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Update on US GOM: Methane Hydrates

Luis de Sousa — Fri, 17 Jul 2009 10:14:46 -0400

This is a guest post by Jean Laherrère, the second of a series on the current knowledge of the deepwater Oil and Gas reserve at the Gulf of Mexico. In this second installment Jean analyses the Methane Hydrate resource of the region, in face of recent claims of great drilling results in the region.

The first article of the series, on the conventional Oil and Gas reserve, can be found here. Thanks to ace's diligence an error was identified and corrected, resulting in an update to the graph on Commulative Oil and Gas Discovery over 400 meters deep.

Last year I wrote a paper on worldwide hydrates: Hydrates updated, published by The Oil Drum on April 17, 2008. But since then, a survey on hydrates was carried out in the Gulf of Mexico (GOM). Seven deepwater slim holes were drilled last April as part of Leg II of the Joint Industry Project (JIP Leg II). The results were claimed by Dr Collett to be "very encouraging":

Our drilling at Walker Ridge block 313 and Green Canyon block 955 has discovered the most promising marine gas hydrate accumulations in the world […]

What's unique about the Gulf of Mexico accumulations identified is this. It's the first time we've seen highly concentrated hydrates in conventional sand reservoirs that could be commercially producible,[...]

Let’s see on what the basis for this claim is.

Oil and gas fields reserves need well samples and production tests to calibrate all the other measurements. In particular porosity and permeability, estimated from well logs, need to be calibrated with cores.

To be brief: no core, no reserve estimate.

After my previous paper, one of the comments was that it does not matter that hydrates weren't recovered in the core, because they are very unstable and disappear. So hydrates should be in the ground, even if not recovered in the corer! The pressure corer is supposed to fix the problem and exactly that was used in the GOM JIP. Furthermore, it is surprising to see that in other places like at Lake Baikal it is very easy to recover hydrates (see TOD 3819). Why is GOM hydrate so hard to recover if present everywhere?

All hydrate programmes mention the need for coring:

For marine hydrates, there is a need for multi-well drilling expeditions in the Gulf of Mexico, with coring and logging (similar to the 2006 Indian hydrate expedition) to characterize hydrate deposits and to validate emerging exploration technologies. (p. 6)

Key Elements of an Accelerated Hydrate R&D Program. . . 1. Fund the Chevron Gulf of Mexico JIP for a multi-well transect with full logging and coring programs for Spring 2008. (p. 14)

Key Cross-cutting Programmatic and Procedural Milestones:
4.1.17 FY2007: Finalize design and conduct field tests of new pressure coring tools (DOE (Chevron JIP)). (p. 23)

Current Program Portfolio: Chevron Gulf of Mexico Joint Industry Project with research partners ConocoPhillips, U.S. Geological Survey, Minerals Management Service, Total, Schlumberger, Rice U., Georgia Institute of Technology, Reliance Industries, JOGMEC, and Scripps Oceanographic Institute. Phases 1 and 2 resulted in the 2005 drilling, logging, coring of two sites in the Gulf of Mexico to investigate safety aspects of hydrates in fine-grained sediments. Phase 3 (currently in planning) will pursue improved pressure coring tools, evaluate locations for gas hydrates within coarse-grained (sand) sediments, conduct initial drilling and LWD evaluation of those sites (4Q2007) and conduct follow-on drilling and coring operations (FY2008/2009). (p. 35)

Above quotes from Report to Congress: An Assessment of the Methane Hydrate Research Program and An Assessment of the 5-Year Research Plan of the Department of Energy [pdf!], June 2007

Pressure core analysis has become the keystone that links these data sets together and is an essential component of modern gas hydrate investigations […]

Schultheis et al , Pressure core analysis: the keystone of a gas hydrate investigation [pdf!], International Conference on Gas Hydrates, 2008, Vancouver.

The main objective of the JIP cruise was to collect sediments cores and a full suite of logs on seismically well-characterized sediments that show evidence for occurrence of gas hydrates. Although the petroleum industry has operated in the Gulf for decades, relatively little information has been collected on the nature of the shallow sediments, and seismic records and well logs have not been calibrated for the interpretation of gas hydrates.

In JIP GOM gas hydrate coring update [pdf!] G.Claypool NETL Fire in ice, Summer 2005.

Gas hydrate saturation cubes such as those shown in Figures 17 and 18 must be calibrated. It should be noted that, despite the large number of drilled hydrate wells worldwide, quality hydrate logging and coring data are scarce, especially in the Gulf of Mexico. Such data are urgently needed. Until we devote resources to undertake such logging, coring, and laboratory measurements, current estimates of possible gas that can be obtained from gas hydrates must be questioned.

Dai et al , Detection and estimation of gas hydrates using rock physics and seismic inversion: Examples from the northern deepwater Gulf of Mexico [pdf!], The Leading Edge, Jan.2004.

Phase III of the project is to collect data on hydrate bearing sands. Both logging and coring operations are planned. Phase III of the project began in September of 2007 and will focus on obtaining logs and cores of hydrate bearing sands in the GOM […]

In Characterizing Natural Gas Hydrates in the Deep Water Gulf of Mexico: Applications for Safe Exploration and Production Activities [pd!] Semi-Annual Progress Report #41330R16, October 2008 – March 2009.

But there was no coring in JIP leg II, completed last month, only well logs within slim holes were obtained (lack of funds, lack of suitable rig?)! There is no explanation for the absence of cores, especially since it was in the planning!

Coring is now planned for 2011

Phase 3A is currently ongoing. Site selection and detailed scientific and operational planning for the drilling/logging expedition have been completed. The expedition was initiated on 3/16/09 and sites involved are to include Green Canyon 955, Walker Ridge 313 and East Breaks 992 (contingency sites include Green Canyon 781/825 and Alaminos Canyon 21/65). The multi-location, multi-hole program will include a full suite of well logs and will provide vital information related to occurrence of hydrate in coarse grained sediment in the Gulf of Mexico, will help prove out the prospecting methodologies used in the selection of targeted sites and will lay the ground work for Phase 3B coring expedition.

Phase 3B will involve the planning and carrying out of a separate hydrate coring cruise (anticipated in 2011), the follow on analyses, interpretation and dissemination of information generated from project activities.

From The National Methane Hydrates R&D Program webpage.

We have to wait until 2011 to know more about the GOM hydrate potential!

What are the hydrate in-place resource estimates?

In its 2000 report Oceanic gas hydrate research and activity review [pdf!] (MMS 2000-017), the MMS claimed (Kvenvolden 1993) that the distribution of worldwide organic carbon in gas hydrate (onshore and offshore = 10 000 Pg) was twice the amount of fossil fuels (coal, oil and natural gas = 5 000 Pg). This figure was still being used by the USGS in 2006 (Collett et al). This was unrealistic because most hydrates are located in the first 600 m of recent oceanic sediments (water depth > 500 m) which covers a period of time of a few millions years, while fossil fuels sediments cover a period of about one billion years, with larger surface and thickness (>6000 m).

In his book "The Deep, Hot Biosphere" Thomas Gold in July of 1992 (which convinced the Swedish government to drill two wells on the Siljan meteorite crater looking for abiogenic oil and gas. He justified his theory by the large volume of oceanic hydrates:

The large quantities of methane hydrates (methane-water ices) found in many areas of the ocean floor, and thought to contain more methane than all other known methane deposits, suggest a widely distributed methane supply from below.

There is no convincing occurrence of abiogenic oil anywhere and this explains the failure of Gold’s theory, based on hugely wrong hydrate estimates. However, if oil is a complex product needing organic matter to be generated in Nature, methane is a simple molecule and can be generated from chemical reactions involving mantle rocks (it is, for instance, found in space), explaining the desire of Gold to find abundant methane in the Earth's mantle.

But Alexei Milkov (the most respected hydrate expert with experience from Russia and US hydrate surveys) shows a graph (present in my previous hydrates article) which shows that hydrates estimate have been in decline since 1973. The estimated quantity has fallen by a factor of more than 1000, with the resulting volume now similar to that of conventional gas, but without any technique to produce them.

Milkov estimates hydrates to be between 500 and 2500 Gt, to compare with 10 000 Gt by Kvenvolden in 1988 (which is unrealistic, looking at the geological time involved for hydrates compared to fossil fuels).

If the quantity of hydrates is 500 Gt, the quantity of hydrates is lower than that of geopressured dissolved methane, which 30 years ago was described (50 000 Tcf in the Gulf Coast) as the energy of future (as hydrates are now described by some, in particular in the IPCC's SRES scenarios). But pilot production projects of geopressured dissolved methane were commercial failures, unable to handle pollution problems.

This unrealistically huge estimate is still found in a 2008 Canadian report on hydrates:

Recent estimates suggest that the worldwide volume of gas trapped in hydrate accumulations is in the range of 1 to 120 x 1015 m3 (35,000 to 4,200,000 trillion cubic feet, Tcf). The French version is 35 000 to 4 200 0000 billions de pieds cubes, because for the SI of units (which is the official rule in Canada but also for the US Federal agencies since 1993) billion is square million or 10E12 cf or Tcf, T being tera and not trillion (trillion in SI is cube million = 10E18 or exa)

In Energy from gas hydrates: assessing the opportunities & challenges for Canada The Expert Panel on Gas Hydrates [pdf!], Council of Canadian Academies, 2008-11-05 .

This shows that billion (or trillion) should not be used in papers outside the US, but only symbols as M for mega, G for giga, T for tera, E for exa or 10E3, 10E6, 10E9, 10E12. The SI rule is also not to use the comma for thousands but a space, because in some countries the comma is used as the decimal separator.

With very few drilling and coring data sets available, a reliable estimate of global volume of natural gas hydrate appears to be elusive. It is also difficult to assess the quantity of gas hydrate present on a given margin because of the heterogeneous sedimentological environments along each margin deposits varied significantly, even within tens of metres (Riedel et al., Proceedings of the IODP, 2006). Extrapolation from the local scale can be unreliable without additional knowledge of the scale of heterogeneity.

MMS 2000-017 indicated that:

In the Gulf of Mexico, drill core samples are especially needed to characterize gas hydrate deposit locations and behaviors before any kind of production is attempted
[...]
Gas hydrate extraction may become a reality as soon as 2015
[...]
« In 1995, the USGS completed its most detailled assessment of US gas hydrate resources. The USGS study estimated the in-place gas resource within the gas hydrates of the US to range from 112 000 Tcf to 376 000 Tcf, with a mean value of 320 000 Tcf. Subsequent refinements of the data in 1997 using information from the Ocean Drilling Program have suggested that the mean should be slightly downward, to around 200 000 Tcf.

In a later report, entitled Preliminary Evaluation of In-Place Gas Hydrate Resources: Gulf of Mexico Outer Continental Shelf [pdf!] (MMS 2008-004) the estimate (through Monte Carlo runs) of gas hydrate in-place was a 95% chance of 11 112 Tcf and a 5% chance of 34 423 Tcf (in fact the text confuses T trillion (or Tera) and thousand):

For instance, there is a 95-percent chance that at least 11,112 thousand cubic feet (TCF) of gas hydrate are in place in the GOM, and a 5-percent chance that more than 34,423 TCF are in place.

The probabilistic distribution of in-place gas-hydrates resources for the GOM is given as below; it is obviously the result of a Monte Carlo run (usually tens of thousands) which transforms a very simple guess into something looking like a looking real data plot!

But as indicated before, most of these estimates have been carried out guessing the occurrence of hydrates without the backing of core data.

Where are the cores showing oceanic hydrates?

It is very difficult to recover hydrate in cores, because hydrate melts with the change in temperature and pressure when they are brought to surface. It is necessary to keep the pressure within the core. Different core equipments were built since this problem occurred when JOIDES drilling began (it was a main concern when I was a member of the JOIDES Safety Panel in the 1970s). Each new survey tests a new equipment (pressure corer like HYACE, HYACINTH, Fugro,..) and concludes that better equipment or a new survey is needed.

The first industrial hydrate survey in Nankai Japan in 1999 did not recover any hydrate in the recovered cores and JNOC decided to get some hydrate core from permafrost sediments in Canada (logged since 1972 as Mallik 2) to know more on hydrate behaviour. But permafrost hydrate accumulations in Mallik (or Messoyakha in Russia) are completely different from oceanic hydrates, being gas fields in good sandy reservoirs trapped before the glaciation (about 2 million years ago). These shallow reservoirs are now within the hydrate stability zone (deeper reservoirs are just conventional natural gas).

From Collett et al 2006 in permafrost (Alaska) :

Instead, oceanic hydrates occur in clay sediments where gas was converted into hydrate, being unable to migrate, for the pressure and temperature keeps it in the solid state. Only gravity can eventually move the hydrate, because it is lighter than water.

The USGS is active in the US hydrate programme. From Collett et al 2006:

Ten years later, Japan conducted two drilling surveys in 2001 and 2004, amounting to six months drilling with a JOIDES resolution ship. This time they finally did core some hydrate, but very little geological information is published and no picture of these cores can be found on the Internet. According to a presentation delivered by Abe at IIASA in March of 2008, the estimate for the hydrate reserves in Nankai is 20 Tcf (with 40 Tcf for resources). But production experiments are planned only for 2012 and 2014 (METI, AIST & JOGMEC). For a country in great need of domestic energy, hydrate is either not a priority, or they feel that the potential for domestic hydrate production is weak!

The oil industry knows hydrates well because they are a nuisance: plugging pipes and production tubing are vulnerable to hazards caused by hydrates when drilling in deepwater. The MMS requires in the Application for Permit to Drill an evaluation of the hazards of hydrates in order to avoid them.

In 2001 a JIP group was formed, led by Chevron, to investigate the problems of hydrates in the GOM within the oil industry. JIP includes Chevron, ConocoPhillips, Halliburton, JOGMREC (Japan), MMS, Reliance, Schlumberger, Total, KNOC (S. Korea) and StatoilHydro (who joined recently). In 2005 the JIP Leg I drilled 7 wells on AT 13/14 and KC 151 in the course of 35 days (Ruppell et al 2008) with a dynamic positioning semi-sub that recovered 19 cores (total length 6 m):

The JIP launched a 35-day expedition in Spring 2005 to acquire well logs and sediment cores at sites in Atwater Valley lease blocks 13/14 and Keathley Canyon lease block 151 in the northern Gulf of Mexico minibasin province. No gas hydrate was recovered at the drill sites, but logging data, and to some extent cores, suggest the occurrence of gas hydrate in inferred coarser-grained beds and fractures, particularly between 220 and 330 m below the seafloor at the Keathley Canyon site. The expedition did not recover visible gas hydrate during any of the coring operations, nor was gas hydrate directly imaged in pressure cores that were subjected to X-ray analyses (Claypool, 2006) .

C. Ruppel, R. Boswell, E. Jones Scientific results from Gulf of Mexico Gas Hydrates Joint Industry Project Leg 1 drilling: Introduction and overview Marine and Petroleum Geology 25 (2008) 819–829

In my 2008 review I indicated that because of finding of no hydrate in the 2005 cores, the oil industry concluded that hydrates pose a minimum-drilling hazard.

Michael Riedel, Marine gas hydrate occurrence -15 years of research ocean drilling for gas hydrates Results from ODP/IODP drilling and commercial projects (1992 –2007) -Recent advances in our understanding of marine gas hydrate provinces [pdf!].

The seismic section of leg 164 is shown with 3 sites: 994, 995 and 997. The so called BSR (Bottom Simulating Reflector) was absent on site 994 and present in sites 995 and 997, but the log on these three holes was similar to the hydrate zone. It is now well established that BSR depends on the gas below the hydrate stability zone, before a small concentration of fizzy water (lemonade) drastically changes the velocity of the sediments. BRS has nothing to do with hydrate concentration, even though this was assumed in most of the resource estimates.

In Leg II three wells were drilled in Green Canyon 955 between the April 22 and April 28, 2009. The first well encountered more than 300 ft of porous sands as predicted; however, these sands contained primarily water – with only modest indications of gas hydrate:

The JIP's discovery of thick gas hydrate-bearing sands at GC955 validates the integrated geological and geophysical approach used in the pre-drill site selection, and provides increased confidence in assessment of gas hydrate volumes in the Gulf of Mexico. It is expected that further evaluation of the complex geology of these sites, including both fracture-filling and pore-filling gas hydrate in numerous fault blocks (with potentially varying geochemical conditions and gas hydrate/free gas configurations) will add significantly to the understanding of the nature and occurrence of gas hydrate-saturated sands in the marine environment [...]

The so-called hydrate target looks dispersed and of limited horizontal extent (100 m!). It was written that:

Phase III of the project is to collect data on hydrate bearing sands. Both logging and coring operations are planned. Phase III of the project began in September of 2007 and will focus on obtaining logs and cores of hydrate bearing sands in the GOM [...]

Coring is indicated in the planning of the several selected locations, but it was not carried out in Leg II, without any explanation.

Phase 3A is currently ongoing. Site selection and detailed scientific and operational planning for the drilling/logging expedition have been completed. The expedition was initiated on 3/16/09 and sites involved are to include Green Canyon 955, Walker Ridge 313 and East Breaks 992 (contingency sites include Green Canyon 781/825 and Alaminos Canyon 21/65). The multi-location, multi-hole program will include a full suite of well logs and will provide vital information related to occurrence of hydrate in coarse grained sediment in the Gulf of Mexico, will help prove out the prospecting methodologies used in the selection of targeted sites and will lay the ground work for Phase 3B coring expedition. Phase 3B will involve the planning and carrying out of a separate hydrate coring cruise (anticipated in 2011), the follow on analyses, interpretation and dissemination of information generated from project activities.

From The National Methane Hydrates R&D Program webpage.

Alaska

The USGS estimates hydrate resources in the North Slope in the range of 25 Tcf to 157 Tcf, with a mean of 85,4 Tcf. This mean was 590 Tcf in the 1995 estimate, (quite a drop!) but they claim that back then it was in-place whereas now it is technically recoverable gas.

Two hydrates wells were drilled and cored in the last 5 years:

Hot Ice 1

In 2003 & 2004 a well was drilled by Anadarko with the goal to recover hydrate, because its name was clear: Hot Ice. It was cored for more than 200 ft and no hydrate was found, neither in the core or in the logs!

During the winter operations seasons of 2003 and 2004, Anadarko Petroleum in cooperation with Maurer Technology and Noble Corporation and with the partial support of DOE drilled and cored a shallow well, Hot Ice 1, located at 30-T9N-R8E, Umiat Meridian, on the North Slope of Alaska.

The Hot Ice 1 well was drilled from the surface to 2300 ft. There was almost 100% core recovery from the bottom of surface casing at 107 ft to TD at 2300 feet measured depth from the surface. Based on the best estimate of the bottom of the methane hydrate stability zone core was recovered over its complete range. Approximately 565 ft of good sandstone reservoir rock was recovered in the Ugnu formation and approximately 215 ft were recovered in the West Sak. There were gas shows in the bottom part of the Ugnu and throughout the West Sak. No hydrate baring zones were identified either in the recovered core or on the well logs.

Signal et al, Characterization of potential hydrate bearing reservoirs in the Ugnu and West Sak formations of Alaska’s North Slope.

Milne Point BP 2007 Mt Elbert gas hydrate project

500 ft of continuous core were recovered in 2007 with the stratigraphic well "Mount Elbert"; logs indicate 30 m (in two layers) of gas-hydrate saturated, fine grained, sand reservoir. But the only picture that I found shows grey sediment (they mention ice cementation with gas saturation of 45 to 75%) different from the typical white spots oceanic hydrate. Tests were conducted recovering methane (thermogenic and microbial gas).

Investigation of gas hydrate-bearing sandstone reservoirs at the "Mount Elbert" stratigraphic test well [pdf!], Milne Point Alaska, R. Boswell ICGH 2008 Vancouver

There is a video showing the gas dissociation of the Mt Elbert at the NETL webpage (direct link to mpeg file here).

There is obviously methane release from these cores, like it happens with marshy gases or with cow flatulence (1 m3/d). 50% of green house gases (GHG) emissions in New Zealand come from cows and sheep. This figure is only 14% in Australia, where kangaroos do not emit any methane because of a special bacteria in their guts (they are trying to move it to cows and sheep!). A long production test is needed to know more about Mt Elbert's potential, but that it is not yet decided!

Production

A Permafrost hydrate in sandy sediments is quite different from an oceanic hydrate in clay, mostly unconsolidated sediments. Permafrost hydrates were drilled in oil and gas producing basins: they are old accumulations and mainly thermogenic. Oceanic hydrates were drilled in oil and gas producing basins (e.g. GOM). In the North Slope hydrates seem quite uneconomical (the Mallik test was less than a CBM test) and their interest is negligible when Prudhoe Bay free gas reserves are still stranded (in unconventional production the size of the tank does not matter, it is the size of the tap!). It is a far future prospect, needing first a gas pipeline and much higher gas prices because of the small flow (no pressure because shallow depths). Collett et Petrotech 2009 (Geologic and engineering controls on the energy resource potential of gas hydrates [pdf!]) states that the maximum rate on Mallik 2008 was 4000 m3/d .

There is no production concept for oceanic hydrates, because no one knows how to extract them, if they mainly lie in unconsolidated impermeable sediments. Furthermore, the heterogeneity of oceanic hydrates (few centimetres vertically and few meters horizontally) seems to be a difficult obstacle to overcome.

Conclusions

Hydrate is the Santa Claus of many who do not want to change their way of life. But hydrate occurrences are hard to evaluate, mainly because of a lack of samples (cores), which is the only way to calibrate all the visible proxies: well logs and seismic data.

The GOM is now claimed to have the "most promising marine gas hydrate accumulations in the world", but unfortunately this is only wishful thinking without the coring, which is now planned only for 2011 or later. As usual, the data is incomplete to back up such optimistic claims, in particular for the GOM.

Oilwatch Monthly July 2009

Rembrandt — Tue, 14 Jul 2009 10:06:09 -0400

The July 2009 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.3 MB, 32 pp).

Figure 1 - OECD oil imports from 1st quarter 2002 to 4th quarter 2008

The Oilwatch Monthly is a newsletter that is available free of charge with the latest data on oil supply, demand, oil stocks, spare capacity and exports. Readers who want to receive the Oilwatch Monthly in their e-mail box each month can subscribe at this weblink, by filling in their first name, last name, email address and selecting Oilwatch Monthly in the mailing list box. To finalize your subscription push the 'inschrijven' button below the form.

A summary and latest graphics below the fold.

Latest Developments:

1) Conventional crude production - Latest figures from the Energy Information Administration (EIA) show that crude oil production including lease condensates increased by 62,000 b/d from March to April 2009, resulting in total production of crude oil including lease condensates of 72.04 million b/d. The all time high production record of crude oil stands at 74.82 million b/d reached in July 2008.

2) Total liquid fuel production - In June 2009 world production of all liquid fuels increased by 70,000 barrels per day from May according to the latest figures of the International Energy Agency (IEA), resulting in total world liquid fuel production of 83.67 million b/d. Average global liquid fuel production in 2009 up to June was 84.33 million b/d versus 86.6 and 85.32 million b/d in respectively 2008 and 2007.

3) OPEC Production - Total liquid fuels production in OPEC countries increased by 70,000 b/d from May to June to a level of 33.73 million b/d. Average liquid fuels production in 2009 up to June was 33.39 million b/d, versus 36.09 and 35.02 million b/d in respectively 2008 and 2007. All time high production of OPEC oil liquid fuels stands at 36.58 million b/d reached in July 2008. Total crude oil production excluding lease condensates of the OPEC cartel increased by 70,000 b/d to a level of 28.68 million b/d, from May to June 2009, according to the latest available estimate of the IEA. Average crude oil production in 2009 up to June was 28.50 million b/d, versus 31.43 and 30.37 million b/d in respectively 2008 and 2007.

4) Non-OPEC Production - Total liquid fuels production excluding biofuels in Non-OPEC countries remained stable in June 2009 at 48.95 million b/d according to the International Energy Agency. Average liquid fuels production in 2009 up to June was 49.49 million b/d, versus 49.32 and 49.34 million b/d in respectively 2008 and 2007. Total Non-OPEC crude oil production excluding lease condensates decreased by 62,000 b/d to a level of 41.87 million b/d, from March to April 2009, according to the latest available estimate of the EIA. Average crude oil production in 2009 up to April was 41.81 million b/d, versus 41.32 and 41.80 million b/d in respectively 2008 and 2007.

5) OECD Oil Consumption - Oil consumption in OECD countries decreased by 1.55 million b/d from March to April to a level of 43.07 million b/d. Average OECD oil consumption in 2009 up to April was 44.59 million b/d, versus 46.10 and 47.68 million b/d in respectively 2008 and 2007.

6) Chinese & Indian liquids demand - Oil consumption in China increased by 445,000 b/d from March to April to a level of 7.4 million b/d. Average oil consumption in China in 2009 up to April was 6.84 million b/d, versus 6.92 and 7.29 million b/d in respectively 2008 and 2007. Oil consumption in India increased by 85,000 b/d to a level of 2.94 million b/d. Average oil consumption in India in 2009 up to April was 2.94 million b/d, versus 2.60 and 2.43 million b/d in respectively 2008 and 2007.

8) OPEC spare capacity - According to the International Energy Agency total effective spare capacity (excluding Iraq, Venezuela and Nigeria) in June 2009 increased to 5.13 million from 4.96 million b/d in May. The IEA estimates Saudi Arabia currently capable of producing an additional 3.2 million b/d within 90 days, the United Arab Emirates 0.60 million b/d, Angola 0.3 million b/d, Iran 0.2 million b/d, Libya 0.23 million b/d, Qatar 0.12 million b/d, and the other remaining countries 0.48 million b/d

Total OPEC spare production capacity in June 2009 increased to 4.44 million from a level of 4.34 million b/d in April according to the Energy Information Administration. Of total spare capacity 2.65 million b/d comes from Saudi Arabia, 0.24 million b/d from Qatar, 0.33 million b/d from Angola, 0.30 million b/d from Kuwait 0.30 million b/d from the United Arabic Emirates, 0.10 million b/d from Iran, and 0.52 million b/d from other countries.

9) OECD oil stocks - Industrial inventories of crude oil in the OECD in May 2009 decreased to a level of 1017 million from 1022 million barrels in April according to the latest IEA statistics. Current OECD crude oil stocks are 61 million barrels higher than the five year average of 956 million barrels. Industrial product stocks in the OECD in May 2009 increased to 1452 million from 1422 million barrels in April according to the latest IEA Statistics. Current OECD product stocks are 59 million barrels higher than the five year average of 1393 million barrels.

10) OECD oil imports - Oil imports in the group of OECD countries decreased by 146,000 b/d from 3rd to 4th quarter of 2008 to a level of 32.03 million b/d. Average oil imports in OECD countries in 2008 was 32.19 million b/d, versus 32.47 and 32.7 million b/d in respectively 2007 and 2006.

Figure 2 - World Crude Oil Production from January 2004 to April 2009

Figure 3 - World Liquid Fuel Production from January 2004 to June 2009

Figure 4 - OPEC Liquid Fuel Production from January 2004 to June 2009

Figure 5 - OPEC crude oil production from January 2004 to April 2009

Figure 6 - Non-OPEC Liquid Fuel Production from January 2004 to June 2009

Figure 7 - Non-OPEC crude oil production from January 2004 to June 2009

Figure 8 - OECD Crude Oil Stocks from January 2002 to May 2009

Figure 9 - OECD Oil Product Stocks from January 2002 to May 2009

High altitude wind power II: the reactions

Ugo Bardi — Mon, 13 Jul 2009 10:03:22 -0400

Tall ships are the embodiment of the fascination we feel for the free and abundant energy of the wind. Already at the time of the sailing ships, it was recognized that it was important to catch the wind at the maximum possible height. So, the main mast of a tall ship could go up to 30 meters. Modern wind turbines reach heights of a hundred meters or more. But Airborne Wind Energy (AWE) can tap winds at heights up to thousands of meters. The present post is a more in depth examination of AWE after a previous post that I wrote on The Oil Drum and which generated a lot of comments and of reactions. (Image from the Imperial College Yacht Club.) .

I came in contact with the idea of AWE (*) (Airborne Wind Energy) for the first time - I think - six years ago when someone named Massimo Ippolito wrote to the mailing list of ASPO-Italy proposing the concept on which he was working. It was a wind power system based on remotely controlled kites. I remember that I wrote back saying that the concept didn't violate any physical law, but that it seemed to me rather difficult to transform it into something practical.

As I followed the development of the idea, which later became known as "kitegen", I saw it growing from just a qualitative concept to a full fledged project, refined in all details. I tried many times to find faults in it, but I never succeeded. Whatever objection I could raise, Ippolito always had a good answer to it. Eventually, I ran out of objections and when Ippolito tested a working prototype, in 2008, I had to count myself among the believers. In the process, I learned a lot about aerodynamics; for instance what is the difference between a "drag machine" and a "lift machine". The latter is much more efficient in terms of energy generation and is the way the kitegen works. Here is the basic concept of kite power.

Image from M. Canale, L. Fagiano and M. Milanese, "Power Kites for Energy Generation" IEEE control systems Magazine, Dec. 2007, p. 25

The last doubt I had on AWE was related to the environmental impact of high altitude turbines or kites. The recent paper by Archer and Caldeira was a small epiphany that dissipated my doubts. We can obtain plenty of energy from high altitude winds with a minimal environmental impact. So, I decided to write a post for The Oil Drum, summarizing what I knew and the perspectives of the idea.

Passing the "meat grinder" which is the comments section of The Oil Drum is quite scary. AWE (and, in particular, the kitegen) came out of it somewhat ruffled but, on the whole, it survived the ordeal. Because of the many questions and comments received (more than 260), I think it could be interesting to examine AWE more in depth. I apologize for this post being "kitegen-centered" and I have no intention of disparaging other ideas and projects which are being developed in the world. There is a lot of atmosphere over there and there is plenty of space for AWE in many forms. It is just that the kitegen is the project I know best.

So, first of all, let me summarize how a kitegen works in the configuration called "stem" or "yo-yo". Here "KSU" stands for "kite steering unit".

Trajectories of a kitegen in the "Stem" configuration. From M. Canale, L. Fagiano and M. Milanese, "Power Kites for Energy Generation" IEEE control systems Magazine, Dec. 2007, p. 25

As you can see in this simulation, in the simplest configuration a single kite is attached to a power generator on the ground, where also the control system (KSU) is located. During the "traction phase" the kite moves sweeping the wind (green lines) as it pulls on the generator. When it has reached a maximum distance from the generator, the kite is placed in a "stall" position and pulled back (red line). In this phase, very little energy is expended. In the paper by Fagiano et al. you can see also the results of practical tests that confirm the results of the simulation. This system is at present being built in Italy in a version which is expected to produce a maximum power of 3MW.

Now, let's go to the questions and the comments to my previous post. These can be divided in 4 groups (I apologize if I forgot someone's comments - there are just too many of them).

1. Does it work? ("It won't work because the lines will snap off, kites will get entangled with each other, etc..")
2. Is it safe? ("Kites will fall on people's heads, will destroy planes, etc.")
3. How efficient is it? ("Wont you affect atmospheric wind circulation?, etc..")
4. What is it for? ("Do we really need all that energy? What problems will it solve?")

1. Does it work? Here, commenters correctly identified some critical points of the kitegen system. In particular, the strain on the cables is an important issue and so is the control of the kites. These problems have been studied in detail and - in my opinion - solved. The kites are continuously controlled by a sophisticated positioning system that avoids collisions and entanglement of the cables. About the cables ability to withstand the strain, there have been both theoretical studies and experimental tests. As a consequence, the winch control system has been designed in such a way to maintain a nearly constant load; which will reduce the fatigue problem. It is estimated that cables will need to be replaced every six months of operation but will actually be replaced more often for safety. That is not a problem for the efficiency of the system and, on this point, Ippolito wrote in the "comments" section that:

Let me say, a coal power plant burn 300 tons of coal to produce 1 GWhe. A KiteGen to produce the same amount of energy will wear about 100kg of tether. Then the rope will be recycled and only the 20% of the ply will be discarded because too short.

One point that was raised is that, if it was so easy, it would have been done already. I think the answer is that it is not easy, and so it took some time to produce a working concept. AWE is not something that came out of the blue (although, in a literal sense, it does). It is the evolution of a technological line that started with the sailboats of Sumerian times and that has arrived today to giant wind towers, a hundred meters tall. Technology goes step by step and we shouldn't be surprised if, to have high altitude wind power, we had to wait the maturing of the conventional wind tower technology.

2. Is it safe? It was somewhat surprising to see so much importance given to the concern that kites could fall onto something or on someone. Certainly, this is an important point, but also one that shouldn't be overstated. So, first of all, in normal conditions, a loss of lift won't bring a kite to the ground because it can be retracted faster than it can fall.

Then, of course, we can think of a series of failures that might bring the kites down. In case of total failure of the mechanical system on the ground, the kites will lose lift and fall. Other possible causes of kites reaching the ground will be cable failure. That could occur as the result of fatigue or of a sudden gust of wind. The problem of fatigue has been extensively studied and modeled, and the cables have been designed in such a way to minimize the problem. In any case, they will be replaced at regular intervals - as I said in the previous section. About sudden gusts of wind, in case of bad weather, the system can be quickly shut down by retracting the kites. At 25 m/sec retraction speed, it takes always less than one minute to completely retract a kite operated by a stem system. There would be plenty of time to avoid the occasional twister passing by, although one might try (perhaps) to fly the kites into it to slow it down.

I think we may consider kites falling as very infrequent events if the system is carefully designed, as it should be. Take into account, also, that the kites won't be flown over densely populated areas. Even so, there would always be a small chance of falling kites hitting people or something valuable. In such case, the damage is expected to be small. The cables will fall at a speed of 4 m/sec, being slowed down by aerodynamic drag. A stalled kite should fall at an even lower speed. One meter of cable of a 1MW stem weighs less than half a kg while a kite weighs something like 10 kg per square meter. The cables are made of soft materials, while the kite is mostly fabric. If a kite or a cable falls on a roof, the most we can expect are a few shingles broken or displaced. Of course, hitting a person would surely hurt, but it wouldn't necessarily kill.

Here commenters have correctly raised the problem of the "snapping" of a suddenly broken cable. That could considerably increase the speed of the cable and do much more damage. However, snapping is a typical feature of a sudden fracture, as it happens - for instance - for steel cables under stress. But the kitegen cables are made out of multi-strand dyneema fiber. Experimental tests have shown that these cables don't break all of a sudden but tend to "unravel" first and so they dissipate a lot of energy in that process. No snapping worth noticing was observed in these laboratory tests. The cables, therefore, should normally fall "flat" on the ground.

In the end, there exists a worst case hypothesis that someone may get badly hurt or even killed by kites or cables crashing down in an extensive failure of the kitegen system. The data we have show that this possibility is very unlikely and so it can be controlled by known risk management techniques, as it is done practically in all fields of technology. In ordinary commercial aviation, for instance, we don't require zero risk of planes falling from the sky, but we strive to reduce this risk to a minimum. The same approach would work for the kitegen or for any AWE system.

Other safety issues were raised in the discussion, such as the kites interfering with plane traffic and the possibility of damage from lightning. The first problem does not seem to be difficult to solve. The atmosphere is crowded with all sorts of flying objects and we seem to be very good in managing air traffic: collisions are very rare. Kites will have their reserved flying area and active avoidance can be practiced by the control system on the ground, which is equipped with a radar. Kites can be rapidly retracted or moved out of the way if an aircraft is detected moving too close to the reserved area. This kind of control could also be used to avoid damage to birds, a point that was not raised in the comments. About lightning, the issue has been studied and it seems to be a modest risk since the cables are not conductive. Of course, in addition, the kites won't be flown into thunderstorms.

3. How efficient is it? I have cited Archer and Caldeira's paper estimates the total energy we can extract from the atmosphere without causing a serious environmental damage. It turns out to be at least 10 times (or perhaps even 100 times) the currently produced primary energy in the world. But can we really reach these limits? According to Archer and Caldeira, in order to generate as much energy as we produce today we would need approximately one kite (or other device) per cubic km of atmosphere. This doesn't seem to be a lot: one cubic km is a very large space for a kite to fly. But we can't reserve the whole atmosphere for kites or rotors. So, we would need more detailed studies to understand exactly how much of the atmosphere we can use for generating energy. We can say that the total amount is probably large, but it will be surely limited.

The main point at present, anyway, is not so much what is the ultimate total energy that AWE can provide. It is how fast we can build up renewable power in the face of dwindling supplies of fossil fuels. That is the critical point, and the one which I emphasized in my previous post. With the kind of energy yield (EROEI) that AWE promises, (over 100 according to estimates) we can have the technology grow quickly and replace fossil fuels before we run out of them. That is by no means demonstrated, so far, but it is at least a reasonable possibility.

4. What do we need it for? Good question and it is one of the points that I was making in my previous post. In the past few years, we have understood that we have an energy problem and we have placed a lot of resources in developing new gadgets that are meant to solve it. But often we seem to have misplaced our aim. One example may be the emphasis we are giving today to biofuels. We may end up with just a meager source of fuel for our cars in exchange for a serious misuse of agricultural resources which we badly need for producing food.

Airborne wind energy should be a good solution for at least one problem: replacing fossil fuels for the production of electric power. But how is it going to impact on everything else? Perhaps the most worrying observation here is that there has been at least one case, that of France, where the availability of cheap electricity from nuclear plants has not caused a reduction of the use of fossil fuels (as described in a post by Eugenio Saraceno ). Electricity "too cheap to meter" may free financial resources that people could use to drive their cars more or to buy SUVs. So, it is not completely obvious that AWE would really cut on the use of fossil fuels and, therefore, mitigate the climate problem. With a bit of luck, however, it would make coal plants obsolete and eliminate at least one of the biggest sources of pollution and greenhouse gases we have.

Nevertheless, it is perfectly clear to me that our problem is not in the availability of energy or resources; it is in the way we use energy and resources. This problem has a name "overshoot" and, in turn, it is related to our tendency of favoring short term returns over long term ones . Over and over in history, we have destroyed the resources that sustained us because of this tendency. Humans are very good at solving one problem at a time; much less at understanding and caring for whole systems. We are excellent gadget builders but terrible planet managers.

AWE can't do much to change the way we think. Nevertheless AWE on a reasonable scale is one of the most benign form of renewable energy I can think of: it is cheap and relatively simple, so that anyone can use it, anywhere in the world. It generates electric power, which is very efficient and non polluting. It has a very small environmental impact; it uses mostly abundant resources (steel and fabric, the latter could be obtained by natural sources). So, it gives us a chance of a smooth transition from fossil fuels to renewables. Whether we'll be able to do that, is all to be seen, but at least it is a chance - better than no chance at all.

In the end, it is obvious that we still need practical tests, but this discussion didn't evidence fatal flaws in the kitegen concept. This conclusion can be probably extrapolated to all AWE systems using kites, although those which use rotors or balloons will need a different analysis. Hence, AWE emerges out as a very promising technology based on sound physical and engineering concepts. Its development could be stopped only by strangling it with red tape; something that, unfortunately, governments are very good at doing. But renewable energy is already changing the world and it is probably impossible to stop it, by now. AWE would be a further step in the right direction.

(*) Thanks to Joe Faust (kitesystems.net) for pointing out to me the "AWE" acronym for Airborne Wind Power.

references

M. Canale, L. Fagiano and M. Milanese, "Power Kites for Energy Generation" IEEE control systems Magazine, Dec. 2007, p. 25
The kitegen site
kitesystems.net
"High Altitude Wind Power", a post by Ugo Bardi

Is Sustainable Development sustainable?

Luis de Sousa — Sat, 11 Jul 2009 10:20:27 -0400

The other day I got an e-mail from someone with The Economist asking me to participate in an on-line forum/discussion on that science fiction figure called Sustainable Development. Someone at this popular economics publication followed the series on the European Elections that was published here and at the European Tribune.

This time, instead of graphs and analysis, I opted for something a bit different.

Consulting an on-line Dictionary, a definition for Sustainability can be retrieved as the ability to perpetuate existence. In the same resource the definition for Development will be given as growth or progress. A concept gathering these two words together forms what the Greeks termed an oxymoron, an idea devoid of logical sense. Can Sustainable Development be sustainable? Naturally not, for merging together two antonymous concepts, it simply cannot exist.

So why is this oxymoron in the order of the day? Why does it get such attention? Why are so many so willing to discuss it so passionately?

Sustainable Development is one of several philosophical concepts (having as much eeriness as mythology) that emerged in the wake of a series of decades of breathtaking, unprecedented growth. Growth as in development, the physical expansion of the Human-sphere, its population and interactive processes with nature, harnessing energy and concentrated matter, deploying waste heat and dispersing matter. These mythological concepts are simply a reflex of a society intoxicated with growth in front of the first signs of physical constraints to its development.

Sustainable Development became the language of those that promise perpetual growth, and more, the profits that should come along with it. It is the language of those that do not want to reconsider their way of life. Of those who expect the XXI century to be the same as the XX century. Of those that expect to run all the cars on french fry oil or firewater. Of those who call Carbon Capture and Sequestration an energy source. Of those who promote the Hydrogen Economy, forgetting about the Nuclear energy system for which it was conceived. Of those touting Nuclear as Salvation. Of those touting Nuclear as Condemnation. Of those who expect Carbon Trading to reduce the OECD's dependence on OPEC. Of those dreaming with a CO2 atmospheric concentration of 1000 ppm by 2100, accompanied by a 6ºC global temperature rise. Of those saying that the Earth's hydrocarbons are not fossil fuels. Of those drilling their way forward. Of those waiting for the Free Market to replace Fossil Fuels. Of those thinking all they need is changing light bulbs to continue living in 400m2 cardboard houses. Of those claiming to be in their hands a reduction of Fossil Fuels consumption.

Sustainable Development is the philosophy of those fooling themselves, thinking that the Earth is flat, refusing to accept that the planet is a spherical object and thus finite. Of those refusing to face reality, refusing to wake up from their dreams.

A decade from now Sustainable Development will be out of the agenda. By then the word of the day shall be Survival. The Survival of a Culture, a Social and Political Framework, a Civilization.

Hopefully some will be able to wake up in time, leave the intoxicating dreams behind and face reality, however grim. Because then they'll be able to devise a New Future. A Better Future. A Future founded on the real physical entities that run through our Economy, not in abstract, growth dependent, illusions. A Future where each man and woman have their place and are not enslaved by a spiral of virtual accumulation and spending. A Future where having more than the next man isn't a goal in itself. A Future were work and excellence are rewarded by things that have real physical and meta-physical meaning.

A Future.

Metal Minerals Scarcity and the Elements of Hope

Rembrandt — Thu, 09 Jul 2009 10:53:29 -0400

This is a presentation by Dr. A. M. Diederen, given at the Oil Drum/ASPO Conference at Alcatraz, Italy in June 2009. It can be downloaded here: Global Resource Depletion: Metal minerals scarcity and the Elements of Hope, PDF 24 slides, 0.5 MB

Click for larger image
Slide 1
If policy does not change, the ongoing growth in global consumption of metals will cause shortages, aggravate energy scarcity and obstruct the transition towards a sustainable economy.

For my analysis the collective work presented by ASPO-members and at TheOilDrum has proven to be an invaluable source of information. I would like to especially mention the work of Prof. Ugo Bardi, because he has inspired me to look further into the issue of metal minerals depletion.

This presentation elaborates on my paper “”Metal minerals scarcity: A call for managed austerity and the elements of hope”, published at the website TheOilDrum.com on May 4, 2009 (http://europe.theoildrum.com/node/5239) and at the TNO website on June 24, 2009 (http://www.tno.nl/).

Slide 2
Metals scarcity is becoming one of the most urgent global problems, comparable with energy scarcity which is its root cause.

Slide 3
The underlying problem is exponential growth of the world’s population and associated consumption of natural resources. Earlier this year, the IMF (within the context of the current global crisis) stated that a “healthy” world economy grows each year with 3% or more. Sustained growth of 3% per year means a doubling time every 24 years. Compare this with the average growth of China’s economy during the last 15 years and associated growth in metals consumption: 10% or more per year, meaning a doubling time of 7 years (or shorter). This is of course nothing less than a Ponzi Scheme.

Slide 4
I would like to lend a phrase from the peak oil community and apply it to mineral resources as well: it’s not the size of the well that matters but the size of the tap. About a quarter of the earth’s crust consists of silicon, yet we are already short (for years) on pure enough silicon to make high efficiency solar cells. Of course we can purify the less favourable sources of silicon, but this takes (lots of) energy.

Slide 5
As with energy, also for metals one should not be misinterpreted as saying that we are running out (of metals). We are running out of “easy” metals, i.e. high ore grades at favourable locations.

Slide 6
This graph is the scariest graph I’ve seen in years if you think about its implications. It’s even worse than a zero sum game: even zero growth at one part of the globe will inevitable cause shrinkage at another part of the globe (until we have some other economic paradigm). Looking at our history, I find it hard to be optimistic about a future without serious conflicts.

Slide 7
A typical critique on stating that we are running into metals scarcity is the notion that you will find 300 times more ore as you lower the ore grade with a factor of 10. This misses the point that you need much more energy to keep extracting the same amount of metal. Even when the ore grade is more or less stable (example: copper over the last few decades), you still need increasingly more energy to extract the same amount of copper because you have to dig deeper and handle ever more quantities of solids to get to the ores. Of course lower ore grades aggravate the situation and increase energy expenditures much more because of the amounts of solids which have to be processed to keep up the production rate of concentrated metal.

Slide 8
Below the so-called mineralogical barrier (a certain low ore grade), essentially you should pull the source material (e.g. a piece of rock) chemically apart to extract the individual metals. Combined with the enormous amounts of low grade source materials required to maintain a certain production rate of metal, in an energy constrained world the vast majority of resources is out of our reach.

Slide 9
This graph could be valid for all non-abundant metal minerals and it shows that at lower ore grades the amounts of source materials first may tend to go down, not up. This may aggravate metal minerals scarcity.

Slide 10
The work of Bardi and Pagani in recent years showed the striking similarities between peak oil and peak minerals.

Slide 11
A typical critique on stating that we are running into metals scarcity is the notion that the free market (the laws of demand and supply) will upgrade parts of the resources or the resource base into reserves once reserves start to get tight. This has seemed to be true for decades when there was cheap and abundant energy available. However with energy scarcity, the big lower part of the graph in figure 11 is out of reach (red crossed lines). We should also let go of the notion that vast amounts of rich ore deposits lie waiting somewhere to be discovered (red crossed lines), see slide 12.

In short: it looks quite rational to focus on reserves instead of the huge amounts of resources and the vast resource base. Of course there are many cases to be made to argue that the boundaries of the reserves may be stretched in favour of larger quantities; however there are as many cases to be made to argue that with an energy crisis not even the currently stated reserves remain within our reach to be exploited (blue dotted lines).

Slide 12
In analogy with oil scarcity: it’s highly unlikely that we will find another “Saudi-Arabia” or another “North Sea” of rich mineral deposits.

Slides 13+14
Using the only consistent global database (from USGS) on metal mineral reserves and global production rates, one can paint a picture what it actually means if we focus on reserves. All data from USGS are converted (where necessary) into metal element content for consistency, see the paper ”Metal minerals scarcity: A call for managed austerity and the elements of hope”, published at the website TheOilDrum.com on May 4, 2009 (http://europe.theoildrum.com/node/5239) and at the TNO website on June 24, 2009 (http://www.tno.nl/).

Slide 15
Using a simple calculation, including sustained annual growth of only 2% (the IMF states 3% growth or more is needed for a healthy world economy), the bar chart in slide 15 can be drawn to give a feel for the urgency of metals scarcity. Of course in reality we do not experience a sustained global production growth until year “n” and a subsequent drop to zero production in year “n+1”. This is depicted in the graph in the lower left corner of slide 15: a production peak is reached years before the “lifetime” of the bar chart has been reached. Bardi and Pagani recently have published data on several metals which indeed already peaked.

Slide 16
To make things even worse, as with oil and gas, global (or average) metals scarcity will be preceded by spot shortages due to the non-linear distribution and depletion of metal mineral resources across the globe. The industrial revolution started in Europe and later the US became an industrial giant, so it comes as no big surprise that both Europe and the US have depleted a large part of their mineral resources.

Slide 17
The United States, although still an important primary producer of metals, is strongly dependent on imports of various strategic metals, often 100%. The situation for the European Union is even worse than the picture of slide 17.

Slide 18
Many important metals are produced for a large part in only one or a few countries. A striking example are the so-called rare earth metals (REM) for which China dominates world production. REM are required for various kinds of high-efficiency applications in technologies which are needed to make a transition towards a more sustainable economy, away from our dependence on fossil fuels. An example is neodymium, required for high-efficiency permanent-magnets needed for generators (wind mills) or motors (electric vehicles).

Slide 19
The consequences of metals scarcity will be serious. Not only various established sectors like machining and the chemical industries will be affected. Especially the promising “new” sectors will be hit hard. For example there are no satisfactory substitutes available yet for essential and already scarce metals for efficient and mass-produced solar cells, permanent-magnet drives/generators (wind mills, hybrid cars, electric cars), catalysts, fuel cells, batteries and various electronic devices (telecommunication, displays/ touch screens/ plasma screens, micro-electronics).
Without a shift from scarce to less scarce metals, a large-scale transition towards a more sustainable economy doesn’t stand a chance. Moreover metals scarcity aggravates energy scarcity because the energy sector is one of the largest metals consumers. This applies to the whole chain from exploration, production, storage and distribution up to conversion into the desired forms of energy.

Slide 20
There are six solution frameworks to diminish our dependence on scarce metals: using less, longer product lifetime, more intensive recycling, substitution with less scarce metals, a new product design philosophy and adapted inventory management.

Realization of these solution frameworks challenges people’s ingenuity and creativity and offers meaning and purpose. “Using less” requires nothing less than some form of managed austerity. Also technology can play an important role by enabling dematerialization (like film rolls which have been replaced by digital photos). A number of solution frameworks are facilitated by reducing complexity in order to enhance quality and diminish waste.

Slide 21
A particularly powerful solution framework is the substitution of scarce metal elements by the most abundant elements, the so-called Elements of Hope. This requires engineering sciences as well as disciplines like agriculture and biosciences. The scarcest metal elements are called the critical elements and these should be saved for essential applications where substitution with less scarce elements is not possible. The frugal elements are much less scarce, albeit scarcer than the Elements of Hope, and should be used predominantly for those applications for which there is not yet a substitute with current technology (example: chromium for stainless steel).

Slide 22
The Elements of Hope are potentially inherently environmentally friendly and sustainable as they contain all macronutrients of life and lack any heavy metal.

Slide 23
If policy does not change, the ongoing growth in global consumption of metals will cause shortages, aggravate energy scarcity and obstruct the transition towards a sustainable economy.

Technology alone is not going to save us. A holistic approach to the vast underlying problem of exponential growth and overconsumption requires involvement of various disciplines. “Using less” requires nothing less than some form of managed austerity and involves disciplines like psychology, philosophy, law, finance, economics, system dynamics and politics. Nate Hagens has explained during the discussion after this presentation that we need to understand and implement all that we know about human behaviour for any solution to stand a chance of becoming viable (see the recent excellent work by Nate Hagens).

Slide 24
The free market alone cannot solve these problems. Some form of government intervention for the sake of collective interest is required. How does a country like China approach these problems? Can we learn something from them?

High altitude wind power: an era of abundance?

Ugo Bardi — Mon, 06 Jul 2009 10:06:25 -0400

The kitegen concept: high altitude wind power based on kites. In this configuration ("stem"), the kite reaches altitudes of the order of 1000 m; pulling on a power generator located on the ground. High altitude wind power promises to be a low cost and widely available technology able, in principle, to provide amounts of energy comparable, and even superior, to the present production based on fossil fuels. (See here an animated representation of how a stem works)

Why should there be an energy problem? After all, there is plenty of energy around us. The sun beams on the earth's surface a daily amount of energy that corresponds to almost ten thousands times the primary energy we generate - mainly - from fossil fuels. And that doesn't include geothermal energy nor the perspectives of nuclear energy, especially in terms of fusion power. Just tap a small fraction of this energy bonanza that surrounds us and we can have more than we need.

But, of course, things are not so simple. We still rely heavily on fossil fuels for our needs and switching to alternative sources is proving to be a very slow and difficult process. Production from traditional nuclear plants is going down (WNA 2009) and fusion power remains far away in the future. Traditional renewable sources, such as wood burning and hydroelectric have very limited possibilities of expansion, while the "new" renewables (mainly photovoltaic and wind power) still produce only a minuscule fraction of the worlds' total primary energy. It was only last year (2008) that for the first time the total power of new renewable plants installed outstripped that of new traditional plants in the US and in Europe (REN21 2009). Renewables are growing fast, but can they grow fast enough to compensate for the depletion of fossil fuels?

We have a problem of cost. That can be intended as monetary costs, but also in terms of energy return of energy invested (EROEI). As shown in Charles Hall's "balloon graph" (2009) the EROEI of renewables can be considered as reasonably good in most cases (with the exception of biofuels). It is around 10 for photovoltaics and around 20 for wind. Similar returns are reported for current nuclear technology. These are good returns on the investment, but not as good as it was for fossil fuels in the golden days. Decades ago, the EROEI of petroleum was of the order of 100 and perhaps even better (Hall 2009). It was this high EROEI that led fossil fuels to acquire the dominance that they have today. Without that kind of EROEI; other energy sources haven't had a possibility to compete. Today, we still need fossil energy to build non-fossil energy plants. But, with fossil fuels starting their decline, it will be more and more difficult to sustain the growth of alternative energies at a rate fast enough to provide a smooth substitution of conventional sources. We can think of an industrialized world that doesn't need fossil fuels, but we don't seem to be able to get there fast enough.

So, we are facing Tantalus' curse: we are surrounded by abundant energy but we can't get it. That is, unless we can develop a technology with a much better EROEI than what we have now. With a very fast energy return on investment, we could free the world's energy system from its dependence on fossil fuels. That is, unfortunately, easier said than done. The internet is full of claims of supposed breakthroughs in energy technologies that promise a lot but turn out to be just dreams; or even outright scams. But there may exist an energy technology that can not only promise, but deliver a high EROEI and that is also based on sound physical principles: high altitude wind power.

The basic idea of high altitude wind power is that wind is more intense as you move up in the atmosphere. The average wind speed increases with height according to an exponent (called "Hellman exponent") which is about 1/7. But the energy contained in a mass of air in movement increases with the cube of speed. From a simple calculation, we see that if we could raise a wind turbine to a height of 800 m, we could increase the power obtained of a factor of 8 in comparison to the same turbine near the ground. Even larger increases are possible at higher altitudes, where winds are also much more constant; easing the intermittency problem of conventional wind turbines. But of course, it is impossible to reach such heights with the current wind technology, limited to about 100 m because of the cost and weight of the tower.

This concept has been clear for a long time and has led to several proposals to tap the wind at higher heights. There are two possible ways for doing that: balloons and wings. You can find a recent summary of the progress in this area in the work by Big Gav (2009) published on TOD . As you can see, there are many ideas in this field, many of which exist only as sketches on paper. In many cases, the energy yield of the proposed systems is only a guess while, for those systems based on aerostats, the need of a non renewable resource (helium) is a considerable limit.

However, a few systems have been studied in depth and some tested in practical experiments. Systems based on rotors are possible and systems based on kites, in particular, do show a lot of promise. Saul Griffith of Makani Power has shown some images of a test done with a three rope kite. Wubbo Ockels, (Delft University of technology) has been also experimenting with a kite , this one using a single rope. In this field, the most advanced system seems to be the "kitegen"; a kite system created by Massimo Ippolito of Sequoia Automation , a company based in Italy. Tests on a prototype system have been completed and a first energy producing plant is being built in Northern Italy.

The Kitegen is a simple aerodynamic system: it uses state of the art kites which create lift dynamically by flying at 70-80 m/sec; this is the speed reached by the tips of the blades of a conventional wind turbine. In the simplest configuration (called "stem"), the system uses a single kite linked to a power generator located on the ground. The kite moves like a yo-yo: when it goes up, it generates energy that is transformed into electric power by the generator. When it reaches its maximum height, it is placed in an aerodynamically non-lifting configuration, so that it can be pulled down at a very small energy cost. Two coupled stems would work like a two-cylinder engine, although the "power" phase would last 90% of the time while the "pull back" phase would be much faster. A single stem could have a maximum power of a few MW. Larger plants could be operated in the "carousel" configuration. In this case, the kites fly at a constant height and at much higher altitudes, pulling a generator that moves on a circular rail. For a large carousel system, the maximum power obtained can be calculated as of the order of 1 GW or even higher.

Since the kitegen has been studied in detail, we can use it to make an estimate of the EROEI involved in high altitude wind generation. Before getting to that, however, let's summarize the known data for the current wind technology. A recent LCA study for a conventional 3 MW wind turbine was reported by Nalukowe et al, (2006). They estimate the total energy input for building and maintaining the turbine as ca. 8000 MWh for 20 years of lifetime. Since the total weight of the above ground part of the turbine is about 400 tons, we can estimate an embodied energy requirement of about 20 kWh/kg. The turbine will produce about 160,000 MWh during its lifetime and hence the final EROEI is ca. 20.

Now, let's see the results of a similar approach for the kitegen. According to Massimo Ippolito (data published on www.kitegen.com), the energy required to make a 3 MW rated power kitegen stem is of 40kWh/kg or 40 MWh/ton. The calculation that leads to this value takes into account all the requirements in terms of the materials needed: steel for the structure, copper for power lines, neodimium and boron for the magnets, machining, transportation, building, etcetera. This value includes also the energy costs involved with having workers at the plant and for the periodic substitution of cables and kites over a 30 year lifespan.

We see that the kitegen requires more energy per kg than a conventional wind turbine; this is expected because it is a more sophisticated machine. But the stem is much lighter: we are talking of about 30 tons in total for a 3MW plant. So, we can estimate the total energy requirement as 30 tons*40 MWh/ton= 1200 MWh. Assuming 5000 hours per year of operation at maximum power, the plant could produce approximately 15,000 MWh per year, or 450,000 MWh in 30 years. The final result is an EROEI = 375 (!!). If we assume a 20 year lifespan, the estimate should be reduced, but it remains large. For larger kitegen plants of the carousel type it would be possible to reach higher heights, tap into stronger winds and increase even more the EROEI. This calculation is valid for the specific case of the kitegen system, but other proposed systems based on kites or rotors would probably be able to attain similar large EROEIs.

Of course, these values have to be taken with a lot of caution, but this calculation should be enough to show us the enormous potential of high altitude wind power. EROEIs higher than 100, perhaps even much higher, bring us back to the golden age of cheap and abundant fossil fuels, without all the troubles and problems that fossil fuels brought. A further advantage of high altitude wind is that plants can be placed almost anywhere; another is that we can obtain a nearly constant output for most of the time (Archer and Caldeira, 2009). Although the cost of energy storage would not be completely eliminated, it would be much reduced. With high altitude wind, we might really have the kind of energy "too cheap to meter" that was prophesied in the optimistic 1950s. Not only we could have cheap energy, but we could also have it fast. Consider a conventional wind turbine, with an EROEI of 20 over a 20 years lifetime. During this period, the energy generated could be used to build 20 more turbines; an average of one per year. A kitegen, with an EROEI > 200 and the same lifespan, could be the "seed" for hundreds more kitegens, an average of more than one per month. With such a high EROEI, high altitude wind energy wouldn't need fossil fuels as energy subsidy. It could grow by itself so fast that it could replace fossil sources well before we arrive to the last drop. That would also ease the climate problem by rapidly reducing the emissions of greenhouse gases from fossil fuels.

Now, of course, all this should be considered still a dream until it is tested and verified. But, at least, it is a dream that has some solid basis in physics and engineering. So, assuming that the promise of low cost and high EROEI can be really fulfilled, we should still remember that the earth is a limited system. So what are the ultimate limits of high altitude wind power?

It is estimated that about 2% of the Sun's energy that arrives on the earth's surface is transformed into wind energy. The atmosphere is not very efficient as a thermal engine, but there is so much energy from the sun that even a mere 2% is a huge amount in comparison to our needs. The total energy stored in form of winds is estimated as of the order of 2000 TW (Hurley 2009) or perhaps higher according to other estimates. In comparison, the total primary energy generated by humans corresponds to an average of just about 16 TW. So, there is no doubt that wind energy is abundant: according to a 2005 study by Archer and Jacobson, already at 80 meters of height there is enough energy in the atmosphere that it could be exploited by means of the conventional wind technologies to provide a total amount corresponding to the present production. But there is much more energy at higher altitudes and we need to exploit just a few percent of it to be able to produce enough for our current needs.

One problem could be the effect of high altitude kites or rotors on the atmospheric wind circulation. This question has been examined by Archer and Caldeira (2009) by means of climate models. The results are that tapping high altitude winds would reduce precipitation. Also, it would have a cooling effect and could affect climate. The problem would be minimal (around 0.1% reduction in precipitation) for amounts of energy tapped corresponding to our present demand. But this effect does pose a limit to the technology. It may not be advisable to use high altitude wind power for generating more than a maximum of around ten times the present production. It is still a huge amount of energy available for free and generating a very small impact on the earth's ecosystems. It could even be further increased, indirectly, by using wind energy to manufacture photovoltaic panels or other kinds of solar plants. In the end, we shouldn't be surprised of these perspectives. After all, as we said, we are surrounded by huge amounts of energy and if we find a way to exploit it, well, why not?

From these data, we could be tempted to see high altitude wind power as a nearly limitless energy technology. But that would be a mistake. Energy production is not static - it goes with the economy and if the economy is powered by a source of cheap and abundant energy it tends to grow exponentially. Exponential growth is treacherously misleading: we could find ourselves bumping into the ceiling of high altitude winds much sooner than we would expect.

But there is a much more serious problem in the fact that energy is not the only parameter that affects the economy. Abundance of something is not abundance of everything. Abundant electric power doesn't necessarily translate into abundant food, although electricity can surely be used in agriculture in place of fossil fuels. That our problem is not just energy is confirmed by the models developed for the "Limits to Growth" series (Meadows 2004). The models can be run for scenarios that assume abundant (or even infinite) energy available, but the result is that the economic system collapses because of the strain on the environment and on agriculture generated by a combination of overpopulation and pollution. To avoid collapse, we need to stabilize both the economy and the population at a stationary level. Even so, the gradual depletion of mineral ores will make us depending on more and more energy if we want to keep the flux of mineral commodities at the present level (Diederen 2008, Bardi, 2008). So, even with abundant energy, we'll still need to recycle materials and reuse what we manufacture.

So, even with abundant energy we still need to come to terms with the fact that the earth is a limited system. However, high altitude wind power offers us a hope of a future of relative abundance, even of prosperity, if we'll be able to keep the economy and the population stable and avoid overexploiting our agricultural and mineral resources.

Acknowledgement: the author thanks Mr. Massimo Ippolito for his comments and input for this paper.

Note: the author is not financially linked to Kitegen Research S.r.l., the company which is developing the kitegen system described in the present article. He has, however, a small financial interest in "Wind Operations Worldwide" (WOW) which is formed of a group of of small investors who intend to finance the development of high altitude wind power, and in particular of the kitegen system.

References

Archer, C. L., and Jacobson, M.Z., 2005, "Evaluation of global wind power"
Archer, C. L. and Caldeira, K, 2009, "Global assessment of high altitude wind power"
Bardi, U,, 2008, "The universal mining machine"
Big Gav, 2008, "Alternative Wind Power Experiments - SkySails and Airborne Wind Turbines"
Diederen A., 2008 , "Minerals scarcity: A call for managed austerity and the elements of hope"
Hall, C and Lambert, J. G., 2009 (accessed) "The balloon diagram and your future"
Hurley, B. 2009, "How much wind energy is there?" "How much wind energy is there?"
Meadows, D. Randers, J, and Meadows D., 2004 "The Limits to Growth, the 30 years update", # ISBN 1-931498-58-X,
Nalukowe, B. B., Liu J., Damien, W., Lukawski, T., 2006, "Life Cycle Assessment of a Wind Turbine"
REN21, 2009, , "Renewables: global status report"
WNA (World Nuclear Association) 2009, "World Nuclear News 2009."

Encircling the peak of world oil production - an evaluation

Euan Mearns — Mon, 06 Jul 2009 10:02:52 -0400

In a recent post Nate brought to our attention the work of Richard Duncan and Walter Youngquist published in 1999 in a paper called Encircling the Peak of World Oil Production. In 2007 I performed a simple analysis of the reliability of their forecasts for 26 countries (out of 42 country forecasts that were published) that were checked against what had actually come to pass as documented in the BP statistical review of world energy. The results are shown above. The sum of the differences is -7 years which on average is -0.3 years per country.

At the ASPO conference in Houston, October 2007, I gave a presentation on Saudi Oil reserves and a production forecast that was born out of several posts by Stuart Staniford, myself and others which are linked at the end of this article. In my talk (which can be found here on the ASPO server) I presented the forecast shown below and afterwards an elderly gentleman who I did not know at that time, was keen to show me a paper that he and Richard Duncan had published some 8 years earlier that was titled "Encircling the peak of World Oil Production". The gentleman, who I would later learn was Walter Youngquist wanted to show me that their forecast for peak Saudi oil production was 2011, the same date which I had determined from a rather different approach.

On my way home, sitting on the plane sipping the first of many G&Ts I read the paper and realised that the reliability of Duncan and Younquist's forecasts could be tested. Eight years had passed since their forecasts were made and it was possible to verify their forecasts with what had actually come to pass. I just happened to have a copy of the 2007 BP statistical review on my lap top and so I set to work.

Duncan and Youngquist list 42 countries representing 98% of global production in Table 1. Of those, 8 countries were already past peak at the time the paper was written and a further 5 countries were forecast to peak some time after 2007 (the year I first looked at this data), those being Brazil, Iraq, Kuwait, Saudi Arabia and the UAE. A further 3 countries are not listed by BP leaving a group of 26 countries that were forecast to peak between 1999 and 2007. I have just updated this exercise using the 2009 statistical review.

I compared Duncan and Youngquists's forecast date with actual peak dates for individual countries. The distribution of these differences are shown in the chart up top. Once I had sorted the data I realised the most significant point was the rough normal distribution and that countries that had been "overestimated" were balanced by countries where an "underestimate" had been made. Summing the differences yields a value of -7 years when averaged for the 26 countries yields -0.3 years or - 4 months per country forecast. Weighting the countries for annual production reduces this bias further. This is a remarkable achievement. Their methodology is as follows:

The software ("tool") used for the conclusions expressed in this paper, we have termed the "World Oil Forecasting Program" which consists of two distinct, stand-alone models for each nation.

The Numeric Forecasting Model

The first model ("N model") is quantitative, using production data and mathematics on a translated coordinate system to produce an intermediate "helper" forecast for each nation. This, the so-called "guide" forecast ("G forecast"), is a purely mechanical prediction of future production. In some examples, the G forecast can provide useful information about the shape of future oil production by providing a lower boundary on the estimated ultimate recovery (EUR) and the probable shape of the future production curve. However, in other circumstances, it is not useful, as in the situation of the OPEC production quota-limited countries. The N model produces the G forecast, the best forecast we are able to make based solely on historic production data, and mathematics. Data are from British Petroleum (1968-1997) and Campbell (1991). Details are in Duncan (1996).

The guide forecast is just one of many items of information that may be used in the second model portion of the World Oil Forecasting Program.

The Heuristic Forecasting Model

By definition, "heuristic" denotes a method of solving a problem for which no algorithm exists. It involves trial and error, as in iteration. In this discussion heuristic knowledge indicates "soft," "qualitative," or "judgmental" knowledge. Although judgmental knowledge is lacking in the Numeric model, it is crucial for oil forecasting in the heuristic model ("H model"). The H model provides the user with a powerful interface for oil forecasting, chief of which is a three-curve graph for each nation with years 1960 to 2040 on the x axis, and production on the y axis (Fig. 1. Curve 1 shows the historic data from 1960 through 1996 —a crucial reference for forecasting. Curve 2 shows the guide forecast (previously discussed) and is useful as the lower bound curve. Curves 1 and 2 are important forecasting aids, but they are only the beginning.

Curve 3 also displays the historic data from 1960 through 1996, but this time the data serve as a base for a new and better forecast 1997 through 2040. A so-called graphical input device (GID) makes it easy to enter and run different trial forecasts. After each trial run, a different estimated ultimate recovery (EUR) value is displayed so, after making several runs, the user can select an upper-bound curve for each nation. Thus, now confined by lower and upper curves, and further modified by judgmental input, the user extends the most recent production trend seamlessly into the curve extending through the year 2040, providing what we termed the "judgmental" forecast (J forecast) of future oil production, one nation at a time. Details of the heuristic model are in Duncan (1997).

In our 42-nation study, we also have grouped the nations into seven regions (Figs. 2-8 and Table 2), and made a world summary (Fig. 1 and Table 1), which are the output of the heuristic model."

Anyone who has ever attempted to forecast oil or gas production will know that the minute the forecast is published you think of something you missed or a better way to do it. It is not an easy task working with numerous, often poorly constrained variables. Duncan and Younquist did make some mistakes, notably Qatar where I imagine they underestimated natural gas liquid production from the North Field and Tunisia where they anticipated a second peak in 2009, that did materialise in 2007 but failed to exceed the earlier peak of 1980. The important thing is that the errors are not biased.

To the 5 countries forecast to peak beyond 2008 that are listed above we have to add Angola, Qatar and China which set records in 2008 and which may yet have a future peak date This on-going uncertainty is not incorporated in the analysis of Duncan and Younquist's forecasts where the difference recorded is that between their forecast dates and 2008.

Duncan and Youngquist forecast that world oil production would peak at 30.64 Gb/ annum in 2007 translating to 83.95 mmbpd. According to BP, 2007 production was 81.44 mmbpd that was exceeded by 81.82 mmbpd in 2008. It is of course premature to call 2008 as peak year although I am increasingly skeptical that the 2008 production will ever be exceed. If Duncan and Youngquist's unbiased accuracy follows through to Brazil and the 4 big gulf producers - Iraq, Kuwait, Saudi Arabia and the UAE, then this will underpin their 2007 peak oil forecast, reinforcing the view that 2008 saw the passing of peak oil.

Duncan and Younquist told us 10 years ago that peak oil will be buried in a bumpy plateau and that a number of years must pass before it will be evident from declining production that peak has indeed passed. The exact timing is unimportant. The important thing is the knowledge that we are within the plateau and that some scientists do understand the above and below ground factors leading to peak and that their warnings of decline past peak and its consequences should not be ignored.

For new readers, here is a list of Oil Drum Articles on Saudi Arabia and Ghawar as of August 2007.

by Stuart Staniford

Saudi Arabia and Gas Prices

Depletion Levels in Ghawar

The Status of North Ghawar

Further Saudi Arabia Discussions

Water in the Gas Tank

A Nosedive Toward the Desert

Saudi Arabian oil declines 8% in 2006

by Euan Mearns

Ghawar reserves update and revisions (1)

GHAWAR: an estimate of remaining oil reserves and production decline (Part 2 - results)

GHAWAR: an estimate of remaining oil reserves and production decline (Part 1 - background and methodology)

Saudi production laid bare

Saudi Arabia and that $1000 bet

by Heading Out

Simple mathematics - The Saudi reserves, GOSPs and water injection

Of Oil Supply trains and a thought on Ain Dar

by Ace

Updated World Oil Forecasts, including Saudi Arabia

Saudi Arabia's Reserve "Depletion Rates" provide Strong Evidence to Support Total Reserves of 175 Gb with only 65 Gb Remaining

Further Evidence of Saudi Arabia's Oil Production Decline

Alcatraz: the TOD-ASPO gathering

Ugo Bardi — Wed, 01 Jul 2009 10:03:35 -0400

Nate Hagens gives his presentation at the "Peak Summit" in Alcatraz. 114 slides in 45 minutes for what may be a true world record in information concentration.

The joint TOD-ASPO summit in Alcatraz, Italy, is over. It was held on the 27-28 June 2009, with the participation of more than fifty people that came mainly from Europe, but also from the US and even from Australia. The participants exchanged views on such subjects as resource depletion, oil and gas, energy security, climate change, complexity, the collapse of the Roman Empire, economic trends, and how to catch monkeys (the last item as part of Nate Hagens talk).

The idea of the summit was to do something more informal and more friendly than the standard ASPO conference. The idea was also to get together people who, so far, had only managed to speak to each other via the internet. It worked: the meeting was very lively, interesting and participated.

The success of the meeting was also helped by the friendly atmosphere and the good food (and good wine) provided by the staff of the "Libera Università di Alcatraz", located between Perugia and Gubbio, among hills and forest in the heart of Italy.

The meeting was jointly organized by Ugo Bardi and Rembrandt Koppelaar, with much help from other people. As soon as possible, we'll see to make the presentations available on line. More than one of the participants said that we should do it again next year. Maybe that could be done, we'll see.

The financial return on energy invested

Euan Mearns — Tue, 23 Jun 2009 10:41:16 -0400

Global GDP data from the USDA. Primary energy data and energy prices from the BP statistical reveiw of world energy 2009.

Global GDP has grown steadily and continuously since WWII, in step with a growing global population and primary energy consumption (see below). Oil shocks have caused recessions compensated by higher energy prices that have bolstered global GDP at time of recession in the non-energy economy.

A number of recent posts on The Oil Drum have explored the relationship between energy and the economy. Francois Cellier provided an overview of links between energy consumption and GDP on a per capita basis. This post will expand on the work of Francois taking a somewhat different approach. In a guest post, Ian Schindler provided an overview of the Ayres-Warr model of economic production which I found easier to read and understand than the original Ayres-Warr paper. Ian made some valuable points about the role of energy efficiency in promoting higher energy prices and higher energy production. David Murphy looked at the relationship between oil prices and rates of oil price change in relation to US GDP and growth whilst drawing attention to the view that the current recession was in part caused by high oil prices.

In this post I want to explore further links between energy consumption, GDP and energy prices. But first a quick note on data limitations.

GDP data are taken from the US Department of Agriculture who provide historic data for all countries dating from 1969 based in 2005 $US (table titled: GDP Shares by Country and Region Historical).

Energy data and prices are taken from the 2009 BP statistical review of world energy. Primary energy consumption = coal+oil+natural gas+nuclear+hydro, all re-based in millions of tonnes oil equivalent (mmtoe). A $ value is attached to total primary energy consumption using the historic oil price data provided by BP which are based in 2009 $US. Clearly coal, natural gas and other energy sources should not be priced as if they were oil so this is a gross simplification. It would be a major task to provide true energy costs since there are huge regional variations in the price of coal and natural gas. Using the oil price provides an approximation that likely over estimates the real price.

Furthermore, using raw energy prices does not provide the full cost of energy to society since much of the energy consumed is processed and costs society significantly more; for example gasoline and electricity, and this will lead to an under estimation of real costs.

These two major sources of error will therefore to a degree cancel each other and this imperfect exercise does I believe provide some interesting trends that are useful in conceptualising the role of energy in the global economy.

Energy consumption and GDP

Figure 1 shows how global GDP has marched upwards since 1969 in lock step with global energy consumption. This trend also correlates with growing global population and in simple terms global economic activity has grown with growing population, a larger percentage of the global population participating in economic activity and all of this requires a growing amount of energy use.

Figure 1 Correlation between global GDP and primary energy consumption in millions tonnes oil equivalent (mmtoe). Primary energy = coal+oil+gas+nuclear+hydro; data from the 2009 BP statistical review of world energy. Global GDP data from the USDA, "GDP Shares by Country and Region Historical". FRoEI = Financial return on Energy Invested (see below for further explanation). Click charts to enlarge.

The trend is not linear owing to two factors:

1 Energy efficiency gains
2 Phantom GDP (which is discussed below)

The energy - GDP trends for individual countries (Figure 2) are also affected by the energy embedded in imported / exported manufactured goods.

The apparent growth in GDP/TOE from $3199 in 1969 to $4393 in 2008 may be attributed to efficiency gains and phantom GDP.

Energy - GDP national trends

The simple picture of looking at energy and GDP on a global scale (Figure 1) masks significant complexity at national scales. The GDP - energy trends are plotted for a number of key countries and federations in Figure 2 which shows vast disparities between countries. For example, China appears to be using over 4 times the amount of energy as Japan to produce similar GDP.

Figure 2 GDP - energy trajectories for key countries and federations. Europe = 25 countries making up W and E Europe, some small countries excluded. Data sources as before.

The trends are influenced by population size and demographics; the type of economy; trade balances; endowments of natural resources including food production; the % of population involved in economic activity; climate; global power position etc.

Indutrialising China is on an energy intense trajectory whilst the "post-industrial" mature economies of Europe and the USA appear to be on energy efficient trajectories. This, however, is oversimplified. The flattening of the European and US trends introduces the possibility that GDP may be generated without increasing energy use. To an extent energy efficiency may allow this to happen (Figure 3). However, the mature economies benefit from generating GDP from imported goods, which has also caused growth in unsustainable trade imbalances (Figure 3). The energy embedded in these goods should rightly be added to the importing countries and deducted from the exporting countries to present a true picture. This is averaged out in the global view. The mature economies also benefit from phantom GDP which is described below.

Figure 3 GDP - energy trend for Europe illustrating conceptually how the trend may flatten by the action of energy efficiency, energy embedded in imported goods and from phantom GDP.

Phantom GDP

Phantom GDP as the name implies does not actually exist. It is generated from trading the assets of other countries; trading financial instruments that have no intrinsic value; unmetered inflation; trading on artificial asset values generated from unregulated and unsustainable fractional banking; and GDP generated from unsustainable levels of unsecured debt etc. Phantom GDP may lead to real GDP since the profits produced may be used to purchase goods and services.

Energy cost and GDP

With global GDP, energy consumption and energy price data available, it is worthwhile trying to combine these to further explore the relationship between GDP and energy. The significant limitations of this exercise are discussed above, but the data trends produced are I believe worthy of consideration.

A $US value has been attached to primary energy consumption by multiplying total primary energy in mmtoe by the annual average oil price (WTI). This sum was then deducted from total GDP to produce an estimate for global non-energy GDP and the result is plotted in Figure 4.

Figure 4 The fractional energy cost of GDP. Global GDP data from the USDA. Primary energy data and energy prices from the BP statistical reveiw of world energy 2009.

Whilst global GDP has shown near linear growth since 1969, the negative impact of high energy prices on the non-energy economy is clearly shown for the three oil shocks (1973, 1979 and 2008). This exercise also affords the opportunity to plot the ratio of total GDP over total energy cost which I have called the Financial Return on Energy Invested (FRoEI) (Figure 5).

Figure 5 FRoEI estimate for global primary energy consumption, 1969 to 2008.

One thing that struck me from doing this was that the FRoEI figures are of similar magnitude and range to ERoEI data. The second oil shock of 1979 caused FRoEI to fall from 10 to 5 and a major recession followed. Since then, FRoEI grew rather steadily to 1998 where values over 30 were once again attained. Since then the ratio has declined registering a fall from 8 in 2007 to 6 in 2008.

The future

As others have pointed out, energy costs and the oil price are limited by the size of the global economy. For example Francois pointed out that $590 / bbl was the theoretical upper limit for the price of oil and that the practical limit was more likely less than $200 / bbl. The average oil price in 2008 was $97 / bbl. Figure 4 shows empirically how rising energy prices flatten growth in the non-energy economy until eventually a negative growth situation is reached. It is tempting therefore to believe that around $100 / bbl may the upper limit for the current configuration of the global economy since energy costs higher than this will push the non-energy part of the economy into recession (Figure 4) which has a corrective influence on energy demand and price. Price volatility affords the opportunity for brief excursions over $100.

A crucial question that follows from this is what energy supplies (fossil and other fuels) can be accessed for $100 / bbl? With reports that finding and development costs for oil are running close to $80 per barrel, it seems that we are approaching the point where new fossil fuel supplies may be too expensive for our economies to bear. I am intrigued by the fact that ERoEI and FRoEI values lower than 7 may represent threshold values for industrial civilistation.

We are not yet at the point of peak fossil fuel supply though we are likely close to peak oil supply and since oil is the most convenient of the fossil fuels to use this is likely to exert a destabalising influence. When fossil fuel supplies do begin to fall, the only way that GDP can genuinely grow is through energy efficiency. As Ian Schindler pointed out, energy efficiency will facilitate higher energy prices and thus energy efficiency will promote higher GDP/ mmtoe, higher mmtoe produced and higher prices.

This may enable the global population and economy to grow beyond the date of peak fossil fuel supplies for a while at least? Herein lies one of the greatest paradoxes and threats to the human race. Improving energy efficiency is arguably a major part of our salvation from fossil fuel energy decline but this will merely allow population to grow to higher unsustainable levels. In arguing for energy efficiency measures one must therefore also argue for measures to ration energy use and population management. What chance in a world obsessed with extending life expectancy, reducing mortality rates and averse to birth control?

End note added 21st June
I was reminded about the paper by Hall, Balogh and Murphy (pdf from TOD server) who deal with similar issues to to those dealt with here for the USA. In particular, their Figure 1 (below) provides in greater detail the % of US GDP spent on energy and this provides an opportunity to compare with the somewhat cruder approach adopted in this post.

The 1981 peak from Hall et al of 14% translates to FRoEI = 7. The 1998 trough of 6% translates to FRoEI = 17. And the 2008 peak (estimated by Hall et al) of 11% translates to FRoEI = 9.

The comparability is open to debate. Both data sets I believe need to incorporate energy embedded in imported goods.

Could $30/bbl Oil Happen Before New Year’s Eve?

Rune Likvern — Thu, 18 Jun 2009 09:45:06 -0400

In this post last month, I described how the recent storage build might serve as a good proxy for describing a well supplied oil market. I also presented data suggesting that actual physical oil consumption may have been running 2 - 3 Mb/d beneath supplies.

In this post, I will present further evidence that oil markets have for some time been well supplied. Furthermore, it appears to me that both the run up last summer and the more recent run up in oil prices bear the hallmarks of an oil market now being heavily influenced by speculative forces.

The chart above shows how IEA (The International Energy Agency) have estimated total supply (blue line) and total demand (red line) in their monthly OMR’s (Oil Market Reports). The diagram also shows the development of the oil price (black line).

As a result of these forces, I believe that there is a substantial chance that oil prices may again experience a rapid drop to perhaps as low as $30 barrel before Christmas. One reason I believe this is likely is based on my research with respect to US Oil Fund USO. In February USO held 100 000 WTI contracts (1 contract = 1 000 bbls), but this had dropped to 50 000 WTI contracts recently, as ETF purchasers increasingly switched to Natural Gas. Strange as it may seem, the sale of these USO contracts may be part of what is holding WTI prices up, and natural gas prices down. As the number of WTI contracts reaches a minimum, this influence may turn around the other way.

[break]
DISCLAIMER: The author holds no positions in the oil/energy market that may be affected by the content of this post.

For those of the readers who are interested in learning more about how USO seems to operate, the articles linked below may provide some historical and fresh insights.

A self-propelled pyramid?

United States Oil Fund, redux

From alphaville, quoting Olivier Jakob at Petromatrix, dated May 12th 2009, linked above:

Early in the year, the super contango was for a big part the result of the extravagance of the United States Oil Fund ETF (USO) but their positions have been trimmed closer to the Nymex accountability level and they are now less a factor in the crude oil spread.

The managers of the USO are also running the United States Natural Gas Fund (UNG) and the recent position increases in that ETF are as troubling as what they did on WTI in the first two months of the year. Positions in the UNG have grown 4.5 times since the end of March and the positions held in the UNG could represent as much as 80% of the June Nymex NatGas Open Interest. The four day roll of the ETF starts tomorrow and to avoid the risk of being hanged by the UNG we would already move any NatGas length from June to July. The positions in the UNG are more than 7 times what would be the Nymex accountability limit, the problem is however that they holding the majority of the position in “swaps” rather than Futures.

We do not know the exact nature of those “swaps” and whether they are a swap on the Futures or a monthly pricing swap. The latter would have less of rolling impact than the former but we will assume the former for risk assessment, especially since we sincerely doubt that whoever sold those swaps to the UNG is a charitable organization.

Alphaville, in the post The problem with commodity ETFs, explains the apparently strange price relationship that I mentioned in the introduction, where a sale of ETFs seems to result in a rise in prices of a commodity, and the purchase seems result in a fall in prices. This seems to be related to the fact that ETFs, because their market positions are so large, cannot hold their entire positions in commodity contracts. Instead, they hold a majority of their position on over-the-counter swaps. Changes in these positions behave differently than one would expect.

Let us continue with global oil supplies.

Figure 01: The diagram illustrates the world’s supplies of all liquid energy (stacked columns against the right y-axis, which is not zero scaled) as presented by EIA IPM (EIA International Petroleum Monthly) for June 2009. A 12 MMA (12 Month Moving Average; black dots connected by black line) has been added to smooth the swings. Further the price development for oil (monthly averages for Brent spot) yellow dots connected by black line plotted against the left y-axis.

World total oil supplies have been running flat since 2004, and the recent OPEC quota cutbacks have not come into full effect as of March 2009. As will be illustrated with diagrams later in his post, the reduction in oil supplies has been less than the reduction in demand/consumption from OECD alone.

Figure 02: The diagram shows total petroleum consumption within OECD from January 2000 till February 2009 with blue lines and a 12 MMA is added (black line) to smooth the data plotted against the left y-axis, which is not zero scaled. The oil price developments are added as a red line plotted against the right y-axis.

First of all, it seems like oil consumption within the OECD area will become affected, that is consumption will stop growing and show signs of decline, as oil prices reach US$60 - 70/Bbl and higher. This gives an indication of the OECD economies’ resilience to oil price growth. Increased oil prices will at some point lead to a decline in consumption. The data suggests that OECD economies are able to absorb some price increases when these are growing.

From February 2008 to February 2009, oil consumption within OECD declined by approximately 2 Mb/d, which is close to the reduction in global supplies, and the decline is expected to continue, as illustrated by the diagram below.

Figure 03: The diagram shows the development of US total petroleum consumption from January 2000 till early June 2009 using a blue line, and a 12 MMA is added (red line) to smooth the data plotted against the left y-axis, which is not zero scaled. The oil price developments are added as a black line plotted against the right y-axis.

The diagram also illustrates that US total petroleum consumption continues to decline.

Figure 04: The diagram shows the development of US gasoline consumption US from January 2000 till early June 2009 using a blue line, and a 12 MMA is added (red line) to smooth the data plotted against the left y-axis, which is not zero scaled. The gasoline price developments are added as a black line plotted against the right y-axis.

The diagram above also illustrates that changes in consumer behavior earlier started as gasoline prices rose above US$2,60 - 2,70/Gal. In other words, petroleum products need to be affordable for consumers. Too wild price increases will affect demand and consumers are in general in worse shape than a while ago.

Figure 05: The chart above shows how IEA (The International Energy Agency) have estimated total supply (blue line) and total demand (red line) in their monthly OMR’s (Oil Market Reports). The diagram also shows the development of the oil price (black line).

Based upon IEA’s estimates it seems like the oil price growth through 2007 was mainly demand driven (demand was larger than supply). Note also the unusual steep climb in oil prices in recent weeks.

IEA’s estimates also show that during all of 2008, global oil supplies were running higher than demand. If the laws of demand and supply still worked, these should not have been the cause of a growth in the oil price. Instead, it seemed like the laws of demand and supply had been suspended, and oil prices continued to defy gravity until early July 2008, when gravity again caught up with prices.

Presently it looks like some of the speculative demand (money) is shifting from oil to another related commodity ….natural gas.

The above and the continued decline in consumption, higher than “normal” storage levels (within OECD), weak economies suggests an oil market that will remain “loose” for some time

What are the signs that oil prices might continue to weaken?

Unemployment is still rising
House prices are still declining
Credit lines are or have been reduced
The Dow Jones is presently down close to 4 000 points relative to this time 2008
The dollar has lost some strength (which may explain some of the price growth)
Many big economies are still contracting

Households’ purchasing power and equities are now, in general, considerably weakened compared to last year at this time. This does not sound like an economic environment that is ready to absorb huge price rises in oil and energy.

Figure 06: The chart above shows how the present contango continues to flatten.

Furthermore, some analysts using Elliot wave theory suggest that Oil will fall more than 30 %. In addition, even the IEA thinks speculators were part of the oil spike.

Because of the various issues described in this post and in previous posts, I believe that the Christmas present from the oil market may to households arrive early this year.