Highway Expansion -
Creating Tomorrow's Problems, Today !

How Secure is America's Future based on our Continued Reliance on Foreign Oil?

Whoops!

Oil companies do not produce oil.  Oil companies produce profit by producing oil when and where conditions permit.

Have we learned anything yet?

Or Are We Just Waiting for the Wheels to Come Off ?

Commentary: Comments to the National Petroleum Council

Monday, 19 March 2007 

By Randy Udall (March 12, 2007)

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

On October 5, 2005, U.S. Energy Secretary Samuel Bodman requested that the National Petroleum Council conduct a study of global oil and natural gas supply. The motivating concern stated by the Secretary was an investigation into the timing of and responses to peak oil—the plateauing and subsequent decline of world oil production. Hundreds of organizations and individuals have contributed input to the process. During two multi-hour web-cast teleconference calls on February 23 and March 1, the NPC heard comments from Colin Campbell, Jean Laherrere, Robert L. Hirsch, Steve Andrews, Congressman Roscoe Bartlett, Matt Simmons, Randy Udall, Roger Bentley, Richard Heinberg, and several others. A draft of the study is due during April, with the final report ready by late June, 2007. For further information, check periodic postings of informational power-point slides on the NPC’s website ( www.npc.org ).

In response to the NPC’s summary of their March 1 call, Randy Udall wrote back to emphasize and expand on a number of points:

I think the phone call summary is generally fair and comprehensive. If I can weigh in on a few points:

The NPC has a wonderful opportunity to reframe the discussion around peak oil. After thoroughly studying the evidence, I hope that you conclude, as many of us have, that peak oil is near. If that is your conclusion, I urge you to communicate that finding in succinct, sober language. It's time to speak truth to power. Likewise, if you conclude that peak oil is a chimera, and those of us that were on the last call are grievously mistaken, chronic pessimists, nervous Nellies, please say that, loud and clear.

Personally, I would much rather you say, "Heed Not Chicken Little," than have you try to please both sides with the kind of waffling language that is found in so many reports. Whatever your results, an imaginative communication strategy will be necessary to disseminate them.

• A few specific points. You write that "production from several countries has peaked." In this case, "several" means almost 60. Yes, most of these were no-account wonders, petroleum beggars like Germany, Peru, Guatemala, and Romania. Oil production in these countries was clearly constrained by geology. 

More importantly, production has also peaked in ten of the twenty nations that today produce 85% of the world's oil. In some of these nations, including the UK, US, Norway, and Indonesia, geological constraints are clearly the primary cause. In other post-peak countries, including Mexico, Iran, Libya, Venezuela, and Iraq, causation is more complicated. To confuse the calculus, production in some post-peak countries could increase; in Iraq and Venezuela it could, some day, in a safer world, perhaps exceed their earlier highs.

Oil production is increasing in places like Brazil and Angola due to deepwater technology, falling in places like Nigeria, restrained in the UAE due to governmental decisions, close to a re-peak in Russia, at the cusp of peak in China and, Stuart Staniford would argue, in Saudi Arabia. The future course of production in these countries is governed by a complex mix of geology, investment, access, politics, manpower, rigs, war, etc. I would like to stress that, in the last five years, a large number of very competent, analytical people, linked together by the Internet, have brought serious intellectual horsepower to bear on the true state of world oil production. Yes, peak oil has attracted its share of conspiracy theorists and Birkenstockers, but some of the work that is being published at the Oil Drum, Energy Bulletin, in books and blogs, and by consulting groups like PFC Energy and John S. Herold Inc., is more seminal than anything found in World Energy Outlook.

• You write that peak is not "about running out." Indeed, it's the opposite. At peak the world will have more oil available than it ever had before. Peak is not the end, it's the zenith.
 

• You write that the "effect of supply shortfalls" will be significant. It's useful to put a number to this. Losing one Mb/d is losing 2 quads, equivalent to about 80 nuclear power plants worth of energy, or two trillion cubic feet of gas.

• You write that "peaking is about ‘rates’ and ‘risks’ and less about endowment." This is true if we are talking about the "global endowment." It's much less true when we are talking about individual countries.

• You summarized that "the role of natural gas liquids, condensates, and unconventional oils may be overstated." It's critical to explore CERA's contention that NGLs will provide something like 10 Mbd of new capacity due to the expansion of global gas supply, and that the slate will get lighter, not heavier. If true, this has enormous implications. The question of NGLs is, frankly, an area that the peak oil community has not dissected with the same rigor it has crude oil and condensate. What percentage of the growth in NGLs will be a 1:1 replacement for crude oil? How will developments in global gas, including project delays, intersect with global liquid demands?

• As for unconventional oil, these things are hugely misunderstood. Having 150 billion barrels of tar sands in North America is not like having 10 Prudhoe Bays on the shelf. Suggesting that coal liquids will ride to the rescue (hey, the Nazis did it!) is not responsible policy. Spending billions in federal RD to develop the "hydrogen economy" does not reassure. Congress is overwhelmingly staffed by lawyers. I have met some of these notables, and with the exception of Rep Bartlett, most of them are energy illiterates, if not energy cretins.

• Indicators of peak oil. If you read the tea leaves, there are literally dozens of these: major oil companies prospecting for reserves not with the drill bit but with the wallet; a willingness to pay $100 million on a single deepwater wildcat; China buying Africa with recycled Wal-Mart dollars; Exxon spending $1.2 billion a month to preserve production; Chevron's ad campaign; Putin and Chavez having the cojones to go mano a mano with Bush; three carrier battle groups in the Persian Gulf; Statoil scouring for leftovers; Cantarell's gag reflex; a quadrupling of rigs in Saudi Arabia; suggestions that Burghan and Ghawar have peaked, the latter confirmed by CERA; discovery rates falling; Shell's willingness to contemplate oil shale, which has been described as a very-low-quality, high-ash coal; "tar sands fever" as per 60 Minutes; Toyota's development of hybrid drive, and so forth.

• Net energy and, I would add, carbon intensity deserve more understanding since they will be critical screens as we move ahead.

Some final thoughts on the message and the tone: Some oil and gas people have viewed peak oil proponents as dissing the industry. Nothing could be farther from the truth. Most of us find it absolutely astounding that gasoline and other petroleum products can be produced so reliably, in such extravagance, with such remarkable technology, and sold at such bargain rates. We see images of offshore production platforms and are dazzled by their complexity. We read about drilling in 10,000 feet of water and celebrate your ingenuity.

Humans have always sought perpetual motion, and for a moment, the petroleum industry has given it to us. The problem is that you have 300 million Americans who take $2.50 gasoline for granted in a country whose architecture, land use patterns, agriculture, prosperity, and cast of mind have been have been built around cheap oil. These oil tribe people, and their political leaders, don't care about peak oil, they care only about price. Meanwhile, the Chinese are where we were in 1910, with car sales doubling every three years.

Henry Groppe has said, "There is no surplus, there is no shortage, there is only price... We ran out of $2 oil a long time ago, $20 oil in 2001, $30 oil in 2003, $40 oil in 2005."

If oil production is going to peak sometime within the next few thousand days, if we are gradually going to run out of $50 oil and then $60 oil, the NPC would be doing a huge service by giving the nation a heads-up call. It sometimes seems that the peak oil movement has been shouting down a well. Your organization has the status, clout, and respect to be heard.

In any case, thanks for doing this study. We appreciate the outreach efforts and the diligence you have brought to bear.

Randy Udall directs CORE (Carbondale, CO) and is one of the co-founders of ASPO-USA. 

Fuel Conservation and Reducing our Dependency

on Foreign Oil

Highway Expansion - Creating Tomorrows Problems Today

Highway expansion that stimulates additional vehicular travel is in conflict with the national goal of fuel conservation and reducing our dependency on foreign oil and contributes to political instability throughout the world.

Everyday the US becomes more dependent on foreign oil in order to maintain our energy appetite.  US oil production peaked in the 1970's and has continued to decline ever since. Today, over two thirds of the oil consumed in the US has to be imported.

There is a real danger to our economy in continuing our reliance on foreign oil.

World wide, only some of the former Soviet Union countries and some OPEC countries have not yet reached their peak oil production capacity.  The balance of the oil producing nations are already in production decline. 

The reality is that unless the US can significantly curb its appetite for oil, we will continue to depend more and more on Russia and the Middle East to supply our oil.  Sustaining our access to Middle East oil will most certainly require a US Military presence in that region for the foreseeable future.  US involvement in any conflict that develops in the Middle East is certain in order to maintain the flow of oil to the US.

• Energy Security: This includes economic and military costs associated with protecting access to petroleum resources. National security costs associated with defending petroleum supplies in the Middle East region are estimated to range from $6 to $60 billion annually.

Transportation is the single least efficient sector of our energy consumption in the US today.  This is due largely to the vast number of private motor vehicles in use as the primary transportation option for Americans.  Mass Transit and especially Electric Light Rail are many times more efficient per passenger mile than private vehicles.  Expansion of Light Rail networks can provide an option to private motor vehicle transportation and significantly reduce our oil consumption.

Energy efficient mass transit options must be considered over highway expansion alternatives in order to educe greenhouse gas emissions, conserve fuel and reduce our dependency on foreign oil.

The next time you hear community leaders and government officials request that we remove our military assets from the Middle Eastern Countries; you need to be thinking about our energy consumption behavior at home and why "Trains, Not Lanes" makes more sense.

Bombardier also produces a linear induction driven steel wheel on steel rail vehicle that is in revenue service today in New York (Airtrain) and Vancouver (Skytrain). This is another rail technology with great potential for the mountain corridor.  Colorado Railcar and Stadler have both expressed an interest in pursuing this technology for the mountain corridor and other similar applications.

 

 

The next time you hear community leaders and government officials request that we remove our military assets from the Middle Eastern Countries; you need to be thinking about our energy consumption behavior at home and why "Trains, Not Lanes" makes more sense.

 

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September 13, 2007

Euro Hits New High; Oil Nears $80 a Barrel

By VIKAS BAJAJ

The dollar fell to a new low point against the euro yesterday and oil prices surged to a record, suggesting that a weaker American economy would be accompanied by higher prices for energy and other imported products.

As of late yesterday, the euro traded in New York at $1.3908, up from $1.3832 late Tuesday; the European common currency has risen 5.4 percent against the dollar so far this year and about 1 percent this week.

Crude oil prices rose more than 2 percent on the New York Mercantile Exchange, settling at $79.91 a barrel, after briefly trading above $80 — a day after OPEC said that its members would increase production by a modest amount.

Taken together, these moves in the currency and commodities markets signaled more trouble for the American economy.

Stock trading was light yesterday, and most indexes were modestly lower. The Standard & Poor’s 500-stock index ended essentially flat, and the Dow Jones industrial average declined a little more than 0.1 percent. Nasdaq and smaller-capitalization stocks were lower. Treasuries were down slightly, and the yield on the 10-year note rose to 4.41 percent, from 4.37 percent on Tuesday.

Gold prices, little changed yesterday, have also surged in recent days as fears of an economic decline mounted and the dollar weakened. Gold futures are up 5.7 percent so far this month, to $714 an ounce in New York.

Though the dollar has been falling against other currencies for much of the year, it has weakened significantly since Friday, when government data showed that businesses reduced net employment by 4,000 in August and that job growth had been weaker in June and July than previously thought.

Investors widely expect the Federal Reserve to lower its benchmark short-term interest rate, now at 5.25 percent, when it meets on Tuesday. There is even talk of a cut as much as a half-point.

Ashraf Laidi, chief foreign currency analyst at CMC Markets in New York, commented, “The payroll report was seen as a macroeconomic justification.”

Currencies are influenced by many factors, chief among them expectations for interest rates and inflation. If rates were to fall in the United States and remain unchanged in Europe, as many investors are expecting, traders will probably bid up the exchange value of euros.

“The dollar is not in a great position,” said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn. “The confidence level is eroding in the face of the credit market crisis, which is very much subprime related and mortgage market related. And it is now complicated by the fact that the real economy is slowing.”

For much of the year, the dollar has also been falling against the British pound and the Canadian, Australian and New Zealand dollars. The Japanese yen is up about 4 percent against the dollar so far in 2007, though it has lost some ground in the last few days.

The weakening dollar has been a boon to exporters whose goods and services will become more competitive on the world market.

Exports have been among the brightest spots in the American economy this year, growing 11.4 percent in the first eight months from the corresponding period of 2006. By comparison, imports were up 4.6 percent.

The depreciating dollar has made imports more expensive. Energy commodities are expected to be chief among these.

Oil prices, already near records set two months ago, have surged anew. The decision on Tuesday by the Organization of the Petroleum Exporting Countries to increase production by 500,000 barrels a day, a relatively small quantity when compared with total production, appeared to make little difference.

Yesterday, prices were also reacting to a government report that showed that crude oil inventories fell in the United States by 2.1 percent last week.

More broadly and in the longer term, many analysts say that oil prices are poised to go higher because global demand for energy, led by China and India, is growing far faster than overall production, especially among oil producers that are not members of OPEC.

“The combination of robust long-term demand growth and lagging non-OPEC supply suggests that strong support for oil prices is set to remain a feature of the markets beyond 2010,” Adam Sieminski, an analyst at Deutsche Bank, wrote in a research note.

Those higher prices, along with the increase in the prices of other imports, will provide another source of worry for the American economy and consumers. It could also complicate the Fed’s task, said Dustin Reid, a senior currency strategist at ABN Amro in Chicago. If inflation surges, policy makers would have a harder time justifying a big or prolonged series of rate cuts.

“At some point, you are going to have the potential of importing inflation from around the globe,” Mr. Reid said. “And that’s likely to keep the Fed on guard.”

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2006 Peak Oil Presentation to the US Congress

 

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