When Drill Holes Become Rat Holes
By Stuart H. Rodman stuart@stuarthrodman.com
Did you think there was a practically endless supply of crude oil
in the world and that we would be knee deep in cheap
gasoline for generations to come?
Forget everything you thought you knew about oil!
Gas prices have been reaching record highs nearly every day this
year but newly emerging studies suggest the recent run-up
in gasoline prices may just be a shot across the bow. The
mother of all oil shocks could be just 5 or 6 years away!
Experts now say that regardless of how much crude remains in the
ground, what really matters the most is when oil
production passes its peak. That could happen soon
worldwide. The marketplace could then treat oil as a
scarcity driving prices skyward -forever.
What's more, the amount of energy produced per barrel of oil may
soon be just equal to the amount used to obtain it
leaving nothing left to run the engines of commerce.
WHEN DRILL HOLES BECOME RAT HOLES - THE END OF OIL (AS WE KNOW IT)
By Stuart H. Rodman mailto:info@elsi.org
You're probably thinking that there is plenty of cheap gas to go
around. Why worry? Let's hope so, because our current
lifestyles are dependent on oil for everything from
manufacturing to transportation to agriculture. Despite
this and even in the face of the recurrent oil shocks of
the last decades, very little has been done worldwide to
lessen our addiction to the "black gold" from within.
Consider this though. Regardless of how much petroleum
resides in the bowels of the earth, when the production
of a given amount of fuel requires the industry to first
consume the equivalent amount to discover, extract,
refine, and deliver it, its all over. You might as well
be out of gas. And guess what? Despite advances in
technology, that day may be much closer than you think.
Picture this. Suppose you wanted to drive to the nearby filling
station to buy some gas and you only had a gallon in your
tank. What if you suddenly remembered that you would have
to use all your gas to get there though and that you had
been told that the station would only allow you to buy
just one gallon. You would have enough gas then to get
from the station back to where you started from but no
more. If you have to use all your fuel just to get an
equivalent amount there would be no point leaving home in
the first place.
The issue is known as "net energy" and it may be more important
to understanding our future than worrying about all the
tea in China or for that matter, all the oil available
for future extraction from our planet. Here's why.
"The Best Kept Secret in Washington"
Speaking of net energy, oil industry watcher Jay Hanson states,
citing the laws of thermodynamics,
http://www.dieoff.com/page175.htm
"By
definition, energy 'sources' must generate more energy
than they consume; otherwise, they are 'sinks'."
But net-energy analysis first reached public attention in 1974.
At that time, Business Week reported that oil scientist
Howard Odum had developed a "New Math for Figuring Energy
Costs." To the surprise of many, Odum's new math
indicated that stripper oil well operations were energy
sinks and not energy sources.
According to this analysis, these operations could be profitable
only when "subsidized" by cheap, regulated oil, which was
used to produce deregulated oil. Because the industry is
subsidized in this way in terms of net energy and also
from direct taxpayer "allowances", the industry can
continue to produce oil at a monetary profit, at least
for a while. Hanson observes, "Even without direct and
indirect subsidies of $650 billion a year it's
conceivable that energy companies could make money but
lose energy by burning one $10-barrel of oil today in
order to pump one-half of a $50-barrel tomorrow."
But how much longer can they keep this up? Hanson says, "Based on
the best information we have at hand today, sometime
during the coming century [the 21st] the global economy
will 'run out of gas', as fossil energy sources become
sinks. One can argue about the exact date this will
occur, but the end of fossil energy and the dependent
global economy is inevitable."
But major oil companies may have private reserves of fuel which
can be used to underwrite the energy costs of future
production. However, if the energy produced for
distribution to society is not sufficient to also pay
back the overhead, the reserves themselves will
eventually evaporate.
And some might think that oil supplies will last forever. In
reality though of course, the oil supply is finite. Jim
Bell, author of http://jimbell.com/book.htm
"Achieving
Economic Survival on Spaceship Earth", compares oil
exploration with picking apples from a tree, "We tend to
pick the ones that have fallen from the tree and those
that are closest to the ground first. Later though we may
need a ladder as we expend more effort to find the ones
that are harder to reach. The oil companies have to try
harder and harder each year to find extractable oil. They
have already harvested the easiest pickings."
Jim Bell points out, "We are always told that there is plenty of
ultimately recoverable oil left in the ground and so we
naturally assume the supply will last practically
forever, certainly through our lifetimes. What really
matters though is not the amount of petroleum that lies
within the earth planet, but the price we pay for it, in
terms of our wallets and the consequences for our planet.
And higher fuel prices will raise the price of everything
else. As the production of petroleum begins to decline,
market forces will push the price of hydrocarbon based
products, if you can find them at all, higher and
higher."
So then, as the oil companies expend more and more energy to
extract and refine petroleum, they eventually reach the
point of diminishing returns, as proven reserves are
depleted. Although there may be more ultimately
recoverable crude in the ground, the new sources tend
most often to be smaller or technologically
unexploitable. At that point, production "peaks", then
declines rapidly.
And when oil production peaks worldwide, most experts agree it
will be a whole new ballgame. That day of reckoning is
inevitable. But when? It is a known fact that oil
production peaked in this country in the 1970s,
catastrophe being averted only by the at times
undependable availability of imports upon which we rely
for over 50% of our oil use. However, impressive evidence
suggests that oil production worldwide will peak during
the next twenty five years or sooner, some say as early
as 2010. And , based on private documents, Hanson states
that "the petroleum industry itself has announced that
global oil production will 'peak' in less than ten
years!"
You wouldn't know that from the official reports however.
According to petroleum industry's own spokespersons,
there is at least another 93 years of known petroleum
reserves worldwide to keep us in gas, at the current rate
of consumption. That's not much time really though in
geological terms considering the earth is several
billions of years old. The U.S. government though is even
more optimistic. Government studies cite advances in
technology and the promise of synthetic fuels and
methodologies as being cause to expect the continued
availability of petroleum based fuels for generations to
come.
However, when the peak comes, whenever it does, all bets are off.
And, it could be preceded by serious production
shortages, which could occur even sooner. But Hanson
warns the peak will come sooner and not later. When it
does, Hanson states, "The price of oil is expected to
rise sharply and permanently."
And he has good reason to say so. In another paper, "The Best
Kept Secret in Washington", Hanson discusses a private
study that was conducted by worldwide industry expert,
"Petroconsultants" (now known as IHS Group). The study
suggests that when the peak comes, the markets will treat
petroleum as a scarcity and that the days of "cheap"
petroleum will then be gone forever. The study is
available for sale and can be purchased directly from the
IHS Group (the world's leading provider of data and
analysis for oil exploration and production). Its cost-
$32,000 a copy. He adds, "In 1995, Petroconsultants
published a report for oil industry insiders titled WORLD
OIL SUPPLY 1930-2050 which concluded that world oil
production could peak as soon as the year 2000 and
decline to half that level by 2025. Large and permanent
increases in oil prices were predicted after the year
2000."
And they are not the only experts sounding the alarm. In a
recently published report from The New Republic,
http://www.tnr.com/051500/easterbrook051500.htm
Gregg
Easterbrook reports that highly respected industry
analyst Colin Campbell holds similar views: "Campbell
bases his thinking on something called the Hubbert Curve,
perfected by M. King Hubbert, patron saint of petroleum
geologists. Hubbert found that production tends to peak
almost exactly when a petroleum reservoir hits its
halfway point--meaning that once a well's output begins
to decline, the amount left in the ground is roughly
equal to what has been pumped out. In 1956, when oil
optimism was universal, Hubbert used his curve to
forecast that U.S. petroleum production would peak in
1969. The actual peak came in 1970; this dead-on
prediction has given Hubbert legendary status."
Easterbrook goes on to say: "The evidence is legion. In the
United States, which contains 75 percent of the world's
oil wells, petroleum production has been in decline since
the 1970 peak. Prudhoe Bay, the last "elephant" oil find
in the United States, peaked in 1988. Production in the
former Soviet states also peaked that year."
Some experts say in fact that there are nearly 500,000 wells
sites in the U.S. that produce less than a single barrel
of oil per day. An added exclamation comes from
Campbell's own work with Laherrer,
"By 2002 or so the world will rely on Middle East nations,
particularly five near the Persian Gulf (Iran, Iraq,
Kuwait, Saudi Arabia and the United Arab Emirates), to
fill in the gap between dwindling supply and growing
demand. But once approximately 900 gbo (900 thousand
billion barrels of oil) have been consumed, production
must soon begin to fall. Barring a global recession, it
seems most likely that world production of conventional
oil will peak during the first decade of the 21st
century."
And after the peak? Campbell says, "From an economic perspective,
when the world runs completely out of oil is thus not
directly relevant: what matters is when production begins
to taper off. Beyond that point, prices will rise unless
demand declines commensurately."
Sinking Ship
A non renewable resource, the end of cheap oil is inevitable,
although some may choose to argue the timeline. Debate
aside, the next great oil shock however, may have nothing
to do with money or supply and everything to do with that
other problem, the one no one wants to talk about, net
energy. Hanson notes,
"The key to understanding energy issues is to look at the 'energy
price' of energy. Energy resources that consume more
energy than they produce are worthless as sources of
energy. This thermodynamic law applies no matter how high
the 'money price' of energy goes. For example, if it
takes more energy to search for and mine a barrel of oil
than the energy recovered, then it makes no energy sense
to look for that barrel no matter how high the money
price of oil goes."
Consider this illustration from University of Wisconsin at
Stevens Point professor Thomas Detwyler [3]link
"The useful energy to be obtained from nonrenewable resources,
such as fossil fuels (mainly crude oil, coal and natural
gas) and uranium, is subject to diminishing returns
through time. It takes energy to get energy. And because
we exploit the easiest-to-get energy resources first,
each subsequent unit of gross energy (e.g., oil in the
ground) requires greater energy subsidy to obtain than
did the previous unit, thus leaving less net energy:"
No doubt. Energy costs in the oil industry are on the rise and
are reflected in the increasing depth of wells: 300 feet
in 1870, 1,000 feet in 1900, 3,000 feet in the 1920s and
more than 6,000 feet by 1980. Campbell notes,
"The cost of drilling oil and gas wells (which is largely a
function of energy subsidy) rises exponentially with
increasing depth. By the mid-1970s, about half the
petroleum produced in Texas was also consumed there as
production-related subsidies, so that at best net energy
was only half of gross energy ".
It is for this reason perhaps that net energy returns have been
falling consistently despite improved technology.
Campbell adds, "The dynamic of shrinking net energy means
that the usefulness of gross energy reserves may be
vastly overrated. In fact, a large portion of any given
gross reserve will be energetically unexploitable, though
perhaps technically extractable. The following diagram
illustrates this consequence. Beyond the resource cutoff
line, the system is an energy sink requiring more energy
as subsidy than is returned as net energy."
Just how bad is it?
Citing recent work by analyst Richard Duncan,
http://dieoff.com/page125.htm, Hanson states that in the
'50s the industry could produce 50 barrels of energy for
every barrel consumed producing finished products for the
market. By the nineties, the ration had fallen to 5
barrels to 1. By the year 2005, the industry will just
break even-it will be necessary to use as much energy to
produce any given quantity.
Hanson adds, "Under that latter scenario, even if the price of
oil reaches $500 a barrel, it wouldn't be logical to look
for new oil in the US because it would consume more
energy than it would recover."
Good Money After Bad
It takes energy to make energy. As supplies shrink and prices
rise, market forces may drive us towards other fuel
sources. But we will need to have an infrastructure in
place capable of assuring an uninterruptible supply.
Professor Robert Costanza of the University of Maryland
(1984) cautioned though that there is an "embodied cost"
of energy, whereby manufactured goods, like machinery,
power cable, relays, switchboxes, or any finished goods,
exist only after a given amount of energy was consumed by
industry in their manufacture.
And Jim Bell explains, "When the amount of net energy available
in society begins to shrink it is harder to harness the
resources necessary to manufacture the solar panels, the
wind mills, and the other equipment needed when we begin
the inevitable task of creating a large scale alternative
infrastructure."
But if energy efficient replacements are not developed soon we
will find ourselves to be living in an "energy limited
economy". Hanson offers this bleak view,
"An 'energy-limited economy' is one where more energy cannot be
had at any price. The global economy will become
'energy-limited' once global oil production peaks in less
than ten years (perhaps much less)."
That could mean more trouble than just lining up at the filling
station. Consider the problem facing agriculture. Hanson
points out,
"Food grains produced with modern, high-yield methods (including
packaging and delivery) now contain between four and ten
calories of fossil fuel for every calorie of solar
energy." Hanson adds,
"It has been estimated that about four percent of the nation's
energy budget is used to grow food, while about 10 to 13
percent is needed to put it on our plates. In other
words, a staggering total of 17 percent of America's
energy budget is consumed by agriculture!" Again citing
other sources, Hanson states,
"By 2040, we would need to triple the global food supply in order
to meet the basic food needs of the eleven billion people
who are expected to be alive. But doing so would require
a 1,000 percent increase in the total energy expended in
food production."
Following the peak of oil production, absent an alternative,
Hanson notes: "It will be physically impossible -- thus
economically impossible -- to provide enough net energy
to agriculture: "
Hanson adds grimly, "Obviously the death sentence for billions of
people has already been issued".
So what can be done? Observers, like Bell and others suggest that
unless industry recognizes the need to shift now from a
mind set that views energy resources in terms only of
dollars instead of in terms of diminishing returns in
real energy units, they will be planting the seeds of
their own destruction, simply throwing good money after
bad. Hanson notes, "To have more energy in the future
means that energy must be diverted now from non-energy
sectors of the economy into future energy generation."
In reality, because there is an ever-dwindling supply of energy
that can be sucked from the well, absent an alternative,
without a successor infrastructure built today with what
remains useful, there will be no way to "pass the torch".
The pilot light in the furnace of industry will flicker
into darkness and we will be "out of gas", forever!
But what about the so called "unconventional oil" the oil found
in shale deposits and sand tars? Sinks, all. In just a
few short years then, the net energy value of oil could
be zero and its fate as the world's dominant energy
source will be sealed. Light's out! When civilization can
only produce the amount of energy needed to cover the
energy expended to produce itself, nothing is left to
power your car, run your business, or even grow you food.
At that point, the price of gas and the size of the
worlds crude reserves will be irrelevant. Oil would then
become of greater interest to historians than to
consumers as the Age of Petroleum joins the Bronze Age
and the Stone Age as footnotes in the chronicling of
civilizations. _____
About Stuart H. Rodman
Stuart is the Director of Communications for the Ecological Life
Systems Institute, a twenty two year old California
non-profit corporation advocating for sustainable living.
Stuart's reports on power and related issues have been broadcast
on national radio, on TV, and in other media.
He has served as a featured panelist for the White House Council
for Year 2000 Conversion and recently at George
Washington University as a guest of The Research Program
in Social and Organizational Learning.
Stuart's book about how the electric power industry prepared
itself for the Year 2000, The Last Days of Power? The
True Story is available from Amazon.com
http://www.rense.com
References
1. http://www.elsi.org/endofoil.htm
2.http://www.dieoff.com/page175htm_edn5#
3.
http://www.uwsp.edu/acaddept/geog/courses/geog100/Petrol-ShrinkNetE.htm?"
4. http://www.rense.com/"
5. http://www.rense.com
6. http://www.thehostpros.com