Conference of Cassandras?

Monday, January 31, 2011

Jack Kisslinger, Hans Noeldner, and David Knuti attended the 2010 ASPO Annual Meeting, Washington, D.C., Oct. 7-9, 2010.

The 2010 Annual Meeting of the
Association for the Study of Peak Oil (ASPO)
Washington D.C., October 7-9, 2010

David E. Knuti
Madison Peak Oil Group

2010 Conference Proceedings, Association for the Study of Peak Oil & Gas (ASPO), at aspo-usa.com. Speaker Videos and Conference Notes from presentations to the 2010 ASPO Convention at Washington, D.C., October 7-9, 2010.

The Impending World Energy Mess: What it is and what it means to you. By Robert Hirsch, Roger Bezdek, and Robert Wendling. Forward by James Schlesinger. 2010. Apogee Prime/Griffen Media. 251 pp, $30.00.

ASPO — An Association with a Mission
Last fall Hans Noeldner, Jack Kisslinger and I traveled via Amtrak to Washington, DC to attend the 2010 conference of the Association for the Study of Peak Oil & Gas-USA (ASPO), October 9-11. We attended as members of RENEW Wisconsin and our Madison Peak Oil Group. About 60 elite authorities presented their current findings about the dynamics of world energy flows with particular concern for the risk that supplies will soon hit limits that could have profound effects on our lives in the coming decade. These are important to share broadly. (For details go to the presentation notes from the conference at ASPO-USA.com)

The Association for the Study of Peak Oil (ASPO) is a volunteer organization dedicated to independently study the future availability of energy resources (primarily oil) and pursue "energy action for a healthy economy and clean environment." A group of American senior petroleum geologists, energy economists and financiers organized it in 1992, and there are now affiliated ASPOs across Europe and Australia, and an informal network of local Peak Oil Groups.

ASPO's founders feared that industry and government authorities were dangerously exaggerating the future flow of oil resources. They took heed of insights of Shell petroleum geologist M. King Hubbert about the pattern of production from a finite natural resource base. He asserted that it does not follow a continuously rising or smooth path to exhaustion, but instead, follows a bell-shaped curve, rising exponentially to a peak about half way through the total resource, and then falling inexorably from the production peak. To the astonishment of the U.S. oil industry, Hubbert identified the peak of U.S. oil production in 1970. ASPO is dedicated to identifying the factors which will determine the world oil production peak (which many fear is now uncomfortably close to zero to ten years away), its consequences, and what to do to prepare for them. This analysis decisively turns the debate from the ultimate size the resource available and various potential technological innovations, to the factors which determine the actual pace at which resources can be supplied to the market to for our oil dependent economy. As one conference speaker exclaimed, "It about the rate, stupid!"

The mood at the 2010 conference was highly charged, because ASPO people feel a sense of triumph in their command of the issues and an obligation to share their important insights. They are also are deeply frustrated by their inability to communicate with the political leadership and a public which purposely ignores the situation and might even figuratively "shoot the messengers" if pressed too openly. As keynote speaker, former Secretary of Energy and Defense James Schlesinger proclaimed, "The peak oil debate can be considered over, but we should not gloat because political acceptance is unlikely in the foreseeable future."

The ASPO leadership showed its determination to expand exposure for its viewpoint, first by bringing the conference to Washington and scheduling associated Congressional and press briefings. ASPO also announced that it was projecting itself into the national debate by moving its headquarters from Denver to Washington and raising funds to hire a full staff. (Recently it hired an Executive Director, Jan Mueller, who is an experienced participant in the energy policy debate and is determined to "mainstream" the peak oil message.) In a rousing speech to the group, Ralph Nader called for ASPO to get moving from analysis into action and pursue his new approach of "finding a sympathetic billionaire" to fuel the cause.

Increasingly Confident Conclusions about a Worsening Situation
Unfortunately, the ASPO experts seemed to share a consensus that a real turning point may be approaching as quickly as many in ASPO had predicted, but too quickly to do much about it. Since 2004, world oil production has been stuck on a fluctuating plateau at around 86 millions barrels per day despite a price spike to over $140/barrel in 1908 and a steady 12% increase in average price from 2003 to today's $90/barrel. A major supply shortage has been held off by depressed demand in the advanced economies that offset the inexorable demand growth from China and the emerging economies. They await developments as a US demand recovers and OPEC's true production capacity becomes clear. Many ASPO experts expect that supply will come up short in the 2012-2014 period, leading to another price spike which may set dangerous economic forces in motion.

A key ASPO expert, the British energy expert Chris Skrebowski, reviewed the trends that cast doubt on increasing daily oil production much further. The major new information is comes from the authoritative International Energy Agency whose field by field study of the production capacity (and a detailed study by Skrebowski's institute) produced a surprisingly annual decline rate 5.0% for the world's producing fields—in contrast to the previously assumed 2% per year. This was the finding of field-by-field studies by the authoritative International Energy Agency (IEA) and his institute. He also cited disappointing returns since 2000 from the oil industry's exploration activities and the application of enhanced oil field exploitation technology, which are failing to keep pace with this accelerated rate of decline.

Among the unknowns is the capacity for production expansion by the Organization of Petroleum Exporting Countries (OPEC) particularly from Saudi Arabia and Iraq. ASPO experts, led by its revered co-founder, the recently deceased Matt Simmons, have long doubted the true production capacity OPEC. To the extend there is reserve capacity at this time, world production may move up slightly to a new production plateau which will show the same up and down pattern of price spikes and resulting recession-recovery cycles. But a consensus is quietly growing that world oil production is moving toward a final "inflection point" downward—the real "Peak Oil" moment.

The International Energy Agency and its U.S. counterpart, the Energy Information Agency (EIA), have been politically reluctant to predict an absolute decline in world production. Their recent forecasts have predicted limited expansion of all forms of oil to meet growing world demand through 2030 with an increase to about 15% from 2010 to about 100 million barrels/day. The ASPO experts gave considerable skeptical attention to the assumptions behind these estimates. The IEA and EIA declared a "peak" of easy, cheap conventional petroleum, but then built a continuing rise in total consumption on a "fudge factor” of 43-50 M b/d to be produced from new discoveries, difficult oil from tar sands and shale and new technologies to enhance recovery from existing fields. Conference observers remarked that this gap to be filled was equivalent to "five new Saudi Arabias.”

IEA and EIA Assurances of Expanding Oil Supply Have a Big Hole

Exploring the Technical and Financial Forces

Conference experts reported their continuing investigation of possible “game changing” forces at work. For example, Tad Patzek of the Department of Petroleum Engineering at the University of Texas reviewed the potential of new technologies to significantly expand the production yields from existing oil fields. He warns that Enhanced Oil Recovery (EOR) is unlikely to meet the hopes to fill the world’s looming production gap. After 50 years of development, these technologies have proved very expensive and are being applied to no more than three percent of world production, largely in North America and Europe. In the North Sea, where they have been systematically applied, final extraction rates have not been significantly increased. He estimates the world might add another 2.5M b/d from EOR and only another 3M b/d from expanded tar sands oil. These results look puny compared to the 50M b/d of new production need to keep world oil supply growing.

Such limits of capability and affordability haunt the ASPO investigators. They warn that oil becomes more difficult and expensive to obtain in the "post peak" sources of the deep offshore, the artic and processed from tar sands and shale. Skrebowski and others pointed out that there is an “economically sustainable oil price” (perhaps around $100/barrel) which is sufficient to sustain the high cost pursuit of difficult oil, but not too high to drive the U.S. economy into recession.

Professor Charles Hall is pursuing the sustainability issue in "biophysical, ecological terms" by identifying the Energy Return on Energy Invested (EROEI), which identifies the amount of net energy returned from various energy sources. This has shockingly declined from 100 to one for oil extracted in the 1930s to 30:1 imported oil today and perhaps 5:1 for tar sands oil and near break even for corn ethanol. As these ratios worsen, they will approach limits which will make will be make the energy produced not worth the energy required to extract it. Unfortunately, this may be the fate of large "potential" energy reserves we count on today.

Paradoxical Currents
These ill winds may ultimately blow some good. For example, physics professors David Rutledge of Cal Tech and Kjell Aleklett of Sweden have taken on the expected green house gas projections of the UN International Panel on Climate Change (IPCC). They believe that economically useable coal supplies are vastly overestimated and oil supplies will fall after peak oil. The good news is that humanity simply may not have enough fossil fuel carbon to foul the world to the full extent projected. The bad news is that world coal may also be peaking in production about now.

A more ominous paradox was raised by ASPO experts concerned with a coming peak in oil exports in the world market. Petroleum geologist Jeffery Brown is tracking the propensity of petroleum exporting countries to rapidly cease production after experiencing their peak in oil production. In general, many of the exporting countries are rapidly increasing their own oil consumption, which may limit the desire of even Saudi Arabia and Russia to export. The U.S. will be in relentless competition for its share of this limited pool of export oil with "Chindia" whose consumption rise is relentless and financial reserves are deep. He concludes that in coming decades the U.S. may involuntarily achieve its elusive goal of "energy independence."

What is to be Done?
The most compelling voice at the conference was Robert Hirsch, a senior analyst from the defense think tank world, who wrote the first comprehensive peak oil study for the Energy Department in 2005. It synthesized the forces at work and spelled out requirements for mitigation of what the report called the "unprecedented risks" of unpreparedness. He brought copies of his hard hitting update, The Impending World Energy Mess, which is heartily recommended as a terse but comprehensive presentation. Hirsch is now much less conditional about the "risk" and very pessimistic about any governmental preparations before real trouble hits.

Hirsch warns that the effects of the real "Peak Oil" moment will be similar to the severe economic dislocations associated with the 1973, 1979 and 2008 oil price spikes, but they will not go away this time until major adjustments are accomplished, probably requiring ten years or more. The basic challenge will be providing liquid fuel for our existing vehicle fleet in an auto and truck dependent economy. Alternative fuels (such as natural gas) and high efficiency vehicles can only gradually replace what we have, and only as new technology is actually available for high scale implementation. An alternative transportation infrastructure—largely based on electrified rail--will also take ten years to complete. Politicians will scramble to control the impact of shortages with rationing, but our economy and personal movements will inevitably contract (and enrage us).

Ominously, Hirsch also expects our desperation for motor fuel to trump those for ecological damage and climate change. With viable biofuels far away and other renewables largely irrelevant to liquid fuel, we may be desperately pursue difficult oil from the deep offshore and artic, and manufacture it from tar sands, oil shale, and coal—without regard to ecological consequences. Needless the task before us is likely to be adapting to shortage rather than voluntary conservation.

What to Do Personally—With Caution
In their concluding sessions, Hirsch and other experts predicted that public efforts to prepare for peak oil are unlikely to materialize before a crisis hits. It was chilling to hear these informed (and fairly well off) experts describe their personal efforts to prepare for the future. These included buying a Prius or Volt, moving closer to work, consumer needs and public transportation, converting equities to tangible assets and gold, and planting their own gardens. Nicole Foss, who recently spoke in Madison, gave her usual eloquent analysis of impending deep financial troubles. She endorses pursuing a radically simpler “transition” life-style built on very defensive personal finances and building local allegiances in a human-scale circle of trust.

In conclusion, the information and opinions of the ASPO experts are not an authoritative hard forecasts (or investment advice). They are a sincere effort to “connect the dots” of a very complex set of developments in which many details are unknown and key interactions have not yet played out. It is hoped that many “wild cards” will turn up in time to expand the world oil supply for a decade or more and give us time to grasp the situation and to prepare for a transition. However, there seem to be compelling warning signs that a real historical shift is approaching. There as strong reasons to believe that a world with steadily less oil—not not oil—will require major adjustments in our economy, politics and personal life.

What do you do with this kind of knowledge? My first reaction is, "I hope they are wrong--at least about timing--and we can keep thinking and talking." My second is "Gee, we better do something, but what will not kill jobs, cramp my lifestyle, or make progressives a permanent electoral minority." I end up with, "We better face the facts now, and let the chips fall where they may."