The Energy Secret - Understanding What Drives The 21st Century And Why Peak Oil Really Matters
The Energy Secret
There are at least two invisible things that tend to be ferociously difficult to understand. One is relations among humans and the other is energy. Especially when the former want more of the latter. And for some reason, understandable perhaps but also unfortunate, we are mostly loath to try to comprehend where our energy comes from. Thus there is a kind of 'energy secret': we cannot see energy and we don't seem to be very good at understanding it, even though without it there is no life here or anywhere else in the universe.
These difficulties of understanding play out at every level from buying groceries to geopolitics. And yet though energy itself is invisible, its effects are visible everywhere, including this last week in the form of Hurricane Gustav, and a string of storms and hurricanes coming in behind it, lining up to hit the south east US. Gustav, though it has fortunately left New Orleans largely unscathed, has killed many people in the Caribbean.
Gustav has also caused many oil and gas wells off the Louisiana coast to be shut in temporarily. Only Hurricane Ike of the three named storms following Gustav is likely to cause any more shut-ins, but whatever happens this has been another reminder that the offshore Gulf of Mexico—the most important US oil and gas production area—is highly vulnerable to supply shocks. This is therefore a very good time to start looking carefully and realistically at the current oil and gas supply situation to the world's largest economy and energy user.
Since the majority of US oil comes from foreign shores, we'll start this series by looking at the most important oil suppliers and the interesting situations above and below ground that will help us to understand where things are heading.
One of those interesting above-the-ground situations is that thanks to below-the-ground changes in oil reserves we may now be witnessing a final historic shift in power relations from a declining superpower (US) to a nascent one (Russia). This is likely to be final, because once the petroleum age is over, twentieth century-style superpowers will not be possible, at which time both the US and Russia will likely be very different places.
1: Mexico Gives Lessons In Cliff Diving
Before then, the US is the nation with the biggest oil problem, at least by quantity. Typically the US imports approaching two thirds of its oil and petroleum products (such as gasoline). Until recently, it has had two very generous neighbours, willing to supply it with oil to the limits and possibly detriment of their own nations. I refer to Canada and Mexico. Canada's own conventional oil supplies are definitely dwindling, but (like Venezuela) it has vast tar sand deposits, which are now producing over a million barrels a day, much of which finds it way to America. The carbon dioxide emissions are appalling and the tar sands operation may be ruining the River Athabasca and the surrounding environment, but the output is definitely increasing, albeit expensively and much more slowly than predicted.
For over thirty years, Mexico has been supplying the US with ever increasing quantities of oil, noticeably stepping up its exports in the early 1980s, helping America during difficult economic and political years after the Iranian oil crisis of 1979. Not only has Mexico supplied more oil, it is next door, meaning that oil can be piped in and shipped—it can even be trucked in. In other words it is a relatively short supply chain, and that means less to spend on transporting, less chance of disruption, and a short wait from oil well to gas tank. All very good news for the American industrial machine and for the average consumer.
Much of Mexico's recent oil success is owed to the giant offshore Cantarell field. According to one source, it was discovered by a fisherman, which sounds like it belongs in a nineteenth century fairy story. Cantarell grew to be one of the top producing fields on the planet, but, like all non-renewable resources, limits started to bite and it began declining at the end of the 1990s. But the fisherman's charm was not to be broken so easily: the world's largest nitrogen separation plant was built (not by fishermen) and with nitrogen being pumped in staggering quantities production rose back to a new high of over 2 million barrels per day (mb/d) in 2003 and 2004, making it the second largest producing field in the world, after Saudi Arabia's famous Ghawar. Much of this nitrogen-pressured oil was of great help to the US and its legions of thirsty three ton vehicles carrying lone humans (average weight 150lbs; a 40 to 1 ratio of wasted energy).
Then suddenly the fairy story started going wrong in a big way. All the nitrogen injecting seemed to have over-stressed the reservoir and in 2006, two years after the field peaked, the Mexican government was forced to admit that the field was not only declining, but was doing so at a rate of about 14%, making it one of the fastest declining in the world. There might be a revival in the next few years as a new complex is brought onstream, but it will not come close to two mb/d. And then again, there might not because the main production area suddenly fell off the cliff in July 2008, crashing down 35% to less than a million barrels a day. As the graph above shows, Mexican petroaleum and petroleum products exports into the US are falling precipitately.
The ramifications of all this are complex and we shall explore them in future articles. For now, it is true that there are still enough other exporters to keep the US supplied with the much villified but utterly indispensable foreign oil, but for how much longer and at what price?
Julian,
Is there a good assessment of how the natural gas supplies will increase over the coming years? What are the supposed quantities? How quickly can we put it to use--realistically? Not pessimistically or optimistically, but realistically. And if one were to make one of those classic layered graphs that shows the various contributions from the various energy sources over time, what would the potential nat gas layer look like?
Thanks.
NonZeroOne
Here are some answers to the questions in this article.
Quick Sand Effect.
Chris Shaw explains a “quicksand effect” for energy production: it takes energy to get energy, and because the highest quality oil is extracted first, high quality oil must be expended to extract oil that is of lower quality. And as depletion progresses, we must spend more and more energy to get less and less in return, until the difference between energy invested and energy returned is zero. To produce oil in the future, more and more oil must be consumed by constructing more and more oil rigs for drilling smaller and smaller oil pockets. For off-shore oil drilling, more and more rigs, platforms, ships, and pipelines must be constructed to extract oil from greater and greater depths. Matthew Simmons indicates that the replacement of aging oil rig, refinery, and pipeline equipment and infrastructure will cost a great deal in capital investments in the coming years. The manufacturing and transport of this equipment and infrastructure will use much oil. Canada’s oil sands is another case of the quicksand effect. In order to produce low quality oil high quality natural gas and oil are expended for processing and refining; the manufacture trucks, processing equipment, pipelines, new houses, and airplanes (for transporting workers); and the energy used by trucks, processing equipment, airplanes, and pumps. In addition, oil sands operations contaminate local water supplies and generate much air pollution and carbon dioxide. Similarly, the GAO study found that “EOR [enhanced oil recovery] technologies [to extract additional oil from depleted oil fields] are much costlier than the conventional production methods used for the vast majority of oil produced,” and “operating costs for deep water rigs are 3.0 to 4.5 times more than operating costs for typical shallow water rigs.” The same concept applies to the use of high quality oil and natural gas energy to produce alternative sources of energy, such as corn ethanol, bio-diesel, wind turbines, and nuclear power plants.
As oil depletion progresses, more and more oil is used to produce oil. When the amount of oil used to produce a barrel of oil equals the amount of oil produced, it is pointless to continue oil production. In addition to the oil used on site to produce and refine oil, energy is used in all of the processes for the machinery, equipment, and personnel used in the extraction, transport, and refining processes. For deepwater oil production, this would include all of the ships, platforms, steel piping (many kilometers of pipes on-site and to onshore locations), and their employees, including the energy used in making the hundreds of thousands of parts, the energy used in the factories that make the parts, the energy used in transportation of all of the parts and employees, as well as the energy that is consumed when employees and stockholders spend their salaries or dividends on goods and services (food, automobiles, yachts, airplanes, recreation vehicles, vacations, consumer purchases, etc.). Because there are a number of confounded energy input variables, it is difficult to measure all of this consumption of energy, but it is an economic reality that is shown in corporate decisions about the profitability of deepwater oil projects. For deepwater, heavy oil, tar sands, and extraction where special techniques are used, the point at which energy consumed in production equals the energy produced will be reached rapidly. For this reason, some oil that is classified as recoverable (for example deepwater oil, heavy oil, and the Bakken formation) may never be recovered.
Multiple Crises and a Grid Lock of Crises
Peak Oil means that the U.S. lacks the energy necessary to provide for transportation, food production, industry, manufacturing, residential heating, and the production of energy. Oil shortages and natural gas shortages will generate multiple crises for the nation: (1) Shortages in gasoline, diesel, and jet fuel will limit travel to work for oil rig/platform workers and technicians, coal miners, highway maintenance personnel, and maintenance workers for electric power generation stations and power lines. (2) Without truck and air transport, spare parts for virtually everything in the economy won’t be delivered, including parts needed for highway maintenance and energy production equipment. Simmons notes that 50,000 unique parts are necessary to create a working oil field. Many more parts are necessary for ultra deep water drilling operations, including a variety of high tech ships, remotely operated underwater vehicles, seismic survey equipment, helicopters, and technologically complex platforms (see The New York Times and click on Multimedia Graphic). Thousands of corporations around the globe manufacture these parts, and many of these corporations will fail in the Peak Oil crisis. (3) States governments will lack funds for maintaining the Interstate Highway System, including snow plowing, bridge repair, surface repair, cleaning of culverts (necessary to avoid road washouts), and clearing of rock slides. A failure in one section of the Interstate highway will cut off transportation for that highway and everything it carries: food, emergency supplies, medicine, medical equipment, and spare parts necessary for energy production. (4) The power grid for most of North American will fail due to a lack of spare parts and maintenance for the 257,000 kilometers of electric power transmission lines, hundreds of thousands of pylons (which are transported on the highways), and hundreds of power generating plants and substations, as well as from shortages in the supply of coal, natural gas, or oil used in generating electric power. Power failures could also result from the residential use of electric stoves and space heaters when there are shortages of oil and natural gas for home heating. This would overload the power grid, causing its failure. The nation depends on electric power for: industry; manufacturing; auto, truck, rail, and air transportation (electric motors pump diesel fuel, gasoline, and jet fuel); oil and natural gas heating systems; lighting; elevators; computers; broadcasting stations; radios; TVs; automated building systems; electric doors; telephone and cell phone services; water purification; water distribution; waste water treatment systems; government offices; hospitals; airports; and police and fire services, etc. Phillip Schewe, author of “The Grid: A Journey Through the Heart of Our Electrified World,” writes that the nation’s power infrastructure is “the most complex machine ever made.” In “Lights Out: The Electricity Crisis, the Global Economy, and What It Means To You,” author Jason Makansi emphasizes that “very few people on this planet truly appreciate how difficult it is to control the flow of electricity.” A 2007 report of the North American Electric Reliability Corporation (NERC) concluded that peak power demand in the U.S. would increase 18% over the next decade and that planned new power supply sources would not meet that demand. NERC also noted concerns with natural gas disruptions and supplies, insufficient capacity for peak power demand during hot summers (due to air conditioning), incapacity in the transmission infrastructure, and a 40% loss of engineers and supervisors in 2009 due to retirements. According to Railton Frith and Paul H. Gilbert (National Research Council scientist testifying before Congress), power failures currently have the potential of paralyzing the nation for weeks or months. In an era of multiple crises and resource constraints, power failures will last longer and then become permanent. When power failures occur in winter, millions of people in the U.S. and Canada will die of exposure. There are not enough shelters for entire populations, and shelters will lack heat, adequate food and water, and sanitation. (5) Water purification and water distribution systems will fail, leaving millions of metropolitan residents without water. (6) Waste water treatment systems will fail, resulting in untreated sewage that will contaminate the drinking water for millions of residents who consume river water downstream. (7) Transportation and communications failures will cripple federal, state and local governments -- leaving and residents without emergency services, emergency shelters, police and fire protection, water supplies, and sanitation etc. (8) Mechanized farming will cease, and harvested crops won’t be transported more than a few miles. (9) Food won’t be transported from the Midwest, California, Florida, and Mexico to the U.S. population. (10) Fertilizer, pesticides, and herbicides won’t be produced. (11) Due to limited farm acreage near cities (much of it destroyed by suburbanization), most cities and towns will be unable to support their populations with sufficient food from local farming (see Paul Chefurka and Paul Chefurka). (12) Homes across the U.S. will lack heating and air conditioning. Even if homes are retrofitted with wood stoves, local biomass is insufficient to provide for home heating, and it will not be possible to cut, split, and move wood in sufficient quantities.
In the coming years, the U.S. faces multiple energy crises. Each crisis will generate delays in handling other crises, thus making it more and more difficult to address multiplying problems. The worse things get, the worse they will get. A grid lock of crises will paralyze the nation.
Because the global demand for oil is high, conservation in the U.S. alone will not slow global oil depletion. Any oil conserved in U.S. would be consumed by other nations. The rational policy for the nation to follow, therefore, is to shift away from consumerism and economic stimulus programs (which waste oil) and use the available oil to prepare for Peak Oil risk management planning.
http://survivingpeakoil.blogspot.com/
http://www.peakoilassociates.com/POAnalysis.html
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