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BBC:

Further fuel protests threatened

Fuel Lobby made the announcement as the price of unleaded petrol rose to more than ?1 a litre in parts of the UK as a result of Hurricane Katrina.

The group says all UK refineries will be blocked from 0600 BST on 14 September unless price cuts are made.

http://news.bbc.co.uk/1/hi/uk/4221296.stm

This is ridiculous i cant afford to drive my car for pleasure as this price is crippling me

Here we go again

http://www.washingtonmonthly.com/archiv ... 006421.php

May 26, 2005
PEAK OIL....PART 1....Praktike draws our attention to the chart below, an excerpt from last year's "Outlook for Energy" from the good folks at ExxonMobil. What does it all mean?

Basically, it's Exxon's view of how much oil the world can produce on a daily basis. In particular, the green area at the bottom shows how much oil the non-OPEC world can produce: about 44 million barrels per day right now, peaking in a few years at 47 million bpd and then declining after that.

The interesting thing about this is not the prediction that non-OPEC oil production will peak shortly. That's fairly common knowledge. The interesting thing is that ExxonMobil is saying it. This is an indication that the idea of a world production peak is no longer the province of small band of "peak oil" cranks. It's gone mainstream.

Now look at the rest of the chart: if Exxon is right, it means that practically all future production increases have to come from OPEC countries. That includes crude oil, NGLs (natural gas liquids, which can be refined into stuff like butane and propane), and condensates (gas-based liquids that are similar to crude oil). If you count everything, by 2010 OPEC production needs to increase by 4 million bpd and by 2015 it needs to increase by about 11 million bpd.

But that's actually pretty optimistic. Not only does it assume that non-OPEC production hasn't already peaked, it's also based on the notion that future growth in oil consumption will slow to 1.5% per year (compared to about 2% per year right now), partly due to the use of more energy efficient cars. If, instead, oil use continues to rise at its current rate, OPEC production will need to increase by more like 8 million bpd in 2010 and 19 million bpd in 2015.

Which leaves us with a disturbing question: can OPEC do it? If we accept the fact that the rest of the world has reached (or very nearly reached) its production peak, it would be nice to know if OPEC is up to the job of continuing to pump out ever increasing amounts of crude. And since Saudi Arabia is where most of this extra OPEC oil is supposed to come from, it would be really nice to know if Saudi Arabia can increase its production by 5 or 10 million bpd in the next decade or so. Because if it turns out they've peaked too, we're screwed.

Oddly enough, nobody can answer this, because Saudi Arabia and the rest of the OPEC countries are extremely secretive about their operations. So even though they say they can increase production for the next decade or two, there are reasons to be skeptical about this.

That's it for now. I just want to pique your interest in this question, not try to answer it. I'll have more to say about this later.


PEAK OIL....PART 2....When we last left the subject of peak oil, ExxonMobil had conceded that within a few years the daily production rate of oil in non-OPEC countries will peak and then begin an irreversible decline. I'm going to say more about that subject shortly, but before I do, I want to back up a bit and answer a basic question: Everyone agrees that there's plenty of oil still left in the ground, so why should production rates peak in the near future at all? What's up?

I'm a sucker for historical documents, so here's where it all started: in Figure 21 of "Nuclear Energy and the Fossil Fuels," a paper delivered by Shell geologist M. King Hubbert in 1956. Using basic principles of oil extraction, he predicted that oil production in the continental United States would reach its highest point in 1970, after about half the total oil in the ground had been extracted. He turned out to be right: U.S. oil production peaked in December 1970 and has been falling off ever since. Today the continental United States produces about 50% of the daily volume that it did in 1970.

But why? This doesn't make sense if you think of oil fields as underground swimming pools with straws in them. After all, you can suck soda out of a glass at the same rate until you get to the very bottom. Why not with oil?

The answer is that oil fields aren't like underground swimming pools. They're more like underground formations of styrofoam, with oil hidden in the nooks and crannies. Oil wells are drilled into pockets in the styrofoam and keep producing oil until they run dry.

Normally, the biggest, best oil pockets are put into production first. These pockets contain clean, high-pressure oil, and when newly drilled wells are uncapped, that clean, high-pressure oil shoots to the surface in vast quantities.

Over time, though, the pressure decreases. Gas caps develop above the oil that makes extraction more difficult. Underground water begins to contaminate the oil pocket, a problem made worse by water that's deliberately injected into the reservoir in an effort to keep pressure from declining too much. The result is that not only does the oil flow to the surface more slowly, but the oil that gets there is increasingly made up of water. In old wells, the "water cut" can account for as much as 50% or more of the extracted fluid.

New wells are drilled to make up for this, of course, but the oil that's left is usually in smaller, lower quality pockets that age even faster than the original pockets. At some point, new wells just can't make up for the falling production in the older wells, and the daily production rate of the entire field goes into decline. Advanced technology can be used to reinvigorate old wells and slow down the decline, but nothing can stop it. In fact, if you try to overproduce a field, all you do is hasten its ultimate demise.

In 1956 this was theory. Today it's a routinely accepted factor in oil field maintenance, one that applies to all oil fields. Prudhoe Bay, for example, peaked in 1989. The North Sea peaked in 1999. China's massive Daqing field probably peaked a year or two ago. They all still have plenty of oil left, but their daily production rates are getting lower and lower every year.

There's more to the story, of course. What about new discoveries to make up for declines in older fields? What about OPEC's fields? Are they in decline too? What about oil shale in Colorado, tar sands in Canada, and heavy oil in Venezuela? And won't new technology keep old fields producing at higher rates than we expect anyway?


PEAK OIL....PART 3....Our story so far: There may be lots of oil still left in the ground, but oil in the ground doesn't do us any good: what matters is whether it can be pumped to the surface as fast as we use it. The news on that score is discouraging: it turns out that the daily production rate of oil in non-OPEC countries has pretty much reached its peak, and what's more, this peaking is a result of geology, not economics. Every oil field peaks and then declines as it ages.

So if non-OPEC oil fields have reached their peak, but demand keeps rising, where is additional oil going to come from in the future? The only honest answer is to admit that opinions on this differ ? boy howdy, do they differ ? and then provide a rundown of the four main growth possibilities. Here they are in sketch form:


OPEC. OPEC nations are extremely secretive about their actual capabilities, but they claim they can increase oil production from today's 30 million barrels per day to 50 or even 60 million bpd over the next couple of decades. However, Bush energy advisor Matt Simmons recently published Twilight in the Desert, an exhaustive examination of this claim, and he concludes that Saudi Arabia in particular, and OPEC in general, are probably already close to their peak output.

My own take is that Simmons is probably a little too pessimistic, but basically more right than wrong. It's true that (a) the Middle East has been pretty thoroughly explored, (b) there have been no new finds of any magnitude for over two decades, and (c) the giant fields currently in production are old and will begin declining before long. On the other hand, there's definitely some amount of new oil there, and new technology will help extend the life of older fields. My guess is that Saudi Arabia can increase its production by 3-4 million bpd, and OPEC as a whole can eventually increase production by around 8-10 million bpd for a little while. But that's about it.


Frontier oil. This term generally refers to polar oil and deepwater oil, both of which are substantial sources of oil-bearing formations that are known to exist but haven't been developed yet. This lack of development means it's impossible to do much more than guess here, so here's my guess: both of these sources will produce some new oil, but not as much as everyone hopes. We've already had experience with several similar "hot prospects" during the 90s, and they've mostly been disappointments: Kazakhstan has produced a lot of oil, but the Gulf of Mexico and the Caspian Sea have been busts. Future development is likely to follow the same mixed pattern.

In addition, environmental concerns will hobble polar oil regardless of how promising it is, and even in the best case it will be a minimum of a decade before any source of frontier oil starts producing in quantity. By then it will be able to do nothing more than make up for accelerating declines in conventional fields.


Nonconventional oil. There are three major sources of nonconventional oil. The first is oil sands, found mostly in Canada. There's plenty of oil there, but it takes tons (literally) of natural gas to extract it, a serious problem since natural gas itself is becoming rarer and more expensive to obtain. Canadian production is likely to increase, but even the Canadians themselves only predict an increase of around 2 million bpd over the next decade or two.

Second is super-heavy oil, mainly from Venezuela. This is expensive, low-quality oil that's difficult to extract. It's unlikely that current production rates can be increased by more than about 1-2 million bpd, if that.

Third is oil shale, found mostly in Colorado. This has been a disappointment in the past because there's still no efficient way to extract the oil from the shale. Not only does it require lots of energy, but it also requires vast quantities of water, a resource that's already in short supply in the American West.


Advanced technology. No question about it: 3-D seismic imaging has revolutionized exploration and sophisticated MRC wells can extract oil more efficiently from aging fields than either old-style vertical wells or more advanced horizontal wells. Other new technologies have made an impact as well.

However, there are no miracle breakthroughs on the horizon, and we have a pretty good idea of what existing advanced technology can do: it can reduce the decline of old fields, but it can't prevent them from peaking in the first place. There's no magic bullet here.


At this point I'll repeat what I said above: this is all guesswork. Any of these four things could turn out either much better or much worse than I expect. What's more, there's an obvious answer to overly pessimistic assessments: they've been consistently wrong in the past. We've always found more oil when we needed it.

But have we? For devotees of the past, here's something that's not guesswork ? and it's what convinces me that we should be taking peak oil seriously. The chart on the right shows discovery of new oil sources, and it's been declining like clockwork for four consecutive decades. Will market forces and technology save us in the future? Maybe. But prices skyrocketed during the 70s and the rate of new discoveries fell anyway. Likewise, new technology has been put to ever increasing use during the past two decades, and that didn't stop the decline in new discoveries either. Nothing has stopped the decline, probably because there's just not that much new oil left to be found.

In the end, it's just as naive to expect that everything will turn out well as to expect that everything will turn out badly. Some newly discovered fields will be gushers and some will be dry holes. Ditto for new technologies. The mix of success and failure in the future will probably look a lot like it has in the past, and that mix has produced a steady decrease in the amount of new oil we've discovered. There's no question that the prospect of permanently higher prices will spur both new development and increased use of technology, but when you put everything together, both good and bad, my guess is that new discoveries will continue to decline and oil production will reach its peak in about 10 years. At that point, new discoveries will no longer be big enough to offset declines in older fields.

Of course, I could be wrong. Instead of 2015, oil might peak this year, as Ken Deffeyes thinks, or it might not peak until 2035, as Peter Odell thinks. Market forces and technology breakthroughs really are unpredictable.

But guess what? After all this, it turns out that the precise date of the oil peak probably isn't the most important issue facing us anyway. What matters more is a related problem that's very definitely facing us right away: we've run out of spare pumping capacity.


PEAK OIL....PART 4....When I last left you hanging, I had spent a few thousand words trying to convince you of several things. First, that the daily rate of oil production in the non-OPEC world will peak within a few years and then begin an irreversible decline. Second, that this is the result of geology and can't really be stopped. And third, that there isn't much oil left elsewhere in the world to make up for this. As a result, global oil production will probably hit a peak around 2015 and then begin a long, slow decline. That date is just my own guess, of course: other analysts provide estimates for the production peak ranging from 2005 to 2035 or beyond.

Does the precise date of peak oil really matter? To some extent, of course it does: if production has already peaked, the world economy is in big trouble and there's no time to prepare for it. If it peaks in 30 years, there are plenty of things we can do in the meantime. Even ten years is better than nothing.

But in another sense it doesn't, because something has already happened that's equally important: the world has run out of spare pumping capacity. That's the subject of this post, but before I dive into it I want to take a brief detour and investigate some decidedly non-mainstream oil economics. Don't worry: it will all make sense before I'm done.



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Most economists believe that the price of oil has only a moderate effect on the world economy, and as near as I can tell this is true. But it's a different story if you take a look at changes in the price of oil.

The chart on the right, courtesy of GlobalSecurity.org, plots both oil prices (in constant 2000 dollars) and economic growth over the past 35 years. I've extended it to 2005, and you'll see that over that time there have been four periods in which oil prices have spiked suddenly (i.e., risen more than 50% in less than 18 months): 1973, 1979-81, 1989-90, and 1999-2000.

There have also been four periods of recession during that time: 1974-75, 1980-82 (a double dip), 1991, and 2001. This can't be written off as a coincidence. Oil shocks don't necessarily cause recessions, but they pretty clearly play a role, either in touching them off or in adding fuel to the fire. The conclusion from this data is pretty obvious: although the world economy can chug along reasonably well with either high oil prices or low oil prices, it grinds to a halt when oil prices spike up suddenly, producing widespread recession and stubbornly high unemployment rates. For those thrown out of work, this is bad news indeed.

So what causes oil prices to spike upward?



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Supply and demand, of course. In particular, the first three oil shocks were caused by sudden drops in supply: the OPEC embargo caused the first oil shock, the Iranian revolution caused the second, and the Gulf War caused the third.

All three could have been worse than they were. The 1973 embargo was short lived and Iran actively worked to stabilize oil prices by increasing its production. In 1979, when Iranian production plummeted during their revolution, Saudi Arabia stepped in and increased production. In 1990, when Iraqi and Kuwaiti production fell, Saudi Arabia stepped in again and maxed out their production levels. Without those interventions, especially Saudi Arabia's, these shocks would have been even more devastating than they were.

But it's not only during oil shocks that Saudi Arabia's enormous production capability has come in handy. In fact, ever since 1980 Saudi Arabia has used its spare capacity on a routine basis to smooth out bumps in global oil supply, keeping the world economy on a relatively even keel. For a quarter of a century, Saudi Arabia has been the key swing producer on the world oil stage.

Unfortunately, the days of Saudi intervention are over. Current world demand for oil is about 84 million barrels per day, and current world production capacity is about....84 million barrels per day. As Amy Myers Jaffe points out, OPEC's spare capacity ? and thus the world's ? has dropped nearly to zero in the past few years. Everyone is pumping full out.

This is why prices are increasing now even though there's been no oil shock. It's not because of a sudden disruption, it's because demand is now bumping up against supply. What's more, this is a permanent condition: new capacity takes years to develop, so even in the best case supply will only barely keep up with future growth in demand. There's not much margin for error.

In the short term, this doesn't mean much: prices will most likely continue to bounce around based on inventory levels and seasonal/regional demand. In the longer term, however, prices are likely to rise steadily and become far more sensitive to supply problems. With Saudi Arabia now pumping at very close to its maximum capacity, even a moderate oil shock somewhere in the world will make $50 per barrel oil seem like a bargain.

This potential for instability is far more dangerous than mere expensive oil. The economy can adjust to high oil prices, and to the extent that high prices reduce consumption and spur innovation, they can even be positively beneficial. But as we saw above, wildly fluctuating oil prices are a different, and far more damaging, story. What's worse, future oil shocks are likely to be fairly frequent since it will take only a small disruption to remove a few million barrels a day from the world market. Venezuela's production dropped by 2 million bpd for a few months in 2003 just because their oil workers went on strike, for example. With Saudi Arabia already pumping at capacity, we can't expect them to bail us out when stuff like this happens in the future.

So that's the predicament we're in. Since supply disruptions are a predictable part of the oil business, and there's no one left to make up for future shortfalls, the result is likely to be oil that's at $50 a barrel one day and $200 a barrel the next ? bringing recession and unemployment in its wake. We'd all like to see the world consume less oil, I think, but reducing consumption via frequent and nasty global recessions is not what any of us had in mind.

This is what peak oil has brought us to. The actual peak may happen this year or it may not happen for a couple of decades, but just the fact that we're close means that we've already hit the point in the curve where spare capacity is a luxury of the past. The result will be increasing global instability caused by a turbulent economy held permanent hostage to terrorists, unstable dictatorships, resource wars, and natural disasters.

There's not a lot we can do about this in the short term, but a halfway sensible energy policy could do a lot of good in the medium and long term.


PEAK OIL....PART 5....The coming peak in oil production, which is likely to lead to permanently expensive oil and increasingly frequent oil shocks, isn't the end of civilization as we know it. Honest. But it is likely to be fairly painful. What can we do about it?

To begin with, we need to be careful not to conflate "oil policy" with "energy policy." They're two different things. Nuclear energy, for example, has good points (no global warming) and bad points (Three Mile Island), but in the near term it's not a replacement for oil. It's a way of generating electricity, and as such it's mostly a replacement for coal and natural gas, the two things that currently produce most of our electrical power.

Oil, on the other hand, is mostly used in two other sectors: transportation (cars, trucks, and planes) and industry (for example, as lubricants and chemical feedstock). Any plan to deal with future oil shocks has to focus on those two areas. What's more, since (a) transportation is by far the biggest consumer of oil and (b) there aren't very many good substitutes for industrial use of oil, our focus needs to be pretty squarely on transportation.

In the short term, our options for dealing with a future of expensive and unstable oil supplies are limited. One thing we can do, and for which George Bush deserves credit, is to continue filling up the Strategic Petroleum Reserve, something he's gotten some flak for recently in the face of rising gasoline prices. But he's right to ignore the critics: higher prices are not an emergency, and that's what the SPR is for. If terrorists manage to blow up Ras Tanura and put it out of commission for a few months, we'll all be happy the SPR is topped up.

The medium and long term are different stories, though, and this is where we can make a real difference. Serious solutions take years or decades to implement, though, which means the time to start working on them is now.



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One thing for which George Bush decidedly doesn't deserve any credit is his energy plan, which does almost nothing to address our future oil problems. It's laughably unserious, little more than a transparent payoff to his campaign contributors that's derided by practically everyone on both the right and the left. We can do better.

Any sensible oil plan has to be built on four fundamental pillars. This is a subject that would need a five-part series of its own to do it justice, but here's the basic outline:


Increased production. This is the part that liberals hate, but there's no way around it. Like it or not, our economy really does depend on oil and there are no immediate substitutes. We're just not going to become a nation of bicycle riders and small farmers either now or in the future.

Increasing production mainly means investing more in "frontier oil" and ? in the U.S. ? drilling in ANWR. As Jared Diamond points out in Collapse, it's perfectly possible to drill for oil in environmentally sensitive ways, and the fact is that Prudhoe Bay has been relatively trouble free for such a large-scale operation. ANWR is unlikely to be any more damaging to the environment than Prudhoe if it's done right, and it deserves to be on the table as part of a comprehensive energy deal. On a related note, building more refineries is probably going to be part of the deal too.


Conservation. This is the part that conservatives hate. Getting people to use less oil means getting them to drive less, and that means gas taxes and carbon taxes. It also means mass transit, as well as things like government programs to buy up old gas guzzlers. These are going to be hard pills to swallow for anti-tax conservatives, but it's not possible to address our oil problem solely on the supply side. We have to reduce demand as well.


Increased efficiency. There's no question that cars can be made considerably more efficient than they are today. HybridCenter.org has details about hybrid cars, but non-hybrid cars have lots of room for improvement too. Raising CAFE gas mileage standards and bringing SUVs under the CAFE umbrella would go a long way toward making cars more efficient, but this will require conservatives to get over their aversion to industry regulation and it will require liberals to get buy-in from auto unions, which have opposed higher CAFE standards in the past.


Alternative fuels. Biofuels look promising as partial replacements for oil (see "Independence Way" from last July's Monthly for more details), and some additional federal support could be helpful here. Natural gas is a clean alternative to oil, although it's also a fossil fuel and has its own problems. (For starters, no one seems to want an LNG port in their neighborhood, and that's what it's going to take to significantly increase our use of gas.)

In the longer term, hydrogen fuel cells are promising ? although it's worth keeping in mind that fuel cells are storage devices, not power sources. Their energy has to come from electrical plants, and realistically that means more power generation from both nuclear and coal ? along with increased use of clean coal technology and carbon sequestration. That's expensive stuff, but probably worth it. No matter what we do, we have to get used to the idea that energy is going to be a lot more expensive in the future than it is today.


None of these four things will solve our oil problem by itself, but each one can solve a part of it. Put them all together and you have a plan that could start to have a serious effect within 5-10 years. But it will take some compromise on all sides. I'm not a fan of drilling in ANWR, but if it were part of a larger deal that included things like higher CAFE standards, an incremental gas tax, and serious support for alternative fuel research, I'd swallow hard and support it.

There's more, of course, including the larger non-oil energy picture as well as the environmental impact of all this stuff, with global warming at the top of the list. Maybe I'll address those later. In the meantime, comments are open.



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If you want to read more about peak oil, here are a few places to go:


The Association for the Study of Peak Oil (ASPO) is the granddaddy of peak oil groups. Their site isn't the easiest to navigate, but it's chock full of the latest news. They also have a monthly newsletter.


HubbertPeak.com is another source crammed full of peak oil reports and studies.


Energy Bulletin is a terrific compilation of peak oil reports from the mainstream news media.


Here are a couple of blogs that track peak oil news daily:


The Oil Drum


Land of Black Gold


For what it's worth, there are some hyper-alarmist sites out there as well (the code phrases to watch out for are things like "end of civilization" and "massive die-offs"). I'd avoid them. Peak oil is a serious problem, but the free market really will work the way economists say it does, by reducing demand and spurring innovation as prices rise. If we combine that with some common sense planning for the future, we can go a long way toward making this problem manageable. Both our economy and our national security depend on it.


PEAK OIL....CODA....One final word about peak oil. During my series last week I never reproduced an actual chart of peak oil, so here's one now. The chart below is from former oil company executive Colin Campbell, and his method of constructing it is simple: he estimates oil production from every possible source, including future production from deepwater and polar oil, and adds them all up. The result is his prediction that global oil production will peak in about 2007 and then start declining.

Now, I happen to think Campbell is overly pessimistic, but that's not really why I reproduced his chart. Instead, take a look at oil consumption from 1979 to 1982, after the Iranian revolution caused crude oil prices to double. As you can see, world oil consumption dropped by about 15%.

There are two ways you can interpret this 15% decline:


Market forces work! Prices went up, consumption went down, and the world didn't end. It is possible to reduce oil consumption after all.


Holy cow! Sure, oil consumption went down, but it took the longest and deepest recession since World War II to accomplish it.


Both of these interpretations are correct. High prices do cause consumption to decrease, and if prices spike again consumption will decrease just as it did in 1979. If consumption were cut 15% today, it would reduce our oil use by about 13 million barrels per day, restoring our spare capacity to normal levels and probably putting off peak oil until 2020 or 2030. This would go a long way toward giving us the time we need to work on alternatives.

On the other hand, it would be nice if we could figure out a way to accomplish this without a deep and painful worldwide recession. (Or maybe a series of them.) That's the point of supporting a serious energy policy: in return for some moderate pain today it substantially reduces the likelihood of massive pain in the future.

This is why I think peak oil is a serious problem: at some point consumption has to drop, and I'd rather not see it forced on us by economic upheaval.

However, it's also why I'm not a hyper-alarmist: as bad as the 1980-82 recession was, it wasn't the end of civilization as we know it. If that's what it takes to get us to reduce oil consumption and get serious about developing alternative energy sources, we'll live through it. And I have little doubt that given 20 or 30 years of motivated effort, we will develop alternatives.

An awful lot of peak oil theorists seem skeptical that market forces have any effect at all, and as a result they predict worldwide calamity as soon as production peaks. History doesn't back that up. Eventually, high prices will cause consumption to drop and will spur both new exploration and development of new energy technologies. If we twiddle our thumbs and wait for a recession to force this to happen, that's not a future to look forward to. But it's not a future of bicycles and truck farms either

http://www.washingtonmonthly.com/archives/individual/2005_06/006421.php wrote:An awful lot of peak oil theorists seem skeptical that market forces have any effect at all, and as a result they predict worldwide calamity as soon as production peaks. History doesn't back that up

PowerSwitchJames wrote:I've started to have a word with them at fuellobby.co.uk in their forum. Not that that will stop it but it might get some of them thinking.

• The percentage of total tax take on a litre of fuel is less now than in the past.
• The value of the total tax take on a litre of fuel is less now than in the past.