If you all thumb back to the list of questions I posed to Lynch, and then reposed to him, he has yet to answer the questions which get to the hear of peak oil, and that is, what will drive the change to a new energy source. First, will it be private enterprise, government, or a combination? Also, how much will it cost to make this transition? The Hirsh report answers these questions by saying it will have to be government driven and require a massive Marshall type plan. Lynch doesn't answer these questions, nor does he answer the question what would the price of oil have to be, stated in today's dollars, to begin the switch to a new energy source. Nor does he answer the question what will the new energy source be. Hirsh says coal. What else is there? Oil company projections all see oil as continuing to be the primary energy source for the next 20-30 years.

However, recent statements by SA, Russia, etc., don't make the ASPO or others seem that overly pessimistic. I again point out the following:

(1) Russia continues to state its oil production (exports) will continue to go down in the near future;
(2) OPEC stated just this summer that it won't be able to meet EIA projections for oil production past the next 10-15 years;
(3) Oil and Gas Journal, February 2005, projected the "cross-over" point for OPEC production exceeding nonopec production being, on average, 2009. So, OPEC better have a lot more production capacity online by 2009 or there will be serious fallout;
(4) IEA projects a shortfall between estimated production and demand for the 4th quarter this year (2005);
(5) PFC Energy stated in 2004 that oil production could peak as early as 2012;
(6) Mexican production is or shortly will be in decline;
(7) As Simmons correctly points out, the CERA optimist were incorrect in early 2000s stating North American natural gas was not in decline, which is undeniable now;
(8) Apparently, no one is building any new refineries anywhere in the world (with the exception of one that I know of being built in SA). I hope that someone out there can point out a list of new refineries being built. This would be significant in my view. If world demand is to exceed 90mbpd by 2010, how many refineries are needed to refine this new oil production/demand and, are they being built?
(9) Lynch, on this forum, didn't realize that natural gas in North America was in depletion until Jato pointed out to him he was reading the Sempra Energy Chart wrong. So, he needs to get up-to-date. He was also wrong in his very specific prediction about gas prices returning to low $30s. So, its apparent to me he's no more of an expert than any of the rest of us here.
(10) No one has yet convinced me that the Canadian oil sands are the answer to Peak Oil. In fact, in several articles on Canadian oil sands production, the state that by 2015 it should be enough to offeset normal depletion in Canadian conventional oil, plus the further problem that significant use of natural gas for this production have not been overcome, not yet.

There's good cause for pessimism, especially when you have three kids all under the age of 10.

URR is an "economically viable" estimate. Campbell estimates URR at about 2.4 Tb, of which about 1 Tb has been produced, leaving not quite 1.5 Tb left. But if the URR is closer to the USGS estimates (which are themselves conservative wrt ultimate recovery rates) of more than 5 Tb remaining. That's 3x more oil remaining! The total amount is thus quite relevant.

And, as I noted above, the definition of "economically viable" expands over time. So when PO authors base their URR on current reserve estimates without accounting for the effects of rising prices and falling costs, they will necessarily underestimate URR.

The estimates don't have to be massive - just larger than the pessimists' views by 2x or 3x. I'm not sure what "out of proportion" means in this context - out of proportion to what? Note that new discoveries and "reserve growth" have kept pace with production for at least a decade in the US.

Exactly - all things are NOT equal. Prices rise. Costs decline. The definition of "economically recoverable oil" will expand. When ASPO and others rely on current estimates of URR, which are based on current tech and prices, and then extrapolate to the future without accouting for future tech and future rising prices, their estimates MUST be wrong.

Those increases in production rates are built into the calculations of EROEI for sands and shale - that's why the EROEI for sand and shale is 1.5 while for conventional oil its 8 or 10. But as long as the EROEI is greater than one (and the transition time is sufficiently long - i.e., 20 years, not 5) the market will shift capital to where it will find a return. When conventional oil declines, energy prices will rise - and that will make sands and shale more profitable.

Part of this dynamic is that as energy prices rise, the economy becomes more energy efficient. Each Btu of energy produces more $GDP each year (about 1.6% more, after inflation). Thus, each Btu is worth more each year - so that even the slim returns on shale will warrant the investment. In fact, they do already. Shell's Canadian operations aren't a charity, after all.

Not necessarily. When the US peaked in 1970, oil prices didn't fall even though supply did because cheap ME oil could be imported easily - so there was no price incentive to expand domestic production. It was only after prices rose that domestic production expanded again. Recall my point about Peak Oil vs. Peak TV.

Not really. (By "start points in time", I assume you are refering to the price increases supply argument.) Yes, if costs fell dramatically, then prices would also fall. But the estimates I've seen of the relative importance of technology are that technology adds perhaps 0.6% per year in reserves. When prices are roughly constant, demand has grown at 1-2% or more, and so demand is outstripping technology. But when prices are rising at steady rates of 1-2% per year, reserves have expanded by at least 3% per year - so rising prices are a much stronger effect than technology.

According to this from EIA, strippers contribute 15% of US production, from 400,000+ wells (78% of US wells).

"In general do" what? My point is that the hypothesis has to be testable. If every deviation of reality from the model results requires an additional post hoc variable, how do you know that the problem is not the model? Price is a crucially important variable - one that Hubbert totally ignored. He got lucky in 1970 because real (inflation-adjusted) prices hadn't changed from 1956 when he made the prediction and 1970 when the peak occured. But that golden age is over - prices will rise in the future, and so our models must account for that.

I don't follow you here. The "voluntary" limitation on production has been driven entirely by price. Extraction techniques are a reflection of costs - which may decline slowly - and must be evaluated against projected "baseline" prices.

I agree that some things need to change. But if oil is limited on a 20 year scale that the market can account for in time, what needs to be done? To my mind, there are plenty of good things to be done to combat GW, to reduce the absurdities of the atomised, obeseity-prone, exurban, SUV lifestyle and to move toward a more sustainable, healthy, and less-ME dependent future. Those things would also help avert PO.

But what does PO add to the debate that these other things don't?

There's two interesting twists I see PO adding to the discourse. First, I think better reserve reporting from the NOCs is crucial. If the threat that PO ideas will become credible spurs OPEC and Russia to better reporting, that's good. It might be intellectually dishonest - propounding a theory for which I find the data and methods questionable - but it would be in a good cause. The scientific morality of that is troubling, but the oil business is not one where I'm going to shed a lot of tears for this sort of thing, largely because of the second reason...

Second, the fossil industries in general have waged a long campaign in the US against GW, trying to muddy the science and public understanding with bogus "controversies". Although it's more the coal industry at work here, oil majors are not innocent. I like the idea that in order to attempt to debunk PO as "non-scientific", they would end up forcing favorable comparisons to the science behind GW. The benefits to that would be great - but they might just as easily argue, "GW is in doubt, and PO isn't even as well researched as GW!"

But both of these are political longshots...

Agreed. Conventional oil must peak. Deepwater and polar must peak. Heavy oil, sands, and shale must peak. Whatever comes after them - coal bed methane, clathrates, etc... they're all going to peak. Lynch knows that.

The two central issues, as I raised up top in my #1, is whether that happens sooner or later, and what depletion will look like afterwards. Whether the market can adjust or not depends entirely on those two issues:
* PO in 3-5 years with rapid depletion, then we're just hosed.
* PO in 3-5 years with plateau or gradual depletion, life will be hard. Awareness is crucial and governments will have to intervene extensively.
* PO in 10 years with rapid depletion, life will be hard. Awareness is crucial, but government intervention need only be light-to-modest. But this is less likely because the same factors that would allow production to expand for another ten years would also imply pleateau and/or long and gradual decline.
* PO in 10 years with plateau or gradual depletion, transition will be unpleasant but not hard. Awareness is important, but we can spend the time now to investigate more and be sure. Government invervention would be unnecessary.
* PO at 20 years with rapid depletion is exceedingly unlikely.
* PO at 20+ years with plateau and/or gradual decline will be largely unnoticable to all but observers of the oil industry.


True enough. But I think the collision will come long before the peak - it will come with rising prices. In 2000 inflation-adjusted $US, prices until 1973 stayed within 50% of $10 / bbl for over 100 years except for WWI and WWII. That was the Era of Cheap Oil. Even after the ten year Ear of Oil Shocks 74-85, a new oil equilibrium emerged, an Era of Kinda Cheap Oil, if you will. For nearly 15 years from '86-2000, prices were largely stable and stayed within +/- 50% of $20 for more than 90% of the time. Deepwater and Polar oil became economically viable, as did the remote "frontiers" in the deep reaches of jungles, deserts, and Siberia.

Now, if we are lucky, damage from Rita will be light, damage from Katrina and Ivan (2004!) will be repaired, and turmoil will decline in the producing countries. Prices will stay within 50% of $40 for at least another decade, (probably more, since shale and sand are profitable in the new range) and oil production will continue to increase. Yet I think the new price regime will lead to major changes in American consumption habits. I think Europe and OECD Asia are far better able to weather the transition, and China and India will build their new infrastructure around the new reality. America will face harsh changes - and I think $3 gas and a very expensive winter 2005 will do more to change US energy habits and politics than PO could.

As has been noted elsewhere, the real disasters are hitting the poorest nations - those that were unable to develop during the Eras of Cheap and Kinda-Cheap Oil.

I am greatly enjoying this discussion!

--Silent E

Saying he's got other work to do, I see that, but where did he 'remind us how valuable his time is'?

Hold the phone... this 20 year figure again... is it conventional peak or some other expanding definition of oil peak?

if the 20 year figure is based on invisable hand economics creating substitution then you can't have this 20 year period to "switch" over

you can not play this card twice if part of the reason of why there is a discrepencey betwen ASPO and lynch is this changing definition then surley we never peak at all and human ingenuity just does it thing somehow...

this is not clear...

MOREOVER you are reliant on "something" overcoming exponetial effort required in going up the entropy tree

how on earth can stripper wells a more efficent process in EROEI terms than a equivilent production of tar sands which has failed to halt decline be the answer to depletion elsewhere if well counts have not matured in SAudi Arabia?... the majority of strippers are a minority of production and further more a growing percentage of declining production

there is no indication that massive extra production in the order required is possible if the L48 is quoted as the example? the other wells uneconomic because of foreign production will produce more per well as they become viable?

its the same thing with well count costing or GDP per barrel equiv .. the market is reliant on never creating resource stress as the head of the argument needs to support the tail.... the market is dependant on the future paying for today... if lynch/invisable hand was correct the longterm price of oil or its substitute should be FLAT and current situation should not exist

you could be right about NG and the gulf

Boris
london

PO’s first signs and effects are being felt just now.
Only persons totally blind to the realities or with an agenda to defend (and not really interested in the truth) can fail to notice…

Lets face it: Depletion is working its magic fast.
Just check the last 10 IEA’s monthly reports (the 1 page long highlights are enough) and notice the constant downward revisions of the non-OPEC production for this year (2005).
IEA reports

PO for liquids will happen between 2008 and 2012.
Except, perhaps, if a global economic depression strongly reduces consumption (and so production) in which case the peak may be delayed by 1 year, or 2 at most.

I’m far from a doomer on this.
I think the liquids production curve will be slow in its descent and that mankind can adapt with relatively contained pain (through high prices / greater efficiency / reduced consumption).
But there will be pain, especially in poorer countries.
And there will be a peak of production in some 5 years, or anything very close to that.

your argument is compelling

Boris
london

Lots of data here on new refinery projects:
http://www.resourceinvestor.com/pebble.asp?relid=12906

But neither of these has as good EROEI as oil. You don't get as much energy as we use today, and especially not in 2020, when there'll be around 8 billion people with more energy demanding technology. Furthermore, gas and coal are only temporary substitutes. I've yet to see that economics > physics.
Is electricity generation even a source of energy? I thought it was a transfer of energy.

I also fail to see why the countries least dependent on oil should suffer the most from it's absence?



Why not?

And the point of this? Let me guess? Everybody and their grandmother are building refineries today because the investment opportunities are so heady, so tumescent .

Oh I see. Of course. There is so much petroleum and so much opportunity to service a growing market that just about everyone is jumping on board for that glorious space-shot to the future. gooody!

Once again JD has proved that there is nothing to worry about and that the doomers are just so silly. oh me.

because your peak figure includes the substitution.. ie that is a proposed reason why ASPO peak is wrong!

you have already switched over to achieve this different peak date!

it makes no sense to claim the use of Non conventional oil in your peak figure and also claim this extened peak date allows you time to switch to NCO substitution for some new economy..

you have already done it!!!!!???????????????

what does lynch's 20 year figure mean?

Boris
London

I thought this revising of URR was mainly because of bad reporting, and not advances in monetary in-flow or technology? Isn't URR estimates shown to be fairly concistent over time for conventional fields? Despite price changes or technology implementations?



Hmmm... I see. Good point!

I may be wrong, but I believe that initial URR estimates have historically almost always been conservative to a fault. For example: there are fields that had an initial estimated URR of 100 million barrels for instance that are still producing (albeit at a low level) after producing 120-130 million barrels. I can't remember where I've read this, some oil industry peak oil paper somewhere..... It has to od with the SEC rules for what can be reported as "proved reserves" being extremely conservative.

True, economics < physics. But you have to ask the right physical and economic questions. What does falling marginal EROEI mean? That each additional ("marginal", in the economic sense) Btu of energy we need takes more Btus to get. You've got to have energy to make energy. SO what?

Lets pull some numbers outta my ^d^d^d hat:

Assume that if we have a global energy infrastructure that produces 100 units of energy per year. Assume our current total EROEI is 10, and that our marginal EROEI is also 10. So each year, we spend 10 units of energy to get 100. That leaves us with 90 units to run our global economy.

1. IF we want to get richer (and there's billions that do), we need more energy. Say we grow 2% per year, or 10% in 5 years. If we need to increase our energy supply 10%, we spend 10% more on energy. We spend 11 units, and now generate 110 units, with 99 left over for the economy. Great!

2. Suppose our original energy sources are not in depletion, perhaps nuclear, hydro, and some very large cheap fossil fields that are not declining yet. But for some reason were cannot expand them without our new sources suffering a lower EROEI. Why? Maybe we don't want more nukes, we've dammed all the best rivers, and drilled/mined all the best fossil fuel reserves so that while production is not declining, it can't rampu up either. In this case, we would say that marginal EROEI drops to 5, while our 'legacy' EROEI remains at 10.

2a. So we can still spend 10 units of energy to get the first 100, but then when we spend 1 unit, we get only 5. We've spent the same 11 units, but only have 105 to show for it. That's cut our total EROEI to 9.54, and our growth rate to under 1%. Times are tough and it appears that physics has beaten us.

2b. But wait! Instead, suppose we spend 10 units of energy to get the first 100, but then we spend 2 units of energy to get the next 10. We're back to 110 units gross, but only 98 units net. Our economy is doing a little better! Instead of supporting 1% growth, it supports 1.8% growth. Of course, when we average out our total EROEI, we find that it is dropping: from 10 to 9.2 (spend 12 & make 110).

2c. Better yet, spend the first 10 for 100, but then spend 3 for an additional 15. Now we get 115 total units for 13 invested, a net of 102. Much better! We can grow at more than 2%! Economics saves the day!

Hmm.... but our total EROEI is down again - now to 8.85. Uh oh.

Is physics triumphant?!?! It might seem so: total EROEI has fallen, and if we try to increase energy output it will continue to fall. In this model, even though we continue to get the first 100 units at EROEI=10, our total EROEI will converge to 5.

But let's do one more to see if economics is really dead.

3. Continuing from #2, many decades from now, our global economy has grown steadily so that we spend 10 units and get 100 (net 90), then spend another 100 units and get 500 (net 400), our total usage is 110 units, but we've only generated 600 units, and netted only 490 units. Our EROEI has fallen below 6!

But has economics lost? No. We've also increased our output of energy by 600%! We've increased the amount of energy available to do other work from 90 units to 490 units, a gain of 544%!

The real change is in the structure of the economy. We've gone from an economy where only 10% of our efforts are in the energy sector (10 of 100 units) to an economy where energy accounts for 18.3% of GDP (110 of 600), and if our marginal EROEI stays at 5, then in the long term, energy will converge to 20% of GDP.

Moreover, this all assumes a one-to-one correspondence of energy units and GDP. If you factor in efficiency gains of 1.6% per year over that time period, the economy can keep growing quite rapidly.

When EROEI is declining, its true: you have to stay ahead of the curve. You have to invest more and more for each additional Btu.

But EROEI on oil has been declining since shortly after the first well was drilled. Those early wells weren't much over 100 feet deep, yet they gushed the lightest and sweetest crude. The supplies were easy to extract, and since the first big oil discoveries were made in Pennsylvania and Ohio, the oil was VERY close to the industrial customers that wanted it, keeping distribution costs very low. EROEI has been falling for nearly 150 years, but the markets have been able to respond.


To summarize:

The physics of declining EROEI says that if you invest the same amount of energy in your extractive efforts, you will get less net energy to do work as EROEI falls. It's hard to get around that conclusion, and economics must recognize it.

But physics offers no reason why you can't just invest more energy!

Economics, by contrast, predicts that that is exactly what happens: if we need more energy, we'll invest the energy to get it. And so we'll end up with more energy!


True. But if that electricity generation comes from renewable or non-fossil sources - wind, solar, nuclear (shudder), tidal, hydro, etc. - then it is a SOURCE of energy that can replace oil. I used "electricity generation" as a catch-all.

They suffer from poverty. Reducing poverty requires development. Development requires energy. Less developed countries are more energy intensive: they need more Btus to create a dollar of GDP. That's in part because their industry is concentrated in manufacturing and resource sectors that are very energy intensive, but also because they cannot afford the most efficient technology. When energy was cheap, it didn't matter. When energy is more expensive, it will matter a great deal.


Well, not "switch" to the non-conventional sources I mentioned. But certainly switch to renewables and gas/coal+carbon sequestration.


Finally, for my thought experiment above, I chose the EROEI=10 and EROEI=5 numbers for a reason. Current marginal EROEI for oil is around 10 (maybe a bit less), but a great deal of our global endowment of energy production (hydro, nuclear, low-cost ME oil, gas, etc.) has an installed EROEI of 15+. Hydro dams, especially, have VERY good EROEI numbers, and while nuclear is not great, the plants we've built are 'sunk costs' with low operating expenses. So our current 'legacy' EROEI is probably quite a bit over 10.

At the same time, the estimates for EROEI for renewables like wind and solar are around 5. Oil has a ways to go yet before it's EROEI hits 5, and gas and coal are in better positions. In the near-to-medium term, legacy 10 and marginal 5 are certainly low-ball estimates. So the numbers (10, 5) are a nice test of a pessimist's case.

If I suggested that the 20-year window should be used for switching to NCO, I was in error. You are correct.

But you can certainly use the time to switch to renewables, nuclear, or gas/coal+carbon sequestration.