Friday, 6 June 2014

Fracking: 'the party's over': Peak Oil now forecast for 2020

It seems that "Peak Oil" had died a death:
Futures Forum: "Fossil Fuel Euphoria"... and peak oil

Two years ago, there was much talk about the shale-oil boom and the end of worrying about the supply of oil 'peaking', thanks to new fracking technologies. 

But others were not so sure:

Big Oil, Big Government, and Big Hypocrisy

Kevin Carson | March 18th, 2012

In a speech last week Newt Gingrich exulted that the estimated Bakken shale oil reserves in North Dakota had recently been revised upward to 24 billion barrels. So much, he said in a tone of patronizing dismissal, for the “Peak Oil doomsayers.” These remarks by Gingrich, who also says he’d lower gasoline prices to $2.50 a gallon as president, were just the latest version of Sarah Palin’s “Drill, Baby, Drill” theme of “domestic oil (or natural gas, or coal) production” as the solution for high energy prices.

What Peak Oil is about is the rate at which those reserves can be extracted, the cost in money and energy of extracting it, and the diminishing size of the net energy returns when the energy cost of extraction is accounted for. The Energy Return on Energy Invested (EROEI) of the predominant sources of fossil fuel energy has been declining steadily since they first started distilling petroleum into gasoline.
The EROEI of the light sweet crude extracted in the early 20th century — the kind of black gold that come a-bubblin’ up when Jed Clampett was shootin’ at some food — was a mind-blowing 100. That is, for every barrel of oil consumed in the process of extracting, processing and distributing the fuel, the net return was ninety-nine barrels of oil. 
The average EROEI on oil extracted today is about 20. The EROEI from the Canadian tar sands is under ten. Anything with an EROEI under three — like corn ethanol — isn’t economically worth the trouble of extracting unless it’s subsidized by the government. Futures Forum: Peak Oil... and EROEI... or Energy Return on Energy Investment

The reason is that oil production is increasingly governed by the same laws Henry George observed in real estate. Because the supply of land is for all intents and purposes fixed, the supply cannot increase in response to demand; its price is governed entirely by the fluctuating rate of competition for the fixed supply at any given time. So the rate of real estate development is governed by the land owners’ estimate at any given time of the relative payoff of selling the land now, versus sitting on it and selling it when the price appreciates. 
That’s exactly what the oil companies were doing with their offshore reserves. You can open up every square mile of offshore waters up to unlimited drilling, and the oil companies will still sit on it and wait to develop it when the price is right. Chapter 2. Henry George’s Property Rights Law: A Modern Land Commons, from the book Money; A Mirror Image of the Economy | The Institute for Economic DemocracyGeorgism - Wikipedia, the free encyclopediaFutures Forum: Economics @ Transition Exeter: A land value tax

The proposed energy policies of Gingrich, Palin and the rest of the “drill baby drill” crowd require enormous levels of government intervention in the economy. You can hardly turn on your TV without seeing examples. The Keystone XL natural gas pipeline couldn’t be built without condemning land through eminent domain in order to acquire the right of way. Oil company trucks serving the Alberta tar sand fields are driving through Lakota land in violation of Lakota law, in order to avoid South Dakota’s per truck fees on heavy-hauling trucks.
Besides that, the more costly and intensive the methods required for fossil fuel extraction, the more harm is typically imposed on the people of surrounding areas. Hydraulic fracturing simply wouldn’t be economically cost-effective if oil companies were fully subject to tort action before local juries for the damage to groundwater caused by the toxic chemical cocktail used in fracking. The same goes for the economic and health damage caused by mountaintop removal, for the people living in the surrounding countryside.
The regulatory state’s environmental standards preempt more stringent common law liability standards, and create a safe harbor for corporate bad actors engaged in creating what is clearly a public or private nuisance. The liability cap for offshore oil spills is just the best-known example of the phenomenon. Futures Forum: "Allowing fracking companies to drill on private land without first requiring a landowner’s permission."... or... "Neighborhood Environmentalism: Toward Democratic Energy"

Center for a Stateless Society » Reports of Peak Oil’s Death Are Somewhat Premature

Yesterday, a report from the International Energy Agency focussed the debate once again on the issue of whether the 'peak oil' event will be happening much sooner:
June:- World needs $48 trillion in investment to meet its energy needs to 2035

Here is a comment from Richard Heinberg 
- who was interviewed recently by Transition Town's Rob Hopkins:
Futures Forum: Peak Oil: 10 Years After 'The Party's Over': an interview with Richard Heinberg

Burst balloons image via danielmohr/flickr. Creative Commons 2.0 license.
The International Energy Agency has just released a new special report called “World Energy Investment Outlook” that should send policy makers screaming and running for the exits—if they are willing to read between the lines and view the report in the context of current financial and geopolitical trends. This is how the press agency UPI begins itssummary
It will require $48 trillion in investments through 2035 to meet the world’s growing energy needs, the International Energy Agency said Tuesday from Paris. IEA Executive Director Maria van der Hoeven said in a statement the reliability and sustainability of future energy supplies depends on a high level of investment. “But this won’t materialize unless there are credible policy frameworks in place as well as stable access to long-term sources of finance,” she said. “Neither of these conditions should be taken for granted.”
Here’s a bit of context missing from the IEA report: the oil industry is actually cutting backon upstream investment. Why? Global oil prices—which, at the current $90 to $110 per barrel range, are at historically high levels—are nevertheless too low to justify tackling ever-more challenging geology. The industry needs an oil price of at least $120 per barrel to fund exploration in the Arctic and in some ultra-deepwater plays. And let us not forget: current interest rates are ultra-low (thanks to the Federal Reserve’s quantitative easing), so marshalling investment capital should be about as easy now as it is ever likely to get. If QE ends and if interest rates rise, the ability of industry and governments to dramatically increase investment in future energy production capacity will wane.
Other items from the report should be equally capable of inducing policy maker freak-out:
The shale bubble’s-a-poppin’. In 2012, the IEA forecast that oil extraction rates from US shale formations (primarily the Bakken in North Dakota and the Eagle Ford in Texas) would continue growing for many years, with America overtaking Saudia Arabia in rate of oil production by 2020 and becoming a net oil exporter by 2030. In its new report, the IEA says US tight oil production will start to decline around 2020. One might almost think the IEA folks have been reading Post Carbon Institute’s analysis of tight oil and shale gas prospects! www.shalebubble.org This is a welcome dose of realism, though the IEA is probably still erring on the side of optimism: our own reading of the data suggests the decline will start sooner and will probably be steep.
Help us, OPEC—you’re our only hope! Here’s how the Wall Street Journal frames its story about the report: “A top energy watchdog said the world will need more Middle Eastern oil in the next decade, as the current U.S. boom wanes. But the International Energy Agency warned that Persian Gulf producers may still fail to fill the gap, risking higher oil prices.” Let’s see, how is OPEC doing these days? Iraq, Syria, and Libya are in turmoil. Iran is languishing under US trade sanctions. OPEC’s petroleum reserves are still ludicrously over-stated. And while the Saudis have made up for declines in old oilfields by bringing new ones on line, they’ve run out of new fields to develop. So it looks as if that risk of higher oil prices is quite a strong one.
A “what-me-worry?” price forecast. Despite all these dire developments, the IEA offers no change from its 2013 oil price forecast (that is, a gradual increase in world petroleum prices to $128 per barrel by 2035). The new report says the oil industry will need to increase its upstream investment over the forecast period by $2 trillion above the IEA’s previous investment forecast. From where is the oil industry supposed to derive that $2 trillion if not from significantly higher prices—higher over the short run, perhaps, than the IEA’s long-range 2035 forecast price of $128 per barrel, and ascending higher still? This price forecast is obviously unreliable, but that’s nothing new. The IEA has been issuing wildly inaccurate price forecasts for the past decade. In fact, if the massive increase in energy investment advised by the IEA is to occur, both electricity and oil are about to become significantly less affordable. For a global economy tightly tied to consumer behavior and markets, and one that is already stagnant or contracting, energy constraints mean one thing and one thing only: hard times.
What about renewables? The IEA forecasts that only 15 percent of the needed $48 trillion will go to renewable energy. All the rest is required just to patch up our current oil-coal-gas energy system so that it doesn’t run into the ditch for lack of fuel. But how much investment would be required if climate change were to be seriously addressed? Most estimates look only at electricity (that is, they gloss over the pivotal and problematic transportation sector) and ignore the question of energy returned on energy invested. Even when we artificially simplify the problem this way, $7.2 trillion spread out over twenty years simply doesn’t cut it. One researcher estimates that investments will have to ramp up to $1.5 to $2.5 trillion per yearIn effect, the IEA is telling us that we don’t have what it takes to sustain our current energy regime, and we’re not likely to invest enough to switch to a different one.
If you look at the trends cited and ignore misleading explicit price forecasts, the IEA’simplicit message is clear: continued oil price stability looks problematic. And with fossil fuel prices high and volatile, governments will likely find it even more difficult to devote increasingly scarce investment capital toward the development of renewable energy capacity.
As you read this report, imagine yourself in the shoes of a high-level policy maker. Wouldn’t you want to start thinking about early retirement?

IEA Says the Party’s Over
Post Carbon Institute: publications: blog

With plenty of comment at the Resilience website:
IEA Says the Party’s Over

And an overview from today's Guardian:

US shale boom is over, energy revolution needed to avert blackouts

Global energy watchdog confirms 'the party's over' - lowers US production projections, demands urgent investment

Posted by Nafeez Ahmed Friday 6 June 2014

UK officials have claimed Britain needs fracking for industry to 'prosper' and 'the economy to grow'. Increasing data challenges these claims. Photograph: Brennan Linsley/AP

I hate to say I told you so, but...

In 2012, the International Energy Agency (IEA) forecast that the US would outpace Saudi Arabia in oil production thanks to the shale boom by 2020, becoming a net exporter by 2030. The forecast was seen by many as decisive evidence of the renewal of the oil age, while informed detractors were at best ignored, at worst ridiculed.

Among my many reports exposing the geological and economic fallacies behind the shale boom narrative are this, this, this and this.

Even here on the Guardian, one headline declared the IEA report shows that "peak oil idea has gone up in flames."

But the IEA's latest assessment has proved the detractors right all along. The agency's World Energy Investment Outlook released this week says that US tight oil production - which draws largely from the Bakken in North Dakota and the Eagle Ford in Texas - will peak around 2020 before declining.

The new analysis puts an end to the '100 year supply' myth widely promulgated by industry, and moves closer to the more sceptical assessment of a US tight oil peak within this decade.

The IEA report says:

"... output from North America plateaus [from around 2020] and then falls back from the mid-2020s onwards."

The shortfall will make the US, and countries in Europe looking to import from America, increasingly dependent on Middle East supplies:

"Yet there is a risk that Middle East investment fails to pick up in time to avert a shortfall in supply, because of an uncertain investment climate in some countries and the priority often given to spending in other areas."

The IEA pointed out that in the wake of the Arab spring, Middle East oil states are feeling the pressure to divert massive oil subsidies which maintain production into more social spending to alleviate instability. If they don't, they could topple.

These countries already pour $800 billion in annual oil revenue into energy subsidies - and if they fail to cover the predicted shortfall due to the post-peak fall in US output, by 2025 the average cost of a barrel of oil could climb up by $15.

This March, when I broached them about the danger of an imminent oil shock, I was told confidently by a spokesperson at the UK Department for Energy and Climate Change that there was no risk of the lights going out - UK energy policy had it sorted.

Now IEA chief economist Fatih Birol says:

"In Europe we are facing the risk of the lights going off. This is not a joke."

We need $48 trillion of new investment to keep the lights on - and it's far from clear that investing in increasingly expensive unconventional oil and gas is going to cut it, without serious impacts on the global economy.

Currently, already, the IEA report reveals that over 80% of oil company investment is going into making up for exhausted fields where production is in decline. The agency also calls to ramp up investments in renewables and increasing efficiency, along with regulatory reform to incentivise investments, as part of the package.

While the fossil fuel empire is crumbling, the renewable energy sector has received 60% of total investment in power plants from 2000 to 2012.

Those who keep banking on fossil fuels to solve our energy and economic woes should take stock - they ain't the answer. The time to ween well off was yesterday.

Dr. Nafeez Ahmed is an international security journalist and academic. He is the author of A User's Guide to the Crisis of Civilization: And How to Save It

US shale boom is over, energy revolution needed to avert blackouts | Nafeez Ahmed | Environment | theguardian.com

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