Original post by Antonio
Turiel from “The
Oil Crash”
Translation By Max Iacono
(translated from a previous
translation to Italian from Spanish by Massimiliano Rupalti. We're not
professional translators, so please, take this into account while
reading it :-) )
Dear Readers,
I begin this post as my
preceding
one ended: with the graph of the forecast for petroleum production
contained in the last annual report of the International Energy
Agency (IEA), referring to its central (or main) scenario on New
Policies. This graph, as earlier mentioned, shows that on a global
level production of crude oil soon will begin its decline. The
forecasts of the IEA contain certain elements which are at the very
least “slightly optimistic”, to not say outright fanciful,
regarding the expected future production from reservoirs yet to be
discovered and developed as well as considerably inflated prospects
regarding non-conventional oil; based on the latter the IAE obtains
a daily production level of 100 million barrels of oil per day (Mb/d)
in 2035 compared to the almost 87 Mb/d in 2011. All of this already
was commented in my last post.
Carlos
de Castro made an interesting comment to this same post about the
correct interpretation of the figures in this scenario. It made me
think of a small exercise, with simple numbers, to demonstrate that
even in the marvelous scenario envisioned for the future by the IEA,
the figures don’t add up. And that even in the best of hypotheses
for the future, we are entering already the stage of petroleum
decline. Let’s have a look:
I took the above graph, and
I brought it to high definition (600 dpi) and measured the relative
height of the bars. Then by a simple rule of 3, I converted the bars
to an equivalent amount of production for each year shown, expressed
in Mb/d. Here are my results:
2000
65.9 65.9 65.9 73.8 74.9 74.9 76.7
2005
70.0 70.0 70.0 79.7 82.0 82.0 83.9
2011
68.2 68.2 68.2 80.2 83.2 84.4 86.2
2015
64.1 68.2 68.2 82.6 86.8 89.3 91.7
2020
56.3 65.3 66.5 82.1 88.0 91.1 94.0
2025
48.0 61.1 65.9 82.1 89.2 93.3 95.8
2030
36.7 56.4 65.3 82.1 90.9 94.6 97.6
2035 25.9 52.2 65.3 83.2 93.3 97.0 100.0
2035 25.9 52.2 65.3 83.2 93.3 97.0 100.0
With
this as my starting point I prepared a continuous graph (a simple
linear extrapolation for the years for which we don’t have data);
the colors approximately correspond to those of the IEA graph:
Let us
recall the various categories: The black
band at the bottom shows the production
of crude oil currently in production (2011). The band
in light blue shows the
production of crude oil reservoirs
which are known already but which are not being exploited
either because of lack of demand or due to excessive production
costs. The band in blue
shows the production of crude oil which should come from reservoirs
yet to be discovered. All the other bands represent
non-conventional oil and imperfect petroleum substitutes. The purple
band represents the production
of liquids from natural gas, the yellow
one comes from the production of
all main non-conventional petroleum except shale oil, the red
band represents
shale oil and the green
one (different from the color used in the IAE report) represents
improvements in refining.
Represented
in continuous form, even if with a linear extrapolation between
consecutive points, one can obtain a more complete idea of the
scenario which the IEA considers the closest to the future course of
events. In particular, the gentle decline in crude oil production
becomes more noticeable.
But
coming back to the comment by Carlos de Castro, this graph obscures a
fundamental fact. We are adding various categories of hydrocarbons
assuming they are equivalent, when in fact, they are not.
Non-conventional oils, (all of them) have lower energy densities per
volume, and roughly 70% that of crude oil. In addition, the
refining improvements refer to the increase in volume of products
derived from the refining of petroleum, and such an increase in
volume obviously does not assume an increase in the energy which is
extracted from the petroleum. This does not mean that the products
refined starting from a barrel of oil contain exactly the same energy
as a barrel of oil, or even less, given losses during the
transformation process. (the
Second Law of Thermodynamics is ever present and operative) In
reality such products contain more energy than that of the original
barrel because their processing uses natural gas for the
hydrogenation of the less saturated hydrocarbons. What obviously
occurs is that the energy of the refined products from a barrel of
oil is equal to the energy of the original barrel plus that of the
natural gas used in refining it. Making these adjustments (non
conventional oils have about 70% of the energy by volume as normal
crude oil(*), the improvements in refining do not increase the energy
of the petroleum), we then obtain the following graph in millions of
barrels of oil equivalents to crude oil per day:
This
is the graph which the IEA should have presented if it had counted
properly, that is, by reporting energy flows, not volumes. As one
easily can see the prospects for an increase in production when
expressed in terms of associated energy are much more meager and less
attractive: We will go from 79.5 Mb/d (now understood as energy
equivalents) in 2011 to 87.5 Mb/d in 2035.
Notwithstanding
all of this the graph still does not tell the whole story given that
it is a graph of gross or total energy that does not tell us how much
energy actually remains available to society once the energy required
for its mere production - the energy required to maintain such energy
flows- is subtracted out.
To do
an estimate of the net energy we need to know the EROEI
(Energy Returned on Energy Invested) of the various sources of
hydrocarbons mixed in with the petroleum. Remembering that the EROEI
is obtained using the following formula:
EROEI
= Te/Ep
Where
Te is the total energy produced by a source and Ep is the energy
required for its production with both taken over the entire usable
lifetime of the source in question. I will assume that given the
elevated number of reservoirs and production systems, that the
overall production system is in dynamic equilibrium and that both Te
as well as Ep can be taken as snapshot values (a simplification which
in reality softens the decline). With this formulation, the net
energy En which an energy source delivers during its useful life (and
if we have many sources at different moments of their useful lives it
is equally valid as a snapshot of the whole) is:
En =
Te - Ep = Te x (1 – 1/EROEI)
We
only need to know the EROEI values for all the various categories in
the graph of the IEA. Coming to know those values is a difficult
task and not exempt from controversies, depending on the methodology
used. I will not present an in-depth discussion of all such values.
I simply will propose a few which appear reasonable to me. Since
the numbers are on the table, anyone can play with them and propose
those changes which appear most reasonable and valid to them, and
thereby obtain one’s own version. It also can be said that this
exercise should have been done by the IEA itself, so as to provide a
clearer idea of what will be the future of the actual availability of
energy to society. (because providing the gross figure which includes
the cost for the implementation and maintenance of the systems of
production for petroleum, is rather deceptive) Here are my own
values; they are all constant over time, which in reality makes the
decline more gentle;
+ For
crude oil presently in production I assume an EREOI value of 20, in
keeping with the most typical estimates. Such a high value has
little impact, given that it subtracts out only about 5% of the net
energy.
+ For
the more expensive crude oil which is not being extracted I assume an
EROEI of 5. Some authors quantify it as even 3 or 2, others 10. The
value of 5 seems to me a reasonable compromise: sufficiently small
to explain that some of these reservoirs could not be developed
economically up to now, but sufficiently large to allow that now,
with higher prices, they can be brought into production. All this
implies a return of net energy about 80% that of the gross energy.
+For
the petroleum which is yet to be discovered I assume an EROEI of 3.
The reservoirs to be discovered are mainly in deep waters, where
typically one has to drill 4 or more dry wells before drilling one
which actually produces petroleum. In addition such oil has rates of
decline which are more rapid than those of petroleum through simple
platforms or on land, which implies having to drill more, or do
horizontal drilling. It also has greater problems of maintenance and
much of it is found in tropical areas where hurricanes can require
periodic shut-downs and also can do damage thereby increasing the
production costs in terms of Ep. Arctic petroleum is also part of
this category and with analogous difficulties. Here the return of
net energy is roughly 66% that of gross energy.
+For
non-conventional petroleum, including shale oil, I assume an EROEI of
2. This category includes mainly bio-fuels with an EROEI of 1 or
less and the shale oils which have an EROEI of 3 or less. This means
that only 50% of the gross energy comes to be utilized as net energy.
Taking
into account all of these values one obtains the following graph:
This
graph too should have been produced by the IEA if it took seriously
its own work and, as you can see, explains a story quite different
from the official one. According to this same graph the net energy
from all petroleum liquids, even according to the highly inflated
future forecast by the IEA, would reach its peak around 2015, with a
maximum value of 79.7 Mb/d in 2035. In short, we would find
ourselves very close to the zenith of net petroleum energy, an
extremely alarming message.
What
would happen if instead of suggesting such inflated estimates as
those of the IEA, we took a little bath in cold realism? It is
difficult for me to do a precise estimate of how the production of
the various categories of liquids assimilated in petroleum will
proceed in reality. (at least for myself who is not a geologist,
although the members of ASPO have good estimates for all of them)
Nonetheless it is rather easy to do a slightly more realistic
approximation regarding the real future of petroleum production. (An
approximation which of course could be discussed, if one wishes).
Here I leave the hypotheses and the numbers so that whomever may wish
to, can repeat the calculations as they prefer.
+According
to the 2010 edition of the annual report by the same IEA and
according to the CEO
of Shell, Peter Voser, the decline of crude oil wells recently in
production is of 5% per year and not of 3.3%, as one would conclude
from the current report. I am rectifying this tendency.
+
Regarding wells that at present are not being exploited, surely not
all will be able to put into production, in part also because the
price per barrel at which it would be convenient to do so, is
excessive for society to be able to pay it, (we already have
said that contrary to what is affirmed by economic orthodoxy, energy
is not just any good and not all prices can be paid by our current
system) and in part because there are no effective methods for
processing this potential production (the most obvious case being
that which we already have commented many times regarding the Manifa
reservoir in Saudi Arabia, whose petroleum has such a high
vanadium content that there isn’t a refinery in the world that can
process it). I believe that the IEA is guilty of excessive optimism
regarding the potential of such sources. Taking all of this into
account, I reduce this quantity by half.
+Regarding
those reservoirs yet to be discovered, it is well known that the
estimates of the IEA assume a pace of discovery which is four times
greater than that of the past 20 years. Add to this also the fact
that in a context of economic instability the tendency of large oil
companies is not to invest further in exploration and development,
but instead invest less. (from 2008 to 2009 investment has fallen by
19% recovering only by a small amount during the following years when
it should have grown enormously to compensate for the growing
difficulties in production. In fact many
oil companies have pulled in their oars and have renounced the
continuing search for more petroleum. Consequently I reduce this
quantity by one quarter of that estimated by the IEA.
+With
respect to the natural gas liquids, only one third of their mass
content contains sufficiently long hydrocarbon chains to allow being
utilized as fuel for present cars, refined as gasoline (but not
diesel, a
fuel which poses many specific challenges). One would have to do
significant modifications to existing gasoline engines so they could
use directly the lighter gasses (the name “natural gas liquids”
is fairly deceptive) that is, the propane and the methane (one also
can synthesize ethanol starting with ethane and use it directly). The
costs of adaptation are not that high but nonetheless require a
certain amount of investment, towards which society is little
predisposed in times of crisis and, moreover, is something only
effective for gasoline engines (whereas in Europe the greater part of
private transport runs on diesel oil and all heavy transport vehicles
throughout the world run on diesel). To be generous I accept that
one third of these natural gas liquids can be used as petroleum
substitutes.
+Regarding
shale oil, we
have indicated already that these estimates are very inflated. I
reduce them by half.
+The
rest of conventional petroleum I leave as is.
With
these premises, the graph of net energy that we obtain is as follows:
The
results are easily visible: The year of the beginning of terminal
decline in net energy is already here. In reality it could be any
year from now until 2015 since the data which I provided are
discretized by 5 year periods and moreover the dating cannot be more
precise than that shown. On the other hand it also should be said
that the peak in net energy does not mean the peak of all energy,
given that a great part of the sources still have somewhat of a
margin for their decline and in part will compensate for this fall.
Nonetheless, to the extent that the decline in petroleum will be
stronger, the fall will be more difficult to compensate and at a
given moment not far away, - also associated with the exhaustion of
growth of the major portion of the sources-, the fall will be
inexorable. As a final point I also would like to highlight that
the fall in net energy from petroleum will not be recognized until
the fall in its volume also becomes evident (as was shown in the
first graph), given that the concept of net energy is more difficult
to grasp. We
know already that classic economic education cannot recognize the
concept of EROEI
and therefore the explanation which will be given when petroleum
production will decline, will be that there is insufficient
investment in exploration and development (as already is occurring in
Argentina), without understanding that the economic accounting cannot
come right, if the energy accounting doesn’t. This will give rise
to heated debates which will lead to wrong policies that will do more
harm than good, to more radicalized positions, and to the final
adoption in many cases of draconian measures of populist character,
which will resolve nothing and in fact will aggravate the lot.
The
final fact is that the petroleum era has come to its end. Petroleum
will continue to be available for many decades but always in lesser
quantities and in the end it will become a luxury good. Our epoch of
accelerated economic development based on inexpensive
petroleum is already over. It is the sunset of petroleum. And
if we are unable to recognize it, it could
also very well be our own.
Cheers.
AMT
