Jeff Rubin and the cover of his recent book, Why Your World is About to Get a Whole Lot Smaller. (image: treehugger.com)

Jeff Rubin is not an oil alarmist—he doesn’t think that the world’s supply of crude will run out and cause resource wars and food shortages of apocalyptic proportions. In fact, he doesn’t even think the world’s supply of crude is running out at all. Rubin made this clear as he addressed the Business of Climate Change Conference in Toronto last September, opening his keynote address with the statement, “The world’s not running out of oil.” However, after milking the pause for a second or two, Rubin went on: “But it has already run out of oil it can afford to burn.”

Rubin, former head economist at CIBC World Markets, is often referred to as Canada’s top economist, largely because of his bold and accurate economic predictions: in 2000, he forecast that the price of crude would hit $50 per barrel within five years (it broke the $50 mark in 2004) and foresaw the huge price spike of 2008. He recently predicted that the price of crude would hit $100 again by the fourth quarter of this year.

His view of the future of oil and its role in civilization is just as startling as many prevailing theories within the peak oil community, but interestingly different from most that have come before.

As he explained at the Business of Climate Change Conference, Rubin envisions a world that has run out of cheap oil “not in the next 10 to 12 years, but in the next 10 to 12 months.” In his model, the beginning of the oil crisis is not marked by a sudden and extreme depletion of oil reserves, but oil prices that rise at an accelerating rate, driven by rapidly growing demand from the global economy (primarily from developing countries like China and India) and expanding development of expensive and energy-intensive non-conventional sources. According to Rubin, “since 2005 conventional oil supply has not grown, and may never grow again.” As the supply from conventional oil fields drops off, it will have to be replaced by supplies from dirtier, harder-to-process unconventional sources like the tar sands of Alberta, Canada. Because the processing of unconventional sources is so expensive, Rubin argues, the crude oil it produces will be more expensive. Combine higher baseline production costs with growing global demand and you get a huge increase in crude oil prices over a short period of time.As anecdotal evidence of the rapid depletion of conventional oil resources, Rubin pointed to frequent news stories on discoveries of major oil reservoirs in the Gulf of Mexico and elsewhere, in contrast with the lack of reporting on massive, decades-old oil fields drying up. According to Rubin, the world loses 4 million barrels per day of crude oil production every year, but we don’t hear much about it.

On the demand side, Rubin sees the global economy as the overarching driver of the world’s skyrocketing thirst for crude. Globalization has created a system of commerce that requires raw materials to be shipped from their places of origin to far-away industrial centers that produce consumer goods (everything from chicken wings to HD televisions), which are then shipped around the world again to consumers. Petroleum-based fuels power all of this transport, be it by sea vessel, airplane, or truck, Rubin reminded his audience. The problem with the global economy, he says, is that “it assumes that the cost of moving goods around the world is minimal or marginal.” And it was that assumption that allowed the sudden spike in crude oil prices in July of 2008 to trigger a global recession, Rubin said, emphasizing his belief that “the world’s biggest energy shock” and not the sub-prime mortgage crisis in the US caused the most severe economic downturn since the Great Depression.

In short, Rubin emphatically believes that two intensifying and antagonistic trends will cause a blast-off of crude oil prices in the next 15 months: exponentially-increasing demand for oil tied to the global economy and the ever-accelerating depletion of conventional (cheap) oil reserves.

In Rubin's view, the worldwide shipping of raw materials and consumer goods will soon be a relic of a global economy rendered obsolete by astronomical oil prices. (image: noaa.gov)

Instead of calling for government action to avert the crisis-causing apex of these two trends, Rubin thinks the crisis will be addressed by local and individual action driven by market forces. “The prices needed to get unconventional oil out of the ground are the same prices that will get you off the road,” he explained. He elaborated by predicting that stratospheric oil prices would force consumers and producers alike to change behaviors that would eventually lead to a breakdown of the global economy and a return to local economies. After people stop driving, he suggested, they will begin to seek out cheaper goods, which will by then be made and distributed by nearby manufacturers and distributors, who are able to offer affordable prices thanks to lower fuel utilization and a resulting decrease in transport costs. “In a world of triple-digit oil prices, we will not be getting our food from China…we’re going to have to grow our own,” Rubin proclaimed.

So what if Rubin is right? What if his streak of correct predictions extends to this global bombshell? Under Rubin’s model, people should brace themselves for steep increases in gasoline, diesel, and heating oil prices over the next two years (after oil hits $100 this year, Rubin has said, it will reach $225 by 2012). Specifically, those preparations should amount to major cutbacks in consumption of and reliance on petroleum-based fuels—switching to ethanol or biofuels wherever possible, and reducing overall consumption of fuels by switching to more efficient vehicles and appliances are the most obvious first steps.

As is the case with all predictions, only time can prove Rubin’s right or wrong. In five years, Jeff Rubin will be definitively proven to be a genius or a paranoid dud. In the winter of 2015, if you find yourself sitting down in your biofuel-heated home to a dinner of locally produced food carried home on a bicycle while you marvel at the collapse of the global economy and shake your head at $15-a-gallon gasoline, remember, you heard it here first!

(Watch Rubin’s full speech at the Business of Climate Change Conference below)

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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.

BP’s estimates of word oil reserves (broken down by region) at the end of 2008. (image: bp.com)

This of course, would be a balm to the anxieties of any oil-producing nation, and the article goes on to cite statistics from the Organization of Arab Petroleum Exporting Countries (OAPEC),which appear to back up Davies’ statement. According to OAPEC, there are some 1,809 billion barrels of oil in the Gulf region beyond proved reserves, which cannot be extracted using current technology but which could be potentially tapped in the future. The article claims: “These quantities, if they can be extracted, will meet the world needs for 60 years.” But that is a rather large “if.” The figure falls as low as “enough oil for seven years” if only 10% of the deposits are usable and obtainable.

As we’ve reported previously, Colin Campbell, a former BP geologist and founder of Association for the Study of Peak Oil and Gas, has stated that peak oil occurred in 2008, and that numbers like OAPEC’s are based on poor reporting practices for oil reserves. It is apparently common in the industry for oil companies to report the minimum of reserves upon the discovery of a field, and then revise the public estimates upward during the course of its life, so that the true reserve numbers are based on research done at the outset and don’t reflect newly discovered oil. In addition, he believes that “conventional” reserves peaked in 2005, and that since that time, the shortfall between demand and what the world’s oil fields could put out has been met by oil from more expensive and difficult to extract locations such as the Canadian tar sands. By Campbell’s logic, we are already tapping the sort of resources that the Gulf is counting on for its future productivity, and that shift was largely responsible for the oil price spikes we saw in the winter of last year. Another peak-oil believer, Swedish physicist Kjell Aleklett, claims that overestimation of Gulf reserves by the International Energy Agency may be partially responsible for the current financial crisis in Dubai. The Emirates city-state is surprisingly poor in oil resources, and dependent on petro-fueled tourism from its wealthier neighbors and other parts of the world. So, if Akelett and Campbell are correct, Dubai’s problems may be a harbinger of things to come – a canary in the oil field, if you will – if petroleum energy use doesn’t shift in a more sustainable direction.

ACT may have a new technology to extract more oil from Alberta’s challenging oil sands. (image: decideforyourself.wordpress.com)

On Nov. 12 American Clean Technologies (ACT) reported additional information about the pilot tests conducted by its American Petroleum Solutions (APS) subsidiary, including the fact that the oil extraction rate was more than 99 percent in tests conducted on oil sand samples from Utah and Alberta, Canada.

APS, which ACT acquired on Oct. 5, uses its patented fluidizer—which the company refers to as “a water-based technology”—to separate oil from any solid surface, including soil and sand. This fluidizer allows oil to be rejected by a solid surface, resulting in recoverable oil. While APS has used this technology for environmental remediation projects after oil spills, removing oil from contaminated soil or sand, the recent tests have shown its promise in extracting oil from the difficult-to-mine oil sands of Alberta.

The findings were reported in a company-issued press release, so the information has not been independently verified. However, this technology could significantly reduce the cost of producing oil from oil sands, making oil sands excavation and processing projects more attractive to investors, and laying the groundwork for a major increase in North American oil production.

According to the Alberta Energy website, Alberta ranks second after Saudi Arabia in proven crude oil reserves. The oil sands areas of Alberta contain an estimated 1.7 trillion barrels of crude bitumen trapped in a mixture of clay, sand, and water. About 10 percent (170.4 billion barrels) of this bitumen is recoverable using current technology. Depending on the bitumen content of the oil sands, potentially 90 percent to 100 percent of the bitumen could be recovered using ACT’s developing technology.

Gregg Gethard wrote on HeatingOil.com that Canada’s oil sands are more difficult and expensive to mine. Gethard cited an article on Bloomberg.com, which quoted the International Energy Agency’s World Energy Outlook as saying that “oil sands projects in Canada account for the bulk of the suspended oil [production] capacity” resulting from the global economic crisis.

(image: Sean Scanlon via redinkphotography.com)

In a Guardian opinion piece published on Wednesday, John Elkington and Gary Kendall make the case for a massive transformation of our hydrocarbon-based economy by mid-century, in response to pressures of the geological, geopolitical, and climate change variety. They point to the fact that even Big Oil knows by this point that we are at the beginning of the end, that the Age of Oil is in irreversible decline. And while the “big six” oil companies seem to be doing well on the surface, they are going to have to drastically change their tune to adapt to a shifting market.

Elkington and Kendall focus on the three aforementioned main factors that are pushing the world away from a carbon economy: geology, geopolitics, and climate change. Geopolitically, there are tensions among oil-producing and oil-consuming nations cropping up in the fight for what’s left of the world’s oil. The pair cites Nigeria and China specially, who are at odds over China’s attempts to lock up oil supplies in African countries.

Geologically, Elkington and Kendall argue that the new market won’t support the lengths to which big oil will need to go in order to procure a continued supply of oil. While there is still oil left in the world, we are going to have to turn more and more to “difficult oil,” or oil trapped deeper in the earth or under the sea. In an effort to satisfy investors, oil companies will be forced to go after riskier, dirtier substitutes like the Canadian Tar Sands, gas-to-liquid options in Qatar, or coal-to-liquid options in China and elsewhere. These prospects will add increased amounts of carbon emissions to the air, which brings us to another source of pressure: the climate.

The pair rightly points out that to really, truly avoid catastrophic climate change impacts, we must take action and drastically decrease our carbon emissions by 2050. They posit that to realistically meet this requirement, we will need to transition to a zero-carbon energy system by mid-century. They imagine a world of energy efficient buildings and appliances, one where we aren’t allowed to burn fossil fuel with no plan to capture emissions. They even go so far as to say that by 2050, the actions of big oil to unearth carbon resources for market will be considered “strikingly primitive.”

Now, I would love to think that Elkington and Kendall are right, and that we’re all going to make this thing work and be carbon-free by 2050. And maybe I’m extremely pessimistic, but I just don’t see it happening. Given the enormous uphill battle it is to convince one country, let alone the whole world, to do what needs to be done…I just can’t imagine that 2050 will bring a resolution. As Elkington and Kendall point out themselves, this new vision of the future is pretty hard to swallow for Big Oil, who, let’s face it, have a lot of control. As Al Gore recently told Jon Stewart, there just isn’t enough monetary incentive for big oil to make the kind of changes needed for a zero-carbon economy, and governments move too slowly. I wish so much that I could agree with the very intelligent Elkington and Kendall, but I just can’t. I think we’re in for a bumpy ride.

Image courtesy Sean Scanlon at http://www.redinkphotography.com/galleries/california/

Oil sands are the key to Canada's oil power. (image: foreignpolicy.com)

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Go on, take a guess: which country is the largest importer of crude oil to the US? If you guessed Saudi Arabia, you’d be wrong. Russia? Nope.

It’s Canada. That’s right: our friendly neighbor to the north. Most people don’t think about Canada as a major oil powerhouse; probably because, unlike other suppliers of crude oil, the US has no problematic relationship with them. This friendly relationship has benefited both countries: in July of 2009, the US imported 2.639 millions of barrels of oil per day from Canada.

The vast majority of Canada’s oil is under the oil sands in northern Alberta. According to the Oil Sands Discovery Center, the province’s oil sands are the largest known reserve of oil on earth, between 1.7 and 2.5 trillion barrels of crude, and represent about 44 percent of the country’s oil production. How does this compare to other countries? Well, Saudi Arabia looks positively puny with “only” 261.9 billion barrels of proven reserves. In fact all OPEC nations combined have only about 885 billion barrels of reserves. And unlike all those nations, Canada’s output is rising and will continue its upward trajectory for many years to come. The Canadian Association of Petroleum Producers (CAPP) estimates that total Canadian production will grow to 3.9 million barrels per day by 2015, with oil sands production increasing from 1 million barrels per day to 2.7 million barrels per day.

There are about six billion barrels of oil located outside the oil sands, in Alberta, Saskatchewan and offshore Newfoundland and Labrador

The Enbridge pipeline will increase Canada's record-high oil exports to the US. (image: podcastliberally.com)

Canadian oil exports to the US rose 5.4 percent in July 2009 to hit a monthly high not seen in at least 36 years—averaging 2.1 million barrels per day (bpd)—according to information released by the Energy Information Administration on September 30. This in spite of the fact that US oil imports went down nearly 9 percent overall.

According to Petroleum News, Canada was already the largest supplier of crude to the US. Synthetic crude made from Alberta’s tar sands have allowed for the rise, and pipeline expansion will increase US imports from Canada even further. Tar sands and other unconventional sources of oil are sometimes controversial, but have been used to meet demand at a time when OPEC countries have cut back on their exports to the US.

Two new pipeline projects expected to go online in the next year will boost that number higher, if legal challenges don’t get in the way. In August, the US State Department gave the go-ahead for Enbridge’s Alberta Clipper pipeline, which will start delivering 450,000 bpd of oil sands crude into the Midwest in 2010.

Canadian oil sands: our best defense against Peak Oil? (image: Peter Essick via nationalgeographic.com)

Yesterday, Reuters columnist John Kemp expressed a different take on the International Energy Agency’s recent report that global peak oil will occur sooner than originally predicated.

While Kemp acknowledges the peak of “conventional” oil (aka crude) and its consequences, he breathes life into the standard counter-argument, which says that ever-improving technology for exploration, extraction and production of both conventional and non-conventional hydrocarbons will push global peak oil tohundreds of years into the future.

By non-conventional hydrocarbons, we mean natural gas, coal, bitumen (oil sands), and kerogen (oil shale). Today, we don’t even think about methane hyrdrates (natural gas trapped in ice formations at the polar ice caps, in the permafrost zone and on the ocean floor) as a feasible means for energy. But if crude peaks and then declines faster than we can replace it with renewable energy sources, we’ll be left with no choice but to extract some of these lesser-known – and often controversial – hydrocarbons. For example, Alberta’s tar sands.

Just because some of the world’s biggest oil fields are in decline, or about to be in decline, doesn’t mean we should abandon them, Kemp argues. It just implies the need for a huge investment in secondary and tertiary recovery programs, as well as massive new field discoveries from the ocean floor to the Arctic.  This major investment would only suffice to sustain current output levelsand not increase them. “The industry is running faster to stand still,” Kemp writes.

No one denies that our technology has improved. As IEA says, the average depth of production from offshore wells has tripled in ten years. Indeed, the definition of “conventional” changes over time as a result of price and technology. According to Reuters, deepwater oil only became conventional 20 years ago, and ultra-deepwater in the last decade. In future, higher prices and technology changes could eventually shift ocean and arctic output into the “conventional” category and increase the reserve base substantially.

But just because it’s more feasible to go after these sources doesn’t mean that we should.
Kemp points out the negative aspects of exploiting fossil fuels no holds barred, but downplays them significantly. He mentions that many of these unconventional hyrodcarbons are less energy intensive than crude, meaning the net energy gain is lower. That means we’ll be spending far more money and effort to extract and refine them, while still ending up with less usable energy. Secondly, the more complex the extraction technique, the more it costs to do. Primary recovery typically accounts for only 10% of the oil drilled in the U.S. Secondary (more expensive than primary) and tertiary (more expensive than secondary) methods can extract an additional 10% to 30% and 20%, respectively.And that’s just for on-shore drilling. Extracting from offshore fields is often more expensive and wrought with all kinds of difficulties, especially in deep waters. The cost of drilling further offshore in deeper waters, just to name one future method, would drive up the cost of heating oil dramatically.

The economic considerations might pale in comparison to the environmental ones. Sure, we can continue extracting anything we can gets our hands on, but combusting those fossil fuels will probably cook the planet well before we can burn them all, if global warming warnings prove correct. Making synthetic oil (syncrude) from tar sands takes a large amount of energy and water while emitting carbon dioxide.  Additionally, oil sand excavation and other unconventional extraction processes would continue to ravage areas that wildlife depends on.
By most measures, we are faced with global peak crude, and will have to invest more money into alternative hydrocarbons. But instead of viewing them as a welcome relief from news of crude’s decline, it should make us question the grossly high price of extracting and processing oil, to both the economy and the environment. If we go this route, we should simultaneously invest in a way to trap all the CO2 these methods are sure to emit.

For people who rely on No. 2 Fuel Oil and other petroleum-based fuels (like propane) to keep warm, the outlook is not great either way. If global peak oil occurs within the next ten years coupled with steady or increasing demand, the price of heating oil is sure to rise to shocking rates. Even if Kemp’s suggestion to pursue alternative hydrocarbons is the best route, the transition period between crude and other sources to make heating oil will be volatile. So while Kemp suggests much bigger investments in secondary extraction methods and unconventional fossil fuels, heating oil customers’ best hope for low and stable heating oil prices in the coming years is continuing development of alternative energy technology like biofuel heating oil.  When and if heating oil is mostly or fully derived from renewable sources, heating oil users will be able to enjoy consistent and reliable heating fuel prices.