Paranoia over Peak Oil Production

10/16/09 -- There I go again with another 3 Ps

The paranoia over Peak oil Production never seems to still cause much gnashing of teeth and tearing of hair in some segments of the industry and among some policy makers. It is that time of the year here in Denver for such emotions to come forth in the ASPO (Association for the Study of Peak Oil) conference. The camps remain perpetually divided between the evangelical believers in the doom society will experience as we go down the slippery slope of production decline and those who see the true believers as false prophets and flaks.

Get a life. While it does seem that the world is running out of cheap oil and the low hanging fruit has been picked, is the world running out of energy? The Peak Oil issue only diverts attention from the real problems of supplying BTUs to fuel the global economy. And, as the case that is being made throughout this report, the global economy does not give a damn about what form those BTUs come in as long as there are plenty of BTUs available at a reasonable price.

To answer the peak energy question, one needs to evaluate the BTU per dollar of development cost for the world’s portfolio of potential energy supplies. (Note: This is an analytical exercise with too many assumptions for me to want to review in the literature or to take on myself.) It is an economic issue and not a geologic one.

When looked at in such a harsh economic light, we can see how there might be a peak in oil caused by:

  • Restricting access to oil-bearing areas
  • Restricting the production of oil for such reasons as the “cost” to the environment
  • Restricting (discouraging through taxation, etc.) investment in oil production, refinement or use
  • Technological breakthroughs in other forms of energy

Any of the above and a myriad of other non-geologic reasons can result in a decline in oil production from a peak that could even be permanent. But, who cares?

This should not be a concern for those worried about energy independence (a disingenuous term in its own right). Energy security (the real issue) can best be achieved by access to the diverse resources in global BTUs and innovative and entrepreneurial human technology.

Points to Ponder

  • In spite of all the hoopla, the “Peakers” do have a point regarding the transition from a hydrocarbon-based society to what ever lies out there beyond the horizon. Society and technology must come through in a timely manner in order to mitigate the inevitable decline in finite natural resources of all kinds, especially of the hydrocarbon genre.

Does society need to panic? It just might if your policy makers go off on useless tangents and ignore or avoid hard but real solutions. Indeed, the energy industry, still acting in its own self-interest, will have to continue its innovation in BTUs. (Note: A former president of the Society of Petroleum Engineers suggested that the SPE needed to look at itself as the Society of Professionals in Energy.)

  • Free markets give price signals about what those market players see regarding the future of supply and demand for that product. In the case of any potential peak oil scenario, the time frame for such any occurrence seems to be beyond any regularly traded futures contract.
  • Are the new technologies that are vastly increasing our reserves from shale in natural gas putting any peak in energy supply out beyond the visible horizon? 
  • All natural resources, by definition, are finite resources. But is this a problem? Even peak energy does not really seem to be a cause for concern as technology and the energy supply mix are always, but not necessarily smoothly, expanding to meet demand.
  • Technology tends to bring production online faster, but it also prolongs the life and ultimate recovery of the oil in place, spreading out the decline over a longer period. 
  • The supply of energy certainly does impact the price of energy, and oil is not only a very significant component of the energy supply, as noted in Step 3, but also the default base price of energy to which all other sources are tied. The forecast in Figure 4.1 reflects my belief that, while a finite resource, oil will remain a significant player in the energy mix for a long time, and that there is not a precipitous decline in oil production in the future. Rather, as this resource is depleted, its production and impact on the energy mix and pricing will slowly decline. Of course there is always a finite chance that events do not play out in this manner. And that is why you see such a wide range in this forecasted distribution.
  • While the real issue is whether the global economy is running out of energy, this debate has had the benefit of focusing society’s attention on the need to face some potential transitional pain as we eventually move to something other than a petrocentric economy. In this future world, hydrocarbons will find their highest and best-end economic use in some non-fuel function. Indeed, in the ′70s the Shah of Iran said that oil is too valuable to be burned in a car, as it needs to be saved as chemical feedstocks.

Economic opportunity is a great motivation for innovation and new technology, if there is a twinkling of science somewhere. However, this debate really may be like the game of peak-a-boo that we play with babies: Sometimes our blind reliance on oil may come out and scare us. That result would be even more volatility in energy prices than I can address or care to imagine.

  • Personally, I see an awakening for the total replacement of fossil fuels in the world’s electrical generation needs. Nuclear power is a reality and fast breeder technologies or even fusion will help solve the nuclear waste problems we have from current fission technology. This would not only make electric power for transportation much more feasible, but it would truly free up these hydrocarbons for their highest economic end-use.

Indeed, look to transportation energy prices as the first sign of a problem. With transportation so dependent on oil, transportation is truly the transparency the market will give us. Still, oil is just a BTU and we can only hope that BTUs will be available in some form. (I’m still plugging for di-lithium crystals.)

  • The case is made that oil and gas are a finite and depleting resource. This is certainly true, but probably more in the sense of the millennium than of something that will happen in the near term. The most recent M. King Hubbert curve that I have seen suggests that oil reserves will peak in 2028.

I prefer to think that the Peak Oil crowd should place more faith in the astronomers. In 2007 the panic was over the asteroid, Apophis, predicted to hit Earth on April 13, 2036 (now reduced to a 1 in 250,000 chance.) In 1998 it was asteroid XF-11 that was predicted to hit Earth in 2028. See how much better we are at prediction today to have an actual date rather than just a year? But 2028 or 2036, who cares? In this scenario, the world will not really care about global warming and will want to consume as much energy as will make our final days comfortable. I should note that the year 2028 would also be appropriate as the economic limit for any project under consideration. But, I digress.

 

 

 

Click here for more information about Confessions of an Energy Price Forecaster: A 12 Step Program to Enlightenment

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