Notes from the 2008 ASPO-USA conference
Lou the Frog is on vacation, so in his absence we're posting notes from How to Boil a Frog correspondent Jon Cooksey, who has been attending the Association for the Study of Peak Oil (and Gas) conference in Sacramento, California. Statements in [brackets] are Jon's personal opinions, and should only be taken seriously if they're right.
The powerpoint slides for all speakers can be found here.
ASPO-USA conference day 1 9/21/08
Track C – Analyses from the Oil Drum I
Gail Tverberg - Peak Oil and the Economy
Gail Tverberg (Gail the actuary on TOD) – an actual actuary – defined it as “an accountant who’s lost her sense of humor”. What’s the connection between peak oil (PO) and the economy? The change in GPD divided by the change in the oil supply is about 1, per Robert Hirsch – that means that as the oil supply goes down, the economy will go down.
Other broader measures may consider everything back to animals as energy sources, but you have to consider energy return on energy invested (EROI) – even with efficiency growth, the ratio still holds more or less true.
But we’re talking about the world as a whole – different countries will behave differently – and these models don’t take that into account.
Also, investment products don’t work without growth – debt cannot be paid back without growth.
They also don’t take account of the current state of the financial system (extremely iffy later), or a change in globalization. Globalization has caused growth, but globalization is now likely to go backwards, with cheap oil in shortening supply and greater uncertainty, hoarding, etc.
There is going to be a growing gap between supply and demand – oil prices rises, along with derived products like asphalt. It spreads them to competing energy sources, then it spreads to food. And none of these price changes require peak oil – just a gap between supply and demand.
If food and oil prices go up, that squeezes out discretionary spending, increasing defaults on loans, and the people who are living on the edge get pushed over it. It’s not just the mortgages – it’s the car loans, the credit card debt. Then businesses that depend on discretionary income (like restaurants, etc.) can’t pay their debt off, either – loans go bad, banks and other financial institutions start to fail.
This makes recession or depression very likely. And it’s likely to be permanent, because the oil supply will decline permanently.
So the rules have changed. In today’s growing economy, you can make promises to pay off a loan in the future that you take today, because you feel certain you’ll grow. (This includes promises like, say, social security.) But in a shrinking economy, that’s not possible – money will ultimately go to the basics (food and energy) and people (and businesses, and governments) will slowly default on their debts.
Even if Paulson and Bernanke succeed in today’s bailout – we’ll have worse problems next year – the underlying fundamental problem of energy is not being addressed.
The outcome may ultimately be a debt implosion – the FDIC, Fannie Mae, and other organizations face multiple failures, especially as they take on more kinds of debt (like the FDIC guaranteeing money markets).
Financing the national debt (ceiling now raised to $11.3 trillion to accommodate the latest $700 billion bailout) will become increasingly difficult. China is already sending signals that it doesn’t want to buy more US debt.
New strategies may be needed, like…saving up money to buy stuff. Or using current taxes to build infrastructure. Or countries demanding real goods (like grain) in exchange for exports to the US.
Independent energy companies, ironically, will be less likely to help with the energy supply shortage because they won’t be able to get the financing to drill.
The US dollar is likely to fall as we try to print money to pay our debts.
As globalization declines and imports along with them, it’ll be more difficult to repair things that break down (like appliances and New Orleans) or to build things like electric cars.
The standard of living will drop. If there’s less out there, there’s less and less to go around.
It’ll be harder to finance social security.
We may need a new monetary system that’s not debt-based – some new kind of fiat currency (this would effectively end the Federal Reserve system).
Charlie Hall asks: now we’ll print more money, which effectively becomes a tax on everyone (consumers and foreign investors alike – anyone who holds US dollars) – is that all we’re doing?
Gail – if you’re successful at printing money, you get hyperinflation. If you don’t succeed in your bailout, you get an implosion, the financial system fails, and you get deflation. Gail’s afraid we’re heading for implosion, and that the government is only hoping to delay it until after the election.
It certainly hasn’t helped to be spending our money on the military – we’re trying to make the country look good with debt.
Reporting the Oil Story – part 1
Erica Etelson, San Francisco Chronicle
To her this is an a government accountability story, whereas it’s usually framed as a story about the oil industry’s difficulties.
The Hirsch Report came out in 2005, then the GAO report a few years later, and yet there were no headlines: Government Predicts Worst Crisis in History. And yet, there were no stories at all.
When she was writing a recent article, she contacted Dianne Feinstein’s office for comment, and talked to her assistant, who had (as often happens) never heard of peak oil. So Erica sent over the Hirsch Report and the GAO report, and a few weeks later Senator Feinstein sent a letter to Energy Secretary Bodman saying, hey, what about this GAO report.
So journalists have a role to play not only in reporting the story to the public, but also in educating government in the process of asking questions.
Things we can do as journalists or citizens:
• Ask for meetings with editorial boards
• Talk to the paper’s ombudsman office – they’re in charge of taking feedback from readers (she sent the Washington Post ombudsman 10 angles on peak oil), and 3 months later their energy reporter came out with a 3 part story called “oil shock”
• Don’t forget about local media – local papers, local talk radio shows, local PBS affiliates that could show one of the peak oil movies. Local level is where things actually happen.
• Go to your alma mater – talk to professors who may be working on this, see if you can get a story in your alumni magazine
• African-American and Latino journalists
• If you can’t get to the journalists, go to the pundits they talk to – it’s actually a depressingly small group of talking heads they keep coming back to – get those people on the PO wavelength and they’ll spread the word
• When you see a great article, send it to everyone you know, including your elected officials
Bart Anderson at EnergyBulletin.com – Bart has worked as a technical writer in Silicon Valley, but has also developed an interest in permaculture. Has brought up the issue of “peak phosphorous”, which is an essential element in agriculture.
Bart’s background is in journalism – decided that PO was going to be the story of the century, so got into it full time. He’s found that there’s been a huge rise in PO awareness, and almost none of it from the mainstream media, which is not good at bringing up taboo subjects.
But by 2004, there were some good books out, and people who had been working on it for a long time (Hubbert, Kunstler, Heinberg, etc.), but no central repositories of information – no place to put up articles on the web. That’s how EnergyBulletin.com came about.
In 2005 and 2006, ASPO-USA and other organizations began to form, Post Carbon Institute got stronger, TheOilDrum.com got started. Peak Shrink (Kathy McMahon) got her PeakOilBlues.com website got going. There’s even a website on peak and parenting. The documentary “End of Suburbia” came out, followed by the Hirsch and GAO reports.
Local media (like the Cleveland Plain Dealer) started to do stories.
By 2008, the number of links on Google had exploded.
Now we have mainstream journalists, like Neil King at the Wall Street Journal, doing stories.
But has it all been successful? Well, people are talking about it, but the discussion isn’t very deep.
Much of the depth still comes from smaller sources, though, like Tom Whipple’s newsletters through ASPO-USA. A lot of the best analysis comes from there, especially the pluses and minuses of alternative energy sources and new technology.
It’s an enormous volunteer effort. Part of the reward is that it’s a fun community to be part of. It’s relatively non-partisan. It’s a welcoming atmosphere – people are glad to educate newbies. And it’s a giant on-going graduate seminar for those who like to learn.
The problem, of course, is the potential for burn-out. You’re tired all the time, spouses complain, etc. Another problem is that the readership is narrow – mainly white males in English-speaking countries.
One solution for widening the audience is to focus headlines on different related areas – global warming, economics, politics, etc.
Also helps to recognize that oil is just one resource that’s peaking – minerals in general are peaking globally. But perhaps the greatest problem is the peaking of phosphorous. There are alternatives to oil, but without phosphorous in some form, we don’t have agriculture. And yet…no headlines about that.
There’s also a tremendous uptick in women writing about peak oil – much more social and community-oriented.
Neil King – Wall Street Journal – Aware that offshore drilling is not going to solve our problems. As for Iraq – would we have invaded if they had no oil? Probably not. Did we invade solely to get the oil? Open to opinion.
The Oil Drum II
Robert Rapier – first speaker - was working for ConocoPhillips, and was not then allowed to attend ASPO conferences for fear he’d say something that would come back to them.
He started reading The Oil Drum (TOD) to find out what was going on, and found he knew more than other people did. Started writing about getting info from the energy information agencies (EIA, IEA).
EIA – his main source of data, has a relationship with them so can get info he can’t find. Have lots of energy outlooks, do good reports on gasoline pricing. “This Week In Petroleum” is a biggie for him – the weekly petroleum status reports – has the power to move markets (spot and future markets). Can find out where the US gets its oil – Canada is the #1 source, Saudi Arabia is #2, Mexico has slid to #3 because they’ve permanently peaked. Venezuela is a major supplier (#5) despite all the saber-rattling – we need them and they need us.
What they’re bad at: price forecasting. Their best year ever was 24% off. They’re also terrible at supply forecasting – they predict 120 MMB/D in 2020, and the problem is that businesses are basing decisions on these forecasts.
They’re predicting a decline in imports for the first time in 30 years, because the US is going to increase production. Won’t happen.
The IEA (Internaitonal Energy Agency) is his secondary source. Has analysts from many major countries. Has good info on renewable energy, good reports on various sectors.
He uses them for current information on worldwide production. Has the best info on OPEC – a bit more accurate than what OPEC announces itself.
Their report shows that we’ve barely built up our stocks in the second quarter of 2008. Same with gasoline supplies. So we’re so low on inventories that any supply disruption (like a hurricane) is going to cause big price spikes.
They’re getting gloomier about the outlook for supply – they’re not predicting a peak in oil supply, but they ARE predicting that demand will outrun supply, and cause rising prices.
CERA, run by Daniel Yergin - they’re consultants for major oil companies. Their forecasts of oil prices have been abysmal, yet they’re the most cited for predictions. Their forecasts of production are similarly off, though they hedge it by calling it “production capacity.” But they got gloomier in 2008 too, saying there’s a “perception” that supply won’t meet demand.
The BP statistical review of world energy is a good source.
USGS is pretty worthless as a source.
In summary: what they do well is provide data. What they do poorly is forecast, and governments make decisions based on that.
Transportation fuel is a big gaping mouth that will swallow up anything you put into it. If you come up with a great solution, keep it to yourself, because it won’t work for everybody.
Jeff Vail – an attorney in Colorado, grad of US Air Force Academy, worked for the Department of the Interior. – On geopolitics.
Will try to talk systemically.
The first source of conflict is economics – we pursue the easy oil first – not only easiest to get and highest EROI, but we also go for the geopolitically easy oil first. But the problem is, the oil that left that’s easiest to get to and has highest EROI is in the most geopolitically difficult places. But there’s a feedback loop, because places that produce oil become politically unstable (corruption, guerilla warfare, income inequality, etc.)
The most misunderstood geopolitical factor is the conflict between the state (the political structure) and the nation (the actual people in the country).
Nigeria – a villager lives in a jungle delta, has lived there as long as anyone can remember, and the state (created 100 years ago by the British) takes oil from his area and uses the money to pay for the problems of all Nigerians. The villager doesn’t care about that – he only sees that he’s not being compensated for the oil being taken from his area. Eventually both nation and state dig in, and you get violence.
In a world with dwindling energy resources, do you accept less, or do you fight for your share? If you win, who will give up their share so you can have more? Eventually you get to military adventurism: Iraq, Russia, and eventually the Arctic, among many other places.
The democratization of the use of violence has made this worse, as has an awareness that there’s a big ROI on disrupting energy supplies (blowing up a big pipeline with a cheap bomb) – and the ROI gets higher as energy gets more costly.
This takes normal conflicts and turns them into positive feedback loops: scarcity causes conflict; conflict removes more energy from the supply, which creates more conflict. So he believes that the backside of the oil curve could be much worse than the front side – the positive feedback loops could drive down supply more quickly than geology would dictate.
So it isn’t the date of peak that starts these feedback loops in motion. The key point is when we shift from an accelerating increase in supply to a decreasing increase in supply. Nobody would argue we’ve passed that point.
This is a global feedback system – conflict in Nigeria drives decisions in Mexico. But even formerly stable places like Scotland and Canada are feeling ripples from scarcity problems elsewhere – existing tensions are being inflamed.
Nigeria’s failure to redistribute oil wealth inflames ethnic and sectarian problems. But if they were to redistribute the wealth effectively, it would worsen the peak export problem – Nigeria would consume more oil internally, and they would export less.
Geopolitics can’t be “solved” any more than geology can be solved – it has to be accepted as a force of nature, with the assumption that it WILL be a problem, and we have to take account of that in our decision making. Geopolitical factors have to be taken into account along with geology, technology and economics, and are likely to make supply factors worse, and increasingly worse over time.
The military isn’t cognizant of the true extent of this problem.
Brian Maschhoff – Saudi Aramco and the art of oilfield maintenance.
Alaska North Slope production – 781,000 barrels/day – tiny compared to any potential decline in Saudi production, because it’s so huge.
You don’t “produce” oil – you deplete it. It’s not like you’re making more of it. So in what sense do you “maintain” oil wells? You drill other areas in the field, you can stimulate existing wells, or inject water.
Saudi Aramco keeps re-announcing all their future developments, but what about their current production – a black box that oil comes out of. There are a lot of inflated numbers on the heavy oil side.
Actually spends his time analyzing Google Earth satellite photos and counting wells, picking out the oil wells from the gas wells.
ASPO day 2 9-22-08
Kevn Verosub, Professor of Geology, UC Davis
Great powerpoint – will be available on the site www.aspo-usa.com within 24 hours
• The US has about 7 years worth of domestic recoverable reserves left – 20.9 billion barriers that we’re using up at about 3 BB barrels/year. So domestic oil runs out in 2015, +/- 2 years
• Maximum global production is likely to be in the neighborhood of 100 MM B/D – maybe a range of 85-110 MM B/D, doesn’t really matter. We hit maximum production around…2015
• Demand reaches 100 MM B/D (largely driven by non-US demand increase) around…2015
o Chinese demand has been doubling every decade since 1986
• So 2015 is global crunch time – global demand exceeds global supply
o [I note that his presentation doesn’t take account of declining global EROI, which Charlie Hall says is 19:1 right now and dropping like a stone, nor does it take account of peak exports, which will make “global supply” a moot term – the US is going to have trouble getting the 11-13 MM B/D it wants to import before 2015, as oil producers start to keep more oil for themselves]
• If we in North America volunteer to make the “ultimate sacrifice” and live like Europeans, who are so celebrated, we would have to reduce consumption by 50%.
• That would free up 1.5 gallons per day per person of oil, to distribute to the developing world – but there are 10 times as many of them as there are of us – so they each get 0.15 gallons additional per person per day – which raises their current share of the pie by 33%. But that still leaves a huge disparity between them and us, which they’re unlikely to accept
o Note that a lot of our current 3 gallons/day/person of oil is in manufacturing and food production – not just our driving – so reducing per capita oil consumption means driving down the standard of living generally
• If we go to GLOBAL parity – everybody gets the same amount – we in North America would have to reduce our oil use by 80%, and even the Europeans – with all their public transportation, close-built cities, etc. – would have to reduce their use by 60%. That would allow the developing world to increase their use by 100%.
o (That sounds impossible, but it’s either that, or perpetual war, by 2015, when we all start to struggle over an oil supply that’s likely to be declining – forever – by 2-20% per year.)
• People will survive this – not all of them – many will die from war, starvation, etc. – but People will survive, as will Civilization in some form. Not so sure governments will survive in their present form. Thinks that what’s coming will be transformational on the level of the Industrial Revolution. The only solution is, on a global level, bring all the best minds together and put massive amounts of money into it. Don’t know if that can happen at this point.
• Tar sands, oil shale, etc. – you’re up against basic laws of physics and chemistry – so the technological problems have to be solved, but there are also the environmental problems, none have been solved in a satisfactory way.
Jeremy Gilbert, of Barrelmore, Ltd. Formerly BP Chief Petroleum Engineer
• Becoming clear that the big oil producers (OPEC) have no incentive to increase production – why should they? So they can sell it and put the money in an account at Merrill Lynch? (The oil in the ground will hold value.)
• The countries that use most of the oil are not the countries that produce most of it. Problems.
• Saudi Arabia has actually cut the cost of gasoline by 25% over the past year – it’s their oil, so in some sense they have a right to use it.
• IEA is changing their tune – in the past, they were good at forecasting demand, and just assumed supply would match it. Now they see 3 problems:
o Geology – lack of oil in the ground
o Investment – reluctance of producers to invest in drilling (Exxon etc are using their money to pay dividends and buy back stock)
o Attitude of main producers – no incentive to produce more
• We still have “petroleum geologists” like Newt Gingrich and Henry Kissinger telling us there’s no problem – we’ll just drill more, or bash speculators, or bash OPEC – none of that is relevant
• Discoveries are only contributing about 1 barrel to every 4 or 5 that we use – we’re running a massive deficit in terms of new discoveries.
• OCS – outer continental shelf – projections have come out saying drilling there could increase reserves 20% - but that’s going to take 20-25 years to come online. It won’t help the peak, which is 7 years away or less.
o (And I add, hitting the peak in the meantime may mean that we no longer have the oil, money, resources or political stability to drill the OCS oil – we may lose the ability to get at oil that deep & difficult to produce)
• We’ll still have maybe 25% of our production in 40 years – there will still be oil – we just won’t be able to produce it at the rate we want it
• We’re fixated on the idea that technology will fix it
• We have made great strides – we can do things with seismic technology that we could never have done 30 years ago – they help us find fields we would never have found in the past. But at the same time, we NEED that level of technology just to match the historic rates of recovery efficiency. All we’re doing is overcoming unanticipated problems – all the new technology that comes up is needed just to maintain the 35-40% recovery efficiency we’ve had the in the past. (We can only produce a maximum of about 40% of the oil in the ground.) No reason to believe technology will increase our recovery rate.
• Around the world we’re drilling a lot more wells – doubled the number of rigs in the past 10 years – but we’re not finding more oil.
• 2003-2007 – over that 5 year period there were nice production increases…but in 2007, the rate of increase declines precipitously. Russian production in particular has probably peaked, at the end of 2007 – whether for geologic, political or economic reasons. Doesn’t look like Russia will grow in the way the world (and particularly Europe) had hoped.
• In the OECD countries (developed world) we are increasing energy efficiency. If we could transfer that efficiency to non-OECD countries it would be good – they are getting a bit more efficient, but not nearly as fast as us – but that’s only a solution if we have a lot of time. We don’t have it.
• When the gas price went up, it DID affect North American behavior. Consumption went down, and there wasn’t much change in lifestyle. Again, if there were time, we could reduce. But we don’t have time.
• UK & China have had gas shortages earlier this year – immediately people were in line at gas stations.
o Interestingly, there was no gas available in Nashville or Atlanta on Saturday – but it went unreported, even in those cities. Ike-related.
• The biggest problem is US ignorance of the oil supply situation – he suggests that people who take a 10 hour course in oil should get a 10% cut in their income tax.
• A large number of fields awaiting development are heavy and sour, and new refineries will have to be built to refine that oil – they’re expensive and people resist them for environmental reasons. So there will be delays in developing the fields in waiting.
• It’s not lack of money that’s causing this problem – something more than $1 trillion/year is flowing into the Middle East – so the World Bank is not the answer. The money will have to flow to those countries, but it’ll go through the UN, to address the social disorder from the problems that are coming.
• Already there are many African countries that only have power 2-3 hours/day because they can’t afford to buy crude. (Kjell Aleklett of Uppsala University says taking oil from Africa is one of the greatest thefts of all time.)
Morey Wolfson – ASPO-USA board member – Google Earth flyover on Energy
• China has added the power generating capacity of France in the past year. China has overtaken the US as the biggest GHG emitter.
• Australia – price of coal there doubled last year
• Ghawar – 280x30 km – produces 5 MMB/D…but for how long?
• Qatar – largest LNG exporter in the world
• 915 MW nuke plant is to go online in Iran in 2009 – they’re planning 6 more
• Nigeria – largest oil exporter in Africa but huge poverty and violence
• Brazil is the world’s largest exporter of ethanol, and it works because of their climate
• Venezuela – net exporter of 2.5 MMB/D, 6th largest exporter in the world, biggest proven reserves in South America
• US is the biggest consumer of corn ethanol, but the EROI is so low (if not negative) that you have to wonder if it would be happening at all without subsidies
• Powder River Basin in Wyoming provides 25% of the coal in the US
• 43 MMB/D moves by tanker. 4.5 MMB/D go through the Suez Canal. 2.4MMB/D flow through the Turkish Straits, which has been a geostrategic choke point since the Trojan War. Only 0.5 MMB/D goes through the Panama Canal, but it’s only 110 feet wide at the narrowest point – may be replaced by the Northwest Passage thanks to global warming, saving 4000 miles of travel.
• Ike, Bernanke and Paulson made for a historic week last week – made him think about how lightly we’ve treated risk
• Derivatives were supposed to diversify risk and disperse it “elsewhere”, after which the financial institutions could leverage exponentially
• LCTM (Long Term Capital Management) was a decade ago – that was the prelude
• Enron showed how fast failures can occur
• Energy lessons to be learned – risk is real, leverage is dangerous
o Most don’t grasp the meaning of PO
o Most assume it can’t happen
o Most don’t realize how fast it can happen or how savage the aftermath may be
• Hurricane aftermath
o Gulf of Mexico (GOM) production has been offline since September
o We’re down 30 MMB/D of production
o Stocks are way down
o Nobody knows how long till shortages
• We’re in danger of panic buying
• America has 220 MM passenger vehicles
o Assume average car holds 20 gallons, each with 5 gallons in it
o If everyone toppoed off, that would be a draw of 78 MM barrels
o Current stocks are 87 MM barrels – the lowest since 1969 – so we’d use it up immediately
o A lot of service stations can’t afford to top up THEIR tanks at this point – they’re on credit watch
o Note that we can’t ration by license plates anymore (odd/even) because that requires a gas station attendant – only 3% of stations have those anymore
o Simmons suggested a year ago that we pre-emptively print up rationing books, but now feels it’s too late
• We could be in food shortage in a week or less, if a panic starts. No diesel, then trucks don’t run, and supermarket shelves are empty in 5-7 days.
• There are shortages throughout the south from Gustav & Ike – this will get worse before it gets better
• If heating oil gets low it would be a disaster – we have 9-10 MM homes that depend entirely on heating oil, and stocks are at historic lows – so a few weeks of cold winter could lead to hypothermia for millions of people
• The data is absurdly skimpy on what we have in primary stocks in the US, and no data at all on secondary and tertiary stocks
• Are we flying blind into a category 6 storm? Fears the answer is yes.
• Feels the Barnet Shelf is negative EROI – not worth developing and certainly no answer to our problems
• We’re on the verge of creating booms in parts of America that have been left behind, as we start a resource boom. And recreating our energy infrastructure will be the biggest project in the history of mankind – so both of those are positive economically for the future [if we can accomplish them]. What worries Simmons is the “top off the tanks” scenario, which could shortcircuit everything.
• He believes there is zero spare capacity.
• Thinks that global depletion rate is probably at least 8%. To say that it’s 2-3% means that some places would have to have negative depletion, because plenty of places have 15-20% depletion. Cantarell (Mexico’s biggest field) had year-over-year depletion last year of 32%.
• The IEA has finally decided to let the chips fall where they may, and his inside scoop about the upcoming report (Nov. 15) is that there is no good news. It will be sobering, and will be supply-driven for the first time, rather than demand-driven.
• (Question: Sarah Palin believes that the Earth is only 4,000 years old, yet oil takes millions of years to form. Does this mean she believes that oil does not exist?)
• Thinks we should all start working at home immediately.
• Investing: assume peak oil is real – then go through your portfolio and think: what do I owe own that would be crushed by this event. Make sure you have exposure to companies like Trans-ocean, Schlumberger, etc. that will benefit from rebuilding the energy infrastructure. Stay away from the majors (like Exxon) which are in permanent liquidation.
• Are we at a higher peak than May 2005? Maybe just slightly, but those numbers are subject to revision, and expects them to be revised down. In any case, doesn’t see how we’ll ever get to 75 MMB/D of crude oil, since we’re struggling even to get out of the low 73’s. So he believes May 2005 will turn out to be the peak.
• Thinks the program coming up on peak oil this Wed will be first rate. He was interviewed for it, questions were great.
Jim Buckee, retired CEO, Talisman Energy
• Nothing will overcome depletion – not EOR (enhanced oil recovery), not bitumen/heavy oil, yet-to-be-discovered, none of it. Believes we peaked in 2005.
• Discoveries under 100BB barrels just don’t matter
• “Cheap oil is over” has become the code word from the majors for peak oil
• NGL’s will peak at about 9 MMB/D and decline
• XTL (anything to liquids) is rising but insignificant in amount, probably EROI is negative, happening only because of subsidies. Barnet is the best, and everything else is worse
• There is no opposite of a train wreck – depletion is continuous, and the infrastructure is always rusting and degrading, things are always going wrong – there’s no day in the oil business that you wake up and things have gotten better by themselves. So they’re always overcoming problems and depletion just to try to stay even.
• Exports decline faster than production – Scotland, Alberta, etc. – they consider it THEIR oil – so the US will start to experience a shortage sooner than simply when demand exceeds supply. (Per Matt Simmons: we’re lucky anyone is still selling us oil, given how shaky our currency is.)
• Gasoline taxes – US government was getting the same tax at $120/barrel as it was at $24/barrel. Nearly all the increase went to the supplier. Not true in the UK – they got a much huger share of the revenue as prices went up.
• Resource nationalism – reasons NOT to produce more
o Developing countries may not have mechanisms for spending further money
o May not want to hold falling US dollars
o Want to save oil for the grandchildren
o Want to use cutting supply as a weapon
o Are rational – they know there’s no substitute for liquid fuel in transportation, so the oil will only be worth more in the future
• Current account now for Saudi and Russia is in the hundreds of billions of dollars from higher prices
• Many of these countries are shutting out the majors – they want to produce it themselves
• Smaller indie oil companies (IOC’s) are cutting their own throats by under-bidding to get into places like Libya – one got in with an agreement to take only 13% - will never recover costs much less see a profit
• Remember that the “majors” are in fact minor – Exxon is tiny compared to the national oil companies (NOC’s)
o Not only do the NOC’s have more money to work with, but they can offer military assistance, food, etc. from their associated government
o Downside is, NOC’s can be used as piggy banks (like Pemex) so they never have money to maintain wells, etc.
o There’s also a lot of corruption in some places, bad management practices (promoting family members, etc.)
o So the real problem is they’re inefficient – the IOC’s (indies) get 3x as much per barrel (profit) as NOC’s.
• IOC’s argue that they have better expertise for difficult projects, and are aligned with the host government, as opposed to the NOC’s that can bring about neo-colonialization
• Host governments don’t want to give IOC’s ownership – without ownership, the IOC’s can’t book reserves, and hate fee for service – so IOC reserves decline
• Points out that exponential demand projections are absurd – you can’t consume what you haven’t got. Thinks oil will peak at about current levels and plateau for a decade or two – people will adjust to high prices, conserve, switch to new sources, etc., then oil will slowly decline. Even in 2050 oil will be a significant energy component.
• You’re hard put to replace liquid fuel with natural gas – it’s a good chemical feedstock, home heating, etc. But it’s not a good substitute even while we have it. Peak gas should follow peak oil by about 5 years anyway, so it’s not a plan for rescue anyway.
Jeff Rubin (CIBC) couldn’t make it, but sent a video. Was senior policy advisor at the Ontario Minister of Finance.
• Impact of triple-digit oil prices on globalization
o Suddenly distance matters. Where a factory is, matters.
o Globalization is just a fancy word for wage arbitrage – move your factory where wages or cheaper, or better yet get out of the factory business altogether and just buy the stuff from somebody else’s factory in Southeast Asia or wherever
o To accomplish that, trade barriers had to fall, but also, transportation costs had to become incidental.
o Container ships mean ships spend more time at sea than in port, burning more fuel, and also go faster, burning even more fuel
o Transport costs are now 80% of shipping costs, instead of 20%
o $100/barrel is the equivalent of tripling tariff rates - $150/barrel is quadrupling; $200/barrel is quintupling.
o So the prices of the stuff in the containers is going to increase – has already started in steel – iron ore shipped from South America to China, then hot-rolled steel from China to NY, has added $90/ton. US steel production is rising to fill the gap – transport costs have overcome wage differences, especially since (with current technology) there’s only 1.5 hours of labor time in a ton of steel.
o This will be true for a lot of goods.
Herman Franssen, IEA (International Energy Associates)
Adjusting to a High Cost Energy Economy: Winners and Losers
• Inventory of gasoline is extremely low
• OECD stocks are above the 5 year average, but most of that is outside the US
• The financial crisis has already reduced global demand growth from projected 2MMB/D to 1, and may further reduce it to 0.5. This concerns OPEC, and they want to reduce the quotas as a result, but haven’t - because OPEC is like NATO (one big bully – Saudi in OPEC, the US in NATO) and on the other end the little countries with a vote (Venezuela/Lichtenstein). If they do cut production, of course, the price will go up, inflation will increase, which is bad for the US if the US is deflating at the same time.
• But he expects less decrease in 2009 because once people cut back a little on driving, there isn’t much else painless they can do.
• The EIA thinks there may be close to 1MMB/D of spare capacity in 2009. OPEC is saying they’ll have 5MMB/D. No wonder there’s confusion in Washington and elsewhere. (The truth seems to be that surplus capacity is much less than 1MMB/D.)
• Matt Simmons is basically personally responsible for convincing Tanaka, the new head of the IEA, that there’s a serious problem.
• Information in Saudi Arabia was very compartmentalized, even when it was Saudi Aramco – people only knew about their small part of 1 field. They made sure nobody knew the big picture.
• Transportation is the driver of the growth in per capita oil use in the US – all other components have stayed stable. If you can’t solve the transportation problem, oil use in the US won’t go down.
• It’s a good thing that the end of globalization will revive the Rust Belt and so on (per Jeff Rubin), but that increased industrialization will also lead to higher energy demand as we revive manufacturing.
• The US is adding 10MM people/year(?), which translates to 8MM more cars per year
• The US is also still the wealthiest country in the world – average house is 2500 square feet, multiple cars, etc. All takes more energy.
• China will not be stopped, in terms of growth. Chinese car ownership is growing exponentially.
• We will double the number of cars on the road by 2020 (globally) – from 1BB to 2BB cars.
• If you assume 1% liquid demand growth (very conservative) as a result of population growth to 9BB, it takes you up to 130-140MMB/D
• Total has admitted that we’ll never get above 95MMB/D – first time that a major oil company has admitted that. So demand exceeding supply is only a matter of time.
• When the EIA put out its report 2 years ago, OPEC countries actually objected to the production numbers they’d been assigned – saying they’d never produce that – the EIA just moved the same supply numbers to non-OPEC countries in the following year’s report. No idea what they’ll do next year, especially after the much more realistic IEA report comes out.
• Non-OPEC may already have peaked (in its new line-up, including a country that dropped out of OPEC due to depletion)
• Middle East production is likely to plateau by 2015, and will be able to maintain that level for maximum 10 years – this from the former head of Saudi Aramco.
• NOC’s control 77% of the world’s reserves, and have many incentives NOT to produce too much oil – certainly not to an extent that it would lower the price – Russia in particular wants to keep prices high so they can have political power on the world stage.
• Equipment is aging, workforce is constrained (not enough trained people, workforce is aging), political constraints, etc. – all these things take us very close to the edge.
• The explosive event would be something like Russia destabilizing Saudi Arabia – if production there fell by half, there’d be no replacement. And in the last 7 years, we’ve come to have no visibility into that part of the world. That’s bad, because we need their oil to have the 20-30 years we need to transition to a new energy infrastructure. [Not that we’ve started on that yet.]
• The EIA projections already include the higher CAFÉ standards and biofuels, and STILL have huge import numbers out to 2030. So where will the solutions come from?
• US consumers are stretched to the limit – any politician that tells them they’re going to be taxed more for energy, global warming, etc. will be out of office right away.
Andy Weissman – Energy Business Watch
• Not just an oil crisis – the electricity and natural gas crisis could be just as severe – prices of both may soon go through the roof
• Oil only accounts for 40% of energy use in the US. Electricity and gas account for 56%
• Price of natural gas has been setting electricity prices – oil is not the driver there – but when oil goes up, the price of alternatives (gas) also rise
• Global LNG price is already near parity with oil
• Future increases in LNG supply will be mostly in 2009 and 2010, so prices may go down in those years, but by 2012 or 2013, we’re likely to start seeing shortages. So if that’s our backup source for oil, it won’t be a good one – gas and electricity prices could double or triple – could be $500 billion dollar increase in costs to US consumers – a huge shock [that would be $1,500 per capita in a year increase if my math is correct – for every man woman and child].
• We can’t afford to be wrong in terms of solving our energy problems – we can’t bet on solar, etc. and be wrong. If we’re even a little bit short, we’ll see astronomical price increases. We have to look at the potential and limitations of the alternatives realistically.
• 5 essential steps to take
o Get a far greater sense of urgency – THERE IS ABSOLUTELY NO TIME LEFT TO GET STARTED – peak date is irrelevant – the key is when supply is not growing rapidly enough to meet the needs of our economy without causing dislocations and hurting a lot of people – we’ve passed that point – poor people in the US and around the world are getting hurt
The price of oil is way down, and part of that is because poor people got priced out of the market and their demand “fell”
The lead time for most actions that could address the problem is 7-10 years – if the crunch peak is 2015, we’re already late.
o Replace the EIA, get realistic estimates of supply and demand, get a National Energy Security Supply Board
We can’t tolerate any further misinformation coming out of the US government
o Develop a comprehensive national energy strategy applicable to energy use across the board – must include gas & electricity, not just oil.
Integrated planning is essential
The market will ruthlessly seek out lowest cost BTU’s and push prices to parity
o Maximize use of all domestic resources that can be developed in an environmentally sound manner – can’t afford to rule out resources or rely on pipe dreams.
Price spikes mean huge lost opportunities and have a direct impact on public health
o Use best expertise available to evaluate every supply option in an objective, cold-blood manner
• In the past week, we’ve seen disruptions to the financial system that are unfathomable – we have to expect significant declines in non-OPEC production immediately. So we have to consider all sorts of solutions.
Jim Puplava - Financial Sense
The Economics of Credit – the worst is yet to come
• When you have too much leverage in a society (too much on margin) and have to de-lever, big things can happen very quickly
• His indicators see us heading into a recession
• We’re about a quarter of the way through the estimated loss of $2TT – we’re at $514BB in write-downs so far.
• Phases of credit crisis
1. Writedowns, raising capital
3. Monetization [I assume he means nationalizing debt and risky assets and printing money to take care of the problem]
• We’ve got a debt tsunami happening
• So we have a perfect storm – a financial crisis happening at the same time as the energy crisis [and I add: plus the environmental crisis – triple systemic breakdown – Energy, Environment, Economics]
o Plus: 78 MM baby boomers are heading into retirement – at $50,000/person (in benefits? Per year?), that’s $4TT
o Taxes are likely to go up enormously while government spending plummets
• Inflation is rising [see shadow government statistics website]
• Global money supply – increasing – Russia is saying we should learn to tolerate 15%/year inflation rates
• Commodity bubbles – generally increasing supply overwhelms high prices, and bubbles burst – but there won’t be an increasing supply of depleting resources
• He foresees rationing – so you’d better have a Prius, golf cart or motor scooter when that happens, or you won’t be able to get around on your ration
• Notes that anyone who has studied economics is at a disadvantage – they think that if the price goes up, supply appears
• Do markets still ration correctly? Yes, they do in the long run – high prices cut demand – but we’re dealing primarily with irrationality in the markets now.
o Andy Weissman adds: the markets work powerfully on short-term problems – but this is a long-term problem, and the markets don’t handle those well
• [These notes can’t even begin to capture all the detail in his presentation – see his slides on the ASPO site]
David Fridley – Lawrence Berkeley National Laboratory
China’s energy & energy challenges
o Coal dominates everything – it’s 97% of what China possesses – 3% is oil and gas (vs. 20% globally)
o Largest coal-based economy in the world – 2007 consumption was 40MMB/D boe [barrels of oil equivalent], more than half was coal
o Rely relatively heavily on biomass – heating and cooking fuel (crop residue) – there’s not that much open firewood, plus that’s been banned due to deforestation -- will change to oil reliance as time goes on
o Industry is the largest consumer of energy – most of it is heavy industry – iron and steel, cement, aluminum, paper, ammonia, etc.
o Transport remains a small proportion of Chinese demand
o Electric power drives demand for coal – 80% of kWh’s are generated by coal – most of the rest is hydro – gas, nuclear & renewables are a tiny fraction. Coal is becoming more dominant. Last year they added 105 gWh’s, 90% coal-based. They built the electricity grid of California twice over in a year.
o It would take daunting amounts of any other source to offset coal
o They’d have to build 5 more 3 Gorges Dams a year to offset coal, for instance.
o They were the major exporter of coal in Asia, but now are barely an exporter
o Plan to develop CTL and Coal-to-chemicals, some of it driven by China, some of it driven by chemical companies. It’ll take 4-5 tons of coal for 1 ton of liquid output…but also 10 tons of water. The provinces that have most of the coal have only 4% of the water, so there are going to be water shortages worse than what there already are.
o China is 50% oil dependent
o China is now the largest source of mercury deposition in California [not a typo]
o Energy use is growing much faster than GDP, primarily because they’ve moved so heavily into heavy industry
o They’re planning to reach 55% urbanization by 2020 – that’s why they’re producing more cement than every other country in the world combined, using so much steel, etc.
o Pin Yue (sp?), Vice Minister of the Environment, admitted to Fridley in July 2007 that China’s resource use and society are unsustainable.
o “Clean Coal” is a complete oxymoron. The US is putting a big investment into gasification of coal (IGCC process), and gives pretty good efficiency – but it’s based on major licenses held by US and Japanese companies. But China doesn’t like to be dependent on other people’s licenses for energy infrastructure. So China developed their own supercritical process that’s up to 44% efficiency. So they don’t want IGCC. But you’re decreasing the efficiency of the plant by 25% to capture the carbon, so you have to burn MORE coal and put out MORE mercury in order to capture the carbon.
o China is in conflict with the US everywhere for resources – China went after oil in Angola, is making a deal with Venezuela [and just built a refinery for Venezuela’s heavy oil, meaning Venezuela may now stop exporting to the US]; in Sudan, over human rights and geopoliitics; the South China Sea; Africa will be a big battleground between the 2 colonialists.
o Vince adds – China’s strategy in buying up resources all over the word is far beyond anything the US could accomplish, both because they’re a totalitarian state and because they have [our] money
o Samoa – China is putting $200 MM into Samoa to buy their vote in the UN – their strategy is incredible and comprehensive and they’re executing it relentlessly
o China’s exports are 35-40% of its GDP, but that overstates the importance of the US vs. their internal consumption, because their value added is only 10% - the profit margins aren’t huge. They don’t need us like we think they do.
Vince Matthews, Colorado state geologist
Asia’s impacts on commodities and minerals
o The use of minerals in the developing world has skyrocketed just in the past 5 years – China has typified this.
o Copper thefts are rampant around Denver.
o China is both the #1 importer and producer of steel the world
o 1985 – Shanghai had 1 skyscraper – in the next 20 years, it added more than 1 skyscraper per MONTH
o New 5 year plan – 42% increase in capital expenditure
o US has doubled molybdenum exports to China between 2003 and 2005
o Gold’s at a 26 year high
o Silver’s the highest it’s been since the Hunt Brothers tried to corner the market
o More than a dozen minerals are up astronomically – even the ones that have dropped recently (for whatever reason) are still 8-12 times what they were in 2003 [see his slides – overwhelming]
o Coal in 2004 - $17/ton. In 2005 - $35/ton…on the spot market. These things are sold on long-term contracts, so prices will jump soon. This is not wage-driven inflation – this is supply-based.
o Spot price for coal is now $140/ton – hasn’t hit us yet, till the long-term contracts turn over.
o China consumes ½ the concrete in the world
o The Chinese are going all over the world and tying up every kind of natural resource they can. They hired an Australian company to go around the world and buy small to medium size mines…of any kind. No restriction.
o 94% of our energy in the US comes from coal, oil, gas & nuclear – if we think we’re going to replace any of that significantly with solar or wind, we’re kidding ourselves. Coal is the only energy source we don’t have to import.
o US imports 4TT cubic feet of natural gas from Canada – but Canada plateaued in 2000 in natural gas production, while US use goes up exponentially.
o Have the highest gas rig count in the US that it’s ever been, the rigs are efficient, and the price of gas is the highest it’s ever been. And reserves have increased 19% - but it’s not about reserves – it’s about flow rate – which is down. We’re not even up to where we were in 2000.
o That gas production took 8,900 wells in 1990 – in 2007 it took 30,180 wells – so more wells, barely maintaining the same production
o Price volatility of gas is incredible - $4 to $13 range. How do you plan based on that?
o Nuclear power use in India and China is increasing exponentially
o China plans to build 17 nuclear reactors in 7 years – incredible – can you imagine that happening in the US?
o The US is the largest generator of nuclear power in the world
o 429 nuke reactors around the world need 180 MM pounds of uranium each year – we’re producing 80 million pounds/year – how do we get away with that? We’ve been living off a pre-Chernobyl stockpile plus converting nuke weapons – but we’re about through all that, so the price of uranium is about to skyrocket.
o China and US will start struggling over oil too, soon
o Re shale oil in Colorado – 6 companies were allowed (by Gale Norton) to pick any 160 acres in Colorado to demonstrate they could produce shale oil commercially + they could have 5,000 acres for fair market value no competition. This gives them the rights to 60BB barrels of oil. But there’s not a single permit put in to drill. Apparently they don’t believe they can produce oil from shale commercially.
o He believes we can conserve oil if the price goes up. And you can retrofit homes with more efficient heating.
o Will we be able to get what we need at any price in the future?
o Conflicts will arise with multi-national corporations buying up US corporations.
o How will reverse globalization affect China’s consumption and commodity prices? - He prefers not to guess about the future.
o We don’t really keep track of who’s buying the resources in the US, so we may not end up controlling the reserves that are within our borders, because they’re being bought by foreign-controlled corporations.
Robert Hirsch – author of the Hirsch Report for the Pentagon
Roundup of the highlights of what we’ve heard
o Peak oil – tends to mean a sharp peak in people’s minds
o But we’ve really been on a fluctuating plateau since the middle of 2004 – which will include lots of spikes up and down
o He used Europe as a model – they had a 6 year plateau with 3% fluctuations; the US had a 16 year plateau with 4% fluctuations
o The question is; when do we go into decline? That’s when we’re in trouble.
o A 5% decrease in 1973 – one-time – led to recession. Now we’re looking at that every year, when decline starts.
o Even a 1% decline is 860,000 barrels a day – it’s huge.
o But we won’t know we’re off the plateau till years later, when the figures have been finalized
o He thinks a peak in 2-5 years is probably about right, but the lead time to prepare for that is 20 years – so we’re much too late
o Time to start thinking about what this will mean to you and your family
o Time to start thinking about where you have your money – because you may lose it in what’s coming if you don’t think about it in light of what’s coming
o Time to think about your job – will it survive decline?
o Will your business survive in alternate scenarios?
o We’ve been unable to create change in national and international governments
o The past week has been frightening – but the public has not connected any of it to what’s happening to energy
o The bad things that have happened in the past week will happen again, and worse – this is what decline will look like
o Willful human blindness – this is part of the problem in communicating with decision makers
o Global warming & peak oil – [Hirsch implies that we can separate these issues, as though we can separate the economy and the environment, which I disagree with vehemently] – but does make the point that when this stuff hits the fan, people will want a fix now, and other considerations will be brushed aside
o Cited Bryn’s reference to Peak Roads – time to block investment in future useless infrastructure.
o Not covered yet in the presentations: rates of change – we’re talking 3-5MMB/D decline rates, and compare that to how long it takes to put substitutes in place – it’s easy to see that this problem is going to run away from us
o The state and local folks are just starting to go through the shock phase, and starting to think about taking action. For them, the peak will mean loss of taxes, at the same time as they have to spend more on ambulances and other responses.
o Barriers to recognizing this:
o There are a lot of other pressing problems at the same time – Medicare, Social Security, $4/gallon gas, etc.
o People have cried wolf on the subject in the past and were wrong
o Faith in government…misplaced
o The people in Africa – what all this means will be damage to them. But at the same time, the money the US is paying for oil represents the biggest wealth transfer in history, and that’s going to hurt the US very very badly.
o Don’t think of this as an energy problem – this is a liquid fuels problem. Photovoltaics will not run the electric vehicles we don’t have.
o Right now we have $150TT tied up in vehicles that run only on liquid fuels that we have to keep running – if that stops, it shuts down our economy and we have anarchy.
o Yes there are electricity shortages and so on, but those energy problems have to be separated out from the liquid fuel problem.
o Environmental standards – we’re going to have to make major compromises – “we’ll have to save ourselves and our economy” [this is extremely naïve in my opinion – who wants to volunteer to be poisoned by tar sands drilling to save the “economy”? To die from droughts caused by global warming? To die of starvation from over-fished oceans?]
o There will be businesses that prosper in hard times
o If a politician ever tells the truth – it will take us into that first week of panic, and this past week will happen again, without any bailout possible. There will be chaos. It has to happen, but it won’t be simple.
o We’re going to have to be pragmatic – “we’re going to have to rise above our past values to make these kinds of things happen” [I’d put that statement on a par with “we’ll have to destroy the village to save it” – if we “rise above” our values to survive, we’re savages already]
o Keep this non-partisan
o Cites China as “moving ahead in a way that is extremely pragmatic”. [I guess that’s true if population reduction by poisoning is part of your strategy.]
o When circumstances get really bad, good is the enemy of the adequate. We have to shoot for adequacy.
o The US “will reorganize itself, go through a lot of this stuff, and come out of this on top, because we’re Americans.” [Got half-hearted applause for that.]
Evening Panel – Denis Hayes, Jim Kunstler, Randy Udall (moderated by Richard Brenne – very funny)
o DH – if we continue with the kind of shenanigans we’ve been seeing in the market, we’ll run out of the time, money and resources to take care of the problem.
o Possible solution – a set of leaders who lead. Or the venture capital community pouring money into this because they see it as a huge business opportunity.
o We need an FDR, a willing congress and a Pearl Harbor – we’ve had plenty of Pearl Harbors but none of those opportunities have been taken. Obama might be an FDR, we might have a willing Congress.
o RU – hope makes a better companion than fear
o JK – tries to be clear that the Long Emergency is only one among many scenarios.
o JK – we’re so impressed that we can measure things, that we think we can control what we’re measuring. Gives rise to techno-triumphalism, which leads to a belief that we’re entitled to an orderly transition. Just leave your assumptions at the door about that.
o The unspoken joke here: our IQ as a civilization is about equal to the price of oil. Every time it goes down, we get stupider.
o JK – gotta get rail going again in this country
o RU – the order of things he’s worried about peaking – energy, then courage, then time
o JK – the TED conference showed him how infatuated we are with our own technology
o DH – we’re looking at unfunded liabilities for social security, Medicare, veterans – up to $11.3TT in aggregate debt – five times our GDP – we aren’t going to be able to get anything done with that burden.
o DH – feels racism, fresh water, loss of topsoil, onset of new diseases – these are higher on his list than energy shortages
o RU – peak oil is ending a banal 30 years, and it may be “really fucking grim” or it may be a blessing
o DH – global warming may be a huger problem
o DH – if you can split an atom for an energy, you can split it for bombs – that’s a huge problem – his worry isn’t the scarcity of uranium, but the abundance of it
o RB – is nationalism over? Do we need to think of ourselves as citizens of the world?
o JK – Thinks we’ll be contesting with other large nations, and shrinking into our little corners of the world [I note that he answered a question that was about the solution, with an answer about symptoms of the problem]
o DH – Thinks people are building supra-national communities already though the internet, and we can achieve some measure of global consciousness. We have to pull together on a global way because the winners and losers don’t line up along borders.
o DH – people respond to what directly affects them – local problems – threats to their family
o RU - Peak environmental justice coincides with peak energy production – the successes of the 1960’s owe a debt to oil, coal and nuclear, that supplied the energy. We can’t demonize energy flows. They’ve made our lives possible.
o DH – doesn’t feel he owes a debt to coal and nuclear. Everything in life depends on flows – renewable energy sources – we’re the exception. We based our lifestyle on something we burn. By the 1970’s, lots of people knew we needed to use the rest of the oil and gas to make the energy transition before the post-oil period. Now we’ve reached the post-oil era but missed doing the transition.
o JK – TLE (The Long Emergency) is about a disruption in the assumptions we’ve made – an end to extrapolation as a tool. But does believe we’ll survive.
o DH – brings up that these “energy flows” led to 6.7 BB people, and (barring epidemics) will take us to 9BB people – can’t argue that that’s a better thing than it would have been if it had never happened and the world had stuck with a sustainable population [I agree – to say our own existence is an absolute good, despite the consequences to the planet and other human beings, is exceptionalism]
o RB – Knows a scientist who says we don’t have the water infrastructure to support more people than we have now
o RU – disagrees – thinks water is renewable, and it’s not a problem [he’s factually wrong here]
o RB – are we at peak democracy and peak capitalism? Can we address peak oil in a democracy? Is China better equipped to deal with it?
o DH – relatively self-contained villages that grow their own food, recycle their own wastes – that’s where democracy really emerges and functions – so he sees a lot of democracy coming. He looks forward to a return to constitutional government, a bill of rights, and an independent judiciary.
o RB – are peak oil and other problems a symptom of something deeper? [He was fishing for the answer “overshoot” and didn’t get it]
o JK – he put a supernatural event at the end of “World Made By Hand” because he thinks that perceptions of reality may change from empiricism and logical positivism to more magical thinking as a way of understanding reality. Thinks our biggest problem as a nation in trying to figure out how to get where we’re going is trying to find a reality based consensus about where we are. Feels this is like the 1850’s, when all our assumptions were called into question. The Whigs were the conservatives and disappeared suddenly. And into this vacuum walked a tall skinny Illinois one-term Senator who did not stop the convulsion that was coming, but helped us through it. (Lincoln = Obama) Wants to rebrand the Republican Party as ‘the party that ruined America”.
o RU – ingenuity had a role in eliminating slavery
o RU – JK is saying we lost things along the way – a sense of mystery, connection to the land
o RB – is the peak oil the best way to understand overshoot [I’m summing up his point]?
o JK – just think it’s going to be a bitch slap upside the head – wake the fuck up
o DH – doesn’t want to go pre-Enlightenment, because that was the Inquisition
o RB – thinks the fundamentalist Christians and the fundamentalist Muslims are in a contest to see who can misunderstand their religion more
ASPO day 3 9-23-08
David Hughes, Canadian Geological Survey
Coal: peak, flows, prices, bottlenecks, carbon regulation
• China’s coal will peak in 2020-2025. Global delivery of coal (peak coal) will peak in 2030.
• 90% of all hydrocarbons will be gone by 2076 at current rates.
• The IPCC overestimated the amount of carbon available to put into the atmosphere by 6 or 7 times. We don’t have enough hydrocarbons in the world to meet even their lowest estimate of carbon in the atmosphere. This suggests that peak oil is a more pressing problem for our generation and the next than global warming – if we can find a way to navigate peak oil, then we’ll take care of global warming by default. [JON NOTE: that’s a big if, and leaves aside the issue of what happens if we run to dirty alternatives to oil and pump a lot of carbon into the atmosphere all at once. Also doesn’t take account of runaway global warming – positive feedback loops – that may already be in process. Meaning, if we stopped industrial civilization tomorrow, GW might still run out of control anyway. Environmental systemic breakdown isn’t going to go away if we handle peak oil – and I don’t see any indication at this point that we can handle either one.]
• India, the world’s largest coal producer, is a slight net importer. So is China. The US is a slight net exporter. Prices will stay high.
• Coal will continue to supply more than 50% of electricity generation
• CCS – carbon sequestration – can reduce 90% of NOx, SOx, mercury – but this and geoengineering to solve GW only exacerbate and compound the energy issue. The best was to reduce carbon emissions is not to burn them in the first place.
• India will ultimately become the most populous country in the world. US and Canada will both continue to grow.
o We’re adding 75MM people to the world per year
o 850 MM cars on Earth at this point
o In 2007 we added about as many cars as people
• By 2050 we’ll be consuming 65 times as much energy as in 1850 – 6.6 times as many people, 9.7 (?) times as much energy use per person
• Kenneth Boulding – “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist”
• The ride is almost over. Will we power down to greater sustainability and resilience, or will we keep the pedal to the metal and collapse?
• [I’ve only captured part of his data above – it’s all verbatim in his slide show]
• The North American way of life cannot be propagated to all the people on the planet. Doubts there’s enough energy even to get the whole world up to European standards.
• Forget the status quo. Rethink infrastructure – has to change per The Long Emergency. Need to use fuels only for their highest value to society. Coal is well-suited for electricity and not much else, where that’s not true for gas. Develop renewables. There’s no silver bullet. It’s not impossible to avoid collapse.
Rob Rapier – Director, Projects, Engineering and Development for London-based Accsys Technologies
Biofuels: Facts and Fallacies
• Also was not allowed by the oil company he worked for (until March) to attend ASPO meetings – he was seen as a PR risk
• His company is working on a process to turn softwood like pine into something that can replace hardwood and even steel (for bridge-building, etc.) – and they sequester carbon in the process
• His slides have all his verbiage on them so they can be read without hearing him [so I won’t try to write down all the stuff on his slides]
• Was a crusader against corn ethanol from early on – food vs. fuel, etc.
• We have single oil refineries that produce more fuel than all ethanol producers combined. The amount is miniscule. We have subsidies to mask the true costs – we’re really subsidizing fossil fuel consumption.
• The argument that corn ethanol or fossil fuels to better kinds of ethanol suggests that cheap cellulosic ethanol is waiting on the other side of the bridge – unlikely. A bridge to nowhere. We’ve been working on cellulosic for 40 years – a small plant will consume a forest every year, yields are not good, takes copious amounts of energy – he doesn’t feel it will EVER be commercially viable at scale.
• Sugarcane ethanol is different – they’re using a “waste” product – holds some promise for some tropical countries, locally
• Biomass gasification is no different from any other gasification (CTL, GTL, etc.)
• Diesel – can make it from gasification (e.g., the Nazis using coal), but there are other ways
• “Renewable petroleum” – the Holy Grail – LS9 is working on it
• Di-methyl ether – China is interested
• Butanol – results in dilute concentration – not feasible at this point
• Contenders with promise
o Most pressing problem is storage – enabler for solar, wind, etc.
o [See slide for list]
• Can we emulate Brazil? Are they energy independent because of ethanol? Reality check - oil supplies more than 90% of Brazil’s energy needs.
• Annual oil usage in the US: 24.9 barrels/person
• Annual oil production 6.1 barrels/person
o So either we quadruple our oil production or we cut 75% to be energy independent – we won’t do it with biofuels
• It’s very difficult to scale things up outside the lab
• Algal biodiesel – the government funded this for years, then shut it down in the 1990’s. The technology does work, but it costs more to make than you get back from it. Photo-bioreactors cost $100/square meter, and each square meter will produce about 1 gallon of biofuel per year. That’s the kind of economics that would have to be conquered.
• Where politicians fail: they could help, but they mislead the public either out of ignorance or vested interest. Have to end the delusion of “cheap gas for everyone”.
• Fossil fuel prices need to go up – we need to raise fossil fuel taxes non-regressively (rebates, etc.).
• Stop waging war with the oil companies – they have the experience of delivering mass volumes of energy – we need them
• We need to reduce energy consumption – that’s the solution
• What is the EROI on all these biofuels? – Most numbers you’ll see contain a number of assumptions, and are often crap. Brazilian ethanol is claimed to be 8:1 – that’s not true – EROI is probably less than 1:1, but it’s “waste”, such that they end up burning it because they have so much, so they don’t count the inputs very much. Corn ethanol is probably negative EROI – the 1.67:1 figure is not true – it might be 1.05:1 at best. [Steve adds that it’s moot – those numbers don’t even vaguely compare to oil – Charlie Hall would say that it’s below the minimum energy surplus necessary to maintain civilization.]
Andy Weissman, Editor in Chief & Publisher, Energy Business Watch
Natural gas: time to stop playing Russian roulette with the US economy
• Electricity and gas supply more than half of our energy – so if prices go to parity with oil, and oil goes way higher, we’re in severe trouble
• We’re betting the future on LNG – but by as soon as 3-4 years from now, global demand for LNG is going to exceed global supply, and that will get worse forever. By 2015, natural gas could be up to $25 or $30 per btu, electricity prices doubling or tripling – a $500BB hit to the economy – all that happening at the SAME TIME as the shock to the oil sector.
o Reiterates that in 2009 and 2010 we’ll see a surge in supply, so prices may drop at the worst possible time, fooling everyone into increasing our dependence right before the shock.
• Demand is likely to far exceed EIA estimates – the most likely scenario is at least a 3 Tcf/year increase, while they’re predicting virtually no growth – so we’re looking at skyrocketing demand right before the price starts to skyrocket
o They just don’t get it – they drastically underestimate power sector use
• The EIA predicts new power will come from coal, but what’s actually happening is that utilities are all committing to build gas-fired electricity plants – increasing our reliance on natural gas right before the shock.
o And if we get climate change regulations from the federal government – it will exacerbate this – commitment to gas-fired electricity will skyrocket, and many coal-fired plants may even have to be shut down
• The numbers out there are just numbers written on paper – there are no good figures
• Worse, we’ve done this before, paid a huge price, lost huge numbers of manufacturing jobs
• Barnett Shale could peak early next year, per 2 of the biggest producers there, at the same time that other sources of supply rapidly decline over the course of the next decade. The producers have done such a great job of extracting the gas that they’ve almost instantly depleted the resource.
• We need to focus on the five biggest options we have
o Realistically assess energy efficiency – this is where there’s the most potential to make inroads most quickly
But actual progress has been slow
Would need to rebuild most office space in the US
Replace most of the fridges and HVAC systems in the US
Need to look at the risks if we fall short of our goals, as we almost always do – energy prices will go through the roof
Demand destruction hurts the poor most
o Nuclear – unlikely we’ll see enough added in the next decade to help – hugely expensive among other problems
o Wind – no storage technology, wind often doesn’t blow during the hot part of the day, and during the warmest parts of the year – severely limits its usefulness
o Coal – we have to look at it, and work on sequestration [JON NOTE – this is where even hard-headed realists fall into fantasy – the end of the discussion becomes: “Well, we just can’t maintain the status quo without coal, so we’ll have to figure out sequestration.” As opposed to admitting that CCS is a fantasy, meaning that coal use is suicide, therefore we cannot maintain the status quo, and must cut back radically on our lifestyle and energy use. Andy says we have to really investigate CCS over a period of years – but doesn’t mesh that with his statement that we’re already 2 years behind on finding a solution to the upcoming problem he’s talking about. ]
o [Lost #5 – see slides – he was moving too fast]
• Mackenzie Valley – has been projected to go online any day now forever – pipeline may never happen.
Michael Webber – Associate Director, Center for International Energy and Environmental Policy, University of Texas, Austin
Coal-to-liquids: the good, the bad and the ugly
• [Apparently wasn’t listening to the previous presentation about the actual amount of coal in the world]
• [Is apparently unaware of how catastrophic CTL would be for climate change – CTL is not, in any sense, good for the US or the world – lots of light-hearted references and jokes here about effects on climate change, though he gives the issue lip service later]
• There’s a lot of variance in future projections of coal use: from 50% decrease to 70% increase over 2005 by 2030 – makes planning extremely difficult, makes it hard for government types to understand what’s going on
• Air Force is all over CTL to supply their jets in the future, but regulation 526 (written by Henry Waxman) says the Air Force can’t buy CTL unless the AF can prove that the lifecycle GHG’s are less than conventional fuel (and nobody really knows what the lifecycle GHG’s from conventional jet fuel are exactly)
• So the contracts to buy CTL are there, but they’re moot
Pamela Tomski, Managing Partner, EnTech Strategies
Commercial deployment of CCS: Status and Reality Check
• Earth emits about 22 GtC annually (gigatons of carbon) – the US share is about 6 [this figure sounds high to me] – about 2 of that is from coal-fired plants
• Lots of obstacles to commercial adoption
o NUMBY – not under my back yard
o [See her slide for others]
• [I think CCS is a fantasy (and a harmful one) so if you want to know about this one, you can read her slides]
Randy Udall – Energy Analyst
Peak Oil & Global Warming – What’s missing from the climate debate
• CCS is CPR for the coal industry. The only reason we’re talking about it is because we have a staggering amount of coal.
• 4 MM Chinese work underground mining coal every day – 100 die every week
• Are we changing the climate or waging war on it?
• Half of the carbon we’ve put into the atmosphere has been put there since 1980 – our part of history has been the The Big Bonfire – we pile on a million tons of fossil fuel every hour – producing 80 MM tons of CO2 per day, some of it will be there for hundreds of years
• Of the 6 billion people on earth, 2 BB are close to the fire, using their body weight in oil every day, living the good life. Another 2BB are far away from the fire, cooking food on animal dung and wanting to move closer to the fire
• EIA charts work great if you change “supply” to “demand” – but we believe, in the future, that demand will meet supply, whatever supply is
• Al Gore, Amory Lovins, environmentalists all tend to buy into the EIA’s world view a future of cheap and abundant fossil fuels, even though the EIA is consistently wrong
• He got an interesting email back from an IPCC scientist totally disbelieving in peak oil – saying they didn’t expect fossil fuel shortages for CENTURIES. The scientist said we’re at 385 ppm and believes 450 is a real and present danger based on the EIA figures.
o There’s a staggering gap between that email and all the data on the other side, which is showing a peak no later than 2017
• IPCC are taking their (false) figures from USGS and EIA – Coal 5,000-8,000 GtC, 15,000-40,000 GtC of unconventional fuels, etc. IPCC scientists know nothing, generally, about energy – a small subset of them say they do, but apparently they don’t.
• What the IPCC is saying to the people far and close to the bonfire is: it’ll carry on forever.
• Randy then mocked Al Gore with a weirdly defaced photo, and said Gore is unaware of peak oil [which, according to Steve Andrews is inaccurate – Gore mentioned the subject in his recent update speech at TED - though he certainly hasn’t given it the attention it deserves]
• Feels our obsession with climate change is dangerous, because it’s distracting us from the more immediate peril we’re in (the Matt Simmons argument) [Jon note: the ignorance about global warming at the conference was generally rampant, as though distant threats of sea level rise were the only consequence of global warming – no talk about droughts, hurricanes, isotherms moving north faster than animals and vegetation can migrate, extinctions, positive feedback loops from massive methane release, acidification of the ocean and threats to the food chain, etc.]
• Randy says Gore thinks we’re headed to 550 ppm by 2100, which would commit us to 3 degrees rise and 20-80 foot sea level rise – so (Gore concludes) we have to put a price on carbon and protect prosperity. It thus follows that we either have to sequester carbon or scrub it out of the atmosphere or both, look at the wedge diagram and see what you can do there, etc.
• Compare that to peak oiler Charlie Maxwell – his goal is to conserve prosperity – don’t use up the energy now – save it, conserve it, use it efficiently. China is the Challenger, getting ready to burn up on the way to the moon – the US is the Columbia, burning up on the way down.
• But Hansen and Kharecha now project fairly early fossil fuel peaks (not as early as ASPO predictions, but still, much much earlier than the rest of the IPCC). Wants to phase out coal burning by 2025.
• The equivalent of an 800 mile train full of coal leaves Wyoming every day. Hansen compared them to Nazi death trains in an “intemperate moment”.
• How big is our carbon budget? Jim Hansen would like to get on the 350 ppm path – that would take a U-turn, because we passed that 25 years ago. The various IPCC paths are about staying under 2 degrees rise.
• If you approach it from the top down (through Kyoto mechanisms) you end up having to choose who gets to burn the carbon – you have to figure out what’s fair and parcel it out – Randy believes that’ll be impossible.
o Randy believes peak oil will be a gift to humanity because it will resolve this need to ration carbon [though he neglects to finish that thought – that the market will ration carbon by letting the rich burn it all, while the poor get pushed off the grid, which for many will mean death]
• You gotta run the nearest rapids first
Michael Boyd, president, The Boyd Group
The Future of Aviation
• [In my view, this presentation was proof that sarcasm is not wisdom]
• [I found Boyd utterly stuck in the current paradigm – all about what “has” to happen to maintain the status quo, rather than drawing the obvious conclusion – reinforced by many speakers even here at the conference – that the status quo will not be maintained.]
• [Here’s my presentation on the future of aviation: “Thud.”]
Paul Gipe, Wind-Works.org
• Went through lots of numbers about all the MW of wind energy it would take to substitute for fossil fuels and fuel our transportation, talking about Al Gore’s 10 year challenge. He concludes we can’t get there in 10 years, but maybe 20. [He doesn’t, however, address the fact that the grid couldn’t carry the power, and we don’t have the money, time or will to rebuild it. Also doesn’t address storage.]
• Californians consume 6,500 kWh’s/home (per year?). About double what the average Northern European uses, with the same standard of living. [He says he’s done it through conservation. Bravo, but what about people who don’t own their own home, or don’t have the money to modify the house they do have?]
• USA & Canada could be 100% renewable, he says. [But doesn’t say where the money, resources or time will come from to do it.]
• If we had invested the $600BB put into the Iraq war, we would have 20% of the wind energy we need in the US today.
• Advanced Renewable Tariffs – if you generate wind or solar electricity, we (the government) will pay for the power. Turns everyone into an entrepreneur – moves us from being a nation of consumers to a nation of producers.
• No time left for half-measures. [Should rather say: no time left for anything except half-measures – to get all the way there, we’d have to have started in the 1970’s.]
Denis Hayes, inventor of Earth Day, president, The Bullitt Foundation
Revolutionizing the Entire Us Energy Strategy: what will it take?
• Notes that we’ve just seen a bunch of black swans in the financial markets in the last few weeks
• WW2 was basically won by oil – US produced 880MM tons of oil, Russia 100MM tons – Japan 5, Germany 30 (20 produced from CTL)
• We’ve had a number of Pearl Harbors along the way, but never an FDR response that energized the nation
• We need to look for a black swan
• Jim Hansen, financial consultant – 30% price swings in oil are normal price movements, so don’t fixate on them
• What has happened in the markets is just a portent of things to come
• Rob Rapier – doesn’t believe we’ll ever get to 100K b/d of non-corn ethanol. After corn ethanol and biodiesel, there’s really nothing. We’ll have electric cars before we get to that.
• Biodiesel has advantages over ethanol – EROI is higher (maybe 1), combustion is better, can be put through a pipeline, where ethanol can’t because it’s so corrosive
• JH – Jeff Rubin predicts zero net exports from Mexico in 2013 – JH thinks it’s 2011 or 2012 – at that point, the Mexican government will have virtually no revenue (since they get 40% of their revenue from Pemex) [I thought it was more?], he looks at that as a real shock point. Thinks we’ll see currency effects before that – implications for both Mexico and the US will be huge.
• Michael Webber – China has announced they’re going to build a couple of CTL plants. He thinks it’s better to burn the coal for electricity and get electric cars. Easier to regulate the gases coming out of a few smokestacks than millions of tailpipes.
• A couple panelists guess 2011 for $200/barrel oil, maybe 2012 for $300/barrel, as a consistent price – but could temporarily spike there earlier. Also depends on the dollar – if the US dollar plunges (for reasons related to market turmoil), that would drive up the price of oil – on that basis, it could happen next Thursday. But there’s also a possibility that China’s growth will slow down significantly, and oil prices will stay low for a while, because China is now driving the price of oil. It’s whatever they’re willing to pay – that sets the price for every resource.
• They feel the best way to frame the peak oil issue (with decision makers) is as being about “energy security” – “I’m concerned about energy security, and concerned about whether we have accurate data so we can plan ahead.” [I agree for federal politicians, but not for actual human beings. Actual human beings have emotions, and need a more emotional approach to connect with the issue and make a change.]
• Kjell Aleklett – suggests we frame PO to others by talking about drinking instead – line up 10 bottles of champagne, and open one – each bottle is 100 billion barrels – this is all we have, and we use up one bottle every 3 years. It doesn’t take long for people to understand that we’re going to have a problem very soon.
• Many people brought up “ASPO widows” – important to talk to your family so they don’t think you’re crazy; talk to decision makers – don’t spend your time preaching to the choir.
• Tom Whipple – his message is urgency. We’re talking about peak exports, watching Mexico – this is closer than people think, even though they sense there’s a problem. We’re talking about a matter of months now – not saying how many – but it’s close.
• Debbie Cook – it’s all about relationships – everything else is derivative of that. Don’t burn any bridges. Use your relationships to get the message to people, and don’t sacrifice those relationships in arguing over lesser issues. (Advice to both politicians and individuals.)