These are merely my notes, of the key points I picked up during the conference. I hope these notes will be useful to others as an index to the volumes of material that were covered. Any errors or omissions are undoubtedly mine. Please send any comments/corrections to me.

My coverage is no doubt incomplete because I can only type so fast and much of the material went by very quickly. Consider this document an index, and go back to the source presentations to double-check the data.

My personal comments are shown in [brackets]. (?) indicates information that I probably got wrong.

Since no one can be in two places at once, I could only cover part of the split sessions that occurred simultaneously. So coverage of these sessions is limited.

For bios on the speakers, see http://www.aspo-usa.org/aspousa4/ConfirmedSpeakers.cfm

For the presentations, see http://www.aspo-usa.org/aspousa4/proceedings/
(some presentations may not be posted yet; check back)

See also the list of others’ notes from the conference at the end of this document.

Please email me any comments or corrections.

Your humble scribe,
Chris Nelder
chris (at) getreallist (dot) com
Energy Analyst

http://www.getreallist.com

http://www.energyandcapital.com

DAY 1 – SUNDAY, SEPTEMBER 21, 2008 

1:30 pm – 3:00 pm

Reporting the Oil Story – panel discussion 

Erica Etelson, San Francisco Chronicle

Bart Anderson, Energy Bulletin

Neil King, Wall Street Journal

John Theobald, University of California at Davis, Moderator

Started with a hilarious clip from The Daily Show with Jon Stewart. 

Neil King

• A “sea change” this year in reportage on peak oil. A higher acceptance of the notion, primarily driven by price & public alarm.
• If the price remains below the pain threshold, we may see coverage diminish and a loss of momentum in more efficient vehicles etc.
• It’s been a very strange year for the oil business, with wicked volatility but no major geopolitical events. What lessons should we draw from this? What are the bigger concepts?
• Various factions…from techno-optimists to hardcore doomers. Analysts, journalists, traders…all focus on different aspects of the story, be it inventory levels, or official announcements, or trading patterns.
• The Oil Drum is one of the few domains where the conversation is factual and interesting and intelligent. But there is an element of willful blindness also that we are working against in the media; when gas prices fell below $4/gal, a lot of ears started to close.
• “Our problem is that the supply is old and the demand is young.” – quote he heard at an IEA meeting in Paris last week.
• Doomers vs. arch-optimists: the reality will lie somewhere in between, but where?
• He ran a couple of informal polls amongst his contacts to predict the price of oil 6 months in the future…and everybody was very wrong.

 

Erica Etelson

• Peak oil was one of the most censored stories of 2005, but we’re past that now. Still, many articles seem to studiously avoid the term.
• Google the term “peak oil” and you find yourself in a deep, dark realm where the collapse of society is a foregone conclusion.
• Media has short attention span and when the pain/price level falls, media coverage falls too. Most journalists would be happy to see the price fall and stay down so they don’t have to write about it anymore.
• The framing of the story is a problem. It’s currently framed as an industry problem, with no sense of government accountability, even though gov’t has known about this issue for decades and done nothing about it. The Hirsch Report in 2005 should have been greeted with screaming headlines, likewise the GAO report; in fact there were no headlines at all. Journalists have failed to hold politicians’ feet to the fire or ask them the hard questions about these glaringly serious issues.
• Industry isn’t going to somehow save the day with some new technology. Journalists really need to ensure that stepwise changes are made. E.g.,
  • Ask for meetings with the editorial boards of news organizations.
  • Contact ombudsman’s office for newspapers and ask for coverage.
  • Don’t forget about local media. Write your op-eds and letters to the editor. At the highest levels of government, they’re asleep at the wheel, but at the community level, there is much being done.
  • Try to reach sympathetic ears in your alumni networks & publications.
  • Minority journalists for communities of color need to get the word and get the word out faster, because they will be hit by the effects first and worst.
• There actually is quite a bit of good reporting out there, but we don’t make adequate use of it. Every time you see a good article on peak oil, send it to everyone you know, including elected officials.

 

Bart Anderson

• The peak oil meme is more common now than it was, but the understanding is very shallow and driven by price pain.
• Oil isn’t the only crucial thing at peak. Consider peak phosphorus!
• Presentation: “The Evolution of Peak Oil Coverage”
  • Problem at the beginning: little awareness; media & gov’t uninterested; nowhere to publish; few ways to communicate
  • Around 2004, some new books (Simmons, Kunstler, Heinberg, Goodstein, Deffeyes); a few media mentions; new sites (peakoil.com, Energy Bulletin, LATOC, etc.)
  • Around 2005, new communities: ASPO-USA, TOD, PCI; personal blogs & new writers; documentaries (”The End of Suburbia”), Gov’t reports (Hirsch Report, GAO Report); media interest (but little depth)
  • 2008: Mainstream now, with more books, web sites, documentaries, new writers, investors, regular coverage in the press esp. the financial press, and a spike in prices.
• There are now 4.3 million hits on Google for “peak oil”. New interest from industry and governments, and local groups (PCI, Transition Towns)
• A continuing role in critiquing energy technologies, lobbying, monitoring, & working with media and allies (investors, planners, environmentalists)
• What we’ve done right: networked, non-hierarchical; non-partisan; more volunteers; welcoming; stimulating, constant stream of content (”like an ongoing graduate seminar”)
• Limitations: It’s all volunteers; limited to information and persuading – we can’t actually do things; narrow demographics (mainly white technical professional males in English-speaking countries)
• Trends: climate, politics, economics, food & ag, urban design & transportation
• Other peaks: fossil fuels (nat gas, coal, uranium), other minerals (phosphorus), water, eco-systems (we have only a 13-year supply of indium at current rates(?))
• New voices: Third World, women, farmers, blue-collar workers, small business, artists

Q&A

• What about the “drill here, drill now” crowd? What about peak oil and invading Iraq?
• Kjell Aleklett: How do we reach non-English speakers? How do we share materials that originated in other languages to English-speaking audiences?
• Chris Nelder: How can we improve the factual reporting of peak oil? Etelson: Send the Peak Oil Media Guide to editorial boards. Anderson: Contact the writers directly, be nice, don’t be accusatory. King: Try to establish a dialogue with journalists and editors.
• How do we get economists involved? Anderson: economists are not our friends, they are a hotbed of opposition! Try to find the sympathetic ones. Etelson and Anderson: Paul Krugman, and the editors of Freakonomics are sympathetic.
• Mike Ruppert: Optimistic stories are always above the fold; negative stories are always on p. 22. What’s up with that? King: Disagree; new articles on difficulties of oil sands, shales, offshore, etc. have regularly appeared on p. 1 of the WSJ. There is a greater sense of urgency about peak oil now than there once was.
• Ron Swenson: Desperation is driving us to oil shale, tar sands, extreme technology, etc. with greatly over-optimistic expectations, while at the same time solar and other renewables are regularly dissed. Can coverage become a little more balanced about renewables, or an improving trend? King: There are a lot more energy ads now than ever before. Energy stories of all kinds are certainly dominating the news.
• Etelson: I write about permaculture regularly but I don’t call it permaculture because I want to get it published.
• How can we get more politicians to talk about it? King: Roscoe Barlett has been giving his talk many, many times to a mostly-empty chamber. It’s a hard thing to get politicians to talk about a story that nobody wants to hear.
• Liz Warren (who covered peak oil as a “most censored story” in her thesis): We seem to expect media to be entertaining; how can peak oil be presented in a more entertaining way, and how can we reach youth? Etelson: Youth are particularly interested in community gardening, permaculture, etc. King: Props to Oily Cassandra and KrisCan! [Hear, hear!]
• Do IEA officials express privately a different sentiment than what is reported? King: Yes, absolutely, there are folks at EIA, IEA, Saudi officials, even President Bush who know that the options are limited going forward.

3:30 pm – 5:00 pm

Analyses from The Oil Drum – panel discussion 

Robert Rapier, Oil Drum Contributor, R-Squared Energy Blog, Accsys Technologies,

Jeff Vail, Oil Drum Contributor, Davids Graham & Stubs LLP

Brian Maschhoff, Oil Drum Contributor

Kyle Saunders, Oil Drum Editor, Moderator

Robert Rapier: “The Energy Information Providers“

• His first ASPO conference because his previous employer, ConocoPhillips, didn’t want him to come!
• Review of the most common energy information agencies: EIA, IEA, CERA
• EIA is good for:
  • Current data on exports, consumption, optimistic forecasts, etc. Good statistics. Outlook reports, etc.
  • This Week In Petroleum (TWIP) – weekly – has the power to move markets because it has the inventory updates.
  • How I use the EIA: To debunk the claims made by confused politicians, etc. To get good shared information, e.g., import data. For current reporting, e.g., gasoline stocks during a hurricane.
• What I don’t use the EIA for:
  • Price forecasting: over the past 12 years, have been consistently wrong, by as much as 127%. Average error was 53%.
  • Supply forecasting: consistently too optimistic. But the problem is that everyone uses their forecasts for policy planning!
  • Zoom in on 2008 Annual Outlook: expects oil imports to suddenly drop after a long period of constant growth!
• IEA (International Energy Agency): Energy policy advisor to 27 countries
  • IEA Oil Market Report, World Energy Outlook, other good reports, special reports, statistics on oil, natural gas, coal, etc.
  • How I use the IEA:
    • Monthly OMR (Oil Market Report) has the most current estimates of world oil supply. Excellent source of worldwide inventory data, world refining margins, etc.
    • Understanding supply/demand risks. Watch the charts, e.g., stock builds, days of forward cover.
    • IEA has adopted a more pessimistic tone than the EIA….downward revisions of OPEC spare capacity, impending supply crunch, “peak lite“
• CERA:
  • Clients are big oil companies, and CERA reports the story they like.
  • Forecasts have been terrible since 2002. E.g., prediction of $20s - $30s in 2005 for oil price, actual was $65/bbl
  • Forecasts of supply wildly overdone
  • In 2008, they reversed course and noted a “perception” of supply issues.
• Misc sources:
  • BP Statistical Review of World Energy
  • Drumbeat on TOD
  • Oil Price information Service (OPIS)
  • Platts
• The major agencies do a great job of reporting data, but a terrible job of forecasting. Government and business leaders who depend on this data for their decisions will be badly misled.

 

Jeff Vail: “The Geopolitics of Energy“

• “Rational extraction sets the stage for geopolitical problems.” Geopolitical challenge rises as geological challenges increase (?)
• “Market-driven conservation & efficiency increase in elasticity.” More extreme measures are needed to ensure supply.
• “Highly theoretical disputes drive very real conflict.” Oil as a subset of the intersection of “nation” and “state.” E.g., disputes between legal owners and moral owners of oil resources. How do you meet the needs of all stockholders together?
• “Actors seek to secure their slice of a shrinking pie.” If we seek to maintain our current share of energy supply as others’ shares shrink, who loses? Pipelines are a good example of this, predetermining who has access and who doesn’t. “Military adventurism.”
• “Tactical evolution increases geopolitical threat to energy.”
• “These developments act as positive feedback loops”
• “Geopolitical feedback loops exacerbate peak oil” [interesting graph!]…Production under geopolitical reality (feedback loops) will make the reality considerably worse than the geologically feasible production curve.
• “This is a global feedback system.” Mexico’s events affect Iraq, affects Nigeria, etc.
• “‘Solving’ symptoms leads to alternative negative outcomes.” A lesson in unintended consequences.
• “Addressing causes requires radical restructuring.” Radically: Decentralized? Renewable? Vernacular modes of consumption? Realistic? What is a realistic way to choose and then implement an approach to stopping geopolitical feedback loops? Really, geopolitics is a force of nature.
• Our energy future isn’t solely determined by what is possible geologically, politically, or economically. Geopolitics can always trump those factors.

 

Brian Maschhoff (”JoulesBurn” on TOD): “Saudi Aramco and the Art of Oilfield ‘Maintenance’“

• What does “maintenance” mean? It really means production…maintaining a certain level of production. But “production” isn’t right either, because you’re not making anything, you’re extracting.
• Maintenance: Putting wells where no well has gone before (unswept zones). Reworking existing vertical wells (simulation, horizontal tracking)
• What about existing Saudi Aramco megaprojects? 2003-2011…delays are common. A lot of inflated numbers on the heavy oil side for KSA
• Madness: Monitor Saudi Aramco from the comfort of your own home. Classify and quantify oil field infrastructure from satellite photos. On a paltry budget. But we can’t measure oil flowing from wells, nor make money from doing it.
• Methods: Google Earth, Digital Globe imagery (Quickbird Satellite), finding wells, counting, aligning and comparing imagery with dated maps (find what has changed)
• “Jeopardy!” slide…what fields are really being discussed in the press?
• Looking at satellite photos, it can be tough to distinguish what is what…e.g., gas wells vs. oil wells.
• North Ghawar shows major overhaul, after 40 years of operation. [Numerous slides showing progression of oil wells drilled in various parts of Saudi Arabia.]
• Diagnosis: Old production is being replaced daily. But they’re running out of dry rock in Ghawar. Still a lot of oil, but they’re out of giant fields. Expanded production will depend on a collection of a lot of smaller fields.

Q&A:

• How concerned is the US military and what are they doing? Vail: Studies are being conducted into the energy footprint of various options. Military is clearly concerned but they may not yet understand the long term implications of it.
• Why didn’t Robert Rapier include USGS data? Because the data is pretty worthless.
• What about population? Vail: Third world is getting priced out, but there don’t seem to be any good (implementable) and equitable solutions.
• How much oil is left in Saudi Arabia? Maschhoff: We can only go by the information they put out there.
• When will Russia’s exports fall to zero? Vail: Russia is one of the few cases where population (decline) is actually working for them. But Russia is also exerting more control over the FSU countries that surround them.
• What about water? Vail: Used to work on water reclamation. Water is even less substitutable than oil.
• On a question about unconventional oil production, Rapier: “It’s a fact that there is more than a trillion barrels of oil in shale; it’s also a fact that it will take more than that to get it out.”
• On the Pickens Plan: Maschhoff: Transportation fuel is a huge gaping mouth that you can throw anything into and it still won’t be enough.

6:30 pm – 7:30 pm

Dr. Peter R. A. Wells: “OPEC Dilemmas, Issues, and Responses“

• Introduction by Steve Andrews; Toyota has known about peak oil since 1992, internalized it, and thus became the Prius.
• OPEC produces 42.8% of the world’s crude, proportion will grow as time goes on
• When OPEC increases capacity, they get stuck with a loss in demand. How much spare capacity should they invest in? Spare capacity currently 1.5 million barrels per day (mbpd)
• OPEC is diverse; price hawks in Venezuela, Iran, Iraq; others like Qatar, KSA and Kuwait with higher per capita GDP are less keen on expanding capacity
• Decision making is very slow; national heritage, timing of investment, etc…save some for the grandchildren. When should they time the investment? How not to get stuck in the same situation they were in the in the 1980s? Why expand to reduce prices? Politics…Iran, Iraq, Venezuela, Nigeria, Kuwait
• Fields are old, and there is competition between the old & newer producers. Kuwait, Qatar, UAE, KSA: $1,5 trillion invested, mostly in the US. They don’t want the price to go too high for demand destruction, and they don’t want to hurt the US too much for the sake of their investments.
• New production capacity is also high risk.
• Exploration success in OPEC peaked 40 years ago
• The large OPEC fields are mature (fields >2 billion bbls reserves)…not much has been discovered to replace the older fields. Fields are being replaced at a very conservative rate.
• World liquids supply model: OPEC is expected to make up the loss for non-OPEC supply.
• Crude oil makes up 86% of the “crude oil” supply [the rest is natural gas liquids, etc.] (?)
• But it’s not just geology; marginal cost of supply alters the mix and the size of reserves
• Balance & interaction between geology, money and politics. Balance affected by long lead times in supply projected 5-15 years forward, and ultimately the finite nature of supply. Insufficient spare capacity leads to high oil prices and demand destruction. Excess spare capacity weakens oil prices and can reduce supply at the margin.
• Most of the time, spare capacity doesn’t matter to price. It mattered in the 1980s when there was too much spare capacity, but that floor was set by the needs of the KSA budget and it stuck for 20 years. Around 2002, KSA capacity started to fall, in part due to increasing demand from China, but there was also the declining production from non-OPEC. Then price started to rise dramatically. Now high prices will lead to some new capacity and a short period of lower prices.
• We have produced 864 billion (bn) barrels (bbls) to date; 1,111 bn remaining & TBD (HIS data)
• According to USGS/CERA, another trillion bbls remain to be discovered. But we have nowhere near that.
• Enhanced Oil Recovery (EOR): In US peaked around 2000 via miscible non-hydrocarbon gas injection (CO2, N2)
• US EOR: specific to field, reservoir, oil type, location…works best in poor reservoirs with light oil; not so much for deepwater. No gains for light-medium oils in good quality reservoirs
• Global EOR: potential 220-470 billion barrels (CERA: 592 billion barrels) and most of that is in OPEC, so we won’t see it for a long time in the future.
• Total potential: ~ 3 trillion barrels
• Peak around 2012-2013 for conventional crude. (CERA estimate way, way higher, assumed to be filled by exploration success and EOR)
• Methodology: using simulation model approach to crude forecasting, using probabilities, time between discovery & first production, field-by-field specs
• EOR: good match to historical production for non-OPEC.
• Most non-OPEC, non-FSU EOR projects are offshore (80%!) (?)
• 625 bn bbls produced, 530 bn to go for non-OPEC; we’re at the peak for non-OPEC.
• Most of OPEC is “above ground” risk; for non-OPEC, “below ground”
• OPEC: issue is not reserves but maximum sustainable rate and pace of getting there.
• KSA field-by-field assessment: total remaining: 278 bn bbls; production to end of 2007: 115 bn bbls
• Iran: produced to end of 2007: 61 bn bbls; Total remaining: 90 bn bbls
• Iraq: produced to 2007: 31 bn bbls; remaining: 177 bn bbls

• Venezuela: 58 bn bbls produced by end of 2007; remaining: 322 bn bbls…will mostly be produced after 2020 because it’s undesirable heavy oil
• OPEC production forecast: Will reach 40 mbpd, no higher, mainly due to political decisions
• Challenges for OPEC
  • Balance creation of capacity to guesstimate future call on OPEC
  • Difference between non-OPEC liquids and demand
  • Excessive investment needed…
• Natural gas liquids (NGL): Peak around 2020; non-crude oil liquids (CTL, GTL, tar sands, etc) peak around 2025 (?)
• Peak liquids: ~98-105 mbpd around 2020 (2017-2030)…demand has surprisingly little impact
• World crude oil peaks around 2015; around 2015 will be a major crisis in price.
• Other liquids like biofuels, tar sands, etc. help to defter world liquid peak by 3-5 years, but cannot ramp up quickly. They take a long time & a lot of investment.
• Does not believe that north Ghawar is about to water out. They will have to start EOR in the region within the next few years because it will then begin to water out.
• Re: Kashagan, the problems are technical and environmental. Expensive gas extraction & processing & reinjection; also impacts on sturgeon. 2013-2015 is when oil production might begin, and will ramp up slowly, disposal of sulfur will be an issue.
• Estimating yet-to-be-discovered oil is “an opinion.” About 300 bn bbls yet to be discovered; few oil geologists agree with USGS.

DAY 2 – MONDAY, SEPTEMBER 22, 2008 

8:00 am – 8:30 am 

Opening Remarks 

Debbie Cook, Mayor of Huntington Beach, CA, ASPO-USA board member

Steve Andrews, Co-Founder, ASPO-USA

Kjell Aleklett, President, ASPO-International 

Andrews: Comments about the meltdown in the markets…we are at the most severe point in the markets in our lifetimes.

There will be an update on the bet with CERA. ASPO does not believe that world oil production will reach 100 mbpd by 2017…

Kjell Aleklett

• ASPO International formed in May 2002 by Aleklett, Colin Campbell and others.
• Some general comments about what peak oil means, and a brief history of the organization.
• Reviewed some per capita data from various countries.
• Discussed the impact of the net export problem.
• Regarding African production, “It’s the biggest robbery in history.”
• Quoting King Abdullah of Saudi Arabia: “The oil boom is over and will not return. All of us must get used to a new lifestyle.”
• Made a bet with Tony Hayward (of BP) that in 10 years, oil production will be lower than it is today, and the amount of the bet is the price of a barrel in 10 years.

Watched a clip from the movie Three Days of the Condor 

8:30 am – 10:00 am 

OIL: Once Cheap, Never Easy

Panel discussion 

Ken Verosub, Professor of Geology, UC Davis

Gill Mull, Alaska Geological Survey, retired.

Jeremy Gilbert, Barrelmore, Ltd. formerly BP Chief Petroleum Engineer

Sally Odlund, ASPO Board Member (Moderator)

Gill Mull is ill and was unable to attend but his presentation is posted online. 

Ken Verosub: “Petroleum 101“

• Recalling Sinclair oil company and the notion that oil comes from dead dinosaurs. Oil in fact calls from small marine micro-organisms in the ocean, which fall to the bottom when they die, to become incorporated into source rock as they decay. A porous rock like sand or carbonate reef then must be deposited to collect the material. On top of that there must be a cap rock to secure the deposit in a trap, and keep it from migrating to the surface. Then the organic material must be cooked at just the right temperature: the “oil window.” Most oil comes from rocks that are hundreds of millions of years old.
• Reviewed various kinds of stratigraphic traps.
• Reviewed seismological methods of surveying traps, like “thumper trucks” and “geophone arrays” that listen for the thumps, on up through 3-D computer models.
• All of the easy oil has been found. Efforts to find oil are getting more extreme and technologically complex.
• Reviewed the rough bell curve of an oil field’s production, the Hubbert Curve, and his correct prediction of the peaking of US oil production in 1971.
• Discussed the relationship between discovery and production curves. We are long past the peak of oil discovery, and have been running a growing deficit for years.
• Ridiculed the scientific illiteracy of Newt Gingrich’s “Drill here, drill now, pay less” campaign, and the unsubstantiated claims of Wall Street analysts who claim that we just need to drill more (most of whom, thankfully, probably don’t have jobs anymore)
• Deepwater offshore is where much of the remaining oil is to be found. But we won’t find any big fields…reviewed Hubbert Curve of oil discovery, showing the declining size of oil finds.
• Even if we did have some large new finds, it takes about 10 years to bring any of it to market.
• How much time do WE have left?:
  • Total US reserves: About 20.9 billion barrels
  • Total US daily consumption: 20.7 mbpd, of which we import 11.7 mbpd
  • Domestic oil, daily consumption: 9 mbpd
  • US domestic oil, annual consumption: 3 billion barrels per year
  • 20.9/3= 7 years
  • So: we only have until about 2015 +/- 2 years for remaining domestic production!
• Global competition for remaining oil, with a likely global peak around 2010, means that prices must rise to resolve the tension.
• World:
  • 32 billion barrels per year (bpy), call it 35 billion bpy/365 or ~100 mbpd is the theoretical peak.
  • Again: 2015, +/- 2 years…”It’s crunch time!”
• Official future production estimates defy this reality…
• As consumption rises fairly slowly in industrialized countries, it’s rising much faster in developing countries, leading to a fairly sharp global increase in the rate of oil consumption.
• “This is a global problem!” In China, everybody wants to drive an SUV, and aspire to a US standard of living.
• Since 1965, US consumption has increased 70%, while China’s has increased over 3000%
• 100 mbpd on the chart is likely to be around 2016, the maximum theoretical peak.
• “In about 7 years, demand for oil will exceed maximum total oil production. Then what happens???”
• Why can’t we be like the Europeans, and use far less oil per capita? Are you ready to live like a European and cut your oil consumption in half? Then which two of your family’s four cars are you willing to give up? Which processed foods will you give up? Which half of your wardrobe? Etc.
• But because there are so many more people in the developing world than in the US, a 50% reduction in our energy consumption only gives them a 33% gain. Inversely, if the rest of the world were to increase their consumption by 100%, we would have to reduce ours by 80%.

Gill Mull: “Alaskan Oil: Prudhoe Bay Discovery and Outlook for North Slope Oil“

• Mull is ill and unable to attend, so some slides were highlighted by Sally Odlund of ASPO.
• TAPS has min capacity of 200 Kbpd to keep it flowing.
• Some photos and maps of ANWR and various wells
• Alaskan oil production peaked in 1988
• ANWR has surface seeps, rich source rocks with anticlines and caps
• P50 [50% probability] estimate for ANWR: About 10 billion bbls in aggregate
• All of the new fields put together can’t come close to overcoming the peak profile caused by the North Slope

Jeremy Gilbert: “Peak Oil Global Overview, An American Wake Up Call“

• “It’s time for you guys to wake up!”
• First wake up call: [ASPO conferences in] Uppsala 2001, then Denver 2005….Now, after 7 years, what’s changed?
• While America slept:
  • Discovery rates continue decades-long fall
  • Calculations suggest reserves can’t meet demand projections
  • Some recognition of political, investment risk in developing resources
• 2008: No improvement in resource situation. New, more accurate calculations of supply define earlier and clearer peak. Political will to increase supply clearly absent; prices not stimulating investment to increase supply.
• IOCs are not investing the way we have hoped and expected.
• Oil consumption per capita: The US, Canada and the Middle East use the most by far, and there has been little changed on a per-capita basis. [Excellent morphed maps!]
• IEA’s wake up call: “There are three problems: Geology, investment, and policy of main producers. These, taken together, make the future of oil very difficult.” – Fatih Birol, IEA Chief Economist
• Some wild statements of wishful thinking… “In your dreams”
  • The explorers will fix it; there’s lot of oil out there - think of Jack and Tupi; add in the OCS (Outer Continental Shelf) and ANWR (Arctic National Wildlife Refuge)
  • Worldwide reserves/production ratio is still 40, there’s lots of time to find other energy sources.
  • Technology will deal with the problem: add just 10% to recovery efficiency and we’re fine.
• While we still have people like Kissinger and Gingrich giving us palliatives, we’re not in a dream, we’re in a nightmare.
• Discovery peaked 40 years ago; production increases all the time, but what we’re producing is the oil we discovered 40-50 years ago. Once the cushion of discoveries from the 1940s-60s is used up, where will we turn? We discover about 1 for every 4-5 bbls we use today.
• If all of the OCS were opened to exploration, we might get a 20% increase in reserves. You have to look 15-20 years ahead to see any substantial amount of that oil come to market. “This is not going to help you!” It will not move the peak.
• The reserves/production ratio…oil production doesn’t go flat and then hit the end and plummet to zero; it declines in a curve over time.
• The world falls from ~85 mbpd to ~18 mbpd in 40 years, and ~8 mpbd in 60 years! So yes, the oil will be produced, but not at nearly the rate we now have.
• New technology: Little indication that recovery efficiency is increasing in established fields. Main benefits seems to be in dealing with unexpected problems and in finding small accumulations.
• We’re trying harder and drilling a lot more wells, which close to doubled over the last few years, but production has been flat.
• Russian oil production was counted on to keep non-OPEC production growing. But their production has fallen from about 9.9 mbpd in 2007 to about 9.7 mbpd in 2008. It looks as though their production has peaked (for whatever reason).

• Consider that energy growth is relative to GDP growth, then realize that non-OECD is way behind us.
• High gasoline prices produced a decline in gasoline consumption growth since December 2007, with about 100-150 kbpd of gasoline consumption decline per month
• Looking at long queues for fuel when shortages developed in China and Scotland recently.
• WAKE UP, AMERICA!

Q&A

• Gilbert: The biggest problem is the general ignorance of the oil supply/demand situation. Proposes that those who take a 10-hour class in supply and demand on oil get a 10% cut in their income tax. [If I may: A capital idea!]
• Verosub: The message needs to be that the problem is real, it’s huge, it’s global, and it’s transformational. Some people will die from famine, disease, etc., but civilization as a whole will survive. This will change the world in a way that we have not seen since the industrial revolution! We need to throw resources at this problem in an international way. And we should stop throwing money away on space trips to Mars, bad biofuel policies, bridges to nowhere and other wasteful projects.
• Gilbert: Can’t account for Nansen Saleri’s much more optimistic expectations for reserve growth. New tech does in fact give higher efficiency & greater recovery, with recovery factor increasing from 30% of oil-in-place years ago, to as much as 50% today, but we need that new technology to deal with the more extreme characteristics of the remaining fields. [The implication being that net production will not grow due to EOR.)
• The fact that remaining oil is largely heavy and sour will make life more difficult.
• Verosub: Cuts will be in manufacturing, food production, etc., not just driving less.
• Gilbert: About a half-trillion dollars per year flows into the Middle East for oil. We'll see wars, we'll see famine, we'll see increased blackouts and shortages.

 

10:15 am – 11:45 am 

Pipedreams: Oil & Gas Delivery Bottlenecks

Panel discussion 

Morey Wolfson, ASPO-USA Board Member, Utilities Program Manager at Colorado Governor Bill Ritter's Energy Office

Matthew Simmons, Simmons & Co. Int'l

Randy Udall, ASPO-USA Co-Founder (Moderator) 

Udall: Check out good report on shale gas by Deutsche Bank Securities Inc. research analyst Shannon Nome, "From Shale To Shining Shale: A Primer On North American Natural Gas Shale Plays"

Morey Wolfson: "Google Earth Fly-over Global Energy Infrastructure"

A breathtakingly fast, head-spinning tour of major world energy projects using satellite photos from Google Earth. [To see it, first install Google Earth, then open this file: ASPO-USA_Global_Energy_Infrastructure.kmz]

[I could only take very fragmented notes of this presentation, it went by fast. I'm not sure I got all the stops. Notes are from Wolfson's verbal commentary.]

• Sakhalin Island, a huge Russian project, $20 billion project. Massive time and cost overruns.
• China: Three Gorges Dam. Huge hydro project (600′ tall, 1.5 miles long).
• China: coal fired generating station. China will build about 1 plant a week for the next decade. China has overtaken the US as the top emitter of GHG.
• Newcastle coal plant in Australia…largest thermal coal facility in the world. Japan is their top coal customer.
• Australia: Uranium mine…Oz has the largest uranium reserves in the world
• Bangladesh: At sea level, likely to have mass refugees from rising sea levels
• Ras Tanura refinery in Saudi Arabia
• Ghawar field in KSA, producing 5 mpbd
• LNG terminal in Qatar, the largest gas exporter in the world. New export facility is the largest such facility in the world.
• Nuclear reactor in Iran…expected to build 6 new plants by 2021
• Antwerp refinery, with 360 kbpd production, second largest in UK (?)
• Copenhagen wind farm, a huge offshore wind farm.
• Nigerian port, largest exporter of oil in Africa.
• Brazil: sugarcane ethanol facility.
• Columbia: a coal port from a nearby coal mine (world’s largest open pit coal mine)
• Venezuela: oil port facility
• Gulf of Mexico, Thunder Horse oil platform ($1 billion platform)
• Houston Ship Channel, approx ¼ of US refining capacity
• Lake Charles LNG importation terminal
• Iowa corn ethanol facility…US uses more ethanol than any other country in the world
• Palo Verde nuclear facility outside of Phoenix, AZ
• Nevada CSP plant – 64 MW
• Palm Springs wind farm
• Powder River basin in Wyoming, huge coal operation, 25% of US coal production
• Alberta tar sands project
• Alaska pipeline, terminal in Valdez, AK
• Choke points: The Strait of Hormuz, where 25% of the world’s oil is moved
• Pakistan: Gwadar Port, project in partnership with China
• Red Sea strait, 3+ mbpd flows through
• Suez Canal, transports 4 mbpd
• BTC pipeline
• Turkish straits, 2.4 mbpd flows through there
• Strait of Gilbraltar
• Panama Canal, 0.5 mbpd flows of oil…may not be expanded because the Northwest Passage is now a reality (saving 4000 miles)
• Straits of Malacca, a chokepoint in Singapore

 

Udall: Coal train leaving Powder River basin is about 150 miles long (?!)

Matthew Simmons: “Grappling with Energy ‘Risk’”  

[See video and related interview at the conference here.]

Aging Infrastructure, Workforce, etc.

• The combination of Ike, Bernanke and Paulson made for a week that will go down in history. How casually we take the concept of risk!
• Era of deregulation, “transparency,” globalization of capital markets and securitization were suppose to take out “financial risk”
• Derivatives were supposed to disperse risk “elsewhere.” Risk has reached 300 or 400-to-1 in some cases. We’ve made a situation that is far worse than the 1920s.
• Proper size was deemed to create a system that’s too big to fail
• LTCM was a prelude…Enron happened 7 years ago and was a prelude to what might happen next
• And the lava gushed…Merrill, Fannie, Freddie, Lehman…
• Risk is a very real term, still exists, leverage can be extremely dangerous. The greater the risk, the faster big systems can fail
• Peak oil and gas has ominous parallels to financial crisis. Most observers do no graphs of peak oil, (?) or how savage a post-peak world can be
• Were Gustav and Ike the initial tremors of the big bang crisis?
• Recent collapse in petroleum prices created a false sense of security
• Hurricane aftermath: GoM has been offstream since early Sept (~30 million barrels not produced)…many plants still not producing…LOOP pipeline and HSC were crimped. This is all draining inventories.
• Could we have a “run on the bank” with fuel stocks like we have in the financial system and breach MOL [minimum operating levels]?
• Topping off tanks literally creates a run on the bank.
• An example of how fast we could break the bank:
  • 220 million vehicles
  • 20 gal capacity each
  • Average tank has 5 gals in it
  • Topping off ~15 gallons x 220 million = stock draw of 78 million barrels.
  • Current finished stocks: ~87 million barrels!
• What happens when stocks deplete?
  • Food supply in jeopardy within a week
  • Economy slows to a crawl
  • Financial markets panic
  • Energy risk is finally grasped.
• If heating oil also becomes scarce, a cold winter will be a disaster in the US. A few weeks of winter could deplete usable stocks. 9-10 million homes rely100% on heating oil for winter heating.
• What are the odds? No one knows. Reported petroleum stocks are only estimates; there is zero data on secondary/tertiary stocks. The odds of this eruption occurring are higher than another hurricane occurring.
• “How could the world’s most prosperous, advanced society move into harm’s way so fast?”
• Peak Oil is like Gustav/Ike squared. The ebbing of supply is equivalent to current crisis…are we flying blind into a Cat 6 storm?
• We need to demand country-by-country production data, including key fields, various grades…
• Key fault lines:
  • Energy intensity to create usable petroleum from unconventional crudes (shales/tar sands).
  • Drilling rig tightness & shortages, but we have no data! (No rig count! We just have estimates).
  • We lack realistic expectations…
• Is the size of oil markets “too big to fail?” 85 mbpd is the world’s largest single industrial market by several fold. But there are no regulators like the Fed, etc.
• Other risks:
  • The straits: Malacca, Hormuz, Yucatan/Cuba passage, etc.
  • Key facilities: Abqaiq, LOOP, TAPS
• What about insurance? SPR is limited and should not be used to manage prices. Untested EIA member country energy stocks. Line fill in pipelines and tank bottoms, then we’re out of gas (finished product). Afterwards, we are in an uncharted sea and probably “out-of-gas.”
• Could an energy pandemic really happen?
• Most global leaders have no idea of any of these risks. Peak oil is still barely understood.
• It took 5 months to melt down the whole financial markets.
• Energy markets could unwind in less than 30 days. Risk is real, energy risk is real risk squared.
• Rust is also energy risk squared. 98% of the infrastructure is built out of steel…a ticking time bomb.
• Energy oxymorons:
  • Energy independence: 100% impossible.
  • Improved technology: zero impact on any of these risks.
  • More drilling: we have no spare rigs and few places to drill with timely high impact.
• We live in a dark world of hidden data on energy.
• All past great crises were also ignored until we hit the tipping point.
• Peak oil is the singular and most ominous risk of the 21^st Century.

Q&A

• Topping off tanks could cause shortages, and it will take a long time to rebuild the supply cushion. Running out of food is the most serious implication. Shelves can go empty in 5-7 days.
• This last week was potentially the “big bang”
• The Council on Foreign Relations (CFR) hasn’t had a serious energy event since 2004. They’re almost energy illiterate, despite being geopolitical experts.
• If we radically increase tight sands and gas… Barnett Shale has saved us from some serious gas supply issues. Net energy of Barnett Shale (traveling 70-80 miles per day to the rig, plus transport of rock, etc.) is questionable…it could be a net energy loser. We have real limitations of rigs, people, etc. We’re not gonna flood the world with shale gas.

• I wouldn’t want to be in a presidential cabinet for one minute…
• Peak oil is so much more real, and more immediate, and serious than global warming, but we have a large consensus about the latter (when the data is even less clear) and near total illiteracy on the former.
• Comment on Peter Wells’ more optimistic assessment of KSA reserves last night: We really don’t have any idea how much is there. 110 billion proven, 260 billion est. What we really need to know is how much is light sweet, and when/how fast will the largest fields decline?
• If I could get over the worry about people topping off their tanks, I’d be more optimistic. We’re going to have to rebuild our energy infrastructure. The Starbucks economy came to a grinding halt, and we’re going to have a long period of Wall Street remorse.
• Dr. Sadad al Husseini says that the world basically has no spare production capacity left, and I believe his estimate.
• The fact that we have to guess at the global depletion rate should make us all nervous. Why don’t we have better data on depletion?
• When will it be possible for an American politician to tell the truth about energy? I think it’s possible, based on my experience in speaking before many audiences in the last several years.
• Re: the new IEA report in November…Birol has been working on it full time for months. For the first time we’ll have a supply driven model. Birol is having a terrible time finding any significant pockets of good news. All of the agencies are under incredible pressure to cheer up their news. Stay tuned for November 15, it should be a shocker!
• We need to liberate the workforce and let people work from home…that day might finally be here.
• We can’t actually ration anymore. What we did in the 70s with even-odd days required service station attendants…only about 1 out of 4 stations has attendants anymore! We will need to print up rationing coupon books like we did in WWII to prevent a “run on the banks” in gasoline. Evidence suggests that many people are running around with $5 or less worth of gas in the tank!
• Get rid of vulnerable investments. Buy infrastructure companies because we have to rebuild everything (Baker Hughes, SLB, RIG, etc.)
• Re: the Energy Watch Group report saying that oil actually peaked in 2006. EIA’s databook shows that 2005 production was the all-time peak near 74 mbpd, slight decline since then. Newest data just barely exceeds that all-time peak, but it is subject to further revision. It’s very hard to imagine how we could ever get to 75 mbpd of crude.
• Should we try to print our way out of the financial crisis? We’re lucky that foreign countries are still willing to ship us any oil!
• Check out The Hunt for Black Gold program on CNBC with Maria Bartiromo, including an interview with Simmons this Wed night!

 

12:30 pm – 11:45 am 

Awards

Julian Darley, John Theobald and The Oil Drum received awards  

Jim Buckee, Talisman Energy: “Peak Oil and Resource Nationalism“

• World oil field sizes: the top three fields (Ghawar, Burgan, Cantarell) are huge compared to everything else. Ghawar is unknown, but the other two are in decline.
• 97% of the world’s known reserves are in 10% of the fields.
• Prudhoe Bay (and indeed all fields) go into exponential decline.
• Samotlor, Forties, West Texas – all in terminal decline. [Charts showing numerous fields in terminal decline.]
• On average, fields decline after 50% has been produced, on average decline at 10% pa. Depends on quality of the reservoir, facility constraints, etc.
• Demand growth 1.5% pa. World decline: 5-7% pa. Decline will be 50-60 mpbd in 10 years (6 Saudi Arabias).
• [Numerous detailed maps and charts on Saudi oil fields…Abqaiq is good, north Ghawar is good, but south Ghawar is bad.]
• Ghawar 174 x 16 miles…190 bn bbls OOIP (assuming 60% recovery factor). Reserves 80-90 bn bbls… 5 mbpd current production.
• Cantarell…massive decline rate
• Sadad al Husseini: “natural declines in existing capacity are real,” getting KSA to 12 mbpd of production would “wreak havoc within a decade.”
• Chairman Farouk Al-Zanki: Burgan “peak output in 2007 at 1.7 mbpd not 2″…reserve uncertainty
• Daqing (16 bn bbls): liquids 3% decline
• Alternatives: rate vs. volume. World NGL production will peak in 2010-11 (over 9 mbpd)
• World XTL (anything-to-liquids)…peaks at 2.5 mbpd in 2012.
• If conventional oil reserves are 750-1000 bn bbls, decline is 50-60 mbpd over 10 years. NGLs (probable), yet to find (10-20bn bbls), EOR, plus bitumen/extra heavy all together equals about 300 bn bbls, and can’t make up for conventional decline.
• Why Majors are quiet on peak oil:
  • In a big company, CEOs are advised by economists: “commodities always go down,” “ingenuity overcomes scarcity,” …Club of Rome, Malthus cast ridicule on scarcity arguments
  • “There is plenty of oil we could get at it” - ignores volume vs rate argument!
  • “Low cost producer wins” – true but opportunity missed.
  • Political implications? Heavy implications!
  • There are signs of change: “end of cheap oil”
  • Predicting oil price is difficult
• Industry Outlook
  • Exploration is tough – F&D [finding & development cost] is rising
  • Industry is extremely tight: people, services, equipment
  • Costs have doubled in the past 3-4 years
  • Industry fights declines every day
  • No opposite of a train wreck. Things don’t suddenly get better than they have been.
• Resource nationalism is rampant!
  • Host gov’ts want sovereignty and control, not tax collection. Also a rebalancing of power and status with the West.
  • Mineral resources deplete – finite pie to cut up
  • Not limited to OPEC!
  • But oil in the ground has no value!
  • Governments should maximize value…leave some in the ground
• Various slides on the share of revenues depending on the PSCs [production sharing contracts]
• Resource nationalism
  • IOC [independent oil company] motivation is to grow production, reserves, hence revenue
  • But host government motivation is more complex
  • How much money is enough? An empty purse is bad but in high prices other factors play
  • Do mechanisms exist to spend money usefully?
  • What to do with petrodollars?
  • Oil as a weapon (Venezuela, Russia, etc.)
• Current account balances are terrible for India, China, etc., and are huge for Venezuela, Libya, etc. Remaining fields with access to outside investors have extremely low financial returns.
• Rise of the NOCs [national oil companies]
  • Libya takes 55% from Oxy
  • Shah takes 55% from Anglo Persian
  • Venezuela takes 60%
  • KPC took over Gulf Oil, etc.
• Majors are rather minor in terms of reserves! Exxon, the largest of the “majors” is only #17 worldwide in terms of reserves!
• Rise of the International NOCs (INOCs): Statoil, Yukos, BP-TNK, etc. Benchmarking and chest thumping. ONGC, CNPC, Sinopec, CNOOC etc. are serious competitors.
• NOCs have problems
  • Uneasy relationship between NOC and government
  • Often used as a piggybank by gov’t, starving reinvestment (Pemex, Petronas)
  • Upper echelons often choose other than by merit
  • Corruption – money siphoned off
  • Contract and sourcing sub-optimal
  • NOCs reflect the national culture…deference, unwillingness to say no, promotion by status or age, bad news messenger gets shot…
  • Inefficient: $15.28 revenue per barrel for IOC vs. $5.25 for NOC
• Exports fall faster than production. Population growth, food prices, subsidies for fuels, etc. In Indonesia, subsidies are 30% of the state budget!
• NOCs and INOCs get priority
• But NOCs provide more certainty for complex projects, and are aligned with host governments (as opposed to service companies)
• Not all governments want neo-colonialism
• The problem of reserves stalls progress.
  • Oil companies are partly valued in the stock market by booked reserves
  • In order to book reserves there must be “ownership”
• Gap between supply and demand increases relentlessly between 2005 and 2050. The world is expected to consume over 693 bn bbls of oil and over 2,500 tcf of natural gas from 2005-2025. By 2050, oil is very expensive and limited to transportation.
• On the demand side, OECD is still falling but non-OECD is still growing
• World produces 30+ bn bbls pa, replaces < 10 bn bbls
• World’s reserves dominated by large fields
• Signs of decline in largest fields
• Alternatives can’t offset decline rate
• Nationalism reduces access for IOCs, reduces efficiency
• Demand is still increasing
• Price of oil is going up

 

Q&A

• Natural gas and oil have different uses, so gas is a very limited substitute for oil. Not enough overlap. Thermal equivalents of oil and gas reserves are about the same!
• But peak gas is actually about 5-10 years after peak oil.
• Is it possible that the Club of Rome predictions could be true, but late?
• Ingenuity will not solve this problem.

 

1:30 pm – 3:00 pm 

Economic Impacts of $100 Oil: Energy is the Original Currency

Panel discussion 

Jeff Rubin, Chief Economist, CIBC World Markets

Herman Franssen, International Energy Associates

Jim Puplava, Financial Sense (Moderator) 

Jeff Rubin: “Triple Digit Oil Prices Will Reverse Globalization”

Rubin was unable to attend, but a video presentation of his remarks with charts was shown.

• Transport costs have to become incidental. Globalization must be reversed.
• At $100 oil, transport costs are 40% of total shipping costs. At $200 oil, it’s 80% of total shipping.
• Global trade is now about shipping and logistics, not the lowest labor costs.
• At $150 oil, it will be a quadrupling of tariff rates.
• This will take us back to the 1970s…
• Cost of shipping a standard 40′ shipping container from Shanghai to NY: Went from $3000 a few years ago to about $9000 today.
• Cost of shipping ore to China to make hot rolled steel and then shipping it back to US adds about $90 to an $800 unit. Consequently US steel production is actually up now.
• Who would have thought that high oil prices would breathe new life into the Rust Belt? But that’s what’s happening. And it’s not just steel – it’s in many industries and products.

Herman Franssen: “Adjusting to a High Cost Energy Economy: Winner and Losers“

• OPEC meeting in Sept 2008. OPEC leaders are getting very worried. Price hawks wanted to cut production to defend price, but collapse of US financial markets took prices back up again.

• US inventories are below the 5-year average. Inventories for gasoline are extremely low – panic in Arkansas and elsewhere for gasoline supply.
• Will be surprised if this year’s global demand growth is over half a million barrels per day. IEA estimates 0.69 mbpd growth (0.8%) for 2008, 0.89 (1.0%) for 2009. (IEA, Monthly Oil Market Report, September 2008)
• Huge increase in demand in OPEC this year.
• North America supply growth in 2007-2009 depends on biofuels and tar sands growth
• Call for OPEC oil down in 2009 (~ 1 mbpd less than in 2008) according to OPEC. This is a function of weak demand, strong supplies (crude + NGLs + biofuels)
• OPEC’s view was that non-OPEC supply would increase by 10.4 mbpd even without Angola and Ecuador over 2000-2008!
• EIA thinks surplus capacity will increase by over 1 mbpd in 2009
• OPEC believes OPEC spare capacity will grow from 3 mbpd in 2008 to 6 mbpd in 2010! [Ed: 3 mbpd of spare capacity today is highly doubtful.]
• No major energy legislation between Carter and second term of GW Bush
  • Post 1980: Energy left to market forces. By contrast, Europe and Japan increased fuel taxes; Europe moved to diesel (25% more efficient) and Japan developed the hybrid engine.
  • 1985-2006: US oil consumption rose by 5 mbpd; Europe’s by 3 mbpd. US oil production fell from 10.6 to 6.8 mbpd; Europe’s rose from 4-5 mbpd…
  • Result: Expanded EU of 450 million people and Japan’s 130 million people consume about the same volume of oil as the US with 300 million people.
• Revised EIA Outlook for energy through 2030 of March 2008
  • March 2008 EIA Outlook: US oil consumption to rise from 21 to 25 mbpd by 2030.
  • Oil imports stable at around 12.2 mbpd in 2015, rising to 12.7 mbpd in 2020…
• US slowest in the move towards efficient cars, behind EU, Japan, China, Australia, Canada, and California.
• Oil consumption is an indicator of the wealth of nations.
• Huge increase in demand in China and India spell the end of globalization?
• Expecting about a doubling of cars between now and 2025
• With 9.5 billion people by 2050, we would use 138.8 mbpd worldwide at 1% demand growth!
• A French study showed that if there were absolutely no constraints on further oil development, liquids production would peak at around 2020-2028 just shy of 100 mbpd.
• The oil supply outlook;
  • Assume that supply will always meet demand at reasonable prices
  • If projected supply fails to materialize, “there is no Plan B.”
• IOCs only have access to 6% of the world’s remaining reserves. Oil reserves held by new Russian companies: 6%. Less than 25% of worldwide reserves are accessible to private international capital.
• What kind of peak? Mt. Massive, CO (long flat “peak”) or Mt. Rainier (peak with short plateau at top) or Matterhorn (sharp peak)
• As regards OPEC, “they may be sons-o’-bitches, but they’re our sons-o’-bitches”

Andy Weissman: “Time to Stop Playing Russian Roulette with the U.S. Economy –Urgent Need for a Realistic Strategy“

• Electricity & gas crisis could be just as severe as peak oil. Impact of $100/bbl oil not limited to transportation.
• Electricity & nat gas = 56% of total energy use
• Could lead to $150/200 bbl electricity
• Global LNG price already near parity with oil. Spot price already near parity this winter despite multi-year low US imports
• While prices could moderate in ‘09 and ‘10, premium pricing likely by early next decade.
• We’ll see shortages of global LNG by 2012-2013.
• Potential doubling of both nat gas and electricity prices.
  • Half a trillion dollars per year increase!…$5 trillion impact over 10 years.
  • Prices exquisitely sensitive to supply/demand balance as first part of 2008 demonstrates
• Need new approach to energy planning.
  • Needless supply risks should no longer be tolerated
  • Future of US & global economies at stake
  • Requires far more realistic, more hard-nosed approach to developing comprehensive strategy.
  • Critical not to over-rely on lowest common denominator, feel-good solutions. Feasibility & cost-effectiveness must be rigorously demonstrated.
  • Minimizing consumption growth & ensuring reasonable supply are not competing strategies!
• Five essential steps
  • Far greater sense of urgency required. Few other issues likely to affect nation’s future as deeply.
  • Replace EIA to provide realistic estimates of supply & demand. We can’t tolerate bad forecasts any longer! We’re currently flying blind! Estimates mislead rather than inform. Requires a new National Energy Security Supply Board. There is absolutely no time left to develop a comprehensive program to meet our energy needs. The precise date of the peak isn’t that important when it takes 7-10 years to develop mitigation strategies. Until the federal government issues more realistic numbers, the oil companies aren’t going to do anything different.
  • Develop comprehensive national energy strategy applicable to energy use across the board. Must include electricity & natural gas, not just oil. Integrated planning essential. Market will ruthlessly seek out lowest cost BTUs and push prices to parity.
  • Maximize use of all cost effective domestic resources that can be developed in an environmentally sound manner. What’s going on is crazy at the national level! We can’t afford to rule out resources or rely on pipe dreams. We have no national energy plan, nor an effort to develop one. Instead we need the most rigorous planning possible.
  • Use best expertise available to evaluate limitations of every supply option in objective, cold-blooded manner. Include limitations on available capital.

Jim Puplava: “The Economics of Credit – The Worst Is Yet to Come“

• Recession vs. “Muddle Through”
  • Chicago Fed National Activity Index, using 85 indicators, shows that we are likely heading into a recession
  • Fed of Philadelphia, State coincident indexes showing distress in the economy
• Data on losses and writedowns
• Credit crisis phases:
  • Phase I: writedowns, raise capital
  • Phase II: Bailouts
  • Phase III: Monetization
• Debt tsunami: US nat’l debt went from $1 trillion in 1998 to $9 trillion in 2007
• US Fiscal Crisis – Baby boomers 78 million @ $50K year in SS payouts = $4 Trillion annually!
• Current future liability of the US government: $70 trillion
• Inflation on the wane: PPI less Fed funds rate near all-time high
• Commodity bubble: corn and barley supplies are near all-time lows. Copper and aluminum inventories extremely low.
• [Good charts on relationship between energy and population.]

 

Q&A

• Weissman: We have an increasingly unstable situation, and it’s frightening.
• Franssen: We must hope that the EIA will start to take depletion into account properly in their models. Latest IEA models assume sharp increases in imports, totally unrealistic. So the price mechanism will resolve the tension.
• Weissman: When you take the covers off the energy data, it’s ludicrous to think that non-OPEC oil will increase. We’re talking about the wrong set of solutions right now. We need to talk about the impending oil crisis in a whole different way.
• Franssen: Viable scenarios for taxing oil consumption to reduce demand? Not a snowball’s chance in hell that any politician will support more taxes. Consumers stretched to the breaking point couldn’t take it anyway.
• Puplava: 90% of the time, the markets are irrational, so they’re not a good allocator of resources in the short term, but in the long term, they basically are good at it. Weissman: if we wait for markets, which respond to very short term signals, to address this long-term challenge, we will be very disappointed in the results.
• Franssen: If OPEC suppliers were fully rational, they would either freeze or lower the current levels of oil production, but they would never tell us!

 

3:30 pm – 5:00 pm 

4 Billion New Consumers: What Asian Growth Means for East, West and the World

Panel discussion 

David Fridley, Lawrence Berkeley National Lab

Vince Matthews, Colorado State Geologist

John Theobald, ASPO-USA, UC Davis (Moderator) 

David Fridley: “China and Energy in the 21^st Century“

[Missed first part of presentation]

• 80% of electrical energy is generated by coal in China
• Just last year China added 105 GW of power generation (equivalent to building California’s entire base twice a year) almost all of it from coal.
• China has third largest reserves of coal. China is moving toward net coal imports, largely due to price differentials with imports/exports
• CTL and coal-to-chemicals is growing.
  • Total CTL capacity is forecast to reach 50-60 mt by 2020. Current CTL requirements: 4-5.5 ton of coal per ton of product; 10 tons of water per ton of product.
  • Shenhua is commissioning a 1 million ton direct coal liquefaction plant in 2008
• Coal-to-chemicals production, targets & requirements
  • Methanol production is displacing biofuel production
  • Coal is increasingly viewed as a chemical feedstock
  • In 2007 China consumed 9 million tons (Mt) of methonal; 2.7 Mt blended with gasoline
  • 2010 production capacity is expected to reach 39 Mt
• Can China produce the coal it needs?
  • If Chinese steel and cement peaks in 2015, and all Asian countries meet their efficiency targets, and we don’t have a global financial meltdown, then the scenario shows that the IEA’s demand-driven forecast shows a gap opening by 2015.
  • EWG report supports similar outlook (actually worse)
  • Prime coal exporting countries to China are declining: Vietnam, Indonesia, Australia (short term problems)
  • Chinese coal imports increasing for a lack of alternatives; India way up due to cost issues; Japan due to nuclear & LNG problems.
• China’s CO2 emissions just from coal will exceed total emissions by US by 2010. China wipes out the entire EU commitment to Kyoto by 2012.
• China’s crude production has plateaued, imports are skyrocketing. China is 50% oil import dependent. Decline rate is 4% pa. Daqinq looks a lot like Prudhoe Bay in profile.
• The decline of the giant and large fields has increased the energetic costs of extraction. Energy inputs have increased to about 1/7 of the oil they produce.
• China has the second-most complex refining setup in the world. But China is a diesel-based economy. Diesel demand is 40% of a barrel.

• Oil consumption in China supports fewer discretionary activities than in other large consuming countries. 43% is for transportation. Most of new buildings are dependent on diesel.
• Personal cars are not the main driver of Chinese oil demand! Moving stuff is. China is still a very material economy.
• The first thing they have to move is…coal! 50% of China’s coal now runs on rail, with very efficient rail. Inadequate coal rail transport capacity drives oil demand higher. The rest has to run by transport truck running on diesel, increasing the energy needed for transport by 16x. This is also forcing transport for other goods to road transport.
• Subsidies for all fuels greatly exacerbate the problem.
• Ambitious plan to expand natural gas use relies heavily on imports. Spot cargoes coming in at $22/mmbtu. They’re now seeking new supplies everywhere, like Turkmenistan via pipelines through other “’stans”
• China’s coal soot is now the largest source of mercury deposition in California.
• Major explosion in cement and steel production has caused growth in energy demand to far outpace growth in GDP. China is now the largest cement producers in the world, and most of it is being used domestically. This offset their long-term decline in energy intensity.
• The loss of control led to imposition of new 2010 target of reducing energy/GDP intensity by 20%.
• Quotes from a Chinese official:
  • “The model of economic development that we are currently pursuing is unsustainable.”
  • “China’s current supplies of energy and natural resources are unsustainable”
  • “China’s environment is unsustainable”

Vince Matthews: “China and India’s Ravenous Appetite for Natural Resources – Their Impact on the US“

• Population is driving growth, 1.3 billion for China vs. 1 billion for India and 0.3 billion for US
• By 2030, China is likely to pass the US in GDP. Average growth of 10.4% per year for the last 4 years
• World electrical consumption growth increased by 8 terrawatts in the last 10 (?) years, 2.7 from China.
• 2005: China opened 70,000 new supermarkets
• 2006: Became #3 car manufacturer
• Minerals:
  • China’s share of world mineral production is #1, #2 or #3 of all major metals.
  • China is #1 importer in the world of copper; they import about half of what they consume.
  • Thefts of copper have increased all over the US. Increasing prices are the impetus; cost increased by 457% from 2003 to 2006.
  • Iron ore: China is #1 producer in the world, and the #1 importer. Went from 1 to 300 skyscrapers since 2001.
  • Price of scrap iron up 559% in the last five years
  • Charts since 2003: [ASTOUNDING CHARTS of the price increases of all major metals!]
    • US molybdenum exports doubled; price nearly doubled.
    • Gold prices up 205%
    • Silver 367%…plantinum, palladium, etc….similar price increases.
• Coal: Spot prices for coal went from $17/ton to $37 from 2004-2005, although contract price in 2004 was $24.4/ton…in 2007, $29.75. This is a natural resources driven price inflation. This is not a normal inflation and shouldn’t be fixed with monetary policy.
• Cement: China began importing cement in 2003, with consequent shortages in half the states in the US
• Cement producers: #1 China, #2 India, #3 US
• China is going around the world and tying up every raw material in the world, anywhere they can get it…buying mines, everything.
• 94% of US energy comes from traditional sources (coal, oil, uranium, nat gas). All have increased 200-400% in prices since 2003.
• Natural Gas
  • China imports NO natural gas! US nat gas production has plateaued, we now import about 16% (?) of our usage.
  • Nat gas consumption in the US declined from 1971 to 1985 due to various events and policy changes, then grew again as we attempted to replace coal with nat gas for electricity generation. We import about 4 Tcf from Canada…but Canada’s gas production has been flat since 2000…and production in 2006 required 5000 more wells per year than in 2001.
  • Domestic natural gas production vs rig counts: as rig counts have gone up, and with nat gas at the highest price in history, production fell…it’s lower than 2000 levels now.
  • US nat gas production has been basically flat since 1995, but wells drilled went from 8,900 to 30,180 from 1995 – 2007
  • Price of nat gas has tripled since 1999
• Coal consumption in China:
  • Began importing in 2006. Prices went from $38/ton to $140/ton.
  • India coal growth enormous as well
• China oil consumption: imports over 50%. India imports over 2/3, so does the US
• Nuclear:
  • China and India are both dramatically increasing nuclear…India plans 17 new reactors in 7 years.
  • US generates far more than any other country in the world.
  • World’s 439 nuclear reactors currently need 180 million pounds of uranium each year. We’ve been living off the stockpile we built since Three Mile Island and consuming old weaponized uranium.
• Oil shale (in Colorado) is being looked at again. The notion that oil shale is being blocked in the US is simply wrong. Open bidding was conducted, 20 proposals received, 6 approved. Companies were granted free access to the lands (without royalties) to begin production. 30,000 acres total granted for the six acres; equivalent to 60 billion bbls of oil. And yet, there isn’t even an active permit to produce that oil.
• Alternative energy requires significant amounts of rare metals etc. [good chart]
• A 690 unit apartment complex in Beijing will use a huge ground source heat pump project.
• Overall impacts:
  • Coloradans will suffer from effects of inflation
  • Coloradans may see increasing shortages of critical materials and pressure to produce raw materials and develop new resources.

Q&A

• Fridley: China largely uses crop residues (corn husks, etc.) for home heating; wood gathering has been largely banned.
• Fridley: “Clean coal” is a complete oxymoron. US is going big with IGCC gasification process about 60% (?) efficient. Whereas China has gone with a supercritical process. Accordingly, there is no real cooperation between China and US to do carbon sequestration. CCC costs about 25% of the energy in the coal.
• Matthews: What about lithium for batteries? Can’t really get any useful information.
• Matthews: The claim that the cost of producing commodities falls over time is simply wrong
• Matthews: The increasing switch from high-Btu black coal to poorer grades of bituminous coal is a treadmill. Over half the mining claims in the US in the last three years were from foreign buyers!
• Fridley: 95% of China’s coal production is bituminous.
• Matthews: Is cement traded across oceans? Yes, 22% of US consumption is imported.
• Matthews: Half of all copper ever produced is now in landfills. It’s probably inevitable that we will eventually resort to mining landfills.
• Matthews: Shale gas in the Rockies is a serious treadmill; you have to drill more and more to keep production flat. Decline curves tail off rapidly after first production, and it costs a great deal more than conventional gas. If we stopped drilling for a year, production would tumble.
• Fridley: We are in competition with China basically everywhere for all natural resources. This is leading to conflicts like the one in Sudan. Conflict is brewing over access to resources in the South China Sea, between Vietnam, Philippines, etc.
• Matthews: China already controls 98% of the rare earth metals in the world. What they’re doing is far beyond what the US is capable of. Their strategy is all-encompassing and it will corner the global markets.
• Fridley: The US demand for Chinese products is not the primary source of China’s emissions; more like 10%.
• Fridley: China has a bad data problem just like we do. Provincial governments have been feeding bad data to the central government; now that is changed and it goes directly to the central gov’t so it’s a little better now. New data is more discrete and hopefully will result in better policy planning now.

Robert Hirsch: Reflections on the conference so far

• Terminology: “peak oil” implies sharpness, but really it’s been a fluctuating world oil production plateau since mid-2004.
• Onset of decline of world oil production is the greatest problem, and the timing is uncertain. (Est. 3-5% pa)
• Careful attention to small numbers is important!
  • 5% decrease in US oil – Recession (1973)
  • 1% of world oil consumption is huge: ~860,000 bpd
  • 3-5% changes in oil production cannot be identified as true trends until years later, because the plateau is that bumpy.
• Time frames
  • Production decline will likely start in 2-5 years, but worldwide physical mitigation will require maybe 20 years.
  • A precise forecast of the decline point is impossible but not critical to planning & early action.
• Consider where you have your money, and how you will adapt in your personal life: personal, business, national, int’l.
• The meltdown in the stock markets is prototypical of what will happen when peak oil consciousness hits the public. It is not realized yet! The bad things that happened last week will happen again, only worse, because there are no quick fixes to the problem!
• One-liners:
  • “Willful human blindness” – really describes the problem we have communicating this stuff with decision makers.
  • Talk about discussing peak oil and global warming in the same way isn’t really quite right. When people are losing their homes, cars, etc., people will be screaming for a fix right now.
  • “Peak roads” – We probably have enough roads now, but think about going up against the road-building lobby and associated special interests!
  • “The proactive choir” – That’s us at the conference. As we try to convince people, follow the KISS principle! Keep it simple, and don’t mix the message with other things.
  • Point was made that panic is probably necessary to inspire real action. As distasteful as that idea is, it’s probably true.
• On the issue of rates of change, we should start doing some calculations…how long does it take to build new CTL plants, etc? The more you look at it, the more you see that the problem will outrun our efforts.
• This shock will have widespread effects. It will severely impact state & local budgets, further impacting services like fire and police.

• With all the other pressing problems like Medicare and SS, how do we get people to focus on peak oil?
• Denial…Faith in technology…Faith in government…these things stand in the way of getting the message out.
• “biggest robbery in history” re: African oil production Yes, we contribute to African misery by consuming their oil, but we also have “The biggest wealth transfer in history” under way as we send trillions of dollars overseas for oil.
• Kudos to the organizers of the conference!
• Don’t think of this as an energy problem! It’s a liquid fuels problem! We can’t start running cars on PV panels right now, but in the near term, we have about $50-100 Trillion of investment in the existing fleets of vehicles and ships! We have to keep that stuff running or we’re going to have total anarchy. We need to have substitute liquid fuels regardless.
• Re: environmental problems of hydrocarbon production. Don’t think about the world of the past. Think about the world of the future. What compromises can we make? We will have to save ourselves and prioritize environmental protection. We’re going to have to be pragmatic above all.
• The transition will spell enormous opportunities for those who offer solutions, who will prosper amid the coming miseries.
• I would love to see a politician, or a president, who will tell the straight story. But when it’s said, people will freak out, so it has to be said along with a plan to get us out of the problem. Or we could see the kind of chaos we saw in 1973 when OPEC cut us off.
• People have been staying politically neutral about energy and that’s important; it can’t be a partisan issue.
• This is not the end of the US. This is not going to be like the end of the Roman Empire. I have not lost my optimism. We are going to come out on top (after a difficult period of adjustment) because we’re Americans, and that’s what we do.

6:30 pm – 7:30 pm 

Visions of a Post-Peak Oil Future

Panel discussion 

Denis Hayes, creator of Earth Day, founder of the Bullit Foundation

James Howard Kunstler, author of The Long Emergency and World Made By Hand

Randy Udall, co-founder of ASPO-USA

Richard Brenne (Moderator)

[This was a nearly impossible session to take notes for…the jokes went by quickly…but I did my best.]  

• Brenne gave a hilarious and ironic introduction to the panel.
• Could Kunstler’s apocalyptic visions come true?
  • Hayes: Yes, and the financial market meltdown is a prelude. Only with radically different leadership could we avoid it. A combination of other countries mobilizing to address the threat, coupled with a great flow of venture capital, could potentially make a difference in averting it. With the right advisors, Obama could succeed in making a difference.
  • Udall: How many of the members of Congress are lawyers? 4/5? Every once in a while we have a great president, and even McCain could be a great president. You need to have hope as a companion rather than fear.
  • Kunstler: The long emergency is only one scenario; there are others. I just wanted to come up with a vivid description of what life might be like in the future.
• What are the other things peaking you’re concerned about?
  • Kunstler: Well, peak women my age…and this isn’t the place to go looking for them!
  • Udall: Well there’s impotent and “Aspo-tent”
• Are we nearing peak stupidity?
  • Kunstler: We’re good at measuring things but not so good at doing something about them. Especially in the environmental community, there is a problem with “techno triumphalism” or “techno grandiosity.” The idea that we can conjure up solutions…the idea that we’re entitled to an orderly transition to the future.
  • Hayes: Well we were certainly much more stupid in 1998, when oil prices were so low. We were stupider yesterday, when oil was $27 cheaper.
  • Kunstler: It ought to be obvious that the airline industry is dying, and we have to restore the rail system asap, or else we’re not going anywhere.
  • Denis: Hell if the Italians can do it, the French can do it (Kunstler: the Bolivians do it!), the Chinese can do it, then we can do it!
• Richard Heinberg’s new book is called Peak Everything…let’s talk about the order of things you’re concerned about peaking.
  • Udall: Energy, courage, and time (”Kind of a haiku of where we’re at right now.”)
  • Kunstler: at the TED conference, the winner was this idiot who did a presentation about flying cars…right out of Popular Science 1953. The most preposterous thing you’ve ever heard in your life…that’s what the Silicon Valley geniuses thought the future would be all about…it was very demoralizing.
• Brenne ([what was that question??]…
  • Hayes: the opposite of TED would be DE(b)T…between all the forms of national debt, when we refuse to tax ourselves, when our debt is 5x our GDP, options for the future are limited.
• Oil, natural gas, coal, and uranium…is that the order of things to be concerned about peaking?
  • Kunstler: Yes, but this is basically a liquid fuels problem.
  • Hayes: Energy isn’t anywhere near my top peak worry. I know how to solve the energy problem…that’s easy compared to racism, religious bigotry, water shortages, the loss of topsoil…those are really tough issues.
  • Udall: Peak oil just punctures everything; it augurs a new era. It could be tragic or it could be a glorious time. Thank God this banal 30 years is over. We should welcome and celebrate peak oil in our lives.
  • Hayes: When you throw coal and uranium into the mix…if this were a different type of group, and you asked them which issue is their top concern, they would say climate. Iran has a very sensible approach to their long-term energy survival by pursuing nuclear. The problem isn’t the scarcity of coal and uranium, it’s the abundance of them!
• From the localized “London fog” of coal smoke, up through the larger problem of acid rain, up to climate change which is clearly a global issue. Are we at the point where all of these problems are global, not national, and we have to think of ourselves as citizens of the Earth?
  • Kunstler: that’s a sweet sentiment, but it’s wrong. The world isn’t flat, it’s ever rounder, and we’re going to be retreating into our various corners. We’re fooling ourselves if we think we’re going to have a worldwide Kum-ba-yah and a festival of worldwide cooperation.
  • Hayes: Worldwide, people are building networks in which boundaries are irrelevant, and global communities around certain things are tighter than physical neighborhoods. We must resolve bigotry and racism if we are to solve our problems. The great successes are local; fighting a freeway through town, etc. But against the combined might of all these energy industries, auto industry, etc., we have maybe $100K total on our side, yet we can still win our objectives in Congress, because we’re right.
  • Udall: A lot of the achievements we made in the 60s and 70s were made possible by coal and cheap oil. We must recognize our debt to cheap energy and food, or we’re doomed. We have 4 million Chinese underground today in pursuit of the black rock that would be the road to prosperity. We can’t go forward without recognizing our indebtedness to all forms of energy.
  • Hayes: The entire science of ecology is about how you get energy in the most effective way, from photosynthesis to higher primates and everything in between. If we have an attractive future, it’s information dense, it makes use of abundant renewable energy…maybe the fuels of the past are transitional bridges to the post oil and gas world.
  • Udall: Flows are different from fuels. Half of us wouldn’t be alive without natural gas made fertilizers. The future belongs to flows, efficiency, and conservation…but we can’t go there until we recognize how we got here. We won the wars because we had more domestic oil than they did in Germany, etc. We’ve always had a land ethic in this country; we’ve never celebrated the value and beauty of energy, and this is a mystery because it’s part of our genius.
• What metals are you concerned about peaking? At current rates of consumption, we have basically less than 25 years’ supply of most of the important metals. Does that concern you?
  • Hayes: Yes. Gold is basically a storehouse of value.
  • Kunstler: My book isn’t an ‘end of the world’ book, it basically describes a discontinuity to interrupt our assumptions and extrapolations about the direction that things are going. We’re going to have to make do with less of that stuff. But I certainly believe we’re going to persevere.
  • Hayes: What we got out of these stocks of energy is 6.3 billion people moving up almost inevitably to 9 billion people, but at that level, the access to metals, foods, etc is much more limited than it would be if we had 2 billion people. But the world isn’t necessarily better off at 9 billion than it would be with 1.5 billion people.
  • Udall: We may go back to 1.5 billion, but the journey may be fascinating, or bleak…it remains to be seen.
• Could we actually have a water infrastructure to support 9 billion people?
  • Udall: I don’t think that’s the most important limit. I would argue that food is the key limit. Water is cheap and isn’t the most important limit. Grain production is key, and is the source of the water limits.
  • Hayes: If you depend on a finite supply of water, and you’re growing exponentially, you’ve got some serious, albeit localized, problems.
• What if the limits to all these things turn out to be bell curves.
  • Udall: We’re living in a strange, bizarre, amazing moment where we live like gods and goddesses…it’s a moment.
• Kjell Aleklett thinks we might be at peak democracy…
  • Hayes: It depends on how things devolve from here. If we have self-contained and self-sustaining urban villages, we might actually have a good story for real democracy in the future. I’m interested in a principled, constitutional democracy that is removed from such forces.
• Are peaks symptoms of a more fundamental problem?
  • Kunstler: Some people didn’t like the supernatural bit at the end of my book, World Made By Hand. The point is that our beliefs about reality, our consensus, would yield to something more magic and an apprehension of a more supernatural reality outside of the bounds of life as we know it. The biggest problem we have is constructing a coherent consensus about what reality is.
  • Udall: So who is offering this new narrative?
  • Kunstler: To me, this is like the 1850s, which preceded the last great convulsion that America went through, when all of our beliefs and conventions fell into disrepair. The Whigs vanished almost as fast as AIG. The Democrats were the party of slavery. The leadership of the 1850s was made of empty cravats, and into this void stepped a lawyer with a clarifying rhetoric that defined the convulsion that was going on…and that’s sort of where we’re at today. I want to redefine and re-brand the Republican Party as “the party that wrecked America.”
  • England didn’t abolish slavery until we had abundant coal…Energy is key to overcoming these issues.
    • Udall: Ingenuity will substitute for energy.
    • Kunstler: We’ve reached peak crybabies.
    • Hayes: There are little chances for profound change in our polity. [Stories about Johnson & Nixon…] I think the Enlightenm