Mainstream Dutch analysts foresee oil supply constrained world

An important Dutch energy institute, the Clingendael International Energy Program (CIEP), recently published a report that confirms most of the conclusions about the oil market reached over the years at the oildrum. That the floor price of oil is now 110 dollars per barrel, that supply will not rise beyond 100-105 million b/d in the coming decades, that there will be an oil supply constraint for most of the next decade, that there are insufficient quantities of alternative fuels available and that thus demand destruction is inevitable. CIEP is especially important because it is endorsed by amongst others BP, Shell Netherlands, Total E&P Netherlands, three Dutch Ministries, Wintershall, Vopak Oil Europe Middle East and several Dutch energy companies. The report in english can be downloaded here (PDF 2.8 megabytes, 108 pages).

'This outlook of new scarcity is now exacerbated by the fact that not only available supply will determine what amount of demand can be satisfied; it will also bring about a new allocation of the available oil due to a lack of adequate supply growth compared with demand. In practice this means that demand rationing will be required in the OECD countries and particularly in the US, in order to accommodate growth in the newly developing countries, notably China and India. Different fuel prices for end-consumers in the different countries will be the dominant factor behind this ‘oil redistribution’. (emphasis mine)

The reports main conclusion about the current oil price:

Until recently, the oil price was largely underpinned by the marginal cost of the last barrel needed to match demand, with some political and economic conjuncture mark-ups or -downs. This currently puts a structural floor of $110 a barrel under the oil price (WTI). The largest part of the $110 a barrel floor (about 70-75%) is determined by the marginal cost of supply, currently around $80 (building block 1). The remaining $30 a barrel (or 25-30%) is determined by supply-demandfundamentals, a short-term risk premium, and long term scarcity and policy (building blocks 2, 3 and 4).

Prices could very well according to CIEP continue to breach new records because of a shift in pricing mechanisms from marginal costs to government set pricing:

If prices are indeed heading towards $200 a barrel in 12 months’ time, or for that matter even to $150 a barrel, other drivers will gain prominence over marginal costs as the main driver. In that case OPEC will have accomplished a long-held wish: oil will then be priced at its real value in the OECD economies, determined in the NYMEX and ICE oil futures markets. Such a new price regime, pricing oil at the “User Value”, is brought about by the view that the current supply and demand imbalances are structural and that these imbalances could worsen in the next decade. In such an environment, pricing at the User Value implies that oil prices will no longer follow the rules of commodity pricing (where prices tend to the marginal cost of supply with some conjuncture mark-ups and -downs), but that prices are determined by the end-consumers in a framework set by governments. Pricing at the User Value implies that the oil price will not necessarily invite new supply into the market, since income requirements of producing countries will be easily met through price rather than volume.

On supply and demand CIEP bases itself mainly on the World Energy Outlook 2008 from the International Energy Agency that is due for coming November. It is very likely they have already seen a preview of the report:

In every likely scenario, oil remains the dominant resource for meeting global demand in the next few decades because there are no real alternative transportation fuels currently available in large enough quantities to replace oil. A new supply/demand outlook of around 100-105 million b/d for 2030, most likely to be published by the International Energy Agency (IEA) in their next edition of the WEO in November (versus 116 million b/d in the WEO 2007), will have far-reaching implications. It basically means that world oil (and liquids) supply can grow at only half the rate in the next 22 years than earlier anticipated (circa 13-18 million b/d versus 29 million b/d).If correct, it implies that the world will have to go through a period of substantial demand destruction – in the order of a half to two thirds of today’s oil demand in the US, or up to 100% of the oil projected to be imported by China in 2030.

The 100-105 million b/d for 2030 are explained as follows:

OPEC has the potential to raise its liquid output towards 50 million b/d, mainly by adding heavy, difficult oil and NGLs. Together with non-OPEC, this is expected to lead to a plateau of around 100 million b/d. For how long the plateau production can be held before decline sets in is a topic of debate. Peak-oilers forecast this to happen quickly after 2015, whereas the more optimistic advisors do not see this happening before 2030. In our view, the latter is (much) more realistic, with the plateau to stretch out until at least 2030, assuming that new fields are developed timely in the major resource holding countries. However, it is a fact that several OPEC countries are now facing serious declines from existing fields as well. Particularly Iran and Venezuela are struggling to maintain production because several of their more mature fields show decline rates of 10- 15% per annum. But here it is noted that most of the challenges they face have their origin in the behavior of their governments rather than in nature.

Given that this might prove to be too optimistic some caveats have been inserted in the supply outlook:

A possible quickening of underlying oil field decline rates at the time deepwater oil production (circa 10% of global oil supply) goes off plateau in the first half of the next decade could make this pessimistic supply
outlook even worse.But even with stable observed decline rates, the industry still has to bring twice as much new oil and liquids onto the market in the next 22 years than what they have done over the past 22 years – around 80 million b/d
if supply and demand were to grow to 116 million b/d by 2030 as per WEO 2007, or 70 million b/d in case supply can’t grow much further than recently suggested. Steeper annual depletion rates in the coming decade will imply that more
new oil will have to be developed to offset diminishing supply from existing fields and to meet projected demand.

Of course there are also some 'optimistic' and to my opinion unrealistic notes about investment that will never take place because of geological reasons (the fields are not there) as well as political tensions:

Quickly rising oil prices would not be necessary if OPEC and a few other major oil resource holding countries, notably Russia and Mexico, would accept responsibility for balancing the market and take actions accordingly. At the same time, the major oil-consuming countries would have to provide security of demand to the oil producers if they commit to investing in the additional production capacity.The fact is that around 8 to 10 million bbl/day of medium-priced oil is available in these countries in addition to what is currently under development, but this oil cannot or will not be developed and produced for political or institutional reasons or due to demand uncertainty. Should such oil become available, global oil demand could be met for the entire next decade without rapidly increasing oil prices and without the challenge to global economic growth. Oil prices would still (need to) rise, but would do so in a much smoother and more controlled way.

Most surprising to me is the sense of realism at the end of the report about the response to an 'oil supply constrained world':

What is generally not very well understood is the vast complexity and scale of the oil industry that currently produces 84 million barrels of oil every single day. Given this magnitude, any change, any replacement of oil by an alternative fuel will take a long time before it can make any realistic impact. Whilst not different than in other industries, it often takes decades before a new innovation is sufficiently diffused as to affect productivity, and in the case of oil, to really impact supply and demand, and hence price.

'Being unable to force OPEC, Russia and a few other major resource holding countries to change their (national interest driven) policies, the OECD consuming countries have no alternative than to work even harder on conservation and innovation with the objective to achieve a sustained reduction in the rate of demand growth relative to the rate of economic growth, and on developing their most expensive unconventional oil reserves and substitution. The alternative is stagnation; a reduction in the rate of economic growth as supply constraints become binding to overall economic growth.'

In parallel with the OECD countries accommodating the economic growth of emerging economies, the latter countries have to work away their oil product subsidies without triggering a jump in consumer price inflation, in order to improve energy efficiency and to reduce world oil demand growth. The alternative is that new and old oil consumers end up in a fierce competition for scarce oil supplies at much higher price levels, with the risk of triggering a deep and prolonged recession and possible geopolitical tensions.

There is a lot of additional interesting analysis in the report itself that is well worth reading. For the Dutch this report means another major wake up call, given that the media was all over it today with a front page article in one of the bigger newspapers, several radio-interviews and even an item on the Dutch financial television channel. It is becoming harder for politicians to not notice the message that something needs to be done, not in the future, but now.

Giving Credit Where Credit is Due

I thought TODDERs would be pleased to know that you are being watched/copied/referenced in analysts’ research such as UBS investment banks. I have seen a lot of TOD reference in expensive subscription news letter such as "What I Learnt This Week" ($20,000 per year).
Leanan, you may want to chase these people for some support $$$ .

100 mbpd? I simply dont see it. Peak in 2030? And they simply do not understand the scale of China. It is absolutely ridiculous to assume that China would be at such a low consumption level in 2030 (it is the same as the IEA forecast I presume). What are their economic forecast for China, because basically they are predicting a China collapse with their extremely conservative Chinese consumption figures, its the only way that China will consume so little with their 2030 100 mbpd global production forecast. So they should explain why they think the Chinese economy will see such extremely low consumption figures.

We're at the greatest demand boom in human history, and all reports simply fail to get it, whether it is China, the Middle East or even Russia. Russia will see a massive consumption boom, but all reports I've seen basically just state that Russian consumption will stay flat, it won't increase anything. What a joke.

The price bidding seen over the past couple of years is just a warmup. It is time to tell people that a huge chunk of the North American and Western European consumers have to be pushed off the road through sky-high prices to make room for the relentless demand boom coming from consumers in the rest of the world that is just about to drive on to the road.

It is absolutely ridiculous to assume that China would be at such a low consumption level in 2030

Hidden deep within the footnotes is the assumption that by 2030, all Chinese are vegetarians

Yeah, I guess that must be it.

I havent read the whole report yet, but it seems rather right-wing to me, am I being biased here? They talk much about Iraq and rants about those pesky "nationalistic chinese people" who think they should be given a fair share, although the report do try to balance it by saying that the US is equally to blame for its "unsustainable extensive" oil use. So the 2 barrel a year Chinese (same as the average Guatemalan) are equally to blame as the 25 barrel a year American. Ludicrous. Its interesting why no report really puts the Chinese demand in perspective, but always tries to imply that the chinese are huge gas guzzlers and that they should start to reduce their excesses...

Peak in 2030?

Of course, our middle case has the top five net oil exporters approaching zero around 2031. At the Saudi's current rate of increase in consumption, they would be consuming about 12 mbpd in 2031, versus their 2005 total liquids production rate of 11.1 mpbd.

Well, I think that is much more reasonable. The russians have most likely peaked their exports already, while the saudis have perhaps a couple of more years to go at best. I think it is more reasonable to project future consumption by looking at per capita annual consumption of other countries at different income levels/stages of development. Everything points to sharp increase in the Russian consumption, perhaps up to around 5 mbpd in 2020. Their income level by then, and their price structure of refined products would imply that. It's a low population density country as well which points to more oil being used. Regarding Saudi, it is harder to find countries that are comparable simply because they are such huge per capita consumers already. I cant imagine the average Saudi gobbling over 100 barrels a year in 2031 though, although their diversification plans away from oil income certainly points to sharp energy increases.

I agree that it is highly unlikely that the Saudis will show a +7.2%/year rate of increase in consumption for 26 years, but our middle case production decline scenario and modest rate of increase in consumption puts them around zero net oil exports in 2031. Increasingly, I think that a lot of world trade will consist of net food and net energy exporters trading with each other.

The common TOD assumption that the Chinese economy will keep booming in the face of projected oil, financial and environmental crises seems unrealistic to me.

When these reports have systematically underestimated the demand pressure from China and other countries, then they need to start to change their ways and be more realistic, that shouldn't be too much to ask for. They have been so far off on both the supply and demand side. If they think the world is heading for a depression, then yes, their chinese consumption forecasts make more sense, but that's not what they have projected for the world. It seems to me that they believe the US will still use vastly more oil than China even in 2030. That implies that they are extremely pessimistic about future economic growth in China, or they think that China will somehow be rich but use just a fraction of the oil used in similar income countries, when there's no logic behind any of these assumptions.

I think China will be a 'good boy' and not spoil the party untill after the Olympics are over and any resulting deals signed and sealed. Then it will be make up for lost time and 'Stand back, I'm comin' through'

Part One, demand loops ....

Regarding oil demand; it's hard to predict because there are many feedback loops that come into play at varying times for different reasons. The most obvious example is the drop in miles driven in the US because of a $2/gallon rise in pump prices in the past year and a half. Most prognosticators in the media and in business never considered that demand for gasoline would drop in the US for any reason.

Fooled ya!

With China, there is a 'hybrid' part- demand- part- command economy. The Chinese government will continue to try to keep a floor under growth ... but this does not necessarily translate into fuel demand the same way growth in the US drives consumption.

- It is just as hard to measure Chinese growth as it is to measure Saudi petroleum reserves. Good figures are not available. The Chinese lie. It is hard to see the Chinese continuing to have the same rate of growth when there are serious coal and fresh water shortages. The Chinese also have serious transport bottlenecks; they have built miles of freeways - which are jammed with traffic - when they needed to build railroads. Without more transport, there will be an inability to ship more goods out or raw materials in. We are at 'Peak Chinese Production' right now.

- The Chinese currency (Renmimbi) does not trade internationally. Nobody can really tell what it's worth as a result. The Chinese claim an exchange value - dollars to renmimbi - but that is an internal valueation that is set by fiat; that is, that valuation is set by the Bank of China. It is a kind of currency tax ... that has allowed the BOC to accumulate a trillion dollars. Nevertheless, any measure of China's economy by means of the value of its currency is an abstract exercise.

- The Chinese buy oil with American dollars it receives from its manufacturing sector in the currency exchange process AND from the influx of 'Hot Money' which is cash from hedge funds, investment banks and institutional investors seeking short- term yields. Much of this hot money is excess liquidity produced by the US Federal Reserve as well as dollars sold into the currency markets by other international players for various reasons. The Chinese reserves of dollars and the hot money are a distortion in the pricing mechanism that is also hard to measure.

- There is little relationship to the value of the dollar reserves held by the Chinese and the value of Renmimbi. The Chinese are using dollars as 'Monopoly money' because there is no other demand requiring a substantial outflow of dollars, leaving the Chinese to do with dollars as they wish. This spent on petroleum would be 'virtual demand'. I suspect these Chinese dollars are driving the futures exchanges. If, for some reason, the Chinese need dollars to sell they would unwind their futures positions. If they have a large position and the demand for dollars great, the result would be a significant drop in crude price even if actual demand on the ground in China remained the same.

- An outbreak in violence in western China, for example, would increase the value of dollars. Under this circumstance, the dollar might become very strong and the Chinese encouraged to sell dollars at a good price ... but petroleum valued in dollars would become proportionately cheaper. All this while physical demand in China remained level. At the same time, a large outflow of Chinese dollars into currency markets would tend to depreciate the dollars' value because of supply and demand. The different feedback loops make demand prediction difficult.

- The Federal Reserve is working as hard as possible to prevent a 'grand mal' debt deflation in the US ... they are doing this by flooding the eoconomy with liquidity. This process exports inflation. Increased consumption in OPEC/Middle East countries is funded in depreciating dollars. This is one reason why Saudi inflation is running 12% a year. Six percent of their own plus six percent of US inflation inherent in every buck.

All of the above create feedback loops that effect demand. For instance; if the dollar loses more value, the producers may require payment in other currencies, such as the Iranian demand for Euros from their European customers. Since Euros aren't a big part of Chinese currency reserves, the Chinese would have to buy Euros. This would put a value on Renmimbi ... since the Chinese are experiencing their own inflation, the Renmimbi would lose value too ... it's a matter of supply and demand. There are just not that many Euros out there in the currency markets. The result is; either the Chinese lose 'wealth' through the devalueation of their currency (priced at the wellhead) or they lose wealth through the currency exchange.

The Chinese alternative is to support the dollar ... which they are doing right now, by buying US Treasuries with dollars.

The bottom line; spending money on money is not spending money on petroleum.

One of these days the idiots in charge of the US government will figure out the stranglehold the US has on the oil producers and act accordingly. Since the idiots in charge gave us 'suburbia' I really doubt anything will change from a policy standpoint. Oh, well ....

An outbreak in violence in western China, for example, would increase the value of dollars. Under this circumstance, the dollar might become very strong and the Chinese encouraged to sell dollars at a good price ... but petroleum valued in dollars would become proportionately cheaper. All this while physical demand in China remained level./b> At the same time, a large outflow of Chinese dollars into currency markets would tend to depreciate the dollars' value because of supply and demand. The different feedback loops make demand prediction difficult.

I don't understand what you mean by that... IF the Chinese dump US dollars in large amounts in the international markets, then there is a huge possibility that the US Greenback would collapse. It is a fiat currency, and has no backing whatsoever. The FED has been printing money and bailing out stupid institutions like there's no tomorrow... There is already a problem of too many dollars, and the Chinese are protecting the US from imminent collapse...

Mudbucket: I looked for "What I Learnt This Week" but couldn't find it. Got a link?

In practice this means that demand rationing will be required in the OECD countries and particularly in the US, in order to accommodate growth in the newly developing countries

I've got to wonder how rationing solves anything other than misallocate resources that then have to be reallocated by the black market.

IMV by "demand rationing" they really mean "demand destruction", which can be brought about by high prices, recession, or actual rationing.

And whether there is misallocation of resources or not is in the eye of the beholder. If someone in the Titanic had known future events several days in advance, he would have probably built a raft out of the furniture in his room. An unaware passenger would have viewed that course of action as a gross misallocation of resources (until sink day, i.e.).

Regarding this issue, I've submitted the following comment to Paul Krugman's latest blog post "The Rogoff doctrine" (no idea whether PK will filter it out). Probably it's just waste of time, but I've also posted similar comments lately to other economics blogs (such as comments #5 and #67 here), out of a feeling that most Hubbert's Peak-aware voices are just preaching to the choir.

Professor Krugman,

As you said, just bringing the relative price of the limited resource to “trend” is definitely not enough reason for reducing employment of labor and capital. The real reason is that oil is limited not only in the sense that its global extraction rate cannot rise as desired (hydroelectric power is also limited in that sense), but also in the sense that it is exhaustible, which implies that its global extraction rate will inevitably peak (most likely in the 2008-2013 timeframe) and relentlessly decline thereafter. Same for natural gas and coal (and high-grade mineral ores too). This fact, when viewed in conjunction with the essential roles fossil fuels play in modern society (as both energy sources and raw materials), leads to the conclusion that the only safe path forward ("safe" meaning minimizing the likelihood of catastrophic societal collapse) is to reserve fossil fuels for essential uses and start a massive program for implementing renewable energy sources (not corn ethanol!).

This approach was stated by M. King Hubbert in his 1976 paper "Exponential growth as a transient phenomenon in human history": "It appears therefore that one of the foremost problems confronting humanity today is how to make the transition from the precarious state that we are now in (based on the use of fossil fuels) to this optimum future state (based on the use of renewable energy sources) by a least catastrophic progression. Our principal impediments at present are neither lack of energy or material resources nor of essential physical and biological knowledge. Our principal constraints are cultural. During the last two centuries we have known nothing but exponential growth and in parallel we have evolved what amounts to an exponential-growth culture, a culture so heavily dependent upon the continuance of exponential growth for its stability that it is incapable of reckoning with problems of nongrowth."

Thirty years later, however, the world does face physical constraints: as shown in a recent article by David Cohen, one of the sharpest Hubbert's Peak-aware analysts, today a wind farm construction plan of the scale recently proposed by Al Gore is simply unfeasible because of PHYSICAL constraints, those of steel production being the foremost. Should we then keep wasting time and directing those resources to further construction of suburban McMansions?

And there is a simple model for the current situation: the case of Easter Island, majority view (i.e. not that of Professor Terry Hunt, who thinks that deforestation was caused mainly by rats and not human activity). And an important difference to keep in mind is that in Easter Island they had the chance to restrain tree cutting to match the reforestation rate, whereas now we don't have that possibility with fossil fuels.

Didn't our own Jerome estimate Gore's heavenly mills could be built with but 1% of steel production? I imagine at least that much has already been freed up by the partial collapse of the aircraft and automobile industries - which will be moving to composits within a few years anyway, since weight has so much to do with fuel consumption, and composit tech's getting much more affordable.

1. Please do provide a link to where Jerome lays out his calculation in detail.

2. Airplanes aren't made of steel.

3. To make a wind turbine it takes 137 tons of steel per MW

calculation: data source
3MW wind turbine consists of:
tower: 275 tons
generator: 5.3 tons
gear: 22.5 tons
frame, machinery and shell: 31.5 tons
foundation (rebar): 78.6 tons
total: 413 tons of steel

I'll leave working out the rest as an exercise for you.

Sincerely

- Ransu

Taxation is the main form of demand rationing. Europe's policy of demand rationing has been, arguably, very successful. Compared to the US, europeans make do with half the energy slaves.

Good for Europe. You get a gold star.
Now what about countries that subsidize fuel prices well under market. What are they doing for demand?

In this context, please read this excellent piece of fiction from Boeing.

http://www.business-standard.com/india/storypage.php?autono=329502

"Boeing projected a demand for 1,001 aircraft from 2008 to 2027, which is worth more than $105 billion at current list prices of aircraft around 10 per cent more than its last year's outlook for 2007-2026, which stood at 911 aircraft" This is just for India.

Not sure what their forecast of oil supply and price are for 2027. Maybe they believe in abiotic oil.

This morning I also heard the words "resource constraints" for the first time on CNBC. There was this Indian chap talking to the hosts. he said that the minute there was reasonable growth, there would be resource constraints. So there would have to be lower growth to keep prices of commodities in check. This was in the context of yesterday's $5 jump in NYMEX crude. The hosts clearly were not too happy and chose to ignore those two words.

In the meantime, the diesel crisis in Bangalore has eased off thanks to copious rains (reducing the need for genset usage). But it gave many of us an idea of what is to come.

Srivathsa

There were at least two Boeing engineers at the 2007 Houston ASPO-USA meeting.

That is the problem. No one listens to engineers because they tend to be grounded in physics and realities.

The marketing folks and the top executives don't want to listen to realities. They see them as excuses not to achieve targets, etc.

Srivathsa

"Boeing projected a demand for 1,001 aircraft from 2008 to 2027..."

That is probably 1,001 per year over the period, Boeing world-wide.

The cooperation prayed for in this report is GONE per the collapse of Doha globalized trade(yesterday), so in effect
this very well written, thoughtful document is probably, already (unfortunately) ...trash.

The alternative would seem to be the imminent collapse of the international oil system and a rush to develop bi-lateral agreements, spheres-of-influence and the other relics of the 19th century.
And that means war(s).

I have no idea how this can be avoided.
Should the US be in it? Do we have a choice?

The collapse of the Doha round of trade talks does not bode well for the world to withstand the coming financial shocks which are born out of the oil shock.

I guess the USA (and EU)will need to reconcile agricultural protection / subsidies and recognize China and India have absolute priorities. I wrote the following in 1997 - a long 11 years ago - in a chapter on biotechnology and agriculture. I would add that we know China in particular still feeds very large numbers in situ in the farm village, sometimes quite well and in many places at (for us) astonishing carrying capacities per hectare.

... Very large countries, such as Brazil, China and India have large often advanced industrial sectors but also have much larger hinterlands with a lot of subsistence or small-scale or marginalised agriculture and will have to balance not pauperising much of their rural population with the need to feed urban centres from cash-based agriculture while increasingly competing in the global economy with agricultural imports and exports.

Two years ago the EIA based all of its supply projections based on demand, only recently have they started looking at the supply issues. Politically, The EIA is revising down their forecast, but they must do so gradually, because a sudden jump to pessimism/realism would strain their credibility. I would bet my life, the next such EIA forecast goes down even more. Also I bet they know this too, they just can't do it all at once.

After reading through this report, it's clear that a lot of thought went into it, and a lot of thoughtfulness. Many of the points are exquisitely well made. They distinguish between competing pricing regimes, differing business models that are coming into play, the past/present/likely future impact of such factors, etc. As far as it goes, it's an excellent analysis.

This is what makes it so appalling that, underlying their projections is the notion that there is plenty of oil to be developed - if only this or that actor would 'step up to the plate' as they put it in one spot. The analysis done insists that the turmoil to come will be primarily a near term, next-decade problem - and the clear assumption is that after a period of turmoil, things will settle down. Yet nowhere is there any argument, logic or data that supports this notion that 10 or 20 years out, things will automatically just - get better.

Amazing to me that thoughtful people would simply assume that the elephant in the room wasn't, in fact, there. As though it were self evident that this were a geopolitical challenge regarding proper development and management of oil resources rather than a geological one regarding fundamental scarcity.

Although the report in this article is positive from the standpoint that there now seems to be agreement on the concept of Peak Oil, there is a huge distance between their projections (110 mbd, plateau in 2030) and those expressed by most on TOD (90 mbd, in 2010). I'm approximating an average view on TOD, which may vary depending on the person.

So we have a 20 mbd, 20 year difference in Peak oil projections here, which means we can either continue to have an expanding world economy or there is only a very short window of opportunity to convert to alternative forms of energy production.

Risk management dictates erring on the side of the latter.

But even with stable observed decline rates, the industry still has to bring twice as much new oil and liquids onto the market in the next 22 years than what they have done over the past 22 years

The above quote is the key, I think, and reflects the fantasy you mention above. In what set of statistics, what analysis, what FUBAR, bizarro world do they see doubling new production for the next 22 years over the previous 22? Where in the name of all that is holy and unholy is all that oil hiding?

Occam's razor applies. If it hasn't happened, and all attempts to make it happen have failed, and the remaining resources are only that much harder to extract...

wtf?

Cheers

Hello Ccpo,

Well said. Ah, to be a fly on the lunchroom wall in these big orgs as they start the final writing of these Peak reports.

I picture the lunchroom being distinctly divided into two groups:

1. Political hacks, mentally impervious to new thinking, new data, etc. Defending BAU, at all costs, in the hope of career advancement, yet subconciously highly nervous.

2. The others, who read TOD & ASPO, seething inwardly that their data and concepts are not given enough weighting in the final writeup.

The hallway vending machine dispensing stomach antacid tablets must do a booming business to these two unhappy groups. :(

Furthermore, if they are counting on all that new production to come on line in the next ten years, then given the long lead times involved it already needs to be a lot farther along than the wishing for/thinking about stage. The megaprojects list simply does not contain anything that comes even remotely close to suggesting that something along these lines might really be in the works.

Well said, Cslater8.

The United States specifically, and the West more generally, now finds itself at a crossroads. Will it choose to do what is necessary to flourish in the decades to come? Or will it instead choose irreversible decay and decline?

When Spain faced similar choices back in the late 16th century, it chose the latter. J.H. Elliott in Imperial Spain: 1469-1716 elaborates:

The physical and geographical obstacles to economic growth in Castile were admittedly exceptionally intractable. The soil was poor, the climate unfavourable, and internal communications hopelessly difficult. This meant that improvements--such as irrigation schemes or engineering projects--demanded co-operative endeavour and the investment of considerable funds. The city of Toledo, for instance, with its thriving silk industry, had remained prosperous in spite of Phillip II's transfer of the Court to Madrid in 1561; but continued economic expansion depended on its ability to improve its communications with the outside world. This could best be achieved by making the River Tagus navigable from Toledo to Lisbon--a difficult and expensive, but by no means impossible, enterprise. The work was begun with royal encouragement in the 1580s, and was completed, in accordance with the plans of an Italian engineer, in 1587. But the engineer died the following year; the engineering works proved insufficient on certain reaches of the river; and the navigation of the Tagus was eventually abandoned in the last years of the century.

The abandonment of the Tagus navigation scheme offers a striking local example of a national failure. It is true that the unexpected extent of natural obstacles in the river made the undertaking much more difficult than had originally been expected; but ultimately this was a human, rather than an engineering failure. The project was opposed by mill-owners along the river bank, and hampered by the imposition of tolls and dues on the traffic. But it seems that the decisive reason for the failure of the scheme was the constant opposition of the city of Seville, which saw in a navigable Tagus a serious threat to its own trade both with Toledo and with Lisbon. This was sadly typical of the reaction to any important project for the country's improvement. In Catalonia, for instance, plans for irrigating the plain of Urgel were sabotaged by merchants who were dependent for their livelihood on the continuation of grain imports from Sicily. Seville itself never built the bridge it so badly needed over the Guadalquivir, and it failed to tackle the increasingly serious problems of the silting up of the river, which was finally to destroy its commercial prosperity. The reasons were similar to those which had wrecked the Tagus navigation scheme: a reluctance to invest money in public works; personal and muncipal rivalries; and, ultimately, a deadening inertia, which crippled both the capacity and the desire to act.

Wow, does that ever sound hauntingly familiar wrt the USA today! Thanks for sharing this.

Those who fail to learn the lessons of history. . .

Notably, TODAY's Spain is an almost exact scaled-down model of the current US situation.

It can be seen from the following article:
http://spaineconomy.blogspot.com/2008/07/what-is-risk-of-serious-melt-do...

If time constrained, start reading at "So how did Spain get into this rather precarious situation?"

What a great post DownSouth! I think you have captured what will pretty much happen now. The question is will there be any countries that act differently than Spain once did? The US could follow the Gore lead and potentially do something positive. Will it happen? Germany is building a lot of wind infrastructure to support their grid. I think their railraods are in good shape. Does Germany feed itself? Could it feed itself? I think Germany may even be in negative population growth. Are there any countries in better shape than Germany? There is a growing movement toward sustainability in Northern California but I think not with an energy grid. Some countries have food security but lack energy security and stable populations.

a deadening inertia, which crippled both the capacity and the desire to act.

Good article to post DownSouth. On the above selected bit, possibly this could be looked on in the positive light that what the world need now is the development of a good deadening inertia to counter human energy-fed momentum?

(If you think this point of view is frivolous or without merit, possibly a day spent outside ones door sitting on the curb imagining that what is happening on that street is going on on the next street and in the next city and in between those cities and around the world all day and every day, then that tell me that we should add more energy to that business. Face it, we will use all the energy we can get our hands on - alternate energy will not be a replacement for FF, the way things stand, it will end up an addition! Are we not human, are we not devious deluded and demented, and are we not devo? :)
--------------

For a bit of additional gloom : While writing this I was watching McCain speechifying, he read all the energy lite things off of a list and then looked up and added nuclear and 'Clean Coal'. Seems he didn't need a script there.

Economic reality has also published its report.

Economic reality has also published its report.

Yeah, but nobody in a decision-making position pays any attention to economic reality reports. Economic fantasy reports are the best sellers amongst that crowd.

Hello Rembrandt,

If it is possible: could you invite some principle CIEP authors to further discuss/defend/elaborate this report on TOD:EUR?

I think a detailed, written and graphical posting exchange between them and you, Euan Mearns, Jean Laherre, Colin Campbell, and other key ASPOites and TopTODers would be fascinating for us regular TODers to read.
-------------------
Attn: SuperGoose,
-------------------
In the interest of getting greater participation from the authors of these reports:

Does TOD software have the capabilities to constrict [at specially determined times] the list of TOD respondees to a certain keypost/thread? In other words: a instant, real-time, high-level peer review?

Then, when the ASPO & TopTODer discussion period with these outside authors is over: the usual comments thread for the regular TODers is opened. We can then take the famous TOD 'meatgrinder' to the next level. :)

Is this special-time programming even possible? Thxs for any reply!

Bob Shaw in Phx,Az Are Humans Smarter than YEast?

his is a very well balanced report. I suspect that oil could be becoming scarcer

TIME TO BE AFRAID

I urge all of us, in order to get some perspective, to do a very simple backward looking projection.

I was born during WW2 so have seen a large piece of how we got to here.

In or minds let us run this entire movie in reverse. we all have our own memories of how it was. Remember that those very things which got us here will run in reverse, to a point, hopefully, where another energy road branches out for a new movie.

Back to: before electrical tape was plastic. before car seats were plastic, Before clothes were nylon, before epoxy, before fiberglass,
before three litre engines. before plastic fenders, before stainless steel knives, well before transistors, hand held calculators and computers.

A great deal of time before cell phones, GPS's, or CD's, DVD's or even Video cameras. In fact before TV.

If we do not smarten up pretty soon and stop trying to maintain our Fantasy World, with more (alternate fuel) cars, more houses, ever expanding industry, more consumer spending, we will run the movie in reverse until there are no viable alternatives.

Graham

Hi reindeer,

I too am of a WWII vintage and while I understand how you are looking towards the future with that backward glance, it is not a new energy source we need but a new conciousness. The old one will just piss new energy down the same hole.

Do a poll on site:

In the past month,

How many have used their own energy to plant anything other than hemp?
How many have used their own energy to purchase a FF energy using device?
How many are so dissolute as to use their wife's own energy to purchase that FF energy using device?

Most independent studies and analysts come up with crude oil peaking now and global liquids not far behind (crude oil peak dates given here): Matthew Simmons 2005; German based and parliament funded Energy Watch Group 2005, Kenneth Deffeyes 2005, U.S. Army Corps of Engineers 2005, David Cohen 2011, T. Boone Pickens (2005), Samsam Bakhtiari 2005, Tony Eriksen 2008, Rembrandt Kopplear 2008-2010, Fredrik Robelius 2012, Chris Skrebowski by 2011, Sadad Al Husseini, we will pump no higher, Jeffrey Brown (help me with a year), and Stuart Staniford (help me with a year).

Did I miss anyone or any corrections on these?

Even the cheerleaders for the oil producers/extractors (CERA, EIA, and IEA) have indicated that global oil production is peaking.

Interestingly, the EIA and IEA still have not given the world a specific time frame for global peaking.

Sometimes I wonder what happened to my tax dollars :(

And FEMA tells us nothing about what to do when we are so down in oil production that the highways and power grid fail in the not too distant future :(

One of the most intriguing aspects of the report was the discussion of how the pricing mechanism might change from one where "oil price was largely underpinned by the marginal cost of the last barrel needed to match demand" to one where "other drivers will gain prominence over marginal costs as the main driver."

An excellent example of how this second price mechanism works can be found here:

http://www.tsl.state.tx.us/exhibits/railroad/oil/page6.html

and here

http://books.google.com.mx/books?id=Yyo5aKGiY6gC&pg=PA90&lpg=PA90&dq=tex...

Fascinating stuff. It must drive the bubble theorists mad.

Downsouth

Thanks for this. The thought of sending in the troops to close down oil wells to curb the excessively low oil price and the licentious lifestyle is wonderful.

And an Anti-Market Demand Act!

This deserves a separate post and discussion all of its own.

BobE

I have written often here on the differences in energy content and quality between different fuels that are being considered in the press as 'equal'. I would like to see a professional analysis that uses the 100mbpd in 2030 (or 60mbpd) or a range of projections broken down by cost to get to the ultimate consumer. We can't treat old 1000-1 Saudi oil the same as new GOM oil or tar sands or ethanol which all have different costs and all have different energy properties (and many have different BTUS contents).

To just lump everything together to '100mbpd' is doing a disservice to policymakers. Think about it. That sends the message that we havce 86 today and 100 in the future so we need to slow our demand trajectory just a bit. It DOESN'T say that todays 86 might cost an average of $20 and 2030's 100mbpd might cost an average of $200 in todays dollars. I don't know what the numbers will be other than more expensive to today. Why can't such an analysis be done? (other than EIA high case showing $100 oil in 2030, etc)

That's why discussions should start including, as a course of habit BOE (Barrels of Oil Equivalent) and BOEU (Barrels of Oil Equivalent Utility.) Not only are the BTUs different, but what they can be used for and turned into are different. Hell, even shipping is different in some cases.

Cheers

'Being unable to force OPEC, Russia and a few other major resource holding countries to change their (national interest driven) policies, the OECD consuming countries have no alternative than to work even harder on conservation and innovation with the objective to achieve a sustained reduction in the rate of demand growth relative to the rate of economic growth, and on developing their most expensive unconventional oil reserves and substitution. The alternative is stagnation; a reduction in the rate of economic growth as supply constraints become binding to overall economic growth.'

Well, at least when it comes to the OECD country known as the USA, that first alternative simply isn't going to happen, except to the extent of much too little, much too late. Thus the second alternative seems to be a pretty safe bet.

I am building my own personal planning assumptions on an average decline rate in US per capita GDP of 1-2% per year over the next 50 years (I'll be dead before then). Even that might very well be a little bit on the optimistic side, even discounting the worst case doomer collapse scenarios.

I am guessing that there must be far less than one person in a thousand that has seriously considered the prospects of such a planning assumption and all that it will mean for the country, the world, and for them personally. Even I am having trouble getting my head around it. Yet there appears to be a very good probability that this is in fact the future that we will be facing. Most people evidently consider such a future to be unthinkable, but they would be well advised to start thinking about the unthinkable, for it soon may be their reality.

An honest question. Given the assumption of a 1-2% annual decline in GDP, which could then lead to another assumption of a 1-2% annual decline in personal real purchasing power, what does one plan?

What does one plan?

1. Give much thought to the security of one's employment. A relatively secure job in the non-discretionary sector paying $40K per year might be a much better bet than a risky job in the discretionary sector paying several multiples of that amount. Once you lose your job, it might be very difficult to get other employment at any wage.

1.a. Plan on continuing to work as long as your employer will let you and defer "retirement" as long as you possibly can. Plan on redefining "retirement" to mean "working at some sort of self-employment because you are too old for someone to hire you."

2. Have a plan to liquidate all debts as quickly as possible.

3. Invest in household energy conservation and renewable energy supply as quickly as possible. Arrange one's life to minimize one's need to drive a motor vehicle very much (living in a small town helps greatly), and try to make that motor vehicle an NEV as soon as possible. One needs to minimize one's dependence on FF, which are likely to continue rising in price in excess of the "official" inflation rate, if one can even continue to get them at all.

4. Invest in home food production. Put in a garden, plant fruit trees, take up beekeeping, consider raising rabbits or chickens. One also needs to reduce one's dependence on commercial foodstuffs, which are also likely to continue raising in price in excess of the "official" inflation rate.

5. For everything else, live frugally, and be actively engaged in figuring out how to live even more frugally in the future.

6. Save for the future, but invest VERY conservatively. Preservation of capital is the top priority, forget about earning yields very much in excess of the "official" inflation rate, let alone the unofficial real inflation rate. Don't put all your eggs in one basket, and hedge, hedge, hedge.

6.a. We might continue to get some Social Security and Medicare for a little while, but it is wisest to assume that in a declining economy the US gov't will not be able to sustain these programs at their current levels, and that the real value of payments received will decline over time. Thus, part of one's plan must include not spending all of one's social security benefits, but rather investing some portion in very secure savings that are hedged against both inflation and deflation, so that one will have something to offset the inevitable decline in real purchasing power of these benefits in the future. These same considerations apply to pensions, annuities and insurance in all forms, though even more so. The long term survival of any pension plan or insurance or annuity company is in serious doubt, given that their assumptions are uniformly much too optimistic. To the extent that one relies on any pension, annuity or insurance product at all in the future, some additional funds should be invested in hedges to cover the contingency of the carrier's bankruptcy.

6.b. It is not safe to assume that the U.S. gov't will never default on treasury obligations; in a declining economy, it just might eventually have to. It is safe to assume that should the U.S. default, it will do so on Treasury obligations held mostly by foreigners first; they will try to continue to honor obligations held by ordinary citizens - Savings Bonds - for as long as possible. Thus, Series I (inflation indexed) Savings Bonds are not a 100% safe investment, but they are safe enough to do most of the heavy lifting in one's portfolio. While one should include some international diversification, be careful about this; should the U.S. ever default, expect that overseas assets held by Americans will be frozen by foreign gov'ts in an effort to make good on some of their losses, so these might not be any safer than U.S. savings bonds, and maybe even less safe. US gold and silver coins are also a safe bet; they are a great inflation hedge (and an overall long term economic decline does not preclude the possibility of monetary inflation or even hyperinflation), and even in severe deflation they will still have their face value, and there would be so little money in circulation that a single gold or silver coin could still buy a lot.

6.c. "Past performance is not a guarantee of future results." The US stock market is unlikely to perform well at all over the next fifty years. Most equities should be avoided, with only a very few carefully selected exceptions for only a small portion of one's portfolio. Value investors will do better than growth investors, but might still be net losers in the equity markets.

Even all of that might not be enough, but it is a start. Do all of the above and you'll definitely be better off than 80% of the US population; it might not be realistic to hope to be much better off than that.

4. Invest in home food production. Put in a garden, plant fruit trees, take up beekeeping, consider raising rabbits or chickens. One also needs to reduce one's dependence on commercial foodstuffs, which are also likely to continue raising in price in excess of the "official" inflation rate.

Where are you going to do this in Kunstler's urban utopia, where housing is stacked 20 units deep? :-)

I have no idea - I don't live in a city, but in a small town. The above hopefully will work for me. As for city dwellers, they will have to solve their own problems.

Make friends.

That can help, but remember that most likely your friends will be having their problems too. Mutual assistance is great, but your friends are going to have to see it benefiting them at least as much as it benefits you. People looking to other people to do for them what they should be doing for themselves will definitely find it very difficult to make or keep friends.

What is so sad in all this is that even the pessimists are way too optimistic. We will never reach 100 million barrels per day and there will never be any long plateau other than the one we are experiencing right now. And there are not an additional 8 to 10 million barrels per day to be had from Mexico and Russia under any circumstances.

They expect exports from Russia to stall for a couple of years. Highly unlikely. They will likely fall for the next couple of decades before they disappear forever.

Ron Patterson

Using the latest revision of the Russian export duty on oil, that comes into effect tomorrow, 01 AUG 2008, I have been trying to get a sense for the effective floor that's emerging, on Russian exports. Russia has an Extraction tax also.

Every two months, Russia adjusts the Export Duty on oil. Tomorrow, it rises to about 496.00 USD per tonne. My calculation shows that's about 67.50 USD per bbl. I'm unable as yet to figure out how the Extraction tax operates. The Extraction tax is on the barrel, but, it doesn't apply to the first 15.00 USD of value. Russia, alarmed at its production stalling out this year, lifted that from 9.00 to 15.00.

I have also been trying to get estimates for lifting costs, and profits needed to make the whole effort worthwhile. I have seen analysis that suggests that even if the first 15.00 USD of value of a bbl is not taxed, that the State is currently taking about 90% of every exported bbl, via combined Tax, and Duty.

I have a current quote on Russian Ural blend at 123.00. If we take the new Duty of 67.50, and add very optimistic lifting costs of only 15.00. we have already taken 82.50 from the bbl. Analysis of the Extraction tax, even now that it's lighter, says another 28.00 comes out of the bbl. (although I do not believe I have the calculation of this tax correct).

The bottom line is that the barriers to export are so high, I think these economics suggest there's a floor under exported Russian oil for sale, coming in roughly around 90.00 - 100.00/bbl.

I think I need to start blending in the cost of the increment-exported bbl, to my current cost of the incremental bbl. This is why I am using 90.00.

I would be interested in hearing from anyone working on Russian production costs, and the cost of the exported bbl.

G

Yes, a very Dutch -read pragmatic- report indeed i.e. diplomacy rules.

- Even if the conflict not triggered by oil, it definitely needs to be finished in a way that its oil potential can reach the market. pp.11

- Even if the war had not started about oil, it definitely needs to be finished for oil. pp. 25

Tiptoe through the landmines eh professor?

BTW: The 8-9 million b/d figure from Russia and Mexico is a bit misconstrued. The total amount includes increased production from Iraq, Iran, Nigeria, Venezuela, KSA, Kuwait, UEA as well as Mexico and Russia. P.21

Economists throwing money at geology… yay we’re all saved.

Oil will bring us together!

As Bush launches farewell tour, Europe warms up
The US-German relationship is perhaps the clearest example of improving ties since the Iraq war began.
"The likelihood of major progress on any significant issue in play is pretty low," says Charles Kupchan of the Council on Foreign Relations in Washington. "But US-European relations are coming around. If you told me three or even two years ago that Bush would go to Germany in 2008 and get a positive response, I wouldn't have believed it."

Bush touches down Tuesday in Germany, where Chancellor Merkel will host him for dinner at a small castle outside Berlin. For much of the past six years, nearly sacrosanct US-German relations were in low ebb. Though some 200,000 Germans rallied in support of the US at the famed Brandenburg Gate after 9/11, goodwill turned to disdain after the Iraq invasion. The problem went far past the image of America, to serious and widespread disagreement with US policy on the Continent.

It was what author and longtime Europe-watcher Elizabeth Pond termed the "near death" of the transatlantic alliance in her 2003 book.

Today, however, what appeared to be an "unbridgeable gap" has been replaced by "a spirit of calm, pragmatic cooperation," says Constanze Stelzenmuller of the German Marshall Fund in Berlin. In Europe there's a "rational realization that the areas of agreement are substantial, and that the Europeans and the Americans will often, but not always, need each other."

'The West needs US leadership'

The US elections, the crisis in Iraq and Afghanistan, and worry about chaos ranging from terrorism to natural disasters to financial markets has raised anew a discourse in Europe's political class about America's role. Says a longtime German insider, "The political class realizes the West needs US leadership, despite what protesters say. Even after the US screw-up in the Middle East they feel the US is needed there."

"Under [former Chancellor Gerhard] Schröder, you did hear about Europe as a counterweight to the US, but not now. Europe is too divided," says Henning Riecke of the German Council on Foreign Relations in Berlin. "The West is a phenomenon that only works with American leadership. We can't solve Kosovo, Iran, and the Middle East without Washington."

But whether America can lead affirmatively under the next administration, say many experts here, depends in part on the disposition in Washington on the wars in Iraq and Afghanistan.

Many Germans and Europeans are concerned about an immediate US withdrawal from Iraq. "Europeans want America to stay in Iraq until a withdrawal is possible without creating a further civil war ... We are a little concerned about a withdrawal leading to chaos," says Dr. Riecke.

http://www.csmonitor.com/2008/0611/p01s02-woeu.html?s=yahw

My take :

This is a thoughtful, level-headed, pragmatic yet resolutely optimistic report. (Very Dutch.)

Their notions of international co-operation to manage the oil crunch are, I suspect, rather tongue-in-cheek, since they point out that it would be contrary to the national interests of the various actors (OPEC, Russia etc) to increase supply to help out the OECD countries.

These guys are smart. Their pricing model holds water. What is fascinating is that they studiously avoid any reference to the coming peak of oil production (don't imagine for an instant that they don's know about it!) -- they hide behind the IEA's 100Mbd prediction for 2030, but reading between the lines, this is their theoretical ceiling.

In practice this means that demand rationing will be required in the OECD countries and particularly in the US, in order to accommodate growth in the newly developing countries

I think the price alone causes demand rationing equitably. I'm not sure exactly what they meant with this statement, but I'm not going to reduce my demand so that developing countries can have double digit growth. I'll reduce my demand when the price forces me to. Price alone will cause appropriate demand destruction WORLDWIDE.

How's the ethanol in Europe? Here in the States we're embarking on a pretty serious campaign to make ethanol a mainstay in the American energy plan. I think once we do, America will be positioned to re-solidify its place atop the global economy.

Indeed. Fact is, ethanol is of the easiest solutions to reduce foreign oil imports and it's actually one that we know works. So why not give it a shot?

Are you joking?

Their concept of "User Value" is conceptually tied to "closed markets," i.e., that producers can...such as OPEC and Russia...can test the value of oil. The old "open market" regime is fading; more and more, oil production is in the hands of a few.

Important also is their discussion of SWF's, especially those in the Middle East, which are acquiring enormous sums to invest as they see fit. SWF's are not exactly transparent...in short, SWF's (including China's) may well become the financial powerhouses in the not too distant future, buying and selling companies like candy.

While they to envision an oil crunch...sometime in the next decade (as soon as 2010?), barring a severe depression (always possible), demand destruction because of economic slowdown may constrain prices...somewhat...until the crunch hits.

Interestingly enough, they view the present level of globalization "weak," that is to say that China and India, for example, have not fully industrialized. If they continue to develop at the present pace, the demand for energy (oil) will be enormous.

Oil is infinite. Hydrogen is the most common chemical element in the universe and carbon is the fourth most common chemical element in the universe.

And the Titanic was unsinkable.

Cheap oil (which is the type needed) sure isn't infinite.

Out of all the energy sources talked about anywhere in The Oil Drum, there is one and one only that offers a comprehensive solution to both Peak Oil and to atmospheric carbon. It involves zero importation, it involves the least infrastructure change, it is indefinitely sustainable, and it actually reduces atmospheric carbon.

As coal is to trees, oil is to _________

Answer: Algae (By far the greatest component of decaying seabed biomass is algae and phyto-plankton. It is the biggest component in fossil fuel oil.)

Bio-fuel from micro-algae produced in closed loop bio-reactors can replace all of US domestic oil. The projected output per acre of pure oil using bioreactors is 30,000 gal/acre/year. Ethanol from algae yields 10,000 gal/acre/year.

Not only does algae not require cropland, but it would be best to use desert in the US Southwest for the continous sunshine it would offer the closed loop systems.

To replace the 20 million barrels/840 million gallons a day that America uses (306.6 billion gallons a year)one for one would require 10.2 million acres dedicated to the purpose. That's 1/10th the land area in New Mexico - roughly the size of Maryland. If used solely for ethanol production from algae, triple the acreage.

By comparison, even the most productive cropland bio-fuel (palm oil) only yields 635gal/acre/year. It would take a multiple of all the land area of the earth just to match US consumption alone.

This is not putting a man on the moon. This is not building the atomic bomb. This is just building and equipping specialized greenhouses. THAT'S ALL. It could be set up and running in six months with the kind of national will demonstrated in the aforementioned projects.

For bio-diesel and jet-a esterization plants, the equipment needed is about that of a paint factory. Many people do it in their garages as we speak.

It can be phased in as a component in a blended fuel at first until pure bio-fuel capable fuel systems are available. Most fuel systems will accept between 20% and 40% biofuel before requiring modification. That period would act as a stabilizer, reducing gross crude oil demand. By the time the reactors were 100% online and the esterization plants running, the compatible fuel systems would be ready.

It is a net reducer of carbon dioxide. Only the liquid portion of the algae that is combusted returns CO2 to the atmosphere. The remaining solids can be fed to livestock, used as fertilizer, or fermented to produce ethanol.

There is absolutely no downside to this. NONE. It would solve every single problem reiterated in these blogs:

- Provide a 100% replacement for crude fossil oil.
- Offer a source of energy that is both
sustainable and environmentally responsible._
- Make the US potentially a net exporter of
energy.
- Offer the most economical change of
infrastructure in the shortest time frame.

Out of all the energy sources talked about anywhere in The Oil Drum, there is one and one only that offers a comprehensive solution to both Peak Oil and to atmospheric carbon. It involves zero importation, it involves the least infrastructure change, it is indefinitely sustainable, and it actually reduces atmospheric carbon.

As coal is to trees, oil is to _________

Answer: Algae (By far the greatest component of decaying seabed biomass is algae and phyto-plankton. It is the biggest component in fossil fuel oil.)

Bio-fuel from micro-algae produced in closed loop bio-reactors can replace all of US domestic oil. The projected output per acre of pure oil using bioreactors is 30,000 gal/acre/year. Ethanol from algae yields 10,000 gal/acre/year.

Not only does algae not require cropland, but it would be best to use desert in the US Southwest for the continous sunshine it would offer the closed loop systems.

To replace the 20 million barrels/840 million gallons a day that America uses (306.6 billion gallons a year)one for one would require 10.2 million acres dedicated to the purpose. That's 1/10th the land area in New Mexico - roughly the size of Maryland. If used solely for ethanol production from algae, triple the acreage.

By comparison, even the most productive cropland bio-fuel (palm oil) only yields 635gal/acre/year. It would take a multiple of all the land area of the earth just to match US consumption alone.

This is not putting a man on the moon. This is not building the atomic bomb. This is just building and equipping specialized greenhouses. THAT'S ALL. It could be set up and running in six months with the kind of national will demonstrated in the aforementioned projects.

For bio-diesel and jet-a esterization plants, the equipment needed is about that of a paint factory. Many people do it in their garages as we speak.

It can be phased in as a component in a blended fuel at first until pure bio-fuel capable fuel systems are available. Most fuel systems will accept between 20% and 40% biofuel before requiring modification. That period would act as a stabilizer, reducing gross crude oil demand. By the time the reactors were 100% online and the esterization plants running, the compatible fuel systems would be ready.

It is a net reducer of carbon dioxide. Only the liquid portion of the algae that is combusted returns CO2 to the atmosphere. The remaining solids can be fed to livestock, used as fertilizer, or fermented to produce ethanol.

There is absolutely no downside to this. NONE. It would solve every single problem reiterated in these blogs:

- Provide a 100% replacement for crude fossil oil.
- Offer a source of energy that is both
sustainable and environmentally responsible._
- Make the US potentially a net exporter of
energy.
- Offer the most economical change of
infrastructure in the shortest time frame.