BIKE: Good review of energy crisis, etc.

[Roger Baker]

[This Murray Duffin is  one smart fellow -- able to link the world of
science and energy and politics very well. Below is his review of where
we are now, energywise, with a great list of energy links at the
bottom. Don't sell your bike!

Also, I understand Time Mag was at the Texas toll road and corridor
summit meeting that Ben Wear reported on in his Monday column.
I was there too and Eric Slotboom has put together some devastating
info on the unworkability of the transportation corridors in Rick 
Perry's
Trans-Texas Corridor Plan. You can access this info at

http://www.firericwilliamson.com/

It seems that of all the major rural roads in the state, the only one 
that
may need extra lanes in the foreseeable future is IH 35 between San
Antonio and Hillsboro. What about growth on the NAFTA corridors?
It seems that most of the manufactured goods are now being imported from
China and not from the Mexican border as the road lobby had predicted.

None of this takes into account peak oil, which dooms the economics of
toll roads, both statewide and here in the Austin area.  Speaking of 
which,
the latest Austin Business Journal has an article on how SH 130 is 
behind
schedule due to slow real estate acquisitions. It is/was supposed to 
open up
in late 2007.  Won't they be surprised to see how the cost of gasoline 
is going
to affect toll road use? Much of the economic growth in this region is 
now
low paying jobs and the in-migration is low income Hispanics and not 
high-
tech jobs, and those guys shun toll roads according to data from the 
Houston
  area. -- Roger]




             ************************************************

Jules UK
http://www.energybulletin.net/3189.html
Published on Wednesday, November 17, 2004 by EnergyPulse


The Energy Challenge 2004 - Petroleum
by Murray Duffin



The Current Situation

Recent high prices of oil have raised the visibility of the petroleum
challenge considerably, but there is still more heat than light being
generated on the subject. For the first weeks of the recent price
surge, most writers were trying to lay blame on OPEC for acting like
robbers. In fact, as analysts are now beginning to realize, prices have
gone up in 2 stages. The first in 2003 was simply due to the weak
dollar. During that stage, the price in Euros barely budged. The second
(2004) is due to WW demand outstripping supply, aggravated by security
concerns. The weak dollar and the security concerns are direct results
of Bush programs, i.e. the tax reduction budget deficits, and the war
in Iraq.

The gasoline price increases we have seen recently result from 4
primary causes.
    a.. Worldwide oil demand is at or above installed production
capacity. There may be 2% of slack left, all of it in Saudi Arabia and
Kuwait. World economic recovery and booming energy demand in China and
India are outstripping production increases.
    b.. Second, the supply of low sulfur crude is even more critical, and
most USA refineries are designed for low sulfur crude.
    c.. Third, no new refinery capacity has been added in the USA in
nearly three decades, and with numerous different gasoline mixes
mandated by our 50 states to minimize summer air pollution, refinery
capacity is max'd out. USA gasoline demand is up about 3% year on year,
mainly due to growing use of fuel inefficient SUVs.
    d.. Fourth is fears about middle-east instability causing governments
to increase strategic reserves, and investors to go long.
You will hear that oil company profits are up 90% and that is true.
What you will not hear is that oil company profits have been dismal for
several years, which is one of the reasons that no refinery capacity
has been added. Even after this nice rise, profits are not excessive.
No, I am not a spokesman for the oil industry.

What most people don't know is that USA oil production has been in
decline since 1970, with the rate of decline slowly increasing. It's at
about 4%/yr. now. We now produce only about 40% of the oil we consume,
and oil imports are the single largest item in our very negative
balance of payments. If you had to pay at the pump to maintain the
military we keep in the middle-east to keep the supply lanes open, (not
counting the cost of the war in Iraq), instead of having it buried in
the defense budget, gasoline would be over $7.00/gal today.

To make things more interesting, worldwide oil production will probably
be in irreversible decline before the end of this decade. The present
high oil and gasoline prices are just the first tremors of the
earthquake that is coming.

Some months ago Lee Raymond, the chairman of Exxon-Mobil made a
presentation that included a curve showing historic oil production (in
Mb/d) and projecting future supply and demand. The supply curve, based
on production from present known reserves sloped downwards. The demand
curve sloped upwards. The growing gap between supply and demand
represented new sources that we must discover to support world economic
growth. Mr. Raymond made the point that by 2020 we must find enough new
oil sources to supply 50 Mb/d. Today Russia and Saudi Arabia are each
supplying a little more than 9 Mb/d, and struggling to get to 10. Their
combined claimed reserves are about 400 Gb. One can extrapolate that we
need to find and develop1100 Gb of new reserves during the next 15
years, or an average of about 75 Gb/yr. During the last 15 years, with
plenty of incentive to find new oil sources, we have not averaged 10
Gb/yr.

Let's forget about economic growth, how about just offsetting declines.
If Mr. Raymond's curve reflects reality we would still have to find
about 30 Gb/yr. How are we doing? From
www.ems.org/rls/2004/01/28/oil_supply_short.html we find the following:

The rate of major new oil field discoveries has fallen dramatically in
recent years. There were 13 discoveries of over 500 million barrels in
2000, six in 2001 and just two in 2002, according to the industry
analysts IHS Energy. For 2003, not a single new discovery over 500
million barrels has been reported. Key findings of a recent Petroleum
Review report are:
    a.. Between 2003 and early 2007 some 8 million barrels/day of new
capacity is expected to come on stream.
    b.. In 2005, 18 projects with a potential peak capacity of 3 million
barrels a day are due to come on stream, slowing in 2006 with 11 new
projects followed by 3 in 2007, and 3 in 2008 adding a cumulative 4
million barrels/day of potential new capacity at their peak.
    c.. It appears likely that from 2007, the volumes of new production
will fall short of the need to replace lost capacity from depleting
older fields.
Further confirming this trend, recent E&D results strongly support the
expectation of a near term peak in oil production. The net present
value of all discoveries for the 5 oil majors, during 2001/2/3 was less
than their exploration costs.

Six months later, in World Energy, Mr. Raymond admitted that we have to
find enough new oil to provide 8x Saudi Arabia's current output, i.e.
at least 5 new Saudi Arabias, or 7 Russias. How likely is that too
happen? Oil in the earth's crust is distributed fractally along a curve
of declining field size versus increasing field occurrence. There are
very few super giants, a few more giants, more majors, etc. down to
many, many insignificant fields. Because they are the easiest to
detect, the big ones are found first, and they have been found. There
are about 41,000 known oil fields worldwide, of which about 21,000 are
termed very small to insignificant. The probability that we have found
so many small fields, and overlooked any more big ones, let alone a
Saudi Arabia or Russia, is near zero.

Recent events and near future

In the 2 months since the rest of this paper was written the price of
oil has bounced off of $56.00/B. In the past, when supply and demand
were in close balance (due to artificially constrained supply), price
has been very volatile. A 1% change in the balance can cause a 30-50%
swing in price. When supply has been constrained below demand, price
has doubled or tripled in a very short time. Excluding a very small
slack capacity for sour crude there is a large possibility that we are
now at another tipping point. . In current dollar terms, during the
prior "oil shocks" prices went to $70-80/B; oil is a much smaller % of
USA GDP than in 1973; gasoline is a much smaller % of household budgets
than in 1973; and China's labor costs are so low that energy cost
increases can easily be passed on to customers. Given these facts, we
can expect prices to continue to increase, possibly with brief
declines. Do not be surprised if oil prices spike to => $80.00/B in the
next weeks, as cold weather raises heating oil demand. On the other
hand there is some evidence that China and India have been building
strategic reserves, and if their capacity fills, a temporary drop in
demand could send prices back to the low 40s for some months. Simmons
expects another large demand increase in 2005, so lower prices are not
likely to last long.

The "D" Words

Analysts, economists and industry spokespersons seem very reluctant to
talk about depletion or production decline. Chris Skrebowski of ODAC
has analyzed the 2004 BP Statistical review of World Energy and has
noted that there were 32 countries that were able to increase
production in 2003, vs. 18 countries which have been in decline for 3
years or more. In 2003 the growers had to increase production by 7.5%
to offset declines of 4.9% for the decliners to give net world growth
of 3.7%. Production from the 18 countries now in sustained decline
peaked in 1997, and had fallen 10.7% by 2003. More countries are
joining the decliners list, their rate of decline is increasing, and
the growers list is not growing, so the burden on those still growing
is increasing rapidly.

In 2003 several of the growers increased production by near 10%, mainly
by reopening wells that had been shut in during the price declines at
the end of the last century. Now every one is operating close to or at
installed capacity, so a similar increase cannot be repeated. To
increase capacity significantly will require large investment and some
years. Declines however continue to accelerate. It is only a matter of
time, and not much time, before growth is no longer able to offset
declines.

Petroleum Background

There is a phenomenon, well known in the oil industry, but little
publicized, that when an oil field has been about 50% depleted,
production begins an irreversible decline. In 1956 a petroleum
geologist named M. King Hubbert applied this concept to an analysis of
the lower 48 states, and predicted a decline of production starting
about 1970. He was derided at the time, but lower 48 USA oil production
has been in decline since 1970. The phenomenon has been named the
Hubbert Peak, and the production growth and decline curve is often
referred to as a Hubbert Curve.

In 1998, using the best petroleum industry database available, two
petroleum engineers (Campbell and Laherrere) applied a Hubbert analysis
to the entire world, and predicted a peak between 2000 and 2010.
Refined analyses since then focus on 2005 to 2010. In fact, due to
economic and political factors, there is more likely to be an irregular
plateau, with possibly several small peaks before the decline, but an
irreversible decline by 2010 seems inevitable. There is a great deal of
real data to support such a view and little but untenable optimism to
support alternative views. "In God we trust, others please bring data!"

We know that Middle East reported reserves grew by about 280Gb between
1987 and 1990, with little additional exploration, and remained
constant during the 1990s in spite of continuous production. It is
certainly more likely that reserves are overstated than understated.
Middle East reported reserves seem to have been influenced by OPEC
quotas.

The USA consumes about 25% of world oil production and imports >60% of
consumption. With growing demand from developing countries and
exploding populations in OPEC countries, we will not be able to
maintain our present share of world oil, short of occupying the entire
Middle East. When world availability begins to decline, our
availability will decline faster. Imagine a world where natural gas
availability has suddenly dropped by half, and oil availability has
gone into irreversible decline, and we have done nothing in advance to
compensate. That is the world we face with the present Congressional
energy bills, and it will lead to an economy that will make the Great
Depression look like a picnic. We can alleviate that probability by
addressing energy conservation and efficiency, and developing renewable
electricity alternatives vigorously, starting now, but that is the
polar opposite of the emphasis of present pending legislation!

So far, in their speeches Vice President Cheney and Secretary Abraham
have looked out 10 to 20 years, but not beyond 20 years. By 2030, oil
availability will be For detailed petroleum information visit
www.peakoil.net/ , and look particularly at the newsletters archived
there. For a presentation on Saudi Arabia oil prospects go to:
GlobalPublicMedia.com or try the tiny URL at: tinyurl.com/5bx3t .



Petroleum Myths

Poor information and silence
Understanding the Petroleum challenge is hampered by a lot of
non-information, misinformation, disinformation and confusing
information. There are numerous myths floating around, a few of which
need to be addressed. Fortunately the most insidious myth of all, the
implied myth of silence on the subject, is now dying. High oil and
gasoline prices have recently led to a growing spate of articles in the
printed media, and frequent mention on TV. Most recently the topic has
been featured in business-oriented magazines like Business Week and
Fortune, both in August 2004. The ability of government and industry to
keep the issue under wraps is rapidly eroding.

USGS Disinformation
In their year 2000 report, the USGS (United States Geologic Survey)
project estimated ultimate recovery (EUR) of 3,000 Gb, with "potential"
discovery plus reserve growth adding 1,300 Gb to reserves from 1996
through 2025. The word "potential" is not defined. They seem to have
taken USA reserve growth history and applied it to recently reported
world reserves, a statistically invalid approach. With 8 years of the
period in question now elapsed, actual reported discoveries are less
than 30% of the needed run-rate. Reserve growth is not reported, but
the highest number that could be inferred is
    a.. We are not discussing the end of oil (total exhaustion of
reserves); we are talking about the end of cheap oil, the post-peak
decline, when half the original endowment is still available.
    b.. The implicit premise of the R/P is that production can be held
constant until oil is exhausted and then drop abruptly to zero.
Petroleum doesn't work that way.
    c.. The USA R/P ratio has been near constant for three decades, while
both R & P have declined in lock step.
    d.. When low on gasoline, you can continue to accelerate your car
until the tank hits empty. Increasing production does not imply that we
are far from peak availability.
Misstated reserves
The scariest probable myth of all is stated reserves. It is likely that
at least some of the reserve increases claimed by OPEC in the late '80s
were political, not geologic. The virtually unchanged reserves during
the last 15 years, while about 120 GB have been produced by OPEC, is
simply not credible. Real world reserves might well be 200 to 300 Gb
less than claimed, and the world production peak might well be in 2004.

Conclusions
    a.. As T Boone Pickens has recently noted, sub $30.00/B oil is a
thing of the past. Sub $40.00/B will not be experienced often or for
long.


    b.. We are much more likely to see $80.00/B oil than $30.00/B oil in
the near future.


    c.. There are no fossil fuel supply side answers to the challenge of
high oil prices.


    d.. We had better start developing demand side and renewable
solutions while we still have abundant fossil fuel to develop them
with. There is no second chance.


    e.. Present industry and government awareness and responses are
contrary to our needs, and must be changed, - urgently.


    f.. Up to now the Power and Gas segment has not perceived petroleum
as their concern. Declining petroleum completely changes their future
also, and they need to wake up to the fact.
PS: This just in,
    Some of the industry's most informed participants believe there is
little that can be done to increase worldwide oil production. Earlier
this year, British Petroleum announced that it will be returning to
shareholders all cash flow it receives in excess of $25US per barrel.
For every dollar the company receives in excess of $25US per barrel, BP
will adjust its dividend or increase its share buyback program to
return the cash flow to shareholders. BP has essentially given up its
effort so increase production or even keep production flat. Instead,
the company has chosen to give shareholders back their capital with
interest.
REFERENCES


Other key Internet sources include:
    www.odac-info.org/
    www.asponews.org/
    members.home.nl/peakoil/
    www.wolfatthedoor.org.uk/
    www.peakoil.com/
    hubbert.mines.edu/
    www.simmonsco-intl.com/research.aspx?Type=msspeeches
    www.oilscenarios.info/