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Peak Oil Revisited...
Submitted by Brian Davey via FEASTA blog,
In a lecture to the Columbia University Center on Global Energy Policy in February of 2014 Steven Kopits, who is the Managing Director of the consultancy, Douglas Westwood explains how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in ‘conventional oil’ production but has merely served to slow what would otherwise have been a faster decline.
More specifically the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that $3.5 trillion was spent on the ‘legacy’ oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production it fell by 1 million barrels a day. By way of comparison investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.
Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough, and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.
The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies could not cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening – another story provides a better metaphor – that story is ‘Catch 22’. According to Kopits the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel. But it is these oil prices that drags down the economies of the OECD economies.
For several years however there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)
Now lets put that in a bigger context. In a presentation to the All party Parliamentary Group on Peak Oil and Gas Charles Hall showed a number of diagrams on slides to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff – some of the production is consumer goods – either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production – investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems more and more production must go into energy acquisition, infrastructure and maintenance – less and less is available for consumption, and particularly for discretionary consumption.
Whether the economy would evolve in this way can be questioned. As we seen the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices but the rest of the economy cannot actually pay this without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline will likely drag down the whole economy.
Over the last few years central banks have had a policy of quantitative easing to try to keep interest rates low – the economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth – it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability this is still a dead end model and at some point people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why de-growth is needed.
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The Seventh Calvary got M-16s in Nam. Think what Custer could have done with that new technology at the Little Big Horne. Too bad it arrived too late. Look at all the victory weapons the Germans were bringing on line in 1945. They had designs for a space plane to bomb New York. That did not keep the Russians from kicking the door in on the Hitler Bunker and raping everything in a skirt in Berlin.
Read the Hirsh Report and you might get an idea of the lag between the dream and implementation of that dream.
http://www.netl.doe.gov/publications/others/pdf/oil_peaking_netl.pdf
We are all dependent on a vast rigid complex system that has maximized economy of motion. In the process redundancy and resilience have been sacrificed. The collapse is under way. You can see it in Detroit. You can see it in the resource wars. You can see it in the sham that passes for government. And, you can see it in the fraud that passes for our economic system.
Read your history. Look at past societies that lost the ability to feed themselves and you will see what is coming.
There is a reason the federal government is buying billions of rounds in preparation for the zombie apocalypse. They have identified us as the zombies.
Thumbs up for the Hirsch Report refererence...
CO2 injection is so last century................
Do not trade on your peak oil theory........... You will loose money........
Just a heads up. I could not care less about politics or anything else, just care aboput trading and making money......
Just giving my opinion, I do not care about the political BS...........
Who told you it's a trading blog? Why do you think HFT computers read ZH, given they are most of who trades.
Sure, some reservoirs will yield 70%, the question is how fast....
Peak Oil has never has been about OOIP, it has always been about how fast you can extract it....
"If we have been pumping oil from the mideast since the 1950's and have taken <10% of the reserves and we have the technology to recover 70%........ for the current price!
Let it sink in for a moment...."
I did, but it's utter bullshit.
+1
prove it. or are you one of these cliatologists that are using the lats 140 years of data to describe 2 billion years of the earths climate.................
....uh huh, it's them peak oil and climatologist people thats taking our infinite growth economic model away from us. Everybody knows there ain't no such thing as a successful economic model that doesn't involve MOAR.
"using the lats 140 years of data to describe 2 billion years of the earths climate................."
The last 140 years of economic growth and energy production/consumption has been one giant lower left to upper right chart where even the worst downturns are hardly a blip. It is common knowledge that the lower left to upper right chart will be extrapolated for the next 140 years moar or less.
More like 65 million years of decent data...
3 million of excellent data...
800,000 years of superb data...
~2,000 years of awesome data...
~150 years of take no prisoners, kick 'em in the balls data...
Does that clarify things?
I stated in a comment earlier today that "QE debt" is the tail wagging the "peak energy" dog. You can forget about economic matters outside of energy; we're in a death-spiral and the oligarches well know it. They came into power greased on cheap oil and they'll leave power rather suddenly when the "cheap" is not longer in play.
I've been watching and waiting. But it's over people. It's just fucking over. This train has gone off the rails and is headed into the chasm and it's just over. We don't have to hit the bottom for this to be over it was over when we ran out of rails.
Make your peace with yesterday -- tomorrow is coming and it's hungry.
Sooner or later.
Ever seen "Melancholia?"
edit: Kirsten Dunst plays a Zero Hedge reader.
Exacty Cougar. It's over. $110-$120 just to break even, with a 4% depletion rate per year.
We've peaked and there is nothing anyone can do about it.
As Little Walter said
"Think about your future baby, Forget about your used to be".
My, how this place has changed....
Fucking weird, right? The difference in comments on oil/energy articles now versus 3-4 years ago is... Remarkable. That was me giving you the lone up arrow back then, by the way.
\hattip...
I am getting quieter. The comments are now showing understanding.
One wonders how long before all these guys get out of cities, because if they understand, they must realize they will die there almost immediately when the time comes.
Yeah, but the understanding of EROEI is not quite there yet, in particular its economic impact....
he horse and buggy will make a comeback. the amish have the right idea. back to basics.
One can not separate "Peak Oil" from Peak Insanity, because everything that civilization was able to do was based on the short-term ability to back up lies with violence. Civilization was built on organized systems of lies, operating robberies, which ONLY had to care about being able to continue to do that in each short-term increment. There was never any more longer term planning than that which would actually make sense within the military context. Therefore, the runaway paradoxical problems due to success in warfare being based on deceits enabled finance to be based upon frauds. It follows that one can NOT TRUST any of the statistics regarding the real availability of natural resources. However, one can generally comprehend that strip-mining the Earth's natural resources as fast as possible MUST run into real limits, which manifest as worsening diminishing returns.
According to the most obvious sublime theories, we ought to develop different human and industrial ecologies, which respond to the realities of the natural environment. However, that endeavour runs into the paradoxical problems that civilization was always actually systems of organized lies, operating robberies, which simply was able to do whatever it could, at that time, because nothing else could stop it from doing that. While some individual human beings were able to internalize natural selection as intelligence enough for them to care about their own personal or family's longer term interests, and behave in ways which reflected their abilities to have enough general education to master information, and intelligently imagine alternative future scenarios to make personal decisions that demonstrated some concern for those longer term consequences, the society as a whole has absolutely nothing like that which is actually working, but rather is pretty well doing the opposite as much as possible.
Neolithic Civilization's social pyramids were built upon the ability to organize lies, in order to engage in robberies. European Civilization developed that, in order to be able to conquer almost all the rest of the world, and force every other place to become part of that system. There was never much voluntary agreement about that happening. It was more conquest, genocide and assimilation of the survivors. During the last 500 years or so, the European invasion of the rest of the world went with a Bible in one hand, and a gun in the other. Those were the systems of lies, backed by violence, which developed the current global economy. Those have evolved to become globalized electronic frauds, backed by the threat of the force of atomic weapons.
Human civilization in general does not have the slightest clue how to operate its murder systems after the development of weapons of mass destruction. Thousands of years of history were built on the basis of being "successful" through dishonesty, which could be backed up with violence. That is the context in which the problem of Peak Oil Production manifests. To adapt to the limits of exponential growth, based on being able to strip-mine the planet's natural resources, necessarily requires different death and debt controls, to direct the development of different human and industrial ecologies, which are better adapted to the real circumstances of the environments. HOWEVER, between doing that, and now, there first has to come times of Peak Insanities, involving the psychotic breakdowns of the established systems, which operate as vicious spirals of lies backed by violence.
Peak Insanities are the main factors which make adapting to Peak Everything Else so damnably difficult. The current systems operate on the basis of death controls operated through the maximum possible deceits, and debt controls operated through the maximum possible frauds. Any attempts to have theoretically more rational responses to real environmental limits will be forced to cope with those sorts of entrenched human situations, where nothing can be trusted, such as one can not trust the statistics about natural resources, since all the players have vested interests in misrepresenting the real situation, in different ways, for different purposes.
The single biggest consumer of oil is the US military, whose primary job is to back up the banksters' frauds, which were transformed for several decades into becoming backed up by petrodollars. In my view, it is impossible to overstate or exaggerate the significance of Peak Insanities as the main factor regarding Peak Oil, or Peak Strip-Mining in general. The priority of the military was to be able to mobilize the maximum power delivery, then and there. The absolute necessity to survive that in shorter term overwhelmed all other considerations regarding the longer term. Therefore, all of human civilization was built on successful warfare based on deceits, in which context spies were the most important soldiers. Therefore, one should never underestimate the degree to which civilization is actually dominated and controlled by lies backed by violence.
It is inside of that context that we approach the environmental limits to continuing to strip-mine the planet's natural resources, with the diminishing returns referred to by the short-hand phrase "Peak Oil" being the most significant of those approaching natural limits. Therefore, the most important aspect of our civilization reaching Peak Oil is that it will also then be reaching Peak Insanities. The dominate society is almost totally based on systems of legalized lies, backed by legalized violence, which systems are operated by professional liars and immaculate hypocrites. Each individual tended to have "successful" careers by adapting to take advantage of the established systems of organized lies, operating robberies, which necessarily included them not facing those facts in any publicly admitted ways.
The central characteristics of how civilization will approach Peak Oil, and every other kind of interrelated diminishing returns from strip-mining the planet's natural resources, will be as much evil deliberate ignorance and denial of the relatively objective facts about that as possible. Therefore, we are rushing faster and faster towards the most important features of the future, which will be the human expressions of Peak Insanities, as the primary ways that we will actually "adapt."
FYI, pretty much no one reads past 3 or 4 short paras in a comment.
But hope you had fun.
I do...
Me to. Love his stuff.
Yup
So we are brought into this world by parents who were successful enough at pulling from their environment to survive and reproduce, then biologically driven to do the same thing. But we're also lied to through our education, mass media, and overall social relations, to believe that it's ok to murder, even though for most of us the actual murdering is done by proxy (military & police). So if we are added to the environment with a mandate to rob from the environment, there must be a point where we may be found to be taking too much and at this point money becomes a measurement of the excess one takes? For example, a person living on $5 a day need not resort to "murder" but someone burning through $500 a day has a "murder quotient of $495? Yet we are brought up to believe that somehow being rich is the goal, like Jamie Dimon saying "that's why I'm richer than you are" and Lloyd Blankfien going on about doing God's work.
I'm can easily see where this Neolithic mindset isn't about to change smoothly because we all are caught up in the same lie. We all do what we think is justifiable to survive. I think I see better now how the arbitrary minus sign works: we, our energy is added and we take the equivalent energy from the environment, but the arbitrary minus sign falsely makes it appear that taking more gives a positive result, the absolute value we are told can go to infinity. This gave traction to the 'infinite growth on a finite planet' problem we are starring at now and the jesus complex we get from these defenders-of-the-status-quo morons, which we are seemingly clueless on how to even begin to deal with it at the political level, and so we just double down on the bullshit!
Peak oil and peak insanities imply tipping points. I agree with Flakmeister that it's a process, and it should not come as a surprise to anyone that they come together because the real driver is the tipping points we are in the process of passing through right now in terms of global warming/strip mining. "YOU CAN'T FOOL MOTHER NATURE", as we farmer types say. Dave Cohen at declineoftheemipre peaked about a month ago and threw in the towel on blogging when the story came out about the West Antarctica Ice Sheet (WAIS). I wish he'd stick it out at least until Paris. After Paris, my ZH account will self-destruct!
One note on peak oil, James Burke said 25 years ago in 'After The Warming' that it was going to be the ones (he used Japan) that re-tooled away from fossil fuels that would "win" because they would grab the markets when fossil fuels became too expensive. Of course 'winning' isn't necessarily 'winning' as we were brought up to believe!
Back to work on unitary mechanisms : )
p.s. not the best comment I've read by CrashisOptimistic but it is one GREAT handle! lol
"ok to murder, even though for most of us the actual murdering is done by proxy (military & police)" YES! And, also, often done way in the past, which we now take for granted. For instance, most of people who "own" property in North America do so because the people who had lived there before for more than 10,000 years had that place robbed from them. By and large, nodoby takes any responsibility for the thousands and thousands of years of violence which created the civilization that we were born into, despite almost everything that surrounds us being produced by that history!
Murders can have profound ripple effects. The most important murders were often the assassination of the politicians that could not be bribed or otherwise intimidated. It does not take a lot of that to have profound effects upon everything else later. A good historical example was President Andrew Jackson, who had to survive assassination attempts in order to be able to kill the Second American Central Bank institution!
Meanwhile, one of the ways that I think about these problems is that most hunters in previous times had some kind of animistic views, which made them apologize in some ways to the animals that they killed. Today, we do almost nothing like that. The biggest banksters are collectively trillionaire mass murderers who never have to take responsibility for the people that whose lives they have impacted, which caused statistical murders. E.g., the banksters creating so much "money" out of nothing, to specualate with, drove up the price of food all over the world, with various countries where people were already spending a lot of their income on food were forced to cope with.
For instance, the so-called "Arab Spring" was largely the result of the banksters driving the price of food up, which then forced people to respond. There are lots of available statistics about those social facts. However, the banksters are allowed to deliberately disregard and discount them actually doing that.
Another example is that the ability to burn as much oil as possible, just for frivilous purposes, is totally taken for granted, without any concern for future generations. The short-term priorities of the murder systems dominated the monetary systems, and therefore, that drove the strip-mining of the planet, and the burning of oil as much as possible, as fast as possible. The established systems were built on the basis of being able to deliberately ignore their effects upon other people, and especially their effects upon people in the future!
Meanwhile, I too suspect that I will be forced to stop doing what I have been doing within the next couple of years, simply because it will become practically impossible for me to continue doing that. Indeed, these days, I tend to think that I should attempt to wean myself off of the indulgences that I like, rather than eventually be forced to go cold turkey!
In the future, where you are on the peak oil curve will depend on how affluent you are.
For the poor in the present... you’ve already hit peak... everything.
Matt Simmons, the Houston oil expert always made a good point - Forget about all the great new technology that people talk about because at the end of the day it's just better and more advanced straws to suck the oil out of the ground. It doesn't create any more oil....
This does not end well, anyway you slice it. Peak this, peak that, all I know is that tons of my money that should be going to golfing or french fries are going directly into my tank. All I spend money on now is organic food (I am not eating their GMO posion) and fuel. I'd say the end is much closer than we realize. If there is tons of oil, it sure is not translating to my wallet!
my technical view on oil and alternative energy future
http://goldenopportunitytrading.blogspot.co.uk/
Nice site. Too bad I gave up my stock and commodities money to buy food and gasoline.