa.com/index.php?option=com_content&task=view&id=415&Itemid=91) The title of the article is “Peak Oil Is a Done Deal.”

The average world production of conventional oil (crude plus condensate) for the first four months of 2008 was, according to the U.S. Energy Information Administration (EIA), 74.3 million barrels/day (Mb/d). This is virtually the same level of production since mid-2004. Starting in 2002, world spare capacity started shrinking and the world price began rising, and it has risen something like 30 percent per year ever since. Spare capacity is now essentially zero.

We now live in an era of oil demand destruction, during which the rising price of oil and its derivatives (gasoline, diesel, jet fuel, heating oil, asphalt and many other products) serves to ration supplies to those who can best afford them.

Poorer people and businesses and governments in all countries around the world (including the U.S.) have had to reduce or eliminate use of oil products. Keep in mind that this has occurred with a steady oil flow rate of 74.3 Mb/d since 2004. At some point, depletion of the bigger, older oil fields will overwhelm newer capacity. After that point in time, world supply of conventional oil will decline, likely at a rate of around 4 percent per year, indefinitely.

Since alternative liquid fuel production will not even come close to making up for that decline, many oil analysts like Dave Cohen have spent considerable effort trying to define what the peak conventional world production will be, and when the decline will begin.

I have noticed that, for the past year, there’s been significantly less discussion of this topic at Web sites such as ASPO and The Oil Drum than there was in the timeframe 2002–2007. Cohen addresses that feeling of finality for himself (and I confess this speaks for me as well) with the following statement:

“As I said at the top, this is my official forecast and I will not revise it in the future. I will note for the historical record that in July of 2008 few Americans have come to grips with the implications of a permanent peak in the world’s oil supply despite the strong price signal we’ve seen for several years now. I have done all I could over the last few years to warn everyone about what’s coming. My conscience is clear even as my concern remains high.

“For me, the time has come to examine measures we might take in the post-peak world.”

The official forecast is as follows:

1. Global oil production will peak between 76–77 Mb/d (1.7–2.7 Mb/d more than now), between 2010–2012, with an 80 percent probability.

2. There is a 20 percent probability that the peak will be something other than the range 76–77 (either higher or lower) in the time interval 2009–2013.

The forecast does not address the time after peak production or the cost of oil on world markets. According to this forecast, the decline will likely occur during the next presidential administration, and the effects could have a huge impact on the 2010–2012 election cycle, as well as on all subsequent elections. This feels to me like a very short time-span for making preparations at the personal and community levels, compared with when I first learned about peak oil in late 2003.

Forecasts like this come with caveats, of course:

1. No geo-political upsets such as another oil war in the Middle East,

2. No major terrorist-inspired attacks (beyond what we now have) on oil installations,

3. No major weather-inspired surprises in oil-rich regions and

4. No worldwide recession/depression that affects consumption and/or building of new capacity.

In keeping with Dave Cohen’s idea to leave the peak oil details behind and focus on the future, the remainder of this month’s issue will deal with various individual and political party proposals that pop up with the regularity of molehills in a spring lawn not subjected to insecticides. It’s beginning to feel like the children’s game called “Whack a Mole,” in which you no sooner whack one mole than another pops up.

Given the name recognition of some of the recent proponents for establishing a real (meaning bipartisan) energy policy, it’s worth remembering that the previous three Rabbit on the Roof columns in the May, June and July 2008 Whatcom Watch issues reviewed a comprehensive proposed energy policy presented in the book “Apollo’s Fire” by Jay Inslee and Bracken Hendricks. The only major issue I have with their proposals is in their proposed reliance on biofuels for replacing gasoline and diesel for transport.

As very recent experience is demonstrating, the only option to using gasoline and diesel for transport is not using them. This translates to driving less, driving smaller vehicles, ride-sharing, work schedule adjustments — simply using less fuel.

The obvious problem with this approach is that it creates a painful economic climate: less movement of goods, less consumption, increasing unemployment and higher fuel costs anyway. People warning about peak oil traditionally emphasized these negatives (and others).

On the other hand are people warning about global climate change who advocate using less of all the fossil fuels to reduce emissions of greenhouse gases. Al Gore in his famous movie “An Inconvenient Truth” concludes by focusing on all the economic positives we would enjoy as a result of not using fossil fuels. In that worldview any economic pain associated with using less fuel is more than made up for by switching to alternatives and lifestyle changes.

I am convinced that the peak oil crowd has a better understanding of our overall energy dilemma, and in particular the impacts of declining oil, than the climate change group. The former understands the limitations of alternatives to oil as well as the likely timing of oil production and exports around the world.

The latter have by political necessity had to tout the supposed economic gains from mitigating climate change in order to make even the tiny progress toward a worldwide agreement on limiting greenhouse gas emissions.

Until politicians and voters understand and rationalize these opposing worldviews I fear we will never witness a comprehensive energy policy based on real science and engineering. And as it is, we’re already 30 years too late.

And until we do experience the miracle of a good comprehensive energy policy, we will be playing “Whack a Mole” on various proposals and/or pursuing silly, expensive government-supported programs such as increasing corn-based ethanol production or production of liquid fuel from oil shale formations. This will be both tiring and increasingly expensive and unhelpful.

Robert Rapier, a frequent poster at the OilDrum blogsite, wrote a column called “Misguided Energy Policies” which captures this sense of frustration. (http://www.theoildrum.com/node/4321)

On the one hand, the Bush approach is to drill more for oil in the U.S. and to increase ethanol production (even though the latter causes displacements around the world in food supply) — i.e., feed the addicts American fuel rather than foreign fuel. Climate change is really not something this group worries about. The only positive aspect from such an approach is internal consistency — growth at all costs.

On the other hand are proposals from Democrats, such as

1. Release oil from the Strategic Petroleum Reserve (SPR),

2. Punish oil companies for taking high prices for oil,

3. Outlaw investors from speculating on oil futures,

4. Reduce the federal gasoline tax (this actually has bipartisan support and opposition), and

5. Increase ethanol production (also bipartisan support from the corn belt).

These same Democrats argue for a climate change protocol that would result in less use of all fossil fuels. Go figure!

Where are the wise leaders who understand (and are willing to state publicly) that alternatives to oil don’t scale up, that less fuel use is good for the world climate, and that there will be enormous economic pain and major lifestyle adjustments? Wherever they are, they don’t get major media coverage.

On July 17, 2008, Al Gore delivered a major speech challenging the U.S. to become fossil-fuel-free by 2018 — that’s right, just 10 years from now. In the place of fossil fuels would be so-called renewable energy options, “truly clean” energy. The alternatives he focused on are solar and wind; one wonders whether hydro-electricity and nuclear powered electricity are “truly clean,” and he did not address those non-fossil options that today constitute about 30 percent of the nation’s electricity production.

The speech began by listing all the things that have gone wrong simultaneously — the housing financial crisis, growing climate change impacts and rapidly escalating energy (oil and electricity) prices. He didn’t mention rapidly increasing natural gas prices, and over half the nation’s homes use natural gas for space heating, cooking and water heating.

The most clever sound bite for me was the following:

“We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that’s got to change.” Do you suppose he also means to stop borrowing money from China, which also helps support our military and other government functions?

After reading the speech carefully, I tried to pick out the actual proposed changes in our built energy infrastructure (http://anidealiveson.com/2008/07/17/al-gores-energy-speech.)

1. Within 10 years, run everything with electricity from “renewables,” meaning new wind and solar power capacity.

2. Upgrade the national electric grid to enable electricity produced from this solar and wind capacity addition to the cities that use most of the electricity.

3. Find jobs for displaced workers delivering fossil fuels to us today.

4. Develop and rapidly ramp up use of plug-in electric cars (note: not hybrids).

Not mentioned are the following in such a completely new infrastructure:

1. Massive reductions in all energy use — meaning no more electric space heating, air conditioning (yeah, right!), electric clothes dryers, far less driving of any kind, much smaller homes and so on — the pain side of the equation.

2. Switching today’s natural gas used for home heating (also today’s home heating oil) to other (????) sources of space heating. This will be very expensive and is, of course, key to living in the northern spaces of the country.

3. As mentioned earlier, Gore did not address hydropower and nuclear power.

4. Electrification of long-distance transport — electric rails/trains.

5. The cost of this transition.

I expect the cost would be in the trillions of today’s dollars. For perspective, the typical time-scale for putting an entire energy infrastructure in place is around three decades. In my opinion, trying to accomplish the combination of reduced energy and complete infrastructure replacement in 10 years is pure fantasy — but that is the nature of a challenge, after all.

• For a more entertaining review of Gore’s challenge, read Dave Cohen’s thoughts: http://www.energybulletin.net/node/46015.

• Or, read a more positive review of the challenge by Alex Steffen, who adds significantly to my list of things Gore didn’t mention (like rebuilding food production and cities): http://www.worldchanging.com/archives/008249.html.

• For an engineering 10-point plan (what else, why not 13?) to accomplish Gore’s vision see: http://www.energybulletin.net/node/46049.

• Finally, Jerome Guillet (who writes frequently on energy policy under the pseudonym Jerome a Paris) estimates that we could conceivably achieve about half of Gore’s conversion during the next decade: http://www.eurotrib.com/story/2008/7/17/142724/157.

In summary, remember that peak fossil fuels in today’s world (in which 85 percent of all energy is from fossil fuel) means “peak everything” tomorrow — so literally everything in the industrialized and developing world (not just the U.S.) would need rebuilding to eliminate fossil fuels within a decade (or three decades, for that matter).

T. Boone Pickens is a very rich oil investor (he also has big investments in natural gas and wind) who has been warning us frequently on the subject of peak oil. Recently he began advocating his version of an energy plan for the future: http://www.pickensplan.com/theplan. He actually uses some numbers.

Today, about 22 percent of U.S. electricity comes from natural gas generation. Pickens proposes to replace that generation with wind power at a cost of about one trillion dollars, plus about $200 billion for an upgraded electricity grid to get power from the U.S. wind corridor (Midwest) to users on both coasts. Then, he proposes to use the freed-up natural gas for transport fuel.

Currently, only 150,000 of the world’s seven million NGVs (natural gas vehicles) are in the U.S. Natural gas is the cleanest burning (in terms of all emissions) fuel in the fossil fuel category, so on the surface this proposal sounds like a clear winner. Even Ralph Nader has jumped onto this bandwagon by writing a letter to both major presidential candidates encouraging them to discuss this plan with Pickens: http://www.votenader.org/media/2008/07/11/Pickens.

However, Whatcom Watch readers may recall that natural gas production in North America peaked several years ago, and only an extraordinary drilling effort in the U.S. Rockies is preventing a very serious decline in total production.

The prospects for future natural gas production are at best grim: the next harsh U.S. winter will likely produce emergency conditions in the country’s northern tier of states for the 50 percent of us that use natural gas for space heating. Electricity production would also be at high risk.

Replacing natural gas dependency makes total sense, but not with the assumption that we’ll be able to power our transport sector with NGVs. Any natural gas not used for electricity production will most likely go to relieve the tight space-heating and electrical markets for the fuel.

This plan’s not even worth whacking: Promoted as the “Drill Here, Drill Now, Pay Less” plan, the idea rests on the false assumption that the vast U.S. oil shale deposits can yield oil at significant flow rates for decades into the future, starting soon. Nothing could be further from the truth. See the following for why this plan is so bad it’s not even wrong: http://www.wealthdaily.com/articles/gingrich-boone+pickens-energy/1412.

Since most of the so-called plans that get the attention of major media seem to be coming from the political sector, and since federal politicians run for office every other year, and since our energy hole promises to deepen over time forever, we can look forward to a never-ending series of “plans.”

When investors like Pickens get serious with their own money and the government gets serious with ours, we might also anticipate that the next big economic bubble will be in renewable energy production. After a few years, as reality descends about how rapidly it’s possible to build (during hard times) all those monster windmills, solar panels, solar thermal/electric central stations, and passive solar systems, the final bubble will pop and The Great Wealth Transfer will be complete. Or not, if you believe in miracles.

And for me, the time has come to continue taking measures for the post-peak world. §