Peak Oil – Another Perspective

While most environmentals and us that have done energy issues for along time have the perspective that the Oil, Natural Gas, and the Coal Companies are the problem. That is they want to keep burning as much as they can and that the only thing that will stop them is the severe results of Global Warming. There is another perspective that says that we are running out of those resources, in particular Oil, and that we are barely adding alternatives fast enough to offset our shortfalls in standard energy sources. Before I talk about the Bali agreements I thought I should give them their due.

Falls ChurchNews – Press ONLINE

The Peak Oil Crisis: Issues    
Written by Tom Whipple   
Thursday, 20 December 2007

As 2007 winds down, it is good time to review some of the major issues that those of us following the peak oil story are watching closely.

Depletion vs. Production is, of course, the heart of the peak oil story. Every year production from the world’s existing oil fields declines by several million barrels a day. Every year new sources of liquid fuel, new oil fields, more natural gas liquids, ethanol etc., must be found to replace the losses and hopefully to satisfy increasing demand. For the last two years, new supplies have been roughly balancing declines so there has been little growth in world production. Some day soon depletion will get ahead of new sources of oil and other liquid fuels for such an extended period that it will be obvious to all that peak oil has arrived.

The prospects for an economic recession or worse increased markedly during the past six months. In recent weeks, oil prices have been moving up and down rather vigorously on economic news — interest rates, subprime losses, government bailouts, etc. — rather than on traditional oil market concerns such as stockpiles and geopolitical threats to production. Many believe that the recent $25 a barrel jump in oil prices was largely the result of the Federal Reserve’s interest rate cuts taken in hopes of forestalling an economic setback.

Should serious economic difficulties arise from the current mortgage/liquidity problem, then a significant drop in worldwide demand for oil is likely. If a reduction in demand for oil were to continue for many months or years, then it is likely that world oil production will never grow much beyond current levels. By the time demand was restored, geologic and economic constraints on production would prevent production from ever again reaching current highs.

So much of the world’s oil production comes from around the Persian Gulf that nearly everything that happens in the region bears watching for possible impact on oil exports. The machinations of Kurds, Iraqis, Iranians, terrorists, mullahs, and numerous small states, tribes, sects and clans all could be important to the uninterrupted flow of oil to the industrialized world.

As the world’s biggest exporter and the only one that may have some spare capacity to increase production, the Saudis are worthy of special attention. Not only are there questions about the ability of the Kingdom’s oil fields to sustain or increase production over the next few years, but concerns also are arising over Riyadh’s domestic consumption of its own oil production which is increasing rapidly. Expectations that the Saudis alone will fulfill the world’s rapidly increasing demand for oil, even at $100+, will never happen.

The rapid rise in oil prices in recent years has resulted in a wave of nationalism on the part of producing countries. Contracts with international oil companies that were written back in the days of $10 or $20 dollar a barrel oil are falling by the wayside as producing nations are demanding an ever increasing share of the profits. In the past year Russia and Venezuela have essentially taken back “their oil” from the foreigners and Nigeria and Kazakhstan are on the verge of doing the same.

From a peak oil perspective, it does not matter if governments or international companies take most of the profit, but as the internationals’ role declines, so does investment and the availability of technical know-how. As oil becomes increasingly difficult to extract from non-conventional sources, partnering with ideological soul mates such as Venezuela and Belarus to help produce oil is unlikely to result in increasing production.  

With a population of 1.3 billion and an annual growth rate in excess of 11 percent, the course of China’s economy plays a key role in the peak oil story. Beijing is now a major importer of oil and products. For several years now, the Chinese have been making a major effort to secure long-term bi-lateral contracts with oil producers and have had numerous successes. It is only a matter of time before China’s demand leads to shortages in the developed world.

Given the close balance of the supply and demand for oil, the world’s importing countries are in constant threat of a sudden interruption to oil supplies. A hurricane, coup, earthquake, terrorist attack, assassination, bird flu or something we have not imagined could easily stop the steady supply of oil to the world’s fuel tanks. Although there are reserves, depending on the nature of the interruption, these could only be sufficient for a few days before serious disruptions occur. There are numerous chokepoints in the Persian Gulf where an interruption of more than a few days would cause serious grief around the world.

Nearly 40 percent or 5.3 million of the 13.6 million barrels of oil and products that the U.S. imports each day comes from Canada, Mexico, and Venezuela. We are going to have a little problem shortly because these sources of oil are going to dry up. Mexico’s biggest field is collapsing so that within ten years they will be out of the oil exporting business. For political reasons, Venezuela is doing its best to sell its oil to anybody but the U.S. and is off to a good start. If Hugo Chavez hangs in there as president for another five years the 1.4 million barrels a day we are currently getting is likely to be a lot less.

To many, Canada is America’s greatest hope to continue happy motoring for a while longer. They look longingly at those billions of barrels of “oil” trapped in the Alberta tar sands and assume that it will soon be flowing south in whatever amounts we desire. This is unlikely to happen for extracting “oil” from Alberta is turning the place into one of the greatest environmental disasters on earth. While production from the Alberta sands will likely continue for centuries, it will never reach the level to replace even a fraction of the 13 million barrels of imports the U.S. requires each day. It will not be long before the Canadian people start thinking about their grandchildren and exports will slow.

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