What If There Is Peak Oil?

The Spring 2013 Semester has just ended and I am beginning to see light in the tunnel. So I can restart writing my long-neglected blog.  Many things have happened in the four months since my last entry:  Thousands upon thousands of innocent people have died in wars and ethnic/religious strife. Most of these wars have as background access to oil, gas, and drinking or irrigation water. More narrowly, Shell decided not to go back to the Arctic in 2013, and Statoil and ConocoPhillips are waiting on Shell to go to the Arctic. According to mass media, the world is awash in liquid hydrocarbons everywhere. Or is it? The question I have been asking myself repeatedly is: How do I explain things to people who in general are not interested in learning and understanding the things I am trying to explain?

I just checked Google to find out about "peak oil." Google reported that 58 million people posted something with this phrase. Then I googled the "peak oil myth."  Among the mere one million entries, the most popular one was "Energy Independence and the Myth of Peak Oil," published on Nov 12th, 2012, by Louis Basenese, Chief Investment Strategist for The Wall Street Daily, and a Wall Street consultant and analyst. His blog was published under this auspicious heading: "In the world of liars the truth starts here."

If you can see through tears of despair, please try to read this gem of ignorance and nonchalant arrogance, summarized so well by Professor Harry Frankfurt in his brilliant book, On Bullshit.  When you read the latter concise and funny philosophical treatise, you will learn how a bullshitter has a casual relationship with truth; sometimes what he says is true and often it is not, but no one knows which one is which and when.

Here is a typical example:

We have a career theorist (i.e. – a research geologist) to blame for Peak Oil. So we shouldn’t be surprised if reality doesn’t match his theory. His name is Marion King Hubbert. In the mid 1950s, he developed a quantitative technique that could be used to predict the remaining supplies of any finite resource – and the time of ultimate depletion. And Hubbert used it to predict that oil production would peak by the early 1970s. Nice try, Nostradamus.

Thus, according to Mr. Basenese, Dr. M. King Hubbert, one of the top American scientists of all times, is a "career theorist" (note the populist anti-science tone of this phrase).  Since no one needs to pay attention to what a career theorist says or writes, it apparently escaped Mr. Basenese that Dr. Hubbert correctly predicted in 1956 that the U.S. production would peak in the early 1970s.  It did.  And later, oil production peaked in the North Sea in Norway.

In addition, Dr. Hubbert predicted that the world production of petroleum would peak in the early 2000s. And it did too. (Petroleum is also called crude oil. It is the black, brown, yellow or greenish, gooey stuff  that is not the thin, transparent condensate, nor ethanol, nor solid black tar) .

Condensate is not crude oil. Draining condensate from a tank shows how clear and fluid it is. The darker color is only a trick of reflecting light through the wet concrete.  For more go here.

This is a sample of a thick dark crude oil, not transparent thin condensate.

Contrary to the first figure in Mr. Basenese's blog, showing the global rate of production of total liquids in percent (sic!), and calling it "global oil production," the real rate of petroleum production has stalled since 2004.  And for good reason: we are at the peak of global rate of crude oil production. For the distracted, here are the two important phrases: "global rate" and "crude oil."

At a risk of repeating myself, let me go again through how it works.  So please listen up!

We will never run out of oil. In 1866 or so, William Stanley Jevons described the phenomenon of resource degradation and dilution as follows: "The expression "exhaustion of our coal mines," states the subject in the briefest form, but is sure to convey erroneous notions to those who do not reflect upon the long series of changes in our industrial condition which must result from the gradual deepening of our coal mines and the increased price of fuel. Many persons perhaps entertain a vague notion that some day our coal seams will be found emptied to the bottom, and swept clean like a coal-cellar. Our fires and furnaces, they think, will then be suddenly extinguished, and cold and darkness will be left to reign over a depopulated country. It is almost needless to say, however, that our mines are literally inexhaustible. We cannot get to the bottom of them; and though we may some day have to pay dear for fuel, it will never be positively wanting (The Coal Question: An Inquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal Mines, Macmillan & Co., London, 1866, Preface, pp. vi-vii). "

Now substitute the words "crude oil"  for "coal" and "deposits" for "mines,"  and you will have a similarly true statement.  The crude oil deposits are huge and we will never run out of them. Period.  But then it gets more confusing.  In an Atlantic Monthly piece, What If We Never Run Out  of Oil? the author eloquently restates this Javons' thesis, while commingling gas hydrates and natural gas with crude oil.

Energy supplies are infinite. In the same Atlantic Monthly article we find this quote: “When will the world’s supply of oil be exhausted?” asked the MIT economist Morris Adelman, perhaps the most important exponent of this view [of inexhaustible resources, TWP] “The best one-word answer: never.” Effectively, energy supplies are infinite."

Was Hubbert wrong?  So how does someone like me defend M. King Hubbert, when faced with such overwhelming evidence of the infinite nature of the Earth and her resources?  First, let's try to understand Jevons, who was not an MIT or Harvard economist.  Jevons simply stated that there is always some coal seam somewhere in the world that could be mined in principle.  He did not say anything about the rate and cost.  Confusion that ensued is now self-evident truth in the minds of Mr. Adelman and many others.

So here is the dirty little secret of our civilization:  It runs on power, or energy per unit time, not on energy.  The scientifically illiterate English majors, economists and politicians, simply cannot comprehend the fundamental difference between a quantity (here energy) and its time derivative (here power).  This is how skipping algebra and Calculus I terminally confused leaders of an otherwise advanced nation.

In other words, having one billion dollars in your checking account does not help you with purchasing a Rolls Royce with cash  if your daily withdrawal limit is 100 dollars.  The huge checking account is a metaphor for the oil deposits or global resource, and the ATM card you use to tap into this account is the oil wells and installations that produce this resource.  I have explained this apparently difficult subject elsewhere and do not want to repeat myself yet again.

It is the rate, stupid. In summary, for the U.S. and the world, it doesn't matter how huge a resource is, if it is used over one thousand years, drop-by-drop.  We are interested in energy gushing at us at an incredibly high rate of 75 million barrels of crude oil per day. (One cubic mile of petroleum per year.)

This gigantic global rate of producing petroleum will not increase substantially from now on and - if anything - this rate has started declining.  Hubbert was right because he was a genius scientist, who understood nature.  The lay interpreters of Hubbert occasionally get his thinking wrong.

P.S. A MOOC on derivatives anyone?

To be clear, when I say "derivative," I mean that if y(t) is some nice, smooth function of time, t, its derivative, y'(t), is the limit as a time increment, delta t, goes to zero of the following expression:

[y(t+delta t)-y(t)]/delta t.  

I did not mean the trillions of dollars in imaginary bets on everything that are also called "derivatives."

P.S.P.S.  More good news from Bloomberg about U.S. oil exports:

U.S. oil exports are poised to reach the highest level in 28 years as deliveries to Canada more than triple, helping bring down the price of the global benchmark Brent crude relative to U.S. grades. The shipments will rise to at least 200,000 barrels a day by the end of the year, according to Ed Morse, head of global commodities research at Citigroup Global Markets Inc. Exports were 59,600 in 2012 and haven’t averaged more than 200,000 since 1985.

Brent Pressured by U.S. Tripling Crude to Canada: Energy Markets, by Dan Murtaugh - May 10, 2013 11:03 AM CT

Not a word there about the almost 3 million barrels per day of oil imports from Canada.   That's 15 times more!

Here is what a factor of 15 means.  Suppose that you run a comfortable mile in 10 minutes.  Then in one hour you will cover 6 miles.  That's U.S. oil exports to Canada.  Now suppose that I barrel down an empty highway at 90 miles per hour.  That's 15 times more, like U.S. oil imports from Canada. Would you want to run into me head-to-head on that highway?

Arctic Oil and Sanity

As Nicholas Taleb stated in "Antifragility":

Now as a skeptical empiricist, I do not consider that resisting new technology is necessarily irrational: Waiting for time to operate its testing might be a valid approach if one holds that we have an incomplete picture of things. This is what naturalistic risk management is about. [ I.e., management of risk by nature, TWP.] However, it is downright irrational if one holds on to an old technology that is not naturalistic at all yet visibly harmful, or when the switch to a new technology ... is obviously free of possible side effects that did not exist with the previous one.  (Page 191)

So what does this statement have to do with the current developments in the Chukchi and Beaufort seas?  It turns out that a lot.

First, both sides in the Arctic disputes have taken fragile, absolutist positions. Environmentalists claim that there is no technology that could ever be applied in the Arctic from here to eternity, because all technologies can have only dire negative consequences.  The same environmentalists travel, I presume, to Alaska by jet, then continue by car, or small plane or helicopter, or by ship or motor boat.  I have not heard about many opting for horses, or husky dogs with sleds, or kayaks.

In tune with the customary attitude of the industry, Shell has taken a mirroring absolutist position and claims that nothing they do could possibly cause harm, or discomfort, or cause an accident - big or small.  This childish game that supports lots of lawyers on both sides creates bad blood everywhere and leads nowhere, because we all need oil and we all do not want environmental disasters to happen - big or small.

The lesson here is that if one sues environmental organizations on the premise that one cannot possibly make a mistake, one should put an A-team on the job, and try not make multiple, avoidable mistakes. A word of caution, however: If for a strategy to be successful everything has to align perfectly and as planned,  this strategy is fragile and likely leads nowhere.  Does this remark sound familiar to those who follow the "fracking" (I hate the word) debacle?

Second, and more importantly, instead of focusing so totally on the here and now, the Kulluk grounding most recently, a better question to ask is how long will it take at a minimum to develop a significant offshore oil prospect in the Arctic?  My educated guess is 10 - 15 years.  Let me translate for the impatient i-phone users demanding instantaneous gratification:  If you are 20 today, you might be 35 by the time significant oil will flow from the Arctic offshore.  This oil will be produced using technologies that either do not exist today, or are on drawing boards.  By that time, Saudi Arabia might not be a net exporter of crude oil.  Think of the implications for the world.

Third, and most importantly, by making this bold move now (really starting in the 1980's, and then picking up pace in 2008) Shell is essentially buying an option to produce a potentially huge amount of oil in the Arctic at a relatively small cost (what is 5-10 billion dollars in the big scheme of things?), taking a measured go-slow approach, and taking relatively small environmental and social risks. So the downside for Shell - and us - is likely to be quite small, but Shell gets to be a sole operator of a potential treasure-trove at a time when everybody will be begging for oil. Now this may be called visionary thinking.  Shell has made and will continue to make mistakes, and mishaps and accidents will happen.  Let's assume that all will be small, but such is the price for blazing new difficult trails. If such an assumption cannot be made, all bets are off.

We know well that nowadays no deed seems excessive in the middling efforts to squash daring and courage. Again, as Taleb teaches us, there is no middle in real life. It only exists in a bureaucratic Mediocristan the U.S. may be in danger of becoming.

P.S. When I criticize or praise anyone, including my old dear employer, Shell (1983-1990), I do it independently and with little regard for consequences.  An old infatuation, called Solidarity, taught me a thing or two, and 10 years of fighting for the Earth's environment and its people invaded by the giant, mega-polluting plantations of agrofuel crops have only hardened me.

For calibration, this is what I told the EU Ministers of Transport and Environment, and the U.S. delegation to OECD. They did not like me over there, but still changed their agrofuel policies much in line with my arguments.  Six years later, after the Big Recession, my OECD speech sounds eerily prescient.  Perhaps because of this, my 2007 OECD paper was recently delinked by Hekate's little sprites prowling the OECD archives.

Incidentally, the main thesis of my 2007 OECD paper is that the Earth's gross and net primary productivities are constant and industrial agriculture damages both.  A recent paper in Nature essentially repeats this thesis.

Oil in the Arctic

 
Picture a vast gray ocean that dissolves into gray sky pregnant with heavy dark clouds, and a gray flat sandy shore that slowly oozes up from the Chukchi Sea.  This is what our Ocean Energy Advisory Committee saw from the Coast Guard C130 plane, chartered by BSEE's Director, Admiral James Watson.

Click on this image to see it in full resolution and hit Esc to go back. This gray vastness is surrounding our C-130 plane, flying the BSEE Advisory Committee to the Burger Prospect in the Chukchi Sea and to Point Barrow in Alaska.

In summer, the Arctic ocean is dotted with white ice floes. In winter all is frozen.

Our incredibly young and competent Coast Guard pilots are gradually descending to 500 ft above water.

On August 30, 2012, we flew close to the Burger Prospect at 500 ft above the sea level.  This is the area where one day Shell will drill their first wells.  The sea was dotted with ice floes, some very large.  Similar floes stopped all arctic drilling by Shell in late October 2012.

A Shell support barge that was to be used by Shell to drill the first well.

This vast empty space is the neighborhood of Point Barrow, the settlement closest to the Burger Prospect in the Chukchi Sea. Here, Shell will attempt again to drill their first wells in 2013.  Despite Shell's valiant efforts in 2012, and hundreds of millions of dollars spent on preparations, not a single well was drilled and completed.

Point Barrow emerges from the sea.  This is the entire onshore infrastructure in the radius of over 100 miles.  There are no roads and only a tiny airport links this settlement with the outside world.

We have landed in Point Barrow.  Our plane also brought extra gasoline supplies to be used by the Coast Guard crew stationed at Point Barrow. Gasoline is very expensive in Point Barrow.

This Coast Guard crew stayed at Point Barrow for three weeks.  They fly search-and-rescue helicopters, help with teaching Inupiat children, and are a part of the command-and-control network established by the Coast Guard to oversee the vast offshore areas.  We are standing on permafrost.  The back-wall of this hangar is not properly insulated and is buckling into the slowly melting soil.

An impromptu gathering with the local officials.  Admiral James Watson is standing on the right, and Don Jacobsen, who will be running Shell's drilling operations in Alaska in 2013,  on the left. The North Slope Borough Mayor, Charlotte Brower, is standing next to Admiral Watson.  It was refreshing for me to hear the local people praising the Coast Guard and Federal Government for providing help and protection.

Alaska with some of the offshore oil and gas prospects.  Point Barrow is the most northward settlement in the United States.  The Shell Burger prospect is in the Chukchi Sea, 140 miles NW from Point Barrow.  No roads leave Point Barrow because  it is in the middle of a vast nowhere.  To link the Burger Prospect with the Trans-Alaska pipeline, would take roughly 150 miles of sub-seafloor pipeline to shore, and another 200-250 miles of a new pipeline east to Prudhoe Bay.

Here are some of the difficulties with drilling and operating offshore oil and gas wells in the Arctic, west and north of Alaska: 

1. Gas vs. oil. Natural gas is not oil.  Gas price and remoteness of the Arctic make offshore gas production and transport unprofitable. Let's hope that most of the hydrocarbons discovered in the Arctic are oil, not natural gas.
2. Long distances and no infrastructure.  Literally everything one needs to drill, complete and produce a well must be brought from Portland, Seattle, or Vancouver.  This means that dozens of extra supply and support ships and barges must be deployed in the Arctic.  Because of the long distances, weather, and lack of airport and storage infrastructure, little or nothing can be flown to drill ships on helicopters.
3. Fragility of supply chains. Long and complicated supply chains are costly to maintain and vulnerable to extreme weather and physical failure. When a few elements in a long chain fail, they cannot be repaired quickly and easily.  Germans discovered this fact by 1942, when their invasion of the Soviet Union started to falter not because of lack of military superiority, but because of difficulties with supplies during the long and cold Russian winters. Americans have discovered similar problems with military supplies in Afghanistan.
4. Ice at water surface and on seafloor. The Arctic wells will be drilled in relatively shallow water, 150 ft or so.  Sea water can freeze all the way to the bottom through the sinking of very salty, cold brine that forms the downward racing "brinicles." This BBC documentary shows sea water freezing rather nicely.  Therefore, wellheads, BOPs, pipes and other seafloor infrastructure must all be dug into the seafloor and hidden from ice scraping it from above. They still may be enveloped in ice generated by the cold brine raining down from the surface ice cover. Wellheads and BOPs in pits may make it difficult or impossible to access them with ROVs and capping stacks if something goes wrong.
5. Oil transport. When the offshore wells are successfully completed and produce oil through the sufficiently sturdy production platforms that can withstand waves, wind and ice floes year around, how will the produced oil be exported year-around?  (Actually, in 180 ft of water, all production facilities would have to be sub-seafloor, or in heavy bunkers on seafloor. Only very shallow water will allow for gravel islands.) Transport by tanker will be difficult, and probably impossible through winter, late fall, and early spring.  Laying 150 miles of pipeline beneath the sea bottom, followed by another 200 plus miles of pipeline onshore to attach to the trans-Alaska pipeline will be exceedingly costly and difficult.
6. Cost and time. Since 2008, Shell has spent nearly US $3.5 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas on three proposed drill sites: three blocks in the Burger prospect, and one block each in the Crackerjack and the Shoebill prospects. In the four years that ensued, no wells were drilled (only two topholes were spudded) and no permanent infrastructure was built.  Shell probably pays 1/4 of a billion dollars per year to maintain its ability to operate in the Arctic. Some 30 offshore wells were drilled in the U.S. part of the Beaufort Sea in the 1980s and early '90s, and five in the Chukchi.  None of the wells previously drilled far from the coast produced oil or gas, because there was no cheap way to maintain and export their production. 
7. Environmental risks. The Arctic Ocean is no Gulf of Mexico with its strong loop current dispersing spills and lots of active bacteria eating hydrocarbons year-around.  The delicate Arctic Ocean is home to about 240 fish species. There are 12 species of marine mammals that inhabit the Arctic: 4 species of whales, the polar bear, the walrus, and 6 species of ice-associated seals. Several additional species (e.g. Sperm Whales, Blue Whales, Fin Whales, Humpback Whales, Killer Whales, and Harbor Porpoise) are spotted either occasionally or regularly within marginal waters of the Arctic. There are 64 species of seabirds that breed in the Arctic. About 50 million seabirds nest on Alaska's coast each summer, nesting in more than 1600 seabird colonies along the coast. 
8. Accidents. If a serious well-control accident occurs in September, oil may continue spilling into the ocean for another 8 months, endangering most of sea life within the spill domain. In bad weather and rough sea, ships can break down, collide, sink, or run ashore.  The more support ships are involved, the higher the risk.  Probability of a serious ship mishap is much higher than that of a drilling accident. Please remember that historically most of the largest marine spills have been caused by ship accidents, not by drilling.
9. Repairs and spare parts. The Arctic supply chains will have to make provisions for all key spare parts to be stored on support barges next to drill sites. Otherwise, these parts would be unavailable for prolonged periods of time, stopping all work. One could introduce multiple redundancies of all important systems.  For example, one could have "two of each," thus doubling or tripling operational costs and increasing risks of ship breakdowns and collisions. "Two of each" would require 2 times more people for 24/7 operations in 12-hour shifts. If, because of exposure, shifts are shorter, the number of personnel will increase correspondingly.  Locals do not work shifts longer than 8 hours.
10. Lack of appropriate people.  There are about 4700 native inhabitants of the North Slope Borough, including women, children, and elders. They cannot all work on offshore drilling and production. Many lack sufficient technical skills. New workers, imported from the south, are likely to be unprepared for the severe conditions in the Arctic. Also, most older experienced people of all ranks have retired by now from the oil industry. Their replacements of sufficient quality simply do not exist in necessary quantity. For example, at Shell, who will replace Charlie Williams or Ken Arnold or Richard Sears? Or so many experienced technicians and deck hands?

The Noble Discoverer operating in the Chukchi Sea in the summer of 2012.  Image source: Shell.

In summary, drilling for oil, and producing and transporting oil in the Arctic require a complex system with the compounding fragilities of many elements of the system. Such compounded fragility makes this system unstable to disturbances. Some of the disturbances can be relatively small, but still can cause large disruptions. For example, an electrical system failure on just one support barge can cause all drilling work to stop.

We, engineers, have dealt with complex, fragile systems for decades, but - I submit - the Arctic drilling/production/transportation system presents qualitatively new challenges, because of its finely interlocked elements. At best, most small failures of parts of this complex system will grind the whole operation to a halt. At worst, corners will be cut and accidents will happen.

As Mr. Taleb has taught us, a small disturbance in a fragile, complex system may result in a catastrophic loss of integrity of that system.  Such catastrophic events will have frequencies that are much higher than those predicted with standard risk management tools.  We used to call these events "Black Swans," but today we know better.  The highly disruptive catastrophic events are one of the basic features of every fragile complex system.

Are we ready to proceed in the Arctic with this knowledge? 

P.S.  Here are the cumulative reports on offshore projects.

P.S.P.S.  Here is a 12/27/2012, LA Times article about safety issues with the Noble Discoverer drilling ship.

On 12/30/2012, as if to illustrate my Points 8 and 9, this report appeared:

A Coast Guard HC-130 Hercules aircraft from Air Station Kodiak overflies the tugs Aiviq and Nanuq tandem towing the mobile drilling unit Kulluk 116 miles southwest of Kodiak City, Alaska, Sunday, Dec. 30, 2012. The tug Alert from Prince William Sound and the Coast Guard Cutter Alex Haley from Kodiak are en route to assist.

On 12/31/2012:

Anchorage, Alaska – The Unified Command reports that Kulluk grounded at approximately 9 p.m., Alaska time on the southeast side of Sitkalidak Island. The crew of the tug Alert was ordered to separate from the Kulluk at 8:15 p.m. to maintain the safety of the nine crew members aboard the vessel. “The extreme weather conditions and high seas continue to be a challenge. We have more than 250 people actively involved in the response efforts,” said Susan Childs, Incident Commander, Shell. “Our priority right now is maintaining the safety of our response personnel and evaluating next steps.”

There were no personnel aboard the Kulluk at the time of grounding, and no injuries have been reported. There is reportedly up to 150,000 gallons of ultra-low sulpher diesel on board the Kulluk and roughly 12,000 gallons of combined lube oil and hydraulic fluid. The condition of the vessel has not yet been confirmed and overflights are scheduled pending weather conditions. Unified Command, using a U.S. Coast Guard aircraft, plans to conduct a survey to assess the situation at first light. A response team will be deployed when it is safe to do so.

Now, please reread this blog written over Christmas, and published on 12/29/2012.

When Denial of Reality Fails

To my relief, Dr. Paul Krugman has published yet another sermon, When Prophecy Fails.  For months, I have been fascinated by Dr. Krugman's blithe, unwavering insistence on the superiority of his arguments over those of differently clueless economists.  Today, I decided to compose my reply.

Back in the old days, in Poland, I often listened to a lovely satirical radio program on an FM station with a short range and not much attention from censors.  Among others, each week brought an installment of a philosophical discourse, entitled "On the Superiority of Easter over Christmas." The author, Jan Tadeusz Stanisławski, a self-proclaimed Professor of Applied Presumptology, would explain in short, exquisitely absurd monologs the utter stupidity of the various pseudo-scientific arguments about economics and society. This episode, "Greed for Gold," is as good as any.  It ends with the following summary:

Why are we talking about gold, someone might ask? They also ask about things hundred times simpler, showing an astounding lack of understanding of almost anything. So why are we talking about it?  Applied presumptology gives the only correct, universal answer. I quote: "The question, 'Why?' should always be answered because in general a smart person will understand and stupid people might reflect at least once in their lifetimes."

Jan Tadeusz Stanisławski, born January 26, 1936, in

Włodzimierz Wołyński, died in Warsaw, on April 21, 2007.

Since Dr. Krugman is a very smart person, I presume he is capable of a reflection at least once in his lifetime. Supposing that my presumptive assumption is correct, Dr. Krugman should perhaps think more about the root causes of the unceasing global recession that - according to him - would be over if all central banks printed enough paper money.  Professor Jan Tadeusz Stanisławski would no doubt advise Dr. Krugman to think about those reasons for the recession Dr. Krugman could not possibly comprehend as an economist, just as they are misunderstood by the economists Dr. Krugman criticizes so fervently.

As Nassim Nicholas Taleb writes in his monumental book, "Antifragile: Things that gain from disorder," the governing Soviet-Harvard model of global economy presumes that smart people can always tell the present and future behavior of complex systems. Of course they never do, but this fact does not discourage them from making incessant prophecies they call "scientific predictions."  Now wait a second, wasn't Dr. Krugman objecting to the lesser prophecies by other, alternatively clueless economists?

Very briefly, so that Professor Jan Tadeusz Stanisławski would approve of my argument, here it is:  

The current global economic crisis is not over and will not go away until the fragile global economic system that created this crisis falls apart and gives birth to a simpler, noisier, and antifragile system of small and local economies. These messy smaller economies will not be centrally managed by the super smart puppeteers, ventriloquists and magicians from Harvard, IMF, the World Bank, the EU, UN, and the Council on Foreign Relations. Why?  Because smart as they are, they have already failed.

There are many, many reasons why the current centrally-planned system must fail. Some of the reasons are that this system is inherently unstable, unreformable, and will keep on propping itself up until it implodes.  Even more importantly, the physics and finite resources of the finite, spherical planet Earth are seriously interfering with the Soviet-Harvard model of the flat infinite Earth under the New World Order. That's it. And the Soviet part of the Soviet-Harvard model has already imploded. That's a fact.

P.S. Perhaps you are wondering why do I bother to write about so many unpopular issues? I have to. The spirits of my parents, Professor Jan Tadeusz Stanisławski, and Bokonon are consistently framing my yet unformed thoughts. The rest is simple.

P.S.P.S. The last link in this post is a short simple song, which immortalized Professor Jan Tadeusz Stanisławski.  He sang this song alone on a huge stage at the last Festival of Solidarity before the martial law in Poland in December 1981. Imagine a diminutive man with an acoustic guitar, singing this against the tanks and armored personnel carriers that for a while enforced in Poland the Soviet part of the still governing model:

"Do not fear assholes, taught me Mommy Dear.  An asshole is an asshole, and he lives in fear.  My Mother educated me to be a history's witness..."

Given this advice, the first Minister of Finance of the newly independent Poland, Leszek Balcerowicz, stopped listening to the expeditionary economic brigade led by Professor Jeffrey Sachs and the Harvard Schools of Public Policy and Business, and saved the budding Polish economy from collapsing.  Similar brigades were sent to all eastern European countries and Russia, in a blatant attempt to reshape them according to the Harvard-Soviet model, with the Soviet part deemphasized. The year was 1990, but repeated attempts at subjugating the East European countries were made through the years 2000-2004. Those other countries were not as lucky as Poland.

The Gobal Oil Peak or a Plateau?

I am about to cover a very serious subject, so please forgive my somewhat formal and unduly precise language.  Since I am talking here about the future of our crude oil-powered civilization, I do not feel too guilty. Besides, you can always stop reading...

The six categories of liquid and solid hydrocarbons in Figure 1 are lumped together into three different combinations in the reports of global liquid fuel production maintained by the Energy Information Administration (EIA).

Figure 1: Click on the image above to see its full screen version. All liquid and solid hydrocarbons and alcohols are grouped into six categories that exhaust the classification of liquids used by the U.S. DOE Energy Information Administration (EIA) in their reports of global fossil fuel production. Note that depending whether heavy oil flows or not at the initial reservoir conditions, it is classified as either a transitional crude or unconventional crude. Solid tar sand bitumen is mined and liquified in surface plants. Kerogen in oil shale is a solid that is either mined and liquified in surface reactors, or liquified in situ using heat.  This figure was drafted by Mr. Erik Zumalt of UT Austin.

These combinations are:

1. Natural gas plant liquids (NGPLs). NGPLs are those hydrocarbons in natural gas that are separated as liquids at natural gas processing plants, fractionating and cycling plants, and in some instances, field facilities. Lease condensate is excluded. Products obtained include liquefied petroleum gases (ethane, propane, and butanes), pentanes plus, and isopentane.
2. Lease condensate and crude oil. Lease condensate is a mixture consisting primarily of hydrocarbons heavier than pentanes that is recovered as a liquid from natural gas in lease separation facilities. Lease condensate is lumped together with several types of crude oil that are also classified as Easy Oils, Transitional Oils, and Unconventional Oils. Starting from the second column on the left, these crude oils are the light conventional crude oils, heavy oils, ultra-deep water oils, Arctic oils, tight mudstone ("shale'') oils, ultra-heavy oils, as well as tar sand bitumens and kerogen from oil shales. The ultra-heavy oils are recovered in situ by heat injection, mostly as steam. The bitumens and kerogen must be liquified either at upgraders/refineries or in situ. All of these liquids together make the "Crude oil + lease condensate" curves in Figures 2 and 3.
3. Other liquids. These liquids lump gas-to-liquids (GTLs), coal-to-liquids (CTLs), ethanol from corn and sugarcane, biodiesel from palm oil and soybeans, and any other liquids that might be used as fuel, i.e., methanol, butanol, etc.

The classification of liquid and solid hydrocarbons is shown in Figure 1, and their production rates are plotted in Figures 2 (by volume) and 3 (by mass translated into energy). Note that if liquid hydrocarbons are reported by mass (the only correct reporting), refinery gains disappear, because they only add volume by decreasing the liquid product density, but they do not change the product mass. 

Figure 2: The rate of global production of liquid fuels by volume in millions of barrels per day. The natural gas plant liquids (NGPLs) plus "other liquids'' (CTL, GTL, biodiesel, methanol, etc., but mostly ethanol from corn and sugarcane) are on top of the crude oil and lease condensate curve. The "Crude oil and lease condensate'' term includes all naturally occurring liquid and solid hydrocarbons shown in Figure 1. Note that the average NGPL density is at most 65% of the average density of 0.84 g/cc of the crudes produced around the world. Thus, volume-based plots are misleading when it comes to the specific energy content of a fuel (energy per unit mass). Simply put, a gallon of one liquid fuel has a different energy content than a gallon of another fuel. All other factors being equal, only the specific energy counts when it comes to driving. Refinery gains of up to two million barrels per day are not shown, because they are a volumetric illusion that does not contribute to fuel energy, see Figure 3. Note that the rate of global production of crude oil and lease condensate has remained unchanged since 2004. Depending on your favorite time scale (years vs. decades) this constant production rate is either a "plateau" of crude oil and lease condensate production or an "oil peak,'' or -- more accurately -- a "crude oil and lease condensate peak.'' Volume data source: EIA's database, accessed on 11/18/2012.

Figure 3: The mass rate (volume rate x density) of global production of liquid fuels, converted into an equivalent energy rate in exajoules (EJ) per year. 1 EJ = 10^18 joules ≈ 10^15 BTUs or quads. The higher heating values (HHVs) of all fuels were used for the conversion from mass rate to energy rate. The natural gas plant liquids (NGPL) and "other liquids'' are now equivalent to the crude oil and lease condensate, because all volume rates have been converted to mass rates and, subsequently, energy rates. The refinery gains disappear altogether, because they do not add energy by mass, but only volume. In fact, refinery gains cost external energy dissipated by thermal cracking and hydrogenation and, thus, diminish the total energy available as fuels. Volume data source: EIA's database, accessed on 11/18/2012. The liquid densities and HHVs are from several sources.

In contrast to the EIA classification described above, both the International Energy Agency (IEA) and BP report different combinations of the liquids and solids classified in Figure 1. In particular, IEA splits all natural hydrocarbon mixtures into conventional and unconventional oils using their own definitions, and BP lumps all natural liquid fuels together, see Figure 4. These different classifications, plus general ignorance of the public and popular media, lead to endless problems and differing interpretations of the same data. Even the names of the respective agencies (EIA vs IEA) are confused and used interchangeably.

Figure 4: The BP oil production data were downloaded from BP's statistics website, as millions of metric tons of oil equivalent (toe, accessed on 11/21/2012). This mass rate of global production was converted into HHV by multiplying it by 41.868 x 10^9 GJ/toe x 1.07 to convert from the standard lower heating value of 1 toe to its HHV, because only HHV can be used to compare fuels with different hydrogen contents. The EIA curve represents lease condensate plus crude oil plus NGPLs, all converted from volumes to HHV using the procedure described in the caption of Figure 3. Notice excellent agreement between these two curves. The IEA data could be purchased for a lot of money, but were not.

If one recognizes that the U.S. EIA's "crude oil and lease condensate'' curve lumps literally every natural hydrocarbon that is not natural gas plant liquids nor synthetic fuels or biofuels, one must conclude that the global production rate of natural hydrocarbons has stalled at the level seen already in 2004, or 8 years ago. Daniel Yergin and IHS CERA call this phenomenon an "undulating plateau of production rate'' others call it an "oil peak.'' The two sides enter into endless debates about whose interpretation is better, but the empirical fact remains: The global rate of liquid and solid hydrocarbon production has stopped growing since 2004. Call this empirical observation by whatever name that better suits your taste, but first please look at Figure 5.

Figure 5: I set up this model of global oil production probably in 1995, or so, and never changed its parameters.  I have only updated the blue data curve, which is a superposition of the old historic data from a variety of sources and the EIA data. By a lucky coincidence, or the Central Limit Theorem, or both, the world production of crude oil and lease condensate has been quite predictable for the last 17 years or so.  I want to point out that there will be future small Hubbert curves for the new Iraqi oil, GOM oil, the Arctic oil, etc., but the fundamentals will not change, just as they are unchanged for the Norwegian sector of the North Sea shown in my earlier post. At the time scale of this chart, the global oil production plateau surely looks like a peak.

Interestingly, to meet global oil demand between 2010 and 2035, IEA reported in 2011 that $10 trillion would be needed, with the upstream sector accounting for 85% of this amount.  IHS CERA reported in 2012, that the upstream costs more than doubled in 2011, relative to the year 2000.  This trend is expected to continue because higher demand for raw materials, equipment, and specialized labor will create shortages.  Most importantly, the global oil and gas industry is moving away from the easy oil to the transitional and unconventional oils, and this means a continuous increase of cost and complexity of the future upstream operations.  In human language, we will have to run ever faster to stand still.  This is yet another definition of peak capacity to maintain oil production at the current level.  In their 2012 Energy Outlook, IEA predicts that in the year 2035, global petroleum production will be 4,000 Mtoe (mega tons of oil equivalent) vs. 3,600 Mtoe produced in 2010.  The global peak oil plateau, anyone?

Delusions of Grandeur

In the last few days, two top newspapers in the U.S., The New York times on the left and The Wall Street Journal on the right, have come up with unusual predictions of the future oil might of our fair United States of America.  I tried to link to the "Report Predicts U.S. as No. 1 Oil Producer in a Few Years," by Elisabeth Rosenthal, published on page B1 of The New York Times on 11/13/2012, but this link did not exist. I guess, Ms. Rosenthal's article belongs to the category of All News Fit to Sweep Under the Rug. The unsigned agitprop piece in The Wall Street Journal: "Saudi America - The U.S. will be the world's leading energy producer, if we allow it,"  dated 11/12/2012, still adorns the Web.

At best, the authors of these two articles have shown a lack of rudimentary understanding of what is needed to increase oil production in the U.S. to the short-term levels implied by their narratives. At worst, they purposefully misled readers. Even the already biased sources both these journalists quoted were misunderstood and misquoted.

I do not mean to suggest here that reasonable and thoughtful journalists do not report on crude oil-related issues. They do, as you can see here, for example.  In another example, Leonardo Maugeri's unfortunate "Harvard Report," twice parroted by the New York Times, was nicely picked apart by Mr. Olivier Rech, an experienced analyst. Based on my own calculations, I agree with Mr. Rech; so does the Deutsche Bank.

Why so much wishful thinking pouring out with such intensity? The reasons could be many, one more bizarre and counter-productive than another. My previous blog sheds some light on the empty idols driving this delusional behavior. The sad part is that I had to endure dozens of emails from excellent but disoriented specialists, who desperately tried to make sense out of this nonsense and could not.

And what about the generally clueless, but misled-again public? They might get really upset when the price of gasoline reaches new highs. After all, that's all the U.S. public cares about, forget the subtleties of supply and demand, global markets, local gasoline markets, imperial propaganda, and the environment.

P.S. The unusually opportunistic and servile (I know it from the insiders) journal, Nature, just published an interesting commentary by Jeremy Grantham, who is the co-founder and chief investment strategist for GMO, a company richly invested in oil and gas ventures.  The commentary and the readers' comments nicely dovetail with this post. If Nature can think independently, so can you.

Sir Francis Bacon's Warnings

In 1620, in his Novum Organum,  Sir Francis Bacon classified the intellectual fallacies of the human kind as idols of the Tribe,  the Cave,  the Marketplace and  the Theater. An idol is a mental image which receives veneration but is devoid of substance. Bacon did not regard idols as symbols, but rather as human fixations.  His model of human perceptions is as true today as it was in the 17th century. Some things never change but - because of the mindless and loud media drumbeat - consequences of the common human fallacies are far more damaging today. 

Idols of the Tribe are deceptive beliefs inherent in the minds of all humans. They are abstractions of error arising from common human tendencies of exaggeration, distortion, and disproportion. Thus people gazing at the production of crude oil over the last century perceive endless growth, and are not content merely to contemplate or record that which is seen. They extend their opinions, investing oil fields with innumerable imaginary qualities. In a short time these imaginings gain dignity and are mingled with the facts until the truth and fiction become inseparable. This statement would describe much of the current public debate about energy.

Idols of the Cave are those which arise within the mind of an individual. Man's mind is symbolically a cavern. The thoughts of the individual roam about in this dark cave and are modified by temperament, education, habit, environment and accident. Thus an individual who dedicates his mind to some particular branch of learning becomes possessed by his own peculiar interest, and interprets all other learning according to the colors of his own devotion. The chemist sees chemistry in all things and the businessman sees profits where there aren't any. 

Idols of the Marketplace are errors arising from the false significance bestowed upon words. People mold their thoughts into words in order to communicate with others. The words carelessly used without attention to their true meaning condition our understanding and breed fallacies. Thus, refinery gains and corn ethanol become crude oil. Words often betray their own purpose, obscuring the very thoughts they are designed to express.

Idols of the Theater are those which follow from the paradigm of the moment and false learning. These idols are built up in theology, philosophy, social sciences, and natural science. They are defended by learned groups and accepted without question by the masses. When false philosophies have been cultivated and gained wide dominance in the world of the intellect they are no longer questioned. False superstructures are raised on false foundations, and in the end systems barren of merit parade their grandeur on the stage of the world. This statement might describe most of the current popular beliefs about energy production and sources, or climate change, or healthcare, or education, or agriculture, or so many other important but misunderstood issues that will punish us, clueless Earthlings, with vengeance.

 

Parts of this text were adapted  by Tad Patzek from 4 Idols by Manly P. Hall and from Encyclopedia Britannica.

P.S.  The Dallas Times Herald clipping below was sent to me by Roger Baker, my ASPO friend. He found this clipping in an old book on micropaleontology loaned to him by a son of Bob Schroeder, a Shell Oil geologist aware of peak oil. This 1980 warning was issued by none other than Sheik Ahmed Zaki Yamani, the Saudi Oil Minister, also famous for saying 20 years later: "The Stone Age did not come to an end because we had a lack of stones, and the oil age will not come to an end because we have a lack of oil."

Click on the image to see it in full size.  Source: Roger Baker's ASPO email, 11/10/2012.

 

P.S.P.S. An opposing view is presented by The New York Times, where a journalist repeats that the world is awash in oil, quoting an expert from Harvard.