The Economist admits it - We are at Peak

Yes, we are at conventional oil peak. Even the venerable The Economist admits in its August 2013 issue.

Yesterday's Fuel - Why Demand for Oil Will Fall (Economist, August 3rd-9th, 2013)

Of course, they can't do mea culpa, so they hide it as "peak demand", not peak production flows.

However, demand follows pricing, economic growth and policy decisions - and those are driven by basic oil field geology, not technology, not fanciful thinking or fairy tales about magical substitution.

At the time of writing this oil price (WTI) is at $106, at the time when the whole world economy is grinding to a halt again. Basic law of supply and demand -- if one believes in plentiful shale oil silliness -- would dictate a rapidly falling oil price. But this is not happening. The supply/demand margin is too tight. Supply is constrained, flow is at near peak - on an undulating plateau of maximum production. Unconventional liquids can only help this very modestly.

So, here we are - in 2013 and conventional oil production peak is starting to show it's effect. It will only get gradually more tight from here forward, with slight swings to the better and worse in the short term. The overall trend will be:

 - aggregate conventional production going down
 - prices going up
 - more swings in short term prices
 - more complaints about effects to world economy
 - more frantic investment in shale oil and tight gas (with mostly slow gains that fizzle out fast)
 - more instability in the Middle-East, more coups, more uprisings, more changes in power
 - more tensions between USA, Russia and China - all of which are gunning to get to the alpha dog position in the control of remaining conventional oil reserves (mostly in Middle East and in Africa)
 - more investment in natural gas and coal

Of course, this could all be wrong. We could just wake up, decide on a crash course to set things right, embark on worldwide coordinated conservations efforts and a plan to move off conventional oil dependency over the next 15-25 years or so. At the moment, the prospects for this kind of mass migration do not look good, but who knows - the future has a way of surprising us.

Here's to now. The only moment that matters. Use it wisely.

What came/comes out of the Shale/Tight gas/oil Miracle/Mirage?

A lot of hot air has been blown into the bubble called shale oil (often actually tight oil) miracle. The basic argument has been that soon the US will surpass that of Saudi Arabia as oil produces (and perhaps even exporter) due to non-conventional oil reserves and "advances in oil recovery technology".
Well, most of that is of course pure poppycock. Bakken and other US tight oil / shale formations are estimated to peak at around 2017:

The fracking miracle whis has greated the natural gas boom in United States is real, but with devastating environmental costs and unsustainable resource base. That is, it destroys groundwater resources, pollutes land and uses up more land these days in the active states than is used for wheat or corn production.

Further, unconventional resources always peak faster and once peaked, will decline extremely rapidly year-by-year, much faster than the old conventional resource bases that we got used to. This will create a frantic and increasing rate of drilling - a marathon to the death in order to just basically stand still (i.e. to stay even at the current level of production, not to say meet growing demand). That is not a miracle nor is it a future anybody in the fossil fuel industry hopes for. It's a race to the bottom.

Good resources on this issue is a fairly recent write up by Randy Udall titled 'The shale phenomenon: fabulous miracle with a fatal flaw' (2013), the Tullett Prebon report 'The Perfect Storm' (2012) and Chris Nelder's recent post on Smart Planet blog (2013).

Robert Hirsch - Nexus of Energy & Risk in the 21st Century

Presentation by Dr. Robert Hirsch on Peak oil and likely consequences from November 2012.

Some teasers:

There you have it. Nothing's changed. We are still on plateau. Price is still on an oscillating at-least-linear (more likely exponential) tendlike rise, which is triggering increasing recession-central bank intervention periods.

Reminder: The New Energy-Economic-EROEI Reality

The brilliant ecologist Charles A.S. Hall gave an ASPO-Webinar recently about 'Peak Oil, Declining EROI and the New Energy-Economic Reaility'. The simplified version of Hall's argument should be easy to understand:

Wealth creation (and it's proxy GDP) is based on energy resources

The growth rate of even wealthiest nations is declining:

Oil is becoming thin on the ground:

Due to increased drilling the EROI of oil production is going down:

This also increases oil prices:

Thus a larger chunk of money AND energy is going into energy production:

....leaving less money & energy for the rest of the economy:

This creates a new world, where the old economic models and policies do not work:

That's it. What else do you need to know? How will you react. This is an ongoing process. You are in it. You can make a choice as to how you will adapt to the new world. It starts with an attitude and education.

If you want to see the whole presentation along with Hall's voice, you can watch the Webinar on Vimeo or if you want the analytical version, you should read Hall's book 'Energy and the Wealth of Nations'.

Kyle Bass on European Debt Restructuring

The most important point of this video comes between 5:15 and 6:00.





The more important point from the point of energy is this:


There is NO way that oil production can grow at the speed required by the world credit market interest rate payments to be covered by real (non-financial) economic growth.

As Jim Puplava put it: Brent oil barrel price is the new global and automatically rising federal funds rate. It will cut off all economic growth every time it goes above $120-$140 / barrel (in c. 2008 dollars, as you have to keep  inflation in mind).

The world economy is toast. There is no way around it.

No amount of extra credit can solve this.

Only debt restructuring (i.e. default) will solve the economic issue.

The limited flow rate of energy guarantees that no other options is available.

And the more this issue is pushed into the future with temporary emergency measures, the bigger the debt that has to be written down will be and the faster the oil flow rate decline will be (it's increasing day by day).

And thus, harder the landing.

Brace yourself for impact in this slow-motion train wreck and try to position yourself to the last cart on the train.

Peak Oil, ERoEI, Maximum Power Principle & Markets

Excellent 13 minute Q&A with Nate Hagens, who understands the way we use oil, the coming supply crunch and how financial markets work.



For a more detailed discussion of some of the concepts discussed, check the the presentation A Framework for Supply and Demand on a Full Planet (35 mins).

Nate Hagens on Oil, Bond Market, Stocks and Economy on going forward

Conventional oil peaked in 2005. All liquids from ground are on a +/-5% plateau. Each extra barrel required for economic real growth costs more. This squeezes the real world economy. This is the lesson of net energy return falling.



Solution?

Globally -- long and slow crash, via economic turmoil.

Communally : know your family, your neighbours and the locals. Pull together.

Personally: scale down, get better psychologically, physically, financially and spiritually.

Increase your resilience to shocks and outages.

Stay safe.

Peak Oil Politics - Why Important Decisions Are Not Made

The following video excerpt from the 2007 Oil shock simulation is a good reminder of why important peak oil related conservation, energy infrastructure, military or energy transition decisions are not made, even though the issues are understood fairly well:

Oil Shockwave documentary segment

In the end, it all boils down to political popularity, policy realism and geo-political military issues.

Keep the oil flowing, at all costs.

Thus, do not expect US to start solving the peak oil issue any time soon - at least not without a crippling crisis first.

Perhaps the second oil price spike will do it. Or the third. Or the fourth...

Oil Industry Insider: Peak Oil 2015-2016, $300USD oil by 2020

Charles T. Maxwell at Aspo

Charles T. Maxwell, a veteran and a highly respected long-time expert of the oil markets, was recently interviewed for the Barron's Magazine on oil supply. He had this to say on the supply of oil:

"[Oil production] will be a little bumpy in 2015, 2016, 2017 and 2018. But by 2020, the first signs will become very evident that we can't go any higher than that in production."

A bumpy plateau by 2015, basically. As for the decline, he's optimistic about the production not starting to decline until 2020.

And more on oil price:

"Then it goes to $95 in 2012 and $115 in 2013. The following year, 2014, we see the price going to $140 a barrel, followed by $180 in 2015. And then, by 2020, it's at $300, or roughly $225 discounted back to the present." 

"By 2020, I'm looking for about $300 a barrel, which is closer to $225 a barrel in today's dollars."

As for the impact on the economy, he's much more optimistic:

"Strangely enough, I don't think that it would bring the economy down. Rather, it is the suddenness of change that does that." 

"On a more gradual scale, and giving the effect of inflation its due, we will probably simply walk away from two-tenths or three-tenths or four-tenths of a percentage point of potential gross-domestic-product growth, which we will give up by being caught in this energy vise. But the world economy will advance, and it won't be brought down by this."

It is needless to say that The Energy Standard views Maxwell as a hopeless optimist. The world needs them, but they are rarely right. Here's hoping he's right this time around.

Israel understands Peak Oil

Mr. Shaul Zemach, Director General, Ministry of National Infrastructures talks about the ramification and mitigation of Peak Oil:



And what does Finland do?

Utter silence...

Max Keiser on Peak Oil

No, don't leave this page yet. Although this segment is nominally produced under the name of Max Keiser, the content is actually good with comments from Udall, Hirsch, Kunstler & Schindler (EWG).



Issues covered are: depletion of peak oil, markets, role of energy in economy, EVs & politics. 12 minutes. Well worth it.

Favourite takeaway: "There will be no quick fixes."

Peak Oil & Climate Change

The Nation magazine recorded a series of interviews with various experts on the subjects of Peak Oil and Climate Change. Below is a teaser including such names as Richard Heinberg ("Peak Everything"), Bill McKibben ("The End of Nature"), Dmitry Orlov ("Reinventing Collapse") and Noam Chomsky, just to a name a few:



Go to the VideoNation youtube channel to listen to the full interviews being released now and in February 2011.

Talking sense about Finance Bubbles, Energy, Oil & Transition

Nicole Foss of the excellent Automatic Earth blog gave a presentation recently about a Century of Challenges.

It's only available as an audio stream/mp3 file on the net, but very well worth listening to, if one is trying to wrap his/her brain around the double-headed monster that is Energy Transition & Financial Crisis.

Download the mp3 file of the presentation : Making Sense of the Financial Crisis in the Era of Peak Oil (77 MB)

Here's a short preview of five minutes. To get the slides, one can also buy a right to view the whole video at the Automatic Earth / Post Peak Education site.

Oh yes, file this under 'analytical & doomish crystal-ball gazing'.

Can Oil Production Meet Rising Global Demand?

You've heard it from the geologists, from the oil engineers and the people studying energy systems.

Now, it's time to hear it from (for) the policy wonks.

Can Oil Production Meet Rising Global Demand? 

The video, all one and a half hours of it, contains multiple testimonies on Capitol Hill about Peak Oil and the coming oil crunch.

Will this have an impact?

Hardly, as the Department of Energy and Military Peak Oil Reports show, people who need to know already know. People who don't know, this is too difficult a subject emotionally for them to grasp.

Also, if you view the audience in the Q&A session there are no congresspeople and certainly no senators.

If you only view one snippet, start at 00:45:00 with Bob Hirsch. Runs for about 10 minutes. Well worth the time as a good summary, if you are new to the subject.

"World Energy Systems are a Mess"

New book on Peak Oil by Hirsc, Bezdek & Wendling out in Oct, 2010

Robert L. Hirsch, who authored one of the first studies into the mitigation of the effects of Peak Oil, has written a new book on what the decline of oil production means and what will be the likely high level effects of that.

While many books on Peak oil have concentrated on what it is and why it is happening, only a few have tried to analytically tackle the high level view of what are the possible consequences. Some take the effects for granted, while others linger in doom-and-gloom scenarios of total civilization collapse.

Thus, the new book 'World Energy Mess' is a welcome overview for those who have not keenly followed the depleting liquid fuel production issue for the past years.

What is the summary of the authors then? Shortly:

• Within next 2-5 years world liquid fuels production will begin to decline most likely
• There are no quick fixes to remedy this downfall in production
• Societal adjustments will be dramatic, sweeping and pragmatic rather than just or optimal

For the technically minded, they forecast the start of decline (end of plateau) by 2012-2015, with an aggregate overall decline rate of 2-4% p.a., worldwide GDP reduction for next 10years after the peak (perhaps in the order of -20% to -30% combined). His quick list for preparation  are listed in his ASPO-USA interview: interest bearing annuities, gold, close to markets/mass transit, fuel efficient transport. Sounds very reasonable.

In an interview with a French journalist, Mr Hirsch also states that all of Bush and Obama administration are aware of peak oil, but that Department of Energy has been actively discouraged not to research or to talk about the issue any more.

Lloyd's insurance warns on Peak Oil

And so the chorus grows:

Lloyd's adds its voice to 'peak oil' warnings

"One of the City's most respected institutions has warned of "catastrophic consequences" for businesses that fail to prepare for a world of increasing oil scarcity and a lower carbon economy."

That's from the Guardian (UK).

The actual report released by Lloyd's of London in co-operation with Chatham house has more interesting snippets inside it.

• Businesses which prepare for Peak Oil transition will prosper - the rest will go down
• Low cost [liquid] fuels are gone
• Asia is now part of the global energy security mix
• Global oil supply crunch and price spike coming
• Energy infrastructure is vulnerable
• Just-in-time production/warehousing will have to adjust
• Big business opportunities in transition

This is the "easy oil is gone, but we will transition through a rough patch" type Sunday matinee scenario for the whole family. All the really disruptive parts are left out or between the lines.

Yet, some of the graphs are quite telling:

So much for that Middle East spare capacity...

$200USD barrel of oil by 2016, anyone?

Peak Oil risks + Financial risks + Climate Change risks = ?##%&&!!

So, finally the insurance market is ready to start taking into account the consequences of peak oil, even if the scenarios are quite cautious - almost optimistic.

Hedging Peak Oil

What does BlackRock - the world's largest hedge fund think of peak oil?

This one picked from their 2010 investment presentation:

Hey, at least they have two different scenarios and you get more than 4 years to prepare. It's unfortunate that they take the other fossil flow rates from the IEA data as is. They are surely to be just as wrong as the oil rates have been.

US Dept of Energy : Oil Crunch 2011-2015

This is starting to look like a coordinated news campaign or a real wake-up:

"A chance exists that we may experience a decline of world liquid fuels production between 2011 and 2015 if the investment is not there"

- Le Monde on interview of Glen Sweetnam, the oil market expert of US Energy administration

The situation is simply the following:

Many major oil producing regions are heading to a temporal investment related production peak or final oil flow peak by 2015

New discoveries and new producing fields are not there to offset the decline

The major additions from unconventional oils and biofuels (esp. US ethanol) are in serious doubt

So called 'above the ground factors' (i.e. politics, pricing, market issues) are making the flow of oil even harder to predict

So everything written here and elsewhere for the past 5+ years is coming to pass.

Except now it is becoming official. Currently it is confined to being mere political 'scare talk', but when it becomes fully priced in the markets, you can consider $80/barrel oil extremely cheap. And by then, it'll be way too late.

Petrobras - Global Oil Peak (incl. biofuels) 2010

Ah, those magnificent Brazilian sub-salt oil finds that heralded the end of peak oil. Never mind the fact that they would at best postpone the global oil peak roughly 90 days or so.

Well, now the Brazilian oil company Petrobras' CEO, Lucio Pementel, is throwing more fuel to the fire by saying the world oil production will peak this year (via TheOilDrum).

Due to reduced demand from the Great Financial Crisis v1.0 (v. 2.0 coming soon to an economy near you), the supply-demand crunch should not hit us until 2013 or 2014 in their projects.

So again, that pesky 4 years of extra breathing room is there. At best. If we are lucky.

... because two economists have calculated that the demand has not peaked and that demand projections by the big three (i.e. IEA, EIA and OPEC) are underestimated by roughly a third.

Oops!

... and the news just keep on coming in : 'Peak Oil is here'

University of Oxford researchers from the Smith School are next in line in their 'The status of conventional world oil reserves — Hype or cause for concern?' in Energy Policy.

In summary, they state:

• conventional oil is peaking
• biofuels cannot fill the gap - not enough land for food and biofuel production
• unconventional oil is way too CO2 intensive - need an alternative
• not enough investments into alternative liquid fuels

In a related interview the founding director of Smith School, Sir David King, warns (again) about shortages and oil price spikes in coming years.

The question is not any longer whether the cat is out of the bag, but for how long can the mainstream politicians control the information and keep the masses calm.

Never mind, keep the music playing! Economy is recovering, unemployment is decreasing, house prices are bouncing, car sales are booming and oil consumption is....