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Is There A Painless Way To Fill The Oil Supply Gap?
Dr Michael R. Smith , The Oil Drum: Europe
I have been writing on oil supply issues since 1995, in particular the imminent supply gap and the looming new energy era; forecasting a peak in global supply arriving between 2010 and 2020 depending on demand growth. The Energyfiles report “Oil & Gas – Global Ten-Year Projection” (now in its 2007 edition) was published in response to queries about the data used to arrive at these conclusions.
Nonetheless, despite new evidence in the form of higher than expected demand, capacity squeezes and price rises, there remains a view amongst some geologists and economists that the peak is many years away and even that technology, new energy sources, and new efficiencies will make it irrelevant. Although I believe such views are driven by wishful thinking, I do not want to digress on this subject here. Instead I want to address energy supplies after peak; the size of the so-called supply gap and how it might – or might not – be filled by alternative transport fuels and by efficiencies.
…Thus the answer to the question is no; there is no painless way to fill the gap. Of course it will be filled; partly from traditional sources; partly from new alternatives; partly from simple efficiencies; but a large portion will have to be filled by demand destruction. In the real world demand destruction means poverty and conflict. We should be working towards reducing vulnerability to such destruction.
And if we cannot do it globally we should do it locally; at least to gain a competitive edge. Companies and governments must take energy risks with capital intensive projects, innovative energy sources, new modes of transport and through cutting consumption with taxes and rationing systems. Growth and decline will in truth be erratic as chaotic price movements drive demand up and down. But liquid energy demand will want to grow faster than supply. The global population has reached an unsustainable energy demand level to support the lifestyles we desire. Conservation will be a necessity but it will be painful.
(31 Jan 2007)
TOD editor Euan Mearns introduced the essay:
This is a guest post by Dr Michael R. Smith of Energyfiles Ltd. Dr Smith gave an excellent presentation to The Oil Depletion Conference hosted by The Energy Institute in London last year and this post is an abridged version of what he had to say.
Liberal markets create an addiction to gas
Jerome a Paris, European Tribune
I am pleased to inform you that the Financial Times is publishing, in its edition dated 1 February, an article by the Editor of the European Tribune and Contributing Editor to the Oil Drum (i.e your truly) which covers a number of topics that we’ve discussed here before. Its conclusion:
Taking into account pollution, carbon emissions and the expected depletion of resources, moving away from burning hydrocarbons should be an overriding long-term goal. A sane energy policy should focus, as a priority, on reducing our electricity demand via conservation and energy efficiency and on switching to capital-intensive, locally built, renewable energy sources. That will require thinking again about how we finance the sector.
Energy market deregulation is incompatible with the fight against global warming – markets like to finance gas plants – and with security of supply when exporters will not play by our rules. There is no reason to expect them to do so at a time of increasing tightness in energy markets. We have solutions available, if we act on demand reduction and promotion of renewable energy. Sadly, we seem to be doing the exact opposite.
With their kind permission, I am copying the article in full herebelow.
(31 Jan 2007)
Also at Daily Kos. Here is a direct link to the Financial Times article (behind a paywall).
An Update on Mexico’s Oil Production–The Rapid Collapse of Cantarell by the Numbers
Khebab, The Oil Drum
Last year, I expressed my concerns about the eventual impact of a rapid collapse of Cantarell on Mexico’s oil production (story here). The last production numbers from PEMEX seems to confirm the rapid decline of Cantarell as well as the inability of the Mexican to rapidly bring new production online.
…The Bottom Line
Figure 6 below is summarizing the situation. Since 2004 (peak year):
1. Mexican gasoline prices have increased by 20%.
2. oil production has dropped by 11%.
3. oil rig count has decreased by 20%.
4. Cantarell’s production has dropped by 30%.
5. domestic oil demand has increased by 2.5%.
By 2012:
1. oil production may have dropped by 30%.
2. Cantarell’s production may have dropped by 80%.
3. domestic oil demand may increase by 10%.
(31 Jan 2007)
Mirror, mirror on the wall, how can oil plan at all?
Carl Mortished, Times (UK)
…A glass half-empty or half-full is the conventional view of integrated oil companies. These are utilities: there is plenty of oil and gas about and the job is to invest adequately, not overfilling the glass, in order to maximise the amount of money that flows from the taps and pipes.
The other view is that the business of big oil is to capture scarce resources. It’s about squeezing as much as you can out of the wrinkly tube. Oil companies are custodians of wasting assets: it’s all about reserves, who owns the barrels and the price, monetary or political, to acquire more of them.
Suddenly the debate over what oil companies are about is becoming shrill – and not only because the supporters of peak oil theory are getting more noisy. Whether or not the global oil industry has reached maximum output at some 85-90 million barrels per day, the stock market seems to have lost its ability consistently to price risk in the oil sector.
…Efficiency does matter, says the market to our bleary-eyed oil chief. But don’t fool yourself: barrels count, too. It’s not enough to be a disciplined process engineer and, since the massive Kashagan discovery in the Caspian Sea in 2001, legions of petroleum geologists armed with billions of dollars of exploratory wells have had paltry success. Diplomacy is the skill that matters, the silver-tongued art of opening doors. Unfortunately, the capital markets are uncertain how to value something so ephemeral. Will Exxon continue to thrive without a strong position in Russia? Will Total recover prewar licences in Iraq? Is TNK-BP secure and will the Kremlin throw Shell a meaty bone or two after seizing the carcass in Sakhalin?
It is many decades since the the future of the big oil companies has been so dependent on the art of speech and persuasion. In each of the giant companies, there has been a recent management transition or a changeover is imminent. No wonder the market is confused.
(31 Jan 2007)
Back-handed compliment to peak oil supporters. Writer Mortished says we are “getting more noisy.” Translation: we are becoming an irritant that is increasingly difficult to ignore. -BA
Kunstler radio interview (Audio)
Goldseek
…2nd Hour:
* Featured guest: The author of The Long Emergency: J.H. Kunstler.
* Part 1 of Dr. Ron Paul’s End of Dollar Hegemony speech.
(28 Jan 2007)
