The Oil Drum - Discussions about Energy and Our Future

After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price

aeberman — Wed, 08 Feb 2012 15:05:28 +0000

On January 23, 2012, Chesapeake Energy announced that it would curtail drilling in shale gas plays in the United States. Subsequently, other operators have followed suit. While the outcome of this announcement is unclear, it is a signal that the industry is in distress. One can argue that this distress stems from a lack of discipline as market price began to decline.

After gas prices collapsed in mid-2008, U.S. operators continued to drill as if price did not matter. Many reasons were given to justify the economics of ongoing activity including to hold acreage by production, to fulfill contract obligations to build new pipelines, and since well economics remained favorable at lower prices because of forward hedging. Now, with gas prices below $2.50 per thousand cubic feet (mcf), an adjustment in producer behavior is overdue. Despite statements that shale gas is a profitable venture at low gas prices, it is now clear that the reality has imposed limits on these claims.

Also on January 23, the Energy Information Administration (EIA) released its Annual Energy Outlook 2012 (early release overview). It projects that gas supply will exceed consumption and the U.S. will become a net exporter by 2021. The agency also forecasts gas prices to remain below $5.00 per thousand cubic feet (mcf) until 2022.

In his State of the Union address on January 25, the President stated that the United States has 100 years of natural gas supply. While these events are not related, they reflect the dominant view among analysts that shale gas has fundamentally changed supply and price for the foreseeable future. The purpose of this analysis is to show that there may be an alternate perspective.

U.S. Shale Plays

The advent of shale plays provided an important new source of gas. Yet this new supply is characterized by high decline rates which means that wells must be continuously drilled to maintain supply. In 2001, the U.S. natural gas decline rate was about 23% and the annual replacement requirement was 12 Bcf/d when total consumption was 54 Bcf/d. Today, the decline rate is estimated to be 32% and increased consumption of gas means that approximately 22 Bcf/d must be replaced each year (Exhibits 1 and 2).

According to ARC Financial Research, $22 billion per quarter is needed to maintain domestic gas supply based on analysis of the 34 top U.S. publicly traded producers. Cash flow for those companies is $12 billion per quarter so there is a $10 billion quarterly cash flow deficit (Exhibit 3). The important factor here is that on a whole there are no retained earnings, and historically growth stems from retained earnings. Without retained earnings, companies must borrow money or sell assets into joint venture agreements to raise cash in order to drill.

While the continued drilling has been funded by debt, share offerings and joint venture agreements thus far, the trend is unsustainable given the steep decline in prices, despite some favorable hedges. Drilling, therefore, must decrease in order to shrink the present over-supply and so that prices can rise.

U.S. shale plays share many characteristics with the gold rushes of the nineteenth and early twentieth centuries. Both phenomena result from extreme promotion. Anyone can join. Every participant believes that they will get rich. Great amounts of capital are destroyed as entrants try to get a position. The bonanza is exhausted sooner than most expected (Andreoli, 2011) and few profit in the end except for the vendors that serve participants.

For several years, we have been asked to believe that less is more, that more oil and gas can be produced from shale than was produced from better reservoirs over the past century. We have been told more recently that the U.S. has enough natural gas to last for 100 years. We have been presented with an improbable business model that has no barriers to entry except access to capital, that provides a source of cheap and abundant gas, and that somehow also allows for great profit. Despite three decades of experience with tight sandstone and coal-bed methane production that yielded low-margin returns and less supply than originally advertised, we are expected to believe that poorer-quality shale reservoirs will somehow provide superior returns and make the U.S. energy independent. Shale gas advocates point to the large volumes of produced gas and the participation of major oil companies in the plays as indications of success. But advocates rarely address details about profitability and they never mention failed wells.

Shale gas plays are an important and permanent part of our energy future. We need the gas because there are fewer remaining plays in the U.S. that have the potential to meet demand. A careful review of the facts, however, casts doubt on the extent to which shale plays can meet supply expectations except at much higher prices.

One Hundred Years of Natural Gas

The U.S. does not have 100 years of natural gas supply. There is a difference between resources and reserves that many outside the energy industry fail to grasp. A resource refers to the gas or oil in-place that can be produced, while a reserve must be commercially producible. The Potential Gas Committee (PGC) is the standard for resource assessments because of the objectivity and credentials of its members, and its long and reliable history. In its biennial report released in April 2011, three categories of technically recoverable resources are identified: probable, possible and speculative.

The President and many others have taken the PGC total of all three categories (2,170 trillion cubic feet (Tcf) of gas) and divided by 2010 annual consumption of 24 Tcf. This results in 90 and not 100 years of gas. Much of this total resource is in accumulations too small to be produced at any price, is inaccessible to drilling, or is too deep to recover economically.

More relevant is the Committee’s probable mean resources value of 550 (Tcf) of gas (Exhibit 4).

If half of this supply becomes a reserve (225 Tcf), the U.S. has approximately 11.5 years of potential future gas supply at present consumption rates. When proved reserves of 273 Tcf are included, there is an additional 11.5 years of supply for a total of almost 23 years. It is worth noting that proved reserves include proved undeveloped reserves which may or may not be produced depending on economics, so even 23 years of supply is tenuous. If consumption increases, this supply will be exhausted in less than 23 years. Revisions to this estimate will be made and there probably is more than 23 years but based on current information, 100 years of gas is not justified.

Shale Gas Plays May Not Provide Sustainable Supply

Several of the more mature shale gas plays are either in decline or appear to be approaching peak production. Exhibit 5 shows that total Barnett Shale production is approximately 5.7 Bcf per day (Bcf/d) and cumulative gas production is more than 10 trillion cubic feet (Tcf) of gas. It also shows that production may be approaching a peak at current gas prices despite the constant addition of new wells.

The Haynesville Shale surpassed the Barnett during 2011 as the most productive gas play in North America, with present daily rates of almost 7 Bcf/d and cumulative production of 3.5 Tcf (Exhibit 6).

This play is most responsible for the current over-supply of gas with the average well producing 3.3 million cubic feet per day (Mcf/d) compared to only 0.4 Mdf/d in the Barnett. It is too early to say for sure, but the Haynesville Shale may also be approaching peak production.

The Marcellus Shale is presently producing 2.4 Bcf/d and has produced a total of about 0.8 Tcf (Exhibit 7).

In this play, production shows no sign of leveling off, as it does in the Barnett and Haynesville, and production in the Fayetteville Shale may also be approaching a peak (Exhibit 8).

The Woodford Shale is already in decline (Exhibit 9).

If some existing shale gas plays are approaching peak production after only a few years since the advent of horizontal drilling and multi-stage hydraulic fracturing, what is the basis for long-term projections of abundant gas supply?

What Publicly Available Data Indicates About Supply

Data for this analysis is from publicly available sources provided by government agencies such as the Texas Railroad Commission (TX RRC), the Louisiana Department of Natural Resources (LA DNR), the Oklahoma Corporation Commission, and the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). This data is available on web sites maintained by these agencies but is also collected and compiled for a fee by service companies, specifically IHS and HPDI (DI Desktop). All of these sources provide access to individual well, field, county, and state production.

The EIA provides valuable data on oil and gas production but not at finer than state level, and state production is only current through 2010. EIA gas production data differs somewhat from state data and from the data collected by service companies, and is generally more optimistic. The EIA uses a model to calculate gas production based on a sample of large gas producers, and then applies a correction to reconcile production with underground storage volumes.

Exhibit 10 shows the discrepancy for Texas gas production between EIA and TX RRC data.

The October 2012 difference was 1.6 Bcf/d. Although TX RRC Data indicates that Texas gas production has declined each month since March 2011, EIA reports show consistent increases. This difference is important because Texas produces 28% of U.S. gas supply (Exhibit 11). Similar differences have been noted for other major gas-producing regions. It should be noted that the EIA data in Exhibit 11 represents marketed production while the TX RRC data shows total gas production.

These accounts should have different values but also should have similar trends. The trends are similar through March 2011 but then diverge producing the present noted variance (The November difference, not shown on the graph, is 2.6 Bcf/d).

We have studied Texas production reporting and find that it is generally reliable and accurate in areas that we follow closely in our oil and gas exploration and production business. Revisions are common for the first and second most recent months of production but are not statistically significant at the state or field level. Data going back three reporting months is reliable. Studies of other major gas-producing states show similar results. Our intent to is to point out the differences between state and EIA data, and to suggest that EIA data is not particularly useful to track individual play or some state production on a current basis.

Texas, Louisiana, Wyoming, Oklahoma, Gulf of Mexico Outer Continental Shelf, and New Mexico account for roughly 75% of U.S. natural gas supply and, therefore, provide a useful proxy for total U.S gas production. Exhibits 12 through 17 show natural gas production for these regions.

All of these major gas-producing areas except Louisiana are in decline. This is largely because non-shale production is declining rapidly since little new drilling in these reservoirs in recent years has occurred. While shale production volumes and initial rates are impressive (Exhibit 18), much of this new production is merely substituting for depleting conventional gas reserves.

With the shift to more oil-prone or "liquids-rich" shale plays, many observers have suggested that associated gas production from these plays is or will be a major contributor to the present over-supply of gas. Approximately 3% of total U.S. gas supply is from shale associated gas so, while this is a factor, it is not the cause of over-supply. Details of this analysis may be found in an earlier post. Overall, U.S. natural gas production using state-level data appears to have reached an undulating plateau (Exhibit 19).

Conclusions

A secular shift has occurred in the U.S. domestic gas supply by drilling mostly shale formations, formerly considered source rocks too costly to develop. The tremendous number of wells drilled in the last several years has contributed to an over-supply of gas. The shale revolution did not begin because producing oil and gas from shale was a good idea but because more attractive opportunities were largely exhausted. Initial production rates from shale are high but expensive drilling and completion costs make economics challenging. The gold rush mentality taken by companies to enter shale plays has added expensive leases and new pipelines to those costs, further complicating shale gas economics.

In the decades before shale plays, the exploration and production emphasis was on discipline. Science was used to identify the most prospective areas in order to limit the amount of acreage to be acquired and its cost. Shale plays have produced a land grab business model in which hundreds of thousands of acres are acquired by each company. Unprecedented lease costs have become the norm often based on limited information and science.

Operators have indulged in over-drilling these plays for many reasons but adding reserves, holding leases and company growth are among the main factors particularly with the low cost of capital. The inevitable result has been the collapse of prices as supply exceeded demand. Most analysts forecast that the future will be much like the present, and that natural gas will be abundant and cheap for decades to come. There are, however, strong and consistent indicators that natural gas supply may be less certain than most observers believe and require a higher price to be developed economically. Natural gas demand is growing as fuel switching for electric power generation continues, and will be increased by environmental regulation in the coming years. The U.S. will shift more of its future energy needs to natural gas in many sectors of the economy. The best justification, in fact, for the land grab and over-drilling spree is expectation of higher prices. Those companies that grabbed the land and held it by production will profit greatly once the true supply and cost of shale gas is recognized.

The financial survival of all companies in this position is not, however, certain. Price matters, and there is finally some response from shale gas producers with recent announcements to curtail drilling. While price was cited as the main reason for reduced drilling, it is likely that some companies now have financial constraints. The shale gas phenomenon has been funded mostly by debt and equity offerings. At this point, further debt and share dilution are less feasible for many companies. Joint ventures have provided a way for some to prolong spending but that now seems like a less likely source of funding. Capital availability in the near term will likely be tighter than is has until now. Acquisition and consolidation may become more attractive to companies with cash as producers become more extended.

Some of the shale gas plays may be at or near peak production at least at the current price of gas and technology. All major producing areas except Louisiana are in decline. Some doubt the accuracy of public data compared with EIA data, but it seems unlikely that the trends it shows are erroneous. In any case, the data the EIA makes available does not have sufficient resolution to evaluate individual plays or state-level trends.

Intermediate-term shale well performance is poorer than assumed previously . Continuous treadmill drilling masks this issue so play decline rates are not recognized. High decline rates are, however, a salient issue meaning that and most of a shale gas well's reserve is produced in the first few years. Well life appears to be shorter than initial expectations. This means that an increasing number of wells must be drilled in order to maintain supply. Now, it appears that fewer wells may be drilled until price recovers to commercial levels. The argument for improved efficiency that cites increasing production with lower rig count is suspect. It is mostly because of the large backlog of previously drilled wells that are just now being connected to sales. This spare capacity provides a boost to supply during a period of falling gas-directed rig count.

The gold rush is over at least for now for the less commercial shale plays. The money and activity have moved to more oil-prone shale plays such as the Eagle Ford and Bakken or to higher potential gas plays such as the Marcellus. Improbable stories that great profits can be made at increasingly lower prices have intersected with reality. A painful adjustment is underway in the natural gas exploration and production industry. Fewer jobs will be created and projects may develop more slowly. This development may expose the notion of long-term natural gas abundance and cheap gas as an illusion. The good news is that this adjustment will lead to higher gas prices in a future less distant than most believe. Higher prices coupled with greater discipline in drilling will allow operators to earn a suitable return and offer the best opportunity for supply to grow to meet future needs.

References

Andreoli, D., 2011, The Bakken Boom - A Modern-Day Gold Rush. The Oil Drum: http://www.theoildrum.com/node/8697.

Berman, A.E. and L. Pittinger, 2011, U.S. Shale Gas: Less Abundance, Higher Cost. The Oil Drum: http://www.theoildrum.com/node/8212.

EIA Annual Energy Outlook 2011 Early Release Overview.

EIA Annual Energy Outlook 2011 Natural Gas Tables: http://www.eia.gov/oiaf/aeo/tablebrowser/#release=EARLY2012&subject=0-EA....

Gilbert, D. and R. Dezember, Chesapeake Energy Pulls Back Amid Natural-Gas Glut: Wall Street Journal, January 24, 2011: http://online.wsj.com/article/SB1000142405297020380650457717865173251197....

Potential Gas Committee 2010 Report: http://www.potentialgas.org/.

TheOilDrum.com Archive 2005-2011

Admin — Wed, 08 Feb 2012 15:00:03 +0000

During the past seven years, TheOilDrum.com has hosted analysis and discussion surrounding the possibility and implications of a near term peak in global oil production and importance of energy to society in general. Out of the ~8,500 articles posted here (all searchable by keyword in upper left), the list below comprises what each author considered some of their most relevant content.

The list is in alphabetical order, by last name of Oil Drum contributor. Click on the author's name to go to their list of selected articles. At the end of each section, a link is given to the complete list of all articles by that author.

List of Authors

Gail the Actuary

Ugo Bardi

Art Berman

Jason Bradford

Joules Burn

François Cellier

David Clarke

Samuel Foucher

Nicole Foss

Big Gav

Prof. Goose

Nate Hagens

Phil Hart

Rembrandt Koppelaar

Rune Likvern

Euan Mearns

David Murphy

Heading Out

Jérôme à Paris

Engineer-Poet

Robert Rapier

Luis de Sousa

Stuart Staniford

Jeff Vail

Chris Vernon

List of Articles

Gail the Actuary

Oil Limits, Recession, and Bumping Up Against the Growth Ceiling.
Write up of an introductory presentation, explaining our how limited oil supply is causing recession and lower economic growth.
Are We Reaching Limits to Growth?
Looks at our current financial and other problems, in relationship to Limits to Growth (from the 1972 book by that name).
IEO 2011: A Misleadingly Optimistic Energy Forecast by the EIA
Explains why the latest official forecast of the US Energy Information Administration appears optimistic.
Kidding Ourselves About Middle East/North Africa Oil Production.
Why claims about future high oil production from Middle East/North Africa are likely overstated.
The Link Between Peak Oil and Peak Debt - Part 1
Why limited oil supply is likely to be associated with declining debt availability.
What's Behind Egypt's Problems?
Explains the connection between declining oil exports and Egypt's "Arab Spring."
Is It Really Possible to Decouple Energy Growth from GDP Growth?
Explores why growth in energy efficiency seems to have stopped after 2000. Also see Thoughts on Why Energy Use and CO2 Emissions are Rising as Fast as GDP
The US Electric Grid: Will it be Our Undoing? – Revisited
Why the US electrical transmission system has so many challenges, and the many obstacles to improving it.
Social Security and Medicare Funding Issues: Even Worse when One Considers Resource Constraint
Why Social Security and Medicare funding issues are even worse, when Peak Oil is considered.
What Can We Learn from Gift Economies?
Campfire post relating to a system where individuals gain status not by what they have, but by what they give away.
There is plenty of oil but . . .
There is a huge amount of oil that theoretically can be extracted, but the question is whether the cost will be cheap enough for us to be able to afford to extract it. If the oil is too expensive to extract, the shortage of oil seems to cause a recession, similar to what we are having now.
Scientific American's Path to Sustainability: Let's Think about the Details
Scientific American presents "A Path to Sustainable Energy by 2030" in its November 2010 issue. I explain why it wouldn't work.
Some Cautionary Thoughts about Wind
Offers ten reasons why wind is not as an attractive an option as many think it is.
Delusions of Finance: Where We are Headed
Explanation of why my financial forecasts at the beginning of 2008 turned out to be correct.
Peak Oil and the Financial Markets: A Forecast for 2008
A financial forecast for 2008 that in retrospect has proven accurate.
Our World Is Finite: Is This a Problem?
Post written before I became an Oil Drum staff member that lays out may of the major issues that I continue to write about.
Read more posts by Gail the Actuary. (Real name, Gail Tverberg)
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Ugo Bardi

"Peak Civilization": The Fall of the Roman Empire
A post attempting to apply system dynamics to the fall of the Roman Empire which - as far as I know - has not been done, so far.
Cassandra's curse: how "The Limits to Growth" was demonized
With its scenarios of civilization collapse, the book shocked the world perhaps more than Cassandra had shocked her fellow Trojan citizens when she had predicted the fall of their city to the Achaeans. Just as Cassandra was not believed, so it was for the "Limits to Growth" which, today, is still widely seen as a thoroughly flawed study, wrong all along.
The Universal Mining Machine
Why can’t we build a universal mining machine here, on Earth, and stop worrying about running out of mineral resources?
Mind-sized Hubbert
What is it, exactly, that causes production peaks for oil and for other non renewable resources?
The dark side of coal - some historical insights on energy and the economy
In this post, I start to tell the story of coal in Italy and how the fortunes of the country went in parallel with those of coal well until mid 20th century.
The church, the peak, and my old watch
A post about leaving something that lasts a long time and that doesn't need precious resources that can't be replaced.
The post-peak car
A fantastic account of how a 1970s Fiat 500 has been retrofitted with batteries and an electric motor to create the Post Peak Car.
How to Drive your Elephant - Dealing with Complex Problems
How elephant driving may be seen as as a metaphor for controlling complex systems.
Peak Minerals
A post taken from a report co-authored with Marco Pagani which examines the world production of 57 minerals reported in the database of the United States Geological Survey (USGS) and makes the case for the peak and decline of many of these minerals in the near future.
Peak Caviar
"Peak Caviar" is another confirmation of how common the "Hubbert" behavior is. It doesn't matter if a resource is theoretically renewable, as sturgeons and whales are. If sturgeons or whales are killed much faster than they can reproduce, then they behave as a non renewable resource; just as crude oil.
Read more posts by Ugo Bardi
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Arthur E. Berman

Arthur Berman talks about Shale Gas
McMoRan Davy Jones Gas Discovery
Co-written with Joshua H. Rosenfeld, this post looks at a significant discovery in the U.S. Gulf of Mexico by the McMoRan Exploration Company that may contain 2-6 trillion cubic feet (Tcf) of natural gas reserves.
Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations
Shale gas plays in the United States are commercial failures and shareholders in public exploration and production (E&P) companies are the losers. This conclusion falls out of a detailed evaluation of shale-dominated company financial statements and individual well decline curve analyses.
BP Macondo Blowout - Static Top Kill vs. Bottom Kill: Weighing the Risks
A post co-written with William Semple.
Is the Drilling Moratorium Long Enough? No, Not Really
The key issues around the drilling moratorium as I see them.
What caused the Deepwater Horizon disaster?
The blowout and oil spill on the Deepwater Horizon in the Gulf of Mexico was caused by a flawed well plan that did not include enough cement between the 7-inch production casing and the 9 7/8-inch protection casing. The presumed blowout preventer (BOP) failure is an important but secondary issue.
ExxonMobil’s Acquisition of XTO Energy: The Fallacy of the Manufacturing Model in Shale Plays
Most analysts believe that the ExxonMobil acquisition of XTO Energy (XTO) represents a dramatic shift in strategy by the premier exploration and production (E&P) company, and a validation of shale plays. It is neither. The move represents a considered and deliberate choice that acknowledges diminished opportunities for the oil giant to add and replace reserves.
Read more posts by Arthur Berman
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Jason Bradford

The Thermodynamics of Local Foods
I wrote this in response to a slew of media attention that argued against local foods. However, based on thermodynamics, only a predominantly local food system will be sustainable in the long run.
Ecological Economics and the Food System
This is a summary of energy use in the U.S. food system placed in the context of ecological economics. Our current food system is structured inappropriately for long-term viability, and the kinds of shifts required to make it more enduring are discussed.
Save it for the Combine
Few people understand how critical certain technologies are to their survival and way of life. The combine allows one person to harvest the food for hundreds, saving enormous labor while using liquid fuels. I argue that any rationing of liquid fuels or use of biofuels be prioritized for the combine.
The Food System and Public Policy
Many in the U.S. like to think we live in a free market economy. But when it comes to development of the food system public policy explains much of what we see.
The Food System and Resilience
Resilience is a concept from ecology that can be applied to any complex system. When the current food system is examined using a resilience framework it is found to be very fragile. The essay concludes by outlining the possible emergence of more resilient food systems given new economic and energetic realities.
Energy Descent and Agricultural Population
This article includes a graph that combines data on energy use and percent rural population, showing that more energy in a society lowers the proportion engaged in farming. Given the shape of this relationship, can we make some educated speculations about shifting labor demographics in highly industrialized nations during energy descent?
Scenario 2020: The Future of Food in Mendocino County
I believe there’s the possibility of a near-term collapse of complex societies given a financial shock, perhaps precipitated or exacerbated by political and energy crises. This photo essay conveys this potential from an imagined future, with an emphasis on the food system.
I have an interest in economics, in the broad sense, of how and why people and societies chose to invest and consume, and what this means for resources and the environment. The following three essays share a common theme: resources are only constrained in a world with exponentially growing demand for more stuff. Reducing demand is more important than increasing supply, and ultimately we have no choice. However, conscientious curtailment comes up against both engrained pyscho-social reward systems, which are largely explored in the first two essays, and the structure of our financial system, which is touched upon in the third.
Finding Healthy Addictions
Dopamine Returned on Energy Invested (DREI)?
Advice to Pres. Obama( #6): Beware the Hungry Ghosts
Read more posts by Jason Bradford
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Joules Burn

Khurais Me A River
An early look at the development of the Khurais oilfield in Saudi Arabia using satellite imagery, reviewing past efforts to produce from the field.
Ghawar Numerology: Drilling in Uthmaniyah
An animated history of the drilling sequence in one part of the Ghawar oil field in Saudi Arabia.
Saudi Arabia's Ghawar Isn't Sinking (but has apparently moved)
A critical look at satellite imagery analysis which reached some faulty conclusions regarding the behavior of the Ghawar field upon depletion.
Abqaiq and Eat It Too
A look at recent developments in the giant Abqaiq field in Saudi Arabia using satellite imagery combined with published reports.
Local Scientist Splits Water, Saves World, Gets On TV
A skeptical look at recent claims of a breakthrough in water electrolysis to produce hydrogen.
Five Easy Leases: Ghawar's Discovery Wells
An in-depth look at the first wells drilled in the five operational areas for the Ghawar field, including their current status.
Who Killed the Electric Gas Tank?
A look at claims of a breakthrough in ultracapacitors for energy storage in electric vehicles.
Saudi Aramco Loses Count, Drills Too Many Wells In Ghawar
An satellite imagery analysis of Saudi drilling activity in the southern-most part of the Ghawar field, showing that more has been going on than publicly revealed.
Lessons Left Unlearnt From 2003 Gulf of Mexico Near-Spill
A look in the US Materials Management Service datafiles revealing a number of accidents and near misses which preceded the massive BP spill in the Gulf of Mexico.
Crude Confessions: Massive Saudi Oil Spill in 1993?
A look at how Saudi oil is transported out of the country in the context of claims of a secret oil spill.
Read more posts by Joules Burn
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François Cellier

Ecological Footprint, Energy Consumption, and the Looming Collapse
This article explores dynamic relations governing population growth, resource depletion, and world economics by means of a few simple modeling and simulation exercises.
Is the 2000 Watt Society Sustainable in Switzerland?
In this presentation, we discuss whether the 2000 Watt Society is at all sustainable, and if so, what it will take to keep energy supply at that level after the end of ample and cheap fossil fuels.
The Slavery of Oil
A review of a proposed methodology that would allow me to quantify the price level of crude oil at which our economies will stall.
Read more posts by François Cellier
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David Clarke

The Failure of Networked Systems: The Repercussions of Systematic Risk Revisited
Cascading collapse and why the corporate drive towards increasing efficiencies could be driving our interacting networked systems towards this mode of collapse.
The Networking of Resource Production: Do the Networks Give us Warnings when They are About to Fail?
The flaw in the techno-cornucopian dream: Modeling why and how a networked resource-extraction system fails.
Read more posts by David Clarke
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Samuel Foucher

Analysis of Decline Rates
This post offers a kind of reverse engineering of what numbers could be behind the long and detailed IEA decline analysis in their last report (2008 IEA WEO). A tentative decline structure for the post-peak Super-Giant and Giants oilfields is offered as well as a possible scenario for future production.
Peak Demand or Peak Consumption? A Look at OECD Oil Demand
In this post I show that the key driver behind the oil price increase since 2002 has been excess demand combined with unresponsive supply.
Peak Oil Update - July 2009: Production Forecasts and EIA Oil Production Numbers
An update on the latest production numbers from the EIA along with graphs/charts of different oil production forecasts.
Estimating the World Production Decline Rates from the Megaproject Forecasts
Having a good estimate of the decline rate of the resource base (most estimates are ranging between 2 and 6%/year) is fundamental for the precision of supply forecasts derived from megaproject database.
Saudi Arabia: An Attempt to Link Oil Discoveries, Proven Reserves and Production Data
This article is an attempt to apply the Hybrid Shock Model (HSM) on Saudi Arabia's oil production. In a nutshell, the HSM is trying to model the observed production profile from the discovery curve by simulating the different phases involved in the development of oilfields (initial discovery, planning, build, maturity).
Why We (Really) May Have Entered an Oil Production Plateau
We know that some countries (around 56) have seen their production peaked (also called type III depletion). The remaining group consists of 17 countries that have the potential to grow or maintain their current production (the type II group). I propose to apply the HL technique only on the total production from the the type III group and try to assess the future production decline coming from that group.
An Update on Mexico's Oil Production--The Rapid Collapse of Cantarell by the Numbers
Last year, I expressed my concerns about the eventual impact of a rapid collapse of Cantarell on Mexico's oil production. The last production numbers from PEMEX seems to confirm the rapid decline of Cantarell as well as the inability of the Mexican to rapidly bring new production online.
The Loglet Analysis
Most peakoilers on this site have been introduced to the logistic curve through the famous prediction of King Hubbert on the Lower-48 production. Fewer maybe knows that curve fitting techniques have been extensively applied by people that we may qualify as cornucopians. Ironically, the logistic curve is also used as a prediction tool for market share and technology substitution.
A Different Way to Perform the Hubbert Linearization
A quick post about a different manipulation of the logistic differential equation. By using the first derivative, we get a new way to perform the Hubbert linearization. Some results are given on Norway and the US oil production.
Norway and the Parabolic Fractal Law
Norway can be considered as the poster child of the Hubbert curve modeling approach with a production profile that is remarkably close to the logistic curve.
Read more posts by Samuel Foucher
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Nicole Foss

Entropy and Empire This article is a discussion of the rise and fall of empire (in thermodynamic terms) and the process of imperial succession.
The Resurgence of Risk Resurgence of Risk is a description of the developing credit crunch from its inception - an explanation of how we arrived at this financial crisis and where we are headed.
Smart Metering and Smarter Metering Electricity metering is a significant means of addressing excess demand, but the high-tech metering solutions being proposed miss many opportunities because they pay no attention to psychological drivers.
A MacKenzie Valley Pipedream? This piece assesses the prospects for the construction of a MacKenzie Valley pipeline through the Canadian north.
Anaerobic Digestion in Ontario - A Regulatory Obstacle Course Renewable energy technologies wishing to connect to the grid face significant regulatory obstacles that add so much to project costs that project viability is threatened.
Read more posts by Nicole Foss
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Big Gav

Concentrating On The Important Things - Solar Thermal Power
While we spend a lot of time talking about traditional energy sources based on depleting resources that are extracted from the ground, I think its important to remember that the fastest growing sources of energy are solar and wind, and that these will never run out.
Tapping The Source: The Power Of The Oceans
A post examining the use of artificial islands to collect wind, wave, ocean current and solar power in the tropics, along with a more unusual energy source - harnessing the difference in water temperatures between the warm surface and the cold depths using a technique called OTEC (Ocean Thermal Energy Conversion).
Geothermal Energy: Geothermia
Crossposted from my blog Peak Energy as the subject of geothermal power has cropped up in the comments a few times lately.
Floating Offshore Wind Power
An update on a post I did last year on the potential for floating offshore wind power, which looked at a number of different prototypes at various stages of development.
The Limits To Scenario Planning
A review of some common misconceptions about the Limits to Growth book.
Iraq's Oil: The Greatest Prize Of All
In this post I'll outline why I believe that Iraq probably has the world's largest oil reserves - or, as Daniel Yergin once said of the middle east, it is "the greatest single prize in all history".
Natural Gas In Australia - How Long Will It Last?
In this post I have a look at how much gas Australia has and how long it will last under a variety of scenarios.
Coal Seam Gas In Australia
In this post I look at recent events in the gas industry and what they mean for Australian gas production in future.
The Hydrogen Economy and Peak Platinum
A comprehensive review of the issues involved in the "hydrogen economy".
Hubbert: King Of The Technocrats
In this post I explore the Technocracy movement and Hubbert's role in it.
Locabucks: Are local currencies a way to escape the liquidity trap?
I look at the concept of local currencies (or "locabucks" as I'm now dubbing them), an idea which has its roots in the Great Depression as a mechanism for escaping the liquidity trap - and thus might be relevant again in the not-too distant future if present trends continue.
Terra Preta: Biochar and the MEGO Effect
In this post I have a look at modern day techniques to produce terra preta (often called biochar or agrichar) which have the potential to increase soil fertility, generate energy and sequester carbon all at the same time.
Buckminster Fuller's Critical Path
A review of Buckminster Fuller's last work, Critical Path.
Is It Time For a 4 Day Working Week?
In this post I look at various proposals to reduce the amount of time we spend at work, as a way of addressing energy, environmental and other issues facing us.
Peak Oil And The Tea Party Movement
In this post I have a look at the boost this (peak oil) is likely to give to populist politics and some of the possibilities for addressing this.
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Prof. Goose

A Pretty Stunning Graph of World Cement Production (and China is Certainly Using It)
This post updates Stuart's post about this two years ago (and yes, it's still a graph that will blow you away!) with two more years of USGS cement data, 2006 and 2007.
From the Editor's Desk: Peak Oil, Heretical Thought, Complexity, and the Future of The Oil Drum
Lately, I have been thinking a lot about the direction of The Oil Drum. Much of my thinking on this set of ideas has been brought about by some soul-searching, trying to understand the problems we face as a community, and then figuring out how to "positively push the future."
Peak Oil, Persuasion, and the World Meme
What insights can we claim from psychology to get those we care about, and even those we don't, to dig deeper to get to an understanding of the pillars of the problems we face, instead of trying to buy aluminum siding for a house slowly falling in on itself?
Will Canada Fuel Fortress America?
Will Canada complacently allow the US to pillage her resources as energy supplies become more scarce?
Why the US Political System Is Unable to React to Peak Oil: Institutions
I thought I would bring some pieces of the political puzzle together into a post on why I believe the US, at least at the federal level, will be overly slow to react to the problems of peak oil in both the short and long term.
Was That Really Five Years?
A summary and some thoughts about the fifth year of the Oil Drum's existence.
The Oil Drum Celebrates Its First Year Today
Read more posts by Prof. Goose (Real name, Kyle Saunders)
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Nate Hagens

The Psychological and Evolutionary Roots of Resource Consumption A (longish) exploration of how our evolved neural wetware predisposes us to compete for status and also allows us to be hijacked by novelty items/activities, many of which use alot of energy.
A Net Energy Parable: Why is ERoEI Important? A story about how energy return on investment impacts an imaginary society of Sasquatches - highlighting the importance of biohpysical metrics for a civilization.
Peak Oil: A View from Planet Talos An alien perspective on the resource depletion/human nature intersection.
Living for the Moment While Devaluing the Future An examination of why we have evolved mechanisms to steeply favor the present over the future and why this is relevant to questions of resource depletion and environmental problems.
Peak Oil - Whom to Believe CERAiously-Part 1 Highlights of the main differences between the energy cornucopians and those predicting a near term peak in oil production.
Peak Oil - Why Smart Folks Disagree Part 2 More detail on the above post on supply side differences between energy optimists and realists.
Peak Oil - Believe it or Not - Part 3 An overview of human cognitive biases that contribute to disagreement on resource depletion/climate change.
Can We Be Happy Using Less Energy? Uhh Yes! An look at decreasing returns to more consumtion.
Old Sunlight vs Ancient Sunlight - An Analysis of Home Heating and Wood Measuring the scale of US standing forest relative to US fossil fuel use for heat.
".......Dammit - We Wasted a Day of Sunlight"
Peak Oil, IHS Data and The Broken Clock
Peak Oil and Reflexivity and Peak Oil Soros theory of reflexivity, in light of oil depletion.
Hedge Funds, Hurricanes and Energy Markets An overview of volatility and the small size of energy markets relative to financial capital.
The 2008 IEA WEO Review (#1 in a Series) The first in a series examining the claims of the IEA annual energy report.
Advice to Obama (#2) Yes We Can But Will We? A letter to the new President, outlining biophysical (supply) and evolutionary (demand) type thinking.
Campfire
What Do We Tell Our Children A letter I wrote to an 8 year old boy who asked about oil running out.
I Don't Know A short piece looking at why we are so confident, even when we know very little.
I Dream of GINI - Wealth Inequality During Resource Depletion
Peak Oil, Peak Credit and Investments - So What the Hell Does One Do? An initial pass at rewriting the Capital Asset Pricing Model assumptions
Whither The Oil Drum? An introspection on the purpose of sites like this, when the meme of peak oil has been generally accepted.
Enter the Elephant A look at why facts matter very little in changing peoples behavior.
2010: The Year for Making ContactNew Years resolutions for myself, in light of current conditions.
Dear Candidate-What Will You Do if Growth is Over?
Read more posts by Nate Hagens
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Phil Hart

Meet Trev: A two-seater renewable energy vehicle
I believe there is instead a bright future for a spectrum of 'micro' electric vehicles, from battery powered bicycles up to compact size cars, including this new concept car named Trev (Two-seater Renewable Energy Vehicle).
International Energy Agency calls 'Peak' on OECD Oil Demand
In World Energy Outlook 2009, the International Energy Agency seems to have dropped a bombshell that has been quietly (and politely) ignored.
The Economics of Volatile Oil Prices
Considering the fundamental nature of oil supply and demand provides a coherent explanation not just for the rapid rise in oil prices, but also the dramatic fall.
The 2008 IEA WEO - Oil Reserves and Resources
Despite significant changes, the 2008 IEA report still relies on inflated estimates of reserves from OPEC countries, overplays the contribution of reserves growth due to technology and predicts the reversal of a decades long trend of declining oil discoveries.
Oil, House Prices, Credit? Three parts of the same story
The long forgotten 'oil crisis' of just a few months ago has been replaced by a full blown 'credit crisis' - related events that represent the unravelling of half a century of unsustainable trends in oil consumption and debt.
High-Tech Hitchhiking
Could a hitchhiking scheme for the iPhone era work in practice and change attitudes to hitching a ride?
How Technology Increases Oil Production
How can you double something and still have ten times less than you started with? The answer to this question will help us reassess claims that advances in oil field technology will postpone the peak in global oil production.
Oil Reserves: Where Ghawar goes, the rest of OPEC follows
In May 2007, the work of Stuart Staniford and Euan Mearns culminated in a new and unprecedented assessment of oil reserves in Ghawar, the world's largest oil field. This article combines their assessment with additional information sources, to produce a revised estimate of reserves in Saudi Arabia and the other OPEC countries.
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Rembrandt Koppelaar

Carbon Capture and Storage: Economic Costs Revisited
The effects on coal power plant economics of CO2 emissions capture.
Carbon Capture and Storage: Energy Costs Revisited
The effects on coal power plant economics of CO2 emissions capture.
A primer on reserve growth part 1
What is reserve growth and why it is so difficult to measure?
A primer on reserve growth part 2
A summary of various reserve growth studies.
A primer on reserve growth part 3
A discussion on the reserve growth figures in the USGS World Petroleum Assessment 2000.
Are Reserves of the Largest US Coal Field Overstated by 50%?
A summary of the USGS 2009 reserve assessment of the largest U.S. coal field, Gilette in Wyoming.
Read more posts by Rembrandt Koppelaar
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Rune Likvern

Europe and Natural Gas - Are Tough Choices Ahead?
In this post, I present some graphs showing European historical natural gas consumption and supply, along with my estimates of future consumption and supply.
Trends in World Oil Supply/Consumption and Net Exports/Imports
In this post I briefly present the results from my analysis of absolute and relative trends in world oil (all liquids) supply, consumption, net exports and net imports between 1980 and 2009.
Has OECD oil consumption peaked?
I examine similarities and differences in oil consumption patterns of OECD and Non-OECD countries and offer my view as to what the future may hold.
IEA WEO 2008 - NGLs to the Rescue?
In this post, I will document that there is good reason to believe that the IEA WEO 2008 projections in the reference scenario overshoots the likely world production of NGLs by as much as 35 - 50 % by 2030.
Has Fossil Fuel Consumption Within EU Peaked?
As this post will show the likelihood that the EU’s fossil fuel consumption has peaked, back in 1979, is now very real. It will also compare the degree of net fossil fuel self-sufficiency between the EU and the USA as of 2007.
Why UK Natural Gas Prices Will Move North of 100p/Therm This Winter
This post presents the development of the energy mix for the UK, and how the UK in less than a decade went from being a substantial energy exporter to a substantial net energy importer.
Read more posts by Rune Likvern
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Euan Mearns

Lies, Damned Lies and Government Oil Production Forecasts?
Back in 2005 the Norwegian Petroleum Directorate (NPD) forecast 2.84 mbpd oil production in Norway during 2009. I pointed out their forecast was rather optimistic. 2.3 mbpd was what actually came to pass. The NPD were 23% too high.
The architecture of UK offshore oil production in relation to future production models
This post, written in November 2006 provided a forecast for UK oil production employing bottom up and top down methodology. My forecast for UK oil production in 2009 was 1.53 mbpd. 1.45 mbpd was what actually came to pass. I was 6% too high.
Flesh on the bones of Mexican oil production
With Cantarell in free fall, this post tried to take a more holistic view of Mexican oil production, pointing out that nitrogen once destined for Cantarell would now be diverted and injected into neighboring Ku-Maloob-Zaap complex.
Saudi production laid bare
This post was written to counter Stuart Staniford who claimed "Oil production peaked in Saudi Arabia in 2005. Recent sharp declines in production are involuntary and Saudi Arabia has switched from swing producer to supply constrained producer."
GHAWAR: an estimate of remaining oil reserves and production decline (Part 1 - background and methodology)
GHAWAR: an estimate of remaining oil reserves and production decline (Part 2 - results)
Ghawar reserves update and revisions (1)
Estimates of the remaining reserves and future production in Ghawar, the worlds largest oil field, based on data gleaned from the internet by a host of eager bloggers.
Crisis, what energy crisis?
An overview of the best posts from the 12 months preceding July 2007.
UK Energy Security
A look at possible impacts of UK oil and gas production decline together with a range of appropriate energy policy responses.
Saudi Arabia - production forecasts and reserves estimates
An oil production forecast for Saudi Arabia using both bottom up and top down (Hubbert linearisation) techniques. Peak was forecast to be 2011.
The European Gas Market
A comprehensive look at where Europe gets its natural gas from (34 charts and maps) including forecasts that incorporate peak Norwegian gas production and decline of the supergiant gas field at Groningen in Holland.
Daddy, will the lights be on at Christmas?
A follow up to the European Gas market incorporating a forecast for Norwegian gas production produced by Rune Likvern.
Why oil costs over $120 per barrel
An examination of some of the fundamental causes of the run in oil prices that took place in 2008.
Why oil costs over $130 per barrel: the decline of North Sea Oil
An overview of North Sea oil production decline and its role in the oil price run of 2008.
A State of Emergency
An examination of the plunge in UK oil and gas production and its impact on the UK economy ahead of the 2008 crash.
The Global Energy Crisis and its Role in the Pending Collapse of the Global Economy
The slides I presented at a talk to the Royal Society of Chemists in Aberdeen, November 2008.
The energy efficiency of energy procurement systems
An overview of the energy return on a number of energy procurement systems together with a look at contradictory policies being pursued by OECD governments.
The energy efficiency of cars
A simple look at the energy efficiency of various vehicle propulsion systems including all electric, internal combustion, fuel cells and bio fuel.
The financial return on energy invested
An experimental examination of links between energy production, consumption, prices and GDP.
The Chinese Coal Monster
An examination of the phenomenal growth in Chinese coal production and consumption. How long can this go on?
Read more posts by Euan Mearns
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David Murphy

EROI, Insidious Feedbacks, and the End of Economic Growth
In this post I attempt to answer the following question: Is a return to long term economic growth possible?
The True Value of Energy is the Net Energy
"The true value of energy to society is the net energy, which is that after the energy costs of getting and concentrating that energy are subtracted.” - H.T. Odum (1973)
Energy Transitions and the Next Paradigmatic Image of the World
The most important question is “what is the next paradigmatic image of the world?”
The Net Hubbert Curve, what does it mean?
Cutler Cleveland of Boston University has reported that the EROI of oil and gas extraction in the U.S. has decreased from 100:1 in the 1930’s to 30:1 in the 1970’s to roughly 11:1 as of 2000. What does this mean?
Further Evidence of the Influence of Energy on the US economy
Gail, Jeff Rubin, and now James Hamilton of the University of California – San Diego have produced literature correlating either this financial collapse or recessions more generally with peak oil and oil prices. The take-away message of their work is that oil prices played a fundamental role in causing the current recession and many previous recessions.
The Energy Return on Investment Threshold Due to the asymptotic nature of the curve at high EROIs, extraction/conversion processes with EROIs below 8 result in vastly different flows of net energy than those with higher EROIs.
Read more posts by David Murphy
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Heading Out

Heading Out has written a long series of articles under the title of Tech Talks, running on Sundays. These recently deal with oil and gas resource availability in various parts of the world. Earlier, the articles dealt with techniques for extraction of oil and gas. After the Deepwater Horizon blow out, he wrote a series of articles dealing with the approaches to sealing the well.
Link to a listing of posts by Heading Out. (Real name, Dave Summers)
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Jérôme à Paris

Ukraine vs Russia: Tales of pipelines and dependence
I wrote the text below in late December 2005, i.e. just before the Russian-Ukrainian gas conflict, which had been simmering for a few weeks, blew open into the consciousness of the West.
New Iraqi oil law: some facts on PSAs
A post refuting some assertions about the new Iraqi oil law, which will allow foreign companies to invest in the oil sector via PSAs (production sharing agreements).
A review of the underlying fundamentals of nuclear energy
A review of the pros and cons of the nuclear industry.
How To Get A Pipeline Built
A primer on why and how pipelines get built - which essentially means how they get financed.
Countdown to $200 oil meets Anglo Disease
Oil has played a fascinating side role in my Anglo Disease series, allowing the debt bubble to go on for much longer than expected. But now, instead, it is accelerating the crash. Let me take you through the whole cycle.
Fierce pride - yes it works! (or, first ever bank-financed offshore wind farm inaugurated!)
A post about the windfarm which I helped finance two years ago which is now up and running.
Countdown to $200 oil: $140 oil and speculation
There are A LOT of good reasons why oil prices are going up. Let me show you just a few.
The cost of wind, the price of wind, the value of wind
In this post I try to clear some of the confusion that surrounds the economics of wind power, as this is an issue that is often used by the opponents of wind to dismiss it.
Read more posts by Jérôme à Paris
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Engineer-Poet

Sustainability, Energy Independence and Agricultural Policy.
If we are going to use biofuels, we need to re-think everything involved with them; the results may not look like anything we've ever seen.
One engineer's advice for energy policy.
An open letter to Obama on the path the country should take.
H2CAR: Another blind alley
We can make enough biofuel to replace oil, but at a price we cannot pay; this is NOT a solution.
The Cogeneration Stopgap
Generating electricity along with heat can stretch fuel supplies and bridge to the future.
Energetics of cultivation: draft animals vs. combustion engines and the Haber process
Tractors are more efficient than horses, and we don't have to breed or train them.
Analysis of the Hon. John Dingell's carbon-tax proposal
Talking back to a Washington insider who kept Detroit in the gas-guzzler business, who I voted against when my city became part of his district, yet who is making some sense.
EPA economy ratings vs. the GM Volt: A square peg in a round hole
Ruminations on why MPG loses its relevance in a world of watt-hours per mile.
Photovoltaics: From Waste to Energy-maker
How the dumps of phosphate mining can yield the material to power much of the world.
Weathering the storm: making it through a natural-gas crisis.
Lifestyle changes which may slash fuel demand by changing habits.
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Robert Rapier

We Won't Stop Global Warming
I lay out the case that there isn’t really much we will do to stop the accumulation of CO2 in the atmosphere.
Does the Hubbert Linearization Ever Work?
Debunking the use of the Hubbert Linearization as a tool for the prediction of peak oil.
Peak Oil Interview: Misconceptions, Replacing Oil, and False Solutions
An interview I did at that 2010 Global Footprint Network conference that discusses peak oil.
What If Gas Cost $100 a Gallon?
A thought experiment to see what people might really do in cases of extreme gasoline constraints.
A Critical Examination of Matt Simmons’ Claims on the Deepwater Spill
Debunking hyperbolic comments related to the deepwater spill.
The Switch to Winter Gasoline and a Primer on Gasoline Blends
Every year in late summer, you will start hearing references in the media about the conversion to winter gasoline. So what does this mean, and why does it make gasoline less expensive?
The Price of Energy
Just looking at the cost per BTU of many different energy sources. Sparking some interesting discussion.
The Case for Higher Gas Taxes (and Lower Income Taxes)
I make my case for why it would make sense to shift taxes from income to consumption of fossil fuels.
Ethanol Blend E85 Case Study: Iowa
Examines the question of why Iowa should use their own ethanol instead of exporting it.
The Next Five Years: Peak Lite and the Current Oil Picture
Seeking to explain why I think peak oil consequences would start to happen before peak oil.
Refining 201: The Assay Essay
Explaining what products are produced from crude oil, and how that relates to the assay of the crude.
Why Not Nuclear Power?
Exploring the case for expanded nuclear power.
The Future is Solar
Why I think solar power has to play a more important role in the future.
Cellulosic Ethanol vs. Biomass Gasification
Just explaining the difference in the two technologies that have seen the borderlines between them blurred.
German Military Study Warns of Potential Energy Crisis
A translation of major points from the Bundeswehr report.
Read more posts by Robert Rapier
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Luis de Sousa

World Oil Exports: A Comprehensive Projection
This article is a first simplistic (but comprehensive) assessment of World Oil Exports, here defined as the total amount of liquid hydrocarbons that are surpluses in producing countries.
World Oil Exports [00] Introduction
A 2008 update on the original 2006 assessment.
World Oil Exports [01] Angola
The next post in the series focussing specifically on Angola's oil reserves.
World Oil Exports [02] Libya
Same as above except Libya this time.
A New Energy Policy for Europe
Wednesday the European Commission released a series of Communications proposing a new revolutionary Energy Policy attempting to address EU’s energy challenges for the XXI century. This is a set of first comments to such proposals.
Dialoguing with Dr. Peter Jackson of CERA: Is the Future of Oil Resources Secure?
Some reflections follow regarding Dr. Jackson’s arguments and understanding of the Hubbert’s Peak.
From sweet on the table to fuel in the tank: the millenary history of Sugar Cane
A dive into the fascinating history of a plant that shaped the World.
Marchetti's Curves
This is a brief account of the Energy Substitution Model developed by Cesare Marchetti in the 1970s at IIASA.
A few more thoughts on Saudi and HL
There has been some discussion about how to apply the Hubbert Linearization (HL) to Saudi historical production in recent weeks at TOD. Trying not to fall into redundancy, let me have some loose thoughts on these models.
Olduvai revisited 2008
This work tries to assess how the decline of Conventional Fossil Fuels may unfold and how can Mankind avoid the Road that may take us back to the Olduvai Gorge.
IEA WEO 2008 - Fossil Fuel Ultimates and CO2 Emissions Scenarios
An assessment of the WEO climate change statistics, co-authored with Euan Mearns.
Energy Policy: SER-2
This log entry is the first of a series that will try to build a critical but constructive review of this crucial element of future Energy Policy in Europe.
SER-2 [02] Memo on the Security and Solidarity Action Plan
In the second installment of this series analysing the Second Strategic Energy Review (SER-2) by the European Commission, the focus is on to the Memo entitled “EU Energy Security and Solidarity Action Plan”.
SER-2 [03] Communication of the Security and Solidarity Action Plan
This post tries to highlight important aspects that aren't referenced in the Memo and presents the implementation steps proposed by the Commission to put the Plan into practice.
Planning for Europe's Energy Future: My Submission to the Commission's 2010 Consultation on Energy
This document is a response to the Energy Consultation launched by the European Commission in the first half of 2010. This consultation is part of a process that shall take the Commission to a new Energy Policy Programme a few years from now.
Interview with Jean Laherrère
Some comments on the general Fossil Fuels depletion picture and our future beyond them.
Read more posts by Luis de Sousa
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Stuart Staniford

4%, 11%, Who the Hell Cares? A very early piece pointing out that the post-peak decline rate is really the critical variable in assessing the seriousness of peak oil - much more important than the date or height of peak, or the degree of warning of peak. This piece still seems pretty good to me.
Hubbert Theory says Peak is Slow Squeeze. The first piece I wrote looking at the evidence that the post peak decline rate will probably be slow, rather than rapid.
The Auto Efficiency Wedge A piece looking at the fact that at slow decline rates, it's reasonably forseeable that peak oil can be handled by ongoing efficiency improvements (not painlessly, but without complete disaster)
Depletion Levels in Ghawar A major forensic analysis of the state of oil depletion in the Ghawar field of Saudi Arabia, suggesting that Saudi official oil reserve figures are over-optimistic.
US Peak Oil Adaptation: Prognosis in a Credit Crunch Rather prescient piece from 2007 discussing the possibility that the credit crunch could collapse oil prices and slow adaptation to peak oil. This turned out to be pretty much what happened.
Fermenting the Food Supply An argument against continued growth in biofuel consumption as an alternative to oil, on the grounds that the implications for food prices are likely to be very problematic.
The Fallacy of Reversibility This piece argued that there is no evidence for the idea that peak oil will lead to a revival of local non-industrial agriculture. The reverse seems more likely - that industrial agriculture is being and will be strengthened by high oil prices.
Powering Civilization to 2050 The first of three posts laying out a scenario for how we could get to a fairly close to carbon neutral civilization by 2050, without major collapse or disaster (if I was in charge in of the world). This post looked at energy, and argued that extrapolating the learning curve of solar power, it was possible to see energy becoming cheap again by 2050, based primarily on solar.
Four Billion Cars in 2050? Second of the "2050" series: Guesstimates on how many cars there might be by 2050, and how they might be powered.
Food to 2050 The third in the "2050" series: Whether there are likely to be limitations on feeding the world's population to 2050 in a cautiously optimistic scenario.
Read more posts by Stuart Staniford
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Jeff Vail

Theory of Geopolitical Disruptions to Oil Supply
Discusses several non-geological feedback loops that may have a dramatic impact on the course of resource depletion.
Mexico, A Nation-State Dissolves
Addresses the geopolitical instability in Mexico as a potential bellwether for the Nation-State structure generally, and its potential impact on oil production and exports.
The Problem of Growth
How the fundamental structure of our civilization demands perpetual growth and is therefore inherently unsustainable, as well as potential structural solutions.
Oil Demand Destruction and Brittle Systems
Argues that demand destruction tends to make remaining demand less elastic, and therefore makes systems more brittle and vulnerable to future supply shocks.
Predator-Prey Dynamics in Oil Prices
Argues that oil demand, supply, and prices can be modeled similar to predator-prey systems in nature.
A series of posts on the potential for suburbia post-peak.
A Resilient Suburbia? 1: Sunk Cost & Credit Markets
A Resilient Suburbia? 2: Cost of Commuting
A Resilient Suburbia? 3: Weighing the Potential for Self-Sufficiency
A Resilient Suburbia 4: Accounting for the Value of Decentralization
The Renewables Gap
Discussion of the challenges of a societal transition to renewable sources of energy, and especially the "gap" between the beginning of massive investment and the beginning of significant levels of renewable energy generation.
Read more posts by Jeff Vail
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Chris Vernon

Will Wartime Mobilisation Address Peak Oil?
A look at Lester Brown's call for wartime mobilisation.
Nuclear Britain
Reviews the history and future of civilian nuclear power in Britain.
Climate Change – an alternative approach
Rather than attempting to reduce emissions be reducing demand, can the same be achieved by limiting fossil fuel production?
Jonathon Porritt: Peak Oil and Climate Change
Prominent environmentalist brings together these two issues.
Goodbye Helium, Goodbye Brainscans
Non-Renewable resource scarcity, the case of Helium.
Read more posts by Chris Vernon
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Some Notable Guest Posts

Cutler Cleveland - Energy Transitions Past and Future
Herman Daly: Towards a Steady State Economy
Herman Daly on the Credit Crisis, Financial Assets, and Real Wealth
Jay Hanson: America 2.0
Walter Youngquist: Unique Times -- and the Future
Christopher Smith: Aviation and Oil Depletion
Nick Rouse: Will Nuclear Fusion Fill the Gap Left by Peak Oil?
Dave Pollard: It's Our Turn to Eat: How Politics Works and Why Activism is So Important
Lester R. Brown: The Oil Intensity of Food
Alan Drake: Multiple Birds – One Silver BB: A synergistic set of solutions to multiple issues focused on Electrified Railroads
Debbie Cook: How Will Local Governments Respond to Large Increases in Energy Bills?
Aaron Newton: The Four Day Work Week: Sixteen Reasons Why This Might Be an Idea Whose Time Has Come
Glenn Morton: Holding Daniel Yergin and CERA Accountable
Michael Vickerman: A federal energy policy: can it happen here?
Brad Lancaster - Eight Principles of Successful Rainwater Harvesting
Dave Rutledge: The Coal Question and Climate Change
Jeffrey J. Brown: The ELP Plan: Economize; Localize & Produce
Jean Laherrère: Arctic Oil and Gas Ultimates
Jean Laherrère: Hydrates updated
Jean Laherrère: Forecasts on Saudi Arabia liquids production
Jean Laherrère: Update on US GOM from MMS, EIA and Scout Data
Sterling Smith: Energy Vision 2050
Douglas B. Reynolds: Peak oil and the Fall of the Soviet Union: Lessons on the 20th Anniversary of the Collapse
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This list isn't exhaustive nor final but what the authors sent in (and we are still missing a few authors).

Drumbeat: February 8, 2012

Leanan — Wed, 08 Feb 2012 14:34:52 +0000

Oil, Food, Water: Is Everything Past Its Peak?

An unprecedented crisis faced America. Oil production was going to peak in just three to five years, resulting in foreign oil addiction and economic calamity. The scientist responsible for slapping the nation into consciousness implored industry and government to act: "The smug complacency that habitually blinds the American public must be torn," wrote David White, chief geologist of the U.S. Geological Survey. It was 1920.
More than 90 years later, tempers still flare over the prospect of global "peak oil." Last week a commentary in the prestigious journal Nature argued, "oil's tipping point has passed." It's the most recent high-profile salvo about whether, or how soon, the petroleum extraction that drives the global economy will reach a plateau and then, inevitably, decline.

Oil prices will rise as supplies tighten? Hardly.

Oil prices, which fell below $97 a barrel on Monday, are not poised to surge in the long run because long-term production is declining. Better technology and, if needed, higher oil prices mean the long predicted peak in oil production is a long way off.

Oil Gains a Second Day on Demand Outlook as API Says U.S. Stockpiles Drop

Oil rose to its highest in a week in New York after a report showed U.S. stockpiles shrank, signaling increased demand in the world’s biggest crude consumer.
West Texas Intermediate futures climbed to $99.65 a barrel, the highest since Jan. 31. Crude inventories fell 4.5 million barrels in the seven days ended Feb. 3, the first drop in three weeks, the American Petroleum Institute said after yesterday’s settlement. Analysts surveyed by Bloomberg News had forecast today’s Energy Department report would show supplies rose 2.5 million barrels.

China to Increase Domestic Diesel, Gasoline Prices First Time in 10 Months

China, the world’s second-biggest oil consumer, raised domestic fuel prices for the first time in 10 months to spur production by refiners including China Petroleum & Chemical Corp. and PetroChina Co.

UK prompt gas down 15 pct on ample supply

(Reuters) - British prompt gas prices plunged 15 percent on Wednesday as ample supplies offset above-average demand, but near-term prices stayed at six-year highs as three forecasters raised the possibility of prolonged freezing weather through February.

Energy independence? U.S. is almost there

The U.S. is the closest it has been in almost 20 years to achieving energy self-sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo triggered a recession and led to lines at gasoline stations.
Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp., the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.

Everything you know about shale gas is wrong

I have already shown that we do not have a 100-year supply of natural gas, and that gas production is not profitable at today’s prices. I also noted that the U.S. Energy Information Administration recently slashed its resource estimate by 42 percent.
But now there’s even more bad news: U.S. gas production appears to have hit a production ceiling, and is actually declining in major areas.

How to profit as the shale gas revolution disappoints

There is no doubt that shale will lead to cheaper energy - already gas prices in the US (though not elsewhere) are at record lows - but it’s not a miracle cure. It has problems of its own; and that means there’s a good chance that shale will disappoint some of its more enthusiastic fans, as well as consumers hoping for permanently lower energy prices.

Norway to expand Arctic seabed surveying

(Reuters) - Norway intends to expand surveys of a previously disputed area in the Arctic offshore region bordering Russian waters ahead of potential oil exploration, Norway's prime minister said on Wednesday.

Statoil boosts 2012 spending in shale oil bet

OSLO (Reuters) - Oil firm Statoil is raising capital spending this year as it bets on the development of shale oil in the United States to help raise its output by a third over the next decade.

Encana’s pitch is about more than natural gas

Encana Corp. is North America’s second-largest natural gas company. Just don’t tell Encana that.
Eric Marsh, the company’s man in charge of its U.S. division, on Tuesday tried to hammer home a message Encana has been touting for months. It is expanding its natural gas liquids production. It is searching for oil. It has been stealthily collecting land housing these more valuable resources for ages now. It has more oil and natural gas liquids announcements coming down the pipe. So don’t just call it a natural gas company.

Iran MPs take no action on EU oil embargo, go into recess

(TEHRAN) - Iranian lawmakers on Wednesday went into a near month-long recess without taking any action on a threat to impose a pre-emptive oil embargo on European Union countries.

Dip in Iran’s oil supply gets China to buy from Saudi, Russia

Beijing/London: China is scouring the world for alternative oil supplies to replace a fall in its imports from Iran, as it seeks to negotiate lower prices from Tehran, and has been drawing heavily on Saudi Arabia.
Industry sources told Reuters that Beijing had bought the bulk of an increase in crude oil supplies from top oil exporter Saudi Arabia in the last few months.

Iran defaults on rice payments to India

(Reuters) - Iranian buyers have defaulted on payments for about 200,000 tonnes of rice from their top supplier India, exporters and rice millers said on Tuesday, a sign of the mounting pressure on Tehran from a new wave of Western sanctions.
The default prompted the head of the All India Rice Exporters' Association to call on members to stop rice exports to Iran based on credit, which would be a fresh blow to a country where imports of staple foods are already being hampered by sanctions.

Signs build that Iran sanctions disrupt food imports

(Reuters) - More evidence emerged on Tuesday of the crippling impact of new sanctions on Iran, with international traders saying Tehran is having trouble buying rice, cooking oil and other staples to feed its 74 million people weeks before an election.
New U.S. financial sanctions imposed since the beginning of this year to punish Tehran over its nuclear program are playing havoc with Iran's ability to buy imports and receive payment for its oil exports, commodities traders said.

Iran says to go green as oil sanctions tighten

DUBAI: Iran should invest in renewable energy to preserve its hydrocarbon reserves, Iranian energy minister Rostam Qasemi said on Wednesday, as tightening sanctions make it increasingly difficult for Tehran to sell oil.
With Iran's biggest buyers cutting imports of its crude and looking for other suppliers, Tehran says the time is right for the world's fifth largest oil producer and the second biggest gas holder to go green.

Argentina takes Falklands spat with U.K. to U.N.

(AP) BUENOS AIRES, Argentina - President Cristina Fernandez said Tuesday that Argentina will formally complain to the U.N. Security Council that Britain has created a serious security risk by sending one of its most modern warships to the disputed Falkland Islands.
She accused British Prime Minister David Cameron of militarizing their nations' dispute over sovereignty of the South Atlantic archipelago, which Argentines say the British stole from them nearly 180 years ago.

Falkland military claims rejected

Downing Street today rejected Argentine claims that Britain is creating a risk to international security by "militarising" the long-running dispute over the Falkland Islands.

Argentina Suspends Oil Incentive Program for YPF, Pan American

(Bloomberg) -- Argentina’s government suspended a program meant to boost incentives for energy exploration and production for companies including YPF SA, Pan American Energy LLC and Petrobras Argentina SA, the Planning Ministry said in an e-mailed statement today.
The government expects to save 2 billion pesos a year by suspending the program, according to the statement.

Argentina Could Use Bank Reserves to Pay for YPF, Barclays Says

Argentina has the cash reserves to make a tender offer for Repsol YPF SA’s YPF unit, the country’s largest energy company, and will likely put further pressure on the industry to boost output, Barclays Capital said.

Slaughter in Syria: Rocket attacks, blood in the streets and a relentless fight for freedom

Throughout Syrian neighborhoods, the bombardment does not stop. It is relentless in its power. And it spares nobody, regardless of age.
Rocket and mortar fire pelts the town and the people striving to defend themselves against what they say is a brutal regime.

U.S. military beginning review of Syria options

Although the U.S. focus remains on exerting diplomatic and economic pressure on Syria, the Pentagon and the U.S. Central Command have begun a preliminary internal review of U.S. military capabilities, CNN has learned.
The options are being prepared in the event President Barack Obama were to call for them. Two senior administration officials who spoke about the review to CNN emphasized that U.S. policy for now remains the use of non-military options.

No Libya play for the West in Syria

(CNN) -- Amid growing outrage over civilian casualties in Syria, there are ever more urgent calls to aid -- or at least protect -- the uprising against President Bashar al-Assad. There is renewed talk of creating safe havens and humanitarian corridors inside the country. And those demanding tougher measures are again asking why events in Syria should not prompt Libyan-style intervention by NATO and its Arab allies.

Pipeline explosion rocks Syria

An explosion has damaged a pipeline feeding a Syrian oil refinery, adding to pressure on fuel supplies as the uprising against the government of Bashar Al Assad nears its 11th month.
Yesterday a plume of smoke could be seen rising from the pipeline that carries crude from the Rumailan field to a refinery in Homs, Reuters reported.

Five missing after Japan refinery tunnel collapse

Divers were searching for five workers after an undersea tunnel collapsed at one of Japan's biggest oil refineries Tuesday, emergency services said.

Chevron oil refinery bosses could face manslaughter charges after four deaths

MANSLAUGHTER charges are being considered against bosses of the Chevron oil refinery where four people were killed last summer, police have said.
Three men and one woman were killed in the massive explosion at the plant on June 2 in what was described as the UK’s worst refinery disaster for almost four decades.

DEC: Some hydrofracking permits 'conceivable' in 2012

ALBANY -- The state's top environmental regulator said today it's "conceivable" a handful of permits could be issued this year for high-volume hydraulic fracturing, but said a final decision is "months, not years" away.

After Early Gallop, Albany Slows to Crawl in Making Decision on Gas Drilling

When Gov. Andrew M. Cuomo took office last year, his administration seemed to be in hurry-up mode as it decided whether to allow hydraulic fracturing, a controversial gas drilling process. State regulators kept to tight deadlines to produce for public review an environmental impact study and proposed drilling rules, and the state’s top environmental official said drilling permits could be granted as early as this year.
But now, a decision on the process, known as hydrofracking — its scope, its timing or whether it will happen at all — seems much more uncertain, and the approval process has slowed considerably despite almost four years of study, debate and intense lobbying on both sides of the issue.

Europe at an energy crossroads

BRUSSELS - The invention of the steam pipe, spinning Jenny and other technologies dramatically increased production speeds and revolutionised European society in the 1800s.
We need to stoke the boilers again, but this time we need to do it with affordable, clean and safe energy and that is why the EU stands at an unprecedented energy crossroads, facing an urgent need for huge power investments in the next two decades.

The Real Cost of ‘Peak Oil’

Now that the world is awash in oil, the only people talking about peak oil are those who oppose the idea. They are dancing on what they depict as the grave of what they call a "theory" that wasn’t worth the graph paper it was plotted on.
Well, I still think that the peak oil model is a useful description of what we see happening in the oil industry today—even if West Texas Intermediate, the US benchmark, closed at a twitch under $100 a barrel last week. (Brent crude, the European benchmark, closed at $114.58.)

Imagine a world without oil: Infographic

Thanks to our oil addiction, such a world would include rolling blackouts, minimal transportation, dwindling food supplies and possibly war.

Malthus’ dire warning rings hollow

The dire predictions of Malthusian overpopulation have never come to fruition in over 200 years of history. To the contrary, history has taken a course that is completely contradictory to what both Malthus and Ehrlich predicted.
Instead of mass starvation, we witness billions rise from poverty. Instead of the iron law of population, we see capitalistic development widen the scope of the human experience. Thanks to the works of economists like Amartya Sen and Julian Simon, we can now see that we live in a world of potential cornucopia, where the engines of capitalism and liberal democracy allow each human being to be ever more confident that the world will improve in his or her lifetime.

The Alternative Energy Matrix

The primary “mission” of late has been to sort possible future energy resources into boxes labeled “abundant,” “potent” (able to support something like a quarter of our present demand if fully developed), and “niche,” which is a polite way to say puny. In the process, I have clarified in my mind that a significant contributor to my concerns about future energy scarcity is not the simple quantitative scorecard. After all, if it were that easy, we’d be rocking along with a collective consensus about our path forward. Some comments have asked: “If we forget about trying to meet our total demand with one source, could we meet our demand if we add them all up?” Absolutely. In fact, the abundant sources technically need no other complement. So on the abundance score alone, we’re done at solar, for instance. But it’s not that simple, unfortunately. While the quantitative abundance of a resource is key, many other practical concerns enter the fray when trying to anticipate long-term prospects and challenges—usually making up the bulk of the words in prior posts.

Why leading for sustainability is different

When I started doing research with organisations determined to achieve higher levels of sustainability, I didn't expect to find anything particularly unique. After all, isn't it just like any other change initiative, with its attendant problems of inertia, resistance and lack of buy-in?
A number of case studies later, however, I'm convinced there are specific ways in which leading organisations towards sustainability-focused goals is different. In particular, those attempting to make this kind of shift need to spend a significant amount of time on three key activities: Defining, translating and containing emotional responses.

Green Big Brother? Why the backlash against environmentalism has grown.

I think there is a deeper issue here related to property rights and theory of the second best. Do individuals have the property rights to continue to produce their current level of greenhouse gas emissions? Put simply, if you live in the suburbs and drive to work and air condition your large house and if you like to barbecue big steak dinners, you are unintentionally producing a lot of greenhouse gas emissions. This is even more likely to be the case if your electricity is generated by coal fired power plants.

Are smart meters a plot to overthrow the United States?

Peak oil theory ignores that, at higher prices, hard-to-access hydrocarbons become producible. In a mirror image, the U.S. energy independence crowd says nothing about the price at which the hydrocarbon bonanza they see will be cost-effective to extract. Mackay writes that popular delusions will always be with us, and the noise surrounding energy suggests he is right.

Why Energy Efficiency Isn't All It's Cracked Up to Be

When New Yorker writer David Owen moved his family from Manhattan to a small town in northwestern Connecticut in 1985, it seemed like a green decision. Their tree-shaded house had been built in the 1700s and sat across from a nature preserve. Deer, wild turkeys and even bears could be seen in their yard; woods surrounded their neighborhood. It was a bucolic country existence, something out of a nature poem.
Yet for the global environment, the move was a minidisaster. The Owens' electricity consumption went up more than sevenfold, and the lack of both public transportation and dense housing that's typical of Connecticut (and much of the rest of the U.S.) meant the family had to buy several cars. And those cars got driven — a lot. Owen notes that he and his wife now put some 30,000 miles a year on their odometers, burning carbon with every gallon. Access to trees and wildlife and cleaner air in Connecticut was great, but for the climate, it's dense and efficient Manhattan — where cars are optional and living space is much tighter — that does less damage per capita.

12 greenest cars of 2012

The American Council for an Energy Efficient Economy has released its list of the most environmentally friendly cars of 2012, but there's one glaring omission.

Fisker Stops Work on Car Factory After U.S. Blocks Loan

(Bloomberg) -- Fisker Automotive Inc. said it halted work on a Delaware auto factory to make plug-in sedans after the U.S. Energy Department blocked access to its federal loan, citing unmet milestones.

Fisker is not another Solyndra ... yet

NEW YORK (CNNMoney) -- When Fisker Automotive announced it was laying off about two dozen workers at its Delaware factory, comparisons arose to Solyndra, the solar cell manufacturer that went bankrupt despite billions of dollars in U.S. government help.
Yes, the California based electric car maker and Solyndra both got a lot of government assistance, but analysts say those comparisons are unfair and premature.

Capitalism's destructive car mania detailed

The car, say Canadian authors Bianca Mugyenyi and Yves Engler, who took a bus ride across the United States, is a doomed jalopy going nowhere. It fails, especially in the “home of the car”, on every green count.

New energy supplies may rock orthodox auto beliefs

New discoveries of natural gas threaten to overturn many assumptions about energy supplies and may also bring big changes in the way cars are powered.

Walk to School in Winter - It's Cool!

TORONTO /CNW/ - February is Heart Month in Canada and Wednesday, February 8 has been declared Winter Walk Day. St. Cecilia Catholic School in Toronto is one of approximately 500 schools across Canada that will be walking - or snow shoeing, skiing or skating to school.

Saudi firm in deal to build $1bn solar project

Saudi-based Idea Polysilicon Company (IPC), a top integrated polysilicon and solar wafers firm, has signed an agreement with Germany's Centrotherm Photovoltaic to help develop its SR4 billion ($1.06 billion) industrial complex in Yanbu.

On the shelves: Post-apocalyptic fiction offers lessons

Authors, again borrowing from current events, are exploring how social and economic collapse could end society as we know it, providing us an alarming window into a very possible future. These books go beyond cautionary tales; they provide important lessons in how to survive both short and long systematic failure.

W.Va. coal group wants Blair Mountain case tossed

MORGANTOWN, W.Va. (AP) — Groups trying to protect Logan County's Blair Mountain from mining have no legal standing to sue because they don't own any of the property involved in the long-running dispute, the West Virginia Coal Association argues in a new court filing.

Farmers Plan Biggest U.S. Crop Boost Since 1984, Led by Corn

U.S. farmers will plant the most acres in a generation this year, led by the biggest corn crop since World War II, taking advantage of the highest agricultural prices in at least four decades.

Honeybee die-off shouldn't sting

For whatever reason -- probably a combination of pesticides, parasites, disease and poor nutrition -- honeybees have been dying off at an alarming rate.
The exact cause is still not known.
Now for the good news. Beekeepers have been able to rejuvenate their hives each year so that by summer the population is back to previous levels.
There's another bit of good news, too. Agricultural yields are rising, which means that while rejuvenating beehives is costly, the cost isn't making its way to the supermarket.

Farmers Can Grow Food for All, as Long as Ecosystems Hold

Thomas Malthus, history’s celebrated pessimist, wrote in 1798 that, should war and disease fail to claim humanity, “gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world.”
The concept of "peak food," that the production will reach an apex that can't be topped, is more a function of population than of agricultural limits. The world should be able to produce enough food to feed everyone when the human numbers peak late this century, says José Graziano da Silva, director general of the United Nations Food and Agriculture Organization (FAO). However, the strains on the global pantry are real. While the Earth has plenty of natural inputs -- land, nutrients and water -- humans face a growing challenge to manage them.

Can Concord grow its own food?

Concord is at the center of a study by a group of graduate students from the Conway School of Landscape Design to assess the town’s readiness to provide its own food.
Given the town’s deep agricultural heritage, said Brooke Redmond of the Concord Community Food Report Project, Concord is well suited to developing its arable land to reduce its dependence on food from far-flung places such as Asia and Australia.

Urban Garden? Check. Now, Chickens.

As with vegetable gardening, the green aspect of backyard chicken keeping is cutting down on the energy use and fuel emissions associated with transporting produce from remote farms to population centers. More important, store-bought eggs can seem far from risk-free for many people after the 2010 outbreak of salmonella that led to the nationwide recall of 500 million eggs.
Cities throughout the United States and Canada are now reforming land-use and health policies to allow and even encourage urban agriculture as a moneymaking enterprise. Yet urban chicken keepers are finding that backyard hens remain controversial. While some urban areas, including Nashville, have loosened chicken restrictions after much debate, others have decided the city is no place for a henhouse.

Green groups slam big oil on 'lobby-busting' tour

OTTAWA — A powerful Canadian oil and gas industry group has been systematically lobbying European embassies in recent months against proposed climate change legislation that discourages high-polluting transportation fuels such as crude oil from the oilsands sector, environmental groups said Tuesday.

South Korean Lawmakers Vote for Limits on Greenhouse-Gas Emissions

Lawmakers in South Korea voted to impose greenhouse-gas limits on the nation's largest companies, overruling industry opposition and laying groundwork for the third emissions-trading program in the Asia-Pacific region.

Seas will rise by 3 feet locally by 2100, report says

NEW ORLEANS — A scientific report issued by Gov. Bobby Jindal's administration predicts that the Louisiana coast could see about 3 feet of sea level rise along the already low and vulnerable Louisiana coast by 2100 — a prediction that leaves this Cajun coast drowning and under siege from storm surge for decades to come.

Meteorologist Masters: “The Climate Has Shifted to a New State Capable of Delivering Rare & Unprecedented Weather Events”

Jeff Masters: Climate is what you expect; weather is what you get. I like to think of the weather as a game of dice. Mother Nature rolls the dice each day to determine the weather, and the rolls fall within the boundaries of what the climate will allow. The extreme events that happen at the boundaries of what are possible are what people tend to notice the most. When the climate changes, those boundaries change. Thus, the main way people will tend to notice climate change is through a change in the extreme events that occur at the boundaries of what is possible.

Gas Boom Goes Bust

Jonathan Callahan — Mon, 06 Feb 2012 14:15:44 +0000

The current boom in drilling for ‘unconventional’ gas has helped raise US production to levels not seen since the early 1970′s. This has been an incredible boon to consumers and has kept spot prices contained below $5 per million BTU for the past year, recently dropping below $3/mmbtu. Unfortunately, this price is below the cost of production for many of these new wells. When the flood of investment currently pouring into natural gas drilling operations dries up, the inevitable bust will be as scary as the boom was exciting.

The Problem

A well written and realistic overview of the situation appeared in a Dec. 6, 2011 article in Rigzone: Musings: Imagining The Future for The Natural Gas Industry. In this article, author G. Allen Brooks focuses on the damaging impact low natural gas prices have on the industry. The following excerpt captures the main message of the article:

Gas shale wells are expensive to drill and complete as well are the cost of the leases on which they are drilled. Even though initial gas production from shale wells is huge, the low price has depressed the amount of cash companies are receiving. As a result, producers are spending well in excess of their cash flows. To supplement cash flow, producers have engaged in every known trick in the finance book to boost available funds. These tactics include hedging forward future production whenever high prices are available, tapping Wall Street to raise equity and debt, and seeking out relationships such as joint ventures with larger, and often foreign, oil and gas companies.

In order to access Wall Street capital, producers have needed to demonstrate that they are being successful in exercising a strategy for aggressive wealth creation. That means aggressively buying acreage and drilling wells. Exercising a successful strategy often creates a vicious cycle – more acreage and wells equals increased production and depressed prices. This cycle will continue as long as the music (Wall Street’s money) continues to flow. Once that stops, we will see how many producers can find a chair in the room. In the meantime, the fun continues!

Let’s review the pertinent facts and big trends to try to understand the situation and get a sense of the most likely outcomes.

The Backstory

In recent years, the news media have contained lot of hype and misinformation about energy issues. Energy reporting is plagued with incorrect/inconsistent use of units, misleading charts and a general lack of critical thinking. In order to put the current natural gas crisis in context we need to understand the role of natural gas in the United States economy. A review of publicly available data can help provide unbiased answers to several key questions.

Question 1) How does natural gas figure into our overall energy consumption?

Figure 1) from the Energy Export databrowser shows US energy consumption of the five primary sources of energy: nuclear, coal, oil, gas and hydro-electric. Data are in consistent units of “million tonnes of oil equivalent” (mtoe) as provided in the British Petroleum Statistical Review. [1] The general trend toward increased energy consumption is obvious as are dips due to the 1973 and 1980 oil crises as well as the economic crash in 2008. Initial data for 2010 show a return to increased consumption following the massive injection of Federal stimulus money. We can also see that oil is the primary source of energy in the United States and that natural gas has recently outpaced coal in importance. In 2010, natural gas accounted for 30% of total energy use.

Figure 1) US consumption of energy from primary sources.

Question 2) What is the balance of production and consumption for natural gas?

Figure 2) uses the difference between production and consumption data to estimate net imports/exports of natural gas. Production matched consumption throughout the 70′s and 80′s. Since 1990, the US has had a pretty steady import habit with almost all of the imports coming from Canada. [2] Production has been increasing quite steadily since 2006 but we have also seen increased consumption some years resulting in only a small decrease in imports. Nevertheless, it would only take a modest conservation effort for the US to become “energy independent” with respect to natural gas. Unless, that is, more consumption switches from using oil as a fuel to using natural gas. As we saw in Figure 1), replacing even a fraction of our oil use with natural gas would quickly overwhelm US natural gas supply.

Figure 2) Production (gray), consumption (black line) and imports (red) of natural gas.

Question 3) How is natural gas used in the United States?

The US Energy Information Administration has data on Natural Gas Consumption by End Use. Figure 3) shows the categories tracked by the EIA along with one more that appears to be planning for the future. Natural gas vehicles currently account for only 0.14% of total consumption.

Figure 3) US Natural Gas consumption by sector.

Question 4) How have natural gas prices evolved?

Figure 4) brings together data from three different EIA datasets [3] It is clear that prices before the year 2000 were relatively stable compared with prices after 2000. The increase in drilling rig activity after 2000 is also evident along with a significant increase in marketed production of natural gas beginning in about 2006.

Figure 4) US Natural Gas Production, Active Rigs and Wellhead Price

It’s worth having a closer look at the period since 2000 as seen in Figure 5). Here we can see how the number of active rigs often closely follows the price with a 6-12 month delay. The connection between number of rigs and production is less obvious but it seems clear that the sustained rise in active rigs after about 2002 has been responsible for the steady increase in production since 2006. Surprisingly, the rapid drop-off in drilling activity since 2009 has yet to result in any decrease in production.

A detailed explanation of the four price spikes seen in the chart is given in a March 6, 2009 Oil Drum post: The Anatomy of a Natural Gas Price Spike – Past and Future.

Figure 5) Natural gas production, rigs and price since 2000.

Question 5) How much natural gas is in storage?

According to the EIA Short Term Energy Outlook, a warm winter has left the use US with record amounts of natural gas in storage for this time of year. Figure 6) shows that the US is currently above the upper range of historical levels and are projected to stay there. Nothing is certain, of course. A disruptive hurricane, a bitterly cold and extended winter, or a punishing summer heat wave could bring storage back down. But without any of these extreme-weather events the EIA is projecting that the natural gas glut will continue for at least the next two years.

Figure 6) Natural gas storage levels.

The Finance Story

As is evident in the graphs above, a recent increase in natural gas production, combined with decreased consumption due to a warm winter, is leading to a supply demand imbalance and very low prices in the United States. The question that now arises is: To what extent can current prices support additional drilling? To answer this question, we need to understand how energy companies use the markets to hedge — to sell product forward to lock in a price.

Question 6) How does ‘hedging’ work?

Drilling a natural gas well takes time, typically from 3-6 months from spudding until completion. When drilling begins, companies have an estimate of what it will cost to complete a well. If they hire talented geologists, they will have a reasonable guess as to the amount of natural gas they hope to find. What they don’t know is what price that natural gas will command 6 months – 2 years down the road. For this they have two options: 1) gamble that the price in a year will be high enough to generate a profit; or 2) ‘hedge’ by selling production forward on the futures market.

There is always a market today for natural gas that is to be delivered in the future. (Henry Hub natural gas futures). The sellers of these futures contracts are the natural gas producers who want to guarantee a price minimum. The buyers of these futures contracts are typically large consumers of natural gas like power plants who want lock in a price maximum. It’s basically the same thing as buying a season’s worth of heating oil at a fixed price the summer before the winter heating season.

We can do a little time traveling by looking at what the futures contracts for natural gas were two years ago when the now 1-year-old producing wells were first penciled out on corporate balance sheets. A futures chain simply connects the futures contracts for one month out, two months out, etc. to form a continuous chain when plotted. Figure 7) shows futures chains for natural gas leading up to January 23, 2010. On that date, the futures chain had a seasonal cycle which shows that natural gas prices are generally expected to go up for the winter heating season and then down in the spring. Figure 7) also shows what was expected at that time to be a generally increasing price trend.

Figure 7) Natural Gas futures chain from Jan 23, 2010.

On January 23, 2010, natural gas for delivery in February of 2012 could have been hedged (sold forward) at ~ $7/mmbtu and would have generated a tidy profit if well completion costs ended up in the $4/mmbtu range. (Please note that futures prices are given per million BTU while production is given in units of thousand cubic feet. The conversion factor depends upon the gas stream but is typically somewhere between 1020-1100 BTU/standard cubic feet. A very rough conversion is 1 thousand cubic feet (kcf) ≈ 1 million BTU (mmbtu).)

Things looked a little different in late January, 2012 as seen in figure 8). On January 22, 2012, if companies hedged 100% of their production 6-24 months out they would have gotten less than $4/mmbtu in February 2014.

Figure 8) Natural gas futures chain from January 22, 2012

To make things clearer, lets take a look at the evolution of a single futures contract — the four-month futures contract. If you started drilling a well today you might hope to have significant production in four months and could lock in a price with the four-month futures contract. Figure 9) shows how the price of that contract has evolved over the last two years, briefly touching $4/mmbtu on a few occasions before moving decidedly lower on October 15, 2011.

Figure 9) Evolution of natural gas four month futures contract.

Question 7) Who can make money at these prices?

From figure 4) we know that prices below $4/mmbtu were typical before 2000 but very rare since then. Given our lead off quote’s contention that “gas shale wells are expensive to drill and complete” we need an assessment of which shale gas plays can turn a profit when prices are below $4/mmbtu.

Luckily, Goldman Sachs already did this analysis as reported in a recent presentation by Range Resources. (I would encourage anyone interested in shale gas production and finance to look at this report. While I am often skeptical of corporate reports, this presentation answered a number of questions with detailed information and charts.) Slide 11 from this report contains information from the Goldman Sachs report on the NYMEX price required to produce a 12% Internal Rate of Return — the threshold for a project to receive financing. Transcribing the information from the Range Resource presentation and adding on $3/mmbtu and $4/mmbtu thresholds paints a rather ugly picture for the shale gas industry today as seen in figure 10).

A detailed and even less optimistic study of well performance and potential profitability in various shale gas plays also appeared in an August 5, 2011 Oil Drum post: U.S. Shale Gas: Less Abundance, Higher Cost.

Figure 10) Relative profitability of various shale gas plays

The Bust

The situation depicted in figure 10) is not just theoretical.With current spot and future prices below the cost of production, some companies are in trouble. Here are some newsworthy items to convince you that the jig is up — whatever the President said in the State of the Union speech.

Jan 20: Form 8-K for EQT CORP

In light of lower natural gas prices, the resultant reduction in projected cash flow, and consistent with its determination to live within its means financially, EQT Corporation has decided to suspend development in the Huron indefinitely.

Jan 23: Natural gas glut, low prices, prompt Chesapeake to cut exploration and production

Faced with decade-low natural gas prices that have made some drilling operations unprofitable, Chesapeake Energy Corp. says it will drastically cut drilling and production of the fuel in the U.S.

Jan 24: Prices continue to slide on gushers of natural gas

“It would not surprise me to see gas prices below $2,” Schenker said. “If supply continues to outstrip demand in a massive way throughout the year, it’s going to be hard to find a bottom for the market.”

Jan 26: Carbo Ceramics down almost 20% following disappointing earnings report

Noting “challenges beyond typical seasonality,” the company said the severe decline in natural gas prices during the quarter led E&Ps to reduce capital spending, leading to a sequential reduction of about 70% in its Haynesville proppant sales volumes.

Jan 30: Comstock to focus drilling on oil plays

US producer Comstock Resources has become the latest gas-focused player to shift its investment away from natural gas amid low prices.

Jan 30: Natural gas price drops after Energy Dept. report shows supplies well above 5-year average

Barring any unseasonable swings in the weather, natural gas companies likely will trim production by another 2 billion cubic feet per day this year, independent energy analyst Stephen Smith said.

The Consequences

Clearly, low prices are going to affect many in the industry. But that is not all. Low gas prices put pressure on other sources of energy used to produce electricity. Natural gas competes against coal and wind and solar photovoltaics and is now the lowest cost provider. We should expect 2012 to be a year in which we see a variety of knock-on effects:

Natural gas producers and investors with poor hedge books and too much debt will end up in bankruptcy court.
Drilling operations will focus on liquids-rich plays only.
Jobs creation in the natural gas drilling industry will fall well short of expectations.
Several older coal-fired plants will close.
New wind power generation will fall — especially if the production tax credit is not extended.
Natural gas fueled fleet vehicles should become more popular.

Low gas prices will have positive and negative ripple effects throughout the economy. The final question one has to ask is: “How long will prices stay this low?” And that is one for which there is simply not enough public information available. It would take a serious accounting effort, using the production stats from all producing gas wells to make some decent estimates about decline rates.

The bottom line is that natural gas is a cyclical industry which recently enjoyed a very large boom. As night follows day, a bust is sure to come. Based on the information presented above, I would humbly submit that it has just arrived.

Footnotes:

In Figure 1) the primary energy values of both nuclear and hydroelectric power generation have been derived by calculating the equivalent amount of fossil fuel required to generate the same volume of electricity in a thermal power station, assuming a conversion efficiency of 38% (the average for OECD thermal power generation). [↩]
EIA — US Natural Gas Imports by Country [↩]
Data for Figure 4) include EIA datasets: Gross Withdrawals and Production, Crude Oil and Natural Gas Drilling Rig Activity, and Prices. [↩]

Tech Talk - Oil and Natural Gas in Eastern Siberia

Heading Out — Sun, 05 Feb 2012 11:05:53 +0000

In the last post on Russian oil production, I discussed the amounts of oil produced from Western Siberia, the region with the highest current production, which in its prime contained the second largest producing oilfield in the world at Samotlor. Those fields are now in decline, and while modern technology is seeking to retain as much production as possible, Russian investment is moving further East to the region known as Eastern Siberia. It is not the most hospitable of places, even when compared with Western Siberia.

The cold is staggering, even for Siberia: winter temperatures can fall to minus 70 degrees Fahrenheit, the point at which all outside work is banned. The nearest human settlement is 250 miles away, and the forests are full of bears, wolves and elk. . . . Workers shivered in winter and in summer were tormented by midges so vicious they have been known to kill cows.

Depending on who it is you consult, Eastern Siberia can either include, or not, some of the northern part of the Western Siberia Basin:

Eastern Siberia as defined by Stratoil.

Clearly, when one compares the two regions, the prospects for Eastern Siberia are much less well defined, and much less well developed. However, it is a region that the Government is anxious to develop and in July 2009, the export duty on the 13 oil fields in Eastern Siberia, including Vankor, was annulled - at the time, the duty on $70 a barrel oil would have been $34. This was expanded to all 22 fields in East Siberia the following January. The tax was re-instated at a lower level than usual - 45% of the excess over $50 a barrel - in July 2010.

Details of some of the fields in Eastern Siberia. Note that the region is still defined as “prospective” by Irkutsk Oil. (Map from 2009)

When the Eastern Siberian Pacific Ocean (ESPO) pipeline started shipping oil to China in 2010, the two fields that it initially tapped into included both Vankor, which came on line in 2009, defined as located in Eastern Siberia and described in 1988 as the largest discovery in 25 years; and from Samotlor, as mentioned last time, in Western Siberia. That feed flows through the Purpe: Vankor pipeline) When Phase 2 is completed this year, the ESPO pipeline will be able to carry up to 1.6 mbd, about a third of the total amount that Russia exports. There is some question, however, whether Russia will be able to achieve the volumes that are going to be required for sales to the East, at the same time that it meets demand from the West. Projected demands of over 11 mbd would require an increase in production over last year of more than 600 kbd, and the ability of Russia to meet that increase is one of the current questions.

East Siberian Pacific Ocean (ESPO) pipeline path (Financial Times) showing the part remaining to be completed to Vladivostok

The initial fields scheduled to feed into the pipeline included Vankor (400 kbd), Verkhnechonsk (200 kbd), and Talakan (140 kbd). In Phase 1, which first delivered oil to the port in Kozmino Bay on December 28th, the oil is transferred to rail cars in Skovorodino and carried by rail the rest of the way. Phase 2 completes the pipeline.

Vankor, now connected through Purpe into the Transneft oil pipeline network, can supply oil to the West as well as to the East, and has been delivering to both, with roughly 55% going East. Vankor is operated by a subsidiary (Vankorneft) of Rosneft, and has proved reserves of 1.6 billion barrels, and probable reserves of about the same. In 2010 there were 124 production wells in operation, with another 19 drill pads completed. The average well was producing at 2,606 bd, though this was constrained as the surface treatment plant had not been completed. (It now has). Plans are for a total of 425 wells to be drilled, of which 307 will be horizontal completions. Peak production is scheduled to reach 510 kbd in 2014, and be held at that level. Gas injection will be used to hold reservoir pressure, and is expected to increase the oil recovery factor from the 0.34 Russian average to 0.434. Advanced technology has also helped:

The well drilling operations also involve advanced technologies. Rotor-controlled systems increased overall drilling efficiency by 2.5 times, while the use of smart well systems for inflow management produced over 500,000 additional tons of oil in two years.

Wear-resistant equipment used at the field ensures a flow rate of up to 1,500 tons per day (over 430 tons per day on average compared to the national average daily flow rate of 39.5 tons).

Gas production will drive a local power plant, as well as being available for re-injection.

The gas - its volume exceeds 1 billion cubic meters per year - will mainly be consumed by a gas-turbine power plant. In order to maintain the reservoir pressure, 2.5 billion cubic meters of associated gas will be re-injected annually. There are plans to deliver up to 5.6 billion cubic meters per year to Gazprom’s transportation system.

Verkhnechonsk, which came on line in 2008, is still only pumping at around 100 kbd. It has recently hit a problem in that there is more than the usual amount of natural gas coming out with the oil, but there is nowhere to deliver it - Irkutsk is 750 miles away and there is no gas pipeline. It is therefore being flared. It is hoped to start reinjecting the gas in 2013 (they have to build a compressor first) when the field should reach its 200 kbd peak, four years earlier than initially expected. It has around a billion barrels in reserve, and is about twice as old as the average oil field. Perhaps as a result, the oil is cooler than that found almost anywhere else, and has to be heated to stop wax precipitating out and to allow the water and the high concentration of salts to be removed. It is being developed with horizontal completions.

Talakan came on line with the ESPO pipeline connection in October 2008. It is operated by Surgutneftegaz, who paid 1.66 billion rubles ($45.8 million) for it. It is believed to hold about 0.8 Tcf of natural gas and up to 2.3 billion barrels of oil. It is sometimes referred to as the Severo-Talakanskoye field and initial production has been low, until a booster station is built in 2013. Output will then be 16 kbd snd it will only slowly ramp up to the 140 kbd target.

Within Eastern Siberia's Sakha (Yakutia) Region, the major strategic fields include the Verkhnevelyuchanskoye oil and gas field, the Sobolokh-Nedzhelinskoye and Srednetyungskoye gas condensate fields, and the Chayandinskoye and Tas-Yuryakhskoye oil and gas condensate fields.

The Chayandinskoye oil and gas field will be developed by Gazprom, starting in 2014 for the oil (576 million barrels), and 2016 for the gas deposits (about 46 Tcf), with the products being shipped to Valdivostok for export. It is expected that it will produce at around 2.9 bcf/day.

The Tas-Yuryakhskoye oil and gas condensate field will also be developed by Gazprom; however, that process was just completed last December and so plans are indefinite. The prices paid are:

The company will pay 7.29 billion rubles for the right to use the sites: the payment for the Verkhnevilyuchanskoye gas condensate field is set at 3.63 billion rubles, Tas-Yuryakhskoye is at 2.479 billion rubles, Sobolokh-Nedzhelinskoye gas condensate field is at 344 million rubles, Srednetyungskoye is at 836.6 million rubles. [There are roughly 30 rubles to the dollar.]

Development of the fields will require additional pipeline construction, which is anticipated to start this year. The total gas reserve in the four fields is estimated to lie around 17.5 Tcf.

The ESPO pipeline is also now, since last November, carrying oil from the Irkutsk region, where the Yaraktinsky field has begun producing at 35 kbd.

And speaking of Gazprom, they have just taken control of the Kovykta gas field from BP, after a long struggle. Kovykta remains relatively undeveloped with about 70 Tcf of natural gas and 500 million barrels of gas condensate. It is suspected that the gas will now go to a market in China, though whether this will happen before 2018, when Gazprom was anticipating developing the field, is open to question.

Possible routes for the Kovykta resources (BP)

In total, the reserves in Eastern Siberia are likely to be only a fraction of those that were found in Western Siberia, but as the latter are in decline, finding a replacement means that even these smaller and more difficult reserves become more attractive. Not all the fields have yet been defined. There was a new one announced with a billion barrels of reserves, near Irkutsk in January 2010, so there is still a possibility for greater finds. It remains, however, along with Alaska and Fort McMurray, one of the last frontiers that are not in deep water.

The 2012 BP Energy Outlook 2030

Heading Out — Fri, 03 Feb 2012 14:40:07 +0000

There are many unintended consequences as fuel supplies become more scarce and expensive. (With a h/t to Rune Likvern), I see that those Greeks who are being starved of affordable fuel are starting to chop trees down for warmth and income. This sort of desperation has devastated the countryside all over Albania, Africa, and Asia, and it is extremely difficult to stop the practice from spreading or to recover from it. The world expects that fuel must be available at an affordable price, and one of the ongoing questions is whether it will continue to be.

In that regard, BP has just released its Annual Energy Outlook 2030, examining how the world energy supply, and mix, will change in the years up to 2030. The booklet is an update from the study released last year, and reviewed at the time. This year the introductory speech by Bob Dudley focused on energy demand in China and India, Middle East exports, and transport fuel demand. BP sees overall energy demand growing some 40% over the next two decades, with virtually all growth coming from the developing countries. More than half will come from China and India alone. And of that energy, they anticipate that the supply will break out as follows:

Energy Supply Source Contributions ( BP Energy Outlook 2030)

Demand will grow across virtually all sections, apart from that of transportation in the OECD, which is expected to fall over the next two decades.

Demand changes in the next two decades (BP Energy Outlook 2030)

Oil will still be the basic source for transportation fuel, and though growth in demand is anticipated to be only 1% a year that turns into another 16 million barrels a day by 2030. One has to be careful therefore in assessing the contributions of the different sources of fuel, as percentages, since, while these may be falling relative to the whole, the actual volumes that are being consumed may still be rising.

Expected changes in the relative sources of energy supply prediction from last year (left) to this (right)through 2030 (BP Energy Outlook 2030)

On a minor note, the role of coalsurpasses that of oil some 20-years from now, while last year, the two were about equivalent. Even though BP expects that by 2020, coal's share of the global market will begin to fall, though less steeply now than they anticipated last year. And BP expects that some of the change in the mix will be brought about by technical change.

Technology underlies many of the trends apparent in this report. For example, the supply of gas has been accelerated as a result of technologies that unlock shale gas and tight gas. In the transport sector, we believe the efficiency of the internal combustion engine is likely to double over the next 20 years. And that will save roughly a Saudi Arabia's worth of production. By 2030, we expect hybrids to account for most car sales and roughly 30% of all vehicles on the road.

The interesting question is, of course, where BP thinks that all the oil will come from. Last year, when they projected the same growth rate, the sources were expected to be Saudi Arabia and Iraq. This year, they project that more will come from Deep water, rising from the 9% of supply anticipated last year to 10% in the current review (currently it is at about 7%). But, more interesting, is that they see the roles of energy efficiency and technical exploitation of indigenous resources leading to a great change in the international fuel market:

we foresee both the Americas and Eurasia - or Europe including Russia and the former Soviet Union - achieving self-sufficiency in energy, while the Middle East will generate surplus supply for Asia’s surplus demand. In the US for example, oil imports have dropped by about one-third since peaking in 2005 and are likely to be half of today’s level in 2030. The US now produces over 50% of the liquid fuel it uses – as opposed to importing the majority, as was the case a few years ago.

For the U.S. and European pictures to change as much as they anticipate, cellulosic ethanol still appears to be the flag pole on which they have hung their future, and in which they remain heavily invested. Yet when one looks at the make-up of the sources for fuels in 2030, as projected this year over that suggested last year, there has been a slight gain in overall volumes required.

Anticipated sources of fuel in 2030 – last year’s projection (left) and this year (right)

The interesting changes come in Non-OPEC growth, with the contribution from bio-fuels diminishing, growth in US production replacing that anticipated from the FSU (wonder where that went?) and a drop in the Non-OPEC declines. To answer my own question, I suspect that the growth in FSU supplies (which I am covering elsewhere) has been melded into the need to sustain production at current levels, and that may be a part of the reason for the drop in the Non-OPEC declines.

When one considers that BP are forecasting an increase in demand of 8 mbd from China, 3.5 mbd from India, and 4 mbd from the Middle East, with the non-OPEC decline being at 6 mbd, there is a total of 21.5 mbd of new production being forecast, over the next 20 years. And of this, 12 mbd will come from OPEC, namely Saudi Arabia and Iraq, but with a significant contribution - 4 mbd - from NGLs.

At which point I cough gently and draw your attention to recent remarks (h/t Stuart Staniford) of the Saudi Oil Minister, who suggested that they have flexibility up to a full production of 12.5 mbd, with a little time; but, on the other hand, they will drop production to keep the price over $100 a barrel. And so there is a suspicion that as Libyan oil production returns to normal, Saudi production may fall in balance. The upper limit on Saudi production had earlier been set at 12 mbd, but both these figures are now coming under increasing question, particularly since Aramco has had problems in finding a market for their heavier crudes, which make up almost all of the surplus over current production. (And the Saudi refineries to treat them are still a couple of years away). Yet, if the refineries to treat those oils do come on line, and that increases Saudi capability by 1 mbd of marketable product from Manifa, it will still only bring them up to about 11 mbd. It may be that they will raise production that much, to offset increasing domestic use, and maintain the volume of exports that they need to sustain their economy. But how long they can do that, relying on their ageing major reservoirs remains, of course, the other big question. BP anticipates that they will increase production by 3 mbd over current levels, and still have a cushion of a million or so barrels a day.

And as for Iraq, the country exported 2.14 mbd in December having risen 275 kbd or 14.4% over the year. Whether that can be sustained in the face of continued troubles is not clear. The Al-Ahdab field has come on stream and is ahead of schedule, at 120 kbd, though it may well be that all that oil ends up in China. BP, however, are assuming that Iraq can double production, to 6 mbd, by 2030.

Growth in production in the Americas is anticipated to come from the oil sands (up 2.2 mbd); the Brazilian deep waters ( another 2 mbd) and U.S. shale oil (at 2.2 mbd). Total biofuels growth of 3.5 mbd balances out the anticipated supply and demand at just under 105 mbd.

The continued growth in natural gas is divided into two parts, that which is shipped through pipelines, and that sent as LNG in tankers. Total demand will rise about 50% with the Middle East, China and India providing most of the increase in demand, and with supply coming from a number of sources.

Changes in natural gas demand and supply over the next 20 years (
BP Energy Outlook 2030)

The growth in use will be across all sectors of the economy, but if I do an eyeball comparison it seems as though there is a significant drop in LNG increase over the numbers that BP were using last year. Back then they were seeing an increase of around 70 bcf/day over the interval; now, while they are projecting a growth of 4.5% p.a., the overall volume is somewhat less.

Coal demand will continue to rise, largely due to increased demand for power and industrial use in China and India, while western nations slowly ease away from the fuel.

Changes in coal use over the next 20 years. (BP Energy Outlook 2030)

BP summarizes the changes that they have made, relative to last year’s forecast as:

Changes in BP forecasts from 2011 to 2012. (BP Energy Outlook 2030)

Overall, it looks to be a rather optimistic view of the future.

Basking in the Sun

Gail the Actuary — Wed, 01 Feb 2012 15:37:12 +0000

This is a guest post by Tom Murphy. Tom is an associate professor of physics at the University of California, San Diego. This post originally appeared on Tom's blog Do the Math.

Who hasn’t enjoyed heat from the sun? Doing so represents a direct energetic transfer—via radiation—from the sun’s hot surface to your skin. One square meter can catch about 1000 W, which is comparable to the output of a portable space heater. A dark surface can capture the energy at nearly 100% efficiency, beating (heating?) the pants off of solar photovoltaic (PV) capture efficiency, for instance. We have already seen that solar PV qualifies as a super-abundant resource, requiring panels covering only about 0.5% of land to meet our entire energy demand (still huge, granted). So direct thermal energy from the sun, gathered more efficiently than what PV can do, is automatically in the abundant club. Let’s evaluate some of the practical issues surrounding solar thermal: either for home heating or for the production of electricity.

Heat as Something Useful

In physics classes, I often catch myself repeating the mantra that heat is a disordered, useless state of energy that is generically the endpoint of an energy flow process. For example, the energy allocated to the fast-spinning wheel of an upside-down bicycle will slowly drain away as the wheel stirs the air, makes sound, and suffers friction at the bearing. Every one of these energy paths results in heat, until 100% of the invested energy is dissipated and the room is a tad warmer as a result. We will never reassemble the lost energy into useful form, once entropy has claimed it. All of this is true enough, but I feel very awkward uttering the words that heat is the graveyard of energy flow, and must place an asterisk on the statement.

The asterisk is that the overwhelming majority of our societal energy consumption makes use of heat—over 90% in the U.S.! So heat does not deserve the bad rap as a worthless waste product. Rather, heat runs our world! Sometimes we just want the heat directly, via: natural gas for furnaces, hot water, and cooking; heating oil for the home; and gas and coal for industrial process heat. This accounts for 20% of our total energy demand, leaving about two-thirds of our total energy consumption in the form of heat that powers heat engines for electricity production, transportation, and machinery. In short, all the energy we get from fossil fuels, nuclear, and biomass derives from heat. That’s hardly useless!

Radiant Heat

The Sun transmits its energy to Earth across the emptiness of space via radiation. Each square meter of surface at a temperature, T, emits radiation at a rate of σT⁴, where T is expressed in Kelvin (important!) and σ = 5.67×10⁻⁸ W/m²/K⁴. This constant is easy to remember via the sequence 5-6-7-8. Ignoring for now the subtleties of greenhouse gases, the surface of Earth—typically at 288 K—emits 390 W/m². The Sun, on the other hand, at 5800 K, emits 64 MW per square meter!

Summing over the area of the spherical Sun, at 109 times the radius of Earth, we find the total radiant power of the Sun to be a whopping 3.9×10²⁶ W. Now that’s a light bulb! The Sun’s radiant energy spreads into all directions, creating a sphere of light. At the distance of the Earth, that sphere has an area of 4πr² ≈ 2.8×10²³ m², where r is the mean Earth-Sun distance. Dividing these huge figures, we find that the radiant intensity at Earth is 1370 W/m²—which I hope will be a familiar number by now for Do the Math readers.

We can also turn the σT⁴ relation on its head and say that a patch of full sun (at the ground) receiving 1000 W/m² corresponds to a radiant temperature of 364 K, or a blistering 91°C. This means that a black panel in full sun could get this hot if no paths other than radiation were available for cooling the panel. We would then say that the panel is in radiative equilibrium with the Sun. But air can carry away heat by convection. The self-convection of a hot, flat plate will be about 10 W/m² per degree of difference between the panel and the surrounding air. Requiring the sum of radiative and convective losses to add up to the input power of 1000 W/m² yields a solution of about 55°C (328 K; 131°F) if the surrounding air is at 20°C. This assumes that the plate has no heat paths available through the (insulated) back side. If, on the other hand, it is a thin panel allowing convection on both sides, it will be cooler—although the “heat rises” phenomenon will suppress heat flow on the back side relative to the front, if the plate is indeed level. Just for fun, if we get an additional 5 W/m²/K of convective loss off the back, the equilibrium temperature drops to 47°C (117°F). It all seems reasonable.

Passive Solar: Putting Heat to Use

The simplest way to replace fossil fuel energy with solar energy is called a window. A single uncoated piece of glass will transmit 92% of visible light (the rest reflected) when light comes straight in (down to 75% at a 20° grazing incidence, 60% at 10° grazing). The glass is opaque to ultraviolet light and mid- to far-infrared (IR) light, but lets over 95% of the unreflected incident solar spectrum pass.

Considering that windows in houses/buildings tend to be vertical, we can evaluate the energy input through windows, taking transmission loss, reflection loss, and angular foreshortening into effect. Because the Sun is higher in the sky in the summer, the window appears foreshortened to the direct sunlight, and also reflects more. So a south-facing window automatically admits more heat in the winter than in the summer, with no adjustment. Putting an overhang over the window—ideally with some vertical space between the window and overhang—can eliminate the summer noon-time contribution entirely. The figure below illustrates the fraction of incident direct-sun energy (think 1000 W/m²) admitted by the window. Vertical reference lines indicate the noon-time elevation of the sun at a latitude of 40° for the winter and summer solstices. The noon-day sun will be somewhere between these values all year. Adjustment to other latitudes involves a simple shift of the dashed lines by the latitude difference.

Fraction of incident direct energy (perpendicular to rays) making it through a vertical window. The overhang extends an amount that is half the window height, and optionally is spaced 0.2 window-height-units above the top of the window.

So it is not a stretch to admit energy in excess of 500 W/m² into your home in winter sun. You can stack up the equivalent of a dozen or so space heaters pretty quickly.

Drab Winter?

Sounds great, but winters are not always the sunniest of times. However, it’s not as bad as you might fear. Every photon of visible light that makes it through your window—even if coming from a drab gray cloud—deposits the same amount of heat no mater how convoluted its path from the Sun. Indeed, a measurement campaign in my home has revealed that the attic gets surprisingly warmer (10°C, or 18°F) than the ambient air even on a day of heavy clouds when my solar PV system only caught one-quarter of the usual amount of light. So we can use the NREL database for a flat plate collector (in this case, a window) oriented south at a 90° tilt to represent the amount of energy a window would grab. The following table indicates the equivalent number of full-sun hours per day during the heating months for Seattle, WA (on the poor end), St. Louis MO (a representative U.S. average solar city), and San Diego (my home).

The table also includes the number of equivalent full-sun hours per day a 2-axis concentrating system would recover, which is a good proxy for the average daily number of hours of direct sun. The window can often get more energy than is present in full sun due to the diffuse gain, which is the case for six out of the seven months for Seattle in the table above.

If a house had four large windows facing south, each 2 m wide and 3 m tall, a typical Seattle day in December would deposit 900 W/m² (from earlier graph, low elevation sun) times 24 m², or about 22 kW of power for about 1.3 hours. This amounts to 28 kWh of energy (corresponding to about 1 Therm of natural gas energy).

To make this amount of heat work, the house must be extraordinarily well insulated, use fancy windows, and be draft-free—using a heat recovery ventilator. But such feats can be accomplished in passive home design, even in climates that would appear to be completely hostile to the notion of passive solar heating.

It is also often advantageous to have several days’ worth of thermal storage in the home to average out the sunny and cloudy days. A dark, massive rock or brick wall can do the job—preferentially opposite the huge south-facing windows to directly soak up the solar input. At a specific heat capacity of 1000 J/kg/K and a density of 3000 kg/m³, a rock wall 0.5 m thick and matching our 24 m² window footprint will see a temperature rise of about 2°C for every hour of sunlight poring onto it. A good sunny day pumping five hours of solar energy into the mass would raise its temperature 10°C, so that lazy air pulling off heat at 2 W/m²/K would initially pump out 2400 W of power after the sun is down (assuming the back of the wall is insulated), and provide about 2 days of heat with no additional input.

Of course a number of engineering challenges surround clever passive solar thermal design, and I should pull away before the post gets bogged down (too late, you say?). Perhaps I will return to the topic later. For now, it is worth understanding that the amount of solar radiation incident on a house can be sufficient to provide heating even in unfavorable climates. I should add one caveat: that passive heating may be sufficient 90% of the time, requiring either backup heat or—preferably—flexibility in dealing with a colder house the other 10% of the time.

Hot Water

Using the sun to heat water is a very similar concept. We saw that a flat black plate in the sun can get pretty toasty. In practice, flat panel collectors can hang onto about 60% of the incident solar energy, transferring this to the water. Heat paths via radiation through the glass on the front, convection of air within the panel, and conduction through the back and mounting frame all contribute to loss. For radiative loss, radiation from the black panel is intercepted by the glass (thermal IR is not transmitted by glass), warming it up. This can then radiate both skyward and back to the absorber. A second piece of glass (double-pane) can cut down radiation losses, by returning approximately half of what would otherwise have been lost off the front panel. Some fancy units evacuate air to minimize convective loss, and the backs can be insulated to reduce loss. Given all these thermal leaks, holding on to 60% of the incident energy is pretty impressive.

Example construction of simple flat-panel collector.

Let’s assume your household requires 300 liters of hot water each day—the equivalent of four “long” 10 minute showers at a healthy flow of 8 liters per minute. This, by the way, is far more than I believe is really necessary for a household—even if it is typical. If the water comes in at 10°C, and is heated to 60°C, then we need to supply 15,000 kcal of energy—following the definition of the kilocalorie. Considering 60% efficiency and allowing for some daily loss in storage, we need to provide 30,000 kcal of solar input each day, amounting to 35 kWh of energy. As it turns out, tilting a panel to 54° in St. Louis gives at least 3.5 hours of full-sun-equivalent (1000 W/m²) even in December, so that we need 10 m² of panels (a bedroom’s size).

Two panels on roof provide hot water.

Solar Thermal Electricity

The relatively low temperatures achieved by flat panels in the sun do not encourage exploitation in the form of heat engines for making electricity. But we can fix this through the simple act of concentration. No—not simply thinking really hard about it. Much like a magnifying glass can be used to burn paper, any piling-up of solar flux can elevate the temperature. I have personally melted pennies, boiled water, and turned sand into glass with a large hand-held Fresnel lens. Even a bunch of flat mirrors directing sunlight onto a common spot can create formidably high temperatures.

Concentration is expressed as a ratio, so if I take a circular magnifying glass 100 mm in diameter that makes an image of the sun 1 mm across, the concentration factor is 10,000 (the ratio of areas). Using our radiative relation, the resulting 10 MW/m² corresponds to a temperature of 3600 K! That kind of temperature will melt any metal, if you put the concentrated light onto a fleck of metal smaller than the bright spot. Typical boilers in power plants produce a hot temperature of about 1000 K. Achieving a comparable temperature via solar input requires a concentration in excess of 60.

One downside is that concentration implies tracking, which adds to complexity. Two-dimensional concentration—like a magnifying glass—requires two-axis control to keep the hotspot on the small target. One-dimensional concentration—such as a parabolic trough—only requires tracking along one axis. The concentration ratio of a 1-D concentrator is roughly the square-root of the 2-D variety, but that’s okay if we only need concentration ratios around 100 or so. One-dimensional concentration is also far more forgiving of imperfections in the reflector shape (can be made more cheaply).

Another downside of concentration is that it requires real direct sunlight to work. Can you see a sharp shadow on the ground? If not, concentration is effectively dead. In essence, the concentrator is forming an image of the sun—sometimes a stretched-out linear image in the case of trough collectors. Forming images of clouds onto the collector will not get it very excited. It needs the real thing. Comparing the effective yield for tracking configurations at different sites gives some sense for how some places are differently advantaged to exploit solar thermal. In general, desert areas do very well.

The table above gives average daily yields (kWh/m²/day, or equivalent hours at 1000 W/m²) for three types of solar collection in four locations, each entry giving worst-month/yearly-average/best-month values. The first is for a flat plate tilted to the site latitude (appropriate for PV or hot water), followed by 1-axis concentration tilting along a N-S axis, and finally a 2-axis concentration configuration. Solar thermal makes the most sense in areas where more energy will be collected than with PV panels—but this is not a rigorous criterion, since solar thermal offers some advantages over PV, as we’ll discuss in a bit. In the table above, only Dagget, California—in the Mojave desert— has concentration beating flat-panel PV for total energy. Other desert cities in the Southwestern U.S. likewise are favorable toward solar thermal electricity. But it’s definitely a location-dependent technology.

Solar Thermal Schemes

Schemes abound: 1) power towers where an array of individually-steered flat mirrors are angled to put sunlight at the top of a tower in the middle of the array; 2) satellite-dish-looking segmented bowls with a heat engine at the focus; 3) parabolic trough arrays with a hot-oil-carrying pipe running down the focus; 4) and others topologies, I am sure.

Solar "power tower" outside Barstow, CA.

Taking the simple parabolic trough as an example, about 70% of the incident energy makes it into the 400°C fluid running within the central pipe. Heat carried by the oil makes steam to turn turbines, in the traditional power plant sense. The efficiency of the power plant portion is in the usual ballpark of 30%. These two factors alone produce 20% efficiency, but other losses tend to push it down to 15% or so. The troughs are typically oriented north-south, with daily tracking (e.g., pivot about the hot pipe). Self-shadowing becomes an issue, mitigated by providing ample room between collectors. If you want to track the sun as low as 15 degrees elevation with no shadowing, for instance, only one-fourth of the land area is utilized. East-west orientations are also possible, performing less well year-round, but more uniformly throughout the year.

Parabolic trough collectors.

Parabolic troughs are pretty neat, I think, for a variety of reasons. First, the parabolic shape accomplishes focus independent of the slant angle of the light in the direction along the axis: mathematical perfection no matter the angle. This leads to the second serious advantage—already discussed—of single-axis tracking along a north-south axis. The ability to transport the heat along the axis using a fluid/pipe is unique to this design, making it convenient to schlep the heat around where you want it. Finally, because the shiny material only needs to be bent in one direction (far easier than a bowl-shape), the reflectors are relatively inexpensive to make.

Evaluating a realized example, the Nevada Solar One plant has a 64 MW nominal capacity, generating 134 million kilowatt-hours of energy per year. Dividing these two implies about 2100 hours of full-power operation per year, for a duty cycle of 24%, or 5.7 hours per day. The NREL database for Las Vegas expects a north-south single-axis tracker to get an average of 6.2 hours per day horizon-to-horizon. So not too far off. The plant cost $266 million to build, amounting to $4.15 per Watt. Pretty similar to installed solar PV. The plant occupies about 1.6 km² of land, computing to 40 W/m² at nominal full power. This is 4% of the incident 1000 W/m² (at the height of summer), which is pretty close to what we would guess for a 15% efficient collector occupying 25% of the land area. I love it when the numbers make sense!

A Storage Boon

One serious perk to solar thermal—not yet exploited as fully as it might be—is thermal storage. Make hay when the sun shines, and squirrel it away for overnight use. All solar thermal plants have short-term immunity from intermittency due simply to the thermal mass in the system. Solar thermal plants are designed with varying degrees of storage, many just aiming for several hours to better follow the peak demand curve into the evening. But as renewables gain dominance over fossil fuels (as I’m hoping they do), storage will become increasingly important. To my mind, the ratio of storage to collection is pretty straightforward to change (i.e., bigger vat of hot fluid), so that in principle solar thermal plants could achieve days of storage with little added complexity. We can’t say this about PV or wind. And storage efficiency for a large container grows linearly with the tank’s dimension, since it the energy contained scales like volume, while thermal loss paths tend to scale with area.

One of the Winners

We looked at three categories of using heat from the Sun: passive home heating, hot water, and solar thermal electricity. Virtually anything involving direct use of solar energy—as opposed to hydroelectric, wind, waves, etc. as secondary and tertiary derivatives of solar input—is bound to end up on the abundant side of the story. And so it is with these three, although perhaps given that the first two are confined to the meager area represented by rooftops and/or windows—rather than the entire land area—they should more fairly be stashed in the “potent” box.

Solar thermal electricity definitely joins the camp as an abundant resource. Some of the other abundant resources described to date (nuclear breeders, geothermal depletion, and more to come) present technical hurdles or other practical barriers that diminish my excitement for them. I won’t claim that solar thermal electricity has no difficulties (reflectors get dusty/abraded by desert sands, for instance). But it’s pretty low-tech, utilizes over a century of experience in running heat engines, allows storage to be an integral part of the design, and is super-abundant on the scale of things. All the same, we have found yet another viable way to make electricity, doing little to directly address a liquid fuels shortage.

The low-tech nature of solar thermal makes it especially robust in tough times. I can imagine personally designing and building a passive solar home, flat-plate thermal collectors for hot water, and even a parabolic trough to create steam. I can’t say the same about a PV panel, a nuclear reactor, or geothermal wells kilometers deep. It gets my vote.

We’ll see nuclear fusion next week. Sound familiar?

The Hydrogen Dream

Luis de Sousa — Tue, 31 Jan 2012 09:30:27 +0000

Last week I went to Longwy's university campus, the Institut Universitaire de Technologie (part of the University of Lorraine), for a conference on renewable energies and energy efficiency. It was an event integrated in an InterReg project for innovation, called Tigre, gathering institutions from Lorraine, Saarland, Luxembourg, and Wallonie. It kicked off with a session on tri-generation, and went on with parallel sessions on waste biomass, and on hydrogen and fuel cells. I opted for the latter, feeling really curious about the present state of research on this field.

Cesare Marchetti proposed hydrogen (H2) as a large-scale energy vector almost fifty years ago. The main concern then was to find a simple way to feed transport systems with what seemed to be a fountain of energy about to come from the expanding nuclear park. The nuclear dream is largely gone, but hydrogen lives on. Is this dream about to come true as a piece in the transition puzzle to a post-fossil fuel world? That's what I was expecting to find out.

Home concept

Today the hydrogen dream is very different from Marchetti's. It starts with a home, self-reliant and grid-disconnected, housing a micro-generation system, mostly solar and wind, that primarily feeds the electrical system. Then surplus energy is converted into hydrogen and stored in a container in a special division of the house. This hydrogen can later be used to generate electricity through a fuel cell when the micro-systems do not match the instantaneous power needs; the waste heat generated by the fuel cell can also be used to heat the house. Finally, this hydrogen can be used to feed one or more vehicles powered by fuel cells. A general presentation along these lines opened the session by Sophie Didierjean from the University of Lorraine.

There is an obvious philosophical dimension to this dream that I won't explore here because tje technical aspects are enough to question it. This dream is, in a way, an attempt to save suburbia in the US, that has been successfully exported to Europe. It happens that suburbia here is the exception rather than the norm, as European suburbs are synonymous with cheap vertical housing, where most folk park their vehicles in the streets and commute by mass transit.

There is then another important issue - financing. For a new house, this technology pipeline can easily increase costs by 50% on a rough estimate, added to which is the increased cost of vehicles. These cost increases translate themselves into higher debt levels, that combined with present-day interest rates can be a killer. For grid connected solutions we have feed-in tariffs that anticipate financial returns and offload investor risk, but for disconnected solutions, this isn't the case. The case can be posed for directed subsidies for the acquisition of disconnected technologies, but it misses the social contract that feed-in tariffs force, guaranteeing that micro-producers are the most effective possible, favouring higher net energy; this is something much harder to accomplish with disconnected solutions. Once again this can easily become a philosophical discussion - should society finance a system that translates into detachment from it?

Hydrolysis

Going straight to the crux of the matter, I'll jump to Volker Loos, from the Fachhochschule of Trier, who gave a general presentation on the possibilities of H2 as an energy vector. I'll have to start from the finish, since it was during the Q&A session of this talk that the critical question came from the audience regarding the efficiency of hydrolysis today. At best this figure can approach 80% for a water temperature between 70 ºC and 80 ºC. Not bad, but the problem is that the process of H2 usage has just begun; after that comes compression, storage in a container, decompression and electrochemical processing through a fuel cell or by combustion. In all these steps there are mass and energy losses that further cut efficiency; the end result is far from mature electrical storage technologies like back pumping in dams or magnetic flywheels, and also far from other emerging technologies like large scale compressed air storage.

Another thing worth retaining from this presentation is the idea of injecting H2 generated at renewable energy parks into the natural gas supply grid. If there is a way I can see H2 working out, it is that there are only two conversion steps in the process, hydrolysis and combustion. Apart from that it is also important that most of the infrastructure is already in place. The idea is quite simple: using the natural gas grid as a large buffer when demand isn't there for the electricity generated by renewables. The obstacles I see to this scheme are that in the first place, the suitability of the grid, designed to transport a considerably heavier molecule (methane) thus perhaps permeable to H2, thus raising security and efficiency questions. And finally, the entire efficiency of the process: assuming a best case 80% for hydrolysis, no mass losses and 60% for a combined cycle combustion, the end result is below 50%.

Finally, Volker Loos mentioned that several automakers have plans to introduce fuel cell powered cars in the following years: Mercedes in 2014, Toyota and General Motors in 2015, and Volkswagen in 2020. The price of these cars is at this time estimated to be 20% over that of present day hybrids. It remains to be seen what the impact of the increased demand for platinum will be on these estimates.

Platinum

And then to talk about platinum was Nathalie Job from the Universiy of Liège, an institution presently researching synthetic carbons to produce electron conductors for fuel cells. These conductors should both reduce the rate of platinum used per fuel cell and increase the life time. The details of this work can easily go into electrochemical aspects that are well outside my realm of knowledge. A read of this article may help you get a better idea of what this research is about.

Nevertheless, one can have an idea how important this issue is by using basic algebra. Platinum is one of a handful of metals known to man that are denser than gold, found in the crust in about the same abundance as the latter. But platinum is much harder to find and mine, thus its annual production is about 10% of that of gold, in the order of 200 tonnes. Every year close to 60 million cars are produced in the world - if all of them required the usage of platinum, those 200 tonnes would translate into little over 3 grams (about 0.15 cm³) per car; fuels cells require in the order of 0.5 grams of platinum per W of power output. Any massification of fuel cells shall require totally platinum-free technology.

Chemical storage

Then, on the chemical side of things was Yaroslav Filinchuk from the Catholic University of Louvain. He came to present a theoretical concept for the storage of H2 using borohydrides, an highly reactive, porous material that can store light gases. The basic idea is to use the hollow spaces that the molecular structures of these materials create to “lock” inside smaller molecules. The main advantage is the possibility of storing H2 at ambient temperatures, thus avoiding energy losses in compression/decompression or liquefaction/gasification processes. They may also reduce mass losses during storage, but once again my knowledge is thin on the field, so I recommend again a closer reading of a recent article on the subject.

Continuous electrical generation

Ending the session was a host speaker, Angel Scipioni from the IUT, presenting the energy mix of France. This was mostly a generalist address with lots of interesting numbers cast here and there, clearly showing that the largest state of the EU has lagged somewhat behind on the build-up of renewable infrastructure, because it has a huge nuclear park. What struck me was a direct reference to Peak Oil, but in the past tense, as an additional reason for a transition to renewables and H2. Even though acknowledging it, Angel Scipioni seemed not give much importance to it, stating that France had so far coped well with higher petrol and diesel prices. I wonder how widespread this sort of view is; in any case it is a reminder of how far the awareness raising process still has to go.

Angel Scipioni finished his talk quickly, explaining a research project presently in place at the IUT. The idea is to combine different renewable energy technologies with H2 generation and storage to build a system capable of continuous electrical generation. The concept uses, for instance, technologies that generate electricity from low-speed winds. One day I'd like to see an net energy assessment of such system.

Conclusion

So the hydrogen dream lives on. Where will these research projects lead? Are all of them in vain? Perhaps not, but hydrogen continuously appears somewhat behind alternative technologies; for a massification of it to use as an energy carrier, nothing short of a revolution will do. In many regards, huge steps forward will have to be made in order to bring efficiency into a comfortable zone. With several other technologies closing in on maturity, there doesn't seem to be much time left. And finally, whenever I reflect upon hydrogen, I'm always somewhat baffled as to why molecules like ammonia (heavier) or methanol (heavier and less hazardous) aren't preferred as energy carriers.

Tech Talk - Oil Production from Western Siberia

Heading Out — Sun, 29 Jan 2012 12:54:45 +0000

Time marches on, and as I noted in an earlier post, the declining fortunes of the Romashkino and other oilfields in the Volga-Urals Basin led into the development of the fields of Western Siberia, where even some forty years after it was discovered, just over 60% of Russian crude is still being produced today.

Russian production in 2009, broken down by region (the total is 10.48 mbd) (EIA)

Back in 2007, production was at 70% of total Russian crude oil production with a daily production of 7 mbd., so changes in the mix already were occurring. At its peak in 1980, Samotlor, the largest field in the region, was producing at 3.4 mbd, out of a Soviet production of 12.5 mbd. Samotlor is thus ranked 7th in the world in terms of original oil reserves, and as a comment on the times, it still ranks 6th in the world in terms of daily production even while production has fallen to 750 kbd. Initial reserves stood at 27 billion barrels of oil, though this was not initially evident when the field was discovered in 1965. Water cut has increasingly taken its toll of the field, and now runs at around 90%.

Gas Flare over Samotlor in the marshes of West Siberia (Geotimes)

It took some persuasion to get the Soviet oil industry to move that far East. The new fields were some 600 miles further East than those of the Western Urals, and the country was divided between taiga and swamp. There weren’t a whole lot of people, either.

The different regions of Russian oil production (Petroneft)

Much of that has changed, with the center of the oil industry now located in and around Khanty-Mansiysk, built mainly after 1931 when it became the capital of the Ostyako-Vogulsky National Okrug. A settlement since 1637, it was given its current name in 1940, and became a city in 1950. As a sign of the changing times, the provincial budget from oil revenues was $4.5 billion in 2008.

Oil seeps have been reported in the outcropping of rocks along the Ob River since the seventeeth century, and I.M. Gubkin, the founder of petroleum geology in the Soviet Union, predicted the presence of oil as early as 1932. Serious exploration began in 1954. In 1962, a well drilled near Tazovsky produced natural gas at a flow rate of a million cu m (35 mcf) a day and the Tazovskoye oil and gas field had been found. Originally it was developed as an oil field, but more recently its natural gas potential has been more fully recognized, as has that of the entire Yamal Peninsula. (And at the same time, that 70% of Soviet oil was coming from Western Siberia, so was 90% of their natural gas.)

The oil and gas fields of Western Siberia (after Grace – Russian Oil Supply)

Tazovsky by Vghik (Google Earth)

The northern part of the West Siberian Basin (which, as Grace points out, covers an area about four times the size of France) has been where the most recent exploration has taken place. But it was further south and east along the Ob River that the first three major fields, Fedorovskoye and Mamontovskoye near Surgut, and Samotlor, which lay further East near Nizhnevartosk, were found between 1963 and 1965. An oil pipeline was laid in 1967, allowing year-round production. From the beginning, construction and development was a problem given the local geography, and ways had to be found of getting production equipment into the marshy ground and getting the oil and gas out. For many years, the Ob river was the main highway.

These three fields underpinned Soviet oil production through the 1980s, and with the 14 fields that were added in the second generation, the 7 that came on line for the third generation, and the 8 that made up the fourth generation, kept the Soviet Union well supplied until its collapse at the end of 1991.

Crude Oil Production from Western Siberia (Grace – Russian Oil Supply)

Over the past decade, these fields have been rehabilitated and raised production by more than 60% over that at the depths of the crash, after the dissolution of the Union.

Fedorovskoye is run by Surgetneftegas, a company that drilled 1,403 wells in 2011, including 708,000 ft of exploration. In 1993 the company was allowed to become an open joint stock company. The field, which peaked at a production of around 1 mbd in 1983, is now referred to as the Fedorovsko-Surgutskoye and with a current production of 400 kbd it ranks 14th largest in the world. As a sign of the times, perhaps, the new fields that Surgetneftefas is developing are, however, in Eastern Siberia.

Mamonskoye is run by Yuganskneftegaz and was acquired by Rosneft in 2005. It too peaked at around 1 mbd, though in 1986. The company estimates that in the Khanty-Mansiysk region, its 30 licensed areas still retain a reserve:annual production ratio of 24 years.

This includes the Northern part of the Priobskoye field, the “Pearl of West Siberia,” discovered in 1982, and brought on line in 1989, and the Prirazlomnoye field which is the Russian offshore (a third future topic). The Priobskoye field was producing at 650 kbd in 2009, when it was ranked as the 8th largest producer, with plans to further increase production through 2013.

Fields around Khanty-Mansiisk, including Priobskoye (JPT)

The Southern part of the Priobskoye field is being run by Gazprom Neft, the oil branch of the Russian gas company. In 2007, Rosneft produced an average 550 kbd from the Northern half of the field, while Gazprom was producing 127 kbd. Gazprom has about 40% of the field. Production has been helped in more recent times with the use of Schlumberger’s advanced down-hole motors and technology.

Down-hole motors used at Priobskoye.

Also in the region, and similarly just coming on line are the wells of the Salym Project, which, last 25 September reached a production record for them of 177 kbd. The oilfields include West Salym (reserves estimated at 630 million barrels; Upper Salym (reserves estimated at 150 mb) and Vadelyp also at 150 mb.

One of the problems of sustaining production, even given this wealth of opportunity, lies in the need for considerable investment to make it happen.

Coburn (pdf) has pointed out that only 60% of the investment needed in 2009 to sustain the industry was forthcoming, and suggests that the $110 billion needed for exploration and development before 2016, and most of this will have to be spent further East in Siberia and Sakhalin (which will be visited in future posts). He further notes that Lukoil have suggested that $1 trillion will be required to sustain production at current levels. This will include a further production from Western Siberia to the tune of 45.5 billion barrels. Given that most of the larger, older fields are showing depletion levels of 70% or so this is going to have to come from developing a larger number of smaller fields. But that will take an investment that is still doubtful, though Lukoil are investing some $24 billion in downstream operations, showing that they are anticipating getting the oil from somewhere.

Given the size of the Basin, I have not spent enough time today on natural gas too much of which is still flared, so I will return to the region again.

With Gas So Cheap and Well Drilling Down, Why Is Gas Production So High?

Euan Mearns — Thu, 26 Jan 2012 13:20:07 +0000

This is a guest post by David Hughes, a geoscientist, president of a consultancy dedicated to research on energy and sustainability issues, and a fellow of Post Carbon Institute, on whose website this article first appeared.

Natural gas prices have declined to below $3.00/mcf, levels not seen for years, yet the EIA posted the highest gas production ever in October, 2011. U.S. gas production is growing despite annual well completion rates that are half that at the peak of the drilling boom in 2008, when gas price topped $12.00/mcf. Proponents of shale gas as a “game changer” suggest that, despite the well-known high decline rates of shale gas wells, their productivity is sufficient to grow production with far fewer wells at historically low prices. Others, such as Arthur Berman, claim that shale gas plays require much higher prices to be economic. The answer may lie in the gas produced in association with oil drilling, which is near all time historical highs.

Figure 1 illustrates the annual number of gas wells and gas production documented by the EIA. Although drilling is still well above 1990’s levels, it is only half that of the all time record drilling levels reached in 2008.

Natural Gas Production versus Annual Drilling Rates, 1990-2011

Figure 1 – Annualized U.S. natural gas production and drilling rates, 1990-2011.

U.S. natural gas production has reached production levels of 4.6 percent above the previous 1973 peak, and nearly 16% above the recent 2001 peak. While some of this increase is likely due to delayed tie-ins from the 2008 drilling boom, and some due to the high initial productivities of shale gas wells, these are not likely the whole story.

Hydraulic fracturing has certainly changed the game with respect to gas production from shales and tight rocks, albeit with widely reported collateral damage including methane leakage into groundwater, pollution from produced frackwater disposal on the surface, induced earthquakes from frackwater injection into disposal wells and the environmental footprint of industrialized landscapes. Equally important is the game changing nature of applying hydraulic fracturing to producing oil from shales.

Figure 2 illustrates annualized crude oil production versus well drilling rates. Drilling rates are near all time highs, more than double the rates of the 1990’s, and have succeeded in increasing production to levels not seen since late 2003 (yet down 42% from 1971). Production has grown by 0.65 million barrels per day above the all time low in U.S. oil production in May, 2008, causing some pundits to declare a new era of “American energy independence”.

Crude Oil Production versus Annual Drilling Rates, 1990-2011

Figure 2 - Annualized U.S. crude oil production and drilling rates, 1990-2011.

Large amounts of natural gas are produced in conjunction with the production of hydraulically fractured shale oil and in association with conventional oil drilling. Given the price differential between oil and gas at present many companies have changed their focus to shale oil or liquids rich shale gas to enhance economic returns. Although much associated gas in the production of shale oil is simply flared, as in the Bakken play in North Dakota, much is also produced into the market even at current low prices. Thus the apparent “too- good-to-be-true” statistics showing growing gas production with declining drilling are simply that – too- good-to-be-true. The record drilling for oil, and its contribution to gas production, is masking the high drilling rates required to grow gas production in the EIA statistics (which classify a well as either “oil” or “gas” depending on its principal product).

Drill baby drill – Recent drilling rates are near all time highs

Production decline rates in both shale gas and shale oil wells are very high – first year declines in Barnett shale gas wells are in the order of 65% and are higher in Haynesville wells. Similar decline rates are observed in shale oil plays. Thus new wells must continually be drilled to offset depletion in existing wells. Figure 3 illustrates the aggregate footage drilled for oil and gas in the U.S. and the average depth of the wells.

Annual Footage Drilled versus Average Well Depth 1990-2011

Figure 3 - Annualized U.S. aggregate footage drilled and average well depth, 1990-2011.

It can be seen that the footage drilled is near all time historical highs. And it can be argued that a hydraulically fractured foot, drilled in 2012, required much higher inputs of energy and capital investment than a foot drilled in 1980, as the deposits targeted are so much more challenging (or marginal, depending on your perspective). In addition, the average depth of a well is 40 percent deeper than it was in 1990. This reflects the declining EROEI associated with domestic U.S. oil and gas production, which can only be expected to decline further going forward.

So, despite vocal industry proponents to the contrary, there is no such thing as a free lunch. Growing, or even maintaining, U.S. oil and gas production will require an increasing level of inputs in terms of the number of wells drilled, the footage drilled, the capital investments required, and likely, the large amounts of collateral environmental damage incurred.

Editor's note: This post spawned a vigorous debate among the editors that has delayed publication by about a week. This debate revolved around the contribution made by shale gas and shale oil plays to overall US gas production, the impact of delayed hook ups to production figures and the veracity of EIA data. These issues are open for debate in the comments.