[Graeme]

An oil crash is on its way and we should be ready

Today, our risk blindness is threatening an even bigger crisis. In my book The Energy of Nations, I argue that the energy industry's leaders are guilty of a risk blindness that, unless action is taken, will lead to a global crash – and not just because of the climate change they fuel.

Let me begin by explaining where I come from. I used to be a creature of the oil and gas industry. As a geologist on the faculty at Imperial College London, I was funded by BP, Shell and others, and worked on oil and gas in shale deposits, among other things. But I became worried about society's overdependency on fossil fuels, and acted on my concerns.


As a result of their complacency we face four great risks. The first and biggest is no surprise: climate change. We have way more unburned conventional fossil fuel than is needed to wreck the climate. Yet much of the energy industry is discovering and developing unconventional deposits – shale gas and tar sands, for example – to pile onto the fire, while simultaneously abandoning solar power just as it begins to look promising. It has been vaguely terrifying to watch how CEOs of the big energy companies square that circle.


Fourth, we court disaster with assumptions about oil depletion. Most of us believe the industry mantra that there will be adequate flows of just-about-affordable oil for decades to come. I am in a minority who don't. Crude oil production peaked in 2005, and oil fields are depleting at more than 6 per cent per year, according to the International Energy Agency. The much-hyped 2 million barrels a day of new US production capacity from shale needs to be put in context: we live in a world that consumes 90 million barrels a day.

It is because of the sheer prevalence of risk blindness, overlain with the pervasiveness of oil dependency in modern economies, that I conclude system collapse is probably inevitable within a few years.

newscientist

Jeremy Leggett is a social entrepreneur and writer, and is chairman of Solarcentury, SolarAid and Carbon Tracker. His latest book is The Energy of Nations: Risk blindness and the road to renaissance (Routledge)

[rollin]

If everything goes well, oil production may continue for several more decades. Total production may fall but it will not generally be in large steps.

Since everything going well is a rare case, there most likely will be large drops in production on occasion. These could be caused by:

Political crises in oil exporting nations.
War involving oil exporting nations.
Stealth cruise missile attacks on critical oil infrastructure and transport by rogue organizations.
Economic problems reducing investment in drilling and pipeline building.
OPEC lowers it's output dramatically due to oil field failures.
Several major hurricanes strike the GOM reducing production and refining.
Disruptive energy and transportation technology reduce investment in oil production setting up a domino effect through the industry.

There will come a point where oil production is no longer very profitable, then production will fall rapidly.

[ROCKMAN]

"I argue that the energy industry's leaders are guilty of a risk blindness that, unless action is taken, will lead to a global crash". I have no idea who he's talking about. I've worked with the folks he's referring to for almost 40 years and not a single one of them was ever 'blind' to the possibility of an "oil crash" . Especially since all of them have lived thru at least one or more crashes. All projects are evaluated on future revenue streams. besides the obvious need to find the grease in the first place the next critical factor is project the price of oil into the future. Given the countless companies that have cratered because future price expectations failed to materialized to think that oil patch management is unaware of the possibility is absurd.

We are always taking risks. We are aware of the possibility of a crash. The trick is timing: make and recover your investments before the next crash. And there will always be the "next crash". I know it and everyone in the oil patch knows it. The only uncertainty is when it will happen. Perhaps he should have stayed in the oil patch a little longer and learned what all the rest of us know: boom...crash...boom...crash. Etc.

[Rune]

The difficulties in extracting cheap fossil fuels, their higher costs, and the hype over global warming catastrophe (probably, ultimately a postive thing) will lead to a resurgence in worldwide nuclear energy.

Photovoltaics and oter energy sources have their place, of course, and we definitely are seeing much progress in this area. But nothing can change the fact that nuclear energy can provide an abundance of baseload energy. It really just amounts to political and economic will to do it.

However, our current nuclear energy paradigm was conceived and developed in The Cold War, which led to a reliance on the Uranium Fuel Cycle and its plutonium product as well as its spent fuel disposal problem.

Before any fossil fuel catastophe has a chance to fully blossom, the world will have modernized already extant designs for molten salt reactors based on the thorium fuel cycle, which is much less problematic overall.

The is CERN Thorium Conference taking place right now. A international effort is already underway, albeit, nascent.

Even the likes of James Lovelock have come out in favor of nuclear energy. It just makes so much common-sense and solves so many problems.

[John_A]

Perhaps he should have stayed in the oil patch a little longer and learned what all the rest of us know: boom...crash...boom...crash. Etc.

Good point...those not in the oil field knowing much about it. Silly rabbits all. Remember the good ol' days Rock?

Upper right hand corner...had one myself. Hoo Rah!

[Graeme]

"I argue that the energy industry's leaders are guilty of a risk blindness that, unless action is taken, will lead to a global crash". I have no idea who he's talking about. I've worked with the folks he's referring to for almost 40 years and not a single one of them was ever 'blind' to the possibility of an "oil crash" . Especially since all of them have lived thru at least one or more crashes. All projects are evaluated on future revenue streams. besides the obvious need to find the grease in the first place the next critical factor is project the price of oil into the future. Given the countless companies that have cratered because future price expectations failed to materialized to think that oil patch management is unaware of the possibility is absurd.

We are always taking risks. We are aware of the possibility of a crash. The trick is timing: make and recover your investments before the next crash. And there will always be the "next crash". I know it and everyone in the oil patch knows it. The only uncertainty is when it will happen. Perhaps he should have stayed in the oil patch a little longer and learned what all the rest of us know: boom...crash...boom...crash. Etc.

If there is another "crash", then the next one may well be impossible to recover from. Global warming is guaranteed whatever we do, and it will strike to some with unexpected force from next decade beginning in the tropics.

[ROCKMAN]

Not "if" there is a crash but "when". Even after almost 40 years it's easy to remember the hubris/stupidity of the late 70’s boom. I was too inexperienced to anticipate it at the time but I did have a ring side seat to the bloodbath. More than twice the number of rigs drilling as during the current boom. Despite what looks like an equivalent mad dash into the shale plays the optimism within companies today is just a small fraction of what it was 30 years ago. The plunge of oil down to almost $10/bbl compared to the $60+/bbl many companies used in their economics is a deep scare in the memories of many of today’s oil patch managers. Exit strategies are a common discussion at lunches today. The key to monetizing a company’s profit it timing. Old saying in the oil patch: pigs get fat…hogs get slaughtered. Be a hog and you stay too long at your own peril. Every shale player is looking for those dark clouds on the horizon. Some have already cashed up and pulled out. They may have made more by hanging in a little longer. Unless, of course, they were to stay too long and end up swinging from a slaughterhouse hook. I saw first-hand the casualties of the early 80’s crash: many companies that disappeared forever (including 5 that I worked for at one time), destroyed families and a couple of suicides.

Despite the fluff from the Big Oil PR machine it’s similar to the Jews and the Holocaust…we never forget. “Sustainability” in oil patch is that period prior till the time comes to bug out.

[Graeme]

Here's one analyst (Shah) who thinks this will happen very soon possibly within the next five years.

Shocked into Pursuing Renewables: What Will Jolt Us Next?

Historical events have a way of jolting us – again and again and again – into the reminder that energy plays a big role in our well-being.

October marked two such events for the U.S. It was the one-year anniversary of Superstorm Sandy, the massive storm that knocked out power for days to millions in the Northeast. And it was the 40th anniversary of the oil embargo, the first time America experienced oil as a weapon used against it. In the time between, we’ve seen other altering experiences — Three Mile Island, natural gas price spikes of the 1990s, Enron, the Northeast Blackout, Fukushima, to name a few. We often stagger away with new resolve to secure a cleaner or more independent energy supply; to redouble renewable energy efforts.

Are there circumstances percolating now that will spill over and alter our energy future? What will give us the next jolt?

William Prindle, vice president at ICF International, sees it coming from today’s euphoria over natural gas, what he calls the collective “fracking delusions.”

“Especially in North America, but in many other regions of the world, hydraulic fracturing technology is pushing oil and gas production to levels not in any forecaster’s range even ten years ago,” he said. “The fracking boom is driving prices down for natural gas, and to some extent oil, and creating in some quarters a sense of ‘problem solved — game over’ when it comes to energy policy.”

Such nonchalance carries risk. It can lead to a turning away from renewables and energy efficiency and “let the worthy policies of the last 40 years wither,” he warned.

In truth, today’s hoopla over natural gas might mask important market realties, according to Jigar Shah, author of the new book, ‘Creating Climate Wealth: Unlocking the Impact Economy’ and former CEO and founder of SunEdison. While many see these as glory days for natural gas, Shah says the industry may be about to enter its waning stage after a four-decade run as America’s defining fuel.

Shah defines four stages to the growth of an industry: 1) Pioneering: the industry first forms and technology is deployed. 2) Growth: Many companies enter the market with widespread acceptance of the product or service. 3) Maturation: Marked by company consolidation either through merger or attrition, the stage Shah puts natural gas in now.

The fourth stage is decline. “This is where a market runs its course — the predictions on when this will happen for natural gas vary, but most agree the momentum is largely gone,” he said.

Natural gas is inexpensive today, but the industry requires higher prices for profitability, Shah says “Almost every expert in the country puts a profitable natural gas industry at a price of at least $5.50/MCF. At that price, coal, wind, and solar is cheaper than new natural gas. This price will happen in the next five years and when that happens natural gas will forever be labeled a volatile fuel that can be hedged and therefore has no place as a mainstay in the electricity industry.”

renewableenergyworld

[BobInget]

<Oilman's prayer: "Please, Lord, give us just one more oil boom.....and this time we promise not to piss it all away"!

As a newby to this board, Thank You All for this educational dialog on this vital issue.

My contribution I fear, may be a negative one.
The disaster at Fukushima will put building current design nuclear power generation on hold for ten decades, as long as remedial action is being taken.. One hundred years? Certainly, for the next ten we will all be on the edge of our chairs concerned for the planets future because of a system designed to boil water.

NASA spent millions developing a pen that functions in space.
Russia used a pencil.
Today, we are knocking ourselves out trying to imitate our star's fusion on earth.

[Strummer]

NASA spent millions developing a pen that functions in space.
Russia used a pencil.

Not true.

[ROCKMAN]

Strummer - So what...it's still a fun tale. LOL.

During the first NASA missions the astronauts used pencils. For Project Gemini, for example, NASA ordered mechanical pencils in 1965 from Tycam Engineering Manufacturing, Inc., in Houston. The fixed price contract purchased 34 units at a total cost of $4,382.50, or $128.89 per unit. That created something of a controversy at the time, as many people believed it was a frivolous expense. NASA backtracked immediately and equipped the astronauts with less costly items.

During this time period, Paul C. Fisher of the Fisher Pen Co. designed a ballpoint pen that would operate better in the unique environment of space. His new pen, with a pressurized ink cartridge, functioned in a weightless environment, underwater, in other liquids, and in temperature extremes ranging from -50 F to +400 F. Fisher developed his space pen with no NASA funding. The company reportedly invested about $1 million of its own funds in the effort then patented its product and cornered the market as a result.

Fisher offered the pens to NASA in 1965, but, because of the earlier controversy, the agency was hesitant in its approach. In 1967, after rigorous tests, NASA managers agreed to equip the Apollo astronauts with these pens. Media reports indicate that approximately 400 pens were purchased from Fisher at $6 per unit for Project Apollo. The Soviet Union also purchased 100 of the Fisher pens, and 1,000 ink cartridges, in February 1969, for use on its Soyuz space flights. Previously, its cosmonauts had been using grease pencils to write in orbit.

Both American astronauts and Soviet/Russian cosmonauts have continued to use these pens. Fisher continues to market his space pens as the writing instrument that went to the Moon and has spun off this effort into a separate corporation, the Fisher Space Pen Co.

[Strummer]

Can't determine what mechanism allows for both pressure maintenance (and prevents ink from all spewing out) and (where appropriate) ink flow?

Seems that it's just some very precise manufacturing of the ballpoint. The ball seals the ink cartridge completely when not rolling.

[ROCKMAN]

Strummer - A vague memory: when pressure is put on the ball it retracts ever so slightly to allow flow. Lift the pen off the paper and ball reseals the opening.

[Timo]

A ball point ink crash is on its way and we should be ready.

[Pops]

Feathers, stock up on feathers!

Better yet, grow a herd of feather-bearers and plant an oak to get your tannic acid for ink.

[Timo]

Feathers, stock up on feathers!

Better yet, grow a herd of feather-bearers and plant an oak to get your tannic acid for ink.

Finches and a bonsai hemlock are all i got. That might work for my garden gnome, but i'm heavily invested in Bic.

[evilgenius]

In terms of the $10 oil that shook the industry under Ronnie Raygun: that was largely a geopolitical drop in prices, not a result of speculative overplay. The Saudis agreed to overproduce and use their swing producer status to bring down prices. It was a way of undermining the Soviet position as world's largest oil producer, attacking their wealth base.

Cracks may be developing in the US relationship with the Saudis, or not. It's difficult to tell. The Syrian conflict, and the continuing internal politics in Iraq, have created a raft of desire on the part of the Saudis that the US seems inadequate to fulfill. This could just be posturing on the part of the Saudis, though, simply stating their wishes at a time when they can, so that if they can eventually be fulfilled they will be rather than ignored because technically nobody (at the State Department) knew about them. It could also be an effort to provide an obvious excuse for non-cooperation, which makes for a good ruse to cover up Saudi reserve capacity inability to once again operate as a swing producer to the same extent as in the old days, or to cover up what the export land model is doing their oil exporting position. Either way, it looks like there are a lot of headwinds operating against a similar cooperative state between the US and SA regarding some kind of swing producer operation at the old level.

Given this backdrop the US is using the fracking advantage to try basically the same ploy against the Russians. They are attempting to overproduce domestically this time, and set up a pipeline infrastructure that can handle getting that overproduction to the world markets. It's not likely going to take oil prices down to $10 a barrel, but it might result in $40 oil for a little while. The strategy also involves new pipeline projects for oil and natural gas across various regions of the Middle East, tacitly aimed at competing with the Russian virtual monopoly on nat gas sales to Europe. Some of those pipelines may have to run across Syria, others across Turkey.

It's the other arm of initiative they have going geopolitically, in addition to their overt engagement with Iran as a regional player in Middle East politics. Since Iran is the Russian proxy in the region, that activity amounts to engaging Russia as well. $40 oil could end one of two ways: the Russians could agree to cooperate with the US over global energy policy, or the US could find itself unable to sustain the overproduction push.

It probably isn't really too much to expect the Russians to agree, except that they see agreement as a threat to their hegemony. They may see this myopically, but they still see it. Agreement would really be in their best interests, but not in their best interests when Russia is viewed as an oligopolistic enterprise. The internal political framework of Russian order would need a reorganization if they were to agree. I don't know if Putin can let go of his fears long enough to facilitate that. He would have to facilitate it, as reform like that is not likely to come about from a grass roots level in Russia.

Just as well the US may have miscalculated concerning the sustainability of the fracking advantage. You gotta admit, though, for those in power who could see the promise it would seem too good a thing to pass up based upon projections of shortfall that came only up to a certain level of probabilistic outcome. It's more likely that their analysis was more complete than incomplete. It's more likely the long range trend is for a decade or more than for five years. Yeah, and Obamacare was supposed to roll out without any glitches.

A person can't be as certain about what will eventually happen as they might have been able to when speculating on a likely outcome for the Soviet Union so many years ago. They might not, but still, given more technological innovation (both in conventional production and alternative energy) and things like tar sands production longevity, the likelihood for the state of things to persist long enough to achieve some kind of grand result is high.