The continuing increase of surface temperatures catalyzed by human driven climate change has lead some individuals to question the future of the current system of monoculture agriculture. When considering the weather related events of 2010, especially the heat wave in Russia, such questioning seems appropriate; however, it is also reasonable that individuals are overreacting to those events. One problem with the psychology of a number of individuals that correctly acknowledge human driven global warming is the incorrect association of all severe weather events with global warming.
Throughout history a number of extreme weather and other geological events occurred before any significant human driven global warming could have been an influencing element. Certainly in the future there will be a warmer environment with a higher probability of extreme or multiple standard deviation weather events due to global warming, but to attribute the occurrence of all extreme weather events as a result of global warming is inappropriate. The same can be said of assuming the entire collapse of the current annual monoculture agricultural system within the next decade simply because of one extreme heat wave event; such a mindset may in fact do more to damage the credibility of global warming than to push ‘on-the-fence’ individuals to action.
However, despite the inappropriate overreaction to the demise of the monoculture agricultural system, the future shift in climate will place more pressure on that system and if this pressure is not properly addressed then there will be significant problems. Sadly a number of individuals address these potential problems by suggesting a move away from monoculture to a more niche system without addressing why monoculture is used in the first place. To most that wish to replace monoculture it would be reasonable to suggest that their rationalities involve the belief that monoculture is used solely to increase profit margins for major agribusinesses and the general unsustainability of monoculture as currently practiced. While true, the profit margin increase is largely derived from an increase in planting and harvest efficiency. This efficiency allows for more effective scale-up, a greater production level and the capacity to feed more people.
Regardless of any sustainability issues the world population could never have climbed as high as it has without this particular method of agriculture. There is a debate to whether a more organic methodology can produce equivalent yields to a monoculture methodology on a single given plot of land, but there is no effective debate regarding whether a more organic methodology can match the total yield per input of monoculture on a replacement scale. Basically this debate breaks down to some arguing that organic or permiculture methods can produce the same average yield on 1 acre of land as monoculture, but no one is reasonably arguing that organic or permiculture can produce the same average yield on 10 acres of land as monoculture at similar cost.
That lack of large-scale efficiency from other methods is the looming problem for those wanting to replace monoculture with another methodology for as it currently stands such a replacement will either increase the total cost per yield or decrease the total yield with either result more than likely increasing food price. A decrease in yield will not only raise food price, but also reduce total food availability which would increase the number of malnourished or starving individuals in the world. This rarely mentioned by its supporters drawback to non-monoculture agriculture in addition to the total cost and effort required from switching from a high intensity monoculture methodology to a non-monoculture methodology should drive individuals to ask what can be done, if anything, to salvage the current system over simply scrapping it for something else.
So what are the real problems facing monoculture in the future? The number one problem will be continued access to ample supplies of water. Taking the United States as an example, in 2000 40% to 65% (depending on whether thermo-electric power is counted) of freshwater used the United States is directed towards irrigation as a theoretical necessity to supply enough food for the populous.1 This level of water use has not declined significantly since and no major environmental study attempting to discern global resource allotment signals that water supplies will increase in a beneficial and control manner. In a vast majority of regions either water supplies will decrease increasing the probability for more drought or water supplies will increase at a much faster rate than can be naturally controlled increasing the probability of flooding and crop damage. Neither result is useful for the general supply structure for any form of agriculture be it the current monoculture system or an alternative.
One reason such a large amount of water is required for irrigation is due to the annual nature of harvesting; most crops that are currently used in monoculture do not have the opportunity to establish deep root systems which disallows ‘reaching’ for natural deep water aquifers and reduces effective retention of human supplied water. However, once again that lack of a root system becomes a sticking point because if a methodology like permiculture is established in effort to facilitate the production of deeper root system to reduce both water and nitrate use, harvesting yields are reduced over the same amount of land used.
It stands to reason that there is a reasonable chance that after a sufficient period of time the conversion from monoculture to permiculture would result in similar yields, but again the period of time required for this transition and the total effective size ceiling is unclear. At present a better strategy to address water use than convert directly to a new agricultural methodology would be to change the current irrigation method. Most farmland currently uses either flood or spray irrigation1 which uses more water than drip irrigation in part because the more immature root system cannot process it all and in part because some water is inherently wasted through evaporation in effort to ensure enough for the entire crop; overall the only rational reason why flood irrigation is used over drip irrigation is cost, the significance of which lessens with every passing year.
Flood irrigation also causes a problem with run-off. The unutilized water typically collects nitrogen compounds as it runs off the edges of the farmland. If this run-off ends up in a larger river/stream it can be taken to a larger body of water where the nitrogen and other organic compounds facilitate algae growth leading to dead-zones. So regardless of what agriculture methodology is utilized, one of the most important steps in preparing for a warmer future is to change the irrigation technique most commonly used from flood or spray irrigation to drip irrigation. Some may argue that spray irrigation is the preferred irrigation technique, but the key issue is water conservation and drip irrigation uses less water on average than spray irrigation due to less evaporation and general water exposure.
Changing temperature patterns derived from climate change is the second most important issue in the evolution of agriculture systems. Most of the attention that is given to agriculture adaptation is derived from this element. Interestingly most of the adaptation measures suggested are quite high-tech and/or extreme such as genetically engineering heat and drought resistant strains. What is somewhat unknown is how many low-tech solutions have been proposed for addressing increases in average surface temperatures in high yield agriculture regions possibly because they are not ‘sexy’ enough to receive significant attention. For example something as simple as a tarp held aloft over crops should reduce the total negative influence of the increased temperatures. This tarp could also reduce heavy rain and wind exposure during growth and after harvesting which would aid yield quality and reduce after-harvest erosion probability respectively. Also due to the ‘grounding’ nature of ozone, a tarp may even offer some protection from increasing tropospheric ozone concentrations.
One low-tech solution could involve incorporating a drip irrigation system with a tarp at a declining angle of approximately 8-9 degrees (one side of the tarp elevated to 40 ft and the other elevated to 10 ft on a field with a length of 1 acre should do) could reduce temperatures, collect rain water and protect from heavy rain and wind exposure at nominal cost. Without an enclosed system the crops would receive some exposure from the x-axis on a given y-axis (slanted rain and winds originating below the height of the tarp), but the overall exposure should be significantly reduced. The one outstanding question with such a strategy would be ensuring that the crops received enough exposure to light; thus the tarp would have to be somewhat transparent and brief testing would have to be carried out to measure any significant drop-off in growth rate.
Some argue that future shortages in oil and gas will be significant problems. This contention is true only if society continues to depend on outdated methodologies. Based on supply structure, to be concerned about a dwindling supply of natural gas, which in an agriculture environment would be largely devoted to fertilizer production, seems alarmist. Some of the top food producing countries in the world, the United States, Canada and Russia all have ample supplies of natural gas that most experts content would last for centuries. Granted potential environmental problems stemming from fracking may slow exploration of new supplies, but if recent history is any indication industry is rarely stopped from doing what they want by environmentalists. Overall fertilizer production is much more likely to face a phosphate shortage (another possibility that drives more fear than it should) than a natural gas shortage, but neither is very likely in the near future.
A supply shortage of oil is much more real because oil prices have already begun climbing as the global economy comes out of the recession. In 2008 a rapid spike in oil prices, partially aided by speculation on futures, gave the world a brief glimpse of the future if oil continues to drive agriculture harvest and transport. The important element to note about 2008 is that most of the food riots in developing countries were not necessarily caused by a lack of absolute supply, but instead more by a lack of acquisition potential where food prices rose to a point out of reach of most individuals. One solution to the potential oil supply shortage and the projected corresponding increase in price would be the development of a solar powered combine and other harvesting machinery. Solar power would work well because of the high potency and availability of sunlight in the more crop heavy environments. The design of such equipment would not require any exotic technology or techniques because of similarities to solar power cars; these heavy farm implements would simply require more electricity due to the higher power demands.
The final major issue regarding agriculture is soil degradation. One of the chief arguments against annual monoculture is the progressive loss of high-quality topsoil due to various tilling techniques and empty field erosion. There are two significant elements in soil loss; first the loss of nitrogen compounds requiring the use of nitrogen-replenishing fertilizer and second the loss of the soil itself. Loss of the soil typically stems from erosion events which are most prominent immediately after a harvest in an annual monoculture system because of the ‘nakedness’ of the soil.
The most viable strategy to reduce the potency of these erosion events is to not remove all of the crops from the plot in the same harvest period. This is one point argued by most permiculture supporters when highlighting the benefits of permiculture. However, the problem with this solution is a significant loss of total yield, which reduces total available supply leading to price increases. Another possible solution to these loss of soil events would be to protect the soil after harvest by reducing exposure to water and wind elements. The above mentioned tarp cover idea would accomplish this goal and would probably reduce overall soil loss due to erosion.
Another strategy that is widely suggested to stem nitrogen compound loss in soil outside of fertilizer use is to rotationally plant nitrogen fixing crops like legumes in between normal crop rotations. This method has earned widespread acceptance and is frequently used in smaller organic plots. However, once again the question of scale and quantity rears its head as planting these legumes in fields that primarily run corn, wheat, soybeans, etc. reduce growing time for these crops. High-quality micromanagement with specific planting timetables can alleviate this problem by extending the growing season to accommodate both sets of crop rotations. However, it still remains to be seen how effective such a strategy would be in placement of large-scale annual monoculture farms. Fortunately a near-future nitrogen shortage seems unlikely, which gives farms time to introduce more natural nitrogen replenishment techniques. To those that believe farms will be hesitant to develop these techniques based on past experience one method of motivation may to be instill a small, but steadily increasing tax on fertilizer.
It is unfortunate when individuals decry current infrastructure and yet suggest a replacement that does not address the core problems of that current infrastructure, thus not actually solving the problem. This reality tends to be the result with individuals that proclaim their personal niche replacement to annual monoculture, focusing on the problem of monoculture and not effectively analyzing how their solution succeeds or fails to correct these problems and whether or not that solution creates its own problems.
The most important issue regarding the future of agriculture is the acknowledgement that barring a miracle food production will be done in a warmer world. Once that reality is accepted then effective analysis must be made regarding potential solutions. This analysis should first start by focusing on making changes that will address the four previously mentioned points from above with as little infrastructure change as possible to easy mass scale-up change. For those individuals that prefer a new agriculture methodology over annual monoculture, they need to show that not only can that replacement method replicate annual monoculture yields on small plots, but can also replicate annual monoculture yields over the whole system in addition to the future problems faced by annual monoculture.
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1. United States Geological Survey Website. 2000. http://ga.water.usgs.gov/edu/wuir.html.
Showing posts with label peak oil. Show all posts
Showing posts with label peak oil. Show all posts
Friday, January 7, 2011
Friday, June 25, 2010
A Brief Revisiting of Peak Oil
For background on this subject go to this link:
http://bastionofreason.blogspot.com/2009/09/reality-of-peak-oil.html
Although discussed previously, the recent explosion of Deepwater Horizon and the resultant oil discharge into the Gulf of Mexico have some raising the issue of ‘Peak Oil’ as one of the hodgepodge of reasons to reduce the general reliance of oil in our society. The appropriate way to view ‘Peak Oil’ is the point where global oil production peaks and some believe that time as already occurred. Unfortunately others have expanded the peaking of production to signify a lack of available supply. Basically global production cannot reach the previous high because the total remaining supply of oil is insufficient. This distinction is not correct, for there are still large quantities of oil available.
Why can the statement be made that there are still large quantities of oil available? First, although it is true that most traditional existing wells are on the down-slope of their production curves, there are some remaining undeveloped traditional sites, mostly located in Iraq and Russia. In fact the prospective reserves in Western Iraq are thought to be especially large. Second, deepwater sites similar to Deepwater Horizon are still being explored and as technology continues to advance exploration of potential new sites will become more accurate and inexpensive. Most of the best deepwater sites are thought to be located off the Atlantic coast of South America and in the unfortunately fast-melting Arctic. Third, untraditional sources of oil have been identified (oil shale, oil sands, etc.) with very large deposits in Venezuela, Canada and even in the United States (Rocky Mountains). So with all of these additional acquisition opportunities around the world, not just in the Middle East why are there so many that believe the world has already entered the era of ‘Peak Oil’?
The simple answer is that each of these three types of resources have one major thing in common, oil extraction from these sources is more expensive than from current widespread traditional wells. Although many experts believe there are still large globally meaningful deposits that can be acquired through traditional wells, the countries that control the land containing this oil have been reluctant to allow foreign companies the opportunity to invest and conduct business under fair contracts. Thus, foreign companies do not view investment in these new undiscovered areas as profitable enough to warrant their time. Deepwater drilling has caught on in recent years as a viable alternative to unsuccessfully haggling with uncooperative foreign countries. However, as witnessed in the Deepwater Horizon disaster, deepwater drilling can be troublesome when things go wrong, environmentally and economically. Extraction from untraditional sources has been a hot topic in the petroleum industry for decades and as traditional sources become less and less available, the first serious wells are being developed, but mass production of these sources have stalled due to the high costs. Interestingly enough despite the belief of ‘Peak Oil’ it seems more likely than not that all three of these sources will be tapped to significant extent despite the significant cost obstacles because of the shear lack of alternatives and the necessity of oil in driving economic growth.
One of the chief elements to the cost obstacle is the classical volatility profile of oil prices. A general rule of thumb is that businesses love patterns and predictability. Some argue that the general volatility of oil price will keep petroleum companies from fully investing in these alternative sources types thus resulting in global production values that will fail to exceed current values. Basically a company needs to know if they are going to make profit on an investment a majority of the time and price volatility confuses the ability to make that prediction. Other potential unpredictability is what big consumption countries like the United States, China, India, etc. will do regarding carbon emission policy and how that new policy will influence oil price and consumption.
With falling ‘easy’ supply sources, future oil price volatility is somewhat reduced in that prices will steadily increase with few, if any, significant drop periods. Basically the future oil price curve will oscillate around a steadily increasing positive slope with the total period and amplitude of the oscillations dropping as the time progresses. An example of this concept is shown in below. The increase in oil price will eliminate a significant amount of trepidation for investment in more expensive sources. As long as a company can predict a profit to be made without a viable alternative, effort will be applied to make that profit.
Look at it this way: suppose you normally climb a 10 ft. tree to collect apples that you sell at a net profit of $30 per apple. Unfortunately almost all of the 10 ft. trees no longer have any applies available. However, there are 30 ft. trees will lots of apples, but the extra time and equipment required to collect apples from these higher trees will reduce the net profit per apple to $15. Some may question the will to continue to collect apples at half the profit, but if the individual cannot devote time to a more profitable venture (an option facing most oil companies) and people still want apples and can pay for them then apple collection will still occur. Right now the individual does not have the real viable option to sell oranges or some other fruit (biofuels) at $20 per unit, so apples it is.
Looking at possible environmental and energy regulations, some argue that changing dynamics in the United States will reduce demand for oil, thus reducing the total capacity for price increase thereby reducing investment incentive and total future supply. While it is true that average motor vehicle gas mileage will increase in the future with increasing design efficiencies of internal combustion engine driven vehicles along with further deployment of hybrid and 100% electric vehicles, there are some issues that are not addressed. While proponents are eager to mention these efficiency increases, they do not discuss the high probability of increasing fleet size. While motor vehicles will become more efficient, there will also be more of them on the road, which with the exception of 100% electric vehicles will increase oil demands. So when including changes in fleet size it is difficult to measure whether or not U.S. demand will actually drop and if it does, by what amount. Also increasing fleet size leading to increased oil demand is an especially large concern with developing countries such as China, India, Indonesia and Brazil that may not have the infrastructure to support electrical vehicles and develop cleaner use power sources. Side note: some people cite China having 100-125 million electrical bicycles as a good thing, funny that they fail to mention that those bicycles are being powered by coal.
A quick detour to explain the importance of market forces. The two chief reasons why some believe the era of ‘Peak Oil’ has begun are that official oil discoveries have been declining significantly over the last 40 decades (most believe that the discovery peak was reached in the late 60s – early 70s) and significantly rising prices starting in the middle of 2005 which only dropped due to the global recession and an inability of large consumers to buy oil. Many believe that this ‘catastrophic’ price increase was due to rising demand finally breaking through outpacing of supply, thus ‘peak oil’ must be close. Unfortunately there may be a problem with this logic. As the average price of oil rose from approximately $41 (a barrel to approximately $60 a barrel, global oil production was maintained at a consistent 85 million barrels a day.
A steady-state production level despite rising prices (almost a 50% increase) initially implies an inability to increase production because basic economic theory anticipates some level of increase in supply to maximize the profit potential from a price increase that is not accompanied by a demand decrease. However, when oil prices really jumped through the roof in late 2007 to mid 2008 (exceeding over $130 a barrel) global production did slightly increase which implies a greater sense of control over the production value over basic economics. Without understanding the mindset of those in control of the principle rates of production (OPEC provides upper 30 to lower 40%) it is difficult to identify whether or not there is any production supply significance to the size of the increase. Note that in this radical oil price time frame, oil production reached a new global peak when prices were around their own maximum. When prices began to fall due to the global recession, production dropped as well.
There are two possibilities regarding existing tapped oil supplies with respects to supply changes occurring in response to the radical price changes. First, oil supplies have become rather inelastic thus it is difficult for supply to increase significantly in accordance to a price increase like basic economic theory anticipates. Second, increasing oil supply is more difficult than economic theory predicts due to an existing set of rules created by OPEC. There is reason to believe that the dramatic price shift was caused in part by oil speculation in the free market due to the past free-flowing credit market where anyone could get credit even if he/she did not have the necessary assets. The entry of purchasers that previously would be unable to purchase oil could easily spike prices. Such price reaction, and even manipulation, may have been viewed as ‘short-term’ in the minds of the producers, thus the corresponding increase in production was slower than theoretically anticipated. Overall a combination of both of the reasons make-up the rationality behind the production response with a greater weight on the inelasticity issue.
In the United States further questions regarding the inability of possible buyers to acquire credit will reduce demand for oil in the United States not from lack of want, but from lack of ability to pay. However, regardless of the change in the U.S. it is almost impossible to consider a drop in global demand driven entirely by market forces, because of rapidly expanding demand in the developing world and a vast amount of available credit for purchase. Therefore, despite higher production costs petroleum companies should not be deterred due to questions about demand.
Although it appears that the future marketplace will not drive a decrease in global demand, new global environmental regulations and new widespread electrical grid design fostered by government law and/or directives could. Administration of a carbon tax, cap and trade system and/or streamlining grid construction would have a positive effect on lower oil demand by either adding cost to oil exploration and production or reducing the costs for oil alternatives allowing them to be more competitive in the marketplace. Unfortunately all of the large oil consuming countries appear to only be slowly advancing to adding additional costs to oil and other carbon sources, if moving at all, thus as it stands it appears that very little demand shift will come from the one element that could create a significant short-term shift.
Even though oil will still be required in the global community and this requirement will continue to drive investment and exploration, historical evidence and economic theory predict that dealing with higher oil prices will be financially difficult for most societies, especially the United States. Historical evidence set a magic price of $80-85 per barrel before the probability of financial recession in the United States increases significantly. In fact a majority of the time that oil has been in or above this price threshold the economy has been officially in a recession. The two most important industries that are influenced by oil prices are transportation and food production (harvesting equipment for large factory farms). Therefore, if the reality of more expensive oil is almost guaranteed then new strategies need to be executed to improve the ability to maintain quality of life in the United States and probably later in the developing world as well.
Unfortunately the development and deployment of oil alternatives do not appear ready in the near-future to play any significant substitution role for oil. The popular refrain for this deficiency is the claim of economics, but the real reason is scale. While algae and cellulous-based bio-fuels may eventually churn out 10-20 million barrels of oil a year by 2020 when the global demand is 80-100 million barrels of oil a day that amount is rather worthless regardless of how much it costs to produce that bio-fuel. If ethanol-based fuel ever even got close to the current demand for oil a vast majority of the population would starve because of the land use competition between bio-fuel and foodstuffs. With regards to electrical and hybrid vehicles, despite heavy optimism from proponents heavy deployment is unlikely. Even if such a revolution occurred, it remains to be seen if the evolution of the electrical grid would keep pace with the new demand or uncertainty and brownouts would become the norm. So without the ability to depend on the brute force of viable alternatives the global community as a whole needs to decide on a course of action.
For example consider global trade and its dependence on shipping. A higher oil price increases the overall costs associated with shipping requiring an increase in the price paid by the businesses importing the good, a cost that will later be passed on to customers. Eventually the oil price will increase to a point where the consumer will be unable to purchase the good, which will end trade of the particular good in that particular region. Therefore, a new strategy must be implemented in the transportation sector to counteract the negative effects of the oil price increase. Shipping in general is rather efficient in maximizing capacity in order to save money (ships are loaded to near full capacity), so the change must come on the propulsion end. Reverting back to ‘no active force’ (a.k.a. wind power) is not a suitable solution because of the wait times between departure and arrival, especially for perishable goods. The development of an electrical motor powerful enough for a ship of any reasonable size seems unlikely and inherently inefficient.
Realistically bio-fuels and nuclear are the two most plausible alternatives for ship travel where due to supply issues nuclear has the advantage. However, how safe would it be to have thousands of nuclear vessels transporting goods across the ocean on a daily basis? Such a ship-based population would be much larger and more exposed to danger than ‘proof-of-concept’ nuclear submarines.
Overall when discussing ‘Peak Oil’ it seems silly to discuss a lack of available oil or even a lack of drive to access oil in more expensive and/or difficult locations. Instead the most ironic feature of ‘Peak Oil’ is that government and individual decision-making will most likely bring on its occurrence. Reduction of demand through increasing efficiency or use and further development of alternatives are the only real ways to enter the ‘Peak Oil’ era in the short-term. Maybe it would be more appropriate for ‘Peak Oil’ converts to talk about entering the ‘Expensive Oil’ era or the end of ‘Cheap Oil’. Sadly the era of ‘Expensive Oil’ may be better than the era of ‘Peak Oil’, but not by much. If society is to effectively manage the era of ‘Expensive Oil’ significant changes need to be made with regards to travel and food production.
http://bastionofreason.blogspot.com/2009/09/reality-of-peak-oil.html
Although discussed previously, the recent explosion of Deepwater Horizon and the resultant oil discharge into the Gulf of Mexico have some raising the issue of ‘Peak Oil’ as one of the hodgepodge of reasons to reduce the general reliance of oil in our society. The appropriate way to view ‘Peak Oil’ is the point where global oil production peaks and some believe that time as already occurred. Unfortunately others have expanded the peaking of production to signify a lack of available supply. Basically global production cannot reach the previous high because the total remaining supply of oil is insufficient. This distinction is not correct, for there are still large quantities of oil available.
Why can the statement be made that there are still large quantities of oil available? First, although it is true that most traditional existing wells are on the down-slope of their production curves, there are some remaining undeveloped traditional sites, mostly located in Iraq and Russia. In fact the prospective reserves in Western Iraq are thought to be especially large. Second, deepwater sites similar to Deepwater Horizon are still being explored and as technology continues to advance exploration of potential new sites will become more accurate and inexpensive. Most of the best deepwater sites are thought to be located off the Atlantic coast of South America and in the unfortunately fast-melting Arctic. Third, untraditional sources of oil have been identified (oil shale, oil sands, etc.) with very large deposits in Venezuela, Canada and even in the United States (Rocky Mountains). So with all of these additional acquisition opportunities around the world, not just in the Middle East why are there so many that believe the world has already entered the era of ‘Peak Oil’?
The simple answer is that each of these three types of resources have one major thing in common, oil extraction from these sources is more expensive than from current widespread traditional wells. Although many experts believe there are still large globally meaningful deposits that can be acquired through traditional wells, the countries that control the land containing this oil have been reluctant to allow foreign companies the opportunity to invest and conduct business under fair contracts. Thus, foreign companies do not view investment in these new undiscovered areas as profitable enough to warrant their time. Deepwater drilling has caught on in recent years as a viable alternative to unsuccessfully haggling with uncooperative foreign countries. However, as witnessed in the Deepwater Horizon disaster, deepwater drilling can be troublesome when things go wrong, environmentally and economically. Extraction from untraditional sources has been a hot topic in the petroleum industry for decades and as traditional sources become less and less available, the first serious wells are being developed, but mass production of these sources have stalled due to the high costs. Interestingly enough despite the belief of ‘Peak Oil’ it seems more likely than not that all three of these sources will be tapped to significant extent despite the significant cost obstacles because of the shear lack of alternatives and the necessity of oil in driving economic growth.
One of the chief elements to the cost obstacle is the classical volatility profile of oil prices. A general rule of thumb is that businesses love patterns and predictability. Some argue that the general volatility of oil price will keep petroleum companies from fully investing in these alternative sources types thus resulting in global production values that will fail to exceed current values. Basically a company needs to know if they are going to make profit on an investment a majority of the time and price volatility confuses the ability to make that prediction. Other potential unpredictability is what big consumption countries like the United States, China, India, etc. will do regarding carbon emission policy and how that new policy will influence oil price and consumption.
With falling ‘easy’ supply sources, future oil price volatility is somewhat reduced in that prices will steadily increase with few, if any, significant drop periods. Basically the future oil price curve will oscillate around a steadily increasing positive slope with the total period and amplitude of the oscillations dropping as the time progresses. An example of this concept is shown in below. The increase in oil price will eliminate a significant amount of trepidation for investment in more expensive sources. As long as a company can predict a profit to be made without a viable alternative, effort will be applied to make that profit.
Look at it this way: suppose you normally climb a 10 ft. tree to collect apples that you sell at a net profit of $30 per apple. Unfortunately almost all of the 10 ft. trees no longer have any applies available. However, there are 30 ft. trees will lots of apples, but the extra time and equipment required to collect apples from these higher trees will reduce the net profit per apple to $15. Some may question the will to continue to collect apples at half the profit, but if the individual cannot devote time to a more profitable venture (an option facing most oil companies) and people still want apples and can pay for them then apple collection will still occur. Right now the individual does not have the real viable option to sell oranges or some other fruit (biofuels) at $20 per unit, so apples it is.
Looking at possible environmental and energy regulations, some argue that changing dynamics in the United States will reduce demand for oil, thus reducing the total capacity for price increase thereby reducing investment incentive and total future supply. While it is true that average motor vehicle gas mileage will increase in the future with increasing design efficiencies of internal combustion engine driven vehicles along with further deployment of hybrid and 100% electric vehicles, there are some issues that are not addressed. While proponents are eager to mention these efficiency increases, they do not discuss the high probability of increasing fleet size. While motor vehicles will become more efficient, there will also be more of them on the road, which with the exception of 100% electric vehicles will increase oil demands. So when including changes in fleet size it is difficult to measure whether or not U.S. demand will actually drop and if it does, by what amount. Also increasing fleet size leading to increased oil demand is an especially large concern with developing countries such as China, India, Indonesia and Brazil that may not have the infrastructure to support electrical vehicles and develop cleaner use power sources. Side note: some people cite China having 100-125 million electrical bicycles as a good thing, funny that they fail to mention that those bicycles are being powered by coal.
A quick detour to explain the importance of market forces. The two chief reasons why some believe the era of ‘Peak Oil’ has begun are that official oil discoveries have been declining significantly over the last 40 decades (most believe that the discovery peak was reached in the late 60s – early 70s) and significantly rising prices starting in the middle of 2005 which only dropped due to the global recession and an inability of large consumers to buy oil. Many believe that this ‘catastrophic’ price increase was due to rising demand finally breaking through outpacing of supply, thus ‘peak oil’ must be close. Unfortunately there may be a problem with this logic. As the average price of oil rose from approximately $41 (a barrel to approximately $60 a barrel, global oil production was maintained at a consistent 85 million barrels a day.
A steady-state production level despite rising prices (almost a 50% increase) initially implies an inability to increase production because basic economic theory anticipates some level of increase in supply to maximize the profit potential from a price increase that is not accompanied by a demand decrease. However, when oil prices really jumped through the roof in late 2007 to mid 2008 (exceeding over $130 a barrel) global production did slightly increase which implies a greater sense of control over the production value over basic economics. Without understanding the mindset of those in control of the principle rates of production (OPEC provides upper 30 to lower 40%) it is difficult to identify whether or not there is any production supply significance to the size of the increase. Note that in this radical oil price time frame, oil production reached a new global peak when prices were around their own maximum. When prices began to fall due to the global recession, production dropped as well.
There are two possibilities regarding existing tapped oil supplies with respects to supply changes occurring in response to the radical price changes. First, oil supplies have become rather inelastic thus it is difficult for supply to increase significantly in accordance to a price increase like basic economic theory anticipates. Second, increasing oil supply is more difficult than economic theory predicts due to an existing set of rules created by OPEC. There is reason to believe that the dramatic price shift was caused in part by oil speculation in the free market due to the past free-flowing credit market where anyone could get credit even if he/she did not have the necessary assets. The entry of purchasers that previously would be unable to purchase oil could easily spike prices. Such price reaction, and even manipulation, may have been viewed as ‘short-term’ in the minds of the producers, thus the corresponding increase in production was slower than theoretically anticipated. Overall a combination of both of the reasons make-up the rationality behind the production response with a greater weight on the inelasticity issue.
In the United States further questions regarding the inability of possible buyers to acquire credit will reduce demand for oil in the United States not from lack of want, but from lack of ability to pay. However, regardless of the change in the U.S. it is almost impossible to consider a drop in global demand driven entirely by market forces, because of rapidly expanding demand in the developing world and a vast amount of available credit for purchase. Therefore, despite higher production costs petroleum companies should not be deterred due to questions about demand.
Although it appears that the future marketplace will not drive a decrease in global demand, new global environmental regulations and new widespread electrical grid design fostered by government law and/or directives could. Administration of a carbon tax, cap and trade system and/or streamlining grid construction would have a positive effect on lower oil demand by either adding cost to oil exploration and production or reducing the costs for oil alternatives allowing them to be more competitive in the marketplace. Unfortunately all of the large oil consuming countries appear to only be slowly advancing to adding additional costs to oil and other carbon sources, if moving at all, thus as it stands it appears that very little demand shift will come from the one element that could create a significant short-term shift.
Even though oil will still be required in the global community and this requirement will continue to drive investment and exploration, historical evidence and economic theory predict that dealing with higher oil prices will be financially difficult for most societies, especially the United States. Historical evidence set a magic price of $80-85 per barrel before the probability of financial recession in the United States increases significantly. In fact a majority of the time that oil has been in or above this price threshold the economy has been officially in a recession. The two most important industries that are influenced by oil prices are transportation and food production (harvesting equipment for large factory farms). Therefore, if the reality of more expensive oil is almost guaranteed then new strategies need to be executed to improve the ability to maintain quality of life in the United States and probably later in the developing world as well.
Unfortunately the development and deployment of oil alternatives do not appear ready in the near-future to play any significant substitution role for oil. The popular refrain for this deficiency is the claim of economics, but the real reason is scale. While algae and cellulous-based bio-fuels may eventually churn out 10-20 million barrels of oil a year by 2020 when the global demand is 80-100 million barrels of oil a day that amount is rather worthless regardless of how much it costs to produce that bio-fuel. If ethanol-based fuel ever even got close to the current demand for oil a vast majority of the population would starve because of the land use competition between bio-fuel and foodstuffs. With regards to electrical and hybrid vehicles, despite heavy optimism from proponents heavy deployment is unlikely. Even if such a revolution occurred, it remains to be seen if the evolution of the electrical grid would keep pace with the new demand or uncertainty and brownouts would become the norm. So without the ability to depend on the brute force of viable alternatives the global community as a whole needs to decide on a course of action.
For example consider global trade and its dependence on shipping. A higher oil price increases the overall costs associated with shipping requiring an increase in the price paid by the businesses importing the good, a cost that will later be passed on to customers. Eventually the oil price will increase to a point where the consumer will be unable to purchase the good, which will end trade of the particular good in that particular region. Therefore, a new strategy must be implemented in the transportation sector to counteract the negative effects of the oil price increase. Shipping in general is rather efficient in maximizing capacity in order to save money (ships are loaded to near full capacity), so the change must come on the propulsion end. Reverting back to ‘no active force’ (a.k.a. wind power) is not a suitable solution because of the wait times between departure and arrival, especially for perishable goods. The development of an electrical motor powerful enough for a ship of any reasonable size seems unlikely and inherently inefficient.
Realistically bio-fuels and nuclear are the two most plausible alternatives for ship travel where due to supply issues nuclear has the advantage. However, how safe would it be to have thousands of nuclear vessels transporting goods across the ocean on a daily basis? Such a ship-based population would be much larger and more exposed to danger than ‘proof-of-concept’ nuclear submarines.
Overall when discussing ‘Peak Oil’ it seems silly to discuss a lack of available oil or even a lack of drive to access oil in more expensive and/or difficult locations. Instead the most ironic feature of ‘Peak Oil’ is that government and individual decision-making will most likely bring on its occurrence. Reduction of demand through increasing efficiency or use and further development of alternatives are the only real ways to enter the ‘Peak Oil’ era in the short-term. Maybe it would be more appropriate for ‘Peak Oil’ converts to talk about entering the ‘Expensive Oil’ era or the end of ‘Cheap Oil’. Sadly the era of ‘Expensive Oil’ may be better than the era of ‘Peak Oil’, but not by much. If society is to effectively manage the era of ‘Expensive Oil’ significant changes need to be made with regards to travel and food production.
Wednesday, September 16, 2009
The Reality of Peak Oil
For years now the elephant in the room for the petroleum industry has been the prospect of a level of global oil production not adequate to meet the requisite global demand largely due to a falling rate of oil production, difficulty finding and/or accessing new conventional fields and a continual increase in oil demand. Production maximization has been dubbed ‘peak oil’. With falling production rates and increasing demand it is believed that shortly after ‘peak oil’ is reached oil prices will skyrocket resulting in increased fuel and energy costs leading to a significant impediment for economic growth. The reality of the situation is that ‘peak oil’ is not just a theory that may or may not be realized, but something that is inevitable; therefore a solution will be required for the future regardless of when ‘peak oil’ is attained.
Before getting into specifics regarding ‘peak oil’, a background regarding it as a concept and its influence would prove useful. Although the concept of ‘peak oil’ seems simple enough, attaining a maximum of oil production be it in a specific country or globally, such a simplistic viewpoint can easily lead to misidentifying the actual situation. For the last 150 years oil production has steadily increased worldwide, largely due to emerging new technologies making exploration and extraction more economical and an unyielding demand for oil guaranteeing a viable market, which drives investment. Although demand for oil continues to increase the problem of supply has become more of a concern for producers. Recall that oil is not a short-term renewable resource in that the creation of new crude oil-based supplies would require millions of years, something that is clearly not tenable. Due to the limited supply and escalating demand, most commentators have proposed that oil production will peak at some point in the future, if not already. However, those prognostications have proven to be the first significant problem when preparing for ‘peak oil’ in that the predictions are all over the map.
M. King Hubbert, one of the first oil prognosticators and developer of the appropriately named Hubbert Curve detailing the lifecycle of oil reserves for a given well, believed in 1974 that peak oil would be met sometime in the mid to late 1990s.1 Others, like Sadad Al Husseini, a former head of production for Saudi Aramco (the world’s largest oil company), the Energy Information Administration (EIA) and The Association for the Study of Peak Oil and Gas and Energy Watch Group (EWG) all believe that ‘peak oil’ was reached during the last 3-5 years.2,3,4 In late 2008 the Industry Taskforce on Peak Oil and Energy Security (ITPOES) identified peak oil occuring at 2013.5 The International Energy Administration (IEA) believes that peak oil will occur sometime between 2020 and 20306 while others still, like Abdullah S. Jum’ah, President of Saudi Aramco, believe peak oil is still over a century away.7 Overall it is difficult to get a straight answer when talking to various oil executives because each one seems to have a different estimation for ‘peak oil’.
The first issue that should be addressed regarding the topic of ‘peak oil’ is that some use global demand as a factor when classifying a time point for ‘peak oil’, a strategy that does not appear to be reasonable because the nature of ‘peak oil’ itself should not have anything to do with demand, but instead only when oil production will reach a maxima. Tracking global demand is important because of its relation to oil prices, but based on current production information there will probably be a short grace period between when ‘peak oil’ is officially attained and a correlative response from oil prices based on supply alone (when factoring out other influencing factors like speculation).
The reason for such a wide range of predictions from prognosticators can be largely attributed to a variety of different assumptions that were used to calculate future production levels. One of the first important points of contention when calculating a ‘peak oil’ date is classification of available oil reserves. Typically oil reserves can be classified in one of three different categories based on a confidence level correlating to the accuracy of the estimated amount: Proven, Probable and Possible. Proven reserves have a confidence level of 90-95%; probable reserves have a confidence level of 40-60%; possible reserves have a confidence level of 5-10%. Some estimation only take into account proven reserves where others extrapolate that new technology or higher oil prices will raise the probability of extraction from probable and/or possible reserves.
The biggest problem stemming from this classification system is that a large majority of oil wells are not independently audited, which leaves estimations on the total and remaining reserves of a given field to the country or private company that is operating the well. This single-source non-objective information is subject to frequent speculation regarding whether or not a given country is over-estimating or under-estimating its reserves and whether or not that error in estimation is intentional.8,9 Claims of over-estimation are frequently made against OPEC countries (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela) because within the OPEC operational and production structure, production rates are related to total available reserves. Basically the more oil a country in OPEC has, or claims to have as some critics point out, the more oil a country can produce and sell on the open market. Others claim that OPEC actually under-estimates available reserves in effort to convince the world that oil is a more valuable commodity which demands a higher market price.9
Under-estimation claims seem to have the potential for both a positive and negative motiviating factor on a psycological level. As stated earlier, if the global community believed that oil was more scarce than it actually was, then they would understand lower production rates and higher prices based on the simple premise of supply and demand. However, the belief in lower than actual oil supplies could also instill the drive to hasten the development and deployment of alternatives to oil to avoid economic calamity in the future when oil is no longer available. The development of these alternatives would result in much lower prices for oil and the omitted supply would then sell for a much lower value than if a genuine reserve number was reported. If such a result occurred it would likely lead to a high probability for an overall net loss for oil producers in an under-estimation scenario vs. a correct-estimation scenario. Interestingly enough, although this scenario seems to be probable theoretically, in practice most individuals do not seem to buy into it due to the snail pace at which oil alternatives are being developed. Therefore, there may be no psycoloical disadvantage to purposely under-estimating existing oil reserves.
With regards to over-estimating reserves, it is true that production potential on over-estimated reserves would be higher, however, if most of OPEC over-estimated their reserves with the intent to produce more, too much oil would flood the marketplace significantly lowering price causing OPEC, as it has done many times in the past, to cut production until oil price rebounds. Clearly all of the OPEC countries know that such a strategy would be implemented in the face of over-production; therefore, it does not appear that over-estimation would prove to be a useful tactic unless only a small number of OPEC countries did so. Under such a scenario it would be the OPEC countries with the smaller genuine reserves that would be more likely to over-estimate, but such an over-estimation would only create a small error relative to genuine global reserves, thus inconsequential to skewing global estimates. So from a logical perspective it does not appear that over-estimation makes much sense for OPEC countries, while under-estimation makes some sense, but realistically current estimates are probably fairly accurate based on current extraction and seismic measurement methodology. Of course the last statement assumes that OPEC countries will behave rationally, which is unclear.
Another element that will influence the time point of ‘peak oil’ is where capital investment in new oil exploration and extraction is directed. The IEA states that most investment capital is used for exploration and development of high-cost reserves because of access limitations on cheaper resources due to government policy.6 Most of these limitations come in the form of environmental concerns or nationalistic concerns in that the government wants a larger stake in the oil profits than any international bidder is willing to give.
One of the concerns with investment in future oil production may ironically be the projected pace of oil alternative research and deployment. The faster oil alternatives are injected into the marketplace, the lower the oil price would drop due to changing the demand curve despite dwindling supply. With a dropping oil price an increase in supply through investment in exploration and developing new wells will further decrease the price reducing the profitability prospects for those new wells making them less attractive for investment. However, at the moment large-scale deployment of alternatives does not appear to be a concern. Oil alternatives are largely vested in either food-derived bio-fuels or non-food-derived bio-fuels. Taking just the United States into account, the estimated production of food-derived bio-fuels for 2010 is 12.5 billion gallons a year or (4% of the EIA anticipated oil demand in 2010).10,11 Estimated production of non-food-derived bio-fuels for 2010 is 39 million gallons a year or 0.0127%.12 So next year bio-fuels could, under ideal circumstances, account for 4.0127% of the total oil consumption in the United States; clearly there is a lot of work left to do and that assumes that those estimates, which are on the high side, are met.
One of the best methods for removing investment barriers may be the formation of partnerships between national and international oil companies which would facilitate better profit sharing between the labor and capital investment made by the international company and the natural resources provided by the national company. Such partnerships may be necessary because the national companies that control most of the remaining oil do not have the capital, extraction technology or the personnel required to significantly increase production. In large respect national companies will have to learn that getting 45-50% of something is better than getting 100% of nothing.
A third concern with estimation is that source information from oil companies themselves do not have a uniform reserve categorization. For example British Petroleum (BP) includes crude oil, condensate and liquid natural gas in production databases whereas IEA uses all of those reserves as well as bio-fuels. Fortunately this concern only provides a problem when prognostication is not specific about what estimates are being used to determine production levels when predicting a time point for ‘peak oil’.
One of the biggest reasons most prognosticators believe ‘peak oil’ will occur in the next five years is the claim that peak production levels have been reached in non-OPEC countries, which provide 55-60% of all global oil.6 If over half of the global supply has peaked then gains in production made by those that can still make gains will be required to outpace the declines in production from the countries that have already peaked to ward off a global supply peak. If one believes that a Hubbert Curve is a reasonably accurate way to track the lifespan of an oil field, then it is unlikely that OPEC can make up for these loses without discovering a large untapped reservoir.
That said there are two issues that early ‘peak oil’ proponents are not considering. First, it is highly likely that non-OPEC production in 2008 was abnormally skewed downwards due to three separate events. The global economic recession sent oil prices in mid-2008 tumbling downwards, which made producing oil much less attractive thereby reducing production. Also production in the Gulf of Mexico was diminished due to higher than normal hurricane activity. Finally significant gas leaks slowed large amounts of oil production in Azerbaijan. Taking these factors into account it would be reasonable to anticipate oil production increases in late 2009 into 2010 at an overall level for non-OPEC countries. However, the rebound in production will be short-lived because the above factors have nothing to do with discovering new reserves to tap, they simply represent small reduction in production blips.
The second factor is the mystery box known as Iraq. In early 2001 geological surveys calculated the total reserve capacity of crude oil in Iraq at 115 billion barrels.13,14 However, due to the current government in operation during the time and limited available seismic technology (2-D instead of 3-D) there was reason to believe that this estimation is significantly lower than what is actually available. In addition recent events in Iraq, most notably a forced unilateral regime change driven conflict, have reduced production rate and capacity in the last seven years. New estimates have increased the potential crude oil by a little over 200% to 350 billion barrels.15 The reason for such a dramatic turnabout is that none of the previous surveys from 2001 and earlier focused any real attention on the vast deserts in Western Iraq where most of these new reserves are thought to be located.14,15
If this new estimate is correct and projecting future oil demand based on two scenarios, the EIA low price oil or high price oil scenario 11,16 then Iraq by itself could supply enough oil to feed global demand for an additional 10 years under low oil prices and 12 years under high oil prices delaying ‘peak oil’ beyond most of the existing projections. The biggest issue with tapping this reserve is the unfortunate reality that currently the Iraqi production capacity is pathetic. Huge levels of investment (billions of dollars a year) along with favorable investment rates for international oil companies and government cooperation between Shiite, Sunni and Kurds will be required if any reasonable amount of these new reserves will be relevant in the context of ‘peak oil’.
With the unpredictability of future new reserves, especially in Iraq, and the wide-ranging assumptions used by prognosticators it is difficult to identify a range for when production will reach an apex. However, even reaching an apex is not necessarily the end of the story, especially for the nature of future oil price, for there is another element that must be considered. Recall ‘peak oil’ focused on determining when oil production reached a maximum, but almost all estimates regarding that time point do not include unconventional sources of oil. Technically unconventional oil or liquids include oil shale, oil sands-based synthetic crudes, coal-to-liquids, gas-to-liquids, extra heavy oil and bitumen.17 Also bio-fuels can be classified as an unconventional liquid, but bio-fuels will be addressed separately.
Significant quantities of unconventional oil are available for extraction, but are not significantly tapped under the condition that it is not economical to do so. Basically it costs more to extract the product and convert it into usable oil then can be made on the market selling it. Although the numbers tend to fluctuate, a consistent dollar/barrel of oil price needs to range from 75-95 dollars for initial production with estimates after sufficient scale-up requiring 40-50 dollars per barrel for profitability although there is a significant question to the validity of the scale-up estimate because of uncertainty.18,19,20
The two principle large categories, with regard to supply, of unconventional oil are extra heavy oil and oil shale, thus the focus will be on these two unconventional oil resources. The reason extraction of extra heavy oil deposits is so difficult is they possess a density at or exceeding water, hence the name, which make them extremely difficult to be produced, transported and refined via conventional methods as conventional crude oil has a density lower than water. Also the concentrations of extra heavy oil are frequently contaminated with sulfur, nickel, vanadium and other metals. Removing these impurities from the production stream significantly increases costs.
Oil shale is organic-rich fine-grained sedimentary rock with large amounts of kerogen. Kerogen is defined as a solid mixture of organic chemical compounds that are insoluble in organic solvents.22 Due to its chemical components kerogen can be converted into oil through a thermal process like pyrolysis or hydrogenation.18,23 The minimum temperature for extraction of oil shale from kerogen is 250 C, but the process takes months, so frequently the thermal process uses temperatures of 480-520 C, which has been described as the maximum conversion rate.18
Extraction/processing of the kerogen normally occurs via above ground (ex-situ/displaced) through oil shale mining and then transfer of the kerogen to a processing plant where the appropriate thermal process is applied. However, new technologies have allowed for on-site underground processing (in-situ/in place), for example hydraulic fracturing, and then the extraction of resultant oil product through a standard well. Ex-situ processing is rather straightforward with regards to the economic costs and the environmental damage as it is similar to mining for coal with the addition of the thermal process at the end expelling additional CO2 into the atmosphere.
In situ processing typically involves heating the oil shale while it is still underground either through injection of a hot fluid or using a planar heating source and allowing thermal conduction and convection to divert the heat to the appropriate locations.24 Most in situ technologies are still in the experimental stages because of the off and on interest in unconventional sources (primarily based on the rise and fall of crude oil price over the last three decades). The chief advantage of in situ methods is that there is a higher probability for a greater capacity of unconventional extraction because the influx of the heating element is more cost-effective at reaching greater depths in unconventional oil deposits. Also in situ methods can extraction deposits of lower grade than ex situ methods.24
The biggest problem with extraction, regardless of technique, is the excessive levels of energy that are required and where that energy is going to come from. Trace to zero emission sources are not universally viable because they are site sensitive and/or intermittent. In the long term these options could become viable, but not at the present time. Natural gas, which is used in conventional oil extraction, is beginning to run short itself, at least conventional sources of natural gas. Similar to oil, unconventional sources of natural gas are available for processing, but it does not make sufficient economic sense to use these reserves. Extraction of expensive unconventional natural gas to power the extraction of expensive unconventional sources of oil typically would result in wasted money and unnecessary environmental damage. Therefore, extraction of these reserves may depend on construction of a nuclear plant near the point of extraction. Fortunately such a strategy is possible because a vast majority of the discovered unconventional oil in the world is concentrated over a small number of locations, so it would not require the construction of hundreds of nuclear plants.
Unfortunately concerns of economic viability are not the only caveat surrounding the extraction of oil shale. Currently the available extraction technology for these reserves is heavily detrimental to the environment. In addition to the generic damage generated by mining, ex situ extraction could result in additional acid drainage due to rapid oxidation of previously buried materials and excess metal contamination of water supplies.24 Ground water and soil contamination is the chief and a legitimate concern for in situ extraction.24 Also the fact that some in situ techniques are more effective when the ground water level at the site of extraction is lowered below the extraction site could increase the probability of surface damage due to flora requiring longer roots to access the water. Of course some argue that the extraction site will be significantly unfavorable for flora and fauna for a long time, thus water alteration is just beating a dead horse. Finally both extraction techniques involve the production of more greenhouse gas emissions than conventional oil extraction. Overall if one is willing to sacrifice the immediate environment around the extraction zone, in situ extraction is superior to ex situ in almost every way once the economics of scale drop a bit.
Despite all of these processing difficulties, the global estimated amount of oil shale in just the Athabasca Oil Sands (Alberta, Canada) and the Orinoco Extra Heavy Oil depsoit (Venezuela) only is approximately 1.638 trillion barrels of oil, which is 51.7 times the current yearly global oil consumption rate.11,16 Therefore, if all conventional oil production were to stop tomorrow, the supply from just these two regions, if tapped, would still be able to met the expected future demand of oil for over 37 years in the EIA high oil price scenario (highly likely if unconventional oil is being extracted) and 47 years in the EIA low oil price scenario. That additional time does not include the reserves in the Green River Formation in the Rocky Mountains, which are also sizable. In short it appears that a more appropriate designation for ‘peak oil’ should be representative of the point when more economically viable oil production (conventional oil) reaches a maximum.
The question of extraction also provides a catch-22 scenario in that if unconventional sources of oil are not tapped and alternatives are not available then not only will the price of oil be high, but more importantly there will be demand that is not met which will be severely detrimental to the global economy (people not able to go to work, fewer plastics and other hydrocarbon based products produced, lower food yields for farmers, etc.). However, if unconventional oil is tapped the price of oil will still be high (required to justify the higher capital costs of its extraction regardless of overall existing oil supply) and the environmental damage both from the extraction of oil and its eventual release into the atmosphere will be significant. Basically the options are global depression or accelerated global warming and lower quality environment. Overall it appears that if the status quo remains, society will have no real choice, but to tap into unconventional sources of oil to avoid a severe global depression due to the significant role that oil plays in the global economy. Also it is reasonable to suggest that any possible environmental damage from the extraction of these unconventional reserves could actually be less than the environmental damage brought on by a global depression due to unavailable capital to fund remediation, research and development and deployment efforts that would limit and/or reverse existing and future environmental damage. Of course that is only valid if that capital is directed toward environmental remediation programs.
Therefore, the future of oil use would be aided by one of two responses, a more economical and environmentally safe means of extracting unconventional oil sources or the introduction of an oil alternative that can be mass-produced. Unfortunately the first option appears unlikely, for oil producers have already devoted decades and millions of dollars in research to developing an economic means to extract oil shale and its ‘friends’ with little success. New methods have been produced, but nothing groundbreaking. With the prospects of developing unconventional oil extraction technologies that operate in an efficient and effective manner lacking, focus must be placed into developing alternatives that can scaled up quickly and cheaply and conservation methods that can be applied to limit oil use.
The chief conservation method involves the mass deployment of pure electric and plug-in hybrid vehicles. If the electrical grid used to supply the power to these vehicles consists of a trace to zero emission source then their application would not only significantly reduce oil use, but it would also reduce global emissions of CO2 and other greenhouse gases. The two biggest problems with mass deployment of a primary electrical vehicle fleet are the ‘chicken and egg’ question and the ability of the grid to handle mass charging over short time periods.
The ‘chicken and egg’ question involves the counterbalance between the absolute number of electrical vehicles available for purchase vs. the development of the proper infrastructure to facilitate the smooth operation of an electrical vehicle fleet. For instance what occurs first, the construction of the infrastructure or the mass production of electrical vehicles? Suppose the infrastructure is constructed first, such a project would be massive, expensive and potentially worthless if a large number of electrical vehicles were not purchased to justify the construction of a national electrical recharging infrastructure. Therefore, planners may wait until a significant number of electrical vehicles are purchased before beginning construction on the national or even local infrastructure; however, the lack of a viable infrastructure reduces the mobility of an electrical vehicle fleet reducing its attractiveness to potential buyers increasing the probability that fewer electrical vehicles are sold. This lack of vehicles then tracks back to the reduced rate of return in the construction of an infrastructure to support electric vehicles, an infrastructure that is needed to support increased electrical vehicle sales. Overall the ‘chicken and egg’ question is rather silly because when discussing it most exclude the simple fact that combustion-based vehicles will inevitably become too expensive to operate at some point in the future due to the eventual lack of existing oil. Construction of an electrical vehicle support infrastructure really has limited risk because of this eventual expense reality for combustion-based vehicles. So the real question is determining at what point in time after constructing the infrastructure it will become profitable.
The second problem is more significant because ideally the more electric vehicles are manufactured and purchased the better due to increased oil supply savings. However, because humans are generally diurnal most of the electrical vehicles will be charged during the night, millions of electrical vehicles demanding power from a portion of the electrical grid all at once, a demand that those who originally designed the grid would never have anticipated. This new stressor creates the very real problem that the grid could be unable to support all processes that demand electricity creating rolling blackouts. Therefore, to support a new electrical grid for an electrical car fleet, significant changes will have to be made to the existing grid. Fortunately the requisite changes coincide with other grid changes that need to be made to reduce electricity inefficiency and better accommodate the application of renewable energy to the grid, so the importance of making these changes is magnified increasing the probability of its occurrence.
Substitution of petroleum in favor of biological-based oils (bio-fuels) is also a favored option for both saving oil and eventually supplanting oil. Unfortunately there are two significant problems plaguing bio-fuels. First, bio-fuels are most easily produced through food-based feedstock due to the lax energy requirements to ferment the sugars from starch into ethanol; however, the production of a large enough quantity of bio-fuel seems implausible because the shear amount of feedstock that would be required to generate production rates of even 10-20 million barrels a day (420 to 840 million gallons or 20-25% of the global demand) would heavily tax available food supplies and mass starvation in even developed countries would be highly probable.
Without the ability to tap into food stocks to provide the feedstock, any future supplies of bio-fuel need to originate from non-food sources. The two most viable candidates to synthesize this type of bio-fuel are cellulous and algae. Synthesis from cellulous sources is problematic due to the excessive energy costs associated with breaking the chemical bonds that make up cellulous. However, if the correct enzyme is discovered then this energy obstacle would insignificant. Synthesis from algae sources is thought to be easier than cellulous, but has its own overhead costs because production rate is entirely dependent on the total mass of algae within the perspective environment, thus enough bioreactors (i.e. space) needs to be set aside for algae growth. Also if any detrimental condition afflicts the algae, production losses could cascade rather quickly taking a large chunk out of the alternative oil supply.
The second problem for bio-fuels is that ethanol cannot simply be dumped into the standard combustion-based engine, but instead it either has to be combined with a significant amount of gasoline, usually in a 20-80 mixture (ethanol-gasoline) or the engine needs to be retrofitted to operate properly with the ethanol. So, unless a new synthesis methodology is developed or an expanded retrofit infrastructure is established, the ability of bio-fuels to influence oil use in transportation sector appears to be limited.
Reduced oil consumption can be achieved without the administration of new technologies such as electric or bio-fuel based vehicles. New investment in the development of mass transit options like buses and light rail could reduce both the capital required for the deployment of these new technologies as well as reduce oil use both in the short-term and the long-term. Unfortunately there does not appear to be a sufficient drive for reinvestment in older mass transit technologies reducing the probability that such a strategy will play a meaningful role in the reduction of oil consumption.
Although pinpointing the exact time point of ‘peak oil’ and the resultant spike in oil prices due to lack of supply, rather than due to short-term temporal factors, seems to be important it really isn’t. Regardless of whether or not non-conventional sources are tapped, it is highly probable that oil itself will become less and less economically attractive as time passes demanding the rapid production and deployment of oil alternatives to avoid economic slowdown in the global economy. There appear to be two elements that must happen to avoid significant economic slowdown in the future due to lack of oil, confirmation and appropriate heavy investment in Iraqi oil development and devotion of significant capital and effort to aiding the development of alternative oil-based resources.
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http://www.nevtahoilsands.com/pdf/Oil-Shale-and-Tar-Sands-Company-Profiles.pdf
24. “Environmental Impacts from Mining.” Office of Surface Mining. 2006.http://www.ott.wrcc.osmre.gov/library/hbmanual/epa530c/chapter3.pdf.
Before getting into specifics regarding ‘peak oil’, a background regarding it as a concept and its influence would prove useful. Although the concept of ‘peak oil’ seems simple enough, attaining a maximum of oil production be it in a specific country or globally, such a simplistic viewpoint can easily lead to misidentifying the actual situation. For the last 150 years oil production has steadily increased worldwide, largely due to emerging new technologies making exploration and extraction more economical and an unyielding demand for oil guaranteeing a viable market, which drives investment. Although demand for oil continues to increase the problem of supply has become more of a concern for producers. Recall that oil is not a short-term renewable resource in that the creation of new crude oil-based supplies would require millions of years, something that is clearly not tenable. Due to the limited supply and escalating demand, most commentators have proposed that oil production will peak at some point in the future, if not already. However, those prognostications have proven to be the first significant problem when preparing for ‘peak oil’ in that the predictions are all over the map.
M. King Hubbert, one of the first oil prognosticators and developer of the appropriately named Hubbert Curve detailing the lifecycle of oil reserves for a given well, believed in 1974 that peak oil would be met sometime in the mid to late 1990s.1 Others, like Sadad Al Husseini, a former head of production for Saudi Aramco (the world’s largest oil company), the Energy Information Administration (EIA) and The Association for the Study of Peak Oil and Gas and Energy Watch Group (EWG) all believe that ‘peak oil’ was reached during the last 3-5 years.2,3,4 In late 2008 the Industry Taskforce on Peak Oil and Energy Security (ITPOES) identified peak oil occuring at 2013.5 The International Energy Administration (IEA) believes that peak oil will occur sometime between 2020 and 20306 while others still, like Abdullah S. Jum’ah, President of Saudi Aramco, believe peak oil is still over a century away.7 Overall it is difficult to get a straight answer when talking to various oil executives because each one seems to have a different estimation for ‘peak oil’.
The first issue that should be addressed regarding the topic of ‘peak oil’ is that some use global demand as a factor when classifying a time point for ‘peak oil’, a strategy that does not appear to be reasonable because the nature of ‘peak oil’ itself should not have anything to do with demand, but instead only when oil production will reach a maxima. Tracking global demand is important because of its relation to oil prices, but based on current production information there will probably be a short grace period between when ‘peak oil’ is officially attained and a correlative response from oil prices based on supply alone (when factoring out other influencing factors like speculation).
The reason for such a wide range of predictions from prognosticators can be largely attributed to a variety of different assumptions that were used to calculate future production levels. One of the first important points of contention when calculating a ‘peak oil’ date is classification of available oil reserves. Typically oil reserves can be classified in one of three different categories based on a confidence level correlating to the accuracy of the estimated amount: Proven, Probable and Possible. Proven reserves have a confidence level of 90-95%; probable reserves have a confidence level of 40-60%; possible reserves have a confidence level of 5-10%. Some estimation only take into account proven reserves where others extrapolate that new technology or higher oil prices will raise the probability of extraction from probable and/or possible reserves.
The biggest problem stemming from this classification system is that a large majority of oil wells are not independently audited, which leaves estimations on the total and remaining reserves of a given field to the country or private company that is operating the well. This single-source non-objective information is subject to frequent speculation regarding whether or not a given country is over-estimating or under-estimating its reserves and whether or not that error in estimation is intentional.8,9 Claims of over-estimation are frequently made against OPEC countries (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela) because within the OPEC operational and production structure, production rates are related to total available reserves. Basically the more oil a country in OPEC has, or claims to have as some critics point out, the more oil a country can produce and sell on the open market. Others claim that OPEC actually under-estimates available reserves in effort to convince the world that oil is a more valuable commodity which demands a higher market price.9
Under-estimation claims seem to have the potential for both a positive and negative motiviating factor on a psycological level. As stated earlier, if the global community believed that oil was more scarce than it actually was, then they would understand lower production rates and higher prices based on the simple premise of supply and demand. However, the belief in lower than actual oil supplies could also instill the drive to hasten the development and deployment of alternatives to oil to avoid economic calamity in the future when oil is no longer available. The development of these alternatives would result in much lower prices for oil and the omitted supply would then sell for a much lower value than if a genuine reserve number was reported. If such a result occurred it would likely lead to a high probability for an overall net loss for oil producers in an under-estimation scenario vs. a correct-estimation scenario. Interestingly enough, although this scenario seems to be probable theoretically, in practice most individuals do not seem to buy into it due to the snail pace at which oil alternatives are being developed. Therefore, there may be no psycoloical disadvantage to purposely under-estimating existing oil reserves.
With regards to over-estimating reserves, it is true that production potential on over-estimated reserves would be higher, however, if most of OPEC over-estimated their reserves with the intent to produce more, too much oil would flood the marketplace significantly lowering price causing OPEC, as it has done many times in the past, to cut production until oil price rebounds. Clearly all of the OPEC countries know that such a strategy would be implemented in the face of over-production; therefore, it does not appear that over-estimation would prove to be a useful tactic unless only a small number of OPEC countries did so. Under such a scenario it would be the OPEC countries with the smaller genuine reserves that would be more likely to over-estimate, but such an over-estimation would only create a small error relative to genuine global reserves, thus inconsequential to skewing global estimates. So from a logical perspective it does not appear that over-estimation makes much sense for OPEC countries, while under-estimation makes some sense, but realistically current estimates are probably fairly accurate based on current extraction and seismic measurement methodology. Of course the last statement assumes that OPEC countries will behave rationally, which is unclear.
Another element that will influence the time point of ‘peak oil’ is where capital investment in new oil exploration and extraction is directed. The IEA states that most investment capital is used for exploration and development of high-cost reserves because of access limitations on cheaper resources due to government policy.6 Most of these limitations come in the form of environmental concerns or nationalistic concerns in that the government wants a larger stake in the oil profits than any international bidder is willing to give.
One of the concerns with investment in future oil production may ironically be the projected pace of oil alternative research and deployment. The faster oil alternatives are injected into the marketplace, the lower the oil price would drop due to changing the demand curve despite dwindling supply. With a dropping oil price an increase in supply through investment in exploration and developing new wells will further decrease the price reducing the profitability prospects for those new wells making them less attractive for investment. However, at the moment large-scale deployment of alternatives does not appear to be a concern. Oil alternatives are largely vested in either food-derived bio-fuels or non-food-derived bio-fuels. Taking just the United States into account, the estimated production of food-derived bio-fuels for 2010 is 12.5 billion gallons a year or (4% of the EIA anticipated oil demand in 2010).10,11 Estimated production of non-food-derived bio-fuels for 2010 is 39 million gallons a year or 0.0127%.12 So next year bio-fuels could, under ideal circumstances, account for 4.0127% of the total oil consumption in the United States; clearly there is a lot of work left to do and that assumes that those estimates, which are on the high side, are met.
One of the best methods for removing investment barriers may be the formation of partnerships between national and international oil companies which would facilitate better profit sharing between the labor and capital investment made by the international company and the natural resources provided by the national company. Such partnerships may be necessary because the national companies that control most of the remaining oil do not have the capital, extraction technology or the personnel required to significantly increase production. In large respect national companies will have to learn that getting 45-50% of something is better than getting 100% of nothing.
A third concern with estimation is that source information from oil companies themselves do not have a uniform reserve categorization. For example British Petroleum (BP) includes crude oil, condensate and liquid natural gas in production databases whereas IEA uses all of those reserves as well as bio-fuels. Fortunately this concern only provides a problem when prognostication is not specific about what estimates are being used to determine production levels when predicting a time point for ‘peak oil’.
One of the biggest reasons most prognosticators believe ‘peak oil’ will occur in the next five years is the claim that peak production levels have been reached in non-OPEC countries, which provide 55-60% of all global oil.6 If over half of the global supply has peaked then gains in production made by those that can still make gains will be required to outpace the declines in production from the countries that have already peaked to ward off a global supply peak. If one believes that a Hubbert Curve is a reasonably accurate way to track the lifespan of an oil field, then it is unlikely that OPEC can make up for these loses without discovering a large untapped reservoir.
That said there are two issues that early ‘peak oil’ proponents are not considering. First, it is highly likely that non-OPEC production in 2008 was abnormally skewed downwards due to three separate events. The global economic recession sent oil prices in mid-2008 tumbling downwards, which made producing oil much less attractive thereby reducing production. Also production in the Gulf of Mexico was diminished due to higher than normal hurricane activity. Finally significant gas leaks slowed large amounts of oil production in Azerbaijan. Taking these factors into account it would be reasonable to anticipate oil production increases in late 2009 into 2010 at an overall level for non-OPEC countries. However, the rebound in production will be short-lived because the above factors have nothing to do with discovering new reserves to tap, they simply represent small reduction in production blips.
The second factor is the mystery box known as Iraq. In early 2001 geological surveys calculated the total reserve capacity of crude oil in Iraq at 115 billion barrels.13,14 However, due to the current government in operation during the time and limited available seismic technology (2-D instead of 3-D) there was reason to believe that this estimation is significantly lower than what is actually available. In addition recent events in Iraq, most notably a forced unilateral regime change driven conflict, have reduced production rate and capacity in the last seven years. New estimates have increased the potential crude oil by a little over 200% to 350 billion barrels.15 The reason for such a dramatic turnabout is that none of the previous surveys from 2001 and earlier focused any real attention on the vast deserts in Western Iraq where most of these new reserves are thought to be located.14,15
If this new estimate is correct and projecting future oil demand based on two scenarios, the EIA low price oil or high price oil scenario 11,16 then Iraq by itself could supply enough oil to feed global demand for an additional 10 years under low oil prices and 12 years under high oil prices delaying ‘peak oil’ beyond most of the existing projections. The biggest issue with tapping this reserve is the unfortunate reality that currently the Iraqi production capacity is pathetic. Huge levels of investment (billions of dollars a year) along with favorable investment rates for international oil companies and government cooperation between Shiite, Sunni and Kurds will be required if any reasonable amount of these new reserves will be relevant in the context of ‘peak oil’.
With the unpredictability of future new reserves, especially in Iraq, and the wide-ranging assumptions used by prognosticators it is difficult to identify a range for when production will reach an apex. However, even reaching an apex is not necessarily the end of the story, especially for the nature of future oil price, for there is another element that must be considered. Recall ‘peak oil’ focused on determining when oil production reached a maximum, but almost all estimates regarding that time point do not include unconventional sources of oil. Technically unconventional oil or liquids include oil shale, oil sands-based synthetic crudes, coal-to-liquids, gas-to-liquids, extra heavy oil and bitumen.17 Also bio-fuels can be classified as an unconventional liquid, but bio-fuels will be addressed separately.
Significant quantities of unconventional oil are available for extraction, but are not significantly tapped under the condition that it is not economical to do so. Basically it costs more to extract the product and convert it into usable oil then can be made on the market selling it. Although the numbers tend to fluctuate, a consistent dollar/barrel of oil price needs to range from 75-95 dollars for initial production with estimates after sufficient scale-up requiring 40-50 dollars per barrel for profitability although there is a significant question to the validity of the scale-up estimate because of uncertainty.18,19,20
The two principle large categories, with regard to supply, of unconventional oil are extra heavy oil and oil shale, thus the focus will be on these two unconventional oil resources. The reason extraction of extra heavy oil deposits is so difficult is they possess a density at or exceeding water, hence the name, which make them extremely difficult to be produced, transported and refined via conventional methods as conventional crude oil has a density lower than water. Also the concentrations of extra heavy oil are frequently contaminated with sulfur, nickel, vanadium and other metals. Removing these impurities from the production stream significantly increases costs.
Oil shale is organic-rich fine-grained sedimentary rock with large amounts of kerogen. Kerogen is defined as a solid mixture of organic chemical compounds that are insoluble in organic solvents.22 Due to its chemical components kerogen can be converted into oil through a thermal process like pyrolysis or hydrogenation.18,23 The minimum temperature for extraction of oil shale from kerogen is 250 C, but the process takes months, so frequently the thermal process uses temperatures of 480-520 C, which has been described as the maximum conversion rate.18
Extraction/processing of the kerogen normally occurs via above ground (ex-situ/displaced) through oil shale mining and then transfer of the kerogen to a processing plant where the appropriate thermal process is applied. However, new technologies have allowed for on-site underground processing (in-situ/in place), for example hydraulic fracturing, and then the extraction of resultant oil product through a standard well. Ex-situ processing is rather straightforward with regards to the economic costs and the environmental damage as it is similar to mining for coal with the addition of the thermal process at the end expelling additional CO2 into the atmosphere.
In situ processing typically involves heating the oil shale while it is still underground either through injection of a hot fluid or using a planar heating source and allowing thermal conduction and convection to divert the heat to the appropriate locations.24 Most in situ technologies are still in the experimental stages because of the off and on interest in unconventional sources (primarily based on the rise and fall of crude oil price over the last three decades). The chief advantage of in situ methods is that there is a higher probability for a greater capacity of unconventional extraction because the influx of the heating element is more cost-effective at reaching greater depths in unconventional oil deposits. Also in situ methods can extraction deposits of lower grade than ex situ methods.24
The biggest problem with extraction, regardless of technique, is the excessive levels of energy that are required and where that energy is going to come from. Trace to zero emission sources are not universally viable because they are site sensitive and/or intermittent. In the long term these options could become viable, but not at the present time. Natural gas, which is used in conventional oil extraction, is beginning to run short itself, at least conventional sources of natural gas. Similar to oil, unconventional sources of natural gas are available for processing, but it does not make sufficient economic sense to use these reserves. Extraction of expensive unconventional natural gas to power the extraction of expensive unconventional sources of oil typically would result in wasted money and unnecessary environmental damage. Therefore, extraction of these reserves may depend on construction of a nuclear plant near the point of extraction. Fortunately such a strategy is possible because a vast majority of the discovered unconventional oil in the world is concentrated over a small number of locations, so it would not require the construction of hundreds of nuclear plants.
Unfortunately concerns of economic viability are not the only caveat surrounding the extraction of oil shale. Currently the available extraction technology for these reserves is heavily detrimental to the environment. In addition to the generic damage generated by mining, ex situ extraction could result in additional acid drainage due to rapid oxidation of previously buried materials and excess metal contamination of water supplies.24 Ground water and soil contamination is the chief and a legitimate concern for in situ extraction.24 Also the fact that some in situ techniques are more effective when the ground water level at the site of extraction is lowered below the extraction site could increase the probability of surface damage due to flora requiring longer roots to access the water. Of course some argue that the extraction site will be significantly unfavorable for flora and fauna for a long time, thus water alteration is just beating a dead horse. Finally both extraction techniques involve the production of more greenhouse gas emissions than conventional oil extraction. Overall if one is willing to sacrifice the immediate environment around the extraction zone, in situ extraction is superior to ex situ in almost every way once the economics of scale drop a bit.
Despite all of these processing difficulties, the global estimated amount of oil shale in just the Athabasca Oil Sands (Alberta, Canada) and the Orinoco Extra Heavy Oil depsoit (Venezuela) only is approximately 1.638 trillion barrels of oil, which is 51.7 times the current yearly global oil consumption rate.11,16 Therefore, if all conventional oil production were to stop tomorrow, the supply from just these two regions, if tapped, would still be able to met the expected future demand of oil for over 37 years in the EIA high oil price scenario (highly likely if unconventional oil is being extracted) and 47 years in the EIA low oil price scenario. That additional time does not include the reserves in the Green River Formation in the Rocky Mountains, which are also sizable. In short it appears that a more appropriate designation for ‘peak oil’ should be representative of the point when more economically viable oil production (conventional oil) reaches a maximum.
The question of extraction also provides a catch-22 scenario in that if unconventional sources of oil are not tapped and alternatives are not available then not only will the price of oil be high, but more importantly there will be demand that is not met which will be severely detrimental to the global economy (people not able to go to work, fewer plastics and other hydrocarbon based products produced, lower food yields for farmers, etc.). However, if unconventional oil is tapped the price of oil will still be high (required to justify the higher capital costs of its extraction regardless of overall existing oil supply) and the environmental damage both from the extraction of oil and its eventual release into the atmosphere will be significant. Basically the options are global depression or accelerated global warming and lower quality environment. Overall it appears that if the status quo remains, society will have no real choice, but to tap into unconventional sources of oil to avoid a severe global depression due to the significant role that oil plays in the global economy. Also it is reasonable to suggest that any possible environmental damage from the extraction of these unconventional reserves could actually be less than the environmental damage brought on by a global depression due to unavailable capital to fund remediation, research and development and deployment efforts that would limit and/or reverse existing and future environmental damage. Of course that is only valid if that capital is directed toward environmental remediation programs.
Therefore, the future of oil use would be aided by one of two responses, a more economical and environmentally safe means of extracting unconventional oil sources or the introduction of an oil alternative that can be mass-produced. Unfortunately the first option appears unlikely, for oil producers have already devoted decades and millions of dollars in research to developing an economic means to extract oil shale and its ‘friends’ with little success. New methods have been produced, but nothing groundbreaking. With the prospects of developing unconventional oil extraction technologies that operate in an efficient and effective manner lacking, focus must be placed into developing alternatives that can scaled up quickly and cheaply and conservation methods that can be applied to limit oil use.
The chief conservation method involves the mass deployment of pure electric and plug-in hybrid vehicles. If the electrical grid used to supply the power to these vehicles consists of a trace to zero emission source then their application would not only significantly reduce oil use, but it would also reduce global emissions of CO2 and other greenhouse gases. The two biggest problems with mass deployment of a primary electrical vehicle fleet are the ‘chicken and egg’ question and the ability of the grid to handle mass charging over short time periods.
The ‘chicken and egg’ question involves the counterbalance between the absolute number of electrical vehicles available for purchase vs. the development of the proper infrastructure to facilitate the smooth operation of an electrical vehicle fleet. For instance what occurs first, the construction of the infrastructure or the mass production of electrical vehicles? Suppose the infrastructure is constructed first, such a project would be massive, expensive and potentially worthless if a large number of electrical vehicles were not purchased to justify the construction of a national electrical recharging infrastructure. Therefore, planners may wait until a significant number of electrical vehicles are purchased before beginning construction on the national or even local infrastructure; however, the lack of a viable infrastructure reduces the mobility of an electrical vehicle fleet reducing its attractiveness to potential buyers increasing the probability that fewer electrical vehicles are sold. This lack of vehicles then tracks back to the reduced rate of return in the construction of an infrastructure to support electric vehicles, an infrastructure that is needed to support increased electrical vehicle sales. Overall the ‘chicken and egg’ question is rather silly because when discussing it most exclude the simple fact that combustion-based vehicles will inevitably become too expensive to operate at some point in the future due to the eventual lack of existing oil. Construction of an electrical vehicle support infrastructure really has limited risk because of this eventual expense reality for combustion-based vehicles. So the real question is determining at what point in time after constructing the infrastructure it will become profitable.
The second problem is more significant because ideally the more electric vehicles are manufactured and purchased the better due to increased oil supply savings. However, because humans are generally diurnal most of the electrical vehicles will be charged during the night, millions of electrical vehicles demanding power from a portion of the electrical grid all at once, a demand that those who originally designed the grid would never have anticipated. This new stressor creates the very real problem that the grid could be unable to support all processes that demand electricity creating rolling blackouts. Therefore, to support a new electrical grid for an electrical car fleet, significant changes will have to be made to the existing grid. Fortunately the requisite changes coincide with other grid changes that need to be made to reduce electricity inefficiency and better accommodate the application of renewable energy to the grid, so the importance of making these changes is magnified increasing the probability of its occurrence.
Substitution of petroleum in favor of biological-based oils (bio-fuels) is also a favored option for both saving oil and eventually supplanting oil. Unfortunately there are two significant problems plaguing bio-fuels. First, bio-fuels are most easily produced through food-based feedstock due to the lax energy requirements to ferment the sugars from starch into ethanol; however, the production of a large enough quantity of bio-fuel seems implausible because the shear amount of feedstock that would be required to generate production rates of even 10-20 million barrels a day (420 to 840 million gallons or 20-25% of the global demand) would heavily tax available food supplies and mass starvation in even developed countries would be highly probable.
Without the ability to tap into food stocks to provide the feedstock, any future supplies of bio-fuel need to originate from non-food sources. The two most viable candidates to synthesize this type of bio-fuel are cellulous and algae. Synthesis from cellulous sources is problematic due to the excessive energy costs associated with breaking the chemical bonds that make up cellulous. However, if the correct enzyme is discovered then this energy obstacle would insignificant. Synthesis from algae sources is thought to be easier than cellulous, but has its own overhead costs because production rate is entirely dependent on the total mass of algae within the perspective environment, thus enough bioreactors (i.e. space) needs to be set aside for algae growth. Also if any detrimental condition afflicts the algae, production losses could cascade rather quickly taking a large chunk out of the alternative oil supply.
The second problem for bio-fuels is that ethanol cannot simply be dumped into the standard combustion-based engine, but instead it either has to be combined with a significant amount of gasoline, usually in a 20-80 mixture (ethanol-gasoline) or the engine needs to be retrofitted to operate properly with the ethanol. So, unless a new synthesis methodology is developed or an expanded retrofit infrastructure is established, the ability of bio-fuels to influence oil use in transportation sector appears to be limited.
Reduced oil consumption can be achieved without the administration of new technologies such as electric or bio-fuel based vehicles. New investment in the development of mass transit options like buses and light rail could reduce both the capital required for the deployment of these new technologies as well as reduce oil use both in the short-term and the long-term. Unfortunately there does not appear to be a sufficient drive for reinvestment in older mass transit technologies reducing the probability that such a strategy will play a meaningful role in the reduction of oil consumption.
Although pinpointing the exact time point of ‘peak oil’ and the resultant spike in oil prices due to lack of supply, rather than due to short-term temporal factors, seems to be important it really isn’t. Regardless of whether or not non-conventional sources are tapped, it is highly probable that oil itself will become less and less economically attractive as time passes demanding the rapid production and deployment of oil alternatives to avoid economic slowdown in the global economy. There appear to be two elements that must happen to avoid significant economic slowdown in the future due to lack of oil, confirmation and appropriate heavy investment in Iraqi oil development and devotion of significant capital and effort to aiding the development of alternative oil-based resources.
==
1. Grove, Noel. “Oil, the Dwindling Treasure.” National Geographic. June 1974.
2. Cohen, Dave. “The Perfect Storm.” Association for the Study of Peak Oil and Gas. 2007. http://www.aspousa.com/archives/index.php?option=com_content&task=view&id=243&Itemid=91.
3. “Newsletter”. Ireland: Association for the Study of Peak Oil and Gas. 2008.
http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter89_200805.pdf.
4. Zittel, Werner, and Schindler, Jorg. “Crude Oil: The Supply Outlook.” Energy Watch Group. 2007. EWG-Series 3.
http://www.energywatchgroup.org/fileadmin/global/pdf/EWG_Oilreport_10-2007.pdf.
5. “The Oil Crunch: Securing the UK’s Energy Future.” UK Industry Taskforce on Peak Oil and Energy Security. 2008. http://peakoil.solarcentury.com/
6. “World Energy Outlook 2008 – Executive Summary.” International Energy Administration. 2009. http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf
7. Izunda, Uchenna. “Aramco Chief says World’s Oil Reserves will Last for more than a Century.” Oil and Gas Journal.
http://www.ogj.com/display_article/312081/7/ONART/none/GenIn/1/WEC:-Saudi-Aramco-chief-dismisses-peak-oil-fears/. Retrieved 2009-07-07.
8. Gaurav, Sodhi. “The Myth of OPEC.” Australian Financial Review. 2008. http://www.cis.org.au/executive_highlights/EH2008/eh63608.html.
9. Learsy, Raymond. “OPEC Follies – Breaking Point.” National Review. 2004. http://www.nationalreview.com/comment/learsy200312040900.asp.
10. “U.S. EPA raises biofuel target for 2008 to 7.76 percent.” Mongabay. 2008.
http://news.mongabay.com/bioenergy/2008/02/us-epa-raises-biofuel-target-for-2008.html
11. “International Energy Outlook 2009.” Table D4. World Liquids Consumption by Region, High Oil Price Case, 1990-2030. Energy Information Administration. May 2009.
12. Borrel, Brendan. “Biofuel Fraud Case Could Leave the EPA Running on Fumes.” Scientific American Magazine July 2009. http://www.scientificamerican.com/article.cfm?id=cello-biofuel-fraud-case
13. “Iraq Oil.” Energy Information Administration. Country Analysis Briefs. 2007.
14. Luft, Gal. “How Much Oil Does Iraq Have?” The Brookings Institution. 2003.
15. Verma, Sonia. “Iraq could have largest oil reserves in the world.” The Times. May 20, 2008. http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3964957.ece
16. “International Energy Outlook 2009.” Table E4. World Liquids Consumption by Region, Low Oil Price Case, 1990-2030. Energy Information Administration. May 2009.
17. “International Energy Outlook 2009.” Energy Information Administration. May 2009. pp 9.
18. “A study on the EU oil shale industry viewed in the light of the Estonian experience. A report by EASAC to the Committee on Industry, Research and Energy of the European Parliament.” European Academies Science Advisory Council. May 2007. http://www.easac.org/displaypagedoc.asp?id=78
19. Bartis, James, et, Al. “Oil Shale Development in the United States. Prospects and Policy Issues. Prepared for the National Energy Technology Laboratory of the United States Department of Energy.” The RAND Corporation. 2005.
20. Speckman, Stephen. “Shale Oil – Now?” Desert News. 2006. http://www.shaleoilnow.com/CanDoAt40.pdf
21. Luik, Hans. “Alternative technologies for Oil Shale Liquefaction and Upgrading.” International Oil Shale Symposium. Tallinn University of Technology. 2009.
22. en.wiktionary.org/wiki/kerogen
23. “Secure Fuels from Domestic Resources: The Continuing Evolution of America’s Oil Shale and Tar Sands Industries.” Department of Energy (DOE). 2007.
http://www.nevtahoilsands.com/pdf/Oil-Shale-and-Tar-Sands-Company-Profiles.pdf
24. “Environmental Impacts from Mining.” Office of Surface Mining. 2006.http://www.ott.wrcc.osmre.gov/library/hbmanual/epa530c/chapter3.pdf.
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