Reporting gross oil production to hide the collapse of net oil production

[shiny!]

Re: Reporting gross oil production to hide the collapse of net oil production

As someone that has went without using oil for transportation or using very little in proportion to the miles traveled, I am not particularly concerned. I think people underestimate the amount of conservation possible. People will just have to adapt. Look at Cuba after the collapse of support from the Soviet Union. It wasn't good, but it wasn't apocalyptic either. People made do with what they had.

Can't compare a temperate climate like Cuba with a cold climate like Maine, or an extremely hot climate like Phoenix, where heating and cooling are a matter of life and death. Our energy needs are much greater. Also, from talking to Cubans who escaped to the U.S., it sounds like conditions there are pretty awful, with severe restrictions on consumables.

I just wish it would happen sooner than later while supplies are greater to force people to make meaningful changes now.

Totally agree!

[BadJuju]

Re: Reporting gross oil production to hide the collapse of net oil production

Can't compare a temperate climate like Cuba with a cold climate like Maine, or an extremely hot climate like Phoenix, where heating and cooling are a matter of life and death. Our energy needs are much greater. Also, from talking to Cubans who escaped to the U.S., it sounds like conditions there are pretty awful, with severe restrictions on consumables.



Totally agree!

Large swathes of the US are temperate with most of the country's population residing in those temperate areas. And when I said adaptation, I really meant it. Areas that are not located in good spots are not going to do well at all. They are going to suffer tremendously, but that's what you get when you build in an extreme places like a desert. It was a silly thing to do in the first place. Anyway, I used Cuba as an example of a country that did not fall apart simply because it had largely lost access to fossil fuels. The US isn't really in a position where it will lose access to those things because it produces much of its own fossil fuels with the exception of liquid petroleum; however, even that is changing.

[bpwoods]

Re: Reporting gross oil production to hide the collapse of net oil production

Cuba did OK. But it may not have been smooth sailing. I wish them well for their future.

Conservation is one key area, though as the lower commentator rightly points out, it depends on where you are (geographically) and the level of your economomic activity, and how many liters of liquid hydrocarbon fuels per day, each person (on average) is consuming. The US and CAN use approx 11 l/p/d. Europe is in range 5 - 7 l/p/d. Chindia are both a little less than 2 l/p/d (as of 2011). Sub-Sahara Africa (apart from SA) are basket cases. Could the US and CAN reduce usage - sure but its a political matter so is unlikely. Europe is a different matter. Folk here can be persuaded to be more careful (and fuel and carbon taxes are relatively high). But its still a tricky political call. Oil folk say (with the usual caveats) that a crunch may emerge in 2015. But if the global economy is still in recession mode, perhaps demand will fall back. This is a genuine 'wait-and-see' situation.

[EJ]

Re: Reporting gross oil production to hide the collapse of net oil production

A few simple rules of thumb:

1. The liquid fossil fuels endowment is finite. The cheaply located and produced oil has been exploited first because it is the most profitable to produce. As the supply of cheaply located and produced oil falls, E&P costs rise. These are passed on in the form of higher prices to consumers. If there is not sufficient demand for the more expensively produced oil at the prices that will yield a profit to producers, that oil will not be produced.

2. Rising prices will ration demand. What will be the demand for diesel at $50 per gallon in 20 years? Zero for passenger cars used for commuting, some for rail and ocean freight, some for fueling equipment used for mining shale rock, and so on. Altogether a fraction of demand today.

3. Rising prices will make currently uneconomical (unprofitable) oil E&P profitable, such as using nuclear energy to refine shale rock or disill water out of the oil that exists in highly depleted oil fields. As prices rise a wider range of alternative fuels production will become profitable. These will therefore be financed. However, these additions to supply will not increase the liquid fuels supply in excess of demand and lower price because the supply of cheaply located and produced oil will continue to fall and E&P costs will keep rising.

I think it's this last point that most people have trouble getting their heads around. All our lives the oil E&P cycle has been rising demand, rising price, increased E&P investment, increased supply, falling price, rising demand, and so on. But as we saw in the wake of the 2008 and 2009 recession, prices did not collapse to $20 as they did during the much smaller recession of 2001 and quickly increased to $100 even though most of the world remains in or close to recession and demand is lower than after the end of the previous recession. Partly that was due to dollar depreciation, partly due to oil supply characteristics.

In other words, PCO means we are on the wrong side of the supply/demand curve for liquid fuels from now til kingdom come, starting in 1998 by my estimate, six years before the actual plateau in global production.

There are 5.8 x 10⁶ BTUs of energy in a barrel of oil.

At $100 per barrel, burning $1 of oil delivers 58,000 BTU.

If a $100 barrel of oil can be produced via a method that consumes twice as much energy per barrel as the energy in the resulting barrel of oil (11.6 × 10⁶ BTU) but total input costs -- labor, transport, energy, etc. -- were, less than 1/2 per BTU of the resulting oil or, say, 120,000 BTU per $1, that oil would be produced because producing that oil would be profitable even though there was a 2x net energy loss involved.

[jabberwocky]

Re: Reporting gross oil production to hide the collapse of net oil production

A few simple rules of thumb:

1.

The liquid fossil fuels endowment is finite. The cheaply located and produced oil has been exploited first because it is the most profitable to produce

. As the supply of cheaply located and produced oil falls, E&P costs rise. These are passed on in the form of higher prices to consumers. If there is not sufficient demand for the more expensively produced oil at the prices that will yield a profit to producers, that oil will not be produced.

2. Rising prices will ration demand. What will be the demand for diesel at $50 per gallon in 20 years? Zero for passenger cars used for commuting, some for rail and ocean freight, some for fueling equipment used for mining shale rock, and so on. Altogether a fraction of demand today.

3. Rising prices will make currently uneconomical (unprofitable) oil E&P profitable, such as using nuclear energy to refine shale rock or disill water out of the oil that exists in highly depleted oil fields. As prices rise a wider range of alternative fuels production will become profitable. These will therefore be financed. However, these additions to supply will not increase the liquid fuels supply in excess of demand and lower price because the supply of cheaply located and produced oil will continue to fall and E&P costs will keep rising.

I think it's this last point that most people have trouble getting their heads around. All our lives the oil E&P cycle has been rising demand, rising price, increased E&P investment, increased supply, falling price, rising demand, and so on. But as we saw in the wake of the 2008 and 2009 recession, prices did not collapse to $20 as they did during the much smaller recession of 2001 and quickly increased to $100 even though most of the world remains in or close to recession and demand is lower than after the end of the previous recession. Partly that was due to dollar depreciation, partly due to oil supply characteristics.

In other words, PCO means we are on the wrong side of the supply/demand curve for liquid fuels from now til kingdom come, starting in 1998 by my estimate, six years before the actual plateau in global production.

With respect, I do not think that this is a supportable statement. The oil that was found and exploited to begin with, was largely found by serendipity. Uses for it developed after the fact, as an "emergent" property, as quantities were found to be increasingly large, and became useful in ways not anticipated, gradually displacing coal in some uses (solving Jevon's problem), and creating entirely new economies. I find the description of what, in retrospect, could be called "high-grading", to be an ex-post narrative fallacy. I believe ERoEI to be a useful concept (as in, "all models are wrong, some are useful"), but I can , as always, imagine that I have this totally wrong.

[BadJuju]

Re: Reporting gross oil production to hide the collapse of net oil production

Cuba did OK. But it may not have been smooth sailing. I wish them well for their future.

Conservation is one key area, though as the lower commentator rightly points out, it depends on where you are (geographically) and the level of your economomic activity, and how many liters of liquid hydrocarbon fuels per day, each person (on average) is consuming. The US and CAN use approx 11 l/p/d. Europe is in range 5 - 7 l/p/d. Chindia are both a little less than 2 l/p/d (as of 2011). Sub-Sahara Africa (apart from SA) are basket cases. Could the US and CAN reduce usage - sure but its a political matter so is unlikely. Europe is a different matter. Folk here can be persuaded to be more careful (and fuel and carbon taxes are relatively high). But its still a tricky political call. Oil folk say (with the usual caveats) that a crunch may emerge in 2015. But if the global economy is still in recession mode, perhaps demand will fall back. This is a genuine 'wait-and-see' situation.

I think the only persuasion people will heed is the almighty dollar. Still, I feel comfortable with my own ability to handle it since it is how I've lived for years now. Others will have to adapt much more quickly when they could have been making adjustments. The amount of conspicuous consumption I see with regards to oil is insane. Americans could greatly cut their oil consumption if they wanted to, but they don't want to unless they have to.

[gwynedd1]

Re: Reporting gross oil production to hide the collapse of net oil production

Oil is like meat. Doesn't matter how much energy was lost on converting feed into meat.

[EJ]

Re: Reporting gross oil production to hide the collapse of net oil production

With respect, I do not think that this is a supportable statement. The oil that was found and exploited to begin with, was largely found by serendipity. Uses for it developed after the fact, as an "emergent" property, as quantities were found to be increasingly large, and became useful in ways not anticipated, gradually displacing coal in some uses (solving Jevon's problem), and creating entirely new economies. I find the description of what, in retrospect, could be called "high-grading", to be an ex-post narrative fallacy. I believe ERoEI to be a useful concept (as in, "all models are wrong, some are useful"), but I can , as always, imagine that I have this totally wrong.

See this post above.

For a readable history of the oil industry I recommend "The Prize: The Epic Quest for Oil, Money & Power" by Daniel Yergin.

The first use of petroleum was to replace wale oil in lamps. As supply quickly outpaced demand, price plummeted. Gasoline was poured into rivers as a useless byproduct of kerosene refining.

Then the internal combustion engine and cars.

This does not change the fact that the most accessible oil was produced first. Necessarily so because the E&P technology was so primitive. The technology kept improving as the easily produced oil was consumed first, to get at less accessible oil but at equal or lower E&P costs.

One of our members GRG55 with a lifetime of expertise in the oil industry pointed out to us here years ago that the most important development in the global oil industry over the past 20 years has been cheap computer power.

Satellites collect geological data that used to require days of expensive Cray computer time that by the mid 1990s required only a few workstations. As a result, a good news/bad news story. The goods news is that there are far fewer dry wells drilled and that means more profits for oil companies and more oil for us at prices we can afford. The bad news: We know where all the oil is. There isn't any oil but the oil we know about.

The planet with respect to oil is like a Civil War battlefield that's been poured over by collectors for 100 years. At first they collected items by eyesight and shovels. After decades of increasingly more sophisticated metal detectors it's safe to say there there is nothing more to find.

Global oil markets figured this out by 1998. Technological efficiencies are after 100 years of improvements, and especially the accelerated rate of technological improvement over the past decade, are producing less and less E&P cost efficiency.

I strongly recommend that members who are interested in PCO go back over GRG55's posts. They are a goldmine of informed commentary.

[Raz]

Re: Reporting gross oil production to hide the collapse of net oil production

see this post above.

For a readable history of the oil industry i recommend "the prize: The epic quest for oil, money & power" by daniel yergin.

The first use of petroleum was to replace wale oil in lamps. As supply quickly outpaced demand, price plummeted. Gasoline was poured into rivers as a useless byproduct of kerosene refining.

Then the internal combustion engine and cars.

This does not change the fact that the most accessible oil was produced first. Necessarily so because the e&p technology was so primitive. The technology kept improving as the easily produced oil was consumed first, to get at less accessible oil but at equal or lower e&p costs.

One of our members grg55 with a lifetime of expertise in the oil industry pointed out to us here years ago that the most important development in the global oil industry over the past 20 years has been cheap computer power.

Satellites collect geological data that used to require days of expensive cray computer time that by the mid 1990s required only a few workstations. As a result, a good news/bad news story. The goods news is that there are far fewer dry wells drilled and that means more profits for oil companies and more oil for us at prices we can afford. the bad news: we know where all the oil is. there isn't any oil but the oil we know about.

the planet with respect to oil is like a civil war battlefield that's been poured over by collectors for 100 years. At first they collected items by eyesight and shovels. After decades of increasingly more sophisticated metal detectors it's safe to say there there is nothing more to find.

Global oil markets figured this out by 1998. Technological efficiencies are after 100 years of improvements, and especially the accelerated rate of technological improvement over the past decade, are producing less and less e&p cost efficiency.

i strongly recommend that members who are interested in pco go back over grg55's posts. They are a goldmine of informed commentary.

+1.

[bpwoods]

Re: Reporting gross oil production to hide the collapse of net oil production

"Oil is like meat." Well ... meat I can eat, but oil? Olive Oil might be tasty. Though Popeye might not approve!

Loss of energy (as frictional heat) is not completely unavoidable. Just need to get your head around a few things. The quandry with liquid fosssil fuels is they pack one might energy punch is a neat and very usable form. We do have lots of coal which is close to oil in energy terms (but not if we ramp up use geometrically).

[jabberwocky]

Re: Reporting gross oil production to hide the collapse of net oil production

As I hoped would have been clear from my comment, I have some familiarity with the history. You responded in a fashion that made my point, albeit, it seems, inadvertantly, without addressing the critical issue. The advent of the oil age, I would suggest, correlates with the universal acceptance of the "growth" model, and the remarkable growth in population, trade, etc. If, as we, most of us, here, believe this is at a plateauing point, then one would expect diminished "growth potential" (whatever that is), and increasing friction. I believe that you have talked past my point, without addressing it, but I suspect that I am wrong.
Phase shifts, transitions, etc., are generally charactorized by increasing instability (read "volatility"), and unpredictable outcomes.

A society that produced wealth, and prospered thus, has been altered into one that produces factitious wealth "effects", and consumes it's real wealth with gusto. This is analogous to the self-esteem boom that was intened to induce merit, rather than the contrary.
Fred Sheehan writes about this better than I could ever.
http://www.addthis.com/bookmark.php?v=250&pub=safehaven

I am somewhat surprised at the change in your perspective, but, perhaps that is, as an immigrant to America, because I see the rend in the societal fabric more starkly than you seem to

[duanef]

Re: Reporting gross oil production to hide the collapse of net oil production

The OP appears to conflate the "shale oil revolution" (a byproduct of fracking) with the much different production characteristics of shale oil discussed in the wiki or what EJ calls pyrolysis. Are we talking about shaking the earth to introduce fissures, horizontal drilling and high pressure fluids, or are we talking about cooking rocks?

Fracking technologies have indeed produced substantial and unforeseen increases in liquids production. The "revolution" idea extrapolates those increases into a feel good frenzy of North American oil independence. Whoa! agree we need slow down there.

Juju it is worth thinking about Cuba. Is Cuba a model for what energy descent looks like? Cuba is poor in comparison to some, but people aren't starving to death and there are services, universities, medical care. Perhaps better to be poor in Cuba than Mexico, for example. It is possible the U.S. embargo has made Cuba an outlier, but OTOH Cuba is free to trade with the rest of the world, when it has something the rest of the world wants.

Frank re: the Norwegian sovereign wealth fund. I think you should take another look. What would Norway look like today if they had just left it all in the ground? In terms of balancing present and future reward I would argue there is no other country that has done a better job of stewardship.

[touchring]

Re: Reporting gross oil production to hide the collapse of net oil production

Can't compare a temperate climate like Cuba with a cold climate like Maine, or an extremely hot climate like Phoenix, where heating and cooling are a matter of life and death. Our energy needs are much greater. Also, from talking to Cubans who escaped to the U.S., it sounds like conditions there are pretty awful, with severe restrictions on consumables.

Totally agree!

When I first went to North China 20 years ago, they didn't have heating in most places, even at below 0F, but people still could work and live.

[Southernguy]

Re: Reporting gross oil production to hide the collapse of net oil production

"Juju it is worth thinking about Cuba. Is Cuba a model for what energy descent looks like? Cuba is poor in comparison to some, but people aren't starving to death and there are services, universities, medical care. Perhaps better to be poor in Cuba than Mexico, for example. It is possible the U.S. embargo has made Cuba an outlier, but OTOH Cuba is free to trade with the rest of the world, when it has something the rest of the world wants."
Yes, I also think Cuba is a model about doing "more with less".
But, of course, Cuba is a socialist country. That means, in concrete terms: All finance, big industry, foreign commerce, big chunk of the land (agricultural, not urban), education, health prevention and treatment, communications (at least most of it, the rest in private associated with the State) are owned and run by the State.
Part of the land, small businesses (cafeterias, restaurants, repair shops, barbers, etc), local taxi transport, and some other things are being privatized in an organized and progressive way.
Politically information is heavily controlled (well more or less as in Uruguay or the US) except that in Cuba there is few access to the internet.
The time after the fall of the Soviet Union was very harsh. They called it "special period" (período especial) meaning a war economy without war. And when I say harsh, it means hunger.
As distribution is very State controlled, and thus egalitarian, the social fabric remained in the essential. However, there was a descent in the moral standing of the population due to the extreme and prolonged misery.
After that, by means of being able to sell Venezuela services (health, education, security; there are no less than 40.000 Cuban specialists, most of them doctors working in Venezuela and the Cuban State collects significant part of their pay) which were in exchange of oil; Cuba was able to grow and the condition of the people is better.
I think the morals of the Cuban history is how a planned society can do much better when conditions are particularly complicated.
In a ways war economies (think Germany, USA, UK) have as far as I know been planned economies. The State being the planner.
When there is no plan and the economy goes down the tubes things get ugly pretty soon. Europe is a show case, and of course I am sure the worse is still far off.
People have a high tolerance for suffering when misery is well distributed. When a few go on living in the middle of the luxury and the most see their standard of living falling sharply expect very ugly things to happen.

[EJ]

Re: Reporting gross oil production to hide the collapse of net oil production

I hope EJ is thinking of a "subgroup" of peak oil researchers as the rest are rather rational. I suspect many of those debating peak oil have no clue what goes on in the E&P side of the Oil Industry and think they can debate the topic.


Oooh, now that is a concept. The metric is valid and as any metric has its limits.

https://pangea.stanford.edu/research...o/publications
https://pangea.stanford.edu/research...em-transitions

http://www.mdpi.com/1996-1073/4/8/1211

http://www.reuters.com/article/2012/...45980520120510

Few more bit of info

http://independentreport.blogspot.co...nt-energy.html

Yes, I am talking about a subgroup. The vast majority of the people I talk to who are involved in the peak oil discussion are sensible and thoughtful.

This Standford transition model uses EROI and assumes an oil price rising from $30/bbl to $50/bbl between 2000 and 2020 when it spikes to $80 and rises to $90 by 2050.

That strikes me as unrealistic considering actual prices:

My observations is that EROI-based transition model work only if you plug in an unrealistic price scenarios.

To properly model the transition the model needs to take into account:

1. The price of oil is set by the marginal cost of production of oil, that is, the cost of the last barrel of oil produced.
2. As the world's oil endowment is consumed in order of the cheapest produced oil first, the marginal cost of oil production will rise for the duration albeit in a ratcheting up process due to the feedback of energy prices into the economy

As oil prices rise, the use of relatively plentiful and thus less expensive per BTU fixed energy generation fuels like coal will be used to manufacture liquid fuels to substitute for crude oil derivatives with a net loss of energy in the process but at a profit.