The Oil Drum: Europe

As I read through the 2008 International Energy Agency (IEA) World Energy Outlook, I had the distinct impression that I was reading contributions from people with completely opposite points of view. The pessimist warned that we are facing a supply crunch and much higher prices. The optimist in the report said that oil production won't peak before 2030.

This trend held in the section on renewable energy. The optimist noted that renewable energy is expected to "expand rapidly." The pessimist noted that biofuels are predicted to only supply 5% of our road transport fuel in 2030. And so the report goes, part rampant optimism and part rampant pessimism.

I guess the good news then is that there is something in there that will appeal to everyone, regardless of your outlook. The bad news? The claims that are directly opposed to your views will have you questioning the credibility of the report. And if you are like me--and note that between last year's report and this year's report they dropped their 2030 oil demand forecast by 10 million bpd--you are left wondering whether there is any credibility at all in forecasts that far out.

Report authors: Luís de Sousa and Euan Mearns

Part 3 of IEA WEO 2008 analyzes the expected impact of fossil fuel combustion upon climate change.

Page 382: As emissions of greenhouse gases build up in the atmosphere faster than natural processes can remove them, their concentrations rise. The Reference Scenario puts us on a path to doubling the aggregate concentration in CO2 equivalent terms by the end of this century, entailing an eventual global average temperature increase up to 6 ºC.

Rather surprisingly, IEA WEO 2008 does not provide any data on fossil fuel reserves and production forecasts to 2100 to back up this claim. Instead, it chooses to rely upon fossil fuel reserve figures underlying the Intergovernmental Panel on Climate Change (IPCC) models. Furthermore, using MAGICC (climate temperature model), and the default climate sensitivity constants, we are unable to reproduce the outcome of as much as a 6 ºC increase.

Using a CO2 emissions scenario based on our 2008 Olduvai Assessment combined with MAGICC, we estimate that global average temperatures may peak at around 1.6ºC above 1990 values toward the end of this century. Other climate models may produce temperature outcomes higher or lower than this.

In this analysis, Samuel Foucher (“Khebab”) and I (Tony Eriksen or “ace”) present an update of Wikipedia Megaprojects data. We also provide forecasts of future oil production, reflecting the Megaprojects data. The IEA uses megaprojects in its analysis and we reconcile our Megaprojects information to the data they provide in their report.

A wide variety of methods can be used to forecast future oil production. Each will provide different indications. Sam and I each make projections with megaprojects data, using somewhat different methods. Sam’s projections are shown in Figure 6. My forecasts are shown in Figures 8, 9, and 10. Despite our differing methods, the indications we produce are all substantially lower than the indications of the IEA.

Until quality data about production history, reserves and future development plans including capacities are obtained for fields in secretive OPEC countries, forecasts beyond 2012 are highly uncertain, regardless of the source. While quality data remain unavailable, the world's future energy security, in particular liquid fuels supply security, remains an extremely high risk.

This chart shows the IEA WEO 2008 forecast together with Sam's forecast derived from using Megaprojects sanctioned capacities and yet to be sanctioned capacities (including yet to find oil - YTF). By 2020, the IEA's forecast is significantly greater than Sam's forecast.

Fig 1 - Possible Future Supply Capacity Scenario for Crude Oil and NGL

I recently looked through news articles to see which energy sectors were being affected by the credit crisis. I was amazed at how widespread and how devastating the impact is.

There are really two closely related problems. One is reduced access to credit, making new borrowing difficult for nearly every business that requires debt. Prices for all commodities have been dropping as well. At least part of the reason for this price decline is the lack of availability of credit—many of the less credit-worth buyers drop out of the market. This leaves fewer buyers and almost the same number of sellers, so the price drops.

In this post, I examine how reduced access to credit and the concomitant decline in commodity prices is affecting energy companies.

I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil - Alan Greenspan (2007)

The Guardian had an interesting article recently on discussions about exploiting 40 billion barrels of Iraqi oil reserves.

The biggest ever sale of oil assets will take place today, when the Iraqi government puts 40bn barrels of recoverable reserves up for offer in London. BP, Shell and ExxonMobil are all expected to attend a meeting at the Park Lane Hotel in Mayfair with the Iraqi oil minister, Hussein al-Shahristani.

Access is being given to eight fields, representing about 40% of the Middle Eastern nation's reserves, at a time when the country remains under occupation by US and British forces. Two smaller agreements have already been signed with Shell and the China National Petroleum Corporation, but today's sale will ignite arguments over whether the overthrow of Saddam Hussein was a "war for oil" that is now to be consummated by western multinationals seizing control of strategic Iraqi reserves.

The subject of Iraqi oil is one which has fascinated me for a number of years, so in this post I'll outline why I believe that Iraq probably has the world's largest oil reserves - or, as Daniel Yergin once said of the middle east, it is "the greatest single prize in all history" (echoing a similar statement by George Kennan at the end of world war 2).

A backyard garden in Oregon

Over the past two weeks, I have examined the challenges facing suburbia in a post-peak world. I’ve argued (in Part 1) that financial reality will prevent us from building an alternative to suburbia, and (in Part 2) that the superficial transportation issues facing suburbia are better viewed as a much broader economic threat posed by peak oil that equally threatens urban and suburban living. In this post, I’ll look at some of the unique advantages of our present suburban arrangement—is it possible that suburbia not only won’t be abandoned post-peak, but that peak oil will act as a catalyst for the adaptation of suburbia into a flourishing, vibrant built environment? I think it’s possible, but that it will be challenging. In this post I’ll explore this possibility—both the potential, and the challenges—of creating A Resilient Suburbia.

The November 2008 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.55 MB, 24 pp).

Figure 1 - World Liquids production from January 2004 to October 2008.

The Oilwatch Monthly is a newsletter that is available free of charge with the latest data on oil supply, demand, oil stocks, spare capacity and exports. Readers who want to receive the Oilwatch Monthly in their e-mail box each month can subscribe at this weblink, by filling in their first name, last name, email adress and selecting the oilwatch monthly in the mailing list box. To finalize your subscription push the 'inschrijven' button below the form.

A summary and latest graphics below the fold.

The American Physical Society has just released a report on improving energy efficiency in the transportation and buildings sector:

Energy = Future Think Efficiency

There are links from the above to an Executive Summary and the full report (100 page PDF). This is not just a "change your light bulbs" document, but rather a comprehensive, information-filled challenge to the status quo with regards to government inaction with regards to energy conservation. It is also not a document on energy production and future difficulties in being able to do enough of this to keep the lights on -- even with better efficiency. But it is well worth a read, with lots of data on energy use and great graphics.

Recently, two major actuarial organizations asked members to submit essays on the financial crisis. The only limitation was that the papers had to be very short--they should fit on two typewritten sheets of paper.

Since I have written in the past on the financial crisis, I took the opportunity to respond. This was my summary of the current financial situation, its connection to our limited resources, and what we need to do to solve the crisis. I never actually use the words "peak oil" and, in fact, the precise timing of peak oil is irrelevant. The issue is really the financial squeeze that occurs when resources starts to become expensive to deliver, and that doesn't really require peak oil.

Our World Is Finite

We all know the world isn’t flat. Any of us would be laughed out of the room if we built a model with a flat earth as one of its major assumptions.

We also know that the world isn’t infinite. There are a finite number of atoms in the earth and its atmosphere. The ability of our atmosphere to absorb pollutants is limited. The ability of our soil to withstand repeated mistreatment is limited. The amount of our non-renewable resources is limited.

Fossil fuels, especially oil, are a particular problem. Even though the amount of resources seems huge, the cost of extraction (in terms of fossil fuel resources, man-hours, and fresh water) increases greatly after we have extracted the easy-to-extract oil, natural gas, and even coal. Substitutes (such as ethanol and solar voltaic) are expensive in terms of fossil fuel use, man-hours, and fresh water. It is also difficult to ramp up quantities to the level needed to substitute for fossil fuels.

True to their word, the 2008 World Energy Outlook represents a significant development by the International Energy Agency (IEA) in the philosophy and methodology of their oil supply forecasts. The report attempts a bottom-up model of the world's oil production potential and even revises down estimates previously taken at face value from the United States Geological Survey (USGS). The tone of the report has also changed dramatically, with an urgent call for investment in additional oil projects to avoid production shortfalls by 2015.

Despite those significant changes, the report still relies on inflated estimates of reserves from OPEC countries, overplays the contribution of reserves growth due to technology and predicts the reversal of a decades long trend of declining oil discoveries. These are the real factors that will send oil production into decline, but at least now we have some numbers we can discuss and analyze instead of a decade of blind faith in oil market economics.