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VK2AAB > FUEL 03.05.10 10:17l 239 Lines 14639 Bytes #-5856 (0) @ WW
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Subj: Simple Explanation Peak oil
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To : FUEL@WW
This interview by a scientific member of the Association for the Study of
Peak Oil and Gas is couched in every day fundermental language.
73 Barry VK2AAB
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The peak of oil production is passed
by Dr Michael Lardelli
Dr Michael Lardelli from the University of Adelaide looks at how
the bulk of the world's oil production comes from a relatively
small number of very large fields discovered decades ago. The
rate of world oil production has been maintained at current
levels only by finding and bringing on line an increasing number
of smaller fields, but the financial cost and the energy required
to find and develop these new fields is constantly increasing.
According to Dr Lardelli the so-called peak of oil production was
actually in 2008.
The peak of oil production is passed (transcript)
Robyn Williams: This week, Professor Peter Newman of Curtin
University in Perth, said that Peak Oil has happened. It occurred
in 2008 and was directly linked to the GFC. As oil and therefore
petrol became more costly, so those stretched by mortgages that
they couldn't pay, went broke. The Global Financial Crisis, says
Professor Newman, had an oily origin.
Is he right? Well here's Michael Lardelli, senior lecturer in
genetics at the University of Adelaide.
Michael Lardelli: For six years in the 1990s, I lived and did
postdoctoral work in genetics in Sweden. For a time I worked at
Uppsala University, Scandinavia's oldest university that was
established in 1477. Uppsala is a beautiful small European city
50 kilometres north of Stockholm. The area around Uppsala is
famous for its Viking heritage and, on back roads in the area,
you can still stop to examine rune stones erected 1000 years ago.
In 1997 I returned to Australia but I have re-established a
connection to Uppsala in an unexpected way. Most nights once my
young children are asleep, I sit down to translate into English
the blog of a Swedish professor of Physics. His name is Professor
Kjell Aleklett, and he works at Uppsala University, and he is
president of the international arm of the Association for the
Study of Peak Oil and Gas, otherwise known as 'ASPO'. This is a
story about oil, his research, and our future.
Anything that happens in the universe happens because energy is
being converted from one form to another. The world economy is
part of our universe and so it too requires energy for anything
to happen. Without energy there would be no food, no mining, no
manufacturing, no commuting, nothing. For the world as a whole,
85% of the energy that drives the economy comes from converting
the energy in the chemical bonds within fossil fuels into heat
and motion energy. Of the fossil fuels, the most useful is oil
because it is easy to transport and has the most concentrated
energy. Indeed, burning one litre of oil releases energy
equivalent to 20 days of hard human labour. A fully-tanked jumbo
jet contains energy equivalent to around 13,000 years of human
labour.
In July 2008 the price of a barrel of oil spiked up to a record
$US147 per barrel. It had been only half that price one year
earlier. The reasons for the price spike are complex. China, it
seems, was willing to pay almost any price to expand its oil
stockpile before hosting the Olympic Games in August of 2008.
Speculators had also noticed the rapid rise in the price of oil
and were bidding up the price. The spike in the oil price was
followed in September by the crash of the investment bank Lehman
Brothers that marked the start of the world financial crisis.
Interestingly, an analysis by Professor James Hamilton of the
University of California, suggests that it was the oil price
spike of July 2008 that pricked the US debt bubble and hastened
the inevitable financial crash. If you look at the history of
economic recessions in the last 50 years you will see that most
are preceded by a rise in the price of energy.
As economic activity around the world fell in late 2008 the price
of oil fell too, from July's $146 down to as low as $32 per
barrel five months later. Less consumption of manufactured goods
means less energy is required for mining, manufacturing and
distribution. People who lose their jobs don't need to drive to
work. When the price of oil hit $US147 per barrel the world was
using around 86 million barrels of oil every day. Today oil
consumption is about 84 million barrels per day, a decrease of
more than 2%.
There is a tendency to dismiss the high oil prices of 2008 as
entirely due to speculation but that cannot be true. Throughout
the 1990s oil had hovered around or below $20 a barrel but after
2002 it began to rise steadily. The price hit $50 in 2005 and
doubled again to $100 by 2007. Why? Well, the world economy was
growing rapidly during this period and more real economic
activity can only occur if more energy is used. But the simple
truth is that the world could not expand its use of energy as
quickly as needed, and after 2005 it ran into real problems. If
you look at the history of world oil production you can see that
production was basically flat from 2005 until 2008 despite the
tripling of oil prices in this period. According to economic
theory, this should not have happened. The high oil prices should
have stimulated oil production. They should have increased the
supply and so reduced the price of oil. Instead the world economy
ran into a brick wall. What went wrong?
The flat oil production plateau of 2005 to 2008 was a brilliant
illustration of the fact that the predictive powers of economic
theory are very limited. In spite of its technical jargon and its
liberal use of mathematics, economics is more art and guesswork
than a science. That's why the First Law of Economics states that
for every economist there exists an equal and opposite economist.
On the 27th August last year the world celebrated 150 years since
the first commercial oil well was drilled by Colonel Edwin Drake
in Pennsylvania. The oil industry has now seen over a century of
massive investment and astonishing technological development. The
modern accomplishments of the oil industry sound more akin to
science fiction than reality. The latest discoveries of oil off
the coast of Brazil are a good example. Amid huge ocean swells a
gargantuan exploratory oil rig costing nearly $1 million per day
to lease, floats two kilometres above the seabed. Its drill-bit
descends through the ocean depths, then grinds its way down
through another five kilometres of seabed before finding oil
trapped for millions of years under a two kilometre thick layer
of ancient salt. This oilfield, named Tupi, is the biggest
discovery in the past decade. One day its yield may total 8-
billion barrels although extracting it will require a huge amount
of investment and a great deal of time. The first well drilled
into Tupi cost almost a quarter of a billion dollars. Subsequent
wells have cost $60 million each.
Every time a so-called 'giant' oilfield is discovered - and
'giant' means anything over half a billion barrels of oil - our
media trumpet it as the solution to any concerns we may have over
future oil supplies. But what most people don't appreciate is
that the rate at which humanity is using oil almost beggars
belief - we consume 1,000 barrels of oil per second, which
amounts to almost 30-billion barrels per year. So half a billion
barrels from a 'giant' field could supply the world for about one
week, and the Tupi field might eventually yield enough oil to
supply the world for less than four months at current consumption
rates.
Herein lies the problem. For the world economy to grow current
consumption rates are not enough. To grow the economy we need to
increase the rate at which we use energy. Economic growth simply
cannot be separated from energy growth. Even the world's highest
advisory body on energy, the International Energy Agency,
acknowledges this. Indeed, for most of its history the economists
at the IEA have actually predicted future increases in the rate
of oil production based on the rates of economic growth they were
expecting. This 'economy-based' method of predicting future oil
production worked fairly well until, in 2005, our finite planet
Earth stopped co-operating. After 2005 it refused to yield ever
increasing flow rates of oil to power the economic growth. In
response to growing scepticism about its predictions the IEA then
changed its methodology, and in 2008, it published a so-called
'bottom up study'. It no longer used anticipated economic growth
to predict oil production growth. Instead, it predicted future
production based on an oilfield-by-oilfield analysis of what it
thought individual oilfields could produce.
The bulk of the world's oil production comes from a relatively
small number of very large fields discovered decades go. Most of
these very large fields now show declining production. The total
rate of world oil production has only been maintained at current
levels by finding and bringing online, an increasing number of
smaller fields. The financial cost, and the energy required to
find and develop these new, smaller fields is constantly
increasing. In 2008 the IEA looked at the production from all
current fields and how rapidly it would decline. They also
predicted how much oil would be produced in future years from as
yet undeveloped fields and fields that might yet be discovered.
The result? They saw less future oil production than their
previous estimates but, nevertheless, oil production in 2030
would be higher than today, so there was a little room for
economic growth.
But was the IEA correct? This is where the story gets very
interesting and Professor Aleklett in Uppsala re-enters the
picture. Professor Aleklett heads a group of research scientists
called the Global Energy Systems group at the Angstrom Laboratory
of Uppsala University. In recent years these scientists have been
developing mathematical models of oil production from individual
oil fields. They re-analysed the numbers in the IEA's field-by-
field bottom-up analysis. They found that they could agree with
most of what the IEA predicted - namely the decline rate of
existing fields and the volumes of accessible oil in known but
undeveloped fields and in fields that might yet be discovered.
However, they found a glaring error. The IEA had predicted future
rates of oil production from undeveloped and yet-to-be-discovered
fields that were far, far too high. When they took the IEA's data
and imposed rational but nevertheless extremely optimistic limits
on future production rates, they saw to their astonishment, that
the maximum rate of oil production that the world would ever
achieve was in 2008. That's right - the so-called 'peak' of oil
production was actually two years ago and we have now begun the
long downward trend in oil production that will characterise the
second half of humanity's oil era.
The re-analysis of the IEA's own data by the Global Energy
Systems group showing that we have passed the peak of oil
production is the scientific equivalent of a 'slam dunk'. It is a
beautiful piece of work and I have been privileged to help them
prepare it for publication. I find it fascinating to see other
analyses are also giving similar results. Indeed, an analysis by
Australia's own Macquarie Bank, not of actual oil production but
of oil production capacity, predicted declining capacity after
last year, 2009.
Since the IEA produced its bottom-up analysis the financial
crisis has hit the oil industry hard. Much oil exploration and
oilfield development has been cancelled and this will accelerate
the decline in world oil production. The implication is that,
when or if the world economy tries to grow out of its current
slump, we will see demand exceed supply and oil prices will spike
to a level that will, once again, cause an economic fall.
Unfortunately, unless alternative sources of energy are found and
developed, and quickly, the importance of oil to the world
economy means that economic growth will follow the declining
production of oil downwards for many years and probably decades.
>From a scientific point of view, there can be no return to the
long and heady days of economic growth seen earlier this decade,
no matter what leading economists of heads of reserve banks may
think to the contrary. As a scientist, and with my two young
children in mind, I think we need to be looking urgently at the
implications of energy decline for the most important things in
life. This is especially true for food production which, in
industrialised nations, is highly dependent upon abundant
supplies of oil.
We can no longer afford to sit around discussing whether or not
we have passed the peak of oil production. We cannot wait,
complacently, for price signals to stimulate the development of
alternative sources of energy since oil prices will fluctuate
wildly. Every time the economy tries to grow, oil demand will
exceed supply, causing the oil price to spike up. This will
strangle the economy, reduce oil demand and cause the price to
fall. Oil companies cannot invest in the face of these wild
fluctuations in price. Most importantly, we must remember that to
do anything at all requires energy. So, while oil is still
relatively abundant, we must invest as much as we can to develop
the energy sources of the future. Once the oil supply starts to
decrease significantly, we will be too busy just trying to keep
food production and essential services running to have any energy
left over for building expensive high-tech alternative energy
infrastructure.
The peak of oil production was two years ago. For the sake of my
children, and your children, we need to just accept that fact and
deal with it. When it comes to investing in energy alternatives,
do it now, because it will not be possible later.
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