OIL WARS

PEAK OIL COMPLEXITIES

PEAK OIL has struck us as one of those phrases that academics and
activists like infinitely more than ordinary human beings. This doesn't
mean that oil hasn't peaked, only if you want people to do something
about it, obscure jargon backed by bell curves is probably not the best
way to go about it. It is the peak in gas prices, for example, that has
recently stirred the most interest in the subject. It's not unlike the
phrase 'smart growth.' We have yet to meet anyone who has said something
like, "What this neighborhood needs is some smart growth."

There is another problem: we are dealing with theories and projections
that assume more is known than is actually is the case. Here are two
assessments of the topic from a left and liberal perspective that
illustrate some of the issues still at large.

One of them is by your editor's brother, Lewis Smith, former director of
energy for Puerto Rico, but any conflict of interest is moderated by the
fact that we often disagree.

DOUG HENWOOD, LEFT BUSINESS OBSERVER - There were just six mentions of
the phrase "peak oil" in Nexis' major newspapers in the first half of
2002; there were 89 in the first half of 2005. The theory is that the
world has reached its climax in oil production, and output from here is
only going to go downhill. This explains both the spike in energy prices
over the last few years, the war in Iraq, and maybe even 9/11. . .

Prophecies of resource depletion have been around almost since humans
began thinking of nature as a set of resources. The 19th century English
economist William Stanley Jevons, one of the founders of the modern
discipline, was convinced that England would soon run out of coal: "It
is thence simply inferred that we cannot long continue our present rate
of progress." He dismissed the possibility that petroleum could serve
as a substitute for coal. Britain would find itself cold, dark, and
depopulated. Similar prognostications have been around since oil started
flowing.

No doubt we will run out of it someday. But there's still 40 years of it
in the ground—and the industry isn't trying that hard to find more of
it. Worldwide, about 2,700 rigs are drilling for oil; that's doubled
from the lows of 2000, but it's still less than half the peak of 6,148
in 1982. Major oil companies have kept their exploration budgets in
check to please their stockholders, who prefer high profits to busy
rigs. Thanks to that tightfistedness, expertise and equipment are now in
short supply. The number of petroleum engineers in the U.S. -
historically the home to much of the world's talent - is half what it
was 20 years ago. These human and material shortages are driving up
costs and slowing down fresh exploration.

The politics of peak oil are strange. Among its partisans are industry
people, who like the deeper tax and regulatory breaks and higher prices
that would result if it were widely believed. But a lot of greens have
embraced it, apparently hoping that we'll react rationally, and finally
come to our senses about SUVs, sprawl, and melting icecaps - providing a
nice shortcut around messy political agitation. That's very optimistic.
It could be that fear of peak oil might inspire a furious rush to find
more oil - and make dirtier fuels like coal and nuclear seem more
attractive.

http://www.leftbusinessobserver.com/

LEWIS L SMITH, US ASSN FOR ENERGY ECONOMICS NEWSLETTER - In physical
terms, the answer is "No". In economic terms, the answer is "Yes". But
nobody really knows when, notwithstanding the current outpouring of
fearless forecasts of an early peak for world crude-oil production. The
great majority of the prognosticators lack crucial information with
regard to specific oil fields. As a result, they must base their
forecasts on national data and indirect techniques of estimation. This
is perilous in an industry where current statistics are not very
precise, precise statistics are not very current, much information is a
matter of "national security" and death can come swiftly to the
inquisitive, as certain consulting firms already know.

Worse yet, there exist conflicting versions of certain important time
series, such as the monthly production of crude oil by Saudi Arabia.
Indeed the tendency of most producing countries to lie about their own
oil industries - even to the OPEC Secretariat - is an open secret. Of
those with information "from the mouth of the borehole", very few are
talking, and even fewer know anything about fields outside their own
country. . .

To make a reliable forecast of the "peak oil year" for the whole world,
one must have the following information for all of the major oil fields
— pumping history, injection history [additives, gas, water] and current
information with regard to some 15 physical parameters which describe
each field's present condition. Moreover, one must chose the correct
decline curve for the years past the peak, forecast the success of
exploration, development and production-enhancement activities already
under way, forecast the potential impact of those not yet started and
forecast the impact of new technologies not yet available commercially.
. .

As if the foregoing were not enough, there are three "jokers" in the
"oil deck". The first consists of the enormous fields of stranded
natural gas throughout the world. . .

The second is the mine-mouth conversion of coal into gas. The relevant
technologies are also commercial and spreading slowly. . .

The third consists of the natural gas molecules trapped in the enormous
fields of methane hydrates known to lie beneath the arctic tundra and
the sea floors. It is already technically possible to extract methane
from tundra hydrates, and various enterprises are working on the
remaining problems. Needless to say, some of the gas from these two
sources will eventually be used to produce middle distillates.So the
future supply of diesel, kerosene, nafta and certain other "petroleum
products" does not depend solely on the future supply of crude oil. We
will have middle distillates at least for the foreseeable future, though
not always at the right price. . .

Given the above, the safest thing to say is that world crude-oil
production will peak, sometime between eight o'clock tomorrow morning
and thirty years from now. However, despite so much uncertainty, we can
still make a strong case for drastically reducing the world's dependence
on oil and doing so as quickly as possible. In the first place, there
are the long lead times and long delays which characterize the planning,
permitting, construction and startup of so many energy projects, whether
based on petroleum or on alternate sources of energy. . .

Secondly there are the environmental impacts of fossil-fuel combustion,
even when all current regulations are complied with, which is often not
true. . . Moreover, despite the ostriches in high places who incessantly
repeat the mantra of "junk science" like a stuck record, every day
brings new evidence of global warming. . .

Thirdly there are the hidden costs of petroleum fuels to the economies
which consume them, costs which are widely excluded from their market
prices. In Puerto Rico, we have identified some six different kinds [and
there are probably more]. . .

But the fourth and most important reason of all, is the following. More
than 36% of the world's production of crude oil comes from - and more
than 61% of its "proven" reserves are found in - a region which we may
call "the Oil Belt.". . . This region extends from Algeria to Iran and
includes the Middle East and the Sudan. It is a region full of time
bombs. . . Whenever one of these "bombs" goes off, the price of oil goes
up and doesn't always come back down to where it was before. And it
usually goes up quickly and comes down slowly, as it takes less than two
minutes for news to spread around the world, and less than ten seconds
for oil traders to act on it. . .

In the case, of the USA, it would have been a lot cheaper in both lives
and money to raise gasoline-economy requirements for motor vehicles,
subsidize hybrid vehicles, adopt peak-load pricing for electricity
consumers, push energy conservation hard et cetera than to invade Iraq.

http://www.usaee.org/pdf/aug05.pdf