WORLD OIL SUPPLIES AT THE TURNING POINT John

WORLD OIL SUPPLIES: AT THE TURNING POINT? John Kaufmann Oregon Department of Energy Pacific NW Waterways Assoc. 15 October, 2008

Oil and Gas at Record Highs Since 2002: · Crude oil 6 X · Gasoline/diesel 3 X · Natural gas 3 X www. energytechstocks. com

Price Higher Than Last Year; 30% Price Drops Are Common Data Source: EIA Jim Hansen, “Investing in the New Energy Economy” Presented to the ASPO-USA 2008 Peak Oil Conference

US Payments for Foreign Oil Andrew Wiessman, “Time to Stop Playing Russian Roulette With American Economy” Proceedings, ASPO-USA 2008 Peak Oil Conference

Price Gouging? Manipulation? Speculation? · Speculators profit from conditions – they don’t create them · Price set in market · Many buyers, sellers · Fundamentals in place – tight supplies

Long-Term Supply Leveling Off, Demand Outstrips Production Demand Prices rise; economic problems start here Supply Today

Increased Demand – China • GNP growing 8 -10%/year • 2 nd largest user of oil • Oil use up 7. 5% annually • Imports up 40% last year

Increased Demand – U. S. · More people · Driving more miles · In less efficient vehicles

Global Oil Production 2002 -07 Source: www. urbansurvival. com, 5 -21 -07 Data from http: //www. eia. doe. gov/emeu/international/contents. html

World Discoveries Peaked in 1960 s

Production Exceeds Discoveries Since 1983 David Hughes, Geological Survey of Canada From Campbell, 2004

For Every Barrel We Find … We use ~6 barrels

Production Follows Discovery

US Discoveries Peaked in 1930, Production in 1971

Already Peaked · 2/3 of oil-producing nations, two major fields Ø US Ø Canada Ø Mexico Ø North Sea Ø Indonesia Ø Venezuela Ø Iran Ø Kuwait Ø Nigeria? Ø Russia? Ø Saudi Arabia?

Indonesia – Net Importer UK – 2006 Mexico? Exports Import s www. theoildrum. com/node/3657 , Feb. 22, 2008 Sources: Matt Mushalik, data from http: //tonto. eia. gov/country/index. cfm

Mexico www. theoildrum. com. node/3381, 18 -Dec-07

Net Exports of Top 20 Exporters Mark Reyondols, Anawhata Associates, NSW Australia “Policies to Develop A Low Emissions Transport Sector in Australia, ” 10 April 2008 From www. theoildrum. com/files/Anawhata. Garnaut. pdf

No Spare Productive Capacity · The good news is, the Saudis don’t control the price of oil any more · The bad news is. . . No one does

Top-down: Trend Analysis (Hubbert Methodology) M. King Hubbert · Trend analysis – historical, statistical · Predicted U. S. and other peaks · Predicts world peak within next few years

Hubbert Method Applied to U. S. Production Jeffrey Brown, “In Defense of Hubbert Linearization” The Oil Drum, June 24, 2007

Bottom-up Analysis: Geologic · Field-by-field · Current production – production declines + new fields + advanced recovery · Peak by 2011

We Know More Than Ever About Where Oil is Found · We understand conditions under which oil was formed · Seismic imaging Natural Gas Oil · Millions of exploratory wells · Computer mapping Robert Beriault, ”Peak Oil and the Fate of Humanity. ” www. peakoilandhumanity. com

Drilling vs. Production – U. S. Oil and Gas Nate Hagens, “Charlie Hall: How Much Oil and Gas Will Increased Drilling Provides” www. theoildrum. com, 15 -Aug-2008

US Natural Gas Production and Number of Producing Wells Jean Laherrere, interview with Luis de Sousa The Oil Drum, 4 August 2007

New Discoveries are Smaller, Don’t Reverse the Trend

Effect of ANWR Alaska North Slope Lower 48 ANWR Gail Tverberg, “Peak Oil Overview-March ’ 08, ” www. theoildrum. com/node/3726 Strategic Energy Institute, Georgia Institute of Technology

Brazil’s Recent Find · Est. 33 billion barrels · Premature – based only on seismic imaging · Early announcements often inflated · 1/3 recoverable – i. e. , 4 months oil at current use · 10 year lead time · Expensive – deepwater, salt formations Photo: Marcelo Sayao/EPA The Guardian, 5 April 2008

Ease of Production: Past and Present

When Will Oil Production Peak? 2005 Deffeyes Oil Geologist, Princeton 2006 -2007 Bakhtiari Former VP, Iranian National Oil Co. 2007 -2009 Simmons Energy Investment Banker, Houston Before 2010 Goodstein Physicist, Cal. Tech 2010 Campbell Oil Geologist, Ireland 2010 Weng; Pang Xiongqi Chinese National Oil Co. 2010 +/- 2 Skrebowski Editor, “Petroleum Review” After 2010 World Energy Council 2010 -2012 Intl. Energy Agency (Supply, tightness; plateau) 2008 -2018 Univ. of Uppsala Sweden Before 2015 ASPO-USA U. S. 2016 Douglas-Westwood Oil & Gas Market Analysis After 2014 Wood Mac. Kenzie Energy/Scientific Consultant 2010 -2020 Laherrere Oil Geologist, France After 2025 Shell Oil Major Oil Company After 2030 CERA Energy Economics Consulting firm 2037 EIA U. S. Govt. 0 -5 yrs 5 -10 yrs 10+ yrs

“Dean” of Wall Street · Thru 2010 production flat; falls short of demand í Inventory drawdown · 2012 conventional oil peak í Inventories insufficient · 2015 all liquids peak Charles Maxwell Weeden & Co.

Prospects Going Forward North Sea, Mexico declining Canada oil sands–low flow rate Russia peaking? Russia vs West in Caspian Nigeria in crisis Iraq at pre-invasion levels Nuclear Iran Kashagan, Khurais late New fields smaller, more remote

New Finds Have Little Effect 2033 2024 - USGS P 50 Ken Verosub, UC-Davis, “Petroleum Geology 101” Presented to ASPO-USA 2008 Peak Oil Conference

Geopolitics · Invasion of Iraq · Nuclear Iran · Russia-Georgia · Hugo Chavez · Nigeria · Pipeline terrorism

Geopolitics Hastens Peak “Geological peaking is driving the geopolitical events. ” ~Jeff Vail, ”The Geopolitics of Energy” Proceedings, ASPO-USA 2008 Peak Oil Conference

Bumpy Plateau / Descent Price Production Jeff Vail, “Predator-Prey Dynamics in Demand Destruction and Oil Prices” www. theoildrum. com/node/4419, 26 -Aug-2008

U. S. Energy Mix Nat. Gas Oil 25% 40% Coal 23% Nuc. 8% Other 1% Hydro 3%

Oil Does Work for us · In one year a person can perform the work of ~8 gallons of gasoline

Oil Packs Power

Why Oil Matters · “Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy. The Gulf War was a reflection of that reality. ~ Dick Cheney Halliburton, 1999

1970 s on Steroids: Inflation, Recession, Unemployment

Impacts – Business & Jobs · Higher production, distribution costs · Supply chain problems · Reduced demand · Tighter profit margins · Reduced benefits · Business failures · Unemployment Social Security Administration, Special Collections http: //www. elderweb. com/home/node/9633

Impacts – Airlines First to Feel Impacts · Fuel represents >30% of their costs · 70% of flights are discretionary

Impacts – Trucking / Freight

Energy Returned on Energy Invested, i. e. Net Energy Old oil 100 Middle-East oil 30 Natural gas 20 Coal 10 -20 Hydropower 10 -40 Wind 5 -10 Nuclear 5 Solar PV ~5 Oil Sands 3 Biodiesel 3 Shale Oil 1. 5 Ethanol 1. 3

No Magic Bullets · Drilling · Nuclear · Coal · Oil Sands · Biofuels · Renewables · Hydrogen

Natural Gas Also Nearing Peak Production David Hughes, Geological Survey of Canada Data from C. J. Campbell, 2005

Combined Oil/Gas Peak David Hughes, Geological Survey of Canada Data from C. J. Campbell, 2005

U. S. Natural Gas Production Already in Decline David Hughes, Geological Survey of Canada Data from USEIA

Location of Natural Gas

Domestic Natural Gas Replacement: LNG · Intense competition · Expensive · Best use? ØHeat existing homes? ØHeat new homes? ØNew generation? ØDisplace coal? ØTransport fuel (CNG)? ØFeedstock? · Transition fuel?

Coal · 3 X – 4 X increase · Runaway global warming · Peak coal

Nuclear · 10 X increase · Peak uranium

Oil Sands / Oil Shale · CO 2 emissions · Land, water pollution · Low energy return · Low flow rates

Hydrogen · Net energy loser · Bulky to store, transport · 3% evaporation loss/day · Doesn’t use existing infrastructure

Biofuels · Ties food price to fuel price · Reduced ecosystem services · Low energy return · Small fraction of our needs

Renewables: Wind and Solar · Non-transportation only · Less concentrated, more expensive · Necessary … but sufficient?

Find Alternatives

Plan for Higher Fuel Prices · Scenarios · Resiliency · No regrets policy · Viability, not costeffectiveness Andrew Wiessman, “Time to Stop Playing Russian Roulette With American Economy” Proceedings, ASPO-USA 2008 Peak Oil Conference

Think Carefully About Major Infrastructure Investments · Position yourself for the future · Avoid major stranded investments Ø Port facilities Ø Ships Ø Multi-modal connections

Evaluate Your Market · Demand – what do you ship? Ø Discretionary or necessary? · Distance? Ø Competition? Ø Will it still pay? · Globalization? Ø Has it peaked?

Begin Now. . . Hirsch Report: · Peak is inevitable · Consequences are serious · Massive effort Ø 20 years lead time Ø $1 trillion · Need oil as bootstrap · Cost of preparing too late will far exceed too soon

Destiny? Contact Info: John Kaufmann 503 -378 -2856 john. kaufmann@state. or. us Best Resources www. energybulletin. net www. theoildrum. com www. postcarbon. org www. globalpublicmedia. com

Impacts – Tourism … Another Early Casualty?

Impacts – Food & Agriculture · Food sector = 17% of energy · Higher food prices · Fertilizer Lower productivity Also · Variety of food decreases · Nutrition, esp. for low-income · Shifts in food retailing · More household food production, preservation, preparation www. timeinc. net/time/magazine. archives/cover/1973/1101730409_400. jpg Time Magazine, April 9, 1973

Impacts – Vulnerable Population Hit First / Hardest · Food? · Medicine? · Heat? · Rent or mortgage? · Transportation?

Impacts – Public & Social Services · Demand for services up · Revenues, charitable contributions down · Stretches already stressed systems · Fractured community networks Fred. A. Hatfield, www. novanewsnow. com, 22 -May-2007

Impacts – Public & Social Services · Reduced health coverage Ø Less preventive, more emergency care Ø Public health concerns · Housing, homelessness · Hunger · Substance abuse, domestic violence, property crimes www. gothamist. com, 11 -October-2007

Expand Energy Efficiency Programs · (Dramatically) ramp up existing programs · More and faster

Low Impact Housing

Encourage Efficient & Renewable Transport Choices · Get people out of their cars · Ensure alternatives are safe, convenient Ø Ø Walk Bicycle Ride share Mass transit Fuel Efficient Vehicles Now, www. fev-now. com

Change Land Use Patterns from this … Reduce transportation needs Promote walkability Easy access to services and transportation options to this …

Transit Alternatives

Preserve Local Food Production Capability · Preserve nearby agricultural land · Support local food processing industry · Urban gardens · Farmer’s markets · Co-ops www. oregonfarmersmarket. org

Preserve Safety Net, Protect Vulnerable Populations · Sense of community · Health care · Public health system · Hunger relief · Shelter

Emergency Planning · Fuel allocation · Food · Transportation Armed Forces International www. armedforces-intcom/categories/emergency-planning-and-management

What Can You Do? · Sign the Pledge: Reduce your carbon footprint 5% every year 5% Solution 2022: 50% · 50% in 14 years · Encourage family, friends to pledge www. Oregon. Peace. Works. org 2036: 75%

How to Reduce Your Footprint · Reduce your housing footprint í Heating system, insulation and windows, appliances, water heating · Reduce your transportation footprint í Walk, bike, ride share, public transit · Buy, consume less í Things take energy to produce and distribute · Eat local, organic, lessprocessed foods New Yorker, July 2, 2007

Reinvigorate Rail

Per Capita Oil Consumption Ken Verosub, UC-Davis, “Petroleum Geology 101” Presented to ASPO-USA 2008 Peak Oil Conference