Energy Blog
Nobody’s in Charge of the Price of Oil PDF  | Print |  E-mail
Sustainable Arizona Blog
Written by Monte Myers   

OPEC's admission that it has lost control of oil prices came as no surprise to most people following the score. We know no one has any surplus production capacity, and if they do, it is sour crude.

We have two big unknowns: What will the rate of oil depletion be?  And what are the URR’s (ultimate recoverable reserves)?  We do know the inevitable effect of peak oil will be ever rising energy prices, but we don’t know how fast, and to what degree, they will rise; albeit we have seen a good glimpse recently.

If world oil production is about to peak, or is already beyond its peak, supplies will soon go into irreversible decline of initially of at least 2% or 3% annually (based upon historical decline), while world demand is growing rapidly at 2% or 3% a year. This will result in a 4-6% short-fall just a year after the peak and will rise to a 15% - 20% gap in 5 years.  Recent articles have alluded to the fact that the decline rate may be closer to 8%.  Existing oil fields have a decline rate of about 4 to 5% with many fields like Cantarell in Mexico showing a rate of 13%, Prudhoe Bay 11%, and the North Sea 17%.

Bottom line: we do not know what the overall decline rate of oil production will be once we reach the peak and start down the far side of the bell curve.

We have many factors at play that can affect the market price of oil:

SPR’s (Strategic Petroleum Reserves)  although only a fool would use them to lower prices.

Geopolitical events

Infrastructure bottlenecks 

Refining capacity, available equipment, (drilling rigs and trained crews) and hurricane production shut-ins.

The peaking of world oil production 

And lastly, perhaps the most important:

The oil futures market

Crude oil is absolutely the King of Commodities today.  It forms the foundation of our extensive global trade and hence the entire world economy. The CRB (Commodity Research Bureau) recently shifted its’ weighted index for crude oil to a massive 23% of the new CRB index.  Total petroleum products will now run 33% compared to less than 12% in the past CRB.  There are many that make the case that the recent upsurge in oil prices has more to do with rampant speculation in oil futures markets, rather than demand or supply factors.  Taking undue advantage of geopolitical tensions, hurricane disasters, and refining capacity bottlenecks,  non-commercial traders indulged in rampant speculation in the oil futures market contributing to herd behavior driven by greed. Regulation of this rampant speculation in oil futures markets would not be feasible without fundamentally altering the financial processes.  Some have suggested a Tobin tax for oil speculation.

But given that half of the oil future’s speculators are shorting their positions takes much of the credence from the "speculation" argument. They are just following the market trend upward.  Investors see supply not meeting demand very soon due to production decline as a result of “peak oil” and from the rising demand from growing economies like China and India.  A shortfall is coming.

Now comes the punch line:  How high will the price of oil go when the markets are absolutely certain Peak oil is here and supply cannot meet demand?

Remember, there are no controls, no Tobin Tax, no spare capacity, no price ceiling at all.

This runaway price of oil, in my opinion, has the greatest potential to crash mitigation and preclude almost any transition to other energy sources.  The other herd instinct of “fear” could also take over, crashing the market.

Here's the reality that many need to grasp and accept:

Alternative energies will never replace fossil fuels at the scale, rate and manner at which the world currently consumes them, and humankind's ingenuity will simply not overcome the facts of geology & physics. 

 
Peakoil & Hydrocarbon Depletion PDF  | Print |  E-mail
Sustainable Arizona Blog
Written by Monte Myers   

For those of you just becoming aware of the issue, “peak oil” means that no matter how much money or technology you throw at an oil well or region, you cannot increase the extraction rate of the oil reservoirs.  In other words, from then on, the oil production goes into terminal decline.

The peaking of world oil discovery is not in the future, it is in the past; 1962, to be exact.  And since oil production, or extraction, follows discovery, this reality will soon catch up with us. Many of the major oil producing countries have already gone into production decline. The world as a whole, may have, or soon will. We will only know for sure in hindsight. Depending on the data source, we now consume four to six barrels of oil for every one we discover.

From what I have read, 60-70% of new projected growth capacity projects coming on-line will be consumed by world depletion alone.  We are seeing a conservative decline rate projection from existing fields of 4.5% for the world as a whole. From ASPO: “Consider the enormous implications of a 4.5% decline rate. If you start with 85 million barrels a day in 2007, but lose 4.5% each year, by 2017 you’ve lost 31 mbd. That’s the equivalent of losing the world’s four largest oil producers: Saudi Arabia, Russia, the USA and Iran. By 2030, you’ve lost 55 mbd, or as much as all the non-Opec nations now provide”.  New finds and production will offset this and meet Chindia’s demand for oil?  The current run-up in oil futures to $140/barrel in 2016 doesn’t think so.  And for those who think it’s speculators driving this, get a grip. They are merely following the trend being driven by supply/demand.

In a 1999 speech, while still CEO of Halliburton, Dick Cheney stated:

“By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional 50 million barrels a day.”

Andrew Gould, CEO of Schlumberger oil services, projected the global decline rate may be far higher:

“An accurate average decline rate is hard to estimate, but an overall figure of 8% is not an unreasonable assumption.”

An 8% yearly decline would result in global oil production dropping 50% in less than nine years. In the 1970s, a 5% cut in production caused prices to triple.  Connect the dots.

The math here is quite simple.

If we need a 2% growth rate of oil extraction to maintain economic growth to create jobs, service the debt, etc., and we have a 3 to 8% decline rate that equates to a 5 to 11% shortfall of oil availability.  Tar sands, and other unconventional oil resources or alternative fuels, cannot make up this shortfall.

Tar sands are projected to triple to 3 mbpd in 10 years. ANWR will produce 1 mbpd if ever developed, (mostly limited by the Alaskan oil pipeline capacity of 2 mbpd, which currently runs half full with Prudhoe Bay oil.) and that would be 10 years off from the go-ahead to develop.

Increases in efficiency and conservation are short-lived measures due to population growth alone and have associated consequences in a capitalistic system: Increased efficiency usually leads to increased consumption and conservation leads to a self-induced recession as economic activity is curtailed. Each year, to continue to be effective, the standard of living would have to decline as the pie won’t get any bigger, only smaller.

Meanwhile, the need to service an 87 trillion dollar shortfall in existing debt and unfunded entitlements continues, along with the demand for jobs, food, clothing, and housing for the 3 billion newcomers projected to inhabit the planet by 2050.

From what energy source will they be sustained?

From part of your share of the pie?

No?

I thought so.

Scarcity breeds poverty and poverty breeds conflict.

As Paul Harvey is famous for saying, “stand by for news!”

 
Solar vs Fossil: The Future and the Past PDF  | Print |  E-mail
Sustainable Arizona Blog
Written by Monte Myers   

As far as human beings are concerned, we need to remember that the standard of living of a person or a nation is determined primarily by the availability of usable energy sources, such as oil, coal, natural gas, or nuclear energy. Without sources of energy to turn our wheels and to compensate for entropy (general maintenance and order), humanity would revert to the primeval existence of hunters and gatherers.

Energy has two basic forms for us: fossil fuels and solar, or non-renewable and renewable. Fossil fuels are an energy stock, whereas solar is a flow of energy. The difference needs to be well understood. Oil, coal, and natural gas are stocks because we are free to use them whenever we so wish. But at no time can we use any part of a future flow of solar radiation. Moreover, the flow rate of this radiation is wholly beyond our control; it is completely determined by cosmological conditions. Because of our short-sighted priority of the present over the future and the irrevocability of entropic degradation, the opposite is true for the fossil fuels. These energy sources are affected by how much of the fossil fuel “treasure chest” the past generations have consumed.

From the viewpoint of industrial utilization, solar energy has an immense drawback in comparison with energy of fossil fuel origin. The latter is available in a concentrated form; a very low-entropy form. As a result, it enables us to obtain almost instantaneously enormous amounts of work, most of which could not even be obtained otherwise. I believe the greatest advantage that a fossil fuel gives us over solar is the ability to provide a continuous supply of energy. By great contrast, the flow of solar energy comes to us with an extremely low intensity (on the order of 100 to 200 watts per square meter of the Earth's surface), and it is intermittent; the sun doesn’t always shine, and the wind doesn’t always blow. This requires larger base capacities than fossil fuels in order to make up for the loss during the off-peak production cycle. So, rather than use solar as a supply source of energy, it is best suited for local, de-centralized, point of use applications.

Solar energy, on the other hand, has a unique and quite superior advantage, besides being renewable. The use of any fossil fuel energy produces pollution, mainly in the form of CO2, which is cumulative and is beginning to raise the earth’s average temperature. By contrast, any use of solar energy at its point of use is pollution-free, although the production of solar technologies has its own pollution problems. Whether solar energy is used or not, it still becomes the dissipated heat that maintains the thermodynamic equilibrium between the globe and outer space at a life-supporting temperature.

Understand this: Eventually, to replace fossil fuels, all energy will have to be derived directly or indirectly from the sun. However, if our current fossil fuel energy demand would have to be supplied solely from solar sources, what are the consequences of diverting that much solar energy to human use?

We already appropriate 40% of the earth's NPP. Solar energy, just because it isn't used by man doesn't mean it isn't used or is wasted. In nature, there is no such thing as waste. It is all part of the ecological balance.

According to energy expert John Holdren, the potential environmental problems with solar energy generation can be summarized as follows:

‘‘Many of the potentially harnessable natural energy flows and stocks themselves play crucial roles in shaping environmental conditions: sunlight, wind, ocean heat, and the hydrologic cycle are the central ingredients of climate; and biomass is not merely a potential fuel for civilization but the actual fuel of the entire biosphere. Clearly, large enough interventions in these natural energy flows and stocks can have immediate and adverse effects on environmental services essential to human well-being."

The only really sustainable and renewable energy is that passing through the Earth's life systems, thus we can't call it sustainable or renewable if we obstruct it and prevent it from fulfilling its function, as might be the case with widescale wind, solar, tidal, or biofuels.

As we all know, the ability to quickly change to renewable energy sources is highly unlikely, so the best remedy would be to address the demand side of the equation, especially in areas where we are the most vulnerable, such as transportation and agriculture.

I watched an episode on Modern Marvels chronicling the advancement of harvesting since the days of the hand-scythe. Global satellites run fertilizer application, mechanization, planting, etc. Every aspect of our agri-business requires energy intensive technology to produce the supply to meet the growing demand. It was almost scary to watch just how complex it has become.

Our practice of agriculture is totalitarian. We subordinate all life-forms to the relentless, single-minded production of human food. It is one of the chief causes of the loss of biodiversity. Either we destroy the species' habitat or we destroy them outright through pesticides, herbicides, or hunting. Our use of DDT in this vein caused Rachel Carson to write Silent Spring.

Malthus' warning was about the failure of agriculture to meet the human demands for food. However, its’ continued success to do so in this manner, poses an even greater threat to mankind.

By moving consumers and producers closer together, limiting population growth and taking other steps to address the underlying ecological dilemmas, I would like to think that society can perhaps make the transition to a more sustainable existence. But, realistically, I believe we have only a slim chance of derailing the asset inertia and cultural direction of the industrial world in the foreseeable future. Mother Nature will take care of it for us if we don’t, however. She always bats last.

But I am devoted to that slim chance, in hopes that we see a shift to an ecological paradigm before the transition becomes untenable. Locally, and as individuals, we can do much to turn the tide. And that is what Sustainable Arizona is all about.

 
Peakoil: The Tip of the Iceberg PDF  | Print |  E-mail
Sustainable Arizona Blog
Written by Monte Myers   

John Neville and I make a good tag-team. We are different enough in our approach to give a broad view, while sharing the same core values and grasp of the issues before us.  His latest blog is a very good one.  However, I'm going to push the envelope here and talk about the elephant in the room, as I so often do.

How many see peak oil as a symptom of a greater disease? The tip of the iceberg, if you will. The "tip of the iceberg" expression is derived from the fact that icebergs float because the density of ice is lower than that of seawater. The ratio of these densities tells us that 7/8 of the iceberg's mass must be below water.

The mass below the surface of peak oil is the expectations of infinite growth in a finite world. Driving this false premise is a debt-based monetary system that services past debt only with future growth. Changing the cultural direction and asset inertia behind this is tantamount to trying to turn the Titanic on a dime. Never happen; no matter how hard you try.

So, the transition we need to do is not from fossil fuels to renewables, but from an infinite growth mindset to one of sustainability based upon the received solar flux and the earth’s ability to absorb our impact through the environmental sinks. We are already burdened with un-repayable debt, unbridled population growth, rampant environmental toxicity, increasing loss of biodiversity, scarcity of resources, and alarming reports of increased global warming; all consequences of our collective hubris. We need to address all of these issues, not just energy.

On the other hand, how many see peak oil as just another problem to be solved by man’s ingenuity? His course is sound, he just needs a new energy source to “stay the course”.

For those inclined to believe it is the latter seem to propose solutions that are “conserve, transition, and continue to grow”.

In terms of those who believe we can just "switch and grow", I would just ask, until when? The fresh water runs out? Arable land to support growing populations runs out?

On the other hand, if we realize, as many others have said before, that there are limits to growth, what kind of an economic model can we develop that is based on sustainability? John Neville alluded to this in his last blog. A debt-based monetary system is impossible, so we must look to other examples.

C’mon, we all know that, ultimately, there are limits to growth. Are we so myopic as to not see the wall ahead, if not for us, for our children? It has been man’s hubris to think he need not heed the ecological limits that has led him to this precipice.

Do we still insist the “law of the minimum” does not apply; that we are “above nature”?

Do we really believe we can make more land, more water, and more air?

How long can man continue to plod aimlessly ahead into the abyss? We went through the first half of the oil in 125 years; according to Chevron, we will go through the other half in 30. Will history paint that as the great reign of this “modern day Rome” before the fall? History is replete with the carcasses of other hubris cultures.

Seems this “transition and grow” mindset has only the near-term future in mind.

In my opinion, any proposed solutions to the peak oil issue must address the following criteria to be viable long-term solutions.

1. They must address population growth.

2. They must address the global warming issue.

3. They must address the consequences of conservation efforts/efficiency gains.

4. They must address the economic issues of a no-growth economy and past debt.

5. They must be sustainable/ renewable and the least toxic to the environment.

6. And probably most important, they must be global in perspective.

Only a powerdown embraces and addresses these issues on a long-term sustainable basis.

Anything else just pushes the day of reckoning into the future and makes the cliff steeper.

So, do we continue to roll over the debt until we are bankrupt or do we cut up the credit cards?

It will be a short party for mankind if he chooses the former.

Doesn’t it seem odd to you that we have gone through most of our “stash” of energy in just over 100 years?

But what a party, eh?

 
Global Dimming PDF  | Print |  E-mail
Sustainable Arizona Blog
Written by Monte Myers   

All of us have heard of Global Warming, and soon, most of us will have heard of Peak Oil. But how many have ever heard of Global Dimming? What’s it mean?

Global Dimming is a gradual reduction in the amount of sunlight reaching the Earth's surface due to particulates in the atmosphere. Tiny particles of soot or chemical compounds like sulfur dioxides reflect sunlight and promote the formation of bigger, longer lasting clouds. The same is true for jet vapor streams or contrails.

Some scientists now consider that the effects of Global Dimming have masked the effects of global warming, and that reducing air pollution may therefore have a huge and previously unpredicted impact on temperatures and sea levels. A rise in temperature could trigger a rapid and irreversible release of the huge deposits of methane hydrates currently sequestered beneath the ocean floor, releasing methane gas, one of the most powerful of the greenhouse gases.

To put it bluntly…Global Dimming has slowed the impact of global warming.

As we clean up our skies through improved filtering systems and cleaner technologies, we are removing a ‘check’ on more rapid temperature increases - potentially unleashing a fury of global warming. Not good news; a bit of a Catch 22, in fact.

In the three days following 911, the entire US air fleet was grounded. No contrails. In those three days, the air temperature range over the US changed by one degree Celsius. Sounds small and insignificant, but in climate terms, that is huge.

Welcome to Global Dimming.

Dimming the Sun (Nova on PBS)

BBC Global Dimming Documentary Video

Duration: 50mins

 
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