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Peak oil and collapse scenarios. Part 3

Oil reserves | Peak oil and collapse scenarios. Part 3 Anthony Harrington

In this final part of my blog series (Part One and Part Two here) I take a quick look at how the Peak Oilers’ view that all the big oil finds are already banked and only the tiddlers remain, stacks up against the view of the oil optimists that there is still plenty to be found, particularly under the deep oceans. Great, the environmental lobby will say, just what we need, more Deepwater Horizons polluting areas that are hugely difficult to fix, or with fantastically vulnerable ecosystems.

Nevertheless, one suspects that with oil as the needed ingredient to keep transport rolling for a few decades yet, the pressure to find and exploit whatever’s out there will ultimately be irresistible to both politicians and industry. So if it is out there, it will be found and it will be exploited, whatever the public and the green lobby may say – unless, of course, the green lobby can mobilize on a scale to topple governments and change the face of industry, which is not impossible, but not that likely either.

Moreover that is one outcome that is definitely not something I personally would look forward to. At the end of the day it doesn’t really matter who is removing your civil liberties, whether it is being done by a democratic government, a kleptocracy, a dictatorship or even the green police. When your civil rights are gone, they’re gone, and you really are in trouble, no matter how good the cause.

Untapped potential?

The case against sufficiently massive further finds is well put by John Michael Greer:

"Consider the estimates of future petroleum production circulated by the Energy Information Administration (EIA), a branch of the US Government. Those estimates have consistently predicted that petroleum production would go up indefinitely… The most recent estimates have kept the supply of petroleum in step with rising demand, despite the decline in known sources, by inserting a category labelled “unidentified projects” – predicting by 2030 no less than 43 million barrels a day of “unidentified projects”, comprising around a half of total world production by that date.”

Greer labels this kind of thinking “faith based economics” and he argues that this “faith” permeates most thinking about economics today. And yet further finds are being made, and not just a few million barrels here or there, either. Brazil’s offshore reserves due to start producing by 2013 or so are a case in point. I am indebted to an email from Weiss Research, featuring a report by Ian Wyatt, chief investment strategist at High Yield Wealth (subscription only site, so no point linking), for the following account of just how steep the challenge is to extract the Brazilian oil:

"... most of the oil in Brazil is in very deep water. How deep? Well first they must go down through 6,000 to 9,000 feet of water to access the sea floor...Then through 6,000 feet of rock...Then push further through a layer of salt that's another 6,000 feet deep...Then finally, at a depth of between 18,000 and 21,000 feet they'll hit the oil reservoir. That's the equivalent of three and a half to four miles down."

That the technology even exists to get at something that inaccessible is amazing and it does bring “the deep oceans” into play. Yet it has to be said that even with this and other discoveries of note, it seems highly likely that the odds remain finely balanced, even for the wildest optimist, as to whether there is enough oil left out there to buy us time to develop a Plan B for global energy. In an Australian TV documentary on Peak Oil, Dr. Jonica Newby interviewed Dr. Fatih Birol, Head of the International Energy Agency (IEA), who admitted (and I quote direct from the documentary):

“When we look at the oil markets, the news is not very bright. We think that the crude oil production has already peaked in 2006 … Just to stay where we are today we have to find four new Saudi Arabia’s. This is a tall order.”

The IEA sees it as possible that we could be producing 93 million barrels a day by 2035 – which would push the Hubbert Cliff scenario of Part Two well into the future – but Fatih Birol himself admits that “this is (just) potential”. He told Dr. Newby:

“No one can guarantee me that the oil under the ground, especially in some key Middle East producers, will be developed and will be brought to the markets in a timely manner”

To make matters worse, Dr. Newby next trotted off to Sweden for a chat with noted Peak Oiler, Dr. Kjell Aleklett, a founding member of the Association for the Study of Peak Oil, who has some 20 papers published on this issue. He rubbished the IEA’s “hoped for” projections resoundingly. Even if there are new finds, they won’t be on stream fast enough to stop supply dropping precipitously, was the upshot of his comments.

The Oil Crunch

As her final act, Dr. Newby spoke to a group of senior business executives in London which she introduced as captains of industry who are so concerned they have formed a task force to run their own analyses. Their big worry is the Oil Crunch. Forget whether oil has peaked or has not peaked. A sudden, significant deterioration in supply for any reason would lead to the Oil Crunch (capitals are definitely in order) in their view.

Chris Skrewbowski, the founding director of Peak Oil Consulting and one of the members of this task force, is quoted in the film as saying: “All the calculations tell us that the Oil Crunch is going to be no later than 2014 and could be as early as 2013.”  Earlier, it seems, if China soaks up even more of the available global supply, which it seems keen on doing.

Then there is the fact that part of the legacy – and by no means the smallest or least dangerous part – of BP’s Gulf of Mexico disaster is that it has led to a spate of fresh regulations on deep water drilling, which oil experts worry will retard production sufficiently to hasten the Oil Crunch.

So now to the ranks of the Peak Oilers and Anti-Peak Oilers, we have to add the Oil Crunchers, whose numbers obviously include collapse scenario veterans like Orlov and Greer. Are they right? I’d like to argue the point, but I’m a bit pressed for time laying in tubs of potatoes and sacks of dried beans.

Further reading on commodities, risk management and the global economy:

Tags: BP , Brazil , Brazil offshore oil , collapse scenarios , deep water drilling , Deep Water Horizon , Deepwater Horizon , Dmitry Orlov , Dr Fatih Birol , Dr Jonica Newby , EIA , Energy Information Administration , global oil reserves , green lobby , Gulf of Mexico , High Yield Wealth , Hubbert cliff , Ian Wyatt , IEA , John Michael Greer , Oil Crunch , oil reserves , Peak Oil , Peak Oil Consulting , Saudi Arabia , Weiss Research
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