The View from the Peak and a Strategy for Descent: A Report from the ASPO-USA Conference in Houston

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The View from the Peak and a Strategy for
Descent A Report from the ASPO-USA Conference
in Houston

• Think Global Act Local
• The Capital Region Energy Forum
• December 10, 2007
• Bill Reinhardt
• New York State Energy Research Development
  Authority (NYSERDA)

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What is Peak Oil?

• Peak Oil will occur when the global production of
  oil peaks and begins an inevitable decline.
• The real energy crisis begins not when the world
  runs out of oil, but when global production
  begins an inexorable decline.

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What is Peak Oil? (cont.)

• In 1956, M. King Hubbert, a Shell Oil geologist,
  predicted that Peak Oil for the US would occur in
  the 70s, and it did, in 1970. US discoveries
  had peaked in the 30s.
• Both discoveries and production were plotted as
  Bell Curves, with the production curve lagging by
  about 35 years.

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United States Peak and Decline
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What is Peak Oil? (cont.)

• Global discovery of oil peaked in 1964.
• When will Peak Oil arrive?
• T Boone Pickens (Texas oilman), The peak is
  now.
• Kenneth Deffeyes, (Petroleum geologist and
  Princeton professor) Thanksgiving 2005
• Uppsala Hydrocarbon Depletion Study Group - 2008
• US Energy Information Agency - 2037

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What is Peak Oil? (cont.)

• Global demand is currently 87 million bbl/day
  (4Q, 2007) and rising, especially in China,
  India, the US, Russia and OPEC.
• 3.4 growth in 2004. 2.7 in 2005
• 2.2 projected 2007-2011 (IEA, 2007). Up from
  2.0 projection.
• Demand in developing world may accelerate.

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What is Peak Oil? (cont.)

• The stress on global production capacity has
  caused the recent volatility in world oil prices,
  and OPEC target price range has jumped from 22
  -28 /bbl to 60-70 /bbl or is it 90100 /bbl?
• OPEC at full production in early 2006. Cuts in
  late 2006 to protect price range. By late 2007,
  demand exceeds production. A peakers bluff?
• Geopolitical instability (the curse of oil).
• In 2006, up to 54 of 65 largest producing
  countries have passed their peak.
• When Non-OPEC production peaks, what can OPEC
  (Saudi Arabia) do?

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Conventional Oil Peaked in 2004

• From now on, depletion will outweigh new supply
  of conventional oil
• 3 annual depletion
• Unconventional oil must meet global demand growth
  and net depletion
• Unconventional oil will be primarily deepwater
  oil (now) and tar sands (after 2009)
• Future capital costs and oil prices will continue
  upward trend of last five years
• (CIBC World Markets, December 2006)

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The Peaking of World Production?
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When will all Liquid Fuels Peak?

• Chris Skrebowski, Editor, Petroleum Review
• Supply will remain tight and prices high barring
  a major economic setback
• Oil supply will peak no later than 2010/2011 at
  around 92-94 million b/d
• Oil supply in international trade may peak
  earlier than oil production peak
• Collectively we are still in denial
• (ASPO Houston, 2007)

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What is Peak Oil? (cont.)

• What are the implications of Peak Oil?
• - National Security
• Most future oil and gas is in the volatile
  Middle East.1
• - Economic
• Stagflation and 100/bbl for oil (if you can get
  it!).2
• - International Relations
• Resource wars (the winner gets it!).3
• 1. PFC Energy, September 2004
• 2. Douglas-Westwood Limited, May 2004)
• 3. The Nation, November 8, 2004.
• Crude Awakening by Michael T. Klare

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Oil and Gas Combined Peak
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ASPO-USA 2007 Houston World Oil Conference

• Supply Side Issues Beyond Geology
• Reserve Growth
• Infrastructure Constraints
• Geopolitical Constraints on Investment
• Geopolitical Instability-Resource Wars
• Resource Nationalism and Peak Exports

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ASPO-USA 2007 Houston World Oil Conference

• Demand Side Response
• Unconventional Oil
• Biofuels
• Demand Destruction
• Energy Efficiency Technology
• Lifestyle Change Wants versus Needs

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Supply Side Reserve Growth

• Petro-optimists overestimate potential based on
  best case fields
• Sometimes, enhanced oil recovery leads to more
  rapid decline in field
• Sometimes, fields are drained faster
• Historically (e.g., Alaska) Reserve Growth occurs
  long after the peaking of a region.

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Supply Side Infrastructure Constraints

• Oil and gas infrastructure is rusty and too old
• Oil service and drilling rigs too old
• Refineries, tank-farms and pipelines too old
• Industrys work-force rapidly graying
• Source Matthew R. Simmons

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Supply Side Geopolitical Constraints on
Investment

• Investable Resources are limited by rise of
  National Oil Companies (NOCs) and fall of
  International Oil Companies (IOCs)
• Geopolitical instability further limits
  investment (e.g., Middle East) even when access
  is there
• Sources Hirsch, Simmons, Skrebowski, Petrie

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Supply Side Geopolitical InstabilityResource
Wars

• Numerous examples of armed conflict disrupting
  existing supply
• In the past Iran, Iraq, Kuwait, Venezuela
• In the present Iraq, Mexico, Colombia, Nigeria,
  Chad, Sudan
• In the future Iraq, Iran???
• OK, probably not Norway

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Supply Side Resource Nationalism and Peak Exports

• This trend is happening across OPEC as well as
  Russia and Canada
• Peak Exports predicted to occur even before a
  global production peak and may have already begun
  in 2006-2007
• Oil-Rich Nations Use More Energy, Cutting
  Exports (NYT 12/9/07, p.1)
• Sources Hirsch, Skrebowski, Petrie, Brown
  Foucher (Export Land Model)

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Rising Consumption Declining Exports
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What About Saudi Arabia?
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What Is Left For Export?
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Not what the EIA and IEA had in mind!
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Top Five KSA, Russia, Norway, Iran, and UAE
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Peak Exports Has Begun
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Demand Side Response Unconventional Oil

• Canadian Tar Sands constraints
• Projection reduced to 2.8 MBD by 2015
• from 3.0 MBD, due to massive cost increases and
  labor shortages (40-50 over 2 years)
• (Toronto Star, 11/16/07)
• Emissions, natural gas and water constraints
• In-situ processing may mitigate water, land and
  air disruptions
• Scale factor
• Timing issue Will impact slope of decline

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Demand Side ResponseBiofuels

• Biofuel constraints
• Food versus fuel
• Scale factor
• Timing issue Will impact slope of decline

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Demand Side ResponseDemand Destruction

• Involuntary demand destruction is happening in
  third world now
• Supply and demand will diverge noticeably by 2009
• Supply shortfalls (for heating oil) in Winter
  before 2011
• Source Skrebowski

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Demand Side ResponseDemand Destruction (cont.)

• Aviation Case Study
• Aviation demand has grown (fast) with rising GDP,
  business revenue and disposable income
• The reverse is also true. It is the peak-oil
  induced economic effects that will do the
  greatest damage to the aviation industry (and
  others)
• Current aviation forecasts are unrealistic
• Implications are dire for aviation and all travel
  dependent industries
• The critical factor is GDP, not cost of service
• Governments should stress transportation
  efficiency and enhanced fuel efficiency standards
  for all modes of transportation
• Source Bezdek

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Demand Side ResponseEnergy Efficiency
Technology

• Key efficiency targets are transportation and
  building heating
• Major time lag for impact to build (lt5MBD over 20
  years)
• Can mitigation overtake oil decline?
• Will depend on real (unknown) depletion rate of
  2-5 per year and exporter withholding
• world oil shortage decline in world GDP
• Key Question Can energy efficiency technology
  change relationship between GDP and energy?
• Source Hirsch

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Demand Side ResponseLifestyle Change-Wants
versus Needs

• One way or another, demand will equal supply
• Voluntary lifestyle changes less disruptive to
  self and society than involuntary demand
  destruction
• Lifestyle changes encompass where you live, how
  and where you travel, and your consumption
  choices.
• Wants are unlimited, needs are not

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Other Recent Peak Oil Studies

• US Army Corps of Engineers (September 2005)
• Energy Trends and Their Implications for U.S.
  Army Installations
• The US economy uses 50 more energy per unit of
  GDP than the other developed nations of the world
  (EIA 2004). The fossil fuel-based,
  automobile-centered, throw-away economy is not a
  viable model for the United States or the rest of
  the world over the long term. It is not
  sustainable. (p.53)
• This disproportionate US consumption of energy
  relative to global consumption causes loss of the
  worlds good will.A more equitable distribution
  of resources is in our best interest for a
  peaceful future. (p. iv)

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Searching for Sustainability

• Descending the Oil Peak
• Navigating the Transition from Oil
• Portland Peak Oil Task Force Report
• Focus on Long-Term Transition not Sudden Oil
  Shocks or Societal Collapse
• Task Force Process
• Questions gt Impacts gt Recommendations

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Portland Peak Oil Task Force Recommendations

• 1 Reduce oil and Gas use 50 in 25 years
• 2 Inform Citizens
• 3 Engage Civic Leadership
• 4 Land Use Patterns
• 5 Smart Infrastructure Investment
• 6 Encourage Efficient Renewable Transport
  Choices

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Portland Peak Oil Task Force Recommendations
(cont.)

• 7 Expand Energy Efficiency Programs
• 8 Preserve Local Food Production Capability
• 9 Promote Sustainable Business Opportunities
• 10 Preserve Safety Net, Protect Vulnerable
  Populations
• 11 Emergency Planning

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How Can New York State Prepare for Peak Oil?

• Understand new economic trends resulting from
  Peak Oil (very high energy prices).
• Adopt an Oil Depletion Protocol.
• Develop State/local initiatives to limit future
  oil and gas demand
• Implications of land use development patterns for
  building and transportation energy demand
• Regionalization of building practices,
  manufacturing and food production.

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Three Principles of Industrial Relocalization

• Meet essential needs (food, shelter and others)
  as locally as possible, taking into account
  bio-regional strengths and weaknesses.
• Minimize transport of higher volume, lower-cost
  goods and commodities.
• Focus global trade on low-volume, high- cost
  specialist technology that facilitates local
  production of essential high-volume, low-cost
  goods and commodities.
• (Think Globally, Manufacture Locally Josh
  Floyd. July, 2007)

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Conclusions

• Peak Oil will bring considerable change to the
  New York State economy.
• New growth industries can help mitigate job
  losses brought on by structural shifts.
• Mitigation efforts should begin at least 15 years
  before the onset of Peak Oil.
• Most projections of Peak Oil are before 2020, and
  we may have passed it already!
• As is often true in life, denial will only make
  things worse.

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Related Web Links

• www.aspo-usa.com
• www.energybulletin.net
• www.theoildrum.org
• www.museletter.com
• www.oildepletionprotocol.net
• www.postcarbon.org
• www.energypreparedness.net
• www.peakoilnyc.org
• www.willitseconomiclocalization.org

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