Belated: Fortune On Oil's Future

A bit late with this one, Fortune published a good article on the future of oil. Relevant to this blog:

MYTH NO. 3:
WE'RE RUNNING OUT OF OIL.
REALITY: This one is true. Sort of. Unlike wind or water, oil is not a renewable resource. So by definition we're using it up, in the same way that we are all dying all the time. The real question is, When will it become impossible (or impossibly expensive) to recover enough to meet demand? Answering that question is not easy. New discoveries and new drilling technologies have transformed the science of exploration, which is why global reserves have doubled since 1980 (to 1.3 trillion barrels) even as consumption has soared.

There's no shortage of oil experts, however, who say that the industry cannot keep up the pace, and that the age of ever-expanding reserves is over. These "peak oil" theorists argue that we need to prepare for an era in which supply trails demand, particularly given the fast-growing needs of China and India. The guru of the peak-oil set—and author of its latest manifesto—is Matt Simmons. A leading energy banker in Houston, Simmons spent years poring over oilfield engineering reports and concluded that some of the world's most important fields are thinning out. "I believe the Middle East has no spare capacity," he says. He's even more pessimistic about some newer fields like those in Russia and the deep waters of the Gulf of Mexico.

Simmons is no kook—his book on the subject, Twilight in the Desert, is a must-read in energy circles. But there is a Chicken Little aspect to the peak-oil viewpoint. There have been a dozen or so oil shocks over the past 60 years—all replete with handwringing over in-the-ground reserves—and cheaper oil has returned each time. "The one thing I've learned," says Roach, "is that oil is a mean-reverting commodity." This time around, Roach expects high fuel prices to dent consumption—he's predicting a downturn in travel and other discretionary spending—while spurring oil companies to dig deeper and farther afield for oil.

The analysts at Cambridge Energy Research Associates have done their own painstaking global survey of oil production, and they couldn't disagree with Simmons more. In their view, production could rise 16 million barrels a day by 2010, leaving a comfortable gap between supply and demand.

The real problem with the peak-oil argument has less to do with engineering than with philosophy. It lacks imagination. Thirty years ago few thought it would be possible to produce price-competitive oil from Canadian oil sands. Today the cost of producing that oil is about $20 a barrel and is still falling (see "The Dark Magic of Oil Sands"). Similarly, you can't rule out the idea that today's speculative energy technologies (see "Here Come the New Fuels") will become cost-efficient by the time Middle East oil production starts to wane. "The peak-oil argument underestimates the potential for technological progress," says Economy.com's Thorsten Fischer, who expects oil to fall to about $40 a barrel by next year. Simmons thinks prices could triple by 2010.

Peak-oil theory also overlooks alternative explanations for why oil exploration hasn't been terribly fruitful in recent years. It may be that there is oil to be found, but investors haven't given oil companies the requisite incentives to find it. Blame the dot-com boom. Having been burned by accounting cheats and profitless wonders, post-2000 investors demanded cash flow, dividends, and stock buybacks. So despite booming profits and revenues, Exxon Mobil spent less on capital and exploration in 2004 than in 2003. And the $11.7 billion figure for 2004 was $3 billion less than the company earmarked for dividends and buybacks. Of course, $65 oil has a way of changing priorities. After years of stagnation, drilling-rig counts have soared 36% since April 2004. There are 2,895 active rigs worldwide, according to Baker Hughes, the most since 1986.

Administrivia: Dropping Webring

Not that anybody especially cared, but the Peak Oil Webring is going bye bye. I just got an e-mail from the instigator of same indicating he's abandoning it, and nobody's stepped up to take over.

Slashdot Fusion Roundup Post

It's probably worth mentioning that Slashdot has a good roundup post on recent fusion research activities, including another from PhysOrg on neutron release during lightning activity. (You may recall I ran a piece about Duke University researchers detecting gamma rays during or preceding lightning strikes.) The PhysOrg piece makes the claim that fusion on a very small scale is occurring during lightning strikes, possibly opening another avenue for research into that energy source.

Alameda Wind Farm Permits Renewed Despite Environmental Objections

An Alameda County, CA wind farm has received regulatory approval, over the objections of environmentalists who worried about bird kills. The farm, in the Altamont pass, has a capacity of 584 MW. As usual, the environmentalists have suggested the windmills be turned off in the winter. Uh, yeah.

Is There A Point To Talking About This?

Same product, different label. Translated, we're running out of oil and we don't know where that next tank of gas is coming from.

Another Biomass Story

... this time from the University of Illinois, where researcher Steve Long says field trials of Miscanthus have proven very promising:

"If about 8 percent of the land area (of the state) was given over to this grass, and assuming only half of those yields were obtained, we would obtain enough dry matter to generate the total electricity used by of the state if Illinois, which includes the city of Chicago," he told a science conference.

I dunno -- Pimentel probably has something negative to say about this (he always does), but it's worth a look, anyway. More with pretty pictures at the BBC.

The End Of Law

It's official: the feds have established the principle that it's okay to confiscate weapons in a declared state of emergency. Bush needs to be kicked out of office for that one. I don't see how the NRA can stand by him after that.

More On The CERA Study

Econbrowser has more on the CERA report, including a good long bunch of user comments.

Meanwhile, Back In Saudi

With the world staring in carwreck fascination at the E. coli-laden cesspool that New Orleans has become, apparently a gun battle between militants and Saudi security forces ended a three-day seige with the sort of bloodshed you'd expect, six suspects and three policemen dead. It would have sent oil prices even higher, save for Katrina.

Hat tip: Reason Express.

India: More Oil Subsidies

India, which has a government-operated fuel distributor, is now talking about a split system, providing subsidies only to rural people and charging world prices to people in cities. (You can imagine the opportunities for arbitrage there.) The government is about to issue a new set of bonds to make up the difference between market prices and the subsidized price the distributors charge.

Hugo Chavez: If I Pay You, Will You Be My Friend?

One thing politicians know how to do well is to buy votes, and so we learn with little surprise of Hugo Chavez's Petrocaribe initiative, an attempt to buy off his neighbors by selling his products to them at a lower price than currently exist in world markets.

Mr Chavez has pledged highly preferential oil prices, with Caracas picking up 40% of the cost if oil is selling at more than $50 a barrel, as it is now.

He has promised further concessions to the Petrocaribe signatories if prices hit the $100 a barrel mark.

Venezuela is putting $50m into a fund to kick-start the plan, and Mr Chavez has said Caracas will pay for oil shipments and help with setting up storage facilities across the region.

But he has insisted all this new business must be between governments, saying that the region could not hand any more natural resources over to Texaco and other private companies.

While I suspect he has a good opportunity to reduce U.S. influence in the area, I continue to think Chavez has a strong chance to box himself in here. Or is the value of the influence he's buying greater than the capital he'll need to keep that oil flowing?

Katrina, One Week Out

With international releases of reserve oil calming the market for crude somewhat, prices have relaxed a bit. Despite that, some refineries in the north are reporting a lack of crude to operate at full capacity, and others are still knocked out by the effects of Hurricane Katrina.

Katrina Side Effects: Cars = Safety

Since car hatred also tends towards being a leading indicator of homicidally-leaning misanthropy, out-and-out jerks like Kunstler will be greatly disappointed to learn that those with cars in New Orleans were able to escape Hurricane Katrina to safety, while those reliant on public transit found themselves herded into the Superdome or worse. This despite the apparently large numbers of school buses and regular transit buses that were available prior to the hurricane hitting the city. Whenever I imagine a future without oil, it still leaves open the possibility for the automobile. They may have their troubles, but at moments like these, they're damn handy.

Shell: Oil Shale Economical At $30/Barrel?

Sorry about the absence of posts lately; Katrina has me focused on other things, and quite frankly, most of the oil-related news has been all bad. But one thing of interest to come up of late is an article in the Rocky Mountain News, Shell thinks they maybe have a process for making oil shale commercially available at $30 a barrel:

the process should be commercially feasible with world oil prices at $30 a barrel. The energy balance is favorable; under a conservative life-cycle analysis, it should yield 3.5 units of energy for every 1 unit used in production. The process recovers about 10 times as much oil as mining the rock and crushing and cooking it at the surface, and it's a more desirable grade. Reclamation is easier because the only thing that comes to the surface is the oil you want.

And we've hardly gotten to the really ingenious part yet. While the rock is cooking, at about 650 or 750 degrees Fahrenheit, how do you keep the hydrocarbons from contaminating ground water? Why, you build an ice wall around the whole thing. As O'Connor said, it's counterintuitive.

But ice is impermeable to water. So around the perimeter of the productive site, you drill lots more shafts, only 8 to 12 feet apart, put in piping, and pump refrigerants through it. The water in the ground around the shafts freezes, and eventually forms a 20- to 30-foot ice barrier around the site.

Next you take the water out of the ground inside the ice wall, turn up the heat, and then sit back and harvest the oil until it stops coming in useful quantities. When production drops, it falls off rather quickly.

That's an advantage over ordinary wells, which very gradually get less productive as they age.

Then you pump the water back in. (Well, not necessarily the same water, which has moved on to other uses.) It's hot down there so the water flashes into steam, picking up loose chemicals in the process. Collect the steam, strip the gunk out of it, repeat until the water comes out clean. Then you can turn off the heaters and the chillers and move on to the next plot (even saving one or two of the sides of the ice wall, if you want to be thrifty about it).

If this works out, it could be huge. I wonder that similar processes couldn't be used in mining the Athabascan tar sands.

Katrina And Her Aftermath

Hurricane Katrina and the mammoth damage left behind has taken a huge swath out of U.S. -- not to mention world -- oil production. Some oil pipelines came back online today, easing the price of gasoline, but with jet fuel shortages, principally in the Southeast, hampering airline operations, some airlines have considered cancelling flights if the situation doesn't improve. Some airports are down to a three day reserve (ten is considered normal).

Geoff Styles has more on this, of course.