Don Parsons gave excellent summation and lead our discussion of worldwide oil geology, formation, and production.
Oil is our transportation fuel accounting for over 90% of transportation’s source of energy; it is transportable, safe, storable and has a high BTU content. But we are consuming more than we are producing and we are not discovering enough to replace what we use. The largest fields, the most productive, are on steep decline curves. Small discoveries will not replace large declining fields. Governmental oil companies are poorly run and used for political ends. Expensive exploration and recovery, mainly offshore, is not supported by current crude prices.
In short we are running out of oil at an accelerating rate. Can we replace it or find a safe, economically stable alternative in the reasonable future? Are government policies and proposed policies positive or negative?
Discussion of safe alternatives yielded little hope. CNG, LNG, Hydrogen, Solar, etc. are not practical replacements on a worldwide scale. Policy thoughts, like a fluctuating tax going to producers to support a floor price and thus encourage new exploration, production technology, and alternatives, has not effectively been raised by our political leaders. The CO2 religious panic and cap and trade solutions do no more than to distract serious thought on the subject.
The effect of low prices has been to decrease exploration. Refining margins have also been cut to the point of discussions of alternative uses of refineries such as storage. Practically companies can’t shut down a refinery because of the exorbitant remediation costs. Ironically, they will not be able to build them domestically because of the environmental study costs and the NIMBY local attitudes.
Yes, the Bakken Formation was discussed and it is included in the peak oil known reserves. So this provides little solace, save the fact that it is in the continental US.
A U.S. Geological Survey assessment, released April 10, shows a 25-fold increase in the amount of oil that can be recovered compared to the agency’s 1995 estimate of 151 million barrels of oil………
The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states and is the largest “continuous” oil accumulation ever assessed by the USGS. A “continuous” oil accumulation means that the oil resource is dispersed throughout a geologic formation rather than existing as discrete, localized occurrences. The next largest “continuous” oil accumulation in the U.S. is in the Austin Chalk of Texas and Louisiana, with an undiscovered estimate of 1.0 billions of barrels of technically recoverable oil.
#1 by Matt on March 17, 2009 - 9:49 pm
Why would you need tax subsidy? Any reason the free market can’t handle “Peak Oil”? At a certain price, some combination of exploration, better technology, and alternative sources of energy will be profitable. Whether it’s 100 years from now, 10 years or 1 year, prices will tell consumers and producers in a free market what actions to take. Correct me if I’m wrong, but a central government didn’t have to tell Exxon and Chevron where all the oil was, and how it should end up powering my car.
#2 by Tom on March 18, 2009 - 5:50 am
I think it is a question of “market knowledge.” If that were perfect, you are correct, the price mechanism would anticipate the need for correction and would rise to a sufficient level to encourage new investment and new technology. If peak oil is an “unrecognized” reality, then we either need a floor tax the benefits of which would go to producers, or more publicity and dissemination of the peak oil “proof.” The latter tack would be preferable to the floor tax.
One would think that the OPEC economists would have the best handle on the issue, but politics enter into that equation.
Don mentioned in a pre meeting email that there is disagreement on peak oil. I believe he also mentioned that disagreement is between geologists and economists!
#3 by Matt on March 18, 2009 - 12:01 pm
Peak oil might be an “unrecognized reality” like the housing bubble was. Cognitive dissonance probably contributed to both, but the federal government played a huge part in the latter. We should learn a valuable lesson from that and get them out of one more potential disaster.
I don’t think peak oil has to be recognized. The slightest increase in gas prices gets people talking about alternatives: hybrids, electric, public transport, etc. At some point they will become economical. Consumers don’t need to understand supply, they just need to have the freedom to make rational choices about their energy consumption.
#4 by don parsons on March 19, 2009 - 9:05 pm
Good summary, Tom. The important thing to remember is that we are not running out of oil, but we are nearing the point where the rate of production is peaking and will then begin to decline. The Athabasca oil sands illustrate the problem. While the resource is estimated to be as large as Saudi reserves, about 180 billions bbls, after a decade, they are only producing it at a rate of around 1.5 million bopd. It will take another decade, and around $100 Billion to add another million bopd, assuming no environmental push-back. And because it has to be mined and cooked, with natural gas, before it can be refined, the net bbls are at best 60% of gross. Meanwhile, production from our base is declining at a rate of at least 4 million bopd each year, a rate that is likely to increase dramatically, a la the Canterall Field, as the pre-1970 Super-Giant felds go into decline.
The nightmare scenario is that the decline is too rapid for the market to adapt, through alternatives, fuel switching and conservation, in an orderly fashion. The market will always clear. If supply can not respond to higher prices, there will be demand destruction. Moreover, at some point, as the supply cushion shrinks, there will likely be speculative hoarding, a run on the oil bank, exacerbating the problem.