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The Really, Really Big Picture

There isn't going to be enough net energy
Tuesday, January 15, 2013, 9:54 PM

[Many longtime followers of the Crash Course have asked Chris to update his forecasts for Peak Oil in light of the production increases in shale oil and gas over recent years. What started out as a modest effort at clarification morphed into a much more massive 3-report treatise as Chris sifted through mountains of new data that ultimately left him more convinced than ever we are facing a global net energy crisis despite misguided media efforts intended to convince us otherwise. His reports are being released in series over the next several weeks; the first installment is below.]

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

This series of reports will assemble the relevant data into a simple and easy-to-understand story that has the appropriate context to provide a meaningful place to begin a conversation and make decisions.

Since completing the Crash Course in October of 2008, much has gone as I anticipated in the way of money printing, official neglect of the main predicaments we face, and generally higher petroleum costs (2012 was the record so far on a yearly basis).

What has not changed is the general trajectory of liquid fuels becoming increasingly expensive and more difficult to produce.  I know that this runs counter to virtually every news article that has come out recently.  It is time to separate the data and facts from the hype.  Much has recently been either muddied or presented so far out of context as to be more distortive than helpful.

This entire body of analysis is so large that it will be broken into three pieces. 

The first is a general world outlook for petroleum that presents the macro picture, provides some necessary clarifications on definitions, and illustrates that all of the data is consistent with the idea that the world is on a plateau of oil production.  Here we note that exactly zero of the major energy outlooks provided by the IEA, the EIA, BP, and especially the inexcusably sloppy piece put out under the auspices of Harvard (the Maugheri report of 2012) all failed to make any mention of the declining net energy provided by any of the new unconventional oil finds.  This is a crucial oversight.

The second report will focus on natural gas in the U.S., with a particular emphasis on shale gas, the supposed game-changer that we have read so much about.  There are some very important elements to this story, but the punch line is that there's nowhere near "100 years" of this magic fuel, it costs more to produce than it is being sold for at present here in early 2013, and – once we include the idea of future increases in consumption – there may only be in the vicinity of 20-30 years of proven and probable reserves. And that is if and only if prices rise by a factor of 2.5x or more from the current $3.30 per therm market price. 

The third will focus on tight oil, often called shale oil (not to be confused with oil shale, a very common mistake), and make the case that, while it may have some modifying effect to the Peak Oil story, it lacks the ability to return the world to anywhere near its prior glory years of ~2% per year growth in global oil output. 

The summary of all three reports leads to the conclusion that all efforts to cram the world full of fresh rounds of new debt lending are going to end in failure because the requisite net energy is simply not there to support continued debt accumulations running several-fold faster than actual economic productive output.

Enormous risks are continuing to build in the world's financial landscape, and the continued unwillingness to confront the truth about our global energy predicament is both puzzling and frightening. The conclusion is that our future resilience as individuals, corporations, or countries will hinge to a very large degree on whether or not we heed the warning signs and adapt our lives and habits to the actual circumstances.

The Really, Really Big Picture

The really big picture goes like this:  Humans discovered about 400 million years worth of stored sunlight in the form of coal, oil, and natural gas, and have developed technologies that will essentially see all of that treasure burned up in just 300 to 400 years. 

On the faulty assumption that fossil fuels will always be a resource we could draw upon, we fashioned economic, monetary, and other assorted belief systems based on permanent abundance, plus a species population on track to number around 9 billion souls by 2050.

There are two numbers to keep firmly in mind.  The first is 22, and the other is 10.  In the past 22 years, half of all of the oil ever burned has been burned.  Such is the nature of exponentially increasing demand.  And the oil burned in the last 22 years was the easy and cheap stuff discovered 30 to 40 years ago.  Which brings us to the number 10.  

In every calorie of food that comes to your table are hidden 10 calories of fossil fuels, making modern agriculture and food delivery the first type in history that consumes more energy than it delivers.  Someday fossil fuels will be all gone.  That day may be far off in the future, but preparing for that day could (and one could argue should) easily require every bit of time we have.

What galls me at this stage is that all of the pronouncements of additional oil being squeezed, fractured, and otherwise expensively coaxed out of the ground are being delivered with the message that there's so much available, there's nothing to worry about (at least, not yet.)  The message seems to be that we can just leave those challenges for future people, who we expect to be at least as clever as us, so they'll surely manage just fine.

Instead, the chart above illustrates that on a reasonably significant timeline, the age of fossil fuels will be intense and historically quite short.  The real question is not Will it run out? but Where would we like to be, and what should the future look like when it finally runs out?  The former question suggests that "maintain the status quo" is the correct response, while the latter question suggests that we had better be investing this once-in-a-species bequeathment very judiciously and wisely. 

Energy is vital to our economy and our easy, modern lives.  Without energy, there would be no economy.  The more expensive our energy is, the more of our economy is dedicated to getting energy instead of other pursuits and activities.  Among the various forms of energy, petroleum is the king of transportation fuels and is indispensible to our global economy and way of life.

To what do we owe the recent explosion in technology and living standards?  To me the answer is simple: energy. 

(Source)

Because a very large proportion of our society was no longer tied up with the time-consuming tasks of growing their own food or building and heating their own shelter, they were free to do other very clever things, like devote their lives to advancing technology.  

When energy starts to get out of reach either economically or geologically, then people revert to more basic things, like trying to stay warm – such as this fellow:

Greeks Raid Forests in Search of Wood to Heat Homes

Jan 11, 2013

EGALEO, Greece—While patrolling on a recent cold night, environmentalist Grigoris Gourdomichalis caught a young man illegally chopping down a tree on public land in the mountains above Athens.

When confronted, the man broke down in tears, saying he was unemployed and needed the wood to warm the home he shares with his wife and four small children, because he could no longer afford heating oil.

"It was a tough choice, but I decided just to let him go" with the wood, said Mr. Gourdomichalis, head of the locally financed Environmental Association of Municipalities of Athens, which works to protect forests around Egaleo, a western suburb of the capital.

Tens of thousands of trees have disappeared from parks and woodlands this winter across Greece, authorities said, in a worsening problem that has had tragic consequences as the crisis-hit country's impoverished residents, too broke to pay for electricity or fuel, turn to fireplaces and wood stoves for heat.

I think it is safe to assume that all of the people in Greece who are chopping down trees to stay warm are not simultaneously working on the next generation of technology.  Energy first; everything else second.  In other words, our perceived wealth and well-being are both derivatives of energy. 

Like every other organism bestowed with abundant food – in this case, fossil fuels that we have converted into food, mobility, shelter, warmth, and a vast array of consumer goods – we first embarked on a remarkable path of exponential population growth.  Along with these assorted freedoms from securing the basics of living, we also fashioned monetary and economic systems that are fully dependent on perpetual exponential growth for their vitality and well-being.  These, too, owe their very sustenance to energy.

It bears repeating:  Not just energy is important here, but net energy.  It's the energy left over after we find and produce energy that is available for society to do all of its complicated and clever things.

Not only is the world struggling right now to increase global oil production, but all of the new and unconventional finds offer us dramatically less net energy to use as we wish. 

Where We Are, in Three Simple Charts

One narrative that is being heavily marketed right now is that the shale plays are true game-changers and there's really nothing to worry about for the foreseeable future.  Heck, the story says that the U.S. will soon exceed Saudi Arabia in oil production and become energy independent, that it has so much natural gas that it might as well build export terminals, and that there's 100 years of natural gas just waiting to be used.

Unfortunately, none of this is really true.  Here's how I can make the case for that assertion using just three charts. 

This first chart comes to us from the EIA courtesy of one Mr. Sweetnam, a former director at the EIA who was promptly reassigned to a distant position when his superiors discovered that this chart revealing declines in existing conventional oil fields had been released to the public.

What this graph shows is the projected decline of all known projects in 2009 (so this does not have the U.S. shale 'revolution' baked into it, but I'll get to that shortly), and it shows that those projects are going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030.  In other words, 40 million bpd will go missing.  But it's worse than that, because demand is expected to grow, leaving a gap of more than 60 million bpd by 2030.

If that sounds like a lot, it is, but that's just an assumed rate of production decline of 4.08% per year, which is right in the midzone of expert estimates.  Some estimate decline rates as high as 6.5%, which would really amplify the drop and the resulting gap.

The top line is showing how much oil demand would grow if it was going to expand at the usual historical rates.  The gap between those two modeled states is 60 million barrels [Edit:  this orignially read "43 million barrels" but has been corrected].  To put that in a U.S. shale context, the EIA projects that the domestic shale plays might deliver as much as 3 million barrels per day by 2020, which is nothing to sneeze at, but even with that there's a projected 60 million bpd shortfall Edit:  this orignially read "40 million barrels" but has been corrected]

The second chart I want you to look at is this one which shows total world crude oil production over the past 12 years:

Between 2004 and 2012, the total supply of global crude oil + condensates (a definition which excludes the non-transportation fuels known as natural gas plant liquids and biofuels) has just flopped around in a tight band with only 5% wiggle.

It bears noting here that the 2004 average spot price for crude oil (using the Brent contract, as that better defines the 'world oil' price) was $38.35/bbl, while the average 2012 spot price was $111.63, or 2.9 times higher than the 2004 price. 

Despite this near tripling in price, the global supply is just sitting there stuck on a plateau.  Economically speaking, this is not supposed to happen.  What is supposed to happen is that suppliers will react to these higher prices and deliver more to the market, and then prices will settle down.  But that hasn't happened, which indicates that global oil supplies are, as expected, constrained by something other than market forces.

This brings us to the third chart of global spending on oil projects:

What also happened during the time that global supplies of crude oil were undulating along that 5% plateau?  Global expenditures on oil projects jumped by 100% from $300 billion per year to $600 billion.  With a 100% increase in capital spending by the petroleum industry, we saw petroleum supplies remain more or less stuck in the exact same spot. 

I am of the impression that $600 billion a year is a lot of money and that the people dedicating that capital are applying it to the very best projects available.  I make the further assumption that when a project is identified and pursued, it is brought on line as rapidly as possible.  There are not that many ways to look at this data other than noting that we are spending more and more to get the same...for now.

If you want to know why oil costs over $110 on the world stage, the last two charts above give you the answer:  There's just not that much of it to go around.

Despite all of this effort and expense, the world is basically treading water with respect to overall production.  The reason for that is contained in the first chart out of these three:  The race is now on to bring new projects on line quickly enough to offset the losses from existing fields. 

Petroleum is neither a U.S. issue nor any other specific country's issue, but rather a global commodity of immense importance. While the development of the shale plays in the U.S. is of domestic importance, it has not altered the global dynamic of static oil production – at least not detectably in the global supply charts. Not yet.

Conclusion (to Part I)

In Part II: How Energy Woes Will Trigger Financial Crisis, we look at the latest global petroleum supply and demand data and see clearly that cheap oil has become extinct. That era is over for humankind. 

My prediction is that the underlying rates of depletion will continue to fight the recent production gains in the U.S. and elsewhere in the world until they soon come to a standstill, eventually swamping even heroic efforts. 

Steadily rising energy costs and decreasing net energy yields will simply not be able to fund the future economic growth and consumptive lifestyles that developed nations are depending on (and that developing nations are aspiring to). In fact, the persistent global economic weakness we've been experiencing over the past years is an expected symptom of the throttling constraint decreasing net energy places on growth.

If you care about the future of the economy, your standard of living (or that of your children), and/or your quality of life, you need to fully understand this relationship between growth and net energy. Your individual future (and our collective one) depends on it.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

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51 Comments

Rector's picture
Rector
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My evening is saved!

Its like the release of a new Star Wars movie or Tom Clancy book!  I love it when I get a surprise article on my iPad!  Ok; I'm going to read it now and then perhaps think of some insightful comment. . .

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Petey1
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No new Camaro

So I should keep the Prius and not get a new Camaro. I will really miss muscle cars.

treebeard's picture
treebeard
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Pestered at work

I have been leading green initiative at work and have subsequently been labeled a "tree hugger".  If you can believe it in this day and age.  When all the gas plays became news, peolpe have been coming up to me saying, "how does it feel to be wrong" in there own inimical ways.  Chris has made me lazy on the energy research side, when he announced he would be doing these pieces, I said to myself that I would wait for his reports. The broad context of energy and resource depletion is so solid and well documented, even large discoveries don't dent the large picture as the report aptly points out.  Well done, thanks for the detail and confirmation, look forward to future reports.

It is still so strange, at work most people are so completely oblivious about the big picture, meet in the evening with the local transition initiating group and everyone takes the impending problems for granted. I know everybody experiences the mostly the same thing, but it still boggles my mind.  As Mike Rupert says, who are you going to relate to and work with, the guys sitting and drinking at the Titanic bar asking you to sit down and relax or those up on the deck frantically trying to build life boats.  I need to let this go.

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RJE
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treebeard...

...it will go, you will just stop explaining and find comfort in the fact you are right, and taking care of those you care for. It's why we are here, Buds then... 

Good Luck

BOB

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green_achers
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Feedback

One small quibble:  In the third paragraph under the chart "World's Liquid Fuels Supply," you contrast the projected 3 MMBPD increased US production projected by the EIA for 2020 with the 43 MMBPD indicated in the chart for after 2030.  I would like to know what the EIA says the US production will do after 2020.  I understand it will probably still be a very small percentage of the total worldwide demand deficit, but if I am going to use this, I would like to be making as accurate a comparison as possible.

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US production in 2030

green_achers wrote:

One small quibble:  In the third paragraph under the chart "World's Liquid Fuels Supply," you contrast the projected 3 MMBPD increased US production projected by the EIA for 2020 with the 43 MMBPD indicated in the chart for after 2030.  I would like to know what the EIA says the US production will do after 2020.  I understand it will probably still be a very small percentage of the total worldwide demand deficit, but if I am going to use this, I would like to be making as accurate a comparison as possible.

To be as accurate as possible in reference to the recent EIA projections (which change wildly from year to year, so be prepared to adopt a different view next year) you would need to shave about a million bpd from the 3 million bpd peak they are forecasting.  I've added dotted lines for 2020 and 2030. 

(Source - David Hughes presentation to ASPO 2012)

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Shale gas is not a game-changer for the UK, says BP

From the The Telegraph:

Shale gas is unlikely to be a “game-changer” for the UK over the next two decades, energy giant BP said, as it warned that Europe would become increasingly dependent on imported gas.

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Time2help
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treebeard wrote: I have been

treebeard wrote:

I have been leading green initiative at work and have subsequently been labeled a "tree hugger".  If you can believe it in this day and age.  When all the gas plays became news, peolpe have been coming up to me saying, "how does it feel to be wrong" in there own inimical ways.  Chris has made me lazy on the energy research side, when he announced he would be doing these pieces, I said to myself that I would wait for his reports. The broad context of energy and resource depletion is so solid and well documented, even large discoveries don't dent the large picture as the report aptly points out.  Well done, thanks for the detail and confirmation, look forward to future reports.

It is still so strange, at work most people are so completely oblivious about the big picture, meet in the evening with the local transition initiating group and everyone takes the impending problems for granted. I know everybody experiences the mostly the same thing, but it still boggles my mind.  As Mike Rupert says, who are you going to relate to and work with, the guys sitting and drinking at the Titanic bar asking you to sit down and relax or those up on the deck frantically trying to build life boats.  I need to let this go.

Amen to that!  (To just letting it go.)

bientum's picture
bientum
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International Burst

Its good to have some more definitive dates.  But when are we going to truly feel the negative affects worldwide, in every country.  Oil shortages would effect everyone on earth.  There are corrupt countries that maintain a wealthy minority just by printing money and putting it into briefcases I'm sure.  When are they going to feel it.  When will the top 1% feel it?  Heres one example, the most expensive houses near where I live in Sydney are struggling to be sold, and half of them are up for sale.  The asking prices are $10,000,000 to $20,000,000.  I think the rich are finally getting it.  Those houses weren't such a great investment.

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MarkBahner
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AEO oil price projections to 2035

Hi,

The 2012 AEO has a Table 23 with projections of world oil prices from 2015 to 2035. The average of all predictions goes from approximately $100 in 2015 to approximately $120 in 2035. The maximum prediction in that table is from AEO 2012 reference, at about $145 in 2035. I take it your price estimates would be much, much higher?

Mark

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Small errors in above article

Hi Chris,

I just wanted to bring to your attention a couple of items:

1.  para 6  I believe you accidently have BP shown as PB

2.  second para after the chart "Worlds Liquid Fuels Supply"  I suspect that the gap that you are refering to between the two models is about 63 and not 43 as written (106 - 43 = 63).

"The gap between those two modeled states is 43 million barrels."

As always keep up the great work.

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Errata

Chris,

Great piece, but you're mis-reading this excellent chart exactly the same way most people seem to.

cmartenson wrote:

What this graph shows is the projected decline of all known projects in 2009 (so this does not have the U.S. shale 'revolution' baked into it, but I'll get to that shortly), and it shows that those projects are going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030.  In other words, 40 million bpd will go missing.  But it's worse than that, because demand is expected to grow, leaving a gap of more than 60 million bpd by 2030

I use this same chart and most people misinterpret it. Specifically:

cmartenson wrote:

The gap between those two modeled states is 43 million barrels.

No, that's not what the "43" indicates. The "43" means that global production from projects known in 2009 would decline to 43mmbpd by 2030. It would "read better" if the number "43" were moved down and to the right.

As it is, most people interpret the "43" to be the size of the gap between the projected demand line and production from then-known fields. In actuality, the gap is 62mmbpd, i.e. 105mmbpd 2030 demand projection minus 43mmbpd production from previously known sources equals 62mmbpd shortfall, or more than 5 new Saudi Arabias worth of new oil discoveries needed to fill the gap.

cmartenson wrote:
To put that in a U.S. shale context, the EIA projects that the domestic shale plays might deliver as much as 3 million barrels per day by 2020

Ok, but in fairness there are credible projections estimating that in aggregate, the Bakken, Eagle Ford, Barnett and other U.S. plays could collectively produce up to 4.8mmbpd. Let's give them the benefit of the doubt and accept their number without critique. Heck, let's round it up for good measure and call it 5mmbpd by the time all the new shale plays are exploited.

Five million barrels a day of NEW production is nothing to shake a stick at. It's fully HALF of Saudi Arabia's output. Since we need to find 62mmbpd, again rounding generously, five million barrels of new production solves just 1/12th of the problem. We still need 4.5 more Saudi Arabias to be discovered in the next 7 years to replace the remaining 55mmbpd projected shortfall. If we can just find those 4 1/2 more Saudi Arabias in the next 7 years, the overall Peak Oil problem will have been solved completely.

The bottom line is still that to solve the problem we need to find exactly TWELVE TIMES the highest projected annual production estimate from all the U.S. shale plays combined. This is a big deal and even just 1/12th is still a major achievement against such a monumental goal as 60mmbpd. But we can't lose sight of where we stand. We are 1/12th of the way there, and no more major finds are even on the radar at this point. That's where we stand. 1/12th of the way to a real solution, 7 years to go. 55 million barrels per day of new oil production left to be discovered. 

Erik

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Thanks, It's All Good.

Erik T. wrote:

Chris,

Great piece, but you're mis-reading this excellent chart exactly the same way most people seem to.

No, that's not what the "43" indicates. The "43" means that global production from projects known in 2009 would decline to 43mmbpd by 2030. It would "read better" if the number "43" were moved down and to the right.

As it is, most people interpret the "43" to be the size of the gap between the projected demand line and production from then-known fields. In actuality, the gap is 62mmbpd, i.e. 105mmbpd 2030 demand projection minus 43mmbpd production from previously known sources equals 62mmbpd shortfall, or more than 5 new Saudi Arabias worth of new oil discoveries needed to fill the gap.

Thanks Erik,  It seems I slipped in my meaning in my second paragraph but not my first, ... I have the same interpretation as you.  Here's what I wrote again in the first paragraph:

cmartenson wrote:

What this graph shows is the projected decline of all known projects in 2009 (so this does not have the U.S. shale 'revolution' baked into it, but I'll get to that shortly), and it shows that those projects are going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030.  In other words, 40 million bpd will go missing.  But it's worse than that, because demand is expected to grow, leaving a gap of more than 60 million bpd by 2030

That is, all known producing projects in 2009 will decline by some 40 million bpd.  Once we factor in demand, then the gap swells to more than 60 mbpd.  

I stick to the round numbers here  (40 and 60) because that's a sufficient amount of precision when projecting into the future.  43?  62?  Nah, too precise for me because I know better.  Demand and supply are both a function of price and price is a function of supply and demand.  So who knows what will be produced from exotic plays in the future?

Given all that uncertaintude, best to just round to the nearest whole number and use that as a starting point for discussion.

Sorry for being unclear in my writing, I hope that by saying that existing production capacity was "going to slip from delivering 85 million barrels per day (bpd) of crude oil to just 45 million bpd between 2012 and 2030" I conveyed my point properly.

In the next section I bungled it.

Just to be crystal clear then, my intent with this chart was to say:

  • the gap between existing production and future production from those same sources will be ~40 Mbpd
  • the gap between future demand and production from existing plays will by 60 Mbpd.

Again, sorry for any confusion, and thanks for clarifying!

Best,
Chris M.

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Chris and Erik, I love the banter and numbers...

...and this will be proven also: Your numbers are too conservative still. Saudi Arabia will be absolutely proven (over time) to be far less than is even guess estimated. Before here to there the above ground issues will be so great that these numbers anticipated will just NOT materialize. Hoarding will be such a problem too that all these numbers are just a fragile attempt at making sense of it all, and yet all the ears of leadership are of the Mauldin kind (there's no problem Folks) and I just hope this isn't true.

I still get all of my best guess estimates and opinions from "Twilight in the Dessert" and Matt Simmons 'got it right' research.

Respectfully Given

BOB 

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Recent work by Erik T.

Since Erik has popped his head in PP again... and it's always nice to have him commenting here.. I will point out that he wrote an EXCELLENT piece recently that gets down to brass tacks of energy and the future of the dollar (as the reserve currency);

http://www.resilience.org/stories/2013-01-07/commentary-why-peak-oil-thr...

excerpt: 

But that immunity cannot last forever. The loss of reserve currency status will be the forcing function that begins a self-reinforcing vicious cycle that brings about a U.S. bond and currency crisis. While many analysts have opined that the USA cannot go on borrowing and spending forever, relatively few have made the connection to loss of reserve currency status as the forcing function to bring about a crisis.

We’re already seeing small leaks in the ship’s hull. China openly promoting the idea that the yuan should be asserted as an alternative global reserve currency would have been unthinkable a decade ago, but is happening today. Major international trade deals (such as China and Brazil) not being denominated in U.S. dollars would have been unthinkable a decade ago, but are happening today.

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Long term price trends? % of GDP spent on gasoline trends?

Demand and supply are both a function of price and price is a function of supply and demand.  So who knows what will be produced from exotic plays in the future?

So...what do you think the price will be? The AEO 2012 studies I linked to when from an average of about $100 per barrel in 2015 to about $120 in 2035, with a maximum value of about $145 in 2035. (All values were in 2010 dollars.)

Do you think the real price will be $200 (in 2010 dollars)? $300? More?

Or perhaps even more importantly, in 2011, the U.S. consumed about 134 billion gallons of gasoline, at a cost of about $3.50 a gallon. So that's a total cost of about $470 billion. The U.S. GDP in 2011 was about $15 trillion, so spending on gasoline was about 3.1 percent of GDP.

What do you think the numbers will look like in 2035?

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Erik, for a fact is brite...

...and his opinion seems to be in direct conflict with Pettis and Chanos so who is to be weighted more?

Pettis wrote this and so much more:

http://www.mpettis.com/2012/11/17/is-there-an-asian-rmb-bloc/

Chanos this and so much more:

http://online.barrons.com/article/SB50001424052748704379604578187373254242836.html#articleTabs_article%3D2

Gordon Chang seems to NOT believe in the China story and I just don"t know what to think.

http://online.barrons.com/article/SB50001424052748704379604578187373254242836.html#articleTabs_article%3D2

I do understand though that China is a developing country and to get to developed status and a serious economy then they have to move their paltry 38% consumer driven economy to a world norm of somewhere near 60% (?). So, I will keep my mind wide open and just let things develop without over committing myself to any one ideal or opinion.

I believe Pettis has been on the ground focused on China, and Chanos has some serious boots on the ground too.

Perhaps ET can share his direct contacts, and where his research comes from.

I read and with great interest the article in "Resiliency", and many assumptions were made and some of it conjecture and not completely clear to me as it just isn't clear just yet. One question: If China wanted to destroy the dollar it most certainly can but in the process would destroy itself. So, this dance could go on for some time yet are my thoughts. Brazil and local Asian countries are one thing, being a part of a basket of currencies to a new reserve currency is quite another, especially when you are still a developing economy and NOT a developed economy. In any case, I get the contexts of the article by Mr. Townsend but too many assumptions, and no real timeline from point A to point B was established.

The "Triffin Paradox" had me smiling a bit as Charles had referenced this and Chris seemed to down play this as beneath the level of importance and not relevant but I never understood why.

So many brainiacs in conflict that who is completely sound in judgement is a toss up. I will say I completely agree with the negative influence "Peak Oil" will have on the world IS NOT fully appreciated by the economists and the public just on supply and demand. To be found energy is a serious issue and NO ONE truly understands where that will come from but then again we do have thin air money so thin air energy I guess.

Erik T gets my full support with regards to Peak Oil, and nothing he has written contradicts the research of Simmons, Nelder, Campbell, ASPO, Oil Drum and the like.

Respectfully Given

BOB  

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External costs?

Great article. Another thing to consider is the unknown externalities that are inevitably coming. As Japan can attest, there are Real energy costs (30% in their case) to Mother nature's push back on our externalities. We can't factor in the unkown, but considering the eponential rate of external costs, especially from those 'developing' counties (adding to the externals), I think we can logically assume bigger costs are coming in the future. How much more energy will we need to rebuild after these catastrophes?... putting even more downward pressure. 

Bob, I agree, the ME cartel hasn't accurately reported oil levels since their conception. We really have no idea how much they have left, just rough estimates. 

Resilience is the key!

Thank You

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Gillbilly,

...the greatest message Chris, Adam and all associated with PP can give is Preparations and Resilience.

All oil and gas companies talk their books, they live with two sets of books, one for public consumption and one for them.

In Chris's next Part (2) of the energy equation he is likely to speak of natural gas and the depletion rate per well is incredible and can't possibly represent what the Oil and Gas talking heads are saying, yet that is what gets out there. Plus to get the price necessary for the production of the BTU from natural gas will be triple the price as it is now so kills the economy yet again.

Respectfully

BOB

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Thanks, Chris

This will help a lot.  Also Erik for further elucidation.

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Jim,

The article you provided that was written by Erik T. is truly a wonderful even excellent article and should be a must read by all wanting a comprehensive read of the state of affairs we find our world in.

Erik left open for our consideration a lot to think about and contemplate. Well written for sure.

Thank you

BOB

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Bob.. Thanks

Thanks for reviewing the whole article.. I thought maybe you got hung up on the China angle, which was mentioned in the very small excerpt I published, but is not really the focus of the article... It is not so much about China "stealing" the reserve currency as it is about that slot being ours to lose.. and lose it we will at this rate.     

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Jim, I realized how abrupt I

Jim, I realized how abrupt I sounded and it was unintended. Erik really went at this very intelligently and I just realized how critical I sounded without fully saying what I felt about his article. It is first rate and so is Eriks work.

Be Good

BOB

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Erik T's article

Another great article. I had to read the following excerpt a few times since I was confused in the wording:

"The same holds true for oil exporting countries. If they converted all their dollar revenues back into their own currencies, doing so would make their currencies more expensive against the dollar. That would make their exports less attractive because, being priced in dollars, they would fetch lower and lower prices after being converted back into the exporting nation’s domestic currency."

The less attractive/lower prices threw me off, but assuming other currencies and the price per barrel remain constant/competitive in real prices it makes sense. I always have to run the exchange conversions in relation to price a few times in my head to get it right. Just a thought, the reference to "reckless" spending may not be reckless at all but "inevitable" spending in keeping with the paradox of thrift as well as the need for funding military action to maintain the reserve currency status. Regardless, unfortunately it ends badly for all scenarios.

Thank You

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Greek "environmentalist"?

So the guy who is paid to patrol the parks on cold winter nights does nothing to protect the resources of the park?  A few tears won't hasten the regrowth of that stump, and the wood being freshly cut, much of its fuel value will be wasted just to vaporize the sap.  For one night's warmth, years of tree growth disappear in toxic smoke, probably in some absurdly inefficient fireplace.  That poor "poacher" will return night after night until the forest is gone.  And what will he burn NEXT winter?  Banknotes, maybe.  (Weimar marks were more valuable as fuel than as currency, according to the Wikipedia article on hyperinflation.)

If the forest tract was privately owned, would the owner be justified to use deadly force to protect it?  Now is the time to establish a legal foundation for the defense of "property essential to sustainable life", for killing my tree today may threaten the lives of my family one, ten, or one hundred years from now.

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And the REAL question is...

Thanks for the many kind words here.

The real question we in the PO camp must ask ourselves is whether or not to trust our own data.

Like Chris, I'm very fond of using the WEO 2009 chart because it shows the decline of fully 62mmbpd by 2030, and it makes a very persuasive case.

But wait a minute... Don't we all agree here that U.S. government data is suspect? People like Chris and I tend to take something like the 2009 WEO report, and conclude "These people are conservative and vested in protecting the status quo, so if even THEY are saying this stuff, it MUST be true!"

But what if the data upon which we base our "realistic" projections is no more "realistic" than the readily available data now saying that shale oil & gas solves everything? How do we know that 60+mmbpd is a real number, when we are so quick to dismiss other U.S. government data which because it is biased in the opposite direction, we are quick to view with suspicion?

I don't think we know. Perhaps Chris has done much more work than I have, and has independently verified the 2009 WEO chart with his own original research. But I doubt it. More likely, Chris, like me, feels inclined to put more faith in what seem to be more "honest" numbers than the ones we know are phony. But the point is we don't know. Maybe the 62mmbpd decline figure was the inflated fantasy number, and in reality the 5mmbpd from the shale plays will solve everything!

Personally, I'm still willing to bet with my wallet that Chris and I are right, and that the situation is worse than the official story is telling us. But the point is, we don't know. The people like Chris and myself who are standing up saying "Hey! This is crazy!" are working from other people's data. We assume it's right when it jibes with our intuition and personal biases, and we refute it when it contradicts what we believe intuitively. But the reality of the situation is still that nobody has the resources to do adequate original research to really know for sure. We're just doing our best to figure out which "official" data is real and which is not.

Erik

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Erik,

...thank you for this. I was initially trying to prod for new informational source and delivered it badly. I so agree however with yours, Chris's numbers. I basically look at a long term trend line as confirmation for my beliefs about Oil and as you know that is basically straight up for some years now. Projecting out I just don't see the flow rate at the wells even coming close to satisfying demand.

Just a terrific report Erik and after I realized my error in not stating this fact I wrote about it. Sometimes I get stuck on a thought,and unintent ionally I cut short a review. It can be a silly point too. Everything today seems silly to me though. Action is all I want to give us something before the lights go out. Use oil wisely and build something out of it.

All DATA is not to be believed as perfect, and trusting you and Chris to make sense of best guess estimate is nice when doing the math and seeing what I am seeing.

Best Regards

BOB

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Erik, I see Europe, Japan, The U.S. as a visual...

...too as I read your article so while it seemed I centered on China the fact is I see all these countries as a "KaBoom" moment setting off very uncertain times. Hell, I see Iran as the greatest threat to grinding all commerce to a halt world wide and might be the best example of the Oil price spike you were referencing. It's what I visualized as I read your article.

In reviewing the names of countries I provided I am certain of this: All their data is contrived. I also have housing crisis in Australia, Canada and just everywhere I see serious problems and just shake my head at what is at stake in the not to distant future. Frankly it is mind numbing research if just one major world economy but when it is all the great world economies in the same state of affairs , and the major issue being the printing of "thin air money" seems balanced throughout as they war to be the exporting nation. We all can't be that I am certain of that.

OK, time to crash now and needed to get all of what I was thinking of out so an understanding of what I was thinking while reading your report is clear.

Again, Thank you

BOB

http://stgeorgewest.blogspot.com/2013/01/detonating-japanese-debt-time-bomb-with.html

http://www.resilience.org/stories/2013-01-15/why-is-the-economy-shrinking-richard-heinberg

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An old story

Erik,

I'll use a story that I've told on here before, but it apply's to this conversation.

At one of my 4th of July parties a few years back, I asked a high ranking military officer (General) from the Pentagon:

"Is Peak Oil Real?"

His Answer (Paraphrased):

"Does it really matter?  If we say it's real, it is." 

What this means is, it doesn't matter whether the #'s are right or not, the government and military are working off of the basis that Peak Oil is real.  Which means that the public should be working from the same thought process.  

And again, whether Peak Oil is a real phenomenon or not, the Military says it is, and that's how it will play out, so plan accordingly.

Erik T. wrote:

Thanks for the many kind words here.

The real question we in the PO camp must ask ourselves is whether or not to trust our own data.

Like Chris, I'm very fond of using the WEO 2009 chart because it shows the decline of fully 62mmbpd by 2030, and it makes a very persuasive case.

But wait a minute... Don't we all agree here that U.S. government data is suspect? People like Chris and I tend to take something like the 2009 WEO report, and conclude "These people are conservative and vested in protecting the status quo, so if even THEY are saying this stuff, it MUST be true!"

But what if the data upon which we base our "realistic" projections is no more "realistic" than the readily available data now saying that shale oil & gas solves everything? How do we know that 60+mmbpd is a real number, when we are so quick to dismiss other U.S. government data which because it is biased in the opposite direction, we are quick to view with suspicion?

I don't think we know. Perhaps Chris has done much more work than I have, and has independently verified the 2009 WEO chart with his own original research. But I doubt it. More likely, Chris, like me, feels inclined to put more faith in what seem to be more "honest" numbers than the ones we know are phony. But the point is we don't know. Maybe the 62mmbpd decline figure was the inflated fantasy number, and in reality the 5mmbpd from the shale plays will solve everything!

Personally, I'm still willing to bet with my wallet that Chris and I are right, and that the situation is worse than the official story is telling us. But the point is, we don't know. The people like Chris and myself who are standing up saying "Hey! This is crazy!" are working from other people's data. We assume it's right when it jibes with our intuition and personal biases, and we refute it when it contradicts what we believe intuitively. But the reality of the situation is still that nobody has the resources to do adequate original research to really know for sure. We're just doing our best to figure out which "official" data is real and which is not.

Erik

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Shale Gas

Chris,

I generally agree with everything you wrote in this article. The exception is shale gas.

Working as a solar energy project developer and wanting to understand shale gas inpacts better, I organized a session at last years NESEA BuildingEnergy conference on shale gas and searched for the best answers I could find.

One part of the answers I was seeking came from Tim Bigler, Senior Market Strategist for Natural Gas Operations for Hess. I asked him about prices being, as you suggest, well below the cost of development and extraction. He explained that most of the dry gas in shale fields is accompanied by "natural gas liquids" which are tied in the market to petroleum prices, so that as long as petroleum prices remain high, the wells can be profitable even if the natural gas prices remain pretty low.

The other big question was one inspired by a question key to your long term analysis, net energy return on energy investment. The only person I could find who has done such a study is Mike Aucott,  a Research Scientist for the New Jersey Department of Enevironmental Protection, who did an analysis on EROI for  Marcellus shale gas. He started the study expecting to find that the cost of extraction had minimal energy returns relative to energy invested. He included energy inputs including the embodied energy in steel distribution system piping, the fuel to truck water, the embodied energy in the concrete for well casings and pretty much everything he could identify associated with Marcellus gas extraction.  His finding was that for every one unit of energy invested, 68 units are returned from Marcellus gas fields, which beats every other form of fossil fuels and many renewables. This is a guy who started the Philadelphia Ecology Action Club back in the 1970s, spent his career in the environmental protection game and can only be described as an ardent environmentalist, as well as a thorough and honest PhD scientist.

My take away from those two presentations is that shale gas will be a game changer for quite some time, perhaps not a hundred years, but long enough to have gas soften the economic impacts of the energy shortages we all expected in the near future.

Fred

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Net Energy Mix

Chris, the OECD-driven forecasts I've seen put 2030-2040 oil cost in the range of $125-175/bbl (2012 dollars). Can the global economy grow at a reasonable rate paying $175/bbl for oil? How high can our global median household energy expenditure get before GDP growth is wiped out by the cost of achieving that growth?

We know that economics is a key driver of innovation. While I'm convinced that fossil oil is our #1 structural issue moving forward, I'm not convinced that it's a deal breaker. The more carefully I look at the future of PV electricity (and the range of emerging renewables in general), I think we may be incorrectly estimating our future net energy mix.

With experience in electrical engineering and economies of scale, offshore mfg dynamics, and cost-demand trends, I think there’s a high probability that, by 2040-2045, PV electricity will be cheaper than gas-coal-nuke for >80% of the global population who use electricity. I’m happy to go into detail on that, but in short I think a conservative trend line puts 2040 median installed PV electricity at roughly $0.04/kwh. Double that for grid delivery, assuming a local grid exists. Combine this with emerging renewables and I believe by 2080 the industrialized world will be using 80% renewable electricity.

In short, I think we’re underestimating future electrical economics driving fossil oil alternatives. Most (certainly not all) fossil oil applications can be converted to electrical analogs, and I believe 2010-2080 will see a profound acceleration in this trend. Mobility and storage R/D will continue to attract increasing dollars in all sectors: govt, industry, academics.

One forecast puts 2035 as the year when hybrid-EV-PI vehicles start to outsell IC. I think it will be sooner, perhaps 2025-2030, via (currently unanticipated) accelerations in efficiencies, range, charge-times, and net cost. I’m assuming similar oil-to-elec crossovers in other applications – agriculture, military, etc. Ultimately, I think 120M b/d 2040 oil forecasts are too high, and that affordable renewable electricity will accelerate innovation, displacing oil demand faster than most are anticipating. 

That said, the planet will likely have >500M IC vehicles still running in 2040. I think 2000-2100 will be a profoundly difficult era of human history. The good old days of cheap energy are gone, but I do see an era of cheap energy returning. It’s those 100 years in the middle -- especially the critical period around 2030-2060 -- that will challenge us to our core, but I have a "reasonable" confidence that economics will drive innovation that will help us survive this difficult century.

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It's not about trusting the data...

I know that I am working with imperfect data and I do not necessarily trust any one aggregation source over another. I think they tend to borrow from each other with the IEA using EIA data and so forth.

Much of the data requires accurate reporting from all of the individual countries that produce and export oil, something I am not entirely comfortable trusting.

But we work with what we've got.

The Sweetnam graph showing declines from existing fields is one that I tend to trust because the implied rate of decline is 4.08% putting that right at the low end of the reputable global estimates of decline which means the graph, if anything, is conservative.

The reason that I am comfortable trusting the global estimates of decline is because I have gathered and analyzed lots and lots of data at the single field level and am familiar with those individual decline rates. Generally speaking, among the giant fields that produce more than half of all the oil on a daily basis, the onshore fields decline at a rate of around 4% while the offshore fields decline at around 10% per year.

Again, if anything, the assumed rate of 4.08% is conservative.

When the IEA studied the issue, they came up with a weighted average rate of global decline for existing fields of 5.1%

CERA, the eternal optimists, came in with a 4.5% estimate.

Other published estimates have ranged from 5.5% to as high as 8%, a figure I think is too high.

All that you have to do in order to 'believe' the Sweetnam graph is to believe that currently producing fields are cranking out 85 Mbpd and that the weighted average rate of decline for those fields is 4.08%.

If you are more comfortable tweaking either of those parameters upwards or downwards, that is a perfectly reasonable thing to do.

For example, if we take the IEA estimate of 5.1% and insert that into Sweetnam's graph then we arrive at 2030 with only 37 Mbpd of production from existing fields making the total modeled shortfall into a bit over 68 Mbpd.

At a 6% rate of decline the shortfall would be a whopping 73 Mbpd.

And what if new technology and better ways of squeezing more from existing reservoirs comes along and the rate of decline can be brought all the way down to 3%?  Then the shortfall is still some 52 Mbpd, a big improvement, but still quite a challenge that is roughly an order of magnitude larger than even the most optimistic tight oil estimates.

Bottom line: Unless and until something really stupendous comes along, like another Ghawar under the arctic or decline rates magically shrink towards zero, there's still quite a challenge in front of us that will have to be settled by reducing demand. Will that be via price rationing or some other form of rationing?

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Shale Gas is Good As Far As It Goes

Fred Unger wrote:

Chris,

I generally agree with everything you wrote in this article. The exception is shale gas.

Fred,

I have not yet commented on the EROEI of shale gas, which is actually quite good as you say, keeping my analysis and comments so far to the declining net energy from oil production efforts.

My next report is on shale gas and my main conclusions are that it is a quite valuable resource, has a very favorable energy return, but it is not yet useful as a transportation fuel and probably won't be over the next 10 to 20 years given the reality of energy transitions. Also the total amount of the resource was overhyped at the beginning and new estimates of proven and probable has been trimmed a bit by the USGS as solid data about production profiles from existing wells especially in the more mature plays (Barnett and Haynesville) generally do not support the initial industry EUR claims.

One recent example is that operators in the Eagle Ford shale are still claiming as much as 850,000 BOE per well whereas the Society of Petroleum Engineers (SPE) after looking at the actual production data from mature wells determined that the mean EUR per well in the Eagle Ford is 206,600 BOE and the median EUR is 160,500 BOE.

Oops.  Guess what?  In a boom there are operator claims and then there's reality.  History suggests that operators can be trusted...to always inflate their numbers.  That's always been true in the oil patch.  I have handy mental discounting machine that always divides operator claims by a whole number, like 2 or 3.

But even still these are great plays and much will change for industrial and electrical consumers of this fuel, but they will not alter the trajectory of the transportation fuel market which is an entirely different beast.

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Yes Chris, the data is sufficient to determine we have...

...an issue going forward. Why I'm shaking my head is when I read Mauldin (who I respect very much) talking as if he has such great faith. Well, I will too when I start seeing gas pipelines, windmills, solar, hydro, and geothermal every darn where. In addition it sure would be nice to have a priority on developing the battery storage system necessary to gather and store. Right now these are scattered about here and there.

When I do see a windmill or solar I get a great feeling of relief but it is short lived only because it's not near enough.

I still see no movement until Debt is destroyed, and the status quo is removed so that new thoughts can come forward for the change that will be required to build the next generation economy. The central banks and our energy problem are part and parcel the same issue. One props the economy and the other tears it down. So I see the China's, Europe's, Japan's, the U.S. as all connected.

Regards

BOB

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cmartenson wrote: All that

cmartenson wrote:

All that you have to do in order to 'believe' the Sweetnam graph is to believe that currently producing fields are cranking out 85 Mbpd and that the weighted average rate of decline for those fields is 4.08%.

I agree this is the crux of the issue, and I agree that the future decline rate will be at least 4.08% if nothing changes. But I'm not quite ready to throw all my faith into the 4% decline rate because I am coming around to the view that it can and will be mitigated.

Consider the following "news story":

HOUSTON -- Saudi Aramco announced today that it would acquire 100% of Chesapeke Energy. The embattled company (Chesapeke) lost considerable share value despite its many successful projects employing horizontal drilling and hydraulic fracturing technologies following several management scandals. An Aramco representative said, "Basically, or strategy is to acquire the excellent technology capabilities and re-deploy them in order to mitigate production declines in our existing "Elephant" fields in KSA. We're going to give all our major oilfields a facelift which will include drilling horizontals and using fracking extensively to increase flow rates from existing oilfields, and our acquisition of CHK today gives us the core competence to achieve these goals.

No, that's not from the AP - I just made it up. But the point is, it could easily be true. So far as I can tell (PLEASE correct me if I'm wrong, folks) fracking and horizontal drilling should be able to markedly increase flow rates from existing "Elephant" fields. The reason it hasn't been done yet is that most people don't "believe in" Peak Oil.

Yeah yeah, I know... Increasing the flow rates the way I describe is just asking for more trouble later because the rate of decline, once the limits of fracking are reached, will be much higher.  But if the world followed that kind of thinking, we wouldn't be in this fossil fuel predicament to start with.

I contend that there is a CRITICAL bit of information, which unfortunately I don't know how to research. The question we need to ask is not what decline rate Sweetnam's chart uses or what anyone else has projected. That's not what matters. I contend the core question is this:

Assuming that fracking, horizontal drilling, and any other technologies can and will be used to the extent that it is economic to do so in order to mitigate decline of existing oil resources, what will the net decline rate be after considering the mitigating effects?

For starters, it's not even possible to answer that question without knowing (or projecting) the oil price, since the ability to mitigate depends on the cost of mitigation divided by the incremental production being economic. But I contend it will be, at least to some extent.

So the way I see this going down is approximately as follows:

  1. For now, most people deny PO is real
  2. A big price spike wakes them up. Probably in the $150-$200 range
  3. The industry responds by employing fracking and lateral drilling to improve flow rates from existing MENA region fields.
  4. This takes time and the oil market goes wild for a while until the mitigations are felt
  5. Oil prices come back down (but not all the way) once the mitigations are effective and flow rates increase.
  6. Eventually, a sudden-stop sort of energy crisis happens, but of course we wait until the 11th hour to form a plan for what to do about it.

My frustration is that I can't figure out where to research this more thoroughly. Some of the questions I ponder:

Is anyone currently considering or making plans to use these techologies on the aging elephant fields?

How long will it take to ramp up and how much will it cost, expressed in $ per bbl of incremental production resulting from the mitigation?

How long is the lead time to manufacture the drilling equipment, deliver it, etc. In other words, if the Saudis decided tomorrow to use these technologies aggressively to mitigate flow rate declines, how long would it take them to order the equipment, put it to use, and actually see results in flow rate increases?

Anyway, my point is simply that it's a moving target. When those 4%+ decline rates start to actually happen for real in a measurable way, there will be PLENTY of energy and resources devoted to solving the problem. So far as I can see, there are no true solutions, but there are plenty of ways to kick the can down the road, and delay the onset of the actual crisis. Hmm. Sounds familliar! ;-)

Erik

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fracking

Erik, it's my impression that fracking is used only in "tight" rock formations, although I know they use horizontal drilling in deep sea wells.  I question whether either method would be productive in traditional land based fields.

http://en.wikipedia.org/wiki/Hydraulic_fracturing

Quote:
Hydraulic fracturing is the propagation of fractures in a rock layer, by a pressurized fluid. Some hydraulic fractures form naturally—certain veins or dikes are examples—and can create conduits along which gas and petroleum from source rocks may migrate to reservoir rocks. Induced hydraulic fracturing or hydrofracturing, commonly known as fracing, fraccing, or fracking, is a technique used to release petroleum, natural gas (including shale gas, tight gas, and coal seam gas), or other substances for extraction.[1] This type of fracturing creates fractures from a wellbore drilled into reservoir rock formations.

In the Bakken decline rates are about 80% after two years.  With oil at about 90$/bbl, these wells barely break even and for production to be maintained will require exponential growth in the number of well after some peak, which is probably not far off.

http://www.theoildrum.com/node/9506

Quote:

MAJOR FINDINGS FROM THE STUDY

All charts in this post are clickable for a larger version.

Findings from this in-depth study of time series for production from some individual wells:

  • Presently the estimated breakeven price for the “average” well in the Bakken formation in North Dakota is $80 - $90/Bbl In plain language this means that presently the commercial profitability for new wells is barely positive.
  • The “average” well now yields around 85 000 Bbls during the first 12 months of production and then experiences a year over year decline of 40% (+/-) 2%
  • The recent trend for newer “average” wells is one of a perceptible decline in well productivity (lower yields)
  • As of 2007 and also as of recent months, the total production of shale oil from Bakken, has shown exceptional growth and the (relatively high) specific average productivity (expressed as Bbls/day/well) has been sustained by starting up flow from an accelerating number of new wells
  • Now and based upon present observed trends for principally well productivity and crude oil futures (WTI), it is challenging to find support for the idea that total production of shale oil from the Bakken formation will move much above present levels of 0.6 - 0.7 Mb/d on an annual basis.

Authoritative research companies (like Bernstein Research) and widely acknowledged specialists/institutions like USGS and SPE have recently and in general arrived at identical conclusions by applying different sets of methodologies and from studying other areas.I am of course in no position to rule out that the required breakeven price in the future could be lowered driven by technological innovations and improvements in well design and operations. However recently there have been a flow of reports that casts a reasonable doubt that this will become a given.

The content for this post was first posted in two parts (with data as of June 2012) on my Norwegian blog; “Fractional Flow” Part 1 and Part 2.

Doug

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Erik, Check out this article

Erik,

Check out this article in Wired, which suggests Shell beleives 300 billion barrles can be recovered from existing wells.

http://www.wired.co.uk/news/archive/2011-12/09/300-billion-barrels-of-oil

 

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Thanks Fred.

Thanks for the link Fred. I interpret Shell to be saying,"We have used up this oil field, but it still has a lot of potential for any buyer"

I have a motorcar like that. It still has a lot of potential for a young buyer.

How does heating the viscous oil affect the EROEI?

I see that they say that the process is only viable with high oil prices. That problem is easily solved. We can print more money,

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Fred Unger
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Posts: 7
I suspect you are right

Arthur,

I suspect you are right that the "enhanced recovery" technologies for old oil fields have a pretty lousy EROEI and generally only make sense when oil prices are extremely high. If it were otherwise, the major players would probably have already used those methods. The good thing about getting to those high prices is that all sorts of renewable and conservation solutions make clear economic sense at high price levels too. As a society, once we have polluting solutions costing about the same as clean energy solutions, hopefully it will be a lot easier to make the right choices.

If we are lucky we can make that transition before the crazy money printing completely undermines our entire economy.  But as you imply, its hard to be optimistic about that watching the news out of Washington.

Fred

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MarkBahner
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Posts: 58
Seriously?

If the forest tract was privately owned, would the owner be justified to use deadly force to protect it? Now is the time to establish a legal foundation for the defense of "property essential to sustainable life", for killing my tree today may threaten the lives of my family one, ten, or one hundred years from now.

You seriously think it should be legal to kill a person to protect a tree?

technet's picture
technet
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Posts: 16
a few biases

there is a tendancy to look for data that confirms your theory, rather than actually look at the data for what it is.

for example Govts. have been printing money like water causing terrible inflation.

real inflation is around 10% a year when you look at things like university fees, cost of a soft drink, etc.

so oil at $30-40, 10-12 years ago, equals oil at $60-80 today. just because of the manipulation of the currency....

so arguing that new supply hasn't immediately jumped onto the market to shove oil back to $30-40 level, is not realistic, because $30-40 in 2013 is not worth anything like what it was in 2000-2002, and that has nothing to do with oil, only to with paper money printing....

why therefore should oil producers rush to create new supply, it's a tricky business storing millions of barrels of oil.

they are simply enjoying a more volatile market and an incresed risk premium as the focus has sifted from the cold war era into more complex politics surrounding the christian / islam issues.

discounting the $ value of oil alone, kills a greater part of your argument.

cmartenson's picture
cmartenson
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Posts: 3510
I don't think so...

technet wrote:

there is a tendancy to look for data that confirms your theory, rather than actually look at the data for what it is.

(...)

discounting the $ value of oil alone, kills a greater part of your argument.

Technet,

the history of the oil patch is one of boom and bust.  So many cycles of boom and bust over the years that I think it is incumbent on you to then explain how it is that this time all of the various oil companies and countries over the globe have managed to shrewdly transition to a scheme whereby they forgo current cash flows because of past inflation?

That one stumps me.  Further, to toss some non-conforming data into your theory we might note that somehow the natural gas players in the US did not note the discounted $ value of their substance and even went on to completely bust their profitability by pursuing current max production at the expense of both current and future dollars.

I do hold a view, which comes from much analysis and observation and discussions with people in the business, that oil plays tend to be produced at their maximum rate.  The only place that I know of that has at least given voice to the idea of leaving some in the ground now for the benefit of the future is Saudi Arabia.  

However, all I have is one statement to this effect from the king several years back, and nothing more.  On the data side, meanwhile, Saudi Arabia also has a very aggressive drill program going on, various complex and expensive enhanced recovery operations underway, and is generally behaving as if they too were most interested in getting the stuff out of the ground as fast as possible.

The nature of a boom-bust industry is that it regularly runs through cycles of immense profits as new supply is brought into high prices and then immense losses as too much supply is crammed into falling prices that, by definition, bust through the full cycle cost of production.

So I am not quite following your argument.

I will however agree that the cost to produce all this new oil is well above $30-$40 per barrel and that it is the new incremental cost of production that will set the ultimate floor for the price of oil.  However, as in 2009, it is entirely possible for oil to bust right through this floor for a while.

That new floor, based on the deep water and shale plays is somewhere between $70 and $90.

In other words - adios cheap oil!

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RJE
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Posts: 1369
Adios cheap oil is a safe bet...

http://www.forecast-chart.com/chart-crude-oil.html

No "Plan", go figure.

BOB

CantoL's picture
CantoL
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Joined: Jan 19 2013
Posts: 4
Real Energy Inflation

technet wrote:

"real inflation is around 10% a year when you look at things like university fees, cost of a soft drink, etc. so oil at $30-40, 10-12 years ago, equals oil at $60-80 today. just because of the manipulation of the currency...."

...........

Price inflation of energy has little to do with WCURCIR or the velocity of money (or, as you say, the "manipulation of currency"). "Real inflation" has hovered around 2-3% for the last 10 years, with an occasional glitch one way or another. True, certain goods and services have risen far faster than others: Health care, college tuition, and energy are 3 that come to mind.

Energy costs shot up disproportionately to real inflation over the last few years simply due to supply and demand. If oil had followed real inflation, a $30/bbl in 2002 would today be around $40. Oil is getting harder to get, and world demand is rising, hence the price keeps heading north. It's not rocket science.

We're seeing a deflationary trend in U.S. natural gas prices relative to a few years ago. But as Chris points out, it will be some time before NG can displace petroleum in vehicles. And by that time, U.S. LNG exports (etc.) will likely set North American NG prices back to parity with world prices, reducing our current price advantage.

As noted earlier, I think most forecasters are underestimating the impact of renewable electricity 2010-2080. I think we will reach a maximum global electricity price somewhere around 2020-25, and then see a steady decline, sending "net present economic signals" that accelerate electric storage and mobility R/D far faster than we are anticipating. I think those signals are already at work. An added benefit will be a reduction in greenhouse gas generation as coal and NG plants are shuttered.

California is already generating 15% of its electricity from renewables, and on-target to be at 30% by 2022. Nearly half of all new U.S. energy infrastructure investment is renewable. Germany is on-target to be 80-100% renewable by 2050, with the EU not far behind. Desert PV generation is now under $0.09/kwh (without feed-in tariffs) with a conservative downward price curve to $0.02/kwh by 2040. Labs are currently achieving 5x-10x battery efficiency and cycle improvements with low cost, manufacturable techniques (nano, etc.)...

A renewable electrical technosystem is accelerating. Will it accelerate fast enough, and economically enough, to get us over the 2030-2060 hump without collpase? Nine billion people are a lot of mouths to feed. It's going to be interesting. JL

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MarkBahner
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Posts: 58
The automotive future: computer-driven, and mostly electric

Hi,

CantoL writes:

One forecast puts 2035 as the year when hybrid-EV-PI vehicles start to outsell IC. I think it will be sooner,

I do too. I think the huge revolution that virtually no one sees is computer-driven vehicles. I think this will not only accelerate the trend towards electrical vehicles, it will completely revolutionize car ownership and car design. Right now, virtually everyone owns (or leases) their vehicles. In about 30 years, I think virtually no one will own or lease a vehicle. All vehicles will be ordered, like an airline ticket.

Further, at present, there are virtually no cars in the U.S. that only accomodate a driver, whereas the majority of vehicle miles traveled in the U.S. are by drivers without a passenger. Therefore, I think that, within 30 years, most vehicle miles traveled will be in super-small battery-powered and computer-driven cars. Think of a Smart Car cut in half to eliminate the extra seat, and battery-powered.

More details are here:

http://markbahner.typepad.com/random_thoughts/2013/01/the-future-of-transportation.html

oyster_catcher's picture
oyster_catcher
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Joined: Jun 9 2010
Posts: 2
The Shale gas puts BBC in a spin

I listened last night to the BBC Radio 4 programme "In Business" called "Gas Leak" (http://www.bbc.co.uk/programmes/b006s609). I usually have great respect for the BBC - not this time.

It was taken as red that shale gas was making America self sufficient in energy, and that the very low price proved that a great energy transformation happened, and that this would happen all over the World. How wrong! No mention about depletion rates, actual quantities on the ground, and how America actually still imports most of its energy via Oil. The programme was extremely misleading.

The focus of the programme was on Gazprom and how it historical link of oil and gas prices was now discredited and that the discrepancy between US (low) and Europe (high) gas prices demonstrated market manipulation by Gazprom. It would seem to me that Gazprom gas prices are determined by how it obtains its gas and likely to be closely linked with oil. I'm not aware of liquified gas imports to Europe from the US that could reduce the price in Europe - it all sounds very unlikely. (of course I don't mean to imply that Gazprom is a squeaky clean company by any means). Gazprom is under investigation from the EU and is also accused of supporting anti Shale gas protests in order to protect its markets. This seems rather unlikely. A Gazprom official even said that Shale gas wouldn't come to much in Europe, but was totally ignored by the presenter.

For the BBC this was a very badly researched topic. I will be writing to the BBC to try and put them straight.

DaveOxford's picture
DaveOxford
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Joined: Jan 23 2013
Posts: 2
Net Energy Graph

What I would like to see is a graph of net energy vs time (over a period, say, from 1000 a.d. to the present). Can anybody point me to data of this type?   I've seen the 'cliff edge' graph used for illustrative purposes in the Crash Course - the one that shows that as ERoEI falls, net energy drops off dramatically.  But I've not seen any attempt to quantify this in real world consumption figures (in MTOE, say)

It seems to me that such a graph would illustrate the problem with fewer distractions - e.g.dollar oil price, budget cuts (here in the UK, at least), unemployment rates, debt, US gas bonanzas, etc.  Yes, I realise these are all related, but I'm looking for a fundamental conclusion like: 'we humans are trying to achieve the same things (grow food, heat homes, move ourselves around) with a smaller and smaller amount of energy per head.'

So, a) does this one simple conclusion do too much violence to the complexity of the situation?, and b) if not, can someone point me to the data?

Thanks.

DaveOxford's picture
DaveOxford
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Joined: Jan 23 2013
Posts: 2
Doh!

Wasn't thinking straight, was I?  What I described - a graph of net energy, would just be a graph of consumption.  What I really ought to ask for is a stacked graph, net energy underneath the energy taken to acquire it.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 3510
Net Energy In a Chart

DaveOxford wrote:

Wasn't thinking straight, was I?  What I described - a graph of net energy, would just be a graph of consumption.  What I really ought to ask for is a stacked graph, net energy underneath the energy taken to acquire it.

Dave,

this is a great request an such a chart would be a truly excellent thing to have.  Why?  Because it is pretty much everything to how and (more importantly) when our future unfolds.

However, such a chart does not exist.  At least not with any rigorous study behind it.  Why?  Because the various energy departments all over the world have never studied the matter.  Even now there are jsut a very small handful of pitifully funded university efforts doing such studies, and even then only on a very limited and 'hand wavy' basis (such as using production costs as a proxy for the energy in side of the equation).

Here's one hypothetical chart of net energy (by one of the former graduate students in one of the small academic departments I referred to eariler) that I think explains why the topic is even more important than   intuition might suggest:

(Source

The basic idea here is that net energy will drop off more rapidly than gross, or total energy, because typically the later stuff is harder, deeper, goopier, and/or smaller than the earlier stuff.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 2502
Nice Graph.

Thats a keeper. (Right Mouse Click->Save Picture as->)

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