Andrew, like so many commentators on Peak Oil, you fail to address the real issues.

There would seem to be no doubt that supplies of sweet easily recovered crudes of the type that have provided the petroleum we need for the past 100 or more years have peaked. However, that ignores the fact that there are many sources of hydrocarbon that have not yet been tapped. These include secondary and tertiary recovery from depleted oil fields (some of which has been happening), coal to oil conversion, gas to oil conversion, shale oil, tar sands etc. It can be argued that these resources are large enough to meet demand for hundreds of years.

The issue is actually an economic issue, and it is useful to look at the issue from that viewpoint. As is the case for many other commodities, oil supply responds to stable pricing. The traditional sources (that have now peaked probably) are very low cost and deliver very large profits to the producer. The alternative emerging sources tend to be high cost (compared with past production costs) and also to be capital intensive in nature.

When a supply curve is developed, plotting volume of supply against price, it becomes evident that if, for example, the oil price were USD200 per bbl, there would be more than ample supply, and for a long time. It is useful to develop a "cost curve" ranking the alternative sources of supply in order of cash operating cost per bbl, plus a capital service charge per bbl. That cost curve is effectively a supply curve.

There is also a demand curve. The higher the oil price is, the more pressure there is to reduce demand. The most obvious example of that is the European car industry which, in response to high fuel prices (driven more by tax than oil price) have developed very fuel efficient vehicles. Continued in next post.....

Contd.....

The biggest issue limiting development of the alternative sources is not technology - in general, the technology is known and proven. The main issue is funding the capital intensive projects needed to provide the alternative supply. As indicated above, these projects can be very capital intensive, resulting in a full cash cost (opex plus a capital service charge) that could approach USD$100 per bbl.

Such projects are almost impossible to finance unless they are to be developed by an oil major from their balance sheet resources. Non-oil major projects could be financed, but only if a guaranteed price of, say USD$100 per bbl, could be provided by offtakers for the financing life of the project, say 20 years. It is likely that countries concerned about energy security (like the US) could easily structure an offtake guarantee of this type.

The last time that non-majors sought to develop such projects (in the late 1980s/1990s) the oil price dropped as low as $10 per bbl and there were financial failures. Financiers remember this.

My argument then is that Peak Oil is primarily an economic issue, and should be discussed in such terms. Guarantee a US$100 oil price for 20 years for qualifying projects, and you will soon see abundant supply emerging.

The geological view expects that physical constraints will dominate the future evolution of oil output and prices. It is supported by the fact that world oil production has plateaued since 2005 despite historically high prices, and that spare capacity has been near historic lows.

The technological view of oil expects that higher oil prices must eventually have a decisive effect on oil output, by encouraging technological solutions. It is supported by the fact that high prices have, since 2003, led to upward revisions in production forecasts based on a purely geological view.

The Pollyannas say, “not to worry,” since the world has an endless supply of affordable oil available for centuries.

It is a race between declining conventional oil and increasing unconventional oil. Can unconventional liquid fuels fill this gap soon?
Professor Aleklett has just completed a comprehensive study of both sides of the peak oil argument. He uses the standard IEA definitions of “unconventional”: Bitumen and extra heavy oil from Canada’s oil sands, extra heavy oil from Venezuela’s Orinoco belt, oil produced from shale, coal-to-liquids, gas-to-liquids, ”refinery additives,” etc.

After a painstaking, detailed analysis, he concludes that the maximum, incremental production increase from all unconventional sources, combined, is about 8 million bpd during the next 25 years. Since the total flow from fields already producing is decreasing 4 million bpd every year, unconventional output gains during the next 25 years can only compensate for a two-year decline in conventional production. More importantly, even if he has underestimated the possible, unconventional oil increases by 100%, this would still only compensate for four years of decline.

There is further a concern, their analysis show an estimate that worldwide conventional oil production could begin declining significantly within five years. Unconventional oil is expensive to develop and has long lead times.

Food for thought!

I look on the bright side of this in that finally some progress is being made in peak oilers accepting that oil itself is not going to run out. Andrew says only the fringers have ever argued that. I beg to differ, but no matter. He even admits that fracking is a factor, albeit not as large as analysts have supposed, and makes some useful points. Finally some one in this area at least aware of major developments.

Once we get past those welcome concessions, we get to the issue of weather the conventional easy-lift oil is running out. Its true that production has not expanded in that area, but Andrew leaves out a major "myth". Economists have pointed out that the OPEC nations have not spent nearly as much as they should have on production or exploration, and the levelling off is just the result of existing production facilities running down.

OPEC has very good reasons for doing this, but as all figures and statements they produce are regarded as highly suspect no one is really sure. However, its the best guess there is, which Andrew will have to get busy and "debunk" if he wants to be taken seriously.

The vast fields now being discovered off the coast of Brazil guarantee supplies for decades to come, but it will be more expensive oil unless, of course, OPEC does something..

Economics does not trump geology or physics.

While oil demand is flat or declining in most OECD nations, total world oil demand is still increasing every year, driven by China, India and the rest of the world. One does not need a PhD in economics to recognise that continually increasing oil demand, combined with flat or even decreasing supply, is a recipe for higher prices, price volatility and never-ending crises. This is the problem facing the world in the near future. The world may be awash in hydrocarbon resources, but none can quickly replace the reliable conventional oil.

For example, Canada produces about 1.7m bpd from oil sands, but it has taken the Canadians 40 years to achieve this output level, thus even if money was no object, and environmental and institutional constraints were minimal, there simply may not be enough time to develop all of these purported and sufficient quantities of unconventional oil resources.

World energy markets and economies will begin to face a rough period ahead as conventional and unconventional oil supplies fail to keep pace with world demand.

To deny this is to ignore reality

Anyone driving a motor vehicle is driving on algae; albeit, laid down and metamorphosed millions of years ago. I've heard all the arguments, that include the usual blurb, that only already existing oil cartels have the economic clout to develop alternative sources capable of replacing conventional oil. What? You jest surely?
Obviously some don't realise Dutch scientists are already growing algae under glass and have reportedly already produced commercial quantities of jet fuel, since 2010?
A Q'ld coal-fired power station is already growing algae nearby, with the intent to eventually completely offset, their entire carbon emission.
Coal-fired power stations produce around 50% of our emission; and given this emission is converted to hydrocarbon via very easily grown algae, we will have replaced all the fuel we currently use, which BTW, produces the other 50% of carbon emission.
Growing algae as very low water use farming, in say the Murray/Darling, will absorb even that, all while entirely restoring prosperity for just one or two percent of current irrigation water use! Closed cycle systems is found to be the most efficacious for year round production, the water preferred; is entirely, recycled waste water!
Some algae are up to 60% oil, which is child's play to extract.
The cost of an on farm bio-diesel refinery, is just $15,000.00, and they are manufactured locally.
Alternatively, we/Gatton Uni, have developed a diesel tree which produces up to 5 tons of bio-diesel annually.
The oil industry "earns" over 4 trillions annually; and, that is a huge market and economic control, and anxious to preserve market share; and or, completely control the emergence of the many very much cheaper alternatives!
Algae absorb 2.5 times their weight in Co2 emission; and under optimised conditions double that body weight every twenty four hours.
So if we are bumping up against peak oil; or if climate change is real; and or, responsible for the very worrying acidification of our oceans?
Then this is the very doable, very cheap means already at our disposal; is able alone to effectively address all of it. All that's missing is the political will? Rhrosty.

Geoff of Perth

this is actualy a reasonable point; "For example, Canada produces about 1.7m bpd from oil sands, but it has taken the Canadians 40 years to achieve this output level."

But you over look the point that the reason for the delay was the price of oil and technology. The Canadians discovered a way to get at a large portion of the sands for a tolerable cost, what, about a decade ago? But that cost was still too high before recent developments in the oil price - hence the delay. It still takes longer to expand output from sale oil site than it does for conventional oil deposits, as I understand it, just not nearly as long as you suggest..

Curmudgeon, I have no problem with your assumption.

The economic reality, from a rational point of view, acknowledges the Canadian example is too long in terms of that which is currently occurring in the energy sector today.

Supply and Demand are two different beasts.

Unconventional energy sources need the price mechanism to remain high, particularly over the longer-term.

Unfortunately we have a fractional reserve banking economic system, i.e. money (credit/debt) created into the system at interest, and this requires continued economic expansion (growth) to sustain itself.

Again, unfortunately this becomes problematic in energy terms. Once a certain percentage of GDP is funnelled into paying for energy (say oil at about 4-5% of GDP) economic contraction occurs.

This is what has been happening in the U.S., Europe and further afield globally since about 2004/05.

No serious 'Peak Oiler' has ever stated we are running out of oil, what they point to is the 'disjunct between conventional "cheap" energy and "expensive" unconventional energy resources’; this is where the classic problem lies.

Economics cannot overcome this problem and our future prosperity is at stake. This is not a shell argument; it is a serious issue that needs serious discussion and action across all levels.

Given the possible economic contractions facing the EU, U.S., possibly China, Japan and other emerging economies in the near to mid term, I see a big problem putting great faith in the merits of relying on 'unconventional' energy resources.

I am sure history will show who has been correct in the years to come!

We already hit peak oil in 2007.

Not peak oil *production*, but peak oil *demand*. Yes, oil demand is increasing in China and India, but not at the rate that was once predicted. New technologies are making pretty much everything more fuel efficient and new energy sources are increasingly being employed instead of oil.

I have faith that humanity will beat this challenge, as we have previous challenges. As oil becomes more expensive, it becomes less desirable and other options start looking more appealing.

Hi Geoff Of Perth,

Some oil Industry terminology is used to describe the two basic types of oil reserves referred to as “Conventional oil” and “Non-conventional oil”.

“Conventional oil “ is typically high quality, free flowing light oil that is under pressure and in most cases pumps itself out of the ground until about half of the oil had been extracted from an oil reservoir. The “peaking of world conventional oil production” is the sum total of all reservoir
production when it reaches a peak and is referred to as “oil peaking” or “peak oil” . Most, of the reserves of conventional oil requires less energy to extract, cost less to refine into fuel and petrochemicals than non-conventional oil. When consumed as fuel produced less greenhouse than diesel or bunker fuel

“Non-conventional” oil reserves are mostly, heavy and tar like requiring a lot more investment and energy to extract from sands or rocks on the surface or under ground and then refine into usable oil products. It includes some high quality, free flowing light oil that is recovered in oil fields in one km or more, deep oceans or from Polar Regions.

Non-conventional oil can also be made from coal or gas which will greatly increase CO2 emissions which needs to be buried underground in a safe way by “geo-sequestration” .Government intervention is necessary to prudently risk manage the unsustainable growth of oil dependence to mitigate the potentially disastrous consequences of conventional world oil production peaking. Oil peaking presents Australia and the world with risks that has to be considered with global warming and food production.Even though global warming rate is still uncertain .

Far more serious risks of air and soil pollution will come with the exploitation of non conventional oil and gas by the under ground fracking of coal and shale.

They seem to keep finding more and more oil.What the cartels are doin, is capping new finds to keep the price high.

I would take with a grain of salt any info from eco-AGW enthusiasts who rely on the lie for their existance at tax payers expense.

Herbert Stencil, I disagree that the problem is primarily an economic one. It is true that economics does play a role in whether or not oil sources a viable and as the price of oil rises then more expensive options become increasingly affordable.

However resource limits are real and at a certain point the energy invested into extracting a resource becomes equal to the energy gained from that resource. This is the case with corn-based ethanol which has an energy returned on energy invested (EROEI) of 1.3:1. It is very close to a zero sum game.

Historically oil has had a net energy return of 100:1. This means it took one barrel of oil to extract 100 barrels of oil. By the 1970s this had decreased to 30:1. Currently we are sitting at about 18:1. For unconventional oil sources the net energy return is much lower. Oil sands are currently estimated between 7.2 and 1.5:1.

The bare minimum net energy return for industrial civilisation to continue to function has beenput at 3:1 http://energybulletin.net/node/52341. It would allow only for energy to run transportation or related systems, but would leave little discretionary surplus for all the things we value about civilization: art, medicine, education and so on; i.e. things that use energy but do not contribute directly to getting more energy or other resources. Although other research I have seen has been put at 10:1 for modern conveniences to continue.

No matter how much money you throw at these unconventional sources you can't break the laws of thermodynamics.

Geoff of Perth, thanks for those great posts! Totally agree.

Yes, Peak Oil is a reality but where is it all heading to.

What is the answer to the Equation:

9 Billion people +1 planet + no Oil = ?

The most likely answer based on current economic rationale is:

9 Billion people + 1 Planet + Peak Oil=

1) Lots of wars
2} No OIL left for transport options
3) Rampaging murder Rwanda style, no petrol means a hammer to the head is the most cost-effective method of controlling the masses. Way cheaper than elections!
4} My personal fortune will treble on the back of arms sales

5) Bring it on!

Summary:

9 Billion people + 1 Planet =

2 Billion people + me & a few thousand ultra rich buddies + no endangered species to impede development + reinstigation of SLAVERY which made this nation great from the getgo.

Hoo Yeah!

Curmudgeon,

It is an interesting point that you bring up about the flattening production figures being due to a lack of investment from OPEC. While widely reported in economic circles that OPEC has a bad track record in investing in the future the actual data paints a different picture. This figure http://greenecon.net/wp-content/uploads/2008/06/opec.jpg shows that the OPEC rig count steadily climbed between 1999 and 2008 although this resulted in only a small increase in production figures that would suggest that the new rigs being drilled were not producing as much oil as previous rigs.

It's an issue I need to look at more in depth when I have the time but thanks for raising it.

Rhrosty,

Personally I have some hope for algal biofuels. Currently however they produce less than 1% of the global fuel demand so they have an extremely long way to go before they can make any real impact so I'm not counting on it. The infrastructure restraints are immense.

People who believe they OWN this planet for the sole benefit of themselves and their descendants NEED secrets lies and fictions to live within the inevitable contradictions.

Hence we have fools who believe in low grade alternative energy strategies, climate science and all manner of ways to overcome Peak Oil so long as you can prove the Second Law of Thermodynamics is a fraud.

EG Oil from algae? You'd need millions of acres and need all the oil left on the planet to tend and harvest and process the bloody stuff. Numbnuts!

Discussions of the potential of renewable energy sources usually do not take into account the need to convert energy from forms that are available to forms that are needed, or can be stored.

This would not be relevant if large scale direct storage of electricity was available.

Conversion is typically quite energy inefficient, meaning much more primary energy needs to be generated than might appear to be the case.

For instance fuelling transport by hydrogen produced from electricity would require generation of about four times the amount of energy that is delivered to the vehicle (train, truck, car etc).

Care needs to be taken when considering losses from electrolysis, compression, pumping and distribution.

Similarly, when hydrogen is used as an energy store for later conversion to electricity via fuel cells, a further .4 or .5 efficiency reduction factor would apply.

In some cases, given current maturity of existing renewable energy sources if the embodied energy cost of all equipment was deducted it is possible that there would be no net energy return, making many current assumptions about the potential of renewable energy somewhat overly optimistic.

I suspect that ‘algae to oil’ will continue to grow and develop but it is quite possible the energy traps outlined above may play some limiting role on these touted future energy solutions

Andrew. Thank you for your comment in response to mine, particularly where you discuss the net energy return, which you say for oil sands are currently estimated between 7.2 and 1.5:1.

I acknowledge that in terms of direct environmental impacts, and also in relation to CO2 emissions, these low ratios seem to be showstoppers. However, I am in the camp that considers that the direct environmental impacts can be managed responsibly, and also in the camp that is far from convinced that anthropogenic CO2 emissions are a serious concern.

However, I respectfully suggest that it is useful to consider the economics of the net energy return. Lets use the worst example you cited of 1.5:1. It would cleary be a real problem if the price used for the energy needed to extract the energy was the same as the price that the produced energy is sold for. For example, if the price for the energy produced is USD100 per bbl and the price of the energy used was also USD100 per bbl.

That is clearly not the case. The energy used in the production process will be low grade energy close to the source, and the likely cost of that energy is likely to be, lets say, USD10 per bbl, and it could be a lot less. In that case, if everything else works, then the economics could be highly attractive, especially if the offtake price were a 20 year fixed price contract.

The low ratio does mean that the recoverable resource is reduced, but most of the resources being considered are very large, and that may not be a factor.

I may have this wrong. If so, please let me know.

Herbert,

Economics is a secondary consideration when considering EROEI. Environmental and C02 emission issues aside if the net energy return of the tar sands is 1.3:1 it takes almost the same amount of energy to extract one barrel of oil as if gained from that barrel. What this means is that modern society fails continue operating because the majority of energy is used to extract more energy, rather than having huge surpluses that we have seen over the last 150 years that let us grow economies and produce luxury items etc.

Chris Martenson has an excellent 12 minute video that explains it better than I do: http://www.chrismartenson.com/crashcourse/chapter-17b-energy-budgeting

A mind exercise highlights the REALITY of imminent PEAKOIL:

Suppose Oil deliveries globally shut down tomorrow.

No trucks to deliver coal to power stations would cut electricity within a week. It would cut what few nuclear plants there are within a year.

Police could not attend melees over petrol theft within a week or so. Civil strife would become incendiary within two months. Only hermits and the motor cycle thugs would prevail. Mad Max within 6 months.

What that tells us is that all alternative energy schemes are a combination of covert and overt governmental taxpayer funded subsidies. Every company from CSG to coal are double dipping into the public's purse to GET a business and a life. They are not supplying NET energy to the market!

In return we get environmental degradation, biodiversity elimination, maniacal, schizoid politicians who have to find clumsy excuses to immigrate their constituencies because everyone hates them and we get the social disruption costs of that.

As Caltex has just pulled the pin on 800 workers and may leave Australia without refining capacity, the above scenario MAY come to play by 2015 instead of the 2025 to 2030 deadline proposed in the Pentagon Papers.

So don't believe beneficiaries of this insane social scheme when they say: "we have already TOLD you this can never happen".

Consider: We are here because our DNA evolved in the cauldron of Geothermal-Hydrology and molten-rock chemistry. Also Oil's Heat capacity is over 90% Geothermal in origin and yet oil companies only provide token media recognition. They pump billions into insignificant solar and wind strategies that totally depend on oil.

It is not sufficient for Australia to maintain refining capacity. We must also have a solid & expanding Geothermal power program that uses Hydrogen cutting heads to vaporise rock at the rate of 7Km/ month with up to 20 geothermal wells per production site. An onshore Turbine and generator manufacturing facility is also mandatory JUST to provide High tech jobs as a reversal of the utter humiliation that the ABBOTtisation or offshoring of EVERY manufacturing capability has created in this nation.

Andrew. I watched the Chris Martenson presentation, but colour me unconvinced.

He, like you, airily says to wave away economics, just look at the net energy balance in terms of Energy Out v Energy In. His points are valid, but only if the cost of the Energy In is the same as the cost of the Energy Out.

However, at least in some situations, that is NOT true. For example, as I already explained, in some of the alternative energy projects using waste energy, or low-grade resources at cost, the cost of the barrel of Energy In could be, say, $10, whereas the sale price of the Energy Out could be $100 per bbl. If that were the case, then the economics could be just fine.

What I am saying is that the economics will vary project by project. Some are likely to work at a net energy ratio of 1.5:1 whereas others won't. There is no option but to go into the detail of each project and see if they work economically (and environmentally) or not.

Clearly you cannot ignore economics. They will always dictate whether a project will proceed or not.

The trends of peak oil settle out to two different streams.
The first, geology gives a certain depletion rate.
The second economy gives a slower depletion rate.

The IMF has recently produced a model that combines both models and
as might be expected produces a depletion rate between the two other models.

Here is a link to an article about the IMF model.

http://www.theoildrum.com/node/9182
by Posted by Gail the Actuary

No matter how people argue about the effect of price, geology will
eventually trump economics.
We will always have enough oil for urgent usages such as medical plastics.

Those that still say there is plenty of oil and we will never run out
are in the same group as those that believe that aliens have been visiting earth.

I mentioned two trend beliefs above but there is a third that is sure
that there is a magic silver bullet somewhere.
The latest magic silver bullet is cold fusion.
Well, maybe, but that is their best bet.