Guest Post by Willis Eschenbach
There’s a discussion over at Judith Curry’s excellent blog, about peak oil. I find the whole madness surrounding peak oil to be one more example of our human love for warnings of future disaster. Few people want to hear that tomorrow will be OK, that things will work out. Instead, most folks want to hear some terrible story about what tomorrow holds, whether it’s peak oil or climate meltdown or the coming ice age. Go figure.
Figure 1. Conventional oil leaking out of the ground near McKittrick, CA.
One part of the discussion of peak oil that has always bothered me is the division of oil into “conventional oil” and “unconventional oil”. Here’s why I think that division makes no sense with regards to peak oil.
I’ve lived through much of the whole peak oil deal, which near as I can tell has turned into a half-century-long goat roping contest. During the earlier years, people were shouting that the oil would run out, that the top would be very soon now, we’d hit the peak and by gosh, at that point things would turn ugly. Of course, that still hasn’t happened, so the peak oilers were left with the question pondered by failed doomcasters throughout history, viz:
How the heck do I explain the cratering of my position and still maintain some shred of my reputation?
For the peak oil folks, salvation came in the form of “unconventional oil”. Now, we’re assured, oil is still running out, so they were right all along … You see, they say, King Hubbert was right, we’re running out of conventional oil, but as it runs out it is being seamlessly replaced by “unconventional oil”, so we still have oil even though we’re running out of oil. Got it?
The strange part is, when you open a barrel of unconventional oil to see what conventions were broken in its creation, you find it is indistinguishable from conventional oil.
What is unconventional oil? Well, we could start by considering the conventions regarding oil. For literally billions of years the convention was that oil was found in small pools and seeps like you see in Figure 1. Indeed, the discovery of oil in Oil Creek, Pennsylvania, the site of the first US oil well, came about because oil had been seeping out there for untold centuries, and had been known and utilized by the Early Asian Immigrants in the area before the later arrival of the melanin-deficient crowd.
So conventional oil, by ancient hallowed convention handed down through the millennia, is found in tar pits and oil seeps on the surface. Which means that people being so rash as to drill for oil, by definition, would be pumping up “unconventional oil” … but of course, life is not that simple.
As a result, “conventional oil” is not from the conventional method of dipping it up in a bucket from a seep, but by the decidedly unconventional and at that time unheard of method of drilling a hole in the earth to get it to come out …
Things went along just fine like that for years. Then “secondary recovery” methods started to come into use. These were a variety of physical and chemical methods used to squeeze more oil out of existing fields, including fracturing the rock to allow the oil to come out more easily.
Now, about this time, the whole “peak oil” story started to go south, because no matter how much peak oilers howled there was more oil discovered every year. Every year the proved reserves just kept growing. And that process has continued to this very day, with more proved reserves than ever. How were the peak oilers to explain it? Hey, “unconventional oil” to the rescue!
For example, thinner oils were “conventional”, but thicker, more tarry deposits, despite having been utilized by humans for centuries, were “unconventional” oil, so they weren’t counted regarding the peak.
The real laugher, however, the place where you can see the gears stripping, involves the “conventions” about fracturing the rocks to allow more oil to come out, what we call “fracking”. The fracturing technology was developed about forty years ago, and has been used ever since, mostly for secondary recovery. And for all those decades the oil coming from the fractured rocks has been “conventional oil”. But now people have learned to drill wells horizontally and fracture them … and now suddenly after forty years of fracturing the rock, which gave “conventional oil” when it was done from vertical wells, fracking now only delivers “unconventional oil” simply because the drill hole goes horizontally instead of vertically … does this make any sense to anyone?
The classification of oil from fracking as “unconventional oil” shows clearly the ludicrous nature of the dividing line when we are discussing peak oil. Regarding the putative peak, why is oil from a horizontal well “unconventional” and oil from a vertical well “conventional”? It is all gotten by technology, and none of it is any more “unconventional” than the drilling of the first oil well, a most unconventional act …
Calling oil from horizontal wells “unconventional” is crucial for the peak oil folks, however, because if the oil from fracking were classified as conventional oil, the “peak oil” claims and the “peak gas” claims would sink of their own weight …
Look, folks, the ugly truth is that the world is awash with fossil fuels. To start with, The largest single concentration of fossil energy on the planet is the Powder River coal formation in the Northern US. The world has several hundred years worth of coal. The Canadians have huge amounts of oil … of course it too is called “unconventional” oil, because it alone is enough to blow the “peak oil” claims out of the water. Plus now we have the “tight oil”, oil in the rocks that is, of course, unconventional.
Then we have the discovery of the shale gas resources all around the planet. Even Israel finally has some domestic energy resources. How unconventional is that? Australia just announced a huge find. China has massive gas resources. A preliminary assessment says including shale gas we have enough gas for the next couple of hundred years.
And finally, we have the wild card, the methane hydrates, the “ice that burns”. Estimates of the amount of these are all over the map, but all of them share one feature—they are very, very large, on the order of quadrillions of cubic feet. This is rivals the size of the global natural gas resource …
Finally, most of these forms of fossil fuels occur in combination and can be converted into one another. Coal, for example, can be converted to a liquid fuel, or to a gas.
Now, because there never was anyone hollering about “peak coal”, there’s no such thing as “unconventional coal”, despite huge changes in mining technology. Coal mining has changed as much or more than drilling for oil … so why isn’t there “unconventional coal”?
But in that case, since all of the coal on the planet seems to be “conventional” coal, if we convert coal to oil, are we making “conventional oil” or “unconventional oil”? Presumably it would matter whether we converted coal to oil horizontally or vertically …
In summary, once you get past the nonsense of “conventional” and “unconventional”, there’s enough coal and gas for a couple hundred years, and enough oil for a hundred years, just with what we know about now, and that’s not even counting methane hydrates. Which is why I pay no more attention to the peak oil alarmists than I do to the climate alarmists. One group claims we have too much oil and we’re gonna burn it all, the other group claims we’ll soon have too little oil to burn, and I treat those two impostors just the same.
Was the division between “conventional” and “unconventional” oil devised to cover up the failure of the peak oilers? No way. The distinction is useful in a variety of ways for analyzing the world of oil sources. I think that the concept was simply appropriated by the peak oilers because it was very useful to them, since it totally obscured the failure of their peak oil predictions. To me, oil is oil is oil, and if you claim the world will run out of oil, you can’t later say that you have redefined things, and that the oil that proves your prediction wrong is some other special kind of oil that doesn’t count as oil but walks like oil and quacks like oil …
w.
… Oh, yeah, the weather report. Late night again, two AM. The wind has changed and is blowing from the southwest, landcasting the fog and the smells of the ocean. The characteristic sea smells of iodine and dimethyl sulfide in the fog draw my thoughts back, back to the many mornings I spent getting out of bed here on the hill at 4 am and going down to the harbor, rigging the boat and setting out in the dark to have the commercial fishing gear in the water for the dawn salmon bite. Sliding out of Bodega harbor in the half-light with my gorgeous ex-fiancee and my good friend, once again motoring between the rock jetties at the harbor entrance, going out to discuss matters of life and death with the ocean. I love the ocean because it doesn’t give a damn about a man’s position and his power and his pretenses. Knowledge and experience mean nothing to the ocean. After a life at sea, if I put one foot wrong, I get just as wet as the landlubber falling off the dock … I take pleasure in that ultimate equality and justice of the ocean. I know that even if it is a California ocean it would kill me without first asking me to share my feelings, so leaving the safety of the harbor is always sobering moment …
… sneaking out between Bodega Rock and Bodega Head itself, the little shallow passage the fishermen call “between the rock and the hard place”, where once my heart almost stopped with fear, or at least it started with fear, but other emotions got involved. The channel there is shallow, the sport fishing boat “Mary Jane” was capsized in 1986 with the loss of nine souls by a sneaker wave, “full fathom five thy fishermen lie, of their bones are coral made” …
So when I heard a wave break right behind our little fishing boat one afternoon as we were coming in between the rock and the hard place, my first thought was that we were about to join the folks from the Mary Jane.
We spun around, and aaaah, dear heavens, it wasn’t a breaking wave at all, although a wave was breaking, instead it was my old friend Missus Fishbreath breaking the surface just behind the boat, and breaking my heart with the slow-moving stillness of her majestic beauty, a great gray whale dancing her way three thousand miles from the tropics to Alaska. As we turned and gaped, we were looking her right in the eye, and then she rolled our way and opened her blowhole so close to the boat we could almost look down it, it was as big as a dinner plate, we were close, close enough to count the barnacles clinging to her hull, she was the very picture of natural wildness and glorious beauty and unimaginable power, my heart leapt to see it … and she blew out a great cloud of gagging mist, a noxious enveloping adherent miasma reeking of the million vanished piscatorial souls of her most recent month’s meals, a clogging, thick effluvium that enveloped the boat and then drifted away to leeward as the lovely lady disappeared beneath the waves …
… leaving me in the strangest condition imaginable, with the boat wandering off course, my jaw hanging down to my umbilicus, a pulse rate well into the triple digits, adrenalin-shocked, awed beyond words, smelling like the dumpster behind a cheap fish restaurant, blasted by the natural beauty I had just witnessed, and uncertain whether I was going to vomit or not, but tending toward the former.
I’m not jonesing to visit that particular emotional place again, once was enough for any man. And on a cold night like tonight, I’m glad I’m not rolling out at four am. I fished the Bering Sea as well, and these days I’m just as happy to see the bergy bits and watch the Bering ice on the “Deadliest Catch” TV show from the safety of my couch … but ah, dear friends, mostly I’ve just moved my ocean madness to warmer waters, and I wouldn’t have missed it for rubies and pearls …
Sports and gallantries, the stage, the arts, the antics of dancers,
The exuberant voices of music,
Have charm for children but lack nobility; it is bitter earnestness
That makes beauty; the mind
Knows, grown adult.
A sudden fog-drift muffled the ocean,
A throbbing of engines moved in it,
At length, a stone’s throw out, between the rocks and the vapor,
One by one moved shadows
Out of the mystery, shadows, fishing-boats, trailing each other
Following the cliff for guidance,
Holding a difficult path between the peril of the sea-fog
And the foam on the shore granite.
One by one, trailing their leader, six crept by me,
Out of the vapor and into it,
The throb of their engines subdued by the fog, patient and
cautious,
Coasting all round the peninsula
Back to the buoys in Monterey harbor. A flight of pelicans
Is nothing lovelier to look at;
The flight of the planets is nothing nobler; all the arts lose virtue
Against the essential reality
Of creatures going about their business among the equally
Earnest elements of nature.
Robinson Jeffers saw it … when you read those lists of famous last words, nobody ever says “I wish I’d spent more time at the office”. Don’t mail the envelope in, push the envelope, the journey will end long before any of us wish it to. Live your most impossiblessed dreams, my friends, because any other kind is just a dream. Chance the widdershins steps of the tarantella, lift the ancient curses and look under them for old coins and lost loves and dust bunnies with a vest and a gold pocketwatch, opt for an immediate increase in the uncertainty levels, stay away from the world of adrenalin deficit spending, hold your dearest warm under your heart while you dare the icy seas of life, for the night is assuredly coming …
My very best wishes to all, I’m off to sleep.
MarkG says:
February 3, 2013 at 11:33 am
““As long as the sun shines, we will never, if truly needed, run out of anything.”
Never is a long time.””
Mark, you rightly note that we don’t have an imminent problem with shortage of resources. However, let me explain why the quote about the sun shining is correct as is.
1) Nearly all the metals and non-fuel non-metals we have mined are still available for reuse and we have made great strides in recycling more and more of these. Moreover, we are using less and less per unit of finished product.
2) With changing tech and current prices, we are mining what were ore grades well below the margin in days gone by (how’s 1gram of gold per tonne – i.e. 1 ppm)
3) This is the one that most people do not consider: the demand is for an end product, not a specific metal. You can make a radio with a piece of quartz, a coil of wire and a few other items. Zinc’s main use has been in making a non-corrosive surface for iron for barn rooves, culverts, etc. – we could do without zinc for this purpose and indeed we are making these things out of plastic with cheap non metallic mineral fillers. Same thing will copper wires for electricity – aluminum largely replaced it and common clay and granite are about 15% aluminum and there is graphite, etc.
Vince Causey says:
February 3, 2013 at 9:03 am
Peak oil, as I hear expressed, is that the rate of extraction of oil (or oil equivalent) will reach some peak, then decline. Willis (and others) counter argument, is that there is more uncoventional, low grade reserves that can step in and take up the slack…..
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If what you are saying is true, AND we have governments that are interested in the wellbeing of our country and not in orchestrating its demise, then there would be an all out push for the replacement of coal and oil with hydropower, the best nuclear plants we can design and a second push for Micro Nuclear Reactors that can be used to power trains, ships and possibly aircraft.
Since the buffoons in office are instead funding low density intermittent “solutions” like solar and wind that put tax payer $$$ into bankrupting boondoggles, while making sure dams are removed from our Wild and Scenic Rivers. and in the USA government has been blocking development of nuclear since the 1970’s, so I will let you figure out which is occurring:
1. We have a bunch of selfish traitors in office who are fiddling while the USA and the EU ‘burn’
2. There is no peak oil.
3. Free, independent and thinking individuals are viewed as dangerous by the Regulating Class and by curtailing our ‘Access to Energy’ they hope to control us.
Stanb999 says:
February 3, 2013 at 9:42 am
The difference is, you and I can tell apples from oranges.
But oil from “conventional” sources and oil from say “processing gains” (see the chart above) and oil from fracking all burn exactly the same in your engine. No difference. When you pull up to the pump, you don’t say “just give me gas from ‘conventional’ sources please”. Your car can’t distinguish between oil from Saudi Arabia and Alberta tar sands oil and oil from fracking shale. It’s all just oil.
And that is why, when we are talking about “peak oil”, we’re not talking about peak apples. Because to your car, to your wallet, to the world market, it’s all just oil … and the production of oil is a long way from peaking. See the chart immediately above.
w.
“But oil from “conventional” sources and oil from say “processing gains” (see the chart above) and oil from fracking all burn exactly the same in your engine.”
This is not exactly true because a barrel of light sweet does not make the same products as a barrel of heavier sour crude. Light sweet produces more higher value products like gasoline and jet fuel while the heavier crude produces more asphalt and bunker oil. And let us not forget that the agencies today try to include all of the NGLs and refinery gains in the aggregate production figures. A few years ago they were not as careful to account for everything because there was no talk of peak oil.
Gary Pearse says:
February 3, 2013 at 11:36 am
Lovely anecdote, Gary, and to the point. He didn’t buy into the hype …
w.
MC says:
February 3, 2013 at 10:45 am
jrwakefield, You absolutely have no idea what you’re talking about. As an old field declines, new ones are discovered. If you do some real research you’ll find that current extraction techniques will supply our fossil fuel needs for thousands of years. That’s no bull—- my boy.
——
Have a look at a graph of discoveries. It’s been steadily dropping for 50 years. Google is and see for yourself. http://watd.wuthering-heights.co.uk/chartimages/d/d1oildiscavproj.gif There hasnt been a Ghawar size field discovered since, because there isnt any We are consuming 5 barrels for every 2 we find. And yes, I have been reading about this for some time.
Thousands of years? ROTFL. 30 Billion barrels in a year. That’s 30,000 billion barrels in one thousand years. That’s TEN TIMES all known fields of petroleum of all kinds. That does not include increasing demand. The rate of consumption of FF is about 3% per year, that’s a doubling every 25 years. Thats 40 doubling periods. That means in the last 25 years of those 1000 we would be consuming 15 TRILLION barrels per year.
Ironically, however, you are right. Oil will last us for thousands more years. Just not with this population, and this high energy demanding civilization.
DirkH says:
February 3, 2013 at 10:15 am
Well, you can call it the desire to maximize profits….
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You are correct. It is powerful cartels with huge influence on government causing price fixing. Top Senate Democrat: bankers “own” the U.S. Congress
These guys pin pointed what many folks are missing.
Mr. E. You are right on point, as usual. But there is a point about “peak oil” I feel you have missed.
(Full disclosure: I am in the o & g biz, have been for 34 years, been through the peak oil and gas several times.)
You are right in one way, but I suggest that Hubbard was also right, just in a different way. Hubbard, I propose, was (unconsciously) referring to not to oil per se, but to oil produced at a certain technical ease, i.e. cost. Now “cost” can be either in dollars, which is subject to inflation or deflation, so difficult to determine what the “real” change is, that is, relative to the amount of time some arbitrary worker has to put in to afford a drop or two. That worker’s wage also fluctuates as the global source of workforce changes. “Cost” can also be considered as a product of the product itself in the case of oil and gas, though, as you have to sell the product in order to go and and get the product.
This is where “peak oil” has some reality.
Back in ’79, when I arrived in the heart of the Canadian petroleum business, there was a government mandated oil production rate for pools (an MRL), both for oil and gas. The idea was to extend the life of the pool for national interest purposes and avoid overproduction rates which prematurely kill wells through induced water production. Still, it was economic to dill a 1000 m, find perhaps 50,000 bbls (50 mstb) of oil over its life, and produce it at 35 barrels per day (bopd). Gas, you’d want 500,000 cubic feet per day,(500 mcfd), and produce perhaps a third of a billion cubic feet (0.3 bcf). Can’t do that any more. You would be out of business (unless you are so small that looking after the oilfields was part of your income).
Which is unfortunate for two reasons. The first is that the technology to do so is fabulous now, and it would be a dream to be working on those old plays with the new toys. The second is that it ain’t there any more of these small, easily produced, 1000m oil pools out here any more.
The “easy” oil and gas is gone. The easy stuff has been gone in the continental US for even longer. Back in the ’90s I recall the average producing Canadian well was doing 30 bopd, while the American was 15 bopd. Both are worse now The big pools in the mid-east deserts have been found, though the stratigraphically bound oil and gas has not been much exploited – because the amount of drilling per barrel is much lower than the original, structurally bound plays that were discovered initially. Same world over: as time has gone on the amount of effort required to get the replacement barrel has become more difficult and therefore, more expensive.
Do not be fooled by the claim that the new technology becomes cheaper as time goes by in a practical sense. It does not: as the technology has improved, the resource being exploited has become less happy about being exploited. There is no, I repeat, no trend to decreasing real costs. What you hear about decreasing costs is a mirage, it is based on infill drilling of already discovered and developed resources in which infrastructure, pipelines, tankage, compressors, roads and the like, are already in place.
Oil becomes cheaper to produce with time the same way your living costs decrease with time as you no longer need to buy furniture, pay your mortgage etc. If you were forced to start a house anew, or go out and find and drill-to-discover a new oilfield, you will find it more difficult, more expensive than before.
The only time commodities become cheaper with time is when untapped, original resources are accessed with the knowledge gained earlier, elsewhere.
Consider the North Dakota Bakken oil. I’m not a skeptic of the claims for the pools there because I am suspicious that ALL the ballyhoo came from several Continental Oil press releases back in late 2011, a claim that has 5X as much recoverable oil as the USGS allow, or that Continental Oil says that EVERY well will have a 500mstb recoverable with an initial rate of 430 bopd. That is, not just the core, but the outliers, the marginal area, with pressure reduction happening as we go forward. I’m not a skeptic that Continental Oil will be, by 2016, bigger than Devon Oil, or that by 2020 the Bakken will be producing 1.2 mmstb/day (it is now doing about 680 mstb/day). I’m an unbeliever.
I’m an unbeliever because the difficulty in getting oil out increases with time in the simplest of ways. The Bakken wells cost, according to various press releases, about $10.2 million/well. (Since that would be drilling costs, a full-cost number would be in excess of $11 million/well, but this is not material to the discussion at hand.) In order to pay for this well, if on-going costs are $30/bbl, not an unusual cost (you have to include admin, office and the president’s salary and bonuses), the netback is $60/bbl right now. (Press releases claim the pools are exploitable at about $60/bbl, probably underestimated for shareholder purposes, so the numbers are reasonable.) That means that you have to have found almost 200,000 barrels just to cover the costs of finding the oil.
This is what the public doesn’t understand. The first 200,000 simply covers the process of finding the reserve. In terms of energy – human and mechanical – 200 mstb is the break even point. If that pool does not have in it more than 200 mstb/well, you won’t even try to get it out. It is not sustainable.
Specifically with respect to the North Dakota Bakken, the chances of getting 200,000 per well is strictly determined by its initial production rate. Declines are very high, in excess of 20%/annum after the first 3 years (public data, easily determined). If you start out at 200 bopd, not 430, you won’t get there. If you look to the current 680 mstb/day at a 20% per year exponential decline, you’ll see that to get to 1.2 mmstb/day by 2020 means you have to drill faster and faster AND suffer no pressure-related decline/well (or reservoir related). The field is now in the 8-well/square mile infill stage; the recovery rate per well WILL decline as unicorns, fairies and oil fields that don’t suffer with age exist only in the minds of children and stockbrokers.
The North Dakota Bakken is expensive and its return in terms of beyond-cost volumes, much, much lower than how it used to be. The glut of oil coming out of the Bakken is misleading: it takes so much “oil” to get oil out, you have to be very careful (and worried) that you don’t overextend yourself.
Consider the above when you look to the claims of “peak oil” being a sham. In the physical sense, Hubbard was wrong, and will continue to be wrong. In the other sense, of oil-in vs oil-out, Hubbard was right.
As we have gone forward, the ease of finding fossil fuel energy has ended. The “resource” exists but what a piece of misinformation! Molecules in the ground is what a resource is, but molecules in the pipeline is what we use. And if it takes 2 molecules of effort to get one for use now, guess what is happening in the future …. more effort for less results. Prices rise and those who can’t pay today, sure as hell can’t pay tomorrow.
N|ow there are other “unconventionals”, other hydrocarbons to replace conventional oil and gas. Gas hydrates is a good example of such a “resource”. Like gold dissolved in sea water, gas hydrates are ubiquitous. 2D seismic lines along the continental shelf show the hydrates clearly as disturbed beds near the surface, several hundred meters thick in places. In the Arctic, hydrates cause drilling problems, though not the catastrophic drilling problems people first thought. Why? Because the concentration is sufficiently low, and the density of its matix also so low that the iimmediate gas around the drillbit disappears into your drilling mud as you drill into it and the “reservoir” compacts fast enough around the drillbit that you don’t get a runaway effect. You WOULD if the gas were concentrated enough. Somewhere hydrates are sufficiently concentrated to be producible, but not everywhere, just as gold is everywhere but only minable in some places.
Resource does not mean reserve. Reserve – producible at some reasonable price – does not mean producible at today’s prices.
The BS in Britain right now about shale gas, and the “oil” in central Australia are two, additional and current examples. The political-company excitement disrespect the consuming public (and shareholders). The amount of oil and gas that must be produced to break even on the simple effort to get out the resource creates a hamster wheel of activity. Not just a treadmill. If this is to be the future, the future economy will devolve to one based around getting oil out of the ground. For the initial investments come from the rest of the economy. And if the return is not sufficient, then the rest of the economy in effect subsidizes the industrial need for oil. The net effect: farmers work hard to generate income to pay for the oil they need to … work as farmers to pay for the oil they need to …
As I have said other times, the future is not dark, but it is expensive.
The more we continue to rely on fossil fuels to drive our world, the more of our effort will be spent on generating the wealth necessary to drive our fossil fueled world. We work harder and faster to bring in “profit”, by which I do not mean a personal grasp of wealth, but the excess effort a society has have to create art, spaceships and coffee-house lattes.
And it is the art, spaceships and lattes that are the heart of all societies. The rest is background.
Drilling for more and more expensive oil is no different economically from funding interminal wars: the money/social effort goes to no further end than survival for the next day’s effort.
Coal can, and has been, made into liquids or gas on a large scale since before the Second World War. You can even turn the methane gas from garbage dumps into gasoline with the right catalysts and “reactors”. The technical feasibility is not the issue, but the amount of energy, i.e. effort these take in a world in which effort is limited by 24-hour days. If it takes you a half day to produce one day’s worth of food, you get fat. If it takes you a day and a half to produce one day’s worth of food, starvation is in your future. We aren’t at that stage yet, but WITH RESPECT TO OIL AND GAS AS THE PRINCIPAL ENERGY SOURCE, we are headed inexorably in that direction.
But if peak oil/gas is not real, why are energy costs in the US one-half of those in Europe? Price vs Cost: prices right now are less than the go-forward cost of production.
Fossil fuel in the US – natural gas specifically – is cheap right now due to over-production and under-consumption, not low costs of production. This seems paradoxical, but oil and gas aren’t like other commodities like toothpaste. Once you can produce it, you more-or-less have to.
The problem is there is less being used, because of:
1) economic shrinkage more than use efficiency,
2) once brought on-stream, is not a commodity either easily stored, or
3) due to cashflow demands, easily turned off, or
4) coming as a byproduct of liquid production, avoided,
5) those who produce liquids with gas can use their profits from the liquids to offset their “losses” from gas, i.e. the oil consumers subsidize the gas consumers.
As even Bishop Hill has noted, a cost of $6/mcf is a go-forward, shale-gas break even cost. Twice the current market price. The future is >$6/mcf in a real sense as the current gas bubble goes away, i.e. the conventional or subsidized volumes decline. (This has happened several times in my career, though principally due to under availability of take-away, pipeline capacity. Oil prices for heavy crude are similarly depressed right now, which is why Canada wants the XL pipeline.)
Costs above price has an unavoidable result: new product volume goes down and price goes up. It has to, or everyone, including the government dependent on taxes, goes broke.
Think of this: China is not building coal fired power generators at the rate of 1 per month because oil and gas is cheap to find, produce and bring to market. At the same time, the oilsands of northeast are looking for the alternative, to go to Japan and Indonesia via the Gateway pipeline and tankers out of a British Columbia deep port, if the XL pipeline doesn’t go through (which it will: Texas refineries need to be fed) not because the Canadian heavy crude is cheap to produce. Not at all: the oilsands are so capital intensive, and break even price so high, that hardly anyone can afford the game. The western Pacific wants it because it doesn’t have access to less expensive oil any more. The Athabasca deposits are what is now AVAILABLE.
Japan went to war with the world when its supplies of oil (plus rubber and other critical materials) was cut off or threatened by the British and American empires. That is how critical energy supplies are to nations. (According to many, the four Iraq wars were/are waged for security of oil supplies, though I think hegemony counts for the first two, and keeping potential rivals weak, for the last two. But oil security even at $100/bbl may be in the mix.)
Again, the future is not dark but it is expensive.
Moving to a non-fossil fuel based – other than simple coal – is a necessary and coming move based on the declining amount of EASILY recovered supplies. We cannot have a thriving civilization if we spend most of our effort providing for the heating, cooling, lighting and moving that underlies our civilized way of life, any more than a spending all your effort keeping predators at bay could allow the rise of ancient cultures. It is said that energy costs are already creating a “fuel poverty’ in the pensioner of England and Scotland, where God knows you want your place adequately heated. (Same goes for Russia and the Ukraine.) If the eco-greens get their anti-oil into its anti-human endgame, this fuel poverty is the way of things to come, but, really, it is not viable. Still, what the eco-green is trying to do from ideology will happen if we continue to believe that oil and gas are simply there for the taking with more technology and iPhones.
Peak Oil is a reality. It doesn’t look the way that we thought it was when Hubbard made his claims. It is not a “running out of it”, where the machine winds down because its fuel tanks are empty. It is a “deciding whether you have food on your table or a tank of gasoline in your car, or a heated house in the middle of winter”. IF, and I stress “if”, IF that you are determined to be dependent on gasoline for driving, and oil and gas for surviving the January deep freeze.
Peak Oil is real. While there is a lot of it around. A lot of expensive oil, that is.
PS. Nuclear will be our future. Not fusion, so far, I’m afraid. And gasification of coal. Oil and gas coming out of the ground as a primary source of a civilization’s energy is going to be seen as a transition fuel. Effort, i.e. energy-in vs energy-out, will make this happen. You can bank on it, or watch your bank account disappear, if you are determined.
Willis, per that chart.
First, “yet to be found”. That’s a pure load of hopeful guesswork. How can they possibly know what will be found until they drill???? They cant. Second, yet to be developed is also guess work as to yearly output. Until output is actually flowing they cannot know what that will be 30 years out.
“By 2035 they forecast about 33% more oil hitting the market each and every year than is produced and marketed today.”
Any you believe that? 33% EVERY YEAR!!!! Really? Think about that carefully. You’re good enough with spreadsheets, go try it.
“EROEI is completely irrelevant.”
ERoEI is the law of thermodynamics. Quite relevant. Look up the Energy Trap. Yes, you can build a nuke plant to help extract oil such that you’re losing more energy than you get out of it. That is, you lose more uranium energy than you get back in oil energy. We likely will do that. But does that make sense? Maybe to some.
It’s kinda like borrowing money to spend money. You end up spending even more money on those items because you have to pay interest on the money you borrow. You can do that for a time, until you run out of means to pay for the interest.
Same with energy. Sure, build a nuke plant to extract oil at a loss. But that nuke power cannot be used to run other aspects of society. Eventually you get to the point where you have to keep building more energy plants just to get energy. It will catch up with us, just like debt financing does.
thingadonta says:
February 2, 2013 at 10:46 pm
Peak Christianity is as delusional as Peak Oil.
I am reminded of “Peak Agriculture” arguments as well. Prior to Enclosure, almost all ag in the EU was of the subsistence kind. The invention of property rights and market economies in the Netherlands during the 16th century led to double and triple cropping and the transfer of control of farmland to those who could actually farm. Ag productivity increased ten fold in the Protestant nations of Norther and the British Isles. This basket of new technologies did away with famine.
Peak Oil was predicated on technology remaining the same. Any geologist back then could tell you that most of the oil even in old wells was still in the ground. A new set of technologies would get it if there was a need to go get it. But why go get it with a more expensive set of techniques if it was cheaper to just turn the spigots on the old wells? Horizontal drilling and cracking were invented in the 50s. But there was no push to develop it as a technique until the last few years.
Back when I first heard of peak oil, it didn’t take me very long to start wondering if it wasn’t just a ploy to just keep the price of oil rising. After all, isn’t the price of diamonds kept high by claiming they are “rare”? And back in the 70’s when the first oil crisis arose, didn’t it just turn out to be a ploy to raise prices? At least back then, they lowered the speed limit on the interstate highways to force people to use less gas. This go round, it has all seemed so bogus because big SUVs and trucks are as popular as ever, and the so-called new “fuel-efficient” vehicles only get around 30 miles per gallon (heck! my 22 year old Buick gets 28-29 on the highway!), and it’s paid for.
I found myself wondering if the idea of abiotic oil wasn’t closer to reality, and that if it became known that oil could become as plentiful as water, then its price would decline to intolerable (for investors) levels.
richardscourtney says:
February 3, 2013 at 9:46 am
“Nonsense!
There are two reasons why the goal posts cannot be moved to where you are trying to shift them.”
Thank you for replying to my post. I am not trying to move goalposts Richard, merely fill in a gap missing from Willis article. Willis maintains that “peak oil” cannot exist because there exists an abundance of low grade resources that can fill the gap. Everyone agrees that this is so. I am merely saying Yes, but you haven’t mentioned EROEI, so let’s see where that leads.
You then say:
“Firstly, I spend money – not energy – when I buy the fuel to fill my car.”
But money is merely the claim that you have on goods and services in society. When you spend money, therefore, you are exchanging your claim on a certain amount of goods for some other goods. Goods, of course, are the result of processing raw materials with that surplus energy. So I would say that when you spend money to fill your car, you are indeed spending energy.
You then pointed out: “As by E.M. Smith explained to you, any excess energy requirement for extracting and processing oil can be provided by another energy source (e.g. nuclear).”
Yes, I agree. If nuclear power is available in sufficient quantities, then it would change the outcome. However, as I mentioned in my post, I referred to “globally averaged EROEI.” If nuclear makes up more of the mix, then EROEI on a global level, would be higher than otherwise.
You then say: “Cost and profits affect whether the suppliers will provide that fuel to the pumps. EROEI is completely irrelevant.”
But EROEI determines costs. An EROEI of 4:1 say, means that 1 unit of energy is input to obtain 4 units of energy. Energy input in this equation comprises not only energy supplied to do work at the extraction site, but transportation, energy in manufacture of capital equipment, and even energy required to feed, house and cloth the individuals operating these processes. It means high costs.
Economic output is fundamentally an energy equation. Energy is used to massively leverage the output of society. When I talk about low EROEIs, I should stress that I’m not referring to individual operations having low ratios. We do extract oil from tar sands and gas from shale, which individually have low EROEIs, but it doesn’t negatively impact the economy because the global average EROEI is 20:1 or even 25:1. This is a robust ratio, and means that only about 4% of economic output is needed to be input back into the energy extraction process.
The problem occurs when ALL the energy we have consists ONLY of tar sands or shale gas having very low EROEIs, so that the globally averaged ratio is 5:1. That would require 16.7% of all economic output being consumed to provide societies energy needs. Again, when the USSR directed 10 or 12% of economic output to the military, it bankrupted them.
I would love nuclear power to step in and raise the EROEI equation, but the politcs seems to be moving the other way. Germany has turned its back on nuclear, and environmental activists are still very powerful. Nevertheless, when needs must, the politics will probably change. And maybe polywell fusion will prove viable or even ITER. Thorium fission is potentially a game changer. The trouble with these technologies though, is they could be decades away.
Regards
vc
jrwakefield says:
February 3, 2013 at 8:25 am
OK, sounds like you’d agree that we have not yet seen peak oil.
Ummm … kinda true at a constant price, not at all true at a highly variable price like we’ve seen in the last couple decades.
Mmmm … not so. To give just a couple of counterexamples, the Sugar Loaf Field in Brazil and the Lula field in Brazil are in the top ten fields, and neither one is even developed to any serious extent.
Then we have the heavy oil deposits. These are mainly concentrated in two areas, the Orinoco deposit in Venezuela and the tar sands of Canada. Together they are estimated to contain 2/3 of the world’s total oil … and although production is currently going on in both locations, at present two thirds of the world’s oil is basically untouched. How much of that is going to be economically recoverable depends on how clever we are, but you can hardly say those giant going concerns are in “terminal decline”, they have barely gotten started.
Then of course we have the recent shale oil discovery in Australia, estimated to contain 233 billion barrels, which is about three times the size of the Gwahar field in Saudi Arabia. Even if only 10% is economically recoverable that’s still a huge untapped resource.
So your claim that all of the huge oil fields are in “terminal decline” is simply not true.
Again, this reflects the same misunderstanding. The EROEI, like the size of the reserves, is a function of human imaginuity. So although a deposit may have a horrendous EROEI today, it may have a very favorable one a decade later. Thus, your claim that “the deposit is spent regardless how much is still in the ground” is absolutely untrue. The deposit is merely unavailable at the moment, tomorrow someone invents the equivalent of horizontal fracking and suddenly the EROEI looks very, very nice …
w.
Then we have the heavy oil deposits. These are mainly concentrated in two areas, the Orinoco deposit in Venezuela and the tar sands of Canada.
None of this really matters for the Peak Oil argument because the daily production for the heavy oil deposits is very limited. The massive infrastructure that is required to develop the tar sands requires that it is depreciated over a thirty year or so period. That requirement makes it difficult to increase production to high enough levels to offset the depletion from conventional fields and the much higher depletion from shale and other unconventional sources. When we look at the numbers it looks as if the Bakken formation should peak within two years. Once that happens it will be clear to all of the deniers that global production of crude will peak and that higher prices will be required to ration the available supply.
MarkG says:
February 3, 2013 at 11:33 am
“Though, before then, we may well have had to dismantle the sun to use its materials and stop it throwing all that energy wastefully into space.”
Freeman Dyson has though about that and proposed what is now called a Dyson sphere; think of it as very efficient solar cells forming a complete sphere around a star. No need to dismantle the sun. But of course, dismantling the sun is an entertaining concept as well.
“It is a geological fact that oil deposits deplete and follow a flow rate bell curve.”
But are we certain that the geological processes involved in creating oil have stopped?
jrwakefield says:
February 3, 2013 at 12:38 pm
My apologies for the lack of clarity, jr. When you find yourself incredulous about my beliefs, your very first thought should be “maybe I misunderstood him”.
My meaning was in 2035, there would be about a third more oil hitting the market annually than is produced and marketed annually today. Nor with this be a fluke, it would be the same in 2036 and 2037, every year would be a third more than it is today.
I did not mean that in 2035 the production would be increasing by 33% each year. The confusion seems to be that I said, and I quote, “33% more oil … than is produced and marketed today”, and you thought I meant 33% more oil than each previous year. I neither said nor meant that.
Again I say, if you find yourself incredulous at what I said, please include “maybe that’s not what he meant” in the mix of differential diagnosis. I can be wrong but I’m not a fool.
Thanks for your contributions, they are always interesting.
w.
Bill_W – everything you say in your comment http://wattsupwiththat.com/2013/02/02/conventional-wisdom-unconventional-oil/#comment-1215453 is correct, or reasonably so.
“… It may be possible with changes in price and technology, for a curve to have more than one peak … governments do affect the price of oil and regulate where it can be drilled … You need to consider all these things at once: price, technology, gov’t policy … there are substitutes and things in competition … solar, nuclear, wind come into play if fossil fuel prices go too high …“. All correct.
But there is one thing that you have missed:
“Peak Oil” and “catastrophe” are different things. Your argument – everyone’s argument – should be with those who seek to portray peak oil as a catastrophe, not with those who deal with the issue of whether the rate of oil production will rise in future. In w’s latest post, he even points out that Hubbert nimself said “there would be nothing to worry about. … that human ingenuity had not failed us in the past and he expected we would resolve such problems without serious glitches“.
Willis (and everyone) – let’s look at Hubbert again:
Hubbert estimated the world’s recoverable oil reserves at 1,250bn barrels “crude oil and natural-gas liquids”, 3,000bn barrels “oil shales”, 1,300bn barrels “tar sands”. BP puts total world oil and liquids production 1965-2011 at a tad under 2,000bn barrels (156 USA), with remaining proved reserves at 1,653bn barrels (30.9 USA) plus 389bn barrels (Canadian oil sands and Venezuela Orinoco Belt).
Hubbert’s “peak” related only to “crude oil” so ignore the other data for a moment: Hubbert’s crude oil estimates were way below actual, as you have pointed out. Yet his US peak oil production date of 1970 was spot on. Hubbert himself pointed out that his estimates could be way out, but that increased reserves tend not to push back the peak date by much.
Hubbert’s US crude oil estimate was too low, reality today is 50% higher. Yet it made no difference to the US Peak Oil date as it stands today. What it did do was to give the graph a longer fatter tail (ie, there was much slower decline after the peak). Hubbert’s world crude oil estimate was too low, reality today is 192% higher. Hubbert’s predicted world Peak Oil date was 2000, and we are 13 years past that. But how many more years of increasing production rate will that “192%” actually give us? My guess is very few, but that we will get a nice long fat tail.
So, Yes we are at or near Peak Oil and No it is not a catastrophe.
I’ll leave you with the last sobering thought from Hubbert, Figure 30 Fossil Fuels vs Nuclear: http://members.westnet.com.au/jonas1/Hubbert1956GraphFossilVsNuclear.JPG
Does that make everyone feel a bit better?
jrwakefield says:
February 3, 2013 at 12:35 pm
First, I know that any prediction of the future is never more than an educated guess That’s why we call it the future. Please let go of the idea that I am unaware of the nature and uncertainty of predictions, forecasts, and scenarios.
Next, I didn’t choose the chart. A peak oiler claimed it showed peak oil happened in 2005. So I was just using his own data to illustrate and falsify his argument by pointing out to him that his own preferred reference showed increasing oil not only in the past but into the future, so how could we have seen the peak?
Please allow me a few suggestions, jr. Please stop jumping on irrelevancies. Assume I know my way around this subject. Put as much effort into reading what I’m trying to explain as I put into writing it. Reconsider the kneejerk reactions. You’ll get more traction.
w.
During WWII the allies bombed the German synthetic oil plants, that was, what, 60 years ago, and they had synethetic oil way back then? If you have enough power, you can make synthetic oil out of practically anything, coal, gas, plant and animal matter (soylent green brand oil), even carbon bearing asteroids (there is carbon out there, lots of it). Ways to get that power, nuclear, tons of cheap power, thorium, megatons of cheap power, space based solar power satellites, litterally unlimed power forever. You now have enough power that you can even make gasolene out of air, if you want to (the Germans, once again, did that decades ago).
BTW, some notes on nuclear. http://www.forbes.com/sites/jamesconca/2013/01/11/like-weve-been-saying-radiation-is-not-a-big-deal/?ss=business%3Aenergy
“A very big report came out last month with very little fanfare. It concluded what we in nuclear science have been saying for decades – radiation doses less than about 10 rem (0.1 Sv) are no big deal. The linear no-threshold dose hypothesis (LNT) does not apply to doses less than 10 rem (0.1 Sv), which is the region encompassing background levels around the world, and is the region of most importance to nuclear energy, most medical procedures and most areas affected by accidents like Fukushima.”
“The United Nations Scientific Committee on the Effects of Atomic Radiation”
“UNSCEAR is an independent body of international experts that has met regularly since 1955 and helped establish radiation as the best understood, though weakest, carcinogenic agent in the world through its studies of atomic bomb survivors, the effects of the Chernobyl accident, industrial radiological accidents, and medical radiation treatment.”
“UNSCEAR also found no observable health effects from last year’s nuclear accident in Fukushima. No effects.”
“To recap LNT, the Linear No-Threshold Dose hypothesis is a supposition that all radiation is deadly and there is no dose below which harmful effects will not occur. Double the dose, double the cancers. First put forward after WWII by Hermann Muller, and adopted by the world body, including UNSCEAR, its primary use was as a Cold War bargaining chip to force cessation of nuclear weapons testing. The fear of radiation that took over the worldview was a side-effect”
“Of course, doubling the dose doesn’t double the cancers below 10 rem/yr (0.1 Sv/yr). It has no effect at all. The millions of nuclear workers that have been monitored closely for 50 years have no higher cancer mortality than the general population but have had several to ten times the average dose. People living in New Mexico and Wyoming have twice the annual dose as those in Los Angeles, but have lower cancer rates. These cannot occur if LNT were true, because LNT states this could not occur.”
The problem, “UNSCEAR is an independent body”, well, we can’t have that, now can we?
Name one example of an important natural commodity that has become scarce, rather than being on a price decline curve (followed by its replacement by some new techology).
Then consider how the real truth about oil and gas exploration is that new technology does not reduce risk per se, rather it allows the exploitation of new reserves at the same level of risk.
And such is the basis on which oil companies have invested and seen good returns on investment for so long.
Peak oil? Nonsense. One day we’ll just stop producing the stuff becuase some other energy source will be more cost effective. And no, it won’t be windmills….
Willis Eschenbach says:
This leads to a very profound truth—the size of a resource is a function of humans, not a function of the world. In reality there is no “size” of a given resource, all there is is how much of it we can access … and that is a function of humans, not the resource.
“Not a function of the world”, how true that is, and far truer than even you realise.
Go outside on a clear night, and look up, 90% of our resources are out there. All we have to do is go and get them, a ‘function of humans’. Minerals, power, you name it, it is out there. And, these resources are actually easier to get at and process than you realise, all that is needed is cheap access to near earth orbit. Then, you haul up mirors, find asteroids, use mirrors, melt asteroids into more mirrors, then use em all to start the serious mining of minierals (including carbon), and building of space based solar power stations for literally unlimited power.
Excluded Middle (False Dichotomy, Faulty Dilemma, Bifurcation):
assuming there are only two alternatives when in fact there are more. For example, assuming Atheism is the only alternative to Fundamentalism, or being a traitor is the only alternative to being a loud patriot.
Or assuming that the options are only what resources are on this planet alone or nothing.
“Peak oil? Nonsense. One day we’ll just stop producing the stuff becuase some other energy source will be more cost effective. And no, it won’t be windmills….”
I keep seeing that posted, some other source, yet no one will tell us what that source is. Fusion? Never. Thorium has some potential to replace some oil consumption. But very likely not enough. to stave off peak oil.
Doug Proctor says:
February 3, 2013 at 12:35 pm
“But if peak oil/gas is not real, why are energy costs in the US one-half of those in Europe? Price vs Cost: prices right now are less than the go-forward cost of production.”
About 70% of the price of gasoline at the pump are taxes in Germany (and in France, and in Italy etc.)
Welfare states with a huge bureaucracy headcount need MASSIVE tax income.