Record Drop in Coal Burning Raises Question — Is Peak Fossil Fuel Use Happening Now?

Peak oil, gas, and coal.

It’s a possibility that many who believe the fossil fuel industry’s false dependency mantra look at with fear and trembling. Because, for years, that industry, through various public relations efforts, has perpetuated a myth that a loss of access to fossil fuels would ruin the modern global economy. That fossil fuels were so high-quality no other energy source could effectively replace them.

It’s a myth that, in many ways, competes with the threat of human-caused climate change for space in the public’s collective imagination. One that is not without a few valid supports. For the shifting of energy use away from one set of sources and on toward another set is a massive, disruptive undertaking even in the case where the new energy sources are superior to the old.

November Through April 2015 2016

(This is what a real existential threat to global civilization looks like. From the 1880s to the six month cold season of 2015-2016, global temperatures warmed by 1.38 degrees Celsius. At the end of the last ice age, it took about 3,000 years for as much warming to occur as human fossil fuel burning has achieved over just the last 136 years. Dealing with what is a problem of geological scale ramping up with lightning speed will require a necessarily rapid reduction to zero fossil fuel burning over the coming decades. Recent swift curtailments of coal use provide some hope that such a reduction may be possible. But rates of fossil fuel use will have to peak soon and be cut even more swiftly to prevent a very rapidly intensifying global emergency. Image source: NASA GISS.)

But despite a few reasonable worries, the overall effect is to generate a decoy existential threat to the very real threat of a new global mass extinction event if fossil fuel burning isn’t somehow halted in very short order. One that removes innovative thinking and generates a false impression that there really is no way to effectively mitigate and respond to the impacts of an ever-worsening long climate emergency.

The World Health Organization implicates fossil fuel based carbon emissions as one of the greatest risks to human health this Century stating:

Climate change is among the greatest health risks of the 21st Century. Rising temperatures and more extreme weather events cost lives directly, increase transmission and spread of infectious diseases, and undermine the environmental determinants of health, including clean air and water, and sufficient food.

At the same time, many of the same policy and technology choices that drive climate change, such as polluting energy sources and unsustainable transport systems, also have large immediate and local health impacts – most notably the more than seven million deaths that are caused each year by air pollution (emphasis added).

Given what is a very real danger to human health and well-being arising out of the practice of burning fossil fuels coupled with potential human civilization collapses due to severe climate change, sea level rise, disruptions to the growing season, and extreme weather, it’s worth considering the notion that a functional world without them is not only possible — it is absolutely necessary. For shift away from what some have called energy sources from hell and we open up the potential to expand prosperity, to increase prospects for not just the rich, but for practically everyone. For by doing so we shift away from fuels that result in severe systemic harms in a transition to new, less damaging, more distributed and democratic fuels.

And with a massive curtailment of coal energy use, with a rapidly growing adoption of renewables, and with increasing challenges to growth in natural gas and oil consumption all showing up during 2015, it appears that just such a shift may have already started.

*****

Today’s harbinger of what may well now be an ongoing massive move away from harmful fossil fuel energy is itself a bit ironic. For the message comes in the form of a new report out from the fossil fuel giant British Petroleum. And it’s a real eye-catcher. For this fossil fuel industry based report found that global coal use fell by the largest margin ever recorded. With oil and gas struggling to make up the difference, with the fortunes of renewable energy on the rise, and with fossil fuel energy use growing at a very sluggish net annual rate of about 0.56 percent, we’ve got to ask the question — have we reached the age of peak fossil fuels? And, if so, why isn’t the world economy falling apart as some predicted?

Record Drop in Coal Use

The big shock comes in the form of a massive 1.8 percent annual drop in coal use globally. Lead by China and the US, total global coal curtailment reached 71 million tons of oil equivalent during 2015. This was the greatest single annual drop in coal use in the entirety of the 50 year BP record.

Plummeting Coal Use

(According to fossil fuel industry giant, BP, global coal use fell by its largest margin ever. Image source: Carbon Brief.)

The massive drop in coal also occurred at a time when prices for the carbon-emitting commodity were at or near historical lows. A situation that would normally stimulate demand — all other things being equal.

But with coal, all things are not equal. China suffers from some of the worst air and water pollution conditions in the world due to its reliance on the stuff. Its people are getting sick from emissions particulate related lung damage and from coal-based water contamination. Many are dying prematurely as a result. And since coal use is the greatest contributor to China’s air and water woes, China has undertaken a massive effort to curtail its burning.

Globally, coal is also the worst fossil fuel contributor to Earth System warming on a pound-burned for pound-burned comparison. With global temperatures now hitting near the 1.3 C above 1880s temperature marks on an annual basis — a level high enough to begin to inflict severe climate change related harms — world leaders are increasingly feeling the heat to cut coal.

No Global Recession, But Fossil Fuel Use Stagnates

Curtailment of coal use on such a large scale due to climate, health, welfare, and environmental concerns is unprecedented. In the past, large drops in coal use have only occurred during times of economic recession or when another major fossil fuel source such as natural gas out-competed coal on the global market. During this year of greatest coal losses, neither was the case. Coal remained competitive with natural gas on a cost vs cost comparison basis during 2015 even as the global economy grew by about 3 percent according to International Monetary Fund estimates.

Global Growth International monetary fund

(Despite stagnating fossil fuel use and plummeting rates of coal use, the global economy grew by 3.1 percent during 2015. Image source: The International Monetary Fund.)

Coal’s loss also comes in the context of a declining fossil fuel share in the global energy mix. According to BP, fossil fuels accounted for only 86 percent of global energy use — which was the lowest level ever recorded. Non fossil fuel interest sources such as the recent REN21 paper on the global state of renewable energy put that number even lower — close to 80 percent.

But the BP numbers look bad enough from the fossil fuel industry perspective. Globally, both gas and oil use increased by a combined 134 million tons of oil equivalent. A gradual rate of growth that follows historical lines for those two sources. However, when you account for the loss of coal, net fossil fuel energy use only grew by 63 million tons of oil equivalent — and that represents just a 0.56 percent annual rate of growth for the fossil fuel sector. This compares to a historical annual growth rate in fossil fuel use of 1 to 3 percent during non recession years.

Peak Fossil Fuel Use as Boon Not Bane

Rising rates of renewable energy adoption are the primary reason for coal’s fall and fossil fuel stagnation. Globally, according to BP figures, the net add in non-hydro renewables energy use was equivalent to 48 million tons of oil. A number that, if BP is correct, is nipping away at fossil fuel market dominance by achieving a rate of adoption similar to that of a mainstream energy source.

Renewables Rise Fossil Fuels Stagnate

(Renewable rise while coal plummets, dragging down fossil fuels’ overall share of the global energy supply during 2015. Image source: Carbon Brief.)

Falling rates of overall energy gain for fossil fuels may well represent the start of a period when oil, gas, and coal begin to go into net decline. This has not happened yet. But it will be necessary if the world is to have much hope of preventing extremely catastrophic rates of warming by greater than 2 C above pre-industrial levels this Century. So the big coal curtailment during 2015 as the global economy continued a 3 percent annual growth rate was a huge step in the right direction. But to prevent a future in which ever-more-harmful rates of warming occur. In which 3 C, 4 C, or even 5 C warming becomes likely during this Century, then we will need to continue seeing renewables advance. Then we will need to see what would be a benevolent peak in fossil fuel use. One that is coming on a bit late for comfort and that couldn’t happen soon enough.

Links:

BP — Coal Use Fell By Largest Recorded Margin in 2015

The International Monetary Fund

Choose Between Fuels From Hell and Renewable Jobs Economy

Renewables Global Status Report

NASA GISS

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To Fear Peak Oil, Or to Pursue it? That is the Essential Limits to Growth Question

On a world in which fossil fuel burning is now in the process of setting off various events of geological scale, one of the things we could well hope for most is a peak in fossil fuel supply. Such an event would force countries and economies to adjust. To abandon business as usual economics and to rapidly shift to approaches that enhance and reinforce lifestyles and energy consumption behaviors that do not radically alter the world’s environment for the worst.

But, unfortunately, as we will see below, there is more than enough oil, gas, coal, brown coal, fracked oil and gas, gas hydrates, tar sands, kerogen and other fossil fuel stores to continue burning for years, decades and perhaps even centuries to come. So to hope for peak fossil fuel use, unless that peak is determined by responsible individual, community, and political action, is a false hope. An end that sets off terrible consequences. Even worse than those difficult to deal with problems we’ve already locked in.

USGS_-_Bazhenov_Formation_Oil_Reservoir

(The Bazhenov Shale Formation. An Arctic oil and gas reserve now accessible due to US driven technological ‘advancements’ in hydro-fracking. This vast pool of tight oil has 1.2 to 2 trillion barrels of oil in place of which 75 to 330 billion barrels are currently estimated to be recoverable [Depending on who is making the estimation — US or Russian Government]. It is, perhaps, not a coincidence that these reserves occur in the same region where troubling methane blow-holes first appeared this summer. It is this massive supply of oil that is being directly targeted by the Exxon-Mobile/Rosneft partnership before sanctions this week put the effort on hold. Accessing this massive carbon bomb would lock in billions of additional tons of CO2 release into the atmosphere while, by itself, delaying a global peak in oil production by years to decades. The consequences of burning this massive fuel source are almost certainly far worse than simply leaving it in the ground. Image source: Commons.)

*****

Back in the mid 2000s there was an oil industry energy consultant by the name of Matthew Simmons. And Simmons had developed a laser-like focus on a massive store of ‘easy oil’ in the deserts of Saudi Arabia. This store was locked in the great oil field called Ghawar. A self-pressurized dome that originally contained about 80 billion barrels of the hothouse gas firewater we call oil. Prick Ghawar with a drill and the stuff just came erupting out. Deceptively clear for all the btus of global atmospheric heating it contained.

At some point, the black magic of Ghawar began to fade. Saudi Arabia started to inject water into the Ghawar well to keep the oil flowing. This required more energy and increased costs. For Saudi Arabia and much of the world, the age of easy oil was coming to an end.

Simmons declared that peak oil was just around the corner. That global oil production couldn’t exceed 85 million barrels per day. And that the new, unconventional sources — locked in tight oil deposits and tar sands — were too difficult to extract. Peak oil analysts declared that the Bakken would never exceed a flow rate of 100,000 barrels per day. And the Eagle Ford Shale basin was just a glimmer in the eye of most analysts. Risks for an imminent peak in world oil supply did seem quite high.

Bakken_Reservoir_fields_in_Williston_Basin

(Map of the Bakken tight shale fields in the Williston Basin. The Bakken is estimated to contain 24 billion barrels of oil of which 7.3 billion barrels are currently considered to be technically recoverable. Image source: Commons.)

For some, for conservationists and those who are justifiably very concerned about the impacts of continued fossil fuel based carbon emissions on the world’s climate systems, the notion of an imminent peak in world oil supply came as welcome news. It would force economies to adjust to new structural and environmental realities and it would help to prevent some of the worst impacts of climate change. Certainly, there were still massive volumes of coal and natural gas to consider. But a peak in world oil production would lead to a variety of consumption reductions as well as help to advance renewable energy technology — so long targeted for delay and denial by oil and fossil fuel interests through their wealthy political backers.

For most market analysts and economists, peak oil was never an object. They believed the magic of market economics would always provide a new resource and that the price signal would be enough to produce more resources of different varieties. But these analysts were somewhat blind to the broader impacts of large governmental movements and of investment or failure to invest in new resources by communities, states, and policy-makers.

In many ways, all of these analysts held somewhat correct views. But contained to their narrow focus, they failed to accept where the others were correct or to see their own short-comings. A vocal portion of the peak oil analysts, led by Simmons, retained a narrow, and primarily easy oil and fossil fuel centered world-view that not only denigrated the effectiveness of new oil technology to over-come any peak oil situation, but also blithely dismissed much of the potential for renewables to take up for new energy production. They held a rigid view that only radically reduced consumption (and related implied wide-scale poverty and collapse back to 19th century standards of living) would result from peak oil and that such reduced consumption and collapse was needed and, indeed, would happen whether we liked it or not. Some conservationists seemed to glom on to the notion that renewables were not a desirable solution and this led steam to the anti-renewables faction.

Though the push for lower consumption from peak oilers and conservationists was somewhat helpful, without the renewable option their world-view led to more implied reliance on fossil fuels through active denial of alternatives. And it left the door wide open for new oil related extraction technologies to come charging in absent any wide-spread renewable energy adoption.

The market analysts were labeled ‘cornucopians’ by the more militant peak oilers or related agitators. In fact, this was a term that seemed to include anyone who supported any technology whatsoever, including sustainability based technical solutions. Contrary to peak oilers, the analysts pushed a view that the supply crunch, at first, wouldn’t happen. And, when they were proven wrong, went about cheer-leading for the new fracking technologies and for opening up the unconventional oil basins.

An outside group of progressives pushed hard for new renewable resources. And, given the opening provided by high fuel prices, they were partially successful, despite the constant attacks coming from renewable energy detractors and in spite of a broad front of oil industry advanced extraction technologies competing in the energy investment sector.

Consequent to Simmons’ warnings, a peak in conventional fuels did happen during the period of 2006 to 2008. Prices rocketed and economies were jarred by the shock. A shift toward more renewable energy and efficiency was driven by the crisis. Consumption fell and the world economy stalled in a combined energy and market derivatives crash. But the market signal and increased prices for energy unlocked technology that lead to the rapid expansion of production in Bakken, Eagle Ford, in Canada’s tar sands and in other far-flung basins around the globe.

EIA_Map_of_Eagle_Ford_Shale_Play

(EIA map of the Eagle Ford shale play in South Texas. It’s a basin that extends into North Mexico and contains an estimated 10 billion barrels of recoverable together with trillions of cubic feet of natural gas. Image source: Commons.)

Today, the wretched energy and carbon intensive and highly polluting process that is fracking now squeezes 1 million barrels per day out of the Bakken formation. It wrings 1.7 million barrels per day out of the Eagle Ford formation. Add this staggering production gain to other fracking and conventional extraction efforts across the country and we find that the United States now produces a staggering 13.9 million barrels of liquid fuels per day.

This makes the US the highest volume liquid fuels producer in the world on the back of a terrible breaking of the ground and increasing extraction of a fuel source that is already in the process of wrecking the world’s climate.

Globally, despite struggling production in the Middle East and elsewhere, production of the firewater continued to rise. Canada’s tar sands production spiked to more than 2 million barrels per day with the Arctic state planning for a jump to 5 million barrels per day by 2030. An ongoing carbon bomb explosion that, by itself, could well be described as a tract of human-generated flood basalt.

These and other oil sources combined with enhanced extraction to push global daily oil production from 85 million barrels per day during the mid 2000s to approaching 92 million barrels per day in 2014. This on the back of oil reserves additions in the form of tar sands at 168 billion barrels of extractable oil (total reserve at around 300 billion barrels), Eagle Ford at 10 billion barrels of currently recoverable oil (total reserve at 80 billion barrels), West Texas at 30-75 billion barrels of recoverable oil, Bakken at 7.3 billion barrels of recoverable reserves, and many other regions around the world that are now seeing new oil extraction or enhanced oil extraction.

Permian_Basin

(The Permian Basin of West Texas now containing between 30-75 billion barrels of recoverable oil due to climate-endangering fracking technology. Image source: Commons.)

So Simmons was wrong on the issue of oil peaking at 85 million barrels per day, and many peak oil analysts along with him.

And so it goes with the global fossil fuels story. As of 2014 we burn more oil, gas and coal than we ever have and global peak oil has again been removed to some future date. The global carbon emission is now enough to completely overshoot the lower range IPCC emissions scenarios and we are staring down the face of the highly unpleasant middle and worst case ranges. So in this respect, a number of peak oilers were dreadfully wrong — peak oil did not save us from climate change. In fact, bad effects are now locked in and the debate has shifted to whether or not there is enough extractable oil, gas and coal to hit the worst case scenarios.

But if history doesn’t repeat itself, it does rhyme. For now it appears that both Eagle Ford and Bakken, due to the nature of rapid fracked well depletion, will peak sometime during 2016 and 2020. And the peak oilers are now having a bit of a rally, as challenges to global production, many of them political, are also continuing to expand.

On The Verge of a Voluntary Peak

The environmentalists and scientists, thankfully, appear to be on the verge of successfully putting a crimp on Canada’s tar sands production. The US has sanctioned Russian oil production and a massive set of Arctic and shale reserves many times the US tight shale reserve hangs in the balance (a resource of ultimate reserves on the order of 1.2-2 trillion barrels of oil of oil in place). Barriers to fracking are rising and companies, facing a production glut today and investor uncertainty tomorrow, are in the process of consolidation and retraction.

China is pledging to vastly reduce fossil fuel consumption growth and many oil exporters are beginning to wonder if they’ll have a market for their products there. Around the world, the situation is similar as governments and consumers both push for less use of dirty, dangerous, depleting and costly fossil fuels.

In addition, renewable energy and alternatives have never been more widely available. Solar panel costs are down and EROEI is up. Wind power beats fossil fuel generation in most markets even when considering a natural gas glut due to fracking. Electric vehicles continue to become more widely available and CAFE standards around the world keep rising. An expanding movement is afoot to shift diets to less meat intensive ones — thereby pushing for a reduction in both the land and fossil-fuel use footprint of agriculture. And all these changes aim directly at reducing fossil fuel demand and consumption, generating impetus, along with the political movements targeting both new and old sources for an artificial, voluntary peak in fossil fuel flows.

And this is exactly what we would desire, a direct refusal of business as usual economics. A voluntary taking on of responsible action, economic transition, and behavior change needed to reduce and eventually eliminate an extraordinarily damaging carbon pollution. As has been said, the Stone Age didn’t come to an end for lack of stones. And this could well be the case with fossil fuels, if we actively make that choice. Whether or not it happens essentially depends on people’s perception of the need for it to happen.

Fear of Peak Oil as a Means To Force Continuation of Business as Usual

But the voluntary peak is no-where near a pre-ordained certainty. There is an extraordinarily strong array of political forces aimed at both denying the existence of climate-related harm and doing everything possible to extend business as usual fossil fuel extraction for so long as it is economically and technologically possible. To deny the expansion of renewable energy access and to block access to measures that reduce consumption. To, overall, degrade the political will to respond effectively to a climate crisis that is directly linked to ongoing fossil fuel burning.

And one potential political lever for this forced extension is advancing the fear of peak oil. For if people are wrongly led to believe that peak oil is a worse event than climate change, then it is unlikely people will make the changes necessary to transition away from fossil fuels. They, like the climate change deniers, will cling to fossil fuel extraction in the same way passengers unaware of the existence of life-rafts will cling to the upper tiers of a sinking ship.

How does fear of peak oil work? It’s simple.

First deny, degrade or ignore any potential value to human civilization for renewable energy sources (this is easy for oil industry folks, because they’ve had years of practice advancing anti-renewables misinformation). This includes using energy return on energy invested (EROEI) figures that are outdated or simply false.

eroi_500x220

(In the EROEI battle, renewables win the electricity production race hands down. From top to bottom: light green = hydroelectric, teal = wind, purple = coal, light blue = nat gas, dark green = photovoltaic solar, and dark blue = nuclear. It’s worth noting that solar pv energy return on energy invested continues to rise and is now estimated at 7 according to newer figures. It is also worth noting that the best energy return on investment for individual vehicle transportation comes from an electric vehicle plugged into a renewables fed grid. Image source: Scientific American.)

Second, declare an extreme supply-side ideology in which only fossil fuels have any practical means to fulfill supply needs. In this view, all farming relies on fossil fuels and cannot trade inputs or flexibly change how food is produced to help ensure resiliency (meat to veg, polyculture agriculture, edible landscaping, individually grown gardens, etc). So if fossil fuels peak, access to food is seen to peak as well.

Third, over-emphasize the value of fossil fuels to all levels of civilization with the implied need for fossil fuel related industry to support civilization.

This mind-set is in direct contradiction to the appeal first advanced by Limits to Growth authors for a transition to a sustainable civilization that did not rely on environment-polluting and resource-destroying energy sources as the basis for its prosperity. In fact, it directly obscures the need for such solutions by placing the notion that civilization is only sustainable so long as fossil fuels are available and that civilization inevitably dies without them.

From LTG:

If society’s implicit goals are to exploit nature, enrich the elites, and ignore the long term, then society will develop technologies and markets that destroy the environment, widen the gap between rich and poor, and optimize for short-term gain.

And it is reliance on fossil-fuel based technology that directly reinforces the vicious cycle that Meadows so eloquently describes above.

The final element of the fear peak oil and cling to fossil fuels mind-set is to, at last, deny climate change and, more specifically, to deny that enough fossil fuels remain in the ground to set off climate change that is a threat to human civilization. And it is in this assertion, that they have excessively over-reached and are baldly incorrect (as many who keep tabs here are well aware).

massive carbon reserve

(More and more of a globally estimated 13-20 trillion tons worth of fossil-fuel based carbon are unlocked through advancing extraction technology each year. Is it really a sensible approach to simply wait for such technologies to fail? Image source: IPCC.)

Negative Impacts of Climate Change Now Ongoing, More than Enough Fossil Fuels to Wreck the Climate Many Times Over

So with oil and fossil fuels demand now in trouble due to a broad political and grass-roots response, due to spreading measures that reduce fossil fuel consumption, and due to rapidly expanding ease of access to various renewable energy based technologies, a new Matthew Simmons – type view has emerged.

The view is that Bakken and Eagle Ford are about to peak and with it, North American fossil fuel production will plateau or start falling and that a global peak is in the offing sometime around 2030. As with the Ghawar field focus, the view is likely correct in micro. The fields will probably peak by 2016-2020 and global oil production during the same period will (thankfully) suffer due to a combination of reluctance to invest on the part of oil companies, political constraints that hamper oil flows in Asia and the Middle East, and due to broader conservation measures and alternative energy adoption that begins to put the crimp on world oil demand.

And how we respond to this potential crisis in world oil supply will have far-reaching impacts for both energy and climate going forward. If we see the peak as something we must avoid at all costs, what we will witness is the rapid expansion of fracking in foreign countries to include the exploitation of massive tight fuel resources in Russia and China. We will see the expansion of US oil production through enhanced extraction in the West Texas formation. We will see the barriers to tar sands extraction fall and Canadian tar sands oil rocket to 5 million barrels per day. We’ll see the China syngas operation horrifically expand to an environmental catastrophe to rival that of Canada’s tar sands. And we’ll see the first forays into gas hydrate extraction. We’ll see more coal plants converted to burn brown coal – a massive resource already exploited in conventional coal-poor regions. And we’ll see oil extraction extend into the climatologically violent Arctic.

This expansion will not come without its severe costs. Fossil fuel prices will rise, poverty in many regions will expand. But without some major catastrophic event, net consumption, driven by an ever-expanding fossil fuel and related industry, will continue to increase over at least the next two decades and may well extend beyond 2030 as the massive unconventional resources continue to be tapped. For the political will for reducing such consumption will have been subsumed by fear of peak oil and the alternatives will, again, have been tamped down.

Or, instead, we can embrace peak oil and stop trying to fight off what will inevitably occur over the course of decades or centuries. We can actively decide to change how much and what we consume and we can push hard for renewable energy and broad sustainability measures in agriculture. And through that action we might prevent a portion of the climate catastrophe we have already partly locked in. We can learn not to fear peak oil, but to pursue it, along with the will-full and socially chosen peaking of all fossil fuel sources. We can say goodbye to the age of burning and open a new age where we attempt to deal with the consequences of fossil fuel based industrialism before it’s too late. Before we no longer have the opportunity to.

That’s our choice. But going into it, don’t be comforted with false notions that we don’t have enough carbon sources to wreck the climate. And don’t, for goodness sake, embrace the notion that peak oil is the worst problem we face. Instead, it is a necessary problem. Part of the active and, admittedly, difficult act of changing how we live and of attempting to make human civilization both a more resilient and less harmful beast.

Links:

Bakken Shale Oil Boom

Eagle Ford Crosses 1.5 Million Barrels Per Day in September

US Energy Information Agency’s Short Term Energy Outlook

The Case For a Moratorium on Tar Sands Development

Alberta Energy

West Texas Shale Could Dwarf Eagle Ford

Permian Basin Oil Production

How Many Barrels are in the Bakken?

The Bazhenov Formation

Behind the Numbers on Energy Return on Investment

The Ghawar Oil Field

Limits to Growth

Twilight in the Desert

Hat tip to Pintada (in answer to some of your questions)

 

Climate Change, Resource Depletion Making Oil Dependence Economically Unsustainable

Over the past few months, we’ve been focusing primarily on climate change’s amplifying impacts and increasing damage to human societies. But with this month’s Department of Energy Short Term Energy Outlook (STEO) report, it is important to take a step back and examine again the powerful economic headwind that is resource depletion.

In context, oil, gas, and coal companies have, over the past few years, been fighting an epic political and public relations battle for the hearts and minds of the American people. We can hardly avoid the commercials. The endless repetitions of ‘we agree’ glossing over oil companies agendas on television again, and again, and again. We can hardly avoid the slanted news reports. The hit pieces that are put out on the Chevy Volt with almost weekly recurrence, the most recent one coming from Reuters. And we can certainly not avoid the massive political influence the fossil fuel companies have exerted on the political process this year in the Presidential, National, and State elections.

The energy future of the United States and our climate and economic health will, in many ways, depend on whether or not the fossil fuel companies, led by the oil companies, again gain dominance over both our energy and our political systems. In short, oil, gas, and coal have no future. And tieing our futures to those dirty, dangerous and depleting fuels is like grabbing hold of a 200 lb iron weight while struggling to tread water in a stormy ocean.

Why? Well, for starters, the oil companies aren’t any where near close to telling us the truth about the economic viability of their fuels.

The first set of misinformation is well established. The fossil fuel companies, much like the tobacco companies of a by-gone day, much like the south which depended on slave labor for their economic prosperity, aren’t telling us the whole story. In the case of climate change, they’ve actively waged numerous vicious public relations campaigns not only aimed at misinforming the public on the urgency of the climate crisis. They’ve also funded numerous attack campaigns leveled directly against the climate scientists themselves. Such a wide-spread war on science hasn’t been seen since the Renaissance. It has resulted in many scientists receiving death threats. But the broader damage is to society which is now facing the worst climate crisis ever in human history. The trouble fossil fuel emissions have brewed up in our atmosphere could easily be called Biblical. And whether or not we respond to this threat in a timely fashion is a matter of life and death for human civilization and for the human beings who depend upon it for survival.

Though the issue of climate change is pretty broadly understood, the second issue making oil non-viable as an economic resource is less well understood. And, though probably less harmful overall than climate change, its revelation gives lie to the assertion by oil companies that its fuels are a resource necessary for economic growth. To the contrary, the fuel is economically destructive. Why? Because it has depleted to the point that it is no longer economically viable to remove an increasing portion from the ground.

Just last week, reports from fracturing companies found that as oil prices dropped in June, July and early August a number of wells in the tight oil fields of North Dakota and Texas were idled. Why? Simply because these companies could not make a profit on oil costing less than $90 per barrel. This very high marginal cost of oil is bumping up against the level at which world economies suffer from recession. A range that the current economic malaise is proving is between $100-$150 dollars per barrel. The oil is just getting too darn expensive for a world economy to run on.

Then this month’s STEO report rolled in showing preliminary data that doesn’t bode well for the future of world oil production.

But before we go into this month’s STEO report, we should talk for a moment about the ridiculous papers being put out by the world’s oil establishment. Just last month, a former oil executive published a paper entitled “Oil the Next Revolution.” Just looking at the title brings up a little of a chuckle. Wasn’t oil last century’s revolution? Making such an extraordinary claim would require extraordinary evidence. But Leonardo Maugeri completely fails to deliver. First, he makes a highly spurious claim that world oil production will reach 110 million barrels per day by 2020. He does this by tinkering with the decline rates — he assumes a less than 2% decline rate for the world’s existing and future oil fields, the real rate is somewhere between 4 and 7 percent. Next, he makes extremely optimistic predictions about the world’s ability to economically produce tight oil like that in the Bakken. Finally, he conflates natural gas liquids with oil production. Unfortunately, natural gas liquids aren’t so easily fungible with oil, requiring highly specialized refineries to turn into diesel fuel. Maugeri claims a total of 49 million barrels per day of new oil conflated with natural gas liquids gets us to this 110 million barrels per day by 2020 in an environment of very low decline rates and very fungible natural gas liquids.

Maugeri is vastly wrong. He is wrong when it comes to the decline rate. He is wrong when it comes to the fungibility of natural gas liquids. And he is wrong on the ability of the world to economically add 49 million barrels per day of new supply. And this is where I return to the marginal price of fractured oil. $90 today. That’s what’s required to lift the new oil up out of the ground. What does Maugeri assume for his price of oil in 2020? Maugeri assumes oil will remain above $70 per barrel.

Maugeri already got the price wrong. We can’t maintain 89 million barrels per day at less than $90 per barrel.

Enter this month’s most recent STEO report. Now the first number we want to look at is consumption. Consumption is the best measure for world demand. Despite misinformation to the contrary, world demand has been very high since 2004. The only time in which the world experienced a reduction in demand was during the Great Recession in 2008 and the downturn that followed in 2009. At all other times during this period, demand was going up. Today, according to the STEO report, world oil consumption/demand is sitting at around 90.17 million barrels per day. Now just keep that number in your mind.

Now let’s look at the next number. World supply. That number is 88.41 million barrels per day. Immediately, we can do a little math and figure out that supply is less than demand by about 1.76 million barrels per day. This situation would tend to support a high price of oil. Well higher, in fact, than the marginal cost of producing a barrel of oil. And what was the average price? About $94 per barrel over the month of August just $4 per barrel above the supposed marginal cost of production. But let’s hold here on prices and talk a little bit more about supply.

In August, total world oil supply fell by 160,000 barrels per day from July. This isn’t too big of a deal at first blush. But it does follow a fall in oil supply of about 140,000 barrels per day from June, another fall of 130,000 barrels per day from May, and another fall of 120,000 barrels per day from April. This total of 550,000 barrels per day loss in production over the course of four months is not what one would expect to see if the world were on the verge of roaring to 110 million barrels per day within 8 years. In fact, we should see, on average, an 800,000 barrel per day increase over the same time period if that were the case.

But the overlying data isn’t what’s most disturbing. It’s where the losses come from. From July to August of 2012, US oil production fell by 300,000 barrels per day. Part of this loss is due to the fact that marginal, high cost, fields were idled due to the falling price of oil. In other words, these fields could not produce oil economically and were temporarily shut during a period when oil prices averaged at about $94 per barrel! Other losses likely came from ethanol production due to the fact that corn took a huge hit in this year’s climate-change induced drought (it is worth noting that, these days, ethanol counts as oil).

What brought down US oil production in the month of August can best be described as a combination of oil depletion and climate change.

But before we depart from the oil supply picture, let’s take a look at one other country — Russia. In the STEO report, Russia is listed as the Former Soviet Union. It includes all the oil producing states formerly part of the Soviet Union (FSU). Notably, August saw FSU production fall by 261,000 barrels per day to its lowest levels since August of 2009. This drop is an ominous sign for the prospects of world oil production. Russia relies on a number of very large depleting oil fields for the bulk of its production. Major efforts have been made to enhance production. But, according to the most recent reports, these efforts appear to be falling short.

Back to the larger picture, it appears that world oil production has stalled and fallen back into a slow decline. And there are troubling signs coming from both Russia and the United States.

Now, with these less than happy thoughts in mind, let’s go back to demand, supply, and price. Normally, in a natural environment, the price of oil would be allowed to rise so that new supply could come to market to meet demand. We have supply shortfall. We have marginal production waiting on the sidelines. So why isn’t price rising? What’s holding back price?

One need only look at the current world economic situation to see what’s keeping price in its gate. The world is, essentially, lurching about at the brink of another recession. Any bump in oil prices may kick the world back over the edge. So, in this event, high marginal prices of oil are bumping directly up against the world’s economic ability to sustain demand. And given the current leeching away of world oil supply, that ability is again placed in serious doubt.

Given these factors, it is increasingly clear that the world’s oil companies aren’t telling us the truth. Despite every economic contortion possible, oil is simply no longer a viable means to sustain and grow the world’s economies long-term. It is too expensive to extract. Its marginal prices are too high to bear. And the damage it inflicts on world economies through the ongoing and amplifying force of climate change creates an external insult that further reduces the abilities of economies to rationally function. Simply put, the oil is unsustainable and the faster we are able to both increase efficiencies, alternatives like the Volt, and the proportion of our renewable energy allotment, the better off we will be.

As for the oil companies endless re-assertions. We decidedly do not agree.

Links:

http://www.eia.gov/forecasts/steo/tables/?tableNumber=6#endcode=201312&periodtype=m&startcode=200901

http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

Seven Dark Truths About High Gas Prices

Over the past few weeks, politicians have made much hay over high gas prices. Republicans blamed Obama. Obama fired back. And much misinformation flew back and forth. The sad truth is that there are a number of hard realities keeping prices high and the only viable solution is weaning ourselves off of oil over time.

Truth #1 Conventional Crude Oil Peaked in 2004                                                                              

In 2004, production of the stuff we all think of as oil peaked. It topped off at around 70 million barrels per day. And since that time, no matter how much prices increased, conventional crude oil would not significantly exceed 70 million barrels per day. It is a sad fact that the world has struggled to increase crude oil production and failed. $100 oil is proof enough of that.

Truth #2 Increases in Production Have Come From Fuels That Aren’t Oil                                                   

There are many fuels called oil that really aren’t. They include: condensate, natural gas liquids, tar sands oil, oil shale, and bio-fuels. Condensate is a product of gases turned to liquids during the refining process. Natural gas liquids are condensed from wet gasses. Tar sands and oil shales are low energy fuels that have been enriched through a process called hydrogenation. And bio-fuels are liquid fuels interchangeable with oil but produced from crops.

The total production of all these fuels is now more than 18 million barrels per day. All are less energy dense than traditional oil. Most of them cost more to produce. In short, these fuels are simply less economical. This lack of economy makes them more costly, harder to access, and less useful. For example, tar sands cost between 50-60 dollars per barrel to produce. And this increased cost pushes up the overall cost of oil by setting a bottom on prices equal to the cost of the most expensive fuel produced. The reason these new fuels put a bottom on prices is that this marginal oil won’t be produced for very long if prices fall below the cost of production.

Of these 18 million barrels of non-oil, 2.5 million barrels come from tar sands and 2 million barrels come from bio-fuels that require oil to remain in a price range of 50 dollars per barrel or more. These high costs, in turn, push up the price of oil.

Truth #3 Depletion is Increasing the Cost of Crude Production       

Returning to conventional crude, it’s important to note that the cost of production is rising for it as well. The reason is that most of the new crude comes from special wells that require enhanced oil extraction techniques. One example of enhanced extraction is oil fracking. Fracking breaks rock in order to liberate both oil and gas. And the fracturing techniques require more expensive machinery, chemicals and water which increases the cost of production. With oil fracturing, the price of oil needs to also stay above about 50 dollars per barrel. New oil derived from fracking represents about 1.5 million barrels per day. So this flow of oil is also putting a bottom on prices.

Truth #4 World Oil Exports are Declining 

As oil exporting countries make economic gains by selling their costly product, economic activity along with oil consumption in-country increases. This results in net losses in the amount of oil available for export. Among top oil exporters Venezuela, Saudi Arabia, Egypt, Mexico, and Norway, exports are going down. Other countries who were once exporters, including the UK and Indonesia, have now turned into net oil importers. Reduced flows of exports means less oil is sloshing around in a world full of buyers. So demand, long-term, is increasing while supply, long-term, is going down.

Truth #5 Speculators Matter                                                                                                             

Recent estimates from economists indicate that speculators have pushed up oil prices enough to increase the cost of gasoline by 50 cents per gallon. Speculators trade in paper barrels of oil and manipulate floating stocks to increase costs and profit at the margin. That said, unless oil markets were tight, speculators wouldn’t have this ‘opportunity.’ Oil scarcity and fear keep the speculators preying on high prices by making the cost of oil and, therefore, gas even higher.

Truth #6 Current High Prices are Supported By Fear                                                                                      

Recent fears that Iran will mine the Persian Gulf and use military force in an attempt to close the Straights of Hormuz have helped to keep oil prices above $105 per barrel in the US. Currently, fear is probably pushing the price of oil up by about ten or fifteen dollars per barrel. Likely, without such a geopolitical constraint on oil, prices would fall to the low 90s as 100+ dollar per barrel oil has caused demand destruction in various markets worldwide over the past year.

Truth #7: 80 million New Cars are Produced Each Year                                                                                    

There are more than one billion automobiles in this world. And each year one is produced for every person born. These vehicles require energy to operate and the vast majority of them require oil. This reality places a very high demand on depleting oil. The only way to curtail this demand and still rely on oil is to, at times of scarcity and high price, reduce the amount of driving. The result in this reduction is a curtailment in economic activity resulting in slower growth or recession. So you have tightening, more difficult to access supply pushing directly against rapidly increasing demand in the form of a broad swath of new vehicles and machines produced each year.

Prognosis: Without Alternatives, Increased Efficiency Oil Prices Will Keep Rising Long Term                        

The combined realities of a plateau in conventional crude oil, the increased cost of producing new oil, rapid depletion in existing oil fields, and the contentious geopolitics of oil mean that over the long-term oil prices will continue to rise or remain high. The only way out of this depletion price trap is to drastically increase efficiency and to shift vehicle, machine, and industrial systems to fuels that are not depleting, preferably alternative fuels and renewable energy. These changes require long-term efforts and large investments. The alternative pushed by political forces aligned with the oil industry — relying only on increased drilling — is a short-term fix that will only more rapidly deplete the remaining, meager and difficult to access stores of oil.

 

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