Thursday, May 06, 2010

Another Wake-Up Call For The World’s Biggest Oil Junkie

>


Ken and I have been grappling with the horror of the Horizon deepwater oil drilling rig disaster all week but I was lucky enough to run into renowned energy expert Chris Nelder and to somehow persuade him to help put the whole catastrophe into some kind of useful perspective. No ideologue, Chris' goal has long been to get America to understand the reality of its energy situation, based on the decade he's spent studying and writing about energy and related issues. He's written two acclaimed books on the topic, Profit From The Peak and Investing In Renewable Energy, not to mention nearly a thousand articles on energy and investing. And aside from consulting with government and business leaders on the future of energy, he runs his own blog at GetREALList.com. I asked Chris to give us a little tutorial on what makes last week's disaster so important and what we as a society need to do about it. Chris:

America Still Doesn’t Get It
OK, America, it’s time to get real about energy.

The explosion and destruction of the Horizon deepwater rig and the subsequent oil spill disaster are only the latest in a series of wake-up calls you’ve received. Are you listening now?

Your first warning came in 1956, with the publication of M. King Hubbert’s model of US oil production, which correctly predicted its peak in 1970. When Hubbert updated his model on camera in 1976, he also nailed the peak of worldwide conventional oil production in 2005.

Since then, production has remained flat at roughly 74 million barrels per day (mbpd), despite prices gyrating wildly from $40 to $147 to $33 and back to $86 today. High prices did not deliver more oil to market.

Very simply, the cheap and easy oil is gone. What’s left is smaller, harder to find, of lesser quality, and in much more challenging places-- under a mile of water and another five miles of rock, for example. It’s expensive, risky, and yes, dangerous.

American domestic oil production peaked in October, 1970 at just over 10 mbpd. It has been in a steadily declining trend ever since, and now stands at 5.5 mpbd.

Over 30 percent of domestic production is from offshore drilling, of which about three-quarters comes from the Gulf of Mexico. Deepwater oil production has only become possible in recent years with the development of cutting-edge technology. We do it not because it’s without risk, but because we need the oil-- badly. Only offshore is it still possible to find a field in North America that can deliver over 100,000 bpd. Just two of the Gulf fields, Thunder Horse and Atlantis, produce a combined 350,000 bpd.

By comparison, the remaining onshore resources in North America are now decidedly marginal. The days of gusher strikes onshore in the U.S. are long gone. About 1.2 mbpd, or over 20 percent of domestic production, comes from thousands of small “stripper wells” producing under 15 (yes, 15) barrels per day. Low-quality resources like tar sands and shale oil are vast but expensive, and so difficult to scale that they can’t reverse the long-term decline.

The U.S now imports 9.4 mbpd of crude. At $85 a barrel, that’s an $800 million-a-day hole in our pocket, or $292 billion a year. And our import dependency is only getting worse.

An oil export crisis has been developing for years, as oil producers consume more of their own output and Asia outbids the West for declining global exports.

Even so, as the world’s most dependent oil junkie, our demand for oil has held firm. The decline in U.S. oil demand from 21 mpbd in 2007 to 18.6 mbpd today was almost entirely due to lost industrial demand; gasoline demand remained virtually flat throughout the entire oil price spike and recession.

For every finger pointed at an oil company, three point back at us.

Like the whaling ships of the late 1800s that would sail to the ends of the earth in search of whale oil, deepwater drilling is proof that we are willing to pay enormous sums and go to extraordinary lengths and depths to get oil. We have chosen to accept the risks of environmental damage, the horror of oil wars, and the deaths of rig workers in exchange for a continuing supply of cheap, convenient fuel.

We built an entire economy and topography of civilization on the premise of endless, cheap fuel, and profited handsomely from the ever-increasing bounty of the Age of Oil. But having reached the point where it can no longer be increased, and the risks have grown intolerable, we whine and accuse and complain like teenagers, claim we were victimized, and act as though our demand for oil were an unfortunate accident we had no part in.

Isn’t it time ask ourselves how much more risk we’re willing to take, to accept the situation like adults, and plan accordingly?

Since Hubbert’s first warning, our wake-up calls have come ever faster: The Arab oil embargo of the early 1970s and the gasoline rationing that followed. Oil spills. Oil wars. Economically devastating oil price spikes driven by hurricanes and shrinking spare production capacity. And the increasingly frequent spectacle of sinking and spilling offshore rigs.

Yet somehow, this stark and deadly serious reality has escaped our notice. The eager search for a scapegoat in the wake of the Horizon disaster is a clear sign that America simply doesn’t get it.

After highly visible disasters like the Santa Barbara oil spill of 1969, the Exxon Valdez spill, and now the Horizon spill, the public understands the risk of offshore oil production. What it doesn’t understand-- at all-- are the choices we now have to make.

Those calling for an end to offshore oil production in the U.S. apparently don’t understand that it accounts for over 30 percent of our domestic supply. They don’t understand that making offshore oil off-limits would be a double-whammy to our pocketbooks, both restricting our income and forcing us to import even more oil at ever-higher prices. They have an inkling that ethanol production is pressuring food supply, but have no concept that the non-food alternatives, like fuel from algae and cellulosic ethanol, are still puny, and a long way from being ready to scale up and replace oil.

Instead of having a rational discussion about how we’re going to manage our remaining offshore oil resources, we look to technology… as if deepwater drillships and blowout preventers and acoustic shutoff switches were the problem, rather than miraculous solutions only a dedicated junkie could love. These technologies don’t fall from the sky. Every safety measure ever invented came as the result of a lesson learned the hard way.

Instead of discussing how we’re going to break our addiction to oil, we turn to politics…as if yelling “Drill, Baby, Drill” or “Spill, Baby, Spill” even louder, or changing tack on our energy policy every four years, could amount to a solution.

All of our politically-driven energy approaches--carbon caps and trading schemes, offshore leases and moratoriums, short-term incentives for renewables, and so on--
are woefully incapable of addressing our long term problem.

It’s easy to vilify oil and its producers, and it’s politically popular to call for an end to drilling, but replacing oil is far more difficult and expensive than anyone seems to understand.

Here’s the real challenge.

Within two to three years, global oil production will begin a long decline. As a rough rule of thumb, the world will lose roughly 25% of its oil supply in 25 years, 50% in 50 years, and 100% in 100 years.

It’s likely that we will also see the peaks of natural gas and coal in the next 20 years. Hydropower and nuclear will do little more than hold their current market share.

By the end of the century, nearly everything will have to be powered by renewably-generated electricity, not liquids or gases.

But scaling up renewables to take over for fossil fuels, and transitioning all the infrastructure, is going to be mind-bogglingly expensive, difficult, and slow. Renewables like solar and wind currently make up less than two percent of the world’s primary energy supply. It will take decades of effort and trillions of dollars in investment to offset a mere 20 percent of global demand with renewables, and we’ll have to do it in an environment of declining fossil fuel supply and shrinking economies.

For another rule of thumb, consider this: To compensate for the decline of oil alone using renewables, the world would need to build the equivalent of all the world’s existing renewable energy capacity, every year. Since that is impossible, efficiency and a long transition to renewably powered infrastructure must make up the shortfall. This will take 50 years or more to achieve.

If we use it wisely, offshore domestic oil could provide a crucial portion of the fuel we’ll need in order to build that new infrastructure. But if we remain in ignorance of our energy reality, letting politics be our guide and scapegoating oil companies upon their every misfortune, we’ll go down in flames as surely as the Horizon did.

One more tool in the deepwater toolbox, be it an acoustic shutoff device or something not even invented yet, will not solve our problems. Scapegoating drillers while we continue to pump gasoline into our tanks is unproductive and hypocritical. Hyping the size of marginal resources like shale without acknowledging their low flow rates is disingenuous. And championing alternatives that can’t even meet half a percent of our needs, like non-food biofuels, while trying to shut down the 10 percent of our supply that deepwater production provides, betrays a suicidal ignorance of our reality.

It’s time to wake up, put politics aside, get a grip on the scale of the problem and its solutions, and develop a serious energy plan.

Labels: , , , , , , , , ,

5 Comments:

At 7:39 AM, Anonymous Mark Scarbrough said...

I am absolutely speechless. Breath-takingly brilliant. Scary, too.

I think the problem is so frickin' enormous--we're talking about something that's the very basis of the economy and thus society itself, a prime factor in a world built on scarcity as the driving engine--that most of us--me, certainly--simply turn away befuddled. To our own damnation.

I have already sent this post to everyone I know.

 
At 9:53 AM, Anonymous Anonymous said...

Scapegoating is not what's being done with BP, however. I've read that BP refused to use the safety measures in the Gulf of Mexico that it voluntarily uses in the North Sea and is forced by law to use elsewhere such as off Norway. So this spill disaster is definitely something that should have been prevented (not to mention the possibly incompetent Halliburton cement work). BP is negligent and deserves the villification it's getting. In light of that, here's my 'spill of words', a short poem called "The Gulf", to make my point further (link is below poem text).

The Gulf

"The water was fouled at once,
but they drank it none the less,
a mess of mud and blood"
- Thucydides

Oil on the water
blood on the sands
cruel and unusual
big business plans
eleven souls dying
then millions more
of fellow live beings
damn big business whores
crude in their veins
greedy slick hearts
their making a killing
rips us apart
big oil at the table
pounds on its chest
keeps us addicted
kills all the rest
what becomes of our world
what becomes of our pride
what becomes of our lives
when death comes with the tide

Larry Piltz
Austin, TX
(from Back Bay,
Biloxi, MS)

http://theragblog.blogspot.com/2010/05/verse-larry-piltz-gulf.html

 
At 10:19 AM, Anonymous blue in the face said...

Making money and making sense are mutually exclusive. Humanities leaders must start making sense if we are to survive. Stop going to non wealth producing jobs. Stop producing military junk. Think of all the energy that would be saved. 80% of what is going on should be eliminated. Stock brokers, insurance, tax preparers, football. Redesign the future without the game of monopoly and conquest. The objective must be to make the world work for everyone in the shortest of time possible through spontaneous cooperation without disadvantaging anyone.

Paper money will not buy a life boat in the middle of the ocean if the ship is sinking. Having money and being smart have nothing to do with each other. kudlow and friends are all idiots.

 
At 2:03 PM, Anonymous Anonymous said...

We can reduce our use of oil but first we need to believe it can be done and we need to believe that it is vitally important that it be done now. First thing is to stop using oil for anything but transportation, no more home heating oil. We use natural gas for that. Second is to mandate a doubling of mpg over the next 5 years. And going to pluggable hybrid cars. Also increasing the percentage of cars that use compress natural gas or methonal or enthanol. Yes, it will cause money but it will cost us less that letting oil go to $200 a barrel. Every barrel of oil we save helps to keep the price of oil down.

 
At 9:30 PM, Anonymous Dr. Jon Gelbard said...

I say let everyone who possibly can get solar panels on their roofs (or small-scale wind turbines in sun-challenged locations, which are usually windy) , proudly displaying them like kWh-generating American flags.

Remember the power of peer influence. What gets people to make these kinds of changes? Seeing others do it...

Support our renewable energy businesses, as well as makers of energy efficient products to help them expand, gain market share, and gain political power.

Government needs to step up bigtime with smart policies like generous feed-in tariffs, tax rebates, finance options like Berkeley's.

We can do this. It can become our patriotic mission -- not just for Americans, but all countries.

But do we have the will-power as a species..?

Will we answer E.O. Wilson's famous question sooner than he may have thought..?

 

Post a Comment

<< Home