Posts Tagged ‘Oil Supply’

Hubbert’s Peak: are we running out of oil?

March 20, 2012

In 1956, the brilliant maverick oil geologist M. King Hubbert predicted that oil production in the United States would peak sometime between 1965 and 1970, and world oil production would peak in about 50 years—that is, sometime around 2006.

M. King Hubbert's 1956 prediction of world oil

He extrapolated the rate of growth in oil production and the rate of discovery of new oil reserves, and based his prediction on when new discoveries failed to keep up with growth.   His chart of the rise and fall of oil production is called Hubbert’s Peak.  He had another chart, showing how nuclear energy could be a source of energy for many centuries.  You could call that Hubbert’s Plateau.

Hubbert’s prediction was accurate in regard to the United States.  Oil production in the Lower 48 states did peak around 1970 or so.  Many smart people believe that oil production in the Middle East has peaked or is about to peak.  But, as Daniel Yergin pointed out in his recent book, The Quest: Energy, Security and the Remaking of the Modern World, worldwide production of liquid fuels continues to increase.

Actual world oil production

What Hubbert failed to take into account, Yergin wrote, were two things—(1) price and (2) technology.  The world gets its oil from sources that were unavailable in 1956, and uses liquid fuels other than oil.   Energy companies drill for oil deep in the ocean.  “Tight oil” and “tight gas” are extracted through hydraulic fracturing of shale deep within the earth.  Oil can be extracted from Canada’s tar sands.  More than four-fifths of liquid fuels—and, according to Yergin, you have to speak of liquid fuels rather than just crude oil—are extracted by advanced techniques that were unknown in Hubbert’s day.  The increase in world oil production probably owes more to chemical engineers than it goes to oil geologists.

In a way, Hubbert was right.  Production of the easy-to-get oil has peaked.  What Yergin calls the “unconventional” sources are available if you are willing to pay a high enough price—a price not only in dollars, but in the risk to the human environment, and in the amount of energy it takes to extract the new energy.

Hubbert's Plateau: nuclear energy as the solution

Yergin says there are enough reserves of “unconventional” energy to last for centuries at (here’s the problem) current rates of use.  The problem is not so much that someday the world have have used up more than half its supply of fossil fuels, as that if the rate of consumption of fossil fuels continues to increase year by year, it will someday catch up with production.  Yergin is aware of that, and is a strong advocate of energy conservation and development of renewable resources.

I don’t claim to have a good answer as to what should be done.  I think that it is amazing that deep water oil drilling or hydraulic fracturing for natural gas are possible at all, without expecting they can be carried out with 100 percent reliability and zero damage.  My inclination is to postpone use of potentially harmful processes as long as possible, in the hope that better technology will reduce risk and in the expectation that future generations will need these resources more than my generation does.

At the same time, I drive a car powered by gasoline and I heat my house with natural gas.  I wouldn’t like to try to get along without the first, and I don’t know how I would get along without the latter.  This is more important to me than the hazards and costs of energy development.

Click on What’s Wrong With Peak Oil for an article by Daniel Yergin in the Wall Street Journal.

Click on Is Yergin Correct About Oil Supply? (an opinion the Wall Street Journal did not run) for a rebuttal to Yergin by Gail Tverberg on her Our Finite World web log.

Click on The Oil Drum for a web log devoted to peak oil and energy issues.

Below are some maps (not taken from Daniel Yergin’s book) indicating where future oil and natural gas may come from.

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The epic history of oil

March 19, 2012

I finished reading Daniel Yergin’s The Prize: the Epic Quest for Oil, Money and Power, tells the story of the world oil industry from its beginning with the drilling of the first oil well in Titusville, Pa., in 1859 to Saddam Hussein’s failed invasion of Kuwait in 1991, with a brief epilogue bringing it up to date.  I’m now reading his current book, The Quest: Energy, Security and the Remaking of the Modern World.

It is a big, detailed book which I would not recommend except to somebody such as myself with a lot of time on their hands.  I read it, even though it was published 20 years ago, because I believe the best way to understand something is to understand its history.

  The main things I took away from the book:
▪    An appreciation that the creation of the modern oil industry really was an epic achievement in terms of engineering, technology, organization and the enormous obstacles, both natural and human-made, to be overcome.
▪    An understanding of the central place of the United States in the history of the world oil industry, and of the oil industry in the development of the United States
▪    An understanding of the key importance of oil in world politics and military power.
▪    A  realization that the history of the world oil industry has always been a cycle of boom and bust, glut and scarcity, which makes the current runup in gasoline prices nothing new.

Nowadays I think of oil in terms of the Middle East, but for a century or more the United States was the main producer and exporter of oil.   In the earliest days most of the world’s oil supply came out of Pennsylvania, and the next big discoveries were around Baku in the Russian Empire and Borneo and Sumatra in the Dutch East Indies.  Texas and Oklahoma did not become important oil regions until late in the 1920s, and Saudi Arabia until after World War Two.

Cheap oil made possible much of what we regard as the American way of life.  The oil industry was created to provide kerosine for illumination, as a substitute for illumination.  But without a pre-existing oil industry, there would have been no auto industry, aviation industry or any other industry based on internal combustion.  Early U.S. preeminence in oil made possible our early preeminence in these other industries.  Our periods of greatest prosperity, especially the period from 1945 to 1973, coincided with low oil prices.

I tend to take fruits of oil-fueled industry for granted, but, as Yergin pointed out, there was a time when none of this existed.  Somebody had to think of drilling for oil instead of digging for oil.  Somebody had to think of setting up gasoline pumps instead of selling it in cans.  Somebody had to figure out how to drill for oil in the jungles of Borneo, the deserts of Persia, the bottom of Lake Maraciabo in Venezuela and the north slope of Alaska.  It really was an epic story.

Crude oil prices adjusted for inflation. Double click to enlarge.

We think of oil in terms of scarcity, but there have been times when an oil glut was considered the more serious problem.  This was the case during the Great Depression, when the Texas oil industry was collapsing under overproduction of oil.  The Texas Railroad Commission (which, despite its name, regulated oil) worked with the Roosevelt administration to set up a system of production allocations regulating what could be taken from each oil field.  The federal government restricted foreign imports to prevent Texas oil from being overwhelmed.

Texas increased and decreased production in order smooth out the cycle of boom and bust, so that oil-using businesses wouldn’t be ruined by sudden increases in oil prices nor oil producers by the sudden collapse.

This helps explain why Texas oilmen for so many years supported the Democratic Party.  When I first learned how this system worked, back in the 1950s, it seemed to me to be an example of government-protected monopoly working against the public interest.  After reading Yergin’s book, I can see the need for some entity to fulfill the function of the Texas Railroad Commission.  Price controls don’t work, as we Americans learned in the 1970s.  But it is a good thing to smooth out swings in prices when they are so wild that they periodically crash an industry.

In later years Saudi Arabia took over the function of swing producer, which partly explains the tight relationship between the U.S. government and the Saudi royal family since President Franklin Roosevelt’s first meeting with King Ibn Saud in 1945.  Saudi Arabia’s function as swing producer has been a great source of tension with Iran.  The Iranian government, which unlike Saudi Arabia rules over a large population who need jobs and income, has always wanted to maximize production and income, while the Saudis have been able to afford to take a longer view.

U.S. gasoline prices adjusted for inflation

There’s a lot more in the book.  I put it down with a greater awareness of how oil is intertwined with everything and what a radical change ending our “addiction” would be.

Click on The Stuff That Makes the World Go Round for Leslie H. Gelb’s review of The Prize in the New York Times.

Click on “the world’s most critical nonhuman economic resource” for a review of The Prize in The Freeman: Ideas on Liberty.

Click on Overdue Evaluation for a 2006 review of The Prize by Doug Merrill on the A Fistful of Euros web log.

Oil and world power

March 19, 2012

Oil was the key to world power during the 20th century.  It still is.  Reading Daniel Yergin’s The Prize: the Epic Quest for Oil, Money and Power reminded me of just how much military and political power rest on oil.

The power of the 20th century British Navy rested on oil.  In the years leading up to World War One, the British Navy went from coal to oil because of the German naval buildup.  The British wanted something that would give their navy an edge.  Oil would give British ships greater range and speed than coal-fired ships.  But while the United Kingdom had coal mines within its border, it had no oil.

Britain needed a secure source of oil.  The British government decided for that purpose it needed to control the oil of Persia (now Iran).  This involved stopping the emerging Persian democratic movement, and installing a dictator with the title of Shah, and giving the British government control of the Anglo-Iranian Oil Company (later British Petroleum, then BP), which held the British concession.  This drama was replayed in 1953, when U.S. and British intelligence services helped overthrow another democratic movement and installed the previous Shah’s son, with consequences that were felt in 1979 and to this day.

It was oil supplies from the United States, not Persia, that sustained Britain during the two World Wars, a reason why the “special relationship” was so important to the British government.  Yergin wrote that about 90 percent of Allied oil in the Second World War came from the United States.

The German army was severely handicapped by lack of oil in both world wars.  The main oil-producing European country prior to the discovery of North Sea Oil was Rumania, which was allied to Germany in both World Wars.  But the oil of Rumania was insufficient.  One of Hitler’s motives for attacking Russia in 1941 was to seize the oil of Baku; that is why he ordered his generals to break off the siege of Moscow and move south.  Yergin said the German army might have succeeded in Russia or North Africa if it hadn’t literally run out of gas.

The Japanese attacked Pearl Harbor in 1941 after the United States threatened an oil embargo.  They hoped to cripple the United States naval forces long enough to seize the oil of the Dutch East Indies, and might have succeeded, according to Yergin, if they had launched another wave of attack and destroyed the oil tanks storing the U.S. Navy’s fuel reserves in Hawaii.   Instead the U.S. was able to mount submarine attacks to such a degree that most of the oil never reached Japan.

Russia under the Tsars, the Bolsheviks and their successors was always one of the world’s top oil and gas producers.  Whatever their government’s failures in economic policy, they always had that to fall back on.

Access to oil—specifically, to oil as a source of aviation fuel—is essential to U.S. world power.  Today the power of the United States rests on the U.S. Air Force, as much as British power rested on the Royal Navy.  Supremacy in the air gives U.S. forces the power to invade and occupy small countries almost at will, although not necessarily with success.  The U.S. Navy has nuclear ships, but the U.S. Air Force requires aviation fuel.  Someday there may be an alternative to gasoline for hand-based vehicles, but the Air Force will always need a secure source of oil to avoid being grounded.

When you think about the need for oil and access to oil, many world events are easier to understand.

Risky business in the Persian Gulf

January 19, 2012

The Obama administration is drifting toward war with Iran.  Besides the obvious risk of a repeat of the U.S. invasion of Iraq, there are risks of another oil price shock and of confrontation with China.

Click to enlarge

Iran is the world’s third-largest oil exporter, behind Saudi Arabia and Russia.  The United States government is trying to organize a world oil embargo against Iran.  Saudi Arabia’s rulers promise to increase their own oil production to make up for Iranian oil being taken off the world market.  Iran’s rulers threaten that if that happens, Iranian forces will close the Strait of Hormuz, through which 20 percent of the world’s oil exports go.

The United States gets most of its oil from domestic production and other Western Hemisphere sources, but the nations of Asia depend on Middle East oil.  The Chinese expect to more than double their consumption of oil within the next 10 years.  The Chinese government has tried to befriend Iran while getting along with the United States.  But if China’s oil supply is jeopardized, there could be a serious confrontation.  Since the United States and China are the world’s two largest oil importers, there could be a confrontation anyway, as oil becomes harder to find and more expensive to produce.

Click to enlarge

Nima Khorrami Assi, a security analyst at the Transnational Crisis Project in London, wrote recently that, until now, China and also India have sought to acquire oil supplies through a policy of neutrality, nonintervention and cooperation with all governments.  But he said that the two countries are adopting different policies over the U.S.-Iran confrontation.

Double click to enlarge

India aligns with the United States, Japan and the Arab kingdoms in the Gulf Cooperation Council, which so many Indians work overseas and which are potential customers for India’s information technology products.  But China, in his view, is joining Russia as a protector of Iran, splitting the world’s major powers into two competing blocs.  I can’t say whether is true, or whether there is any truth in reports that China is supplying Iran with advanced military technology.  But these are things that could be true, or could be true in the future if they aren’t happening now.

A writer for Forbes asserted that if the Strait of Hormuz is closed, even temporarily, world oil prices could triple.  That’s the last thing the United States or the European Union nations need, as they struggle to pull out of the deepest recession since the 1930s.

Double click to enlarge

But it might not come to that.  Pepe Escobar, roving correspondent for the Asia Times of Singapore, noted that Pakistan has given the go-ahead to a new pipeline which will bring Iranian natural gas to the Indian subcontinent, bypassing any naval blockage..  He noted that Iran has excellent relations not only with China and Russia, but also Iraq, Afghanistan, Pakistan, not to mention Venezuela, Ecuador, Bolivia and other nations of the non-aligned movement.

The great danger, as he sees it, is escalation of the low-intensity war that the United States is waging against Iran into a major military conflict.  The United States is losing economic power, but it still has military power.  The temptation will be to try to leverage military power into economic power.

Click on China and India: Rival Middle East Strategies for Nima Khorrami Assi’s article for Al Jazeera English.

Click on The myth of an isolated Iran for Pepe Escobar’s article for the Asia Times of Hong KongSingapore, reprinted by Salon.

Click on Iran’s Real Weapon of Mass Destruction Is Oil Prices for Daniel Fisher’s article in Forbes.

Click on Pakistan speeds pursuit of Iranian pipeline, defying U.S. for a report in McClatchy Newspapers.


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