Oil Industry Mogul and Leading Peak Oil Defender Matt Simmons Dies
Matt Simmons, an energy entrepenuer and leading voice on the subject of Peak Oil, died on Sunday. (image: Michael Lewis via opednews.com)
Matthew Simmons, a successful businessman in energy industry and one of the most vocal and respected defenders of Peak Oil theory died suddenly on Sunday at the age of 67. Will the world run out of accessible crude oil in the foreseeable future? For Simmons and other adherents to Peak Oil, the clear answer is yes. For the last two decades, Simmons declared that Peak Oil is a reality the world must come to grips with or face dire consequences, a sentiment he expressed in March of this year in an interview on the Financial Sense News Hour (HeatingOil.com’s Zoe Macintosh quoted extensively from the interview in her article on a secret energy meeting in the UK). Many voices in the energy industry denounce Peak Oil talk as alarmist kookiness, but Simmons’ education and experience in the oil industry gave him unmatched credibility on the issue and quickly elevated him to the status of the unofficial leader of the Peak Oil movement.
After graduation from Harvard Business School, Simmons became a money manager for wealthy individuals. After helping a client get into the rapidly expanding offshore oil drilling business in the 1970s, Simmons moved to Houston and founded his own energy company, Simmons & Co., with his brother, the Houston Chronicle reported. From there, Simmons worked tirelessly in the oil industry, helping companies weather the uncertain energy landscape of the 1980s. By the 2000s, Simmons’ credibility in the industry helped land him a job as an energy advisor to President George W. Bush.
In 2005, Simmons Published Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, a book in which he argued that the oil reserve and oil production estimates of Saudi Arabia and other oil-producing nations were wildly overstated and that Peak Oil was just around the corner. While this position was and is largely dismissed by the world energy establishment, many of Simmons’ beliefs have attracted some notable supporters. Last November, a whistle blower inside the International Energy Agency claimed that the international body deliberately exaggerated world oil supplies to avoid global panic. Simmons made a major investment to back up his bleak views on the future of oil by founding the Ocean Energy Institute in 2007 to investigate ways to reap renewable energy from the ocean.
Bold predictions and great conviction of his beliefs characterized Simmons’ public life. In 2007, he correctly predicted that the price of crude would surpass $100 per barrel the following year (it hit an all-time high of $147 a barrel in July 2008). More recently, Simmons harshly criticized BP for the Gulf oil spill and incorrectly forecast that the company would go bankrupt paying for the cleanup.
While Simmons’ controversial statements on Peak Oil and other energy topics will likely be debated for years to come, his status as an influential firebrand in the energy industry cannot be questioned. Matthew Simmons died at his vacation home in Maine on August 8. He is survived by his wife Ellen and their five daughters.
Lloyd’s of London Sounds Peak Oil Alarm
A view inside Lloyd’s of London. The influential financial institution has advised businesses to prepare for peak oil and skyrocketing oil prices. (image: yale.edu)
Lloyd’s of London, the insurance market that is one of Britain’s most respected financial institutions, co-authored a report that warned businesses of the dire consequences they could face if they are unprepared for peak oil, reported the UK Guardian on Sunday. While predictions of peak oil and its grim aftermath abound, this warning comes from the heart of Britain’s financial sector and represents growing acceptance in England’s business community of the need to prepare for what Lloyd’s calls a “new energy reality.”
Together with the Royal Institute of International Affairs (also called Chatham House), Lloyd’s released a report titled, “Sustainable Energy Security: Strategic Risks and Opportunities” (full text available at the Chatham House website). As the subtitle indicates, some companies may thrive, but it will depend on how they respond to peak oil:
Companies which are able to take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences.
While Lloyd’s is concerned about peak oil—the moment when oil production hits its maximum point and begins to decline—it also noted the threat of a “supply crunch” that could push the price of crude oil above $200 a barrel as early as 2013.
Even before we reach peak oil, we could witness an oil supply crunch because of increased Asian demand. Major new investment in energy takes 10-15 years from the initial investment to first production, and to date we have not seen the amount of new projects that would supply the projected increase in demand.
The recession halted most investment into future production, and as the global economy recovers demand will grow faster than new production can come online, especially as China’s and India’s economies rapidly expand. Lloyd’s also cites other supply concerns: the BP oil spill could curb offshore oil drilling, and efforts to reduce greenhouse gas emissions could constrain oil output as well as add to the cost of production.
What advice does Lloyd’s offer to businesses who might have to cope with $200 crude oil? Cut oil consumption and invest in renewable energy. The same advice could help individual heating oil users if they’re faced with the rising oil prices that Lloyd’s expects: focus on conservation and efficiency to use less oil, and use a biodiesel heating oil blend because the cost of the biodiesel component won’t be derived from the (high) cost of crude oil.
If enough people take Lloyd’s advice in preparation for a potential supply crunch, oil demand could even be reduced enough to prevent crude oil prices from hitting $200 a barrel, avoiding the disruptions that such expensive energy would cause.
Heating Oil Weekly Roundup: Bookies Take Odds on BP’s CEO, Peak Oil Collapse, Trippy Biofuel
(image: Pat Bagley, Salt Lake Tribune via cagle.com)
BP’s CEO, Tony Hayward, has so far been able to hang on to his job but British and Irish bookies are taking bets on whether or not he’ll get the axe, says Anthea Pitt at UpstreamOnline.com. The bookmaker Ladrokes is offering 2/1 odds that Hayward will be pushed out of the CEO position by the end of the year. Ireland’s Paddy Power gives him even less of a chance—their odds are 1/2. Paddy Power also reported that only 10 people have bet on Hayward to keep his job.
The peak oil debate can stir passions on both sides—mostly because neither side thinks there’s much debate—but an Oxford researcher, Jorg Friedrichs, spoke with Melinda Burns of the website Miller-McCune about his latest research that skipped that debate and tried to foresee what would happen if peak oil is real. His answer? The “inevitable” crumbling of our society. If you’re not buying his argument, you’re not alone; his research was rejected 12 times before someone decided to publish it.
A mutant strain of corn (or maize, as the British call it) could yield more biofuel than regular corn, says new research in the journal Genetics (via innovation-reports.com). The key is its “psychedelic genes.” The mutated genes cause yellow and green streaks in the plants leaves (giving it a psychedelic appearance), but their more important role is in directing carbohydrates to different areas of the plant, which can improve crop yields. Far-out, man.
Offshore oil drilling is now the object of great scrutiny, but much of how it works is still very obscure. To help make sense of it, Infrastructurist presents an image gallery by Tim Sheehan, with photos and explanations of the machines that make offshore drilling possible.
Dept of Energy Acknowledges Possibility of Peak Oil Production After 2011
As seen in this graph above, the DOE has for at least a year fully expected traditional oil supplies to drop off suddenly starting in 2012 (a small discrepancy from DOE secretary Sweetnam’s stated date of 2011). The graph is especially troubling in the absence of numerous newly identified oil production projects and widespread commercial production of non-petroleum fuels. (image: eia.doe.gov)
A week after President Obama announced plans to open restricted areas to offshore drilling, the French newspaper Le Monde reported that the US Department of Energy has for the first time expressed uncertainty about the sources of near-term oil supplies.
In contrast to its official stance on a global production peak, comments by DOE secretary Glen Sweetnam in an exclusive interview demonstrate that the department is considering whether a swift and unexpected decline of oil supplies is close at hand.
“A chance exists that we may experience a decline [of world liquid fuels production between 2011 and 2015] if the investment is not there,” Sweetnam told correspondent Matthieu Auzzaneau.
The Department of Energy’s new pessimism over the oil supply situation follows from figures in a study prepared for a meeting in April 2009. Entitled “Meeting the Growing Demand for Liquid (fuels),” the report predicted that from 2011 through 2015, global oil production would drop from 87 million barrels per day (Mbpd) to 80 Mbpd while demand would rise to 90 Mbpd. Essentially, it warned of a coming time when the status quo of oil consumption will begin to surpass supply, requiring the world to prepare for a 10 Mbpd shortage—a volume just shy of top world producer Saudi Arabia’s output of 10.8 Mbpd.
Previously, the DOE has abided by the perspective shared by the peak oil-skeptical analysis firm Cambridge Energy Research Associates (CERA), which depicted any drop-off in oil supplies as a temporary dip in a cycle of small declines and recoveries that adds up to flatness over time. Deemed the “undulating plateau,” this image of supply levels has been roundly criticized by oil analysts for masking an irreconcilable supply gap. In April 2008, Sweetnam published a long-term international energy outlook that predicted that oil production would enter a plateau in 2030 that would last until 2090, only after which an irreversible decline would begin.
Regardless of whether one believes a decline in global oil production to be temporary or not, the Le Monde interview makes it clear that the DOE is considering whether the “undulating plateau” will begin as soon as next year. As a statement from DOE World Oil Prices expert Lauren Mayne shows, the term itself functions as a euphemism for “production peak”:
Once maximum world oil production is reached, that level will be approximately maintained for several years thereafter, creating an undulating plateau. After this plateau period, production will experience a decline.
While Glen Sweetnam’s new uncertainty and the above graph from the DOE show that the Department takes seriously the possibility of peak oil, the lack of outright confirmation of the coming decline it predicts likely follows from the line of reasoning implicit in the phrase “undulating plateau.” The alternate theory explains that following maximum global production, future production will form a plateau, not slope, in global supply levels because new production techniques, made possible by better investment, act to reverse losses by developing previously inaccessible reserves. In order to compensate for a near-term supply shortage, the DOE report predicts that the US would have to boost liquid fuel production by 1.8 Mbpd by 2015 (with 2007 as the base year), the largest ramp-up of any other country studied.
According to Auzanneau, Sweetnam did not appear to be knowledgeable of any newly identified oil sources, and even if he had been, the DOE states that it takes seven years for any new projects to begin making meaningful contributions to global oil supplies. Therefore, the logical expectation is that huge increases in ethanol manufacturing will be required in order to compensate for a supply decline in the US.
Given the Department of Energy’s new openness to peak oil theory, it would appear that US energy policy stands at a crossroads. Accepting the possibility of peak production next year burdens the department with added responsibility, because the ability to minimize the damages of another period of skyrocketing oil prices and/ or shortages, rests with government, not businesses or consumers. Actions that the DOE may take if it wholeheartedly embraces the premise of a steep decline in oil supplies include boosted initiatives and subsidies for ethanol and biodiesel production, stepped-up biofuel content through federal fuel mandates, and even fuel rations. In order for consumers to make the switch from gasoline or diesel to biofuels, those fuels need to be more widely available at competitive prices. However, that the only reason the public knows about the department’s changed approach is because of good journalism, not a public address, does not bode well for future clarity or conviction. It appears that, as in the UK we will have to wait and watch closely to see how the US Department of Energy addresses these issues as it strives to prevent life-altering increases in the price of heating oil and other consumer petroleum products.
Oddities About IEF Meeting: Supply Concerns A Hidden Story
Investment problems arising from dwindling oil supplies is an underreported story of the International Energy Forum meeting. (image: energyinsights.net)
As someone who spent much of last week reading up on the International Energy Forum’s latest biennial meeting, I have to comment on a strangeness that I’ve been seeing in the convention’s coverage and content.
1. First of all, the Cancun meeting was a very important gathering, drawing over 60 of the world’s energy ministers, the CEOs of oil majors Royal Dutch Shell, Exxon Mobil, ConocoPhillips, and Total, and the heads of both OPEC and the International Energy Agency (IEA). So it was surprising how few press outlets reported on the event, and that the convention’s result, a declaration establishing intent to form a new collaborative framework within the association, was largely passed over.
As it turns out, all of the reporters invited to the conference were barred from entering the main conference room, and the pressroom TV was switched to CNN during the proceedings.
2. Second, the aim of the meeting was to address oil price volatility: the last two years’ dramatic sways in oil prices have wrecked havoc on the world economy as well as the ability of oil companies to invest in projects and energy ministers to plan department budgets. Yet according to a CNBC report from March 26, a report by OPEC slated to be presented during the convention predicted oil prices would remain within the range of $70-80 a barrel. That forecast is significant coming from a market actor with as much influence as OPEC, but rather incongruent with a meeting that casts price stability something to achieve, not celebrate in advance.
Upon examining the OPEC report’s language from an excerpt in Emirates Business 24/7, the contradiction appears to vanish, because the forecast on refers to “nominal prices”—the value of oil as determined solely by supply and demand in the physical market. If attendees’ fear of price volatility comes only from speculation, then it would be possible for the meeting’s stated goal and expectations of steady prices to coexist.
As it happens, excess speculation was indeed the reigning target of blame for IEF convention participants, who unanimously identify it as the important factor behind the July 2008 price spike and the following two years’ wild ride.
3. Coverage of the IEF meeting presents excessive speculation as the association’s sole concern in managing price volatility. That’s largely because that’s what the quoted participants stress in unison. But the summary of a report commissioned by the IEF in July 2009 paints a different picture—one of supply anxieties.
Conducted by global energy advisers PFC Energy, the report states production declines in oilfields outside of OPEC and the former Soviet Union have steadily intensified in recent years, “despite high oil prices.” It adds that while investment in oil exploration and development has tripled since 1997, reserve additions have dropped by nearly 60% “in the same period.” Given this report’s findings, it’s surprising that not a single IEF participant quoted in the media mentioned dwindling global supplies as an issue jeopardizing stable oil prices.
Also, its recommendations focus on world governments and suggest that the oil industry is in need of a hand out.
Governments should support the basic R&D necessary to promote commercialization of new processes to increase supplies—or more efficiently use demand—including developments of alternative energy sources. (”Unpacking Uncertainty: Investment Issues in the Petroleum Sector,” July 2009)
Alternative energy is not controversial, but stepped-up subsidies to oil exploration and production companies certainly would be. In the context of the IEF convention, that recommendation is strange because it suggests that oil producers’ investment issues stem from new difficulties in extracting oil, not price volatility. The full report is here.
4. The last oddity is that, what little coverage that did come out during the two-day convention reported that state intervention in pricing was a stability-enhancing measure under serious consideration at the meeting. On March 31, The Financial Times posted a video interview with IEF chief Noé van Hulst in which he agreed that “talking about prices” was no longer taboo, and UK energy minister Lord Hunt showing carefully worded openness to price manipulation. The article was re-posted on April 1 with the headline, “Big energy consumers align with Opec on intervention.”
Where did this consensus go? It’s nowhere to be found in the Cancun declaration, which only paves the way for enhanced dialogue and cooperation, and shows no policy alignments or recommendations.
So, here goes my own guess at what’s behind this mess: Something new is happening. It’s bad or very complicated and unformed: thus the conspicuous silence. Supply concerns are clearly present but go unspoken in public. Government price manipulation was at least briefly favored by forum members, and was likely motivated by the needs of industry (the higher costs of oil production) at least as much as it was motivated by volatility due to speculation. Maybe we’ll hear about market intervention again, maybe we won’t. If we don’t, it may be because prices are going to stay high despite a demand drop or flatness, and will in that way remain stable. Maybe all this talk of “price stability” is really a euphemism for high prices, because one ensures the other when you’re not on the side of the oil industry or government. High prices would provide an incentive for supply rationing if demand spiked, and serve as a form of stability if demand drops. If prices are high enough they’d buffer against the stormy effects of speculation, and they’d also allow producers to invest in otherwise impossible projects to bring more oil on the line. High oil prices make manufactured products and transportation more expensive, but at least they would be stable. Governments would be able to plan their budgets, and companies could invest in new oil projects. If high prices are the only way to steady prices (depending how high), maybe governments find the trade off worth it.
Rubin: Today’s Oil Prices Point to New Record High for Crude in 2011
Economist Jeff Rubin believes $150 crude oil and $5 gasoline are only one year away. (image: theglobeandmail.com)
Economist and oil commentator Jeff Rubin made clear his dire predictions for the future of oil prices in his recent book Why Your World is About to Get a Whole Lot Smaller. Last week, blogging for The Globe and Mail, Rubin doubled down on his predictions, making the case that current oil prices are proof that the price of crude will surpass its previous all-time high of $147 a barrel some time next year.
Rubin makes the point that the current crude oil price ($86.60 per barrel as of this writing) was high enough three years ago to induce serious concern among both oil producers and consumers. In contrast, he argues, today’s price (despite the absence of clear fundamental causes) has not caused much of a stir among major players in the oil markets: OPEC is happy with current prices, and not much has been said about rising oil prices as a possible hindrance to economic recovery.
According to Rubin, the world’s quiet acceptance of crude oil prices at $80-plus per barrel amounts to a head-in-the-sand attitude toward the imminent “energy shock.” He reiterates the factors he believes will bring on this shock: the rapid depletion of cheap and easy-to-reach crude, huge demand growth form the emerging economies of China and India, and deceptively low consumer prices for petroleum products in producer nations like Saudi Arabia that encourage excessive consumption.
Rubin’s argument certainly makes sense. The above factors that he first identified in his book late last year are still firmly in place, and the price of crude has been rising steadily for almost a year. The only mitigating factor in the unfolding of Rubin’s scenario is excess production capacity—can OPEC and other producing nations increase production sufficiently to meet rising demand and avert huge price spikes in the next year and a half? Rubin would undoubtedly say no. However, current supplies are more than amply meeting recession-dampened demand, but prices are rising anyway, so maybe the supply/demand factor is less important in today’s oil market than free market economists will have us believe. Either way, the chances of oil prices dropping in the next 18 months do not look too good.
For Rubin, oil prices are still very much a product of supply and demand forces, and those forces are poised to keep pushing prices higher:
Whether we are talking about supply or demand, there is nothing on the horizon to prevent the imminent return of the very same oil prices that put us into the deepest postwar recession yet in the first place.
Consumers of heating oil and gasoline should hope that he’s wrong—but prepare for him being right.
Leaders at Closed-Door UK Meeting on “Inevitable” Peak Oil Crisis Weigh Possible Solutions to Energy Scarcity
The imagined progression of the Transition Town Movement. Economic downsizing was not on the table of the UK government's possible approaches. (image: live.org.au)
According to a summary of proceedings, the secret meeting that took place Monday between the British energy minister and the business taskforce responsible for last month’s provocative peak oil report was indeed the beginning of an ongoing process to understand and prepare for the end of cheap oil.
“Although Chatham House rules prevent me from stating what the Minister said, there is clearly a desire to continue this dialogue on peak oil,” Rob Hopkins wrote on Wednesday on his blog Transition Culture. A prominent promoter of a movement that actively encourages and monitors societal structures based on a low-energy future, Hopkins joined colleague Peter Lipman as representatives of the Transition network at the closed-door meeting.
The meeting acknowledged the inevitability of both peak oil and government intervention, but focused on the role of transportation and technology-based solutions.
According to Hopkins’ summary, the presentations included an overview of the 2009 study from the UK Energy Research Centre, which concluded that peak oil was a near-term hazard; an oil industry perspective warning that $150 a barrel prices trigger recessions but also stating that high oil prices are necessary incentives for energy transitions; the Peak Oil Task Force report that inspired the meeting; and a talk by himself and Lipman that shared case histories of “Transition Towns”—communities that have already developed measures to increase their energy efficiency and self-sufficiency in preparation for a world in which outside energy sources are decreasingly reliable.
The discussions that followed explored both national and local-scale implications of an oil price spike or shortage. The group agreed that the exact date of a global peak in oil production was irrelevant compared to its inevitability and associated risks, but the working estimate during the meeting was 3-4 years from now, as the world recovers from its present recession. While one participant questioned the power of government to best handle a crisis (instead looking to market forces), the assembly ultimately saw government intervention in several forms as a necessary response, deeming an overhaul of the transportation infrastructure a special priority. Other concrete proposals meant to address resource scarcity, though less attractive, included land-use planning and fuel rationing.
The fact that the British government is considering these issues at all is a historic step forward. The press’ exclusion from the meeting can also be interpreted as a sign of the government’s sincerity in dealing with the peak oil issue, as it allowed attendees to speak frankly. Hopkins himself implies that the meeting was meant to be secret, and that the Guardian reportage was a leak.
In terms of his own impressions, Hopkins uses the word “fascinating” to describe the proceedings, particularly the respect and credibility suddenly given to Transition Towns (which have operated outside of government support or recognition). However, he criticizes a perceived narrow-mindedness in the solutions that were under discussion. The concept that cheap oil is the foundation of our economic structure, and therefore a requisite for economic growth, was “largely glossed over.” Even the crown jewel of the talks, the resolution to transform transportation by replacing gas-powered cars with an electric fleet and recharging infrastructure, ignored pragmatic issues such as the source of required electricity, and “how a nation which is the second most indebted in the world, which has become a net energy importer at a time of increasing price volatility and little remaining indigenous energy, is actually going to pay for such an infrastructure.”
In short, Hopkins saw that the government officials and business leaders present were not thinking outside of what he deems “the techno-fix” mindset. These leaders could and should initiate a true paradigm shift, he hints, if they promoted “the idea that part of a response might include the intentional refocusing of the scale of economic activity.” In other words, a partial withdrawal from the sprawling transportation network on which inter-province trade and globalization depend is a consequence to prepare for. That’s a lot for anyone swallow, much less the government of one of the most powerful countries in the world.
For now, to simply agree that the post-peak future needs a plan is an achievement.
British Energy Minister Holds Closed-Door Meeting On Peak Oil
Whitehall Place, London, location of the UK Deparment of Energy and Climate Change. (image: photos.igougo.com)
As reported by the Guardian, the UK government is responding to the report released last month entitled “The Oil Crunch: A wake-up call for the UK economy” by holding a meeting between energy minister Lord Hunt and the British business leaders responsible for the headline-grabbing report.
“We do this all the time; it is just a normal stakeholder meeting,” a spokeswoman for the Department of Energy and Climate Change said Sunday night, denying that the “private and behind-doors” meeting with peak oil advocates represented any deviation from status-quo approach to energy. However, the decision to take into account an independent assessment on the future of cheap oil supplies would be a radical departure from the UK government’s policy of silence on the issue.
The report released by the business group known as the UK Industry Taskforce on Peak Oil and Energy Security made waves in February by stating an oil crunch was imminent within the next five years and that society was completely unprepared for the consequences. The report was not a scientific study, but rather a collection of “opinion” pieces written by global oil supply expert Chris Skrebowski and London School of Economics lecturer Dr. Robert Falkner. Unlike other, similar warnings from the UK Energy Research Centre in October, and the International Energy Administration, the Industry Taskforce’s report has prompted a faster response, possibly because it comes from the business community, a sector that typically has the most to lose when it comes to environmental awareness, and because the individuals involved are very powerful. The taskforce’s business leaders include billionaire Richard Branson, founder of global brand Virgin Group; Jeremy Leggett, CEO of Solarcentury; and Ian Marchant, CEO of Scotland’s largest company, Scottish and Southern Energy Group.
The Dept. of Energy and Climate minister Lord Hunt and other unidentified energy civil servants started meeting with the taskforce Monday. That the meeting is located at the Energy Institute, the UK’s more expansive version of the (oil industry-supported) American Petroleum Institute, demonstrates an interest in grappling with peak oil issues by understanding the needs of industry. Contrast that to the US, which is involved with energy-efficiency initiatives, but has yet to hear from any private sector leaders even though any adaptive project in transport, agriculture, power generation, or heating would inevitably encroach upon existing commercial structures.
The lagging US response to peak oil issues was explored on the March 6 episode of Financial Sense NewsHour, where peak oil guru Matthew Simmons shared his reaction upon first reading the executive summary of the UK taskforce report, as soon as he found out about it:
I said to myself; You know this is exactly what Sam Bodman, when he was secretary of energy, actually asked the department of [sic]—the National Petroleum Council to do, and we basically punted the ball saying we don’t have a clue. And who would have ever guessed that it would be the Chairman of Scottish and Central [sic] Power, and Richard Branson, who would head this task force, that would effectively say to the United States [sic]—to the UK government, saying that we are in an unbelievably deep hole and if we don’t get out of it, the country will collapse. It’s no minced words, and it’s all the same figures that I’ve been using for the past ten years.
He continued, remarking on his impulse to email a copy of the report to Sen. Susan Collins (ME), Representative Chellie Pingree (ME), Governor John Baldacci of Maine, and Sen. Mary Landrieu (LA) within hours of reading its summary.
What is wrong with the United States? The United States government—that was such a striking report, they should basically either dig down and refute it, or they should say ‘whoa we screwed up.’ And we should not be listening to Dan Yergin, you know telling us everything is in great shape. And now we have basically entered into the greatest illusion I’ve ever heard of, that luckily if you never worry about this shale gas is going to last well into the 21st century.
The last oil crunch that affected the US and UK happened in 1973, when OPEC cut off oil supplies to Western nations to discourage their military support of Israel during the Yom Kippur War. The resulting price spike immediately required the use of strict measures such as fuel rations in the US and Sunday driving bans in the UK. The UK Taskforce report warned that a pending oil price spike would be greater in magnitude and harsher in consequences than the 1973 crisis, due to changes in the UK’s oil dependency (the UK was a net exporter during the 73 embargo, and now is a net importer), greater inelasticity (conservation measures in the past few decades took care of all the easier adjustments) and further diminished supplies worldwide.
The UK government’s meeting will likely bolster the validity of peak oil theory in the eyes of other governments, but then again, Britain has been slow to even acknowledge the issue. Years ago, France and Germany already completed government-sponsored studies on the date of the global peak , with France saying 2013 in a 2004 study, and Germany saying 2006 in a 2007 study. It’s also important to remember that despite the UK’s apparent change of position on peak oil, even emphatic acknowledgment within a culture can coexist with minimal change to a country’s political agenda.
However, the reason independent studies are so promising is because their proximity to government commands attention for the results in a way that outside recommendation does not. It is a positive sign that the UK is taking matters into its own hands. It would be logical that the US would be influenced by a new Anglo seriousness regarding the cheap oil problem, but whether the issue gains any political traction is up to the work of individual politicians.
IEA’s Tanaka: Developed Nations’ Oil Demand Has Peaked, All Future Demand Increases Will Come from Developing World
According to the IEA’s Nobuo Tanaka, demand for oil in the 30 OECD nations has definitively peaked. (image: the-funneled-web.com)
Speaking at the IHS Cambridge Energy Research Associates (CERA) conference on Thursday, the International Energy Agency’s Executive Director Nobuo Tanaka declared that “OECD [oil] demand has peaked already,” and “demand growth only comes from emerging economies,” BusinessWeek reported. While his statement is not the first of its kind, it is the most definitive proclamation yet on developed nations’ oil demand to come from the IEA.
Many analysts and energy organizations have already said that oil demand in the Organization of Economic Cooperation and Development (OECD—a group of 30 countries that includes the United States) has peaked—data shows that OECD demand has been on the decline since 2005. One such organization is CERA, whose data led our own Steve Zweig to declare last October, “Oil Demand Has Peaked in Industrialized Nations.”
Drawing from its own data in 2009, CERA predicted that “[T]he peak of OECD demand will . . . dampen the rate of increase in dependency on oil imports. It likewise could also help make economic growth in those countries less susceptible to oil price shocks.”
Today, it seems that the prediction has at least partially come true. At this week’s conference Tanaka also noted, “Compared to the economic growth recovery [in developed nations], oil demand is not coming back.” While this observation is not quite the same as a nation’s economy being less susceptible to the price shocks alluded to by CERA, it does signify a de-coupling of general economic health and oil prices in OECD countries. As economies in the OECD show sporadic signs of recovery (a slight slowdown in the growth of US unemployment, for example), oil demand in those economies has not recovered in kind, further proving that the demand decline that began four years ago will be an enduring trend.
While decreasing demand for oil in OECD nations like the US is good news in terms of cutting back greenhouse emissions and reducing dependence on imported oil, it will have little to no effect on medium- to long-term oil prices. Tanaka elucidated, “There is not much change in the underlying drivers in the market. The number won’t change very much.” As the thirst for oil in the developing world, led by China and India, continues to grow, those nations will rapidly pick up any slack in global demand stemming from declines in the OECD.
The result? Oil prices on the world market will continue to climb, no matter how much Americans and other citizens of OECD nations cut back on their consumption of petroleum products.
It may seem a bit unfair, but keep in mind that middle-class Americans have been driving gas-guzzling vehicles and soaking up oil-intensive electricity for 60 years, while their counterparts in China and India have only been afforded the opportunity to do so in the last decade or so.
Kuwaiti Researchers Predict Peak Oil Production in 2014
Researchers at Kuwait University’s College of Engineering and Petroleum recently published a study on world oil production that includes a new prediction of when conventional oil production will peak. (image: buthaina.wikispaces.com)
A new study published in the journal Energy & Fuels predicts that world conventional oil production will hit its peak in the year 2014, GreenCarCongress.com reported on Wednesday. The study, undertaken by researchers at Kuwait University and Kuwait Oil Company, looked at oil production in the top 47 oil-producing nations and found that humanity has extracted about 54 percent of total world oil reserves and that conventional oil production will reach its peak of 79 million stock tank barrels per day (an industry term, abbreviated as STB, that refers to the number of barrels of crude oil successfully extracted and “treated”) in about four years.
The study began with the Hubbert forecast model, named for peak oil pioneer M. King Hubbert, who successfully predicted that crude oil production in the US would peak in 1970. Though proven to be a useful tool in predicting peak oil, the Hubbert model has limitations when applied to more complex and diverse oil production methods and measures of the 21st century. The Kuwaiti researchers accounted for those limitations in the study, and also allowed for updates of their findings as new oil production data becomes available. The authors explained their methods in the study’s abstract: Read More »
Another Take On Peak Oil: Exports, Not Production, Indicate Crisis
Freefalling oil barrels illustrate a net export collapse. And yet there are still barrels. (image: gettyimages.com)
President Obama pledges to attain national energy independence, only to be publicly rebuked days later by the Saudi oil minister for his lack of practicality. Two prestigious energy tracking agencies (CERA and the UK Energy Research Center) study the issue and release hefty reports in the same month with opposite conclusions. These are some of the examples given by host Jim Puplava in a January 30 segment of Financial Sense Newshour to introduce the increasingly fierce peak oil debate.
But to independent petroleum geologist and guest expert Jeffrey Brown, a crisis of world peak oil production is less critical than a crisis of peak oil exports.
Most of the peak oil debate centers on supply, analyzing the productivity of oil fields both known and yet-to-be discovered. There is no consensus on the amount of oil left in the world. Experts diverge considerably in their estimates due to the lack of truly reliable data and the powerful political motivations involved. Brown takes a different angle by using a different model, one developed with colleague Dr. Samuel Foucher and originally inspired by Matthew Simmons. Dubbed the Export Land Model, it analyzes a nation’s net oil exports—the difference between a nation’s production and consumption of its total liquid oil products.
According to Brown, it’s the future net exports, not production, we should be paying closest attention to when searching for signs of peak oil, because that’s the factor that crashes first, and hardest. Brown’s analytical model is unique in that it emphasizes the tendency of oil exporting nations to experience economic growth even as their oil supplies diminish.
Don’t Wait For Higher Oil Prices, Signs of Peak Oil May Be Elsewhere
Higher food prices and loan defaults may be the most important signs of peak oil. (image: Holger Durer via flickr.com)
Higher food prices and loan defaults may be the most important signs of peak oil.
Over at TheOilDrum.com, a writer with the pen name “Gail the Actuary” proposes that evidence for peak oil can be found not in higher oil prices, but in the pressures that led to the current recession.
In one stone, that idea challenges both the conventional story of the financial crisis and the “supercycle” school of thought that says oil prices can rise indefinitely.
The crux of the argument is that the price of oil has a more direct impact on the economy than any other single factor. Unlike other products, oil is wedded to the basic necessities of every consumer’s life, intimately involved with food, gasoline, and heating prices. The necessity of these goods is so stark that oil price spikes transmit through the entire economy very quickly. Forced to choose between daily physical needs and inessential products, consumers devote greater shares of their budgets to food and gasoline. When things are really tight, the squeeze begins to cut into consumers’ ability to pay back loans.
Exxon’s Announcement of Huge Oil Reserves Not an Indictment of Peak Oil
Exxon’s been able to discover as much oil as it has extracted for the last 16 years. But unconventional oil, like crude from Alberta’s tar sands (above), is not equal in cost or quality to the conventional oil Exxon is pumping today. (image: garthlenz.com)
On Tuesday, Exxon Mobil announced in a press release that its proven oil and gas reserves grew by 2 billion oil-equivalent barrels in 2009, which amounts to 133 percent of the of oil the company produced last year. This discovery-to-production ratio is called “reserves replacement,” and is meant to give an idea of oil companies’ future production rates. The accomplishment of a 133 percent reserves replacement is an impressive feat and allows Exxon to maintain its status as an industry leader in the replacement category. Exxon CEO Rex Tillerson touted his company’s leadership: “We have replaced more than 100 percent of production for 16 consecutive years, reflecting our strategic focus on resource capture.”
Exxon’s success at reserves replacement is the sign of a well-run company with solid strategic planning. It isn’t, however, evidence that disproves the theory of peak oil, as some business writers and bloggers have suggested. Writing for The Business Insider, Vincent Fernando reported that Exxon “has been finding more oil than it produces for each of the last 16 years, to the dismay of peak oil proponents” (emphasis added). Faced with such a statement, it is important to remember that while the fear of peak oil supply is of questionable validity, the possibility of peak oil production is a much more realistic and immediate concern.
Richard Branson Pours Fuel on a Fiery Debate with Prediction of Peak Oil in 5 Years
Richard Branson has entered the fray of the peak oil debate. (image: deceiver.com)
Get ready—the debate over peak oil is about to heat up again. International celebrity and billionaire entrepreneur Richard Branson is leading a coalition of British business moguls in warning government officials that global peak oil and a subsequent “oil crunch” are imminent in the next five years, the UK Guardian reported on Sunday.
Petrobras CEO: Peak Oil Production is Now
Petrobras CEO Jose Sergio Gabrielli and the Petrobras logo. (image: nysemagazine.com and globalvoicesonline.org)
On Thursday, the energy blog TheOilDrum.com reported on a December 2009 presentation by Petrobras CEO Jose Sergio Gabrielli in which he estimated that world oil production would peak this year. Gabrielli, head of Brazil’s national oil company, joined the ranks of other international oil honchos, including former Aramco executive Sadad al-Husseini and Total’s CEO Christophe de Margerie, in stating that the level of global oil production cannot keep pace with growing demand. The logical result of this trend is oil scarcity that will lead to quickly rising crude prices in the next few years.
Gabrielli’s assessment of world oil supplies takes a wide view of all sources and includes predictions of demand growth to 2030, divided into four possible scenarios that range from modest (“divided attention”) growth to intense (“predatory”) growth. Even under the most optimistic projection of supply growth and the most conservative estimate of demand growth, world oil demand is forecast to exceed supply by the year 2014. Read More »
BP Economist, Arab Oil Producers Say No Peak Oil Any Time Soon
Peter Davies, former head economist at BP, says fears about peak oil production are “overstated and exaggerated.” (image: telegraph.co.uk)
An article in Emirates Business 24/7 this week announced new studies and figures aimed at proving that claims about peak oil are “exaggerated.” This latest round in the high-stakes game between oil producers and climate-change whistleblowers, however, isn’t exactly from the most neutral of sources. The primary claim reported was made by Peter Davies, a former chief economist for BP, while delivering a speech during a recent seminar held by the Saudi Association for Energy Economics (SAFE)–the article notably omits that Davies is no longer in BP’s employ. While paying lip service to the fact that global oil resources are, in fact, finite, Davies countered “theories” about peak oil by saying generally that technology and economics will find a way to stretch our oil resources much farther into the future than predicted:
Those who believe in peak oil tend to believe that technology and economics don’t matter, and I think this is false. The application of technology, the innovation of new technology and economic forces especially mean that recoverable oil resources can increase. If there is a peak in oil, it will come from the demand side. There are always fears, but these remain overstated and exaggerated. Read More »
Heating Oil Weekly Roundup: List of Year-End Lists
(image: damonclifford.com)
As the year closes, everyone is taking a look back, so this week’s roundup gives you the best of the “best of” stories.
At MIT Technology Review, Kevin Bullis offers up the top energy stories of the year. Some of the choices were expected—the rush for natural gas in the Marcellus Shale, carbon capture, and biofuel—but hamsters? Follow the links for a video demonstrating hamster power.
Energy analyst Robert Rapier compiled his top-ten list of energy stories this year, which you can find at The Oil Drum or his R-Squared Energy Blog. His choice for top story seems hard to argue with: volatility in the oil markets.
BusinessGreen.com’s James Murray crunched some numbers and found the most popular stories on the site from the past year. You’ll find green investment, solar panels, and lots about hybrid cars.
The Philadelphia Inquirer doesn’t stop at stories of the year—they take a look at the top science stories of the whole decade. The genome, stem cells, and pandemic flu all make the cut, as does one story with more relevance to this site: alternative energy. From peak oil to a post-petroleum world, from natural gas to electric cars, Sandy Bauer covers the highlights.
Ben Jervey at GOOD looks beyond 2009 as well to cover the top environmental news of the last ten years. Follow him as he goes in chronological order, when green became the new black, Al Gore became inconvenient, and Copenhagen was kind of a flop.
Peak Oil Task Force Helps Kentucky Town Prepare for its Future
(image: madaboutasia via flickr.com)
The people of Lawrence, Kentucky, have had oil on the brain. That’s why the community has started its own organization to address the matter. With worries about what the community would do if global oil supplies were to dry up (and the world was to reach what’s dubbed “peak oil”), or the price of crude was to spike significantly, city officials last year created the Lawrence Peak Oil Task force.
Chad Lawton of the Lawrence Journal-World & News writes that the group, which has been meeting since January 2009, has been coming up with both conventional and not-so-conventional ideas about how Lawrence would cope with less oil. One idea includes converting all of the city’s vehicles to electric hybrids. On the more dramatic end, to address a world where modern transportation as we know it is more difficult, the group is considering programs geared at getting residents to make large-scale gardens in their homes, cutting down on the need to leave the house for food. As one member of the task force told Lawton: “When people start feeling the effects of Peak Oil and their budgets are pinched and their mobility is impaired, people will start doing lots of things on their own.”
Heating Oil Weekly Roundup: Copenhagen, Peak Sand, and the Indiana Bat
John Cole, the Scranton Times-Tribune via cagle.com. (image: cagle.com)
The Copenhagen Conference dominated energy news this week, shedding light on some of the peculiar habits of Denmark’s capital city. Even though the city is hosting a global climate conference, stores on the Stroget, one of Copenhagen’s most popular streets for window-shopping, leave their doors open to entice customers, reports Lars Kroldrup at the New York Times’ Green Inc. blog. Stores leave their doors open throughout the winter, freezing temperatures or no, letting heat and energy escape far more than any crack in the window.
Copenhagen’s mayor was worried that the city would set a bad example in a different way, and distributed postcards to 160 hotels in the city in an effort to curb prostitution, which is legal in Denmark, for the duration of the conference. Well, it backfired. As the Copenhagen Post reports, a sex workers interest organization in the city decided to offer free services to anyone who presented one of the anti-prostitution postcards.
Peak oil theory says that eventually even a country as rich in oil as Saudi Arabia will run out of the stuff, but even the most alarmist believer in peak oil might be surprised that Saudi Arabia is running out of sand. Stuart Burns at MetalMiner reports that Saudi Arabia has halted its sand exports, since it doesn’t have enough in places that would make it easy to export, which is in turn slowing down construction throughout the Middle East. Are we facing a future of “peak sand”?
It’s not just environmentalists who are eagerly hoping for cap and trade legislation—Goldman Sachs wants it, too. Bradford Plumer of the New Republic investigates the risks of creating a vast carbon market for huge financial institutions, but also why cap and trade, because it would bring in Wall Street geniuses, may be more successful at reducing emissions than the alternatives.
Construction of a wind farm in West Virginia has been halted, and it had nothing to do with big oil, corporate greed, or Americans’ attachment to their cars. It was stopped by the Indiana bat. As Maria Glod of the Washington Post reports, the Indiana bat is an endangered species and the wind energy project was mere miles away from limestone caverns that provide a home for many of them.
Copenhagen: Preparations and Expectations
The stage is set for historic progress on battling man-made climate change at the Copenhagen Conference. Will it be a success or a dud? (image: Associated Press via dailymail.co.uk)
Editor’s Note: After literally years planning and shifting expectations, the Copenhagen Conference begins today and runs through December 18th. With so much at stake for the world and the country, HeatingOil.com has taken on the duty of providing daily Copenhagen Conference updates. Our reporter Kristy Kershaw will be bringing you the highlights of the conference and breaking down what happens there into how it will affect us here.
The wait is finally over! The 15th United Nations Climate Change Conference kicked off in Denmark today, amid a flurry of recent speculation over what, if anything, this summit will accomplish. We begin with a look at some recent announcements and predictions, ranging from the hopeful to the pessimistic: Read More »
