Peak oil – Apr 17

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Many more articles are available through the Energy Bulletin homepage

Risks of the oil transition
A.E. Farrell and A.R. Brandt, Energy and Resources Group, UC Berkely.

1. Introduction
2. The future of conventional oil
3. Substitutes
4. Managing the transition
4.1. Environmental risks
4.2. Economic risks
4.3. Strategic risks
5. Conclusion / Acknowledgments / References

1. Introduction

A transition in global oil production has begun; transportation fuels are increasingly coming from sources other than conventional petroleum. Some observers have defined the challenge of the oil transition as solely encouraging investment in new sources of fuel (Southern States Energy Board 2006). Others have looked to `communities ratcheting down their dependence on overstretched and oil-dependent lines of supply that mark a globalized economy’ through steps like local food production and the development of a barter economy (McKibben 2005). However, the former view ignores the costs of the environmental damage that may accompany increased supply, while the latter view does not appear feasible for the billions of people who in live in the world’s cities.

Here, we identify the challenge of the oil transition as shifting to substitutes for conventionally produced petroleum while managing the environmental, economic, and strategic risks this change will bring. We show why it is crucial to see this as an integrated problem, so that as we act to achieve one goal we unavoidably affect our prospects in dealing with the others.

…Given these compounding uncertainties about the future of conventional oil, an approach that focuses less on the peak in conventional oil production and more on the long-range implications of the oil transition seems more useful. This means considering substitutes for conventional petroleum (SCPs).

…SCP technologies may lead to major environmental damage. Using GHG emissions as a proxy, the potential environmental effects from production of SCPs could be quite large, possibly twice those of conventional oil production per unit of fuel delivered.

…Because SCPs require greater initial capital per unit of production relative to conventional oil, and are also more expensive in the long run, SCP projects are financially risky to investors and may become uneconomical should oil prices fall, as they have in the past. Indeed, investment in SCPs moves the global supply curve for liquid hydrocarbons out and will tend to cause world oil prices to fall. Of course, falling prices benefit consumers. Adding the costs of environmental controls exacerbates the risk to investors.

5. Conclusion

In our view, therefore, the oil transition brings more long-term environmental concerns than long-term economic or security threats because tradeoffs have strong potential to be resolved by accepting increased environmental damage in order to avoid economic or security risks. …

The true challenge of the oil transition is to develop and deploy environmentally acceptable energy technologies (both supply and demand) rapidly enough to replace dwindling conventional oil production and meet growing demand for transportation energy. To the degree that these technologies diversify energy supplies, they will also tend to reduce market power and provide energy security benefits. The incremental costs of avoiding a disrupted climate and other environmental problems associated with the oil transition seem modest compared to the costs of failing to do so. Because of the large environmental and security externalities involved, markets alone will not respond to this problem, so government policies to manage the all three risks of the oil transition are needed now.
(30 Oct 2006 )
Also available as PDF.

Contributor Gene B. Schneider writes:
This article was brought to my attention by a good friend, Dr. Evan Mills, Ph.d., staff scientist at Lawrence Berkely National Lab. [Refer to the original] to see their graphs.

Peak Oil Law Center: Surveying the Future Landscape
Jeff Vail, Energy Intelligence
The peaking of global oil production, or Peak Oil, will cause major changes in every facet of society, to include changes to the legal environment. As a brainstorming exercise, here is a survey of probable legal ramifications of Peak Oil:

Corruption Competition: The Foreign Corrupt Practices Act (FCPA) prevents US businessmen from bribing foreign government officials. Chinese businesses have no such burden. Will a scarce energy environment force modifications to the FCPA out of recognition of the need to compete with unrestrained actors such as China and India?

Infrastructure Attacks and Private Military Corporations: Peak Oil will increase the ROI for energy infrastructure attacks. While this will increase cost and risk to energy exploration and production companies, it will also increase the willingness to take on these costs and risks. One result will be an increase in demand for the services of Private Military Corporations (PMCs). The laws governing PMCs are ill-defined and changing quickly.

Regulation Juxtaposition – Peak Oil vs. Global Warming: In the broadest terms, the regulatory response to global warming will be to increase regulatory burden on energy exploration & production, whereas the response to Peak Oil will be to loosen the reigns. Which will win out? The one area that seems to win under either scenario is “efficiency,” though Jevon’s Paradox suggests that may not be a wise response.
(17 April 2007)
I see that Jeff Vail has changed the name of his blog to “Energy Intelligence (Commentary on Energy, Security, & Sustainability Law and Policy)”. Much better title than the former one: “The Theory of Power”.

UPDATE Jeff Vail responds:
Good point on the Jevon’s Paradox v. “Rebound Effect.” I have a few issues with some of the rebound effect calculations, however: It seems reasonable that when we improve energy efficiency for a certain use, say hot water heating, that the resulting decrease in demand/price has only a partial rebound, as suggested by the studies. However, from a larger perspective, when we make *anything* more energy efficient, we free up consumer power–consumer power that is ultimately spent on something, and since one can argue (as I did in my “cost-estimated EROEI” article here: www.jeffvail.net/2006/11/energy-payback-from-photovoltaics.html ) that anything we buy is essentially comprised of energy, all that we’re really doing is redistibuting what energy we use, not reducing overall use. Efficiency gains in natural-gas powered hot water heaters may reduce natural gas demand, but I think they don’t reduce total energy consumption–they may just free up consumer power (that would be spent on the natural gas) to buy something made of plastic, instead. I think that this spiral can only be escaped when we consciously try to build quality of life with less energy, rather than try to maximize our quality of life at any cost, as I argued in “The Design Imperative” ( www.jeffvail.net/2007/04/design-imperative.html ). Anyway, my intent is not to bicker. Your point is well taken, and I’ve got an article in the works discussing Jevon’s Paradox from a macro-perspective that will hopefully make this same argument, but more clearly!

“Crude Demand” film warns that as dwindling oil feels squeeze, so will we
Tom Dorsey, Louisville Courier-Journal
“A Crude Awakening: The Oil Crash” could be the most important program you’ll ever see if the experts on the program are right. What’s at stake is simply our entire way of living, they say.

The problem is most people won’t see the show or won’t want to even if they can. It’s on from 9:30 to 11 tonight on Sundance. That’s a digital channel on Insight 614, which a lot of subscribers have never heard of and most don’t get.

“A Crude Awakening” is about what’s going to happen to you, your children and your grandchildren if we don’t wake up out of our national daydream, according to analysts on the program.

You can’t get this story in 90 seconds on the evening news. Any one of the big networks would be doing America a big favor to run it so at least anybody concerned about his or her future could see it. Not one American in 100 has any inkling of the problem we’re facing, says one man in the show.

Essentially, it says that the Oil Age is close to running on empty. Oh, not tomorrow or next year, but maybe in just a few years. Certainly in 10 to 20 years.
(17 April 2007)
Not news to EB readers, but this is a column that appeared in a respected mainstream newspaper. The word is getting out. -BA