Sunday, October 12, 2014

Peak oil is here: the view from Barbastro



Antonio Turiel, well known for his blog "the oil crash", speaks at the international meeting "Beyond Peak Oil" organized in Barbastro by UNED. It looks like we are staring straight at the peak's ugly face.


When I started working on peak oil, around 2001, it was an intellectual game that I played with others interested in the same subject. We listed resources and reserves, we made models, we plotted curves, we extrapolated data, and more of that. But the peak was always in the future. Some models had it in a few years, others in a decade or more. True, it never was a remote future, but it was not the present, either. We knew that the peak would bring a lot of problems, but we couldn't really visualize them.

Then, we discovered that oil was not the only resource destined to peak. We discovered that the peaking mechanism is very general and affects everything that can be overexploited. There was peak gas, peak coil, peak uranium and - in time - "peak minerals", which was the origin of my book "Extracted". Somehow, peak oil receded to just one of the many peaks expected in the future; still important, but not really so fundamental as we had thought at the beginning. I never lost interest in peak oil, but it sort of moved from a central position to the background of my interests.

But things change, and change fast. Two days of conference in Barbastro were a hard reminder that oil is still the most important resource in the world. At the conference, a number of impressive speakers lined up to show their data and their models on peak oil. Antonio Turiel, Kjell Aleklett, David Hughes, Gail Tverberg, Michael Hook, Pedro Prieto. From what they said, it is clear that the future it is not any more a question of arguing about resources and reserves, lining up barrels of oil as if they were pieces to be played on a giant chessboard. It is not any more a question of plotting curves and extrapolating data. No: it is more a question of money. We are not running out of oil, we are running out of the financial resources needed to extract it.

During the past years, the oil industry has spent enormous amounts of money to make an immense effort in developing new resources. Up to now, these resources, especially shale oil and shale gas, have done the trick, growing fast enough to compensate for the decline of conventional resources. But this success has been hugely expensive and it can only be short lived. As Arthur Berman said, "Production from shale is not a revolution; it’s a retirement party." Now, there is nothing on the horizon that could repeat the small miracle of shale oil and gas, which managed to postpone the peak for a few years. The party may well be over.

What gives the game away are the data showing that capital expenditures ("capex") in new projects are falling and that the industry is pulling out of the most expensive projects. It is a no-win game: the more you extract, the more you need money to keep extracting. But the more money you need, the lower are your profits. And when the mighty financial market realizes that profits are falling, then it is the end of the game: no money, no oil.

So, peak oil is here, in front of us. It may be this year or next year; or maybe even a little later. But it is not any more an abstract intellectual game: it is directly affecting our life. Look at the world around us: don't you think that there is something deeply wrong with the very fabric of what we call, sometimes, "civilization"? That something could very well be peak oil.

We started working on peak oil thinking that if we could have alerted the world of the danger ahead, something would have been done to solve the problem. We didn't succeed: something has been done, but too little and too late. Now we are going through the peak and looking at the other side. What we are seeing is not pretty; we can just hope that it won't be even worse than it seems to be.




I would like to thank David Lafarga Santorroman and the whole staff of UNED for their enthusiasm and dedication in organizing this second meeting on peak oil in Barbastro. For a detailed description of the meeting, see this post by Antonio Turiel (in Spanish)




 



11 comments:

  1. Hello Professor,

    I am not clear on the difference between Peak Oil, where we simply cannot create enough oil and gas to sustain industry (civilization), and the end of Easy Oil, where the cost of extraction keeping going up, but the gas and oil is still available. I just read the Arthur Berman interview, and it seems as though he questions whether the US shale boom will continue at $4 price levels, but goes on to say that there is much more available gas at $6.

    If we can continue to find enough gas and oil to support civilization at $6, and then $8, are the implications less serious than if we simply cannot find enough energy to support ourselves. The steep drop-off model.

    Also, if we can continue to find more gas and oil at $6, and then $8, won't CO2 be a bigger problem than Peak Oil?

    Thanks as always for answering questions on your blog.

    Regards,

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    1. James,

      There is no difference between the end of Easy Oil and Peak Oil, especially since the very definition of "easy" is cheap (when it comes to oil and just about anything else). As oil gets harder to find and extract, the price goes up. When the price gets high enough, people stop buying so much and the price levels off.

      This equilibrium of demand and price is the essence of the global market in anything, including oil. Eventually however, higher and higher prices for oil and other resources damage economies. All the money spent on oil is subtracted from all the other things we spend money on. Plus, since oil is such a key resource, high oil prices tend to make everything else more expensive too.

      Eventually, if prices get high enough, the world economy starts contracting, demand falls and oil production declines. Prices may go down again, prompting more demand for oil, but eventually oil just gets too expensive for the rate of production to keep increasing above its previous peak rate. Once that happens, you have passed the peak of oil production.

      Bardi is just pointing out that we may now be ending a period of oil production/price equilibrium, the so-called "undulating plateau". Prices are dropping, which will depress production of the most expensive oil to extract. Oil production will decline. If economies recover and demand for oil increases, it will put upward pressure on prices and promote more extraction. It remains to be seen whether rates of oil production will reach new global highs. After one of these price/production undulations, the world peak rate of production will be reached, never to be seen again.

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    2. Hello James. The way I see the situation is as follows: Prices are determined by the balance of demand and offer - but in the case of gas, the game of finance also plays a major role. So, because of investor's expectations, gas prices are low because too much is being extracted; so low that the industry is producing at loss.

      Now, if we want to raise up gas prices to the level of profitability, we can either raise demand or lower production. The first, raising demand, is difficult for various reasons, mainly because of transportation costs. It is being tried with the idea of exporting gas to Europe - but the investments for the infrastructure are truly out of this world and by the time they would be available, there won't be any more gas to export (but in the meantime we arranged a nice little war preparing just for that. The other, lowering production, is surely feasible, but if the industry reduces production, then we have "peak gas" and the financial bubble will deflate and it will be disaster for the industry and for investors as well.

      So, you see, the problem is that we can't control what we are doing. If we had been smart enough, fracking could have provided just that much gas as needed to sustain civilization at least for a few years, as we build up the necessary infrastructure for the energy transition. Instead, we went for the boom, and now we are ready for the doom. Humans... as usual....

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  2. I'm glad you wrote that about cap-ex. The impacts of not building new infrastructure go years into the future. Limited capacity puts a upper limit on production for years. Even if the price of oil reached a new high plateau, it takes time to commission, build and deploy new facilities.

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  3. I highly suggest everyone read Steve's latest on Economic Undertow. He has had this pegged for 2 years since October of 2012.

    The financial flim flam meets the wall when the cost to the drillers is greater than the consumer can afford to pay. No messing with the books can fix this, and credit issued to drillers is credit denied to consumers. It's the End Game.

    It's quite obvious here on the Markets, which are in the process of experiencing a Lehman Moment on Steroids.

    None of this is any surprise to Diners or Undertowers. We have had it pegged for quite some time.

    RE

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  4. Thanks for the answers. I had never thought about the financial/investor component of the supply chain. If oil drops too far and we drop out of the undulating plateau, then some of the high cost shale producers could get wiped out and shut down, and there won't be enough supply (or producers) when prices rise again.

    Right?

    I also get the idea that at some point prices will rise to where the available oil will strangle the modern economy. Has anyone done any work on how high gas and oil will need to go before prices start doing serious, irreversible damage to the economy?

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  5. Does it make any difference to the overall reasoning if we consider oil to "be worth" about 100 U.S. dollars per barrel, (and x dollars per barrel to find and extract and deliver it to the point of use) or whether a dollar is now deemed to be "worth" about one one hundredth of a barrel of oil?...or similarly whether an ounce of gold costs about 1225 USD or whether a dollar is worth about 1 / 1225 of an ounce of gold? The world monetary system changed several times in the 20th century and may change yet again soon when the U.S. dollar no longer will be the world reserve currency. (it is fine for the Emperor to have NO CLOTHES, but it is probably NOT as fine for him to have NO GOLD) Measuring the value of "tangibles" such as oil in terms of other "tangibles" such as gold or silver or bushels of wheat or maybe buckets of clean water (which someone could at least drink) may or may not make any difference to EROEI calculations and to peak oil considerations..but it may help to focus minds even better. Dollars and other FIAT currencies are EVER MORE only FUNNY MONEY (funny currencies on funny paper)) and measuring anything actually worth something in terms of currencies seems ever more absurd. The cross-values of tangibles in terms of other tangibles might be a bit more complicated to calculate but would probably keep us all "better grounded" in reality and make reality seem even MORE REAL than it actually IS.

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    1. I would add spare parts to your list of tangibles.
      1 - 5 year supply of food (the amount of food you store will last less long if more of your relatives show up and you don't have the heart to turn them away.)
      Tires.
      Spare pump for your well.

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  7. Traducción al español corregida 1


    Antonio Turiel, bien conocido por su blog "la caída del petróleo", habla en la reunión internacional "Más allá del cenit del petróleo", organizado en Barbastro por la UNED. Parece que estamos mirando directamente a la cara fea de la cima.


    Cuando empecé a trabajar en el pico del petróleo, en torno a 2001, era un juego intelectual que yo jugaba con otras personas interesadas en el mismo tema. Hicimos una lista de recursos y reservas, fabricamos modelos, trazabamos curvas, extrapolabamos los datos, etc. Pero el pico estaba siempre en el futuro. Algunos modelos lo situaban para dentro de unos años, otros en una década o más. Es cierto, que nunca se hablaba de un futuro remoto, pero no a corto plazo, tampoco. Sabíamos que el pico traería un montón de problemas, pero yo no podía visualizarlos.

    Luego, descubrimos que el petróleo no era el único recurso destinado a su punto máximo. Descubrimos que el mecanismo en horas pico es muy general y afecta a todo lo que puede ser sobreexplotado. Hubo pico de gas, pico de carbón, pico de uranio y - en el tiempo - "pico de minerales", que fue el origen de mi libro "Extraídos" (Vínculo). De alguna manera, el pico del petróleo retrocedió a sólo uno de los muchos picos esperados en el futuro; sigue siendo importante, pero no es realmente tan fundamental como habíamos pensado al principio. Nunca perdí el interés en el pico del petróleo, pero en cierto modo se trasladó desde una posición central en el fondo de mis intereses.

    Pero las cosas cambian, y cambian rápidamente. Dos días de conferencias en Barbastro (Vínculo) fueron un recordatorio duro que el petróleo sigue siendo el recurso más importante del mundo. En la conferencia, varios oradores de renombre se alinearon para mostrar sus datos y sus modelos sobre el pico del petróleo. Antonio Turiel, Kjell Aleklett, David Hughes, Gail Tverberg, Michael Hook, Pedro Prieto. A partir de lo que han dicho, está claro que el futuro ya es más una cuestión de discutir sobre recursos y reservas, alineando de barriles de petróleo como si fueran piezas que se jugará en un tablero de ajedrez gigante. Tampoco es más una cuestión de trazar las curvas y la extrapolación de los datos. No: es sobre todo una cuestión de dinero. No nos estamos quedando sin petróleo, nos estamos quedando sin los recursos financieros necesarios para extraerlo.

    Durante los últimos años, la industria petrolera ha gastado enormes cantidades de dinero para hacer un inmenso esfuerzo en el desarrollo de nuevos recursos. Hasta ahora, estos recursos, especialmente el petróleo de esquisto y gas de esquisto, han hecho el truco, creciendo lo suficientemente rápido como para compensar la disminución de los recursos convencionales. Pero este éxito ha sido muy costoso y sólo puede ser de corta duración. Como dijo Arthur Berman (Vínculo), "La producción de esquisto no es una revolución, es una fiesta de jubilación."

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  8. Traducción al español corregida 2

    Ahora, no hay nada en el horizonte capaz de repetir el pequeño milagro de petróleo de esquisto y gas, que logró posponer el pico durante unos años. El partido bien puede haber terminado (Vínculo).

    Lo que muestra la realidad son los datos que muestran que los gastos de capital ("capex") en nuevos proyectos están cayendo y que la industria está abandonando (Vínculo) los proyectos más costosos. Es un juego en que nadie gana: cuanto más se extraiga, más dinero para mantener la extracción. Pero cuanto más dinero que necesita, menoresson sus beneficios. Y cuando el poderoso mercado financiero se da cuenta de que los beneficios están cayendo, entonces es el final del juego: nos quedamos sin dinero y sin petróleo.

    Así, el pico del petróleo está aquí, delante de nosotros. Puede ser este año o el próximo año; o tal vez incluso un poco más tarde. Pero no es más un juego intelectual abstracto: está afectando directamente a nuestra vida. Mira el mundo que nos rodea: ¿no crees que hay algo que está profundamente mal en la estructura misma de lo que llamamos, en ocasiones, la "civilización"? Ese algo podría muy bien ser el pico del petróleo.

    Comenzamos a trabajar en el pico del petróleo pensando que si podríamos haber alertado al mundo del peligro por delante, algo que se habría hecho para resolver el problema. No tuvimos éxito: algo se ha hecho, pero demasiado poco y demasiado tarde. Ahora estamos pasando por el pico y mirando a otro lado. Lo que estamos viendo no es bastante; sólo podemos esperar que no va a ser aún peor de lo que parece ser.




    Me gustaría dar las gracias a David Lafarga SANTORROMÁN y todo el personal de la UNED por su entusiasmo y dedicación en la organización de esta segunda reunión sobre el pico del petróleo en Barbastro (Vínculo). Para una descripción detallada de la reunión, vea este mensaje por Antonio Turiel (en español) (Vínculo)

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)