How Much are Non-Renewable Resources Really Worth?

Crude Oil As an Example

Gasoline prices are falling right now in the USA, but some people still complain from time to time that prices are still too high as they are around $3.45 per gallon, nationwide.  Much of the fall in gasoline prices is due to the drop in the price of crude oil, a non-renewable resource (on human timescales).  A barrel (bbl) of WTI crude oil is worth around $93 as of September 2014, but what the heck does that number really mean?

Given that crude oil is a finite (i.e. non-renewable) resource, there will be a point when oil becomes so scarce and the price becomes so high, that people will be prompted to look for alternatives (according to standard economic theory).  Obviously, this has already been happening since 2005, when oil reached $50+/bbl, and it is happening even more today with $90+/bbl oil.  However, $93/bbl is equal to $2.21 per gallon (42 gallons constitutes 1 bbl of oil).  That means that even at today’s “high” prices, a gallon of oil is still cheaper than a gallon of milk.  Amazingly, back in the 1990s, oil was worth less than $1 per gallon.  While it may seem that the laws of supply and demand are working well to give us an accurate price for oil, something seems amiss.  How could the lifeblood of the modern economy be worth so little, although most of us think of it as expensive? Our modern society has constructed almost all of its transportation network based on a non-renewable resource that we value at only $1-$3 per gallon.  I personally believe that this is not a very wise valuation.  It appears that the price and value of crude oil are not the same (like a lot of other stuff in life), as the importance of crude oil to the global economy cannot be understated.  A lot of people willingly spend $100+ for designer sunglasses or a smartphone, but get angry when the core fuel powering their lifestyle costs more than $2 a gallon.  Talk about misplaced values.

Given that oil is non-renewable and faces depletion concerns (i.e. peak oil) and climate change concerns, many of us would like to construct a renewable energy infrastructure to replace oil and the other fossil fuels.  However, the construction of a renewable energy infrastructure will require vast amounts of energy and capital, things that are in short supply in today’s energy-constrained global economy.  Hence, we face what physicist Tom Murphy calls the energy trap, or the incentive to hold on to our current energy sources (fracking boom) instead of investing energy and capital (which are now in short supply) in replacing the fossil fuel system with renewable alternatives.

Well, maybe we should have started building our renewable energy infrastructure in the 1990s when oil prices were much lower, and the economy was doing much better!  However, the very fact that prices were lower meant there was no incentive to invest in alternative energy sources or transportation replacements (EV’s, buses, etc.), which is unfortunate in hindsight.  Nevertheless, Marion King Hubbert did tell the USA way back in 1956 that peak oil would be a problem in the future, so we can’t say we didn’t see this rise in oil prices coming.  Market forces (with respect to non-renewable resources) seem to only work well on short-term information, given that the world did not seem to expect the rise in oil prices that started around 2003.

To me, it appears that this problem of getting society off of fossil fuels stems from the price of oil not taking into account that oil is a finite resource.  Indeed, It seems as if the market (on the supply side) considers only the capital and labor (wells, pipelines, geologists, engineers, etc.) we are willing to expend to extract the oil, not to produce it.  Most of the oil in the Earth was produced tens to hundreds of millions of years ago!  We do not pay for the production of oil, as it is a freebie created by solar power, ancient algae/plankton, and tectonic forces over geologic time (i.e. hundreds of millions of years).

Extraction of oil from an oil field in west Texas.  The field of view is 8 miles across.
Extraction of oil from an oil field in the Permian Basin of West Texas. The field of view is approximately 8 miles across. Image from Google Earth.

Other Non-Renewable Resources

The same argument I made for oil could be made for the other fossil fuels:  natural gas and coal.  In addition, a similar argument could be made for the other non-renewable resources we mine such as copper, iron, nickel, zinc, uranium, gold, silver, platinum, lithium, phosphorous, rare earths, and others.  These elements were created (i.e. produced) in supernovas billions of years ago, before the Sun and the planets even formed (1).  On Earth, many of these useful metals that were originally dispersed widely throughout the crust were concentrated into ores over hundreds of millions of years by geologic processes (tectonics, groundwater flow, etc.).  Again, it seems that we pay only for the extraction of these elements and not for the production or concentration of them.  I will note here that humanity has in fact already developed a technological process that can produce elements from other elements:  neutron capture in nuclear reactors and particle accelerators.  This process is used to create Americium, for use in smoke detectors, and Technetium, for use as a radioactive tracer in radiology, as these two unstable elements are not found in nature (1).  However, we have had this technology for over 50 years, and yet in 2014 we still have mines that are approaching depths of 2.5 miles into the crust.  That tells me that neutron capture may not be economically viable as a replacement for ores even with the higher metal prices and lower ore grades nowadays.  This is probably so preciously because we do not pay (i.e. value) the ancient supernovas or geological processes for creating and concentrating these minerals that we mine.

The Chuquicamata copper mine in northern Chile.  The field of view is approximately 7 miles across (Google Earth).
The Chuquicamata copper mine in northern Chile. The field of view is approximately 7 miles across. Image from Google Earth.

Changing How We Value Non-Renewable Resources

Looking back on the past 250 years of the industrial revolution (has it really ended?), it seems kind of shortsighted that we based most of our entire technological and economic systems off of non-renewable resources (though, I am grateful for it, these resources were used to make this computer I am typing on).  Even 35+ years after the major fossil fuel shocks of the 1970s, the world still relies on fossil fuels for a majority of its energy use.  Also, the world still mines a lot of metals even with increased recycling rates nowadays.  Alas, we have built ourselves into quite a corner, and I think we will all learn our lesson with this present energy/materials shock (it is not over, although many of us would like to think it is).

Given that non-renewable resources inevitably face depletion problems and increasing environmental concerns, I think we should value non-renewable resources much more than we currently do.  Lifestyles in developed countries (i.e. OECD countries, especially the USA and Canada) are highly dependent on non-renewable resources that are continuously being extracted from the Earth. The higher prices for these resources we find in today’s economy indicate that we maybe running close to the limits of how many resource-intensive lifestyles the global economy can maintain.  By valuing the resources at even higher prices (higher tax?) by taking into account that they are finite and that they have other negative externalities (social and environmental), we could increase rates of conservation and recycling.  We would probably have to tax mining as well, to prevent the higher prices from causing the rates of extraction to increase.

Another possible choice to avoid depletion problems would be to scale down our developed world lifestyles and find or invent renewable substitutes for all of the non-renewable things we use (i.e. some kind of biological economy).  That would render many non-renewable resources as worthless, and hence there would be no need to worry about depletion problems (except for land, water, nutrients, and topsoil).  Actually, this “biological” economy is somewhat how all human economies worked prior to the industrial revolution (i.e. the economies were predominantly agricultural, and most of the energy used to fuel them was biomass).  Indeed, a lot of developing countries today operate with that type of economy.  However, to keep our currently highly technological lifestyles in developed economies, we would need our organic chemists and chemical engineers to invent replacements for all of our non-renewable materials with carbon based materials at low cost.  Obviously this would be a very difficult and drawn-out endeavor, and it would be, most likely, impossible to complete.

The Challenges Ahead

All in all, as opposed to hoping for technological developments to solve the depletion problems of non-renewable resources, it may be the wiser choice to voluntarily scale down our developed world lifestyles and think these big-picture problems through a bit.  I look out at today’s global economy and see that it is performing increasingly desperate maneuvers to extract non-renewable resources from the Earth to keep our “business-as-usual” lifestyles going.  The US oil industry is drilling into impermeable source rocks for oil instead of permeable reservoirs (and calling it a “technological revolution”); farmers in California are drilling 2,000 feet below the surface into depleted aquifers to extract fossil groundwater; and miners are depleting high grade ore reserves and are going after much lower grade ores.  These desperate maneuvers will be increasingly difficult to maintain in the future due to diminishing returns.  Consequently, it may be the wiser path for developed countries to voluntarily cut down their consumption (and thereby mining) of non-renewable resources to avoid depletion problems. It would be quite hypocritical to call for developing countries to cut back their resource use as their per-capita consumption rates are still nowhere near the rates in developed countries.  Though, the world economy may reach the point soon where even developing countries will no longer be able to increase their consumption rates of non-renewable resources.

We all look for people to blame for higher resource prices and the economic and environmental problems associated with extraction (e.g. politicians, oil industry, mining industry, speculators on Wall Street, etc.).  However, the main reason these people do what they do is that they are trying to satisfy the seemingly insatiable demands of our developed world lifestyles.  If you truly “value” your non-renewable resource fueled lifestyle, then I encourage you to try and dig an 800 meter deep open-pit mine, extract the metals yourself, and do it all while protecting the environment.  Go get some quartz and try to purify it into solar panel-grade silicon, all while not expending any fossil fuel energy.  Go build a dense plasma focus device to make your own elements and avoid extraction/depletion problems.  As these examples show, extracting non-renewable resources and turning them into useful products are not trivial things to do, and they invariably come with harsh “side effects.”  In my opinion, the more we all understand how truly valuable non-renewable resources are the better we as a society can change our expectations of the future (unlimited economic growth) to match up with reality (there are limits).

In my next post I will discuss how much our society values renewable resources and ecosystems (i.e. the biosphere).

References:

1)  Bardi, Ugo.  Extracted:  How the Quest for Mineral Wealth is Plundering the Planet.  White River Junction, Vermont:  Chelsea Green Publishing, 2014.

 

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Where Did Our Cheap Oil Go?

Aerial view of the oil sands operation in the Alberta Province of Canada.
Aerial view of the extraction of the oil sands in the Alberta Province of Canada (Google Earth). The field of view is approximately 25 miles across.

In March 1998, two geoscientists by the names of Colin Campbell and Jean Laherrere wrote an article in Scientific American titled “The End of Cheap Oil” which explained that a peak in conventional (cheap) oil would occur within the next 10 years, leading to higher oil prices.  The general public in the USA pretty much ignored the statements of this article (at their peril, by buying SUV’s and Hummers in the early 2000s), but we can see now, looking back, that Colin and Jean were correct!  In April 2007, some oil company CEO’s even admitted that the age of cheap oil was over.  In this post I will delve into the economic costs of oil exploration and extraction in this new age of the oil industry (this post grows out of Points 1 and 4 of my first post).  I will not go into the social and environmental externalities of oil extraction, as there is enough there for hundreds of posts, and indeed entire books have been written about these externalities (e.g. Crude World by Peter Maas). 

Exploration and extraction of crude oil has come a long way technologically from the days when Edwin Drake drilled the first commercial oil well in 1859.  Today (2014), oil & gas companies use extremely sophisticated methods to explore for and extract crude oil from the Earth’s crust.  These technologies include the use of supercomputers to create 3-D and 4-D (3-D over time) seismic models of oil and gas reservoirs to optimize exploration of new fields and optimize exploration of the peripheries of old fields.  Extraction technologies include horizontal drilling and the notorious hydraulic fracturing method; which was developed in the 1940s (http://fracfocus.org/hydraulic-fracturing-how-it-works/history-hydraulic-fracturing). 

Now, with the incredible rate of technological development over the past 155 years, not to mention increasing economies of scale, one would think that it would be easier and cheaper to extract oil from the crust than it used to be.  However, this is obviously not the case, as the break-even price for developing shale (tight) oil wells ranges from $60 to $80 a barrel, not to mention the high costs facing deep-water oil wells and oil sands development (these are other examples of unconventional oil). 

This is sobering.  All of the incredible technological development in the oil industry has resulted in increasing oil prices over time, not decreasing.  Yes, the USA is definitely extracting a lot more oil than before the boom began in 2009, but this oil is expensive, a lot more expensive than the conventional oil produced at the previous peak of oil extraction in 1970. 

So why is the shale oil boom in the USA even occurring? If it is so expensive to drill for, couldn’t a company make more money by drilling conventional (i.e. cheap) oil? Well, yes, of course! The break-even price for Iraqi oil is only $20, as conventional oil is much more easy to produce than unconventional oil (think of the oil gusher scenes in the movie Their Will Be Blood).  So we have a problem.  The problem is that there aren’t really any large conventional reservoirs left in the USA to develop!  That’s why the shale oil boom is happening now.  Decline of conventional crude oil extraction caused world oil prices to rise making it attractive to drill in shale.  The hydraulic fracturing technology has been around since the 1940s, but back then there were more than enough conventional oil fields to develop so the process was not widely used until around 2003 (when oil prices started rising). 

Why do you think oil companies are trying to drill in the Artic or are drilling even deeper than the Macondo well (2010 BP Blowout) in the Gulf of Mexico?  Why deep-water oil off of Brazil and Africa?  Why oil sands?  It’s because oil prices are high and the discoveries of cheap oil reservoirs have declined.  There could be 5-8 trillion barrels of crude oil in the Earth’s crust, but at what cost and rate can we extract it, and how much of it is actually recoverable? We’ve already extracted around 1.2 trillion barrels of the easy stuff!  If it costs $75-100+/bbl to develop the remaining oil then economies will try to switch to a different energy source for transportation, and the world economy will probably struggle to grow in the process.  Which, interestingly, would be a good thing for controlling CO2 emissions. 

Evidence for High Costs and Difficulties

Here are some articles indicating the difficulties and high costs facing oil companies in their race to extract the remaining crude oil from the crust:

Many oil companies are finding it very difficult to even explore for oil in the basins of the Artic Ocean, let alone extract any of it:

http://oilprice.com/Energy/Energy-General/More-Oil-Companies-Abandoning-Arctic-Plans-Letting-Leases-Expire.html

The Kashagan oil field in the Caspian Sea off of Kazakhstan was the largest conventional oil field discovery in the past few decades (discovered in 2000).  Its development has been extremely problematic over the past 14 years:

http://www.cacianalyst.org/publications/analytical-articles/item/12981-kazakhstans-kashagan-oil-fields-faces-problems-and-soaring-costs.html

Brazil’s pre-salt oil field discoveries were hailed as game changers by the media in 2007/2008 and yet 6 years later it is still hard to get oil out of them, though, very recently (summer 2014) the development of these fields maybe turning a corner; albeit at a very high cost:

http://www.washingtonpost.com/world/brazils-oil-euphoria-hits-reality-hard/2014/01/05/0d213790-4d4b-11e3-bf60-c1ca136ae14a_story.html

Shell pulled out of oil shale (Note: different from shale oil) research and development last year after 31 years trying to figure out how to make the economics work; if they can’t do it at $100/bbl, what price do they need?:

http://fuelfix.com/blog/2013/09/25/shell-pulls-out-of-oil-shale-project-leaving-1-big-operator-behind/

Last but not least, Saudi Arabia, the king of conventional, cheap oil is now looking for oil and gas fields in the Red Sea:

https://www.hgs.org/civicrm/event/info?id=1321&reset=1

Saudi Arabia has (supposedly) 268 billion barrels of reserves (virtually all conventional oil, cheap to produce) but they are now looking into the deep-water regions of the Red Sea for expensive-to-produce oil?  That should be concerning, as maybe their supergiant conventional fields (e.g. Ghawar) are finally starting to show some wear. 

Conclusions

Even the oil majors (IOC’s) admit that the easy oil is gone, yet they deny Peak Oil extraction will occur anytime soon.  As such, they are presumably betting that the world economy is willing to pay $100-$150+ per barrel for the next few decades.  That may not be the case as people are trying as hard as they can to give up fuel-intensive cars and trucks and looking for alternatives (electric cars, hybrids, public transportation, etc).  In addition, global economic growth maybe hindered by triple-digit oil prices for the foreseeable future, thereby impacting demand for oil.

It seems to me (and to a lot of “experts”) that oil companies the world over are stuck between developing increasingly expensive oil and dealing with a world economy that is ready to shift to a different transportation fuel or method as soon as it becomes widely available (maybe cheap, driverless, electric cars?).  All in all, the world oil companies will probably have to at some point give up spending more and more money on extracting expensive, unconventional oil and just become natural gas companies (this may already be happening due to the cuts in capital spending that many IOC’s are currently making).

If we include social and environmental externalities in the costs of extracting oil, then oil is truly becoming very expensive as we try to tap unconventional reserves like shale oil and oil sands.  For unconventional oil there is just more social and environmental impact per barrel produced (e.g. CO2 emissions per barrel produced).  It will be interesting to see how long the world economy is willing to put up with these increasing economic, social, and environmental costs. 

Earth Can’t Become Coruscant

In mid-July, Ram Realty Services acquired over 125 acres of formerly protected endangered forest in Florida after negotiations with the University of Miami. These South Florida pine rocklands are home to some of the rarest plant and butterfly species and represent some of the last patches of Florida’s dying everglades. With only 23 percent of native species declared safe, Florida’s biodiversity crisis serves as a microcosm for the larger biodiversity crisis affecting North America.

Ram plans to use the space to build apartments, restaurants, fitness centers, and a Walmart while promising to set aside 40 acres for a preserve. The company’s CEO cited that demand for “high-quality rental housing, shopping, fitness and dining options,” along with Walmart’s backing, helped decide location. In other words, gentrification.  Such ‘high-quality’ residences , trendy fitness clubs and fine dining options will drive up real estate prices as well as the cost of living. On top of that, Walmart’s presence will force out the last small businesses that remain. This isn’t urban development, its urban sprawl. Not only does urban sprawl inflict violence upon our communities it also inflicts violence on the environment we inhabit.

The Pacific Northwest contains 6% old growth forests, the largest for any region in the United States. In the Northeast, there remains less than 1% old growth. Old-growth refers to the oldest living forest ecosystems usually hundreds, even thousands of years old. Why does this matter? Why am I focused on these forests when the Earth has largely recovered from the ecological devastation wrought by colonial history?

Learn more about Old-growth Forests

Its true that second and third growth forests have replaced the original forests destroyed by colonial settlers. Bill McKibben calls this the “great environmental success story of the United States.” Despite this comeback for mother nature, original forests possess the quality of age and thus represent the most evolved and developed ecosystems on the planet.

The Definition of Symbiosis

Time allows for forests to develop complex systems of mutual aid between organisms. Trees, plants, and animals don’t evolve in a vacuum. These species evolve together. Over time, various species eventually form ways to benefit each other. For example, a species of lichen will grow in 100-year-old forests that provides nitrogen to the trees.

Old growth forests have the most biodiversity since they have been alive the longest. In the Pacific Northwest, many old growth forests contain mycorrhizal fungi which makes connections between soil fungi and plant roots thus assisting in absorbing and distributing nutrients to a larger network of ground plants. The destruction of trees break these connections disrupting an entire system of symbiosis.

Symbiosis is the basis of ecosystems. Ecosystems are what distinguish a tree farm from a forest. The longer a forest survives, the more resilient it becomes. Old growth tend to be significantly more fire resistant than second and third growth. When these original forests were blighted with wild fires, the trees that survived grew stronger bark. The forest grows stronger after each subsequent burning to the point where some trees won’t even scar. Trees are necessarily the keystones of the forest.

A healthy forest produces healthy ecosystem services. These are the natural services and products that the forest creates that benefit local species. For us, ecosystem services come in the form of rivers, fruits from the canopy, and shelter. Humans, as bipedal creatures with opposable thumbs, need to manipulate lumber and rock in order to build the appropriately habitable shelter. This isn’t necessarily bad as humans are by far not the only creatures that manipulate the environment for their own benefit.

However, just as the beaver dam can inadvertently disrupt the flow of a river at the expense of other species, humans can cause irreparable harm to forests. This is why the environmental movement takes such a strong stand against clear-cutting. Most people accept the view that some trees need to be cut down, but they also believe we shouldn’t cut down what we don’t need.

Lumberjacks and tree-sitters generally agree that the majority of forest needs to remain in order to continue the viability of ecosystem services. Problems arise, not from individual workers, but from decision-makers in the Bureau of Land Management.

“Manhattanizing” the World

Urban centers certainly provide a plethora of opportunities and services. Yet, these services don’t necessarily foster healthy communities. In fact, urbanization requires the smelting of ore powered by fossil fuels and destroys the self-correcting symbiosis that maintains the environment. Cities cannot self-correct. There isn’t any symbiotic relationship between skyscrapers and streets. Clean urbanization requires the constant maintenance of the urban landscape through human activity which in turn requires fossil fuels.

Think about it this way: Cities wouldn’t need water treatment plants if urban pollution didn’t destroy the capability of the river ecosystems to provide a constant flow of clean water. Human progress pushes the myth that natural ecosystem services need to be destroyed to make way for the construction of urban human services. This results in policy makers and land grabbers prioritizing urban expansion over ecological protection thus endangering species and accelerating the destruction of human viability. Where do the fruits at the farmer’s market come from? How did that steak get from the farm to your plate? Urbanites take human services for granted without realizing that they essentially rely on external ecosystems. If we cut down all the forests and replace them with shopping centers, then there will be nothing with which to fill these supermarkets. Cities exist within the natural environment. We ultimately need ecosystem services to survive.

This is clearly an existential crisis but its gentrification that remains the gravest evil in this scenario. As younger generations move back into the cities, they bring with them the suburban culture that lies at the root perpetuation of urban expansion. Well-intentioned white people failed to correct the unsustainable and elitist practices of the privileged culture they came from and inevitably drive out poor people of color turning their historical communities into playgrounds for the rich.

Gentrification destroys diversity and turns urban centers into some of the most culturally detestable places to live. Every time a white progressive opens up a vinyl record shop or an expensive Whole Foods store, they drive up the cost of living in the area. Realtors appeal to white people by renovating former public housing projects into apartments ex-suburbanites would feel comfortable inhabiting usually forcing out the poor communities that used to live there. Eventually, loitering and vagrancy laws are passed to keep the former residents from “offending” the new hipster elite. So, congratulations on your choice to live in historic Brooklyn! Your presence and the culture you peddle ended up making a whole generation of black New Yorkers homeless.

Green Urbanism: The Sustainable Way to Move Back to the Cities

We can’t go back to nature. Humans have adapted to live in urban environments and vast swaths of our populations have lost their instinctual survival skills. We rely on the human services of urban centers for food, shelter, and social sustenance.

The question then becomes, how do synthesize human services with natural ecosystems? The answer lies in the ecological faction of the New Urbanism movement. While realtors have used New Urbansim as a way to peddle gentrification, many of the movement’s advocates actually work very hard to come up with ways to “Green the Ghettos” and make city life sustainable.

The success of New Urbanism relies on the creation of functioning urban ecosystems along with social programs that include the historically marginalized. The goal is to encourage people to abandon the suburbs by offering a community that promotes positive opportunities centered around human need and ecological health.

Green roofs, community gardens, and building materials constructed of solar cells are just a few of the ways cities can be transformed to provide all of the necessary services human rely on. Large urban parks should also be constructed and numerous. New York’s Central Park is a prime example of this kind of land use in which traditionally human constructions become integrated within a vast tract of nature. In essence, apartment complexes and even entire neighborhoods could be constructed in such a way that they become synthesized with the very park itself.

There are numerous possibilities of how to engage cities from an environmental perspective. The key is to harness the political and social will to make such a future a reality. So instead of buying land to open up a record shop, next time plant a garden. You might just end up providing food to the hungry communities that remained invisible through your privileged mentality.

Has “Peak Oil” Been Debunked? I Don’t Think So!

In this post I will outline my major points and in subsequent posts go into more detail on each point, and point you in the direction of more information.  If you are new to the topic of Peak Oil, and want to understand the basics check out this webpage:

http://peak-oil.org/peak-oil/

For a much more in depth look check out this excellent book (you do not need a technical background):

Peeking at Peak Oil  By Kjell Aleklett

As an aside, I think it is more accurate to call the theory Peak Cheap Oil or Peak Conventional Oil.  We will never technically run out of oil.  The capacity of the world to extract 85+ million barrels a day at $100/barrel, however, will.

Point 1:

It is possible that it is becoming more difficult each year to extract (not produced, oil was “produced” millions of years ago) the oil demanded by the world economy.  Why are oil companies going after shale and into the Artic Ocean to find oil; aren’t there easier places to extract it?

There is no arguing against the fact that a huge tight oil boom is going on in the US, primarily in the Bakken in North Dakota, the Eagle Ford Shale in southern Texas, and to a lesser extent, the Permian Basin in western Texas.  Here, data from the Energy Information Administration (EIA) shows the dramatic increase, way on the right:

US Crude Oil Production

The media has been gushing about this boom for 4+ years, and it is in fact a very remarkable turnaround for US oil production (Peak Oil debunked!?); however, why are oil companies even going after these geologic formations?

These formations are composed of hydraulically “tight” rocks (e.g. shales) meaning they have low permeability (a low ability to transmit fluids like oil or water).  For the first 145 years of the oil industry the idea was to target rocks that had high permeability.  Why? Because it is much easier (i.e. less costly) to pump oil from high permeability rocks than low permeability rocks.  A lot of the high permeability reservoirs don’t even need to be fracked! Imagine that!  An oil reservoir just ready to be pumped!

So why would the industry even want to target the Bakken, with its low porosity and low permeability (http://en.wikipedia.org/wiki/Bakken_formation) in the first place…?

It is possible that most of the “good” reservoirs in the US, and possibly worldwide, have already been found and tapped. One of the major reasons the US oil & gas boom is even happening is because we ran out of good places to drill, and so prices shot up making it worthwhile to target these “tight” reservoirs of unconventional oil.  I’m pretty sure that these companies are not just drilling for this hard to reach oil to show off their horizontal drilling skills.  I will go in more detail on the “easy” oil point in a later post.

Point 2:

International Oil Company (IOC) spending has increased greatly over the past 10-15 years while production has not increased; this goes hand-in-hand with Point 1.

Steven Kopits, now of Princeton Energy Advisers, gives an excellent presentation on oil supply vs. oil demand forecasting here:

http://www.youtube.com/watch?v=dLCsMRr7hAg. I highly recommend watching the entire presentation.

At 40:00, he shows data indicating that as the IOCs (Exxon, Shell, etc.) have increased capital spending by hundreds of billions of dollars, while their production has actually decreased.  They are still financially successful companies however; I wonder how? (Hint: see Point 4).  Also, I should note that the oil & gas boom in the US was driven primarily by smaller independent companies; the IOCs were late to that game.

Recent articles also tell us of these issues facing the IOCs:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10957292/Fossil-industry-is-the-subprime-danger-of-this-cycle.html

http://www.platts.com/news-feature/2014/oil/western-oil-production/index

Point 3:

The US has probably passed peak per-capita oil demand, due partly to a surge in alternative energies and fuel efficiency gains, but some of the other reasons why are disconcerting.

In Steven Kopits presentation he presents some data on how some subgroups of people in the US are not driving as much as before the Great Recession. A lot of these people are young and unemployed, and so they have no need to commute (see 33:00 to 37:00).  That’s a bit depressing to me.  Again, there definitely are “positive” reasons (gains in efficiency) for this decline in per capita oil consumption (demand) in the US and Europe, but you have to take the positive reasons with the negative.

Point 4:

Oil prices are still high.

Back in 1998, the inflation-adjusted price for West Texas Intermediate (WTI) oil in 2014 dollars was slightly under $20 (http://www.macrotrends.net/1369/crude-oil-price-history-chart), and as of July 2014, the price was slightly above $100.  As you can see from the oil price chart in the link, inflation-adjusted oil prices have been pretty high for the past 10 years, not counting 6 months during the Great Recession!

In the past four years world oil prices have hovered around $90 to $110 a barrel, despite the oil & gas boom in the US, and increased production from Canadian oil sands.  It seems like demand for petroleum is still outpacing supply globally for geological, geopolitical, or other reasons.  On the other hand, the gas boom has decimated natural gas prices (here in North America), so if you heat your home with natural gas as opposed to heating oil, you should be happy!

Point 5:

Per-capita production of crude oil in the US is down from the high of 1970 and we are still importing a lot of oil.  An even bigger surprise is that per-capita production of crude oil worldwide has also declined from previous highs.

You never really see this point made in media stories about the oil boom, but the fact is that in 1970, when the US was pumping 9.6 million barrels a day of crude oil (not including natural gas liquids or biofuels), the population of the US was around 200 million people.  In 2014, we are pumping about 8.0 million barrels a day of crude oil, with a population of 316 million people.  So, in 1970 the US was producing 0.048 barrels/person/day and in 2014 the US is producing 0.025 barrels/person/day.  So today we are at 52% of the peak per-capita crude oil production in 1970.  Yes, granted, we are doing much better than where we were prior to the boom beginning in 2009, but we still have a long way to go to get back to the 1970 per-capita production peak. (The production data is from the EIA, and the population data from the US Census Bureau).

Worldwide, per capita crude oil production has also declined.  In 1980, the world was producing 59.5 million barrels of crude oil per day, with a population of around 4.5 billion people.  In 2013, the world was producing 76 million barrels of crude oil per day, with a population of around 7.0 billion people.  So, in 1980 the world was producing 0.013 barrels/person/day and in 2014, the world was only producing 0.011 barrels/person/day.  (The production data is from the EIA, and the population data from the US Census Bureau).

The calculation for the worldwide per capita production is somewhat misleading and I will go into that in a future post (I need production data from before 1980).  However, the implications of declining per-capita production are serious.  The developing countries use much less oil per capita then the US does, so as they develop they may find it harder to replicate US energy usage, simply because of declining worldwide per capita oil production. If lots of people in developing countries want to live in the suburbs and drive cars they need alternatives to crude oil ASAP! To be fair there may be lower per capita demand for oil now due to efficiency gains, but all in all, there is just less net crude oil available per person then there was a few decades ago.

OK, these are red flags to me, and these points make me think Peak Oil still may be a large societal problem. In an attempt to be balanced, I present to you some points by Michael Lynch on why Peak Oil Theory is wrong:

http://www.forbes.com/sites/michaellynch/2014/06/19/peak-oil-1-what-is-peak-oil/

http://www.forbes.com/sites/michaellynch/2014/06/25/peak-oil-2-the-true-believers/

http://www.forbes.com/sites/michaellynch/2014/06/27/peak-oil-3-has-production-peaked/

http://www.forbes.com/sites/michaellynch/2014/07/07/peak-oil-4-the-urban-legend-of-inadequate-discoveries/

It’s up to you to decide if this topic is something that should concern you; many people dismiss it even though their lifestyles are made possible by oil.  There are many books and scientific articles written on it.  If you like to analyze things yourself, the data on Peak Oil is out there on the internet, and it is definitely intriguing.  Don’t take my word for it, I implore you to look into it yourself.

The funny thing is, I am a geologist finishing up graduate school, but not once in any of my geoscience classes did any professor mention peak oil, much less discuss or debate it.  If geologists don’t discuss peak oil, then who does?  That made me realize that probably 99.5% of the general public probably does not have an even simple understanding of the topic, hence this post.

Limitations to My Interpretations:

IEA says oil production still growing:  The International Energy Agency (IEA) reports total world oil production as including crude oil, natural gas liquids, biofuels, and processing gains all in one.  Doing this, however, masks the difficulty that the world is having in keeping conventional crude oil production from declining, as the alternatives (which aren’t as energy dense as crude oil) grow.  See this article for more information on this:

http://www.resilience.org/stories/2014-04-13/did-crude-oil-production-actually-peak-in-2005

Current Technologies:   Yes, there are definitely technologies that exist right now that will gradually help out with the Peak Oil problem (Electric Vehicles, fuel cells, biofuels etc.) and I guess these will also help with the climate problem (as long as the EV’s are not powered by fossil fuel).   However, the roll-out of these technologies will probably be a transition taking decades; it already started in the mid-2000s.  Check out the “Do the Math” blog for commentaries on current technologies.

Technological Optimism:   A group of scientists and engineers in the next 5 years could possibly invent a new energy source that completely displaces oil from the economy in a matter of 10 years, truly making Peak Oil a worthless thing to worry about.  Yeah, that might happen, but would you bet your savings on that event occurring?  In my opinion I think it is better to be a little pessimistic and outline a backup plan (many people have developed these already, like the “Hirsch Report”) as opposed to hoping some majestic idea will come along and save us.  That way you can be prepared.

Conclusions:

While these points show that Peak Oil may cause more economic hardship in the coming years, this does not mean that I think that the world economy is going to collapse.  What I think will happen is that the transition to a new energy economy will not be easy as we attempt to fill our land with solar panels, wind turbines, and biofuels.  I think that it will be a rough and bumpy journey with much hardship falling on the lower and middle classes, who spend a high percentage of their income on electricity, transportation fuel, heating, food etc.  Just take a look at what happened to the middle class of the US over at the past 6 years (Not to mention the economies of the Mediterranean countries! Yikes!!!).  I think it might be like this for the next few decades at least, a large recession every decade followed by a slow recovery (i.e. just a lower rate of worldwide economic growth, in general).

That might seem depressing but in the past 6 years a lot of people, regardless of income level, did a lot of happy things despite the economic downturn and slow recovery, and GDP doesn’t really measure happiness.

More posts to come looking at each of the points in more detail!  I have to finish writing my master’s thesis though, so it may take a while before a new post appears from me, so here’s some more info on Peak oil:

http://physics.ucsd.edu/do-the-math/2011/11/peak-oil-perspective/

Also, be sure to check out our list of links to other energy/environmental blogs and of course, my brother’s posts!