Staring Down The Barrel

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In its simplest definition peak oil is defined as the point in time when the global production of oil will reach its maximum rate, after which production will gradually decline. Add the range of differing opinions and this definition manifests itself into a highly complex and volatile mix of political, economical and geological issues.

A common misconception is peak oil is what happens when oil runs out; unfortunately it’s not so black and white. Yes oil is a finite resource, but long before we hit the bottom of the well experts say the cost of extracting this oil will simply become unaffordable.

The debate

According to the founding Director of UK-based Peak Oil Consulting, Chris Skrebowski the peak oil debate has been ongoing, between economists and geologists for years. “Geologists maintain that peak oil is a geological imperative imposed because reserves are finite, whereas economists claim there is no shortage of oil or
oil substitutes.”

Chris says the reality is both sides hold part of the answer. Peak oil is a complex phenomenon that occurs at the point when the cost of incremental supply exceeds the price economies can pay, without destroying the growth at a given point in time. He elaborates that geologists hold a grain of truth in the fact that the depletion of low cost oil will indeed produce peak oil however,  the economists are also right as there is no shortage, but they have failed to recognise there is a price where oil can no longer be afforded.

“The problem is that the remaining oil is in extreme environments, it is technically challenging to develop or is difficult to refine,” he says. The increased difficulties make it more problematic to mobilise the oil in a cost-effective manner.

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An inconvenient truth

A professor at Otago University, Bob Lloyd says until recently the availability of fossil fuels has not been a problem and the high energy returned on energy invested for coal, oil and gas have ensured continued world economic growth for the last 200 years or so.

The energy returned on energy invested is the amount of oil, or energy, that is needed to extract and process oil.

Early US oil (in the 1930s) and Middle East oil was very easy to get, with one barrel of oil needed to get 50 barrels of oil or greater. This good fortune, along with the ratios of 80:1 for coal, meant that the high economic growth of the 20th century could be maintained.

However, today oil is getting more and more difficult to extract with ratios closer to 12:1 for deep sea oil and even lower for the non-conventional oils, such as the Canadian tar sands 4:1.

Bob adds that the Gulf of Mexico oil disaster, with BP’s well drilling in 5,000 feet of water and going down to 30,000 feet, illustrates the risk and energy now needed in the extraction process.

He agrees entirely with peak oil commentator Richard Heinberg, who recently suggested that the 2010 problems in the Gulf of Mexico will be typical of the difficulties of extracting oil, post peak; and we may now have reached peak oil.

A Ministry of Economic Development spokesperson agrees on the whole that oil is a non-renewable source and that a decline in production is inevitable however, the department says it is difficult to pin-point when exactly this decline will occur. It says the problem with accurately projecting when a decline will occur, lies in the fact that there are basic questions about the quantity of the world’s oil resources that remain unanswered.

“The International Energy Agency (IEA) has no official estimate of when a peak in oil production will occur, but the IEA World Energy Outlook 2010 argues that even if conventional oil production does peak in the near future, known reserves of natural gas liquids and unconventional oil are, in principle, large enough to keep total oil production rising for several decades if necessary.”

However, travelling soothsayer and Canadian economic analyst Nicole Foss, who foretold of the Global Financial Crisis in our last issue, claims the world as we know it is rapidly coming to an end. She is of the opinion that peak oil, which is knocking on our door as we speak, combined with the current unsustainable financial system are part of a perfect storm that we are ill-prepared to weather and will give us a century of challenges to look forward to.

She does acknowledge there is a decent amount of oil and gas left, but nowhere near enough to sustain us until a solution is found, especially when we have used all the cheap easy supplies and all that is left is the difficult, expensive fraction, which requires a lot more reinvestment to get.  “We will reach an impasse of net energy long before we develop a substitute.”

The implications

Nicole points out that the access to oil we have enjoyed has brought us to today’s stage of economic and cultural prowess – but we can’t stay here without energy.

“Every availability dictates the social-economical complexity we can sustain.
We are going to be looking at the end of this big energy period; not instantly, but over a long period of time there is going to be much, much, less energy. It will force a simplification of society.”

To illustrate how this simplification will manifest itself on New Zealand soil, let’s look at the area of transportation. Dr Ralph Samuelson, vice-president of the Asia Pacific Energy Research Centre, points out that oil plays a crucial role in our transportation network. “Transport accounts for at least 80 percent of New Zealand’s oil consumption.”

Already in today’s economic climate we are feeling the squeeze as petrol prices go up. Imagine if this went up to an unaffordable price – what then?

Transportation is a focal point in our lives, it gets us from A to B so efficiently that many of us no longer live and work within the same suburbs. You even hear of people commuting on a weekly basis to a different city. None of this would be possible if oil runs out.

Bob says it now seems difficult to conceive a future outside of the oil driven life-style that has enabled economic growth. “Energy is necessary for economic growth. In the absence of any other resources becoming available the world economy must decline.”

Chris points out the current failure of most Western economies to achieve anything more than minimal growth in 2011 is most likely because oil prices are already at levels that severely inhibit growth. He adds research by energy consultants Douglas Westwood concludes that oil price spikes of the magnitude seen in 2011 correlate, one-for-one with recessions.

The ostrich approach

University of Otago lecturer Bob Lloyd said in his 2011 paper titled The end of Oil and Implications for NZ, it is difficult to report on peak oil with the same level of supporting technical material as climate change, since oil availability and economics is a highly under-researched topic.

Though it has a history as long as climate change, peak oil has nowhere near the background documentation, or for that matter any national or international bureaucracy dealing with its investigation. There is an international association for the study of peak oil (ASPO) and an NZ branch of ASPO, but in terms of numbers and scientific credibility there is no comparison with climate change.

However, the Ministry of Economic Development spokesperson says the government does take the issue of peak oil seriously. At the international level, New Zealand is actively engaged with international organisations like the IEA and the International Energy Forum to improve international energy data transparency and help provide greater clarity around remaining global reserves. It also has partnerships via the IEA which help improve or develop new alternative sources of energy.

“The Government is ensuring that policies are in place [in New Zealand] to support the transition to alternative sources of energy, particularly in transport. Such alternatives are already beginning to enter the market such as biofuels, hybrid and electric vehicles. Through the Petroleum Action Plan the Government is also committed to further development of our domestic petroleum resources,” the Ministry of Economic Development says.

Nicole Foss points out that the ‘renewables’ people hope will save us face different, but just as relevant problems. Though sun and wind used in solar and turbine energy are infinite, steels which are created to make these energy sources useable are not.

“It is a fantasy to say that we can have energy in perpetuity because the sun will be around for billions of years. It requires a certain amount of affordable fossil fuels to deliver renewable energy.

“You can’t build wind turbines with wind; you don’t make solar panels with solar energy. We are good at telling ourselves stories that we don’t need to change, but change will come and it will be uncomfortable.”

Although Nicole paints a rather despondent picture, she is not the only one to blow the whistle on the problem of peak oil. It is a concept, which as has already been illustrated, is quickly gaining traction in the world of academic research.

Bob says the solution lies in changing the underlying belief in continual growth.

“Ecological economists such as Herman Daly have been saying for many decades that the only hope for the world is to give up the doctrine of never ending growth and to move towards a steady state economy, but the allure of never-ending growth has usually been all pervasive and such pronouncements mostly ignored.”

Author: fatweb

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