Global Oil & Natural Gas Shortages

PhiliousPhogg

In all the discussion about how economies can recover, it seems minimal attention is given to oil & natural gas prices, which are central to the working of every economy on the planet. All of these bailout packages have been put together on the assumption that economies will return to long term growth & there will be an ultimate rise in growth & living standards once it all levels off. However I have to doubt the grand assumption that supplies of oil for our energy, transport, plastics and petrochemical industries will continue to flow at favourable prices for us to see a recovery to the prosperity we have seen before.

Although the Global Financial Crisis was caused by over a decade of credit expansion, a spike in oil prices in 2008 sparked it off. Now the debtholders have taken a hit but there's still a lot of debt out there being propped up by bailout packages and rock bottom interest rates. Who is to say another spike in oil prices won't shatter the serviceability of debtors, what these bailout packages were intended to do?

What's the likelihood of that happening? Well, my problem is that it's not being considered in the mainstream media or by government figures. There is a constant assumption that economies hit downturns and then recover. I have to doubt that assumption.

I can identify some literature from pretty reliable sources about global oil & gas reserves being alarmingly low. In the interest of short term stability the issue is being swept under the carpet.

US military warns oil output may dip causing massive shortages by 2015
http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

Key oil figures were distorted by US pressure, says whistleblower
http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency

World will struggle to meet oil demand - International Energy Agency (intergovernmental organisation)
http://us.ft.com/ftgateway/superpage.ft?news_id=fto102820081946028915

Washington considers a decline of world oil production as of 2011
http://petrole.blog.lemonde.fr/2010/03/25/washington-considers-a-decline-of-world-oil-production-as-of-2011/

Wikipedia bio of Colin Campbell - Peak Oil advocate (his past experience is quite impressive)
http://en.wikipedia.org/wiki/Colin_Campbell_(geologist)

Interview with Chief Economist of International Energy Agency
http://www.politicsandcurrentaffairs.co.uk/Forum/peak-oil-economics-environment/48387-fatih-birol-interview-leave.html

And an excerpt from this 2006 article in the UK Independant which spells out the issue:

We have allowed oil to become vital to virtually everything we do. Ninety per cent of all our transportation, whether by land, air or sea, is fuelled by oil. Ninety-five per cent of all goods in shops involve the use of oil. Ninety-five per cent of all our food products require oil use. Just to farm a single cow and deliver it to market requires six barrels of oil, enough to drive a car from New York to Los Angeles. The world consumes more than 80 million barrels of oil a day, 29 billion barrels a year, at the time of writing. This figure is rising fast, as it has done for decades. The almost universal expectation is that it will keep doing so for years to come. The US government assumes that global demand will grow to around 120 million barrels a day, 43 billion barrels a year, by 2025. Few question the feasibility of this requirement, or the oil industry's ability to meet it.

Indeed as I see it, OPEC and the world's major governments are adverse to highlighting the issue as they all want economic stability as a priority, for as long as possible. If the US sounds warnings and curtails it's oil & gas consumption (as President Carter wanted), that hands the initiative to other countries to use up the remaining reserves and gain competitive advantage in doing so. What the US has actually done is invaded the second largest oil producer in the world. One thing is for sure, the US government and the major oil companies have a history of dirty politics.

From what I can see people have a vague idea of oil & natural gas being available for another 30+ years, certainly no cause for alarm just yet. But what is that 30+ years based on? Some people also believe there can be a transition to renewables and nuclear energy. However renewables & nuclear can't replace the plastics industries and all that rely on them, can't ship food across our oceans and into our cities, can't artificially fertilise the soil to feed the swelling world population.

I believe that the mass of people are blissfully unaware of 1) just how much the worlds societies rely on oil, and 2) the depletion of reserves.

I came across this issue about 6 months ago when it was described with good clarity in a 2009 documentary called Collapse. Sometimes things need to be spelled out for you to get it, I don't think the trailor even does it justice. I must emphasise that it is presented with clarity and sincerety and there isn't the usual scaremongering & sensationalism that can go with these topics. I've been reading up on the issue since, and the majority of economic literature I see in the media pales in significance now. Any opinions?

Hasschu

There is a degree of flexibility built into fuel consumption. Users of large amounts of energy can switch from oil to gas to electricity within 60 days. Sometimes the companies build in this flexibility voluntarily and sometimes it is mandated by local or national governments. Sources of energy are coal, oil, gas, nuclear, wood, peat, bio waste, hydro, wind, solar, animal. The world is quite adaptable and the oil doomsday scenario will not be as severe as depicted. The US is mandating smaller and more fuel efficient vehicles, even the US is planning for less plentiful oil supplies. Public transit tracked and electric powered is a booming business in places as far apart as Riyadh, Saudi Arabia and Denver, USA. The world will not stop and we will not have to get off. We will adapt and life will go on. The pony and cart or ass and cart will not be the common mode of transport in our lifetimes. Will we be inconvenienced, yes we will.

DaSilva

Hasschu wrote: »

Users of large amounts of energy can switch from oil to gas to electricity within 60 days.

Wow what makes you think the worlds oil and gas power plants can switch to coal in that time frame? Do you think any country has anywhere near enough energy capacity from non oil/gas sources? They don't.

Hasschu wrote: »

The world is quite adaptable and the oil doomsday scenario will not be as severe as depicted.

What is this prediction based on?

Hasschu wrote: »

We will adapt and life will go on.

We have currently a major financial crisis on our hands because of this attitude, this is amazingly similar to talk of a soft landing.

It is seriously alarming not the potential energy crisis but to hear such a blasé attitude to the potential seriousness of this.
We need to make major changes now, we need to lower our dependence on oil now, it will be extremely serious if we don't.
Think of these warnings you hear about a future energy crisis or climate crisis the way the public should have thought about the warnings some economists gave for our economy. Do not fool yourselves again, problems don't go away by looking away, if we act now it can be managed.

Also, just as an interesting side note, the chief economist of BP (who you could consider akin to bank a spokesman before the crash) while conveniently denying the possibility of a limit in oil production actually seems concerned about climate change.

I'm not saying panic, I'm not saying it's a problem yet, but we have to act now, or we will have a crisis.

Hasschu

We have a major financial crisis on our hands because of the incompetence of our government who were aided and abetted by the banks and some developers. I did not state that coal was an option in converting to alternative energy sources, it could be used if converted to gas or electricity first. ireland is a drop in the ocean and whether it halves, doubles or quadruples its energy consumption will not make one bit of difference to the eventual outcome. India, China, Brazil, Russia are the heavyweights that will be the deal makers or breakers. America is in slow relative decline and has been since 1945. Europe does not have a secure supply of energy, hence the wealthy European nations will spend billions on alternative sources of energy. Ireland will go along for the ride since it does not have the funds to do otherwise. There is no crisis and oil and gas consumption will decrease as the price increases. It would be safe to say there will not be many 1500 Kg. cars on the road twenty years from now.

daveirl

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DaSilva

daveirl wrote: »

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Why is it that gas prices are so low and oil prices are so high? Could it be that we have a bias for oil? It is all used for energy, why are people still buying oil and not this cheap gas?

daveirl wrote: »

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I agree, we shouldn't panic, we should approach this calmly and logically.

daveirl wrote: »

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Sorry what do you mean, the free market will come up with alternatives? Do you mean some human will invent/discover a new source of energy? Or we will just convert all our oil dependent machines to some other source, sure that sounds like something we can do the day before.

daveirl wrote: »

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Forcing things too early? Am I supposed to understand that you are in agreement that there is a potential energy crisis, but you recommend putting it on the long finger. Tell me when won't be too early? Or no, just let the free market decide, somebody else will fix it.

This is just like the housing bubble in Ireland. Humans yet again show their preference for ignoring long term problems, "everything will be alright". Everything will be alright if we do something about it now, if we prepare now.

PhiliousPhogg

I've noticed there is another discussion on this over in the Sustainability and Environmental issues forum.

http://www.boards.ie/vbulletin/showthread.php?t=2055852980&page=9

hypervalve

I have to agree with the OP here. Now a days there's a lot of scaremongering and sensationalism in the press, but this is an issue that gets comparatively little air time relative to its seriousness. The average guy on the street wouldn't be familiar with the term "peak oil" or would have given a second thought to its consequences. But there is no denying that the world oil reserves are a finite resource and when production starts to decline the price will begin to sky rocket.

daveirl wrote: »

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The fact that we're turning to these harder to extract reserves would indicate that the low hanging fruit has already been plucked.

I agree that the earlier we begin to seriously tackle our addiction to oil the better, but I won't hold out too much hope of this happening. I suppose individually we can do what we can to protect ourselves on a personal level, Michael Rupperts advice is to get out of debt.

http://www.youtube.com/watch?v=Fn4UjHp20OM&feature=related

He leans slightly towards conspiracy territory which won't appeal to most people, but I think he makes many valid points.

Scofflaw

daveirl wrote: »

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The problem with that comforting view is that the market doesn't price finite resources by how much of them remains. It prices them based on the balance of supply and demand - supply being the rate at which the resource is made available for sale. That rate is not simply related to total amount of recoverable resource remaining - supply rates from a reservoir do drop somewhat towards the end of their recoverable reserves, but not on a curve that neatly ties market supply to the level of remaining reserves - reservoirs are abandoned long before output rates drop to zero.

The general view is that we are within 10-20 years of peak oil - and that is the mainstream view.

At the present time, there are some 80+ countries which merit a line in Oil & Gas Journal's table of world production of crude oil. In almost 70,
production has peaked including Canada, Mexico, Norway, Russia, the United
Kingdom and the USA.

In 2008, for the first time in the history of Saudi Arabia, executives of
Saudi Aramco, the state oil company, admitted that it's productionis going to
peak and do so within a few years, at 12.5 million barrels per calendar
day. It will then plateau for a decade at 10 million and then decline until the
wells are capped. Moreover, the King announced that future discoveries will
be reserved "for our grandchildren" [and not for your SUV].

To cap things off neighboring Jordan's next electric-generating plant will
be nuclear, not oil-fired. So you can see that they are taking the Saudis
seriously.

That leaves Iraq, Iran and Nigeria has our "last, best hopes" to fend off a
world peak in crude oil production. But they are so politically
disorganized that for the Saudi's at least, they will not "get their acts together" in time.

Under the circumstances, a world peak in crude-oil production cannot be far
behind the Saudi one. In fact, the UK Energy Research Center has just
released a voluminous study in which it concludes that an all-time world peak is very likely to arrive by or before 2020 and almost certain to do so by or
before 2030.

Like the sender and many others, they do not believe that we can pinpoint
the exact year. In any case, the discovery of new large reservoirs will have
little affect on the timing of the peak. With HC reservoirs, the optimum
rate of extraction is more important than the size of the reservoir. In any
case, the "point forecasters" are not all that different from the UKERC. They
range from 2004 [Dr. Rafael Sandría] to 2032 [Exxon/Mobil] with a concensus
developing towards the range 2010-2015.

For example, Brazil's new finds should reach one million barrels per day by
2014, but by then its existing reservoirs will have declined by one million
barrels. So Brazil has to "run very fast just to stay in place".

In this regard, it is important to note that all of the above dates are
within the planning horizons of every electric utility in the world, since
the typical physical life of a base-load generator is 30 years before major
retrofit. In other words, a generator installed in 2010 should last until
2040.

In brief, there was only one "peak oil" debate in the 21st Century but it
was conclusive. And it was practical, not theoretical. And now it is over,
and the pessimists won, although some of the optimists are still in a state of
denial.

So that's the reason it's of concern now - because it is already on the planning horizon.

cordially,
Scofflaw