Tuesday, November 16, 2010

IEA 2010 Report:Peak Oil Exists After All(sorry folks).

I follow the periodic reports from the International Energy Agency(IEA) and our own domestic equivalent the EIA. World supply and demand figures form a big part of the reports out of the Paris based IEA and this recent report seemed benign and banal enough until I had some time to study the graphs and contrast them with the text. For many years, the IEA has been predicting  world oil demand and expected production with figures that seemed chimerical to me and increasing every year. Their production forecasts always kept up with world demand out many decades to come and were in line with our domestic think tanks like like Daniel Yergin at Cambridge Energy Research Associates(CERA).   CERA and  the IEA debunked Peak Oil as an immediate or even near term issue. IEA years back predicted world production into the distant future of up to 120 MBD but in the past few years that number has been ratcheted back to 105 MBD,  then to the mid 90’s. Here is the graph I saw yesterday oil global oil production and you tell me what you see:

IEA                                                                                                                                                                                     Click to this link if you want a enlarged look also at this graph and others :http://www.worldenergyoutlook.org/docs/weo2010/key_graphs.pdf. This link will also get you to the 2010 Annual Report which is 63 pages and well worth a critical read.A whole lot of very percipient authors starting with M King Hubbert in 1956  have predicted an imminent peak to first domestic then world oil production. They have included many distinguished petroleum geologists like Ken Defeyes, Colin Campbell as well as CEO’s of various energy and energy financing companies like Matt Simmons and a whole raft of authors such as Richard Heinberg, Jim Kunstler, James Michael Greer and others. The fact and the reality of Peak Oil as it was then called was certainly known in high political circles but was systematically concealed from the public. The super secret energy conferences at the beginning of the Bush administration almost certainly discussed this reality as the invasion of Iraq and Afghanistan and the isolation of Iran virtually prove. The invasion of these middle east countries were no more about democracy than cow pies are about pie. Dick Cheney and his oil goons knew the US was 30 years past our peak and those wars were about access to oil and nothing else. Of course, if a few of our mercenary forces could nail a few jihadists, so much the better. It made good press and concealed the real purpose of the mission which was to secure oil access corridors. There are 28 members of the IEA and most are also OECD countries. Chile, Iceland, Mexico and Slovenia are OECD Member countries but currently not IEA Member countries. You will note some rather curious countries in the mix many of whom have no significant petroleum resources. In fact none of them have significant petroleum resources except the US, Canada and perhaps England. These countries are  a curious collection of countries that just need petroleum even though a few like Iceland, Greece and Ireland are virtually bankrupt. What is also obvious is that none of the petro powers are members. Curioser and curioser. This motley membership list is just one of the odd things about the IEA. What is also apparent if you are used to reading the much vaunted IEA reports is that the IEA is  primarily a political organization putting out often unverifiable energy data for the consumption of its members. Now to get back to the graph, if you look at the navy blue portion, you see that peak oil is staring you in the face. For the time being look only at the blue portion of the graph. That is conventional oil. Forget the unconventionals, biofuels, tarsands, ethanol, propane and so forth. Most of the non oils are subsidized or of lower btu content. To repeat, look at just crude oil. That is the real story, the only important story. The other "fuels" are fog and mirrors, fluff, fog, and mud thrown into your face hoping you don't notice the blue portion of the graph. In fact we hit it in 2005 and have been clattering along on the summit ridge for 5 years or so but until this years report which made Peak Oil  impossible to ignore.  Another oddity:The IEA with this graph has announced in effect , all is well. Just look at our graph. It slopes up(Yea!) and only minimally in the report is there a mention of  EROEI, the net energy required to produce this petroleum to the right of the vertical line marking 2009. The really REALLY important thing to take away from this graph is that it takes vast and increasing amounts of energy, usually oil, to be able to produce the new oil. The old oil was cheap to produce. The new oil will be expensive.Once you reach the point where it takes one gallon of oil to produce one gallon of oil, you are out of business. In fact by the time you get to say 3 gallons  to get one,according to some experts, you are toast. Lets look at some of those other colors which are supposed to save us..Unconventionals are things like oil sands and shales, biofuels, coal to liquids(CTLs). They are almost entirely subsidized fuels. In the case of the Canadian oil sands, the extraction is subsidized by tax policy,governments and mostly by the rock bottom cost of natural gas which is far below the cost of oil on a btu basis. Remove the subsidies and the sands are dead or nearly dead as their EROEI ration is approaching 3:1. The subsidiers will argue that it is much higher of course because they are on the receiving end of that tit. Forget oil shales and CTLs most especially. Germany lost the war because it’s distillates for its war machine relied upon CTLs with low net energy. Once they failed to hold oil fields and refineries, they were toast. Biofuels have very low net energy unless they use non petroleum energy or are used on site. They are kept alive by subsidies, currently $.45/gallon for ethanol in the US.  Remove the subsidies and they are toast. Natural gas liquids are compounds like propane, butane,ethane, , natural gasoline and a few others that come out of oil wells as well as the gas wells. The predominant component of gas wells is CH4, methane, but it is mixed in with these other gasses along with nitrogen, SO2 and water vapor. It’s production stays constant out to 2035 . The obvious implication is that NGL’s will be coming in vast quantities from gas wells, not oil wells. NGl’s have a market value currently of about 35% of what oil goes for, about $30/barrel. Methane doesn’t go for much these days so my gut tells me that just going after NGL’s will not be cost effective as net energy costs rise. The next color, the light blue just has to be  total guesswork. It implies there is a lot of new oil to be found, a dubious assumption. Certainly there is likely that amount of oil to be found but it will be expensive hard to produce oil in dangerous and distant places. It will likely have a high EROEI, or net energy.  The gray is perhaps a bit more reliable with fields to be developed. Some will be very expensive oil, most offshore and most in politically unstable areas like Iraq. Will peace break out and the Shiites shake hands with the Kurds and Sunnis? I would say unless that happens or Iraq is partitioned into 3 countries, that graph could get pretty slender.  Now there is one other graph of vital interest which is Pg 5 on the IEA report which is rarely mentioned.  Oil demand in the future will be driven not by OECD countries who don’t have much oil, but by countries like the Persian Gulf, Russia, and Brazil who do. Curiously, the graph shows declining consumption of fossil energy in the richer nations and increasing consumption in the poorer nations. So if I am reading this correctly, the more scarce and expensive these fuels become, only the poor nations will be able to afford them. This is patent nonsense. The poorer nations will soon be priced out of the market, outbid by the richer nations.The poorer nations have been late to the industrial party and just as they are beginning to taste the dubious fruits of industrialization,  the rising cost and scarcity of energy will cut them off at the knees. The richer Western nations got to the cheap energy first and partied like there was no tomorrow at the expense of the third world nations.. The Persian Gulf exporters will party on for a while longer surrounded by highly militarized nations running  on fumes. It doesn't take an Einstein to figure out the next step. Many of the  Gulf nations are incapable of making anything. The Saudi terrorists who caused 911 had to use imported box cutters to break into the cockpits. Many of the desert exporters grow very little of their own food from their harsh desert landscape and  are buying up rich farmland in distant poor lands to feed their people. Imagine the thoughts going through the mind of a starving native watching convoys of food passing through his impoverished village on the way to Riyadh. These long complicated food supply chains carry obvious seeds of their own destruction.But I digress.                                                                                              There is a so called Land Export Model which states that as oil consumption in he exporting lands increase, oil will go to the producers first and the rest of us get what’s left. Mexico, for example is fast approaching this point when they will have only enough oil for Mexicans. So not only does net energy shrink the IEA graph(imagine it made of wool and then put it through a hot wash and a hot drier), but the availability of that oil reduces what’s left for the largely white, post colonial members of the IEA.                                               Hey you say, What about China? That will be the subject of an upcoming post.

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