Sunday, April 1, 2012

The Battle of Perception has begun

On the 30th of March 2012 the Expert Group for Environmental Studies, a group attached to the Swedish Government presented the report “Peak Oil – An Economical Analysis”. The report is one of the most critical reports released so far and presents the perspective that the theory of Peak Oil is wrong and that it is not built upon a scientific basis.  In an article in a Swedish Newspaper the main author of the report Øystein Noreng argues that the theory of Peak Oil creates confusion and that the idea can lead to political decisions that can harm society.

Looking back

During the last 150 year human civilization has gone through an unprecedented development. The World population has from around 2 billion people to a level of 7 billion people in 2012 and is expected to rise to a level of around 10 billion in 2050. During this period of time fossil fuels has become a major part of providing the energy required to power the process of industrialization. The era started with the drilling of the first oil well by Colonel James Drake in 1859; in 1876 the US produced around 10 million barrels of oil – per year. In the beginning most of the oil was used for kerosene but oil was gradually starting to replace coal as a fuel to power ships since its much higher energy content allowed for greater range and speed. And with the introduction of the automobile the consumption increased sharply; In 1902 there was just over 20000 automobiles in the United States; a number that increased to over 1 million by the end of the First World War and today there is over 250 million passenger vehicles in the United States.

For a long period of time the United States was the world leading oil producer. At the time of the second World War the US produced around 4 million barrels of oil per day (mb/d) and the oil production continued to increase up until the 1970 when the US produced 9,5 mb/d per day, from that point the US production level has started to decrease; today the domestic US production is around 5,5 mb/d (US EIA). In order to cope with the loss of production the solution has been to import oil from other countries; in 1998 for the first time in history the US imported half of the oil it uses. This is not however not unique for the United States; in 1992 the oil imports to China became bigger than the domestic production.

Drill Baby Drill

One argument that is often presented is that exploration within the US has been stalled by environmental considerations and policies that have prevented the production of oil to increase. Some aspects can be interesting to look closer at; the World’s 20 largest oil fields currently produce around 19 million barrels of oil per day, or around 25% of the world’s total production. The majority of these fields where discovered before 1970, none of these field was discovered after 1985. In other words; most of them was discovered around the second half of the last century, and this is despite the technological advancement that has been made in this field.

So why isn’t the US Government doing anything about the situation? Why isn’t prospecting increasing in order to break the cycle and make the US energy independent? One problem here is that the numbers is rarely debated in the media. Saudi Arabia is the world largest Oil producer; in 2010 the country produced around 10 million barrels of oil per day, as previous discussed The United States produced around 5,5 million barrels per day. This clearly gives an indicator that the Saudis almost produce twice the amount oil per day compared to the US, but this is not where the story gets interesting.  In order to achieve this oil the Saudis have 2900 producing wells. The United States need 370.000 wells in order to produce half the amount of the Saudis. The Saudis employ just fewer than 100.000 people in the oil and gas sector; the United States over 2 million (IEA 2011: 139).

The drilling off shore has become a major part of the US oil production; the technology today makes it possible to reach enormous depths in order to extract oil; other technologies like hydraulic fracturing has also started being used but even this has not allowed the US to become energy independent. That there are also risks to operating under such extreme conditions became clear after the Deep Water Horizon incident in the Mexican Gulf and in the case of hydraulic fracturing there are concerns surrounding the possible effects on ground water and the amount of water required for the process.

Changing Perceptions

The Idea of Growth is of the most well rotted ideas in our modern society. We are constantly informed about the development in the stock market, the profits of corporations and the development of the Gross Domestic Product of different countries. And we expect them to increase; year after year. This has been the normal state for the last 150 years; all people how have lived through this time has experienced an unprecedented development. The idea of Growth is a fundamental part of all current political and economical institutions.  It’s a central idea preached by capitalists, socialists and even within the Green Movement. The thing that the idea of Growth does not take into consideration is however that there might be physical limitations to Growth in the form of Oil, Coal, Gas, Minerals, Fresh Water, Land, Forests and other resources.

The International Energy Agency (IEA) is one of the world’s leading organizations that have been producing forecasts for the entire energy sector since 1998 in the report series World Energy Outlook. The Outlook for oil in 2000 indicated that in the year 2020 the world would consume 115 mb/d of oil. Up until the year 2010 the IEA indicated that the production of Crude Oil would continue to increase until at least 2030. But in 2010 something changed. The IEA produced a new forecast where it concluded that the production of Crude Oil most likely peaked in 2006 with a production of around 70mb/d (IEA 2010: 125). The IEA does however believe that production will remain on a level of just under 70 mb/d until 2035 and that the production of non conventional oil sources and bio fuels will increase so that the total amount of production will increase from 85,7mb/d to 107,1 mb/d in 2035. The IEA standpoint that we have already reached the peak in crude oil production was a very sharp turn from the previous outlooks. The US Energy Information Administration (US EIA) makes a very different assessment; in the latest outlook the US EIA believes that production of Crude Oil will continue to increase until 2035 with more than 12 extra million barrels per day adding up to a level of 112 mb/d compared to the IEA prediction of 107,1 mb/d in 2035 (US EIA 2011: 26).

The IEA lifts other interesting aspect as well; those fields that produced 69 mb/d of crude oil in 2010 in expected to decrease in their production to a level of 22mb/d in 2035. The level of production is however expected to remain of a level of just under 70mb/d from Crude Oil yet to be developed and yet to be found. This new expected findings would have to be more than four times larger than the production of Saudi Arabia; any so far only one Saudi Arabia has been discovered.


Bending the Map

In the book "Deep Survival" Laurence Gonzales discuss what happens to people how get lost in the wild. Lawrence argue that getting lost is something anyone can do; no matter how well trained or experienced you are; it’s very easy going from being having a nice time in the outdoors to being a victim struggling to survive. When reality does not match the mental map we have of our surroundings it very easy to continue ahead like we still know where we are going; in orienteering this is called bending the map. “You’re trying to make to make reality conform to your expectations rather than to see what is really there” (Gonzales 2003: 158-163).


The expectations we have today created from 150 years of continual growth makes it very easy to believe that what we can expect from the future will be even more growth. The reserves in Saudi Arabia and many other OPEC countries is an issue that is often debated. After the nationalization of the oil production in Saudi Arabia and the low oil price in the 1980:s many Saudi Arabia raised their reported reserves significantly; from 107,9 billion barrels to over 260 billion barrels in 1988. And the reported reserves in have remained the same; even after 24 years of production. The IEA expects the production is Saudi Arabia to increase to 15 mb/d in 2035. If this will happen or not is impossible to answer. But in 2010 a diplomatic cable from the embassy in Riyadh discussed and interview with Dr Sadad al-Husseini the former Executive Vice President for Exploration and Production is Aramco. Al-Husseini reported that he believes that the reserves are exaggerated by around 40% and that Saudi Arabia will reach a maximum production level of 12 mb/d and then start to decline in production somewhere around 2020 (WikiLeaks 2010).


The Situation Today

The United States has twice as many cars per persons compared to Western Europe. The infrastructure is also more focused on the cars as a means of transport leaving many with no alternative to using a car. The Gas Prices are currently around 4 dollars per Gallon in the US; one of the highest levels in history. The US prices are still around half the price compared to many countries in Europe where the price is over 8 dollars a Gallon since the US taxes on fuels are comparatively low. Since so many Americans are dependent upon a motor vehicle for transportation the US is very vulnerable if the access to oil will decrease and if the prices will continue to rise. Higher oil prices might also affect other prices like food prices. Many argue that we will find technological solutions for the problems we face and an increase in price will drive the advancement of alternatives. If this will be the case or not I do not know and I will not pretend that I do. To me it’s clear that our expectations of growth are shaping the way the people of the world and its institutions are looking at the world. It’s also clear that the perception of institutions like the IEA gradually has started to shift while other institutions like the United States Energy Information Administration still has the same perception that the IEA had a few years ago. How that is right and how that is wrong only time can tell.

If the Peak becomes Reality

The lack of discussion of the subject is the largest problem in my opinion in combination with the idea of infinite Growth. Many discuss the access to oil like it will be there or it will not be there. If a Peak in the World Production of Oil is reached it does not mean that all oil will suddenly be gone; but it will mean that the total production will start to decline over time; making it a process and not an event. One can only speculate concerning the effects of such an outcome but this would mean that we would be going from a Paradigm of constant Growth to a Paradigm when we will have less and less of a commodity that we have gotten use to having widely available. Some possible effects could include;


·         If it becomes clear to nations that things are changing its possible that we will see an increased level of nationalization of the oil production in order to gain control over the oil production making it hard for countries how depend upon import of fuels to gain the access to this oil on the international market.


·         The Prices of Oil might continue to rise to unprecedented levels and we might also start to see shortages meaning that there oil will not be available in the same quantity that we have been used to.


·         Rationing of oil and fuels and other measures like reducing the speed limits


·         It’s also possible that this will have a major impact on the relations between nations leading to conflict over the resources available. It’s also possible that states where oil revenues has been a major source of income might experience social unrest, internal conflict or even state collapse if oil revenues start to decline; the Arabian Spring can be seen as a case of this development.

Conclusion

All major political parties and modern economical institutions are focused on the notion of economical growth. The forecasts regarding the availability concerning oil have for a long time had a very positive outlook. In the year 2000 it was believed that we would reach a level of 120mb/d by 2020, today some institutions believe that we will reach a level of around 107mb/d by 2035 and that the Global Peak in the production of Crude Oil already has been reached and that we will face a permanent decline while other fuels made from Coal, Gas and Unconventional Oil will continue to increase.

Peak Oil has for a long time been a subject that has not been widely discussed by political parties and international institutions; the report produced by the Swedish Expert for Environmental Studies presents a new shift directly attacking the theory and the researchers that presents it. The author of the report and well known economist presents a quite well written report focusing on the markets dynamics and the technological development as tools that will solve the problems we encounter. What the future outcome will be is impossible for me to answer; but one thing that can be seen throughout history is that experts that have been working in an old paradigm often have a very hard time adjusting when paradigms shift since the knowledge and rules from the old paradigm does not apply to the new paradigm. It’s also clear that IEA was unable to predict the Peak of Crude Oil and that it took several years after the Peak for them to realize that something had changed. In this case it seems like the IEA was “bending the map”.

Other articles:
Peak Oil and our Mental Models – The WikiLeaks Cable and the World’s Largest Oilfields

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