The Dominion - peak oil

A Slippery Supply

Moira Peters — Sun, 27 Dec 2009 06:27:42 +0000

Oil and the market psychology of fear

VANCOUVER—Beyond the accord reached at the climate talks in Copenhagen this month, the world may have to cut its oil consumption, as geological and economic trends limit the availability and affordability of petroleum.

Back in the 1970s, Saudi Arabia's flamboyant oil minister Sheik Ahmed Zaki Yamani articulated what became conventional wisdom for policymakers around the planet: "The Stone Age didn't end for lack of stone, and the Oil Age will end long before the world runs out of oil."

Today, an increasing chorus of voices is challenging that prediction. While the world isn't running out of oil in any absolute sense, a daunting picture is beginning to emerge of the availability—and thus affordability—of supply compared with expected increases in demand.

"In 2015, the world's consumption of oil will likely be closing in on 100 million barrels per day [bpd], roughly 22 per cent higher than the current level—which is a relatively high annual growth for the oil industry," states a briefing marked confidential from the Royal Canadian Mounted Police (RCMP), obtained by a Freedom of Information request.

The censored briefings, created by the RCMP in collaboration with other Canadian government agencies, paint a troubling picture of future energy security that has recently been corroborated by other sources.

The International Energy Agency (IEA), the Paris-based multinational information centre created after the 1973 energy crisis, predicted in 2005 that world oil production could rise to 120 million bpd by 2030, up from 85 million in 2008.

The IEA "was forced to reduce" its predictions on possible world supply "to 116 million and then 105 million last year," according to a senior official in the organization, who spoke with The Guardian in early November, on the condition of anonymity.

The US Department of Energy, through its International Energy Outlook (IEO), has also been quietly scaling down its numbers on possible supply. In 2007, the agency predicted the world would be able to pump 107.2 million bpd in 2030. This summer, it drastically reduced its supply predictions to 93.1 million.

In its latest forecast, released November 10, the IEA predicted world oil supply would hit 105 million bpd by 2030. Even with those figures, which many analysts, including some inside the IEA, consider overly optimistic, there is likely to be a shortfall of some 11 million bpd by 2030.

"Every year we lose four million barrels a day [of production due to depletion]," said Jeff Rubin, the former chief economist with CIBC World Markets.

"Over the next five years, we are going to have to find 20 million barrels a day of new production, just so that we can [continue to] consume what we consume today," said Rubin in June.

Rubin is a believer in the peak oil theory—the idea that oil production will reach a maximum point and then fall fairly sharply as demand outpaces supply.

Such a lack of supply, if perceived in the market, would drive up the price of oil, creating a positive feedback loop where fear keeps pushing prices higher, destabilizing both general oil and financial markets.

Gasoline and transportation oil can be manufactured from coal and other petroleum sources, meaning the world will not run out in any absolute sense, but the costs—both economic and environmental—will be far higher than those associated with conventional crude.

M. King Hubbert, a geologist formerly with Shell in the United States, correctly predicted that US domestic oil production would peak in the 1970s.

"Shell isn't a believer in the peak oil theory," said Shell spokesperson Janet Annesley during a 2008 interview with IPS at the company's Calgary office tower.

Other multinational oil companies are beginning to disagree with Shell's denial of the peak oil theory.

"Groups and individuals speaking out about forthcoming world oil supply challenges are frequently stereotyped as a fringe element with little knowledge about the oil industry," said the Sweden-based Association for the Study of Peak Oil and Gas in a November 24 news release. "But their warnings are increasingly supported by some surprising allies: senior petroleum industry officials, consultants and analysts."

Christophe de Margerie, CEO of Total SA, Europe's third largest oil company, believes the world will never be able to produce more than 89 million bpd.

ConocoPhillips' CEO Jim Mulva told a conference in London last month that he doubted producers would be able to meet long-term oil demand. Both oil executives challenged IEA predictions.

The senior IEA official who blew the whistle on the organization's tendency to overstate supply says the group is manipulating data in order to placate financial markets.

"Many inside the organization [IEA] believe that maintaining oil supplies at even 90 to 95 million barrels a day would be impossible, but there are fears that panic could spread on the financial markets if the figures were brought down further," a senior IEA official told The Guardian.

According to the confidential RCMP documents, "[censored]... a market psychology of fear will continue to place a 'geopolitical premium' on crude oil, keeping prices for oil products higher than market fundamentals alone would dictate."

It is this fear that the IEA is trying to placate.

However, many believe a binding deal at Copenhagen seems like a more reasonable approach to reducing oil dependency than the current practice of fudging the numbers.

An original version of this article was published by Inter Press Service.

Supply.Oil Barrels

Oil Crisis was a Peak into the Future

dru — Sun, 20 Sep 2009 05:44:14 +0000

Former CIBC Chief Economist predicts end of globalization, promotes local food

VANCOUVER—Jeff Rubin doesn't fit the typical profile of an interview subject for The Dominion. For more than a decade, he was Chief Economist at CIBC World Markets, one of Canada's largest investment banks. Rubin recently broke ranks with the financial crowd to publish his book, Why Your World is About to get a Whole Lot Smaller. The man once touted as Canada's top economist now predicts the end of globalization because of triple-digit oil prices.

"The same economics that compelled the mass exodus of manufacturing abroad will compel [the] return [of manufacturing to North America] because distance will cost money," he says between sips of San Pellegrino, as we watch container ships move through Vancouver harbour. This end point isn't far away; Rubin predicts that a barrel of oil will hit US $225 by 2012.

Forecasting the price of oil, or anything for that matter, has long been considered a fool's game. And plenty of respected analysts think the former CIBC guru has gone over the top. But, when it comes to looking into the crystal ball of global capitalism, Rubin has a far better track record than most other pin-striped sages. In 2000, Rubin correctly predicted that oil would top $50 per barrel by 2005. And in 2005 he got it right again, forecasting prices would top $100 per barrel in 2007.

The basis of Rubin's predictions—the peak oil theory—is nothing new. However, according to his analysis of oil markets, humanity is going to hit the wall a lot sooner than previously expected. Rubin spoke with journalist Chris Arsenault at the posh Fairmont Hotel on Vancouver's waterfront, before beginning the US leg of his book tour.

The Dominion: Some analysts estimate that 25 per cent of the world's hydrocarbons are located in the Arctic and will soon be open to exploitation due, ironically, to global warming. Won't this new supply nullify the severity of price rises?

Jeff Rubin: The stuff in the Arctic is a drop in the bucket. You are losing sight of what the Cambridge Energy Research Associates and Exxon don't tell you about. They hold big press conferences to talk about, 'Oh we just discovered the Jack Field—10,000 feet under the hurricane-ravaged waters of the Gulf of Mexico, isn't that fantastic.'

They don't hold press conferences [to announce], 'See this field here? It has been producing for 50 years. It's about to run dry.'

Every year we lose four million barrels a day [of production due to depletion]. Over the next five years, we are going to have to find 20 million barrels a day of new production, just so that we can [continue to] consume what we consume today.

The Canadian tar sands have become a major new source of crude; Canada is now the number one foreign exporter to the US. Won't these massive, unconventional reserves around Fort McMurray offset depletion from older fields in Mexico or Saudi Arabia?

The attractiveness of Fort McMurray is not just what is under the ground; it's where it is [located]. In Fort McMurray, all Exxon has to do is sponsor a minor hockey team and they are 'good corporate citizens.' In most places in the world, they're starting to believe oil and natural gas resources should be owned and operated by the state. The world has already gotten a lot smaller for Exxon. Outside of Canada, the US and a handful of other countries, it is the state companies who control access to hydrocarbon resources.

As far as Fort McMurray, there are 165 billion barrels of oil trapped in those sands. To produce one barrel of synthetic oil, you have to burn 1,400 cubic feet of natural gas, schlep two tons of sand [and] pollute 250 gallons of water. The very prices that will be needed to bring that oil out of the ground are the same prices that will take you off the road. Sure, at $200 a barrel of oil, we can produce four million barrels per day out of Fort McMurray. But, at $200 for a barrel of oil, you are talking seven dollars for a gallon of gasoline.

At what point does the price of oil make export-driven globalization untenable?

The model as we know it peaked in 2007. If we measure globalization by the percentage of world GDP that is an export or an import, 2007 will mark the peak of a past age.

You are going to see less and less container ships. All of those containers are about one thing: a wage ark. Moving your factory from someplace where you pay folks 30 bucks an hour to somewhere where you pay folks 30 bucks a week is great, if it's just about wages.

But what moves those container ships is oil. At $150 to $200 per barrel, the wage ark becomes penny wise and a pound foolish because what you save on a wage bill you more than spend on bunker fuel.

If free markets worked as the economics textbooks say they should, high oil prices would lead companies to invest in green technologies. Why aren't we seeing viable alternatives to petroleum?

It is all a question of time. Higher prices will light the path. And I am sure in 20, 25 years we will have new fuel technologies.

Unfortunately, our rendezvous with triple-digit oil prices isn't in 25 years, it's in 12 months. We have to figure out a way of engineering our economy and our lives to use less energy.

If the market can't create viable alternative energy technologies, what role do governments have in ending fossil-fuel dependency?

I don't believe in government, I believe in the market, I believe in prices. I believe prices will show us what to do. Sure, we need to be more efficient. But the emphasis has to be on conservation, so peak oil doesn't have to equal peak GDP.

Couldn't increased energy efficiency make up for shortfalls in production?

We think that efficiency leads to conservation, but history has shown that is not what happens.

The average engine today is 30 per cent more efficient than the engines produced before the OPEC oil shocks [of the 1970s]. Yet, the average [North American] vehicle consumes just as much gasoline in the course of a year.

Back in the 1970s, we [North Americans] used to drive about 9,000 miles a year; now we drive 12,000. Back in the 1970s, we weren't living in the far-flung suburbs. All those gains in efficiency have led us to, ever more efficiently, consume more and more oil.

How will triple-digit oil prices affect politics?

The US steel workers should be at the forefront, arguing to Obama for a price on carbon emissions. I think you'll find that when unions go through the math, Archie Bunker is going to get into bed with Al Gore.

We [North America] can produce a ton of steel and emit one-third less CO2 than steel producers in a developing country like China. Right now, that is totally irrelevant. There is no price advantage to [producing with less greenhouse gas emissions], so it doesn't flow to the bottom line and it doesn't affect where steel jobs are. But, if you are one-third more efficient, you want the price of emissions to be as high as possible—the higher the price of emissions, the greater the economic advantage.

By putting a price on carbon emissions and making our trading partners pay the same price, going green is going to bring jobs home instead of sending them away.

Won't those proposed duties, either though a carbon tax or a cap and trade system, come into conflict with World Trade Organization rules?

I would argue that is a market failure. The only reason that those steel plants went to China in the first place is because we didn't put a price on carbon emissions. In an efficient, functioning market we would have allocated resources much differently.

The carbon-spewing industries of the world should not be in the places that have the cheapest labour, but rather in places [with] the cleanest technologies. That's not where these industries are located today.

You don't seem too upset about globalization coming to an end.

I don't think this story has to be as apocalyptic as peak oil is usually displayed. It is apocalyptic if we insist on having the lifestyles we had when oil was cheap and abundant, if we insist on commuting 40 miles back and forth to work in our SUVs and importing steel from China and flatscreen TVs from Korea or Taiwan.

But I'm hopeful. I'm not hopeful because of governments; I'm an economist, I believe in prices.

I understand that there are folk who have already adopted the local paradigm for cultural or ecological reasons. But whether you think that way or not, you are going that way for the very simple fact that you won't be able to afford any other way.

When gas is seven dollars a gallon, no one is going to have to buy my book to know what to do. Folks are going to get off the road because they can't afford to drive. When there is no bus to get on, they will get their politician's attention. Why are we bailing out Detroit when 50 million vehicles are likely to head off the road in the next ten years? We should be investing in public transit, not cars.

It's now widely accepted that the invasion and occupation of Iraq was primarily about oil. Just ask former Federal Reserve Chairman Alan Greenspan. A lot of analysts are predicting a violent scramble for the last remaining resources. Where do you think these conflicts might happen?

Let's understand that when we are talking about hydrocarbons, we aren't just talking about moving cars or powering container ships. We are talking about food. Modern agriculture is really the massive transformation of hydrocarbons into food [through] fertilizer, irrigation and mechanization. If you look at arable land under cultivation, it hasn't grown in the last 10 to 15 years. All the increases in world food production have come from increasing the yield per acre. All of those increases have come about by adding more fertilizer to the land and using more tractors.

The real challenge is: does peak oil equal peak food? If there are going to be wars, I suggest that will be the fault line.

Take countries like Saudi Arabia; they are buying land in Pakistan and Africa to grow food. The countries that rent the land? None of that food is going to their populations. What happens when their population starts to starve and they see their land being used to grow food for people in other countries? Is that a sustainable model?

Are you growing a garden?

[Laughs] No, but where I live [in Toronto], and a lot of places, have artisanal food stalls every weekend. It's organic food, basically grown around [the local area] and it's happening more and more.

At first, [organic local food markets] might be a yuppie thing to do. But soon it's going to be mainstream because that's going be the only kind of food we can afford to eat. That is going to mean changes to our diet. When I was a kid, there were no blueberries and raspberries in January; we are going to have to go back to local diets.

Chris Arsenault holds the Phil Lind Fellowship at the University of British Columbia's Department of History. He is currently writing a history of sabotage and the Alberta oil patch.

Jeff Rubin

The Long Emergency

dru — Wed, 31 Dec 2008 19:56:20 +0000

James Howard Kunstler: "The environmental movement, especially at the elite levels found in places like Aspen, is full of Harvard graduates who believe that all the drive-in espresso stations in America can be run on a combination of solar and wind power. I quarrel with these people incessantly. It seems especially tragic to me that some of the brightest people I meet are bent on mounting the tragic campaign to sustain the unsustainable in one way or another. But I have long maintained that life is essentially tragic in the sense that history won't care if we succeed or fail at carrying on the project of civilization."

Kunstler makes some pretty significant predictions for 2009. Much of his analysis and suppositions seem off, but I wonder by how much.

Last Gas

Fri, 11 Aug 2006 00:53:38 +0000

Can natural gas reserves keep up with soaring consumption?

Liquefied natural gas tankers will soon be docking in Canada.

"Less polluting than either coal or petroleum," natural gas is the "fossil fuel du jour," reports Resources, an American magazine examining energy policy. Although domestic oil and gas extraction cannot keep up with demand in the US, roughly 60 per cent of natural gas reserves can be found outside the Middle East, meaning that importing it may not carry what Resources calls, 'the political burdens associated with oil."

But importing natural gas across oceans requires liquefied natural gas (LNG) terminals to receive it, and communities in the United States are fighting to keep them out. The fight has now moved north to Canada where opponents argue that LNG terminals threaten local economies and eco-systems, and take energy policy in entirely the wrong direction.

Currently, there are five Liquefied Natural Gas (LNG) terminals in North America -- all built before 1980. As of July 5, 2006, however, an additional 23 terminals have been approved for construction, 22 have been proposed for construction, and 21 potential terminal sites have been identified by project sponsors. In total, there are 67 approved, proposed and potential LNG terminal sites in North America, where for decades there were only five.

As the third-largest natural gas producer and second-largest gas exporter, Canada has never had a need for LNG terminals, but that is about to change. Eight of the approved, proposed and potential LNG sites are in Canada, six of them in eastern Canada. In addition, three more terminals have been proposed for the Maine side of Passamaquoddy Bay, a location that would require tankers to enter Canadian waters off the coast of New Brunswick.

One might wonder if natural gas consumption in the Maritimes is set to skyrocket, but according to Julian Darley, the gas is not intended for local markets. Darley is the founder and director of the Post Carbon Institute and author of High Noon For Natural Gas: The New Energy Crisis. The LNG terminals are a response to rising energy demands in the US, says Darley, and the reason the terminals aren't being built closer to their market is because, "Americans don't want them and are fighting hard to keep them out."

Motivation for opposing the terminals varies from community to community, but often revolves around concerns that an LNG terminal and the huge tankers that service it will pose a threat to a coastal ecosystems and tourism by industrializing small communities, tribal lands and resort towns. LNG terminals could also make the area vulnerable to terrorism or an accidental spill resulting in an uncontrollable fire, opponents say.

Over the past two years, residents of Maine have fought to keep LNG terminals out of five separate communities, and won each time. Proposals for three LNG terminals have now moved further north to the Maine side of Passamaquoddy Bay. Although in the US, this location would arguably affect more New Brunswickers than Americans, as the Canadian side of the Bay is more densely populated. "This is seen as the soft underbelly of the Maine coast," says Janice Harvey, co-chair of Save Passamaquoddy Bay Canada, which calls the terminals "inappropriate development for a rural area where the economy is based on fishing, agriculture and tourism."

Further north, David Thompson is fighting a similar battle, but this one is in the city of Saint John where an LNG terminal is already being built by Irving Oil Ltd., and its Spanish partner Repsol. "A lot of companies were having a great deal of problems [getting permits] to build [LNG terminals] in the states. They've been rejected in many places," explains Thompson. "It's pretty easy for Irving to get a permit in New Brunswick."

JD Irving Ltd., owns all of New Brunswick's major English-language newspapers, as well as an oil refinery, pulp and paper mills and hundreds of other small- and medium-sized businesses. The company employs about eight per cent of the province's population.

"When Repsol got hold of Irving, they lucked in," says Thompson.

Residents have now learned of a proposal to have the natural gas exit the LNG plant through a pipeline that will run under part of the city and through Rockwood Park, the largest urban park in Canada.

"What right do these companies have to do it?" asks Thompson. "The community belongs to the community, not huge companies like Repsol and Irving.

"The gas has nothing to do with the surrounding communities," continues Thompson. "It's a way to get foreign gas to markets in the US"

Although the campaigns that Thompson and Harvey are waging are focused on local impacts, both recognize that the terminals are part of a larger trend that will have repercussions far beyond the communities where LNG sites are situated.

Natural gas is a cleaner burning fuel than oil or coal, but the environmental benefits of this will only be felt if natural gas replaces more polluting fossil fuel. If, on the other hand, natural gas is used in addition to other fuels, the environmental impacts will only worsen. According to Thompson, consumption trends indicate that the latter will be true. "What seems to be happening is that the natural gas won't displace other fuels, but just increase consumption," explains Thompson.

This apparently insatiable energy market is part of what's spawning the rash of LNG proposals, but natural gas -- much like oil -- will not be able to fuel North American consumption forever, and according to Darley, may disappear far faster than anticipated. "Demand is on an upward trend, extraction in North America is on a downward trend, and supply of natural gas worldwide is in question."

"I see this as the last desperate gasp of the fossil fuel industry and the governments that support it," says Harvey. "It's a race to see who can get into the market quickest before the market collapses or the supply runs out.

"The bigger trend is disturbing in that it postpones the real grappling with our energy and climate change issues," continues Harvey. Rather than pouring resources into LNG terminals, communities should be focusing on how to decrease energy consumption and how to harness cleaner renewable sources of energy, like wind and solar, she says.

"This is a catastrophic waste of money," says Darley. "It's a huge investment in something that's going to run out."

Although the public may pay in the future, some are making money now.

Threatened with losing the LNG terminal and the economic boost that may come with it, in March 2005, Saint John City Council enraged many city residents by voting in favour of a tax deal on the land where the LNG plant is now being built. Under the deal, Irving and Repsol will pay one tenth of regular property taxes on the LNG site for the next 25 years, saving the companies $100 million over that period. More recently, during July's G8 summit, LNG got another 'boost,' according to the Globe and Mail, with a proposed $1.5 billion US deal between Petro-Canada and Russian gas giant OAO Gazprom. In the same month, Anadarko Petroleum Corp. sold the site for a new LNG terminal in Nova Scotia for $140.7 million to a US company.

"It's not an energy game," says Harvey. "It's a money game."

Hillary Bain Lindsay asks why Eastern Canada is being flooded with proposals for liquefied natural gas terminals, and why so many communities are resisting them.