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Chris Nelder’s Notes on the 2009 ASPO-USA Peak Oil Conference
Day 1 – Sunday, October 11, 2009
Charting a Sustainable Future (Session 1 of 2) – Panel
Pat Murphy, Arthur Morgan Institute for Community Solutions
Jason Bradford, Managing Partner of Vital Farmland LP
Dave Bowden, Executive Director, ASPO-USA (moderator)
Pat Murphy – “Sustainability of Passive Buildings and Shared Transit”
Sustainability needs a new definition, and it can’t be about growth. Increasing CO2, peak oil, etc. implies serious limits.
Energy consumption correlated to inequity – world inequity now the highest in history
Sustainability requires 90% CO2 reduction. U.S. CO2 emissions per capita highest in world, now 19.6 tonnes, world average is 4, needs to go to 1 to be sustainable (survival)
Three technology options:
Plan A – Black (fossil fuels) – 90% of population
Plan B – Green (solar, wind, switch grass) ref. Lester Brown’s work. Maintain current lifestyle – 9% or less of population
Plan C – High satisfaction low energy lifestyle, curtail fossil fuel usage. Reduce current lifestyle – 0.9% of population
Modern world is an energy world. After 10,000 years of agrarian living, ~250 years of technology living, we think Moore’s Law applies to energy when it doesn’t.
Energy sources are limited. Not enough fossil fuels, atmospheric tolerance, renewables not ready to scale.
Energy devices (fuel cell cars, EVs, green buildings, lithium batteries, etc.) are all expensive and very small solutions. Power plants have changed little.
His book: Plan C: Community Survival Strategies. Also contributed to The Power of Community (film about how Cuba survived having their fossil fuels cut off).
We must cut energy use – fast! Can’t wait for techno-fixes.
A “sufficiency” lifestyle is what we need now. Context where curtailment is not suffering. Happiness is relating, not accumulating. Community is a cooperation principle.
Science of Plan C
Technology/science driven. Depletion technology, climate science, psychology/sociology, ecological economics.
Need to understand EROI, embodied energy vs. operating energy.
U.S. uses 57.8 boe per capita annually. OECD average: 30.9
Setting 80-90% reduction targets
1 Target – Housing:
Deep building retrofits – German passive house as model, ACI’s 1,000 home challenge. U.S. homes almost twice the size of typical European or Japanese homes.
50% of U.S. energy is used in buildings. 40% operating, 10% embodied.
Green building efforts have been too little too late, reducing 15-25% energy not 80-90%. Takes about 75 years to turn over building stock. We should be investing in thick-shelled buildings not thin shells with massive investment into heating.
German passive house uses 90% less heating and cooling energy. 20,000 passive houses built worldwide to date.
Challenge is to retrofit existing buildings – thicken the shells, use heat exchangers, cut energy use by 80%.
2 Target – the private car:
U.S. has 220 million cars & light trucks. Average car trip has 1.5 people.
Believes small buses and jitneys (or transform private cars into jitneys) will do “shared transit” not mass transit. Use GPS & software solutions to coordinate trips.
Focus on curtailment and community; cut 2/3 personal energy use; build a high satisfaction/low energy lifestyle.
- Talk based on Sustainable Agriculture White Paper.
- Defining sustainable: use resources at or below regeneration rate without degrading them, plus fair distribution within and between generations.
- Ecological economics model
- The state of today’s food system:
- Pros: food is plentiful and cheap
- Cons: depletes non-renewable resources; degrades soil air and water; puts 5 billion pounds of harmful chemicals into environment per year; major GHG emissions; unhealthy & unsafe food; unstable economics; etc
- [Great slide from New Scientist paper showing 24 “hockey stick” charts]
- We are reaching systemic limits: demand is increasing while stocks and arable land decline. Per capita arable land has essentially halved in the last 50 years worldwide.
- Fossil energy in the U.S. food system: 10.3 quads of energy consumed for 1.4 quads of food energy available. Tractors, artificial fertilizer production, seed production, trucking & refrigeration of food produced, processing & frozen foods, refrigeration, cooking. “The hubris of Wile E. Coyote”
- Feedlot food system is massively polluting. Waste is concentrated, corn & feed imported, etc.
- Food production system produces massive “dead zones” offshore where algae suck the oxygen out of water, create anoxic environment where nothing can live.
- Three crops comprise 71% of U.S. crop acres: corn, soybean and wheat. Monsanto, Pioneer and Syngenta (all basically chemical companies) dominate the seed industry with patented seeds. We’re setting up a situation where we have very low diversity.
- The food industry (e.g., meat packing) is highly concentrated with the vast majority concentrated into just a couple of companies. Total opposite of historical arrangement of millions of small family farmers.
- Half of U.S. crop subsidies went to corn between 2003 – 2005. 56% of corn went to feed animals, 18% exported, 13% went to make ethanol…
- Just-in-time food delivery system dominates. 1-3 days of supply all up and down the food distribution chain.
- Climate change poses a major challenge to the finely tuned temperature, rainfall, etc. of our highly concentrated food regime.
- Must restore diversity of natural web, use diverse rotation system, cycle through pasture…
- Organic methods can feed the world. Organic has about 30% yield advantage over commercial farming. Organic also has more resilience to stress, less volatility.
- Can we scale the transition to organic to the whole country, to the world? Only 0.5% of cropland is organic in the U.S.; most of the organic food is imported.
- Costs and benefits of conversion to organic: premiums of 50 – 200%, higher value crops, less fertilizer input costs, etc.
- CSA farmers typically earn 2.5x of what conventional farmers make.
- Total U.S. farmland property value: $1.9 trillion. Average family spends 10% of its income on food (probably the lowest cost in history). Only $0.17 per dollar spent gets to the farmer.
- Picturing a sustainable food system:
- Instead of tilling, use no- or low-till methods (rolling, crimping).
- Instead of importing ammonia fertilizers, fix nitrogen using legumes.
- Instead of being forced to buy GMO seeds every year, farms should be allowed to grow & save their own seeds.
- Pest and weed management can be done using natural methods.
10:15 am – 12:00 am
Analyses from The Oil Drum – panel
Gail Tverberg, The Oil Drum
David Murphy, lead researcher, EROI Institute
Jeff Vail, Associate, Davis Graham & Stubbs LLP
Brian Maschhoff, Contributor, The Oil Drum
Rembrandt Koppelaar, Contributor, The Oil Drum
Kyle Saunders (“Professor Goose”), Founder, The Oil Drum (moderator)
Gail Tverberg – “What’s Ahead? Two Scenarios“
- Two post-peak oil scenarios dominate: slow slide & quick crash
- Slow slide:
- Shortages of lots of things – oil, water, minerals – which gradually grow worse, but we keep muddling through, relying on techno-fixes and alt fuels. We learn to live with less and the world becomes the “new Cuba.”
- How fast will net energy decline?
- Will alternatives scale fast enough?
- Isn’t there a strong BAU assumption that international trade keeps working, lending keeps working, and we can continue making complex equipment with materials from around the world?
- Quick Crash:
- We live in a highly networked system of great interdependence.
- Manufacturing depends on international trade.
- Businesses depend on credit and manufactured goods.
- Business and manufacturing depend on electricity.
- Electric utilities depend on credit and on replacements parts.
- Systemic Risk
- Problem in highly networked interdependent systems
- Like a computer crash – one thing stops working, everything else stops working
- Risk areas: international trade and finance, and credit
- There is a close and complex link between credit and oil extraction. U.S. consumer credit peaked in July 2008, just as oil production peaked.
- Credit enables oil production, and also enables demand for oil, by allowing consumers to buy things made with/from oil.
- Shrinking oil supplies will limit economic growth – leading to defaults, as we did this past year. Forces lenders to cut back on loans, which leads to less supply and less demand.
- Net impact of credit on oil: provides positive reinforcement for oil extraction when it’s growing, and negative reinforcement on the way down. Result: peak oil = peak credit.
- Contributes to systemic risk of networked systems
- If there is a quick crash, international trade will fall off pretty quickly, replaced by bilateral trade – much more limited.
- Manufacturing of all types drops off quickly, imports will be harder to come by. How will we come by replacement parts for energy machines, etc?
- Defaults on debts become more and more problematic.
- Currencies become more local.
- Net impact
- Current model of food production may cease to work.
- Current transportation model may cease to work.
- Re-localization may be necessary.
- Much lower standard of living likely.
- Mythology is that oil will never “run out” and we’ll have a “dribble forever.” But what are the real limits on oil production? Globalization needs high tech machinery etc.
David Murphy – “Recent Advances in EROI Research“
- EROI definition: energy out divided by energy in
- Inputs include indirect (steel production, etc.); direct (oil production); energy to allow use (infrastructure); labor support (social systems, medicine, etc.).
- Corn ethanol is not a new debate – ref: 1979 gasohol debate on whether it had a net energy gain.
- Four recent assessments of net energy of corn ethanol found 0.8 – 1.2 EROI.
- Real fuels are an order of magnitude larger than net energy of corn ethanol.
- Ref. Euan Mearns’ slide on implications of the “Net Energy Cliff” – shows implications of declining EROI.
- Excellent slide of EROI of major types of energy [Examine this closely!]
- EROWI (energy returned on water invested) – Petroleum diesel: 228 vs. corn ethanol’s 0.024 (it’s using massive amounts of water).
- How declining EROI might impact economic activity [great chart] showing petroleum expenditures as a percent of GDP in the U.S. and real oil price. 2008 curve was incredibly volatile.
- YoY changes in GDP, petroleum expenditures as a percent of GDP and real oil prices chart: Major recessions are always associated with petroleum.
- All of our economic theories were developed during a period in which oil production was constantly increasing. As we go down the back side of Hubbert’s Curve, we will have to rethink our theory: Efficiency? Defeatism? Collapsism? Steal from others-ism? Run and hide-ism?
- But with declining EROI, the crucial issue isn’t about remaining oil to produce, but rather how much can be extracted at a profit! Net energy Hubbert Curve falls faster than gross curve.
- An attempt to figure out the minimum EROI of a sustainable society:
- Three factors: EROI at the source, EROI at point of use, EROI of total society/associated infrastructure etc. (complex data slide)
- 3:1 is the minimum EROI to run a society, on average
- Returning to the Net Energy Cliff chart with that in mind […]
- Suggestions for future work:
- Need better data!
- Need to understand energy costs of backup systems (esp. for alternatives)
- EROI of unconventional gas in the U.S. – esp. shale’s
Jeff Vail – “The Renewables Gap“
- Systemic challenges in peak oil mitigation
- Can we replace energy declines with renewable energy? Can we mitigate peak oil this way? Only if the net energy works out.
- Target: quantifying net-energy loss. The decline in net energy is faster than simple oil decline. Even if oil production remained flat, net energy would decline.
- Scale issue!
- The vast majority of the energy needed to produce renewables comes up front…between 80-90% of the energy you put into solar & wind etc. needs to be made up front before you get energy out of them.
- 1 mbpd oil over 1 year (365 million barrels) = 2.117 quads = 70.78 GW-years of electricity. But:
- Efficiency of burning fossil fuels must be taken into account
- Plus energy cost of rebuilding infrastructure to run on the renewable electricity, grid investment, etc…. Most of which must be made up front.
- You need about 1 Btu of electricity to replace 1 Btu of oil
- What about conservation & efficiency?
- Population increase complicates it: could offset as much as a 30% improvement in conservation & efficiency! Car sales are up 29% in India even during a recession as people buy their very first cars.
- EROI: How much energy do you have to invest up front in renewables?
- Min EROI for renewables: Low bound: 4. High bound: 20.
- Renewables gap: with 5% net energy decline, EROI = 20 (trying to keep up with decline of oil)
- Need to expend equivalent of 7 mbpd in year 1, 2 mbpd in year 2, more in year 3…
- Pessimistic: 4600 GW-years needed in year 1, net energy doesn’t catch up until year 7 [these last two slides were important but too hard to capture in notes – see slides!]
- Can we bridge the renewables gap? [A couple of different scenarios, from simply building renewables to a Manhattan Project type of crash program]
- We will probably have the political will to make the transition at exactly the time when the economy can no longer support it.
- The precautionary principle at work…
- We have a small and shrinking supply of energy, how will we spend it? Will we try to accomplish a transition en masse to renewables? Or will we choose to shrink & delocalize our society?
Brian Maschhoff – “More Saudi Oil? Really?“
- Used Google Maps to try to figure out what Saudi Arabia is doing
- IEA says we need to find six new Saudi Arabias by 2030 to replace declining production from existing fields.
- Prospects for new oil production:
- Rework existing reservoirs (essentially what they’re doing now)
- Developed untapped reservoirs in existing fields (not much success yet)
- Develop new fields (not yet)
- Find new fields and develop them (nope)
- Increasing focus on offshore: from about 1 in 2000 [wells] to about 28 in 2009 [eyeballing the chart – no data]
- Tried to identify & assess Saudi offshore field development using Google Maps (graphic). Seven major fields:
- ~63 billion bbls OIIP
- Cumulative production > 12 billion barrels
- 28% depleted
- (lots of details on wells, platforms, etc.)
- Qatif and Abu Safah
- 500 kbpd AL
- 300 kbpd AM
- 375 MM scfd [?] gas
- 1.2 mbpd of water! (High water injection program)
- 23 billion barrels OIIP
- ~12 billion barrels reserves
- 28% depleted
- By 1991: 1.7 bbo cumulative
- ~10 bbo reserves
- Production fell from 100 kbpd in 1965 to 58 kbpd in 1980 (?)
- [missed data – went by too fast]
- Big project with artificial islands, big water injection program, etc. Freaking huge artificial drilling islands.
- Technology making problematic oil production possible. Not new oil. Is there really nothing better out there than these extreme offshore projects?
Rembrandt Koppelaar, “Oil Megaprojects: A Quarterly Approach“
- Why oil megaprojects?
- Gives a reliable estimate of new production on the market in the next five years
- Estimation of short-term production can be made by combining mega projects with future decline rate estimates over current production.
- But data needs to be improved & is still limited
- See Oil Drum Oil Megaprojects Wiki.
- Mapping out all new megaprojects through 2020 (including tar sands etc.) and comparing with 4.5% decline rate in 2007 going to 6.5% in 2014. Plus OPEC bringing spare capacity on the market…oil production plateau to about 2014 at 89 mbpd.
- After 2014 production declines to 84 mbpd in 2020 and 78 mbpd in 2030
- Future macro-economic effects on the demand side have not yet been included.
- His new study on this data will be published in about two weeks at The Oil Drum.
- Murphy: Noted that Biophysical Economics conference is coming up in Syracuse NY [look up Charles Hall]
- Vail: Re: potential of efficiency and conservation, political will remains a hugely important x-factor. Our society is very bad at dealing with long time horizon planning.
- Koppelaar: Megaprojects model is strictly supply based. Political & economic factors need to be factored in-how will a major deflationary situation affect supply? Supply crunch may owe more to demand & investment factors.
- Tverberg: Oil at $75-80 seems to kick off a recession. So we may not be able to get expensive projects going at all.
- Murphy: Doesn’t see a profitable scenario for oil shale in Colorado.
- Vail: Didn’t attempt to include coal and natural gas in his substitution scenario. Has concerns about EROI of remaining coal.
- Koppelaar: To improve modeling done by IEA, et al. and allow us to compare forecasts, we need 1) better data and more transparent data 2) assumptions to be clearly specified
- Saunders: Publicly shared data & models need to be more discrete and comprehensive.
1:00 pm – 2:30 pm
North American Energy System Vulnerabilities – panel
Jeffrey Brown, Independent petroleum geologist
Rick Munroe, Energy Security Analyst, National Farmers Union of Canada
Scott Pugh, U.S. Department of Homeland Security
Sally Odland, ASPO-USA Advisory Board (moderator)
Jeffrey Brown, “Are We in the Early Stages of a Permanent Net Oil Export Crisis?“
- Explained the “Export Land Model (ELM)”
- Cumulative Net Oil Exports (CNOE) of Export Land showed that post peak CNOE is 60% depleted in three years, etc.
- Looking at post-peak major producers Indonesia, UK and Egypt, together shipped 82% of post-1980 peak total (CNOE) by 1996, or 90% of all the oil they would ever ship.
- At peak in 1996, they were consuming 56% of production.
- Their export decline rates accelerated with time.
- CNOE for those three countries post-peak were 53% depleted in three years. Net exports are now down 9% from the peak rate in 1996.
- [Several slides on rates of change in exports for net exporters with recent peaks]
- For Saudi Arabia with URR assumed at 230 Gb, there is a 95% probability that it has already peaked, and approach zero net exports around 2034.
- More slides on expected date of net zero exports for other major net exporters… top 5 exporters in 2005 reach zero net exports in 2032. In three years, they shipped 1/5 of their total expected net exports post-peak.
- [Important chart: Combined net oil exports from Canada, Mexico and Venezuela.]
- [Second-to-last slide shows that the U.S. is being outbid by Kenya for oil!]
- Prescription for the future of transportation: “A desire named streetcars.”
Rick Munroe, “Government Plans for Liquid Fuel Emergencies“
- [Suggests that we refer to the slide deck online since the presentation will go quickly.]
- As a farmer who learned about peak oil some years ago, he went looking for military & government planning directed at the problem.
- One government official assured him that because Canada is a member of IEA and has 200 years of supply in the tar sands, we should relax.
- How prepared are we for a liquid fuel emergency (LFE)?
- GAO [U.S. Government Accountability Office] in 1996 did voluminous studies about peak oil and published it-then was dropped! They criticized the existing DOE plans using some extremely sharp language and criticized the IEA [great quotes, from 1981!]
- Three outstanding studies on LFE: Alan Smart (ACIL Tasman, 2004), Kathy Leotta (PB, 2004); Helen Peck (Defence Academy, 2006)
- The four standard strategies of the IEA:
- o Increase supply (surge production) and stock drawdown from emergency reserves. About 90 days’ worth of net imports are required to be kept in reserve.
- o Decrease demand: fuel switching, and voluntary demand restraint measures. Mandatory measures are hard to implement.
- IEA notes in 2005 that pre-planning is critical, and that the public must be primed and well informed in advance.
- But there is no local (municipal) plan in North America. No city has any plan. There is no plan to administer a LFE.
- “The fundamental problem is that it is the very efficiency of the nation’s food and drink supply chains, under normal circumstances, that make them so vulnerable under abnormal ones.” (Helen Peck)
- Panic buying and hoarding might result from alerting the public. To prevent panic buying, need a top to bottom intervention plan and lots of pre-planning.
- A major price spike can paralyze a lot of things, yet the belief is that the government should not interfere in price.
- Confidential IEA country report says price pass-through should be unimpeded during a crisis.
- GAO, 1995: “physical shortages…are virtually impossible in a market economy.”
- We don’t need physical shortages to have a fuel emergency. We will have trouble if it’s only unaffordable.
- “It is questionable whether an adequate organization structure exists which could effectively manage a crisis.” – GAO
- Everyone assumes the fuel will be there when we need it, but no administrator wants to do LFE planning.
- Mentioned the Oil Shockwave exercise on June 23, 2005, examining the effects of a 4 mbpd shortage – price tripled.
- Quotes from Richard Haass, James Woolsey and Robert Gates
- The UK, Australia and NZ are well ahead of us in terms of planning. We’re probably the most vulnerable region of the world, yet we’re the most complacent.
- We need to localize the response plan, and ensure affordable fuel to farmers. Invite military scrutiny of LFE plans. Farmers have to work with the seasons, and if they have fuel shortages, food supply could be impacted (can’t plant their crops in time, etc.)
Scott Pugh, “Protecting America’s Electric Grid“
- Secure Grid 2009 war game exercise performed using possible terrorist roadmap: bombs, borders, bugs, business, bodies & buildings
- Energy security depends heavily on electricity – even to produce the other fuels.
- Joint commission on grid security from Feb 2008 with DOD & others found it was urgent.
- DOD working on facility islanding in the event of a grid outage.
- DOE projects electricity generation to increase by 50% by 2030…would require 50 new 1,000 MW reactors, and 262 coal plants (600 MW), and 279 natural gas plants (400 MW) and 93 renewable plants (100 MW). But we’re likely to see a dip in nuclear between now and 2030.
- The grid is congested already, we need to build a new and smart grid to accommodate growth and renewables.
- Today’s grid is broken into three separate parts: East, West, and Texas (“so Texas can secede from the union any time they think they should”).
- Grid is owned by hundreds of transmission utilities & generating companies.
- The transmission grid (HVDC) is different from the distribution grid to end-users.
- The transmission grid has three different voltages: 500 KV, 765 and 345 kV. Transformers are few, lead time 6-18 mos., and are very heavy (100 to 300 tons)
- 25,000 substations in the transmission & distribution grid.
- In 2007 Homeland Security & DOE staged a cyber attack test to see if they could quickly open and shut a circuit breaker and damage it with a cyber attack. They were able to do so.
- 1400 power plants in America produce 95% of the power; any one of them could be shut down & damaged via such a cyber attack.
- War game scenario: Two power plants attacked in Columbus OH, terrorist group claims responsibility, issues demands, threatens to take out 10 more cities…
- Instead of replacing giant heavy damaged transformer, working on a plan to rapidly replace one with three smaller transformers that can be trucked in.
- Smart grid is coming & will be vastly different – compared to today’s grid, will be like banking system before and after Internet.
- Showed video of the war game scenario (mock up CNN broadcast)
- DHS is indeed concerned about an attack via EMP (electromagnetic pulse) and is planning around it.
- Q: This was a known problem 20 years ago-what happened?
- A: The grid is owned & operated by private businesses and the government doesn’t see fit to interfere.
- Q: For Munroe: how would farmers be affected by an LFE?
- A: If there is full price passthrough, farmers would be hard hit and would not plant.
- Brown: “The lifeblood of the worldwide economy is draining away before our eyes and we’re not doing anything about it.” Could not find one example of any net exporter who attempted to control their exports post-peak. Even absent subsidies, oil exporters have the economic advantage over net importers. The only choice for developed countries is to get off oil as quickly as possible. (Odland: “We can’t all be net importers!”)
- Brown: Mexico’s year over year net export decline rate for 2008 was 25%, up dramatically from the 2005 decline rate. By the end of this year, I suspect they will have shipped 85-90% of their post-peak cumulative net oil exports. The disintegration of the country could interfere with production as well.
(Odland: Old saying, “Poor Mexico: So far from God, so close to the United States.”)
- Pugh: The military definitely gets peak oil. They’re paying for fuel in money and blood daily. They’re focused on using it more efficiently. There’s not going to be enough oil to run its transportation system indefinitely, but the military is going to use oil for a long time. There’s always going to be enough oil for the military. It’s the largest single user but uses only 2% of the nation’s consumption.
3:30 pm – 5:00 pm
Connecting Peak Oil and the Recession – panel
Terry Backer, State Representative, State of Connecticut
Steven Kopits, Managing Director, Douglas-Westwood LLC
Nate Hagens, Editor, The Oil Drum
Robert Hirsch, Senior Energy Advisor, MISI (moderator)
Terry Backer, “Promoting Sound Energy Policy in Cash-Crunched Governments”
- My constituents found their small financial cushion gone after bills & mortgage were paid, were devastated when gasoline hit $4 a gallon and heating oil prices escalated. It stripped away their cushions.
- That’s when they started having trouble paying their bills, and led to trouble in making their mortgages. It was devastating as well to fishermen, who couldn’t afford the fuel to run their boats.
- Connecticut (CT) government doesn’t have the cash to do the things I hoped we could do to respond to the future problems of fuel.
- The best way to motivate people, to sell the peak oil story, is to focus on economics. How can we keep the lights on, keep the police & fire crews working, and so on? If you tell people that their entire way of life is about to end, they just shut down and raise resistance.
- Wrote two papers for laymen about peak oil. Formed a legislative peak oil caucus and got some bills for action passed. Once those doors are opened, people can begin to grasp the full scope of the problem. But after the bills were passed, revenues crashed in the economic downturn, and the whole effort was put on hold because the state couldn’t afford it.
- Most states are not coming out of their deficit problems for many, many years. They’re doing one-off tricks and holding their breath in hopes that the economy will recover. How do we get government to understand that the problem isn’t going away, and that they have a very small window of opportunity to begin preparing for it?
- NASA climate scientist James Hansen decided to stop going to conferences and talk about data, and put aside the lab coat, and go become an activist, getting himself arrested at a coal plant, because the time has run out. “This is not a drill anymore.” Unless we start to work the policymakers and get a succinct message through, we’ll get nowhere. We’ve done the analysis. We’re here. What do we do now? We have to forge this knowledge into a strategy to avoid as much human suffering as we can. Malthus was probably right, it just took a lot longer than anybody expected for that to become clear.
- We can’t solve this at the federal level. We’ve got the best Congress money can buy. We have to start with local solutions and get people to take action.
- “The Paralysis of Analysis” – We have analyzed this enough. We have to reach into legislative bodies and keep hammering away on a succinct and consistent message. We have to decide who we are now.
- Peak oil has a disproportionate effect on the poor; we need to remember that.
- We have reached a turning point…
- The view that the economic recession was a primarily financial crisis is the standard version. But here’s the oil version.
- After 2004, oil supply stopped responding to price signals. But the lack of oil didn’t keep the economy from continuing to grow. Oil supply expanded by about 2% after 2004 but global GDP grew by 17%–a disconnect equivalent to the production of Saudi Arabia.
- From 2003, prices increased by about 25% per year.
- By 2008, the supply/demand balance had become untenable. When crude expenditures reached 4% of GDP, the U.S. fell into recession. Like every other time since 1972, it resulted in a recession The tipping point was $80 oil.
- Econometric analysis also suggests that high oil prices were an important contributor to the recession. Prices alone would have been enough to put us into a recession. This is our first peak oil recession.
- Oil Supply Outlook
- The Economist in 1999 said we were awash in oil.
- Increase in decline rates from IEA from 3.7% in 2007 to 6.7% per year now.
- Peak oil production capacity in 2009 (Macquarie, 2009)
- Dependence on OPEC to rise to 54% in 2020 from 43% today. (Total, 2009)
- Have 8 out of 10 oil majors passed peak production? Yes, right when Ken Deffeyes said they would, in 2005. Oil majors having a very difficult time increasing supply now.
- China demand forecast
- China is central to demand growth.
- China will overtake U.S. as top consumer of oil by 2018, and double U.S. consumption in 2025 (if supply is there)
- Added coal use equal to total U.S. consumption in just 4 years.
- Meeting Chinese demand will be the central challenge in energy.
- How Do We Adjust?
- OECD are getting squeezed out of the market. EU is locked out at $70 oil, U.S. at $75
- The advanced economies, not the oil producers, became the primary suppliers to the emerging countries after 2004.
- The emerging markets will bid away the advanced countries for oil.
- Assuming 100 mbpd supply by 2030, U.S. consumption would be expected at 14 mbpd, down 1/3 from 21 mbpd peak in 2005.
- Rate of long term decrease: 1.5% per year, 2.3% on a per capita basis.
- Per capita, that still puts U.S. in 2030 on par with Korea or Japan today.
- U.S. is ahead of Europe per capita today.
- It’s bad, but not the end of the world.
- The most recent adaptation to price increases wasn’t smooth or graceful. U.S. consumers hung in and continued to consume even in the face of rising prices. But when demand broke, U.S. consumption dropped by all required and more-in just a matter of months.
- So stubborn resistance followed by catastrophic collapse is one model of accommodation to peak oil. Not a pleasant policy choice.
- ‘Mean reversion’ of energy consumption in the U.S., back to 4% of GDP. [Good useful chart]
- The economy cannot adjust to higher oil prices instantaneously-it takes time.
- Conservation is not the (full) answer.
- Max adjustment pace historically is about 0.8% of GDP per year.
- Implies recession or stagflation.
- Sets ‘speed limit’ on pace of conservation.
- Without supply increase, road will be rocky.
- Move natural gas to transportation.
- Predictability in prices (parity w/ oil & gas)
- Build buffer capacity to help with short-term fluctuations.
- Don’t ignore oil and gas; don’t be a isolationist–oil will affect the global economy, national and energy security.
- Work with our partners–including the Saudis–to help buffer the transition.
Nate Hagens, “Abstract Energy Gain and the Permanent Recession“
- Peak oil did not cause the credit crisis.
- Energy and debt are the primary drivers of economic growth.
- Humans and energy – a timeline [great graph of energy and population]
- Our brains were shaped by our ancestral environment which has nothing to do with our lives today. Three main drivers:
- We value the present more than the future.
- Sexual selection, moving up social ladder by competing for resources.
- We can be neurally hijacked by our feelings.
- Our belief systems–in money, growth, and so on–can affect us deeply and subconsciously. Many belief systems are hardwired. E.g., dogs care about calories, not money. Humans are a bit different-we pursue energy and resources as part of our pursuit of wealth.
- The average American consumes 231,000 calories per day, of which only 1% is used inside the body.
- As natural capital-real wealth-gets into the system, we issue debt, or virtual wealth. But we act as if the real and virtual wealth were additive and real.
- So what happened?
- Net energy gain from U.S. crude climbed from 1930 to ~1966, then went into long decline. Technology is in a race with depletion and is losing (so far). Gap opening between crude & net energy.
- U.S. oil peaked in 1970.
- Bretton Woods 1971
- All-time peak in real wages 1973
- Financial profits were 16% in 70s, 20-30% in the 80s, and 41% since then [good chart!]
- [Several charts on outstanding debt, household net worth, mortgage debt vs. equity as a % of home value etc.]
- How much debt was added relative to energy consumption? Went up sharply starting in the ‘80s.
- Over the past 50+ years, two components supported growth: energy and increasing money supply (=debt). Today, return expectations put unrealistic pressure on global growth requirements. In U.S., a 1% return expectation requires 5% (real) GDP growth per annum. We cannot pay back the debt we have accumulated.
- Economic recoveries will be met with higher energy prices and more decline, which will be self-reinforcing. Stair-stepping of price and GDP as volatility continues. Energy may not be worth more in nominal terms as we continue to try to throw printed money at the problem.
- [Good chart from Samuel Foucher.] If demand peaks due to debt bubble, investment in projects may decline and supply will not materialize.
- If debt gives us an erroneous signal over and above real wealth from natural resources, we might have a skewed distribution, resulting in a steeper decline on the back of the bell curve.
- Debt overshoot caused us to borrow from future affordability of energy and natural resources.
- We are likely in the late stages of the majority believing in fiat currency…
- How far is global debt disconnect from affordable future flows?
- Q: How do we deflate debt, and how far do we have to go? Hagens: Some believe that our government wants to try to deflate our way out of it. I don’t know how it will be deflated. If we made fusion work, we might have the energy to do it. But it seems unlikely.
- Hirsch: I used to run the U.S. nuclear fusion program, and I would bet my money somewhere else.
- Q (Charlie Hall): I don’t know how we can physically pay off all this debt. The money that’s owed is far more than would buy all the remaining resources on earth.
- Hagens: Basically agree [couldn’t capture his actual words]
- Q (on GDP): Hagens: Anything said about GDP should be +/- GDP because of hedonic adjustments and so on.
- Kopits: It’s reasonably OK for accounting purposes.
- Q (Skrebowski): Is the rest of the world basically similar in terms of portion of GDP limit? Kopits: [believes so]
- Q: How will peak oil affect students’ ability to repay and get student loans?
- Hagens: It’s a good question. Five years ago I might have given a politically correct answer, but now I will say that it’s basically self-exterminating debt. But our education system is really messed up because it doesn’t teach biophysical economics and so on, and it now functions as reinforcement of the existing dysfunctional system. I think the best schools with the big endowments are going to be fine, but tertiary (state schools etc.) will have a tough time. I think the whole education system is going to change.
- Backer: How many more finance industry graduates do we really need? Where I come from, most people can do anything. But we’ve lost a generation of people like that now, so many people don’t know how to do anything useful.
- Kopits: Right now we’re on a narrow ledge: Houston needs $75 oil to keep drilling but the economy goes into recession with oil at $80. There will be more risk associated with the economy.
- Hagens: I went and got a finance degree and an MBA because it was the thing to do, and didn’t care about learning until later. I just don’t think people going to grad school and so on is the right model anymore.
- Q: Can we use peak oil to reprioritize public spending, e.g., stop spending on roads and put it into weatherization, things of that sort?
- Kopits: We certainly should.
- Q: How long do I have to stay in school for the government to deflate my debts away?
- Hagens: Who knows…lots of factors. The recovery needs an asterisk-it’s a paper recovery, not a real recovery. We don’t understand how to deal with long-term pain. We don’t know if the Fed will pull money out at this point, or print more like crazy. We’ll hit social growth limits before we hit resource growth limits [If I got that right.]
- Q: Was speculation solely responsible for the spike to $147 oil last year?
- Kopitz: I don’t think we have a good model for it. I suspect it’s 3-phase. Phase 1: Marginal cost of producers; 2: Prices can’t resolve supply-demand imbalance; 3: It takes on a life of its own–the greater fool theory. People buying houses for fear of being priced out of the market-emotional, irrational buying. It’s driven by consumers, not producers.
- Q: So if it’s not supply constrained, could we have $147 a barrel again?
- A: Sure! Hagens: Speculation has had an effect across the entire financial market, not just oil.
- Hagens: The real prime mover was spending well into overshoot, which began decades ago.
- Q: What if the world decides to stop pricing oil in U.S. dollars? Hagens: I’m not of the opinion that the dollar will get destroyed on its own. All currencies are in this together.
- Q: The velocity of money is slowing. Alternative energy has numerous barriers to overcome. Are we heading into deflation as a consequence of a resource constrained world?
- Hagens: We definitely need new belief systems. More energy, higher GDP isn’t making us happier. We need to change our values and be happier with less.
- Hirsch: My personal view is that with these problems, we’re going to have inflation. But we will get through these things and we will prevail!
Opened with a clip from an interview with Sadad al-Husseini (oil consultant, Dhahran, Saudi Arabia) and Steve Andrews and Dave Bowden of ASPO-USA:
- 1.5 trillion bbls reserves are very iffy. Maybe 900 billion are proven, 1.2 trillion probable and potential. We need to agree on definitions of reserves.
- There are not enough new projects in the next 5-6 years to make up for global decline rates, which are 6.5% for non-OPEC, maybe 3-4.5% for OPEC. We are going to see a shortage of capacity in the next 2-3 years. In the short term we definitely have a problem. But in the long term we have another problem.
- Ultra deepwater formations have tight composition and very high prices for drilling, then need to stimulate and fracture the source rock…these are extremely expensive projects. New projects are moving from onshore to near offshore to far offshore & deepwater. Even the new high quality discoveries are fraught with challenges that require new technologies to develop. Discoveries like Tupi come online around 2018 and barely compensate for decline of mature fields.
- Technical factors, economic factors, opportunity issues (access to new areas), general geopolitical issues…The long term outlook is not strictly technical. Yes there are other alternatives like Arctic, CTL, GTL, etc., but the global ceiling (5-6% of global GDP) may prevent exploitation of these alternatives.
- The hidden opportunity may be efficiency and conservation. Crisis and opportunity.
Dr. Marcio Rocha Mello, President HRT Petroleum, Rio de Janiero, Brazil
“Super Giant Pre-Salt Petroleum Systems recently discovered in Offshore Greater Campos Basin, Brazil”
Introduced by Vince Matthews, Director, Colorado Geological Survey
Mello worked for 24 years at Petrobras, worked on characterization of Brazil’s offshore and onshore basins. [Extended bio]
- “Do You Believe in Peak Oil?”
- West Africa and Brazil are the same-continents were separated 240 million years ago-same source of oil.
- How deep can you drill and still find hydrocarbons? Go Deeper! Four times more oil and gas reserves [if we go deeper]! The source of the oil is deep.
- Did you know there are huge oil and gas reserves in most of the Greater Campos and West Africa Basins, Gulf of Mexico, Solimoes and Central Congo Basins–deeper reservoir horizons? It took 10 years to break through the preconceptions that going deeper would not result in finding hydrocarbons were destroyed by high heat and pressure.
- Recognizing deep sources: all petroleum contain diamondoids. They are extremely stable oil components. Using both diamondoids and biomarkers you can see both the shallow and deep sources. Source rock with mature oil can be found below the “oil window.”
- [interesting chart of source rock characteristics, and “post and pre salt potential accumulations in greater Campos]
- The problem of peak oil is that you aren’t going deeper!
- The pre-salt of Campos Basin
- When the African continent separated, ocean water came in to a lake environment, and created an ideal formation opportunity for oil.
- By drilling into the pre-salt in various places along the coast of Brazil, they found numerous strikes of source rock from essentially the same reservoir.
- A massive formation (300-400 meters of pay) of oil in the pre-salt was the source rock that resulted in the earlier discovered post-salt formations.
- Source rocks are very thick and rich, and oil is trapped under the salt layer.
- [Lots of graphical geological models]
- The main reservoirs are the heterogeneous carbonate layered stromatolites and Coquinas carbonates ranging in porosity and permeability.
- API gravity ranging from 28 to 30.
- Almost all of the pre-salt accumulations are oil, not gas.
- Results suggest about 20-30 Gbs of reserves in pre-salt. Potentially 40 billion.
- Tupi is one of about 12 major reserve discoveries in the pre-salt.
- Petrobras has discovered much more oil in the pre-salt than they have admitted to.
- Brazil drills a small fraction of the number of wells that the U.S. drills.
- The pre-salt in the Greater Campos province can be considered one of the more prolific petroleum systems in the planet: up to 130 Billion bbls.
- Everything that you find in Brazil, you find in West Africa. The only difference is that Africa’s temps are a bit higher, so more gas. Otherwise, same source rock, same oil DNA.
- If West Africa is so similar to Brazil, then there should be 230 billion bbls between the two.
- In the Gulf of Mexico, there should also be pre-salt oil.
- By using satellite imaging in certain wavelengths, believes he can identify oil slicks on the ocean from natural sources. Does satellite scans every week. Then send ships to the locations of the slicks, and sense submarines to find seeps. (Essentially same way that Cantarell was discovered: via surface tracks of seeps.)
- In the GoM deepwater, many such slicks have been found via satellite.
- The post- and pre-salt petroleum system of GoM must hold up to 140 billion bbls of oil.
- 99% of all the oil in GoM is of Jurassic origin.
- In the Amazon jungle of Brazil, Solimoes Basin was forgotten after producing half a billion barrels of oil. Again, pre-salt accumulations. Solimoes holds up to 30 Gb.
- In the central Congo basin, there are Paleozoic source rocks as well.
- Only 4 wells drilled in the Congo basin. 15 oil seeps found.
- Potentially 60 Gb recoverable in Congo.
- Pre-salt of Brazil and West Africa: up to 260 Gb of light oil
- Pre & post salt of GoM: up to 140 Gb
- Pre-salt Solimoes basin, Brazil: up to 30 Gb of gas & light oil
- Central Congo basin: to up 60 Gb of gas & light oil
- There is no chance we will see the peak of oil in my generation…
- Charlie Hall: I can’t argue with your data because I don’t have it. But if you are entirely correct, you have found about 15 years worth of oil in terms of global consumption. It’s important, but it doesn’t change my view very much.
- Mello: There are 1.5 trillion bbls offshore Venezuela (plus other formations).
- Charlie Hall: I challenge you to figure out the EROI of this new discovery.
- Mello: I accept your challenge, and we are going to work on a paper on this together, OK? [Hall accepts.]
- Q: What about CO2? A: Deeper oil has less sulfur, less nitrogen, etc. I don’t have an answer.