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Peak oil - June 28

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Many more articles are available through the Energy Bulletin homepage.


Has The Peak Oil Idea… Peaked?
And if so, does the planet stand a chance?

Gordon Campbell, Werewolf (Scoop, NZ)
... Whatever happened to the peak oil scenario, in which fossil fuels were supposed to go the way of the dinosaurs, and where their increasing scarcity might actually help to save the planet, by making the switch to renewable energy sources both (a) inevitable and (b) affordable?

The recent BBC story “Is Peak Oil Idea Dead?” is asking much the same question while other commentaries are reaching grim conclusions (“Sad News For Peak Oil Disciples”) about the trendlines. The Wall St Journal on the other hand, seems quite cock a hoop that happy drilling days are here again.

For clarity’s sake, it may be necessary to back up a little, and get a few fallback positions clear. The term “peak oil” never did herald the end of oil itself, but merely the optimum point for oil production at a economically rational cost of extraction. Moreover, the more sophisticated advocates of the original peak oil theory never assumed that production would fall off a cliff (it was always assumed the fall-off would look more like a bell curve ) or that die-hard energy industry advocates wouldn’t re-double their efforts to exploit less accessible sources of oil by say… drilling out in deep water, or extracting oil and gas from tar sands. So optimists could still try to argue that the end times of peak oil are still unfolding, as predicted.

That’s not the case, unfortunately (see below). For a time (we’re talking about the heady days of 2005–2008) the peak oil milestone gave a crucial political momentum to the transition to renewables, and to the business models associated with alternative sources of energy. Essentially, peak oil gave politicians around the world a mandate to fund the transition to clean energy. Essentially, it is that momentum that’s in trouble right now, in the short to medium term at least.

... the delicate balance we’re talking about here. The trick for the industry will be open up new fields of production without flooding the market in a way that renders those same endeavours uneconomic to pursue. Ironically this could affect New Zealand in the form of a fairly grim, green joke. Ultimately, what might well save the East Cape from the exploration and extraction activities of the Brazilian oil form Petrobras is a fossil fuel boom that could turn the local deepwater drilling plans of the (already stretched) oil giant into a no-longer-viable bet.

Ultimately, this means that our best bet of saving East Cape from potential pollution could rest upon a plunge in oil prices that puts the entire planet at further risk from climate change. ( Save East Cape or save the planet: take your pick.) Because here’s the thing: what we do know is that some of the current deepwater/fracking operations look likely to be big enough to extend affordable fossil fuel use beyond the point of no return for the planet. As the BBC article linked to earlier noted, clean tech has been put on the back foot:

... Okay, forget about the celebratory ululations from the oil and gas industry for a moment. How’s the current outlook for the planet? Not great, according to the data presented to an April meeting in London of energy ministers from the world’s biggest economies:

… “The world’s energy system is being pushed to breaking point,” according to Maria van der Hoeven [pictured left], executive director of the International Energy Agency. “Our addiction to fossil fuels grows stronger each year. Many clean energy technologies are available but they are not being deployed quickly enough to avert potentially disastrous consequences.” On current form, she warns, the world is on track for warming of 6C by the end of the century – a level that would create catastrophe, wiping out agriculture in many areas and rendering swathes of the globe uninhabitable, as well as raising sea levels and causing mass migration, according to scientists. “Energy-related CO2 emissions are at historic highs, [van der Hoeven added] and under current policies we estimate that energy use and CO2 emissions would increase by a third by 2020, and almost double by 2050. This would be likely to send global temperatures at least 6C higher within this century.”

... The environmental imperatives behind the peak oil concept remain. Thanks to the resilience of the fossil fuel industry though, the political battle has suddenly become a whole lot harder.
(27 June 2012)



Oil: the party is over, says OpenMind AM

Caroline Allen, Investment Europe
The recent drop in the oil price is just the start of a longer term decline, according to managers at OpenMind Asset Management, the Paris-based firm seeded by La Francaise Asset Management.

Fund manager Tristan Abet first warned about the vulnerability of oil prices in March, since when there has been an overall slide, which "brings an important message for us", he says.

"While some would say it is just the consequence of its correlation with the equity asset class, we think there is something else. We see four reasons behind this move. The economic slowdown in emerging economies appears more pronounced than expected, and the corollary of this disappointment is the de-rating of oil prices. The benefit of the doubt previously given to oil, with the potential status of a ‘growth asset', is thus vanishing."

Additionally, rising tensions within the OPEC, the producers' cartel, and the fundamentals of the market, summarised by the ‘peak oil' theory, are becoming less relevant.
(27 June 2012)



The New North American Energy Paradigm: Reshaping the Future

Rex W. Tillerson, Council on Foreign Relations
[transcript]

... Our guest this morning really needs no introduction. Rex Tillerson is the CEO of Exxon Mobil, the largest publicly traded oil company in the world. He's been in that position for six years. He was responsible for the big move into natural gas, the $30 billion acquisition of XTO Energy in 2009. In his new book, "Private Empire," Steve Coll refers to Exxon Mobil as a corporate state within the American state, with its own intricate web of international relations and, in a sense, its own foreign policy.

... Now, there's been in a prolonged recession and a kind of stumbling along economy, but China and other parts of the world have continued to do well with their economies, although slowing today, and oil prices crept their way back up to 120 (dollars), $130 Brent, and now with the overhang of the European economic problems, China beginning to slow a bit, which all of us I'm sure are seeing, prices pulling back in response to some weakening -- or weak demand, but also in response to a surge in supply. And I'm going to talk a little bit about that surge in supply.

So that's what's happened with oil prices, you know, during that time -- (inaudible) -- a little bit of demand. Well, in response to that demand and in response to those high prices -- and this is the way things work in our industry; everything has fairly lengthy timelines -- but the industry did respond to those high prices. The Saudis made massive investments to increase their capacity to meet that demand, because what shot those prices up, if you recall, to $150 was a -- was a shrinking surplus in global capacity. There's always been a big of a surplus that was fairly recognizable by the market. And that had shrunk to less than 2 million barrels -- somewhere in the million to million and a half barrel range. And the markets were very nervous about the absence of that surplus.

So the Saudis invested heavily, developed an additional roughly 2 to 2 1/2 million barrels a day of capacity, which they have been using of late to stabilize markets, and such that through that period of time, even throughout a lot of supply disruptions, the events in Libya, the Arab Spring, the uncertainties that have existed in the marketplace for a whole host of reasons, the markets have remained well supply (sic). No one anywhere, any place in the world, has not been able to get the crude oil they normally would need to fuel their economy.

So I think it's important to keep that in your mind and maintain that context; that, you know, these prices, while they swing around a lot, the system's quite efficient and it's quite effective at allocating the supplies that are available, even when they get very tight.

Now the second thing that's happened in response to that supply is what -- is what I'm going to talk a bit this morning, is what's gone on here in North America, which has been, I think, nothing short of extraordinary. And I would be less than honest if I were to say to you, and we saw it all coming, because we did not, quite frankly. We did recognize the potential of the shale resources in North America. We recognized there was technology solutions to a portion of that. We grossly underestimated the capacity of both the rocks, the capacity of the technology to release the hydrocarbon, natural gas from the shale gas and now oil from tight oil rocks. We underestimated just how effective that technology was going to be, and we also underestimated how rapidly the deployment of that technology would occur -- again, all in response to fairly high prices.

... Now -- so my question for you is since we all know this knowledge, we're a little in denial of it. You know, if we burn all these reserves you've talked about, you can kiss future generations good-bye. And maybe we'll find a solution to take it out of the air. But, as you know, we don't have one. So what are you going to do about this? We need your help to do something about this.

TILLERSON: Well, let me -- let me say that we have studied that issue and continue to study it as well. We are and have been long-time participants in the IPCC panels. We author many of the IPCC subcommittee papers, and we peer-review most of them. So we are very current on the science, our understanding of the science, and importantly -- and this is where I'm going to take exception to something you said -- the competency of the models to predict the future. We've been working with a very good team at MIT now for more than 20 years on this area of modeling the climate, which, since obviously it's an area of great interest to you, you know and have to know the competencies of the models are not particularly good.

Now you can plug in assumptions on many elements of the climate system that we cannot model -- and you know what they all are. We cannot model aerosols; we cannot model clouds, which are big, big factors in how the CO2 concentrations in the atmosphere affect temperatures at surface level. The models we need -- and we are putting a lot of money supporting people and continuing to work on these models, try and become more competent with the models. But our ability to predict, with any accuracy, what the future's going to be is really pretty limited.

So our approach is we do look at the range of the outcomes and try and understand the consequences of that, and clearly there's going to be an impact. So I'm not disputing that increasing CO2 emissions in the atmosphere is going to have an impact. It'll have a warming impact. The -- how large it is is what is very hard for anyone to predict. And depending on how large it is, then projects how dire the consequences are.

As we have looked at the most recent studies coming -- and the IPCC reports, which we -- I've seen the drafts; I can't say too much because they're not out yet. But when you predict things like sea level rise, you get numbers all over the map. If you take a -- what I would call a reasonable scientific approach to that, we believe those consequences are manageable. They do require us to begin to exert -- or spend more policy effort on adaptation. What do you want to do if we think the future has sea level rising four inches, six inches? Where are the impacted areas, and what do you want to do to adapt to that?

And as human beings as a -- as a -- as a species, that's why we're all still here. We have spent our entire existence adapting, OK? So we will adapt to this. Changes to weather patterns that move crop production areas around -- we'll adapt to that. It's an engineering problem, and it has engineering solutions. And so I don't -- the fear factor that people want to throw out there to say we just have to stop this, I do not accept.

I do believe we have to -- we have to be efficient and we have to manage it, but we also need to look at the other side of the engineering solution, which is how are we going to adapt to it. And there are solutions. It's not a problem that we can't solve.

Rex W. Tillerson is Chairman and CEO, Exxon Mobil Corporation
(27 June 2012)



Australia’s growing oil imports are an energy security issue

Vlado Vivoda, The Conversation
For all the talk about Australia’s resource and energy riches and the country’s economy riding the waves of a resource boom, one facet of the country’s energy situation has largely been under the radar – the country’s growing reliance on oil imports.

BP have just released their annual Statistical Review of World Energy. This statistical bulletin is regarded as the most reliable source of information on energy-related data, and is widely cited by governments and industry specialists alike.

What the latest report reveals should cause some concern in Canberra. In 2011, Australia’s oil production declined by 14.5 per cent compared to the previous year. At the same time, Australia’s oil consumption increased by 5.7 per cent.

This drop in production and increase in consumption is not alarming per se. However, what is worrying is that it comes against the backdrop of a long-term oil production decline and consumption growth (see figure 1).

... In its 2011 National Energy Security Assessment, the government claimed that Australia enjoys a high level of liquid fuel security and that this position is not expected to change in the coming years.

This evaluation appears both overly optimistic and naive given recent trends and future projections of Australia’s oil production and consumption.

Australia’s relative isolation, continental size and reliance on transport fuels imply that oil supply security is vital for its economy and strategic posture. Australia’s growing dependency on imported oil, and easily disrupted or fractured supply chains, is an increasing economic and strategic vulnerability.

Vlado Vivoda is a research fellow at Griffith University's Griffith Asia Institute.
(20 June 2012)
Suggested by EB contributor Michael Lardelli.

Also re-posted at STCWA and Business Spectator.


10 mouse clicks to calculate Australian crude oil depletion of 83 per cent

Matt, Crude Oil Peak
Do it yourself. This takes 2 minutes. Australian government web site.

[Step-by-step instructions]

The trend since 1994 is well established: a jagged downward slope. For every barrel produced only 0.6 barrels were replaced either by new discoveries (green fields) or by upward revisions of past discoveries (brown fields). If both reserve development and production continue as in the last 15 years the red line shows where we are going – barring of course some miracle discoveries. And any additional oil would not come cheap.

We can see that in the last 7 years investment costs per production capacity increased substantially. Data are from here:

www.ga.gov.au/servlet/BigObjFileManager?bigobjid=GA16759
(25 June 2012)

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