The End of Oil as We Know It - 2010 ASPO-USA Conference

Global Energy Experts Agree: We are Facing the End of Oil as We Know It WASHINGTON (October 12, 2010): Economists, activists, technical experts and policymakers from across the political spectrum gathered here, October 7-9, to discuss the global energy crisis. After 150 years of oil extraction; most major oil exporting nations are well past their supply peaks, defined by scientists as “Peak Oil.” At the Association for the Study of Peak Oil and Gas’ (ASPO-USA) sixth annual conference speakers offered a single, coherent picture of a world unprepared to encounter energy limits, petroleum scarcity and the inevitable—and possibly unprecedented—rise in prices. “We are on the brink of a major energy crisis,” stated Jim Baldauf, President of ASPO-USA. “The era of low-cost, easy to get oil has come to an end. Yet, our society is heavily dependent on oil and we have no contingency plan. It is our goal every year to bring together the world’s best global energy experts to grapple with solutions to this catastrophic situation and discuss the future.”

The presentation files of the 2010 World Oil Conference have been posted on the aspo-usa web site including:

• The Impending World Energy Mess Keynote Presentation by Robert L. Hirsch
• Economy & Energy by Chris Martenson
• Energy and Financial Crisis by Nicole Foss of The Automatic Earth
• The End of Investment by John Michael Greer of The Archdruid Report
• Where are we now? by André Angelantoni of postpeakliving.com
• & more
  

An Interview with Chris Martenson on the Survival Podcast

Jack Spirko of The Survival Podcast had interviewed Chris Martenson who is the creator of “The Crash Course”. They had a meaty exploration of the core tenets of the Three Es in light of recent developments, then delved pretty deeply into strategies for building personal resilience, which is the main focus of the regular podcasts.

The first “E” is the economy, which is the lens through which the Crash Course looks at everything, specifically exponential money, the first-ever collapse of a global credit binge, an aging population, and a national failure to save.

The second “E” is energy. The Crash Course explores what Peak Oil implies for an economic system that is based on continual expansion.

The third “E”, the environment, will be exerting its own unknowable but certainly significant economic burdens due to shrinking resources and other systemic pressures while the other two “E”s are clamoring for your money and attention.

Listen to the full inverview here.

Peak Oil and the Second Great Depression

Peak Oil and the Second Great Depression (2010-2030): A Survival Guide for Investors and Savers After Peak Oil

Peak Oil is the point of maximum global oil production. In Peak Oil and the Second Great Depression (2010-2030), the author argues that the likely peak in global oil production occurred in the period 2005-2008, due to the peaking of Saudi Arabian oil production during that time. The evidence of a peak in Saudi crude oil production in 2008 is presented and discussed in some detail. The most significant piece of evidence of a Saudi peak in production in 2008 was the inability of Saudi oil ministers to increase production in the period 2005 to 2008 despite record crude oil prices and the drilling of thousands of new wells in Saudi Arabia's seven major oil fields. Because it could not increase production in the face of rising global demand, Saudi Arabia was unable to prevent a spike in the price of oil to around $150 a barrel. A dramatic economic contraction in the developed economies ensued.

In the years ahead, it is argued, continued economic growth in the developing world including China will put upward pressure on the price of oil, which will create severe economic difficulties for the indebted developed economies such as the US which rely on imported energy. The book examines the likely policy responses of American statesmen and central bankers to the economic difficulties created by very high prices for petroleum. Oil at very high and indeed painful prices in the face of already historic levels of personal and governmental indebtedness, it is argued, will create large scale unemployment on levels not seen since the (First) Great Depression as expenditures for foreign oil dramatically reduce spending available for the domestic economy.

The author argues that the policy response to the economic difficulties will be to create a general rise in the price level to reduce the burden of the existing debt on households, businesses and governmental entities. As prices, and especially wages, rise, domestic spending will recover and unemployment will be reduced, although this process could take several decades. Very significant inflation will likely be necessary to prevent an even more severe drop in employment and output in the economy than that we are already experiencing given the magnitude of the shock to the economy created by continued declines in global oil production.

The inflation thus created, as well as the other dramatic changes in the economy as a result of Peak Oil, will alter the approach that would optimally be taken by investors and those wishing to preserve savings. The issues of asset allocation and sector weighting are explored together with alternative investments in commodities and real estate. The focus is primarily on domestic equities, but a rather unusual sector weighting strategy is proposed as most likely to produce positive results during two decades that will otherwise be most disappointing for the investing public.

Peak Oil will also create opportunities for speculation which are explored in the final chapters of the book.

Listen to the related interview on FSN In Depth: Kenneth D Worth, Peak Oil and the Second Great Depression (2010-2030) by James J Puplava

Lloyds Report - Sustainable Energy Security: Strategic Risks and Opportunities for Business

Chatham House-Lloyd's 360 Risk Insight White Paper
by Antony Froggatt and Glada Lahn, June 2010

As the disaster in the Gulf of Mexico has amply demonstrated, growing global energy demand and the anticipated restricted availability of some conventional fossil fuels pose an escalating threat to the security of energy supply for global businesses. Sustainable Energy Security: Strategic Risks and Opportunities for Business, produced jointly by Chatham House and Lloyd's, reveals multiple vulnerabilities in our current energy system and urges both business strategists and government policy-makers to take into account a range of encroaching risks and be bold in making plans for a more resilient and low carbon energy future.



This report, jointly produced by Lloyd’s 360 Risk Insight programme and Chatham House, should cause all risk managers to pause. What it outlines, in stark detail, is that we have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it.

Is this any different from the normal volatility of the oil or gas markets? Yes, it is. Today, a number of pressures are combining: constraints on ‘easy to access’ oil; the environmental and political urgency of reducing carbon dioxide emissions; and a sharp rise in energy demand from the Asian economies, particularly China.

Executive Summary

• Businesses which prepare for and take advantage of the new energy reality will prosper - failure to do so could be catastrophic
• Market dynamics and environmental factors mean business can no longer rely on low cost traditional energy sources
• China and growing Asian economies will play an increasingly important role in global energy security
• We are heading towards a global oil supply crunch and price spike
• Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments
• Lack of global regulation on climate change is creating an environment of uncertainty for business, which is damaging investment plans
• To manage increasing energy costs and carbon exposure businesses must reduce fossil fuel consumption
• Business must address energy-related risks to supply chains and the increasing vulnerability of 'just-in-time' models
• Investment in renewable energy and 'intelligent' infrastructure is booming. This revolution presents huge opportunities for new business partnerships

[via Transition Culture]

The Best Peak Oil Investments Series by Tom Konrad

Tom Konrad is posting a new series of investment advise on the Alternative Energy Stocks blog which has also appeared on Seeking Alpha. Here is a collection of his Best Peak Oil Investment articles so far:

• Peak Oil Investments I'm Putting My Money On: Part I, Biofuels
• Peak Oil Investments I'm Putting My Money On: Part II, Hydrogen and Vehicle Electrification
• Peak Oil Investments I'm Putting My Money On: Part III, Natural Gas Vehicles
• Peak Oil Investments I'm Putting My Money On: Part IV, Converting Coal, Natural Gas to Liquids
• Peak Oil Investments I'm Putting My Money On: Part V, Algae
• Peak Oil Investments I'm Putting My Money On: Part VI, Barriers to Substitution
• Peak Oil Investments I'm Putting My Money On: Part VII, Peak Substitutes?
• Peak Oil Investments I'm Putting My Money On: Part VIII, Alternative Fuel Report Card
• Peak Oil Investments I'm Putting My Money On: Part IX, The Methadone Economy

Infrastructure: Priorities and painful decisions

Christine Patton is a former risk and process management consultant; and currently Co-chairs the Transition Town OKC initiating group. She has a nice blog "Peak Oil Hausfrau". Check out her blog entry on the difficult decisions we need to face to maintain the most important infrastructure we built. Here is a short extract:

When cheap energy reigned, we built acres of infrastructure, without giving too much thought to the energy, materials, and money that we would need to maintain and operate these constructions. Now, we have come to completely depend on these systems, most of which did not exist in their current form one hundred years ago:

• Roads, highways and bridges,
• Water and sewage systems,
• Housing and buildings (schools, hospitals),
• Electric grid and power plants,
• Landfills and hazardous waste disposal systems,
• Dams and canals,
• Public transit (including subways, buses and railways),
• Internet and communications, and
• Energy extraction, processing, and delivery systems.

The crumbling of this legacy of infrastructure is one of the many day-to-day living problems that we face over the next fifty to a hundred years. Unlike our natural systems, which can regenerate themselves (if not destroyed completely), and which are self-perpetuating and self-healing, our built infrastructure requires regular maintenance and investment. Maintenance depends on a base of knowledgeable personnel with access to information about the systems, affordable materials and energy, factories that produce needed parts, and regular investment to fix what's broken or decaying.

Things break. Water lines crack, electric lines snap, and potholes appear magically overnight. Infrastructure is especially vulnerable in severe weather and during natural disasters, but also from lack of regular maintenance and from accidents, and of course from willful malfeasance. We currently have the capacity to come in after a disaster, clean up, and repair the damage. Will we be able to do so when everything costs twice as much and when state, municipal and corporate revenues have been cut in half?

This is reality. With a future of decreasing energy supplies, we will have less and less available to maintain the systems that support our globalized, high-energy, consumer lifestyle, on top of the resources we need to meet our daily needs. We will need to decide where to spend our money, our materials, our energy, and our manpower. How will we prioritize? Will it be haphazardly, fixing whatever is broken, patching things together until the point that resources are no longer available? Will we only maintain systems in the places of the rich and powerful?

Peak Oil for Dummies

Peak Oil for Dummies is a new post on Seeking Alpha by Lionel Badal. A short overview:

Introduction

Over the past decade, a fierce debate has emerged amongst energy experts about whether global oil production was about to reach a peak, followed by an irreversible decline.

This event, commonly known as “Peak Oil” far outreaches the sole discipline of geology. From transportation to modern agriculture, petrochemicals and even the pharmaceutical industry all of them rely on one commodity: cheap and abundant oil. In order to sustain the needs of an ever globalized world, oil demand should double by 2050.

Nonetheless, geological limitations will disrupt this improbable scenario. In fact, a growing proportion of energy experts argue that Peak Oil is impending and warn about the extraordinary scale of the crisis.

42 Years of Oil Left?

According to the 2009 BP Statistical Review, the world has precisely 42 years of oil left. Those numbers come from a very simple formula, the R/P ratio, which consists of dividing the official number of global oil reserves by the level of today’s production.

Nevertheless, this methodology is dangerously defective on several key points as it ignores geological realities. Oil production does not consist of a plan level of production that brutally ends one day; it follows a bell-shaped curve.

Indeed, the important day occurs when production starts to decline, not when it ends. As it is a non-flexible commodity, even a small deficit in oil production can lead to a major price surge.

Finally, the R/P ratio does not acknowledge that production costs increase over the time; the first oil fields to be developed were logically the easy ones and so the most profitable. It is well recognized that remaining oil fields consist of whether poor quality oil or remotely located fields which need high technologies and expensive investments.

Therefore, relying on the R/P ratio gives a false impression of security while the actual situation is critical.

Global Oil Reserves: Lies and Manipulations

Oil is a strategic resource; therefore having oil is a key political and economical advantage for a state. This is why politics interfere in the evaluation of oil reserves, especially in countries with poor accountability records; that is, the majority of OPEC countries.

At this point, we should not forget that oil reserves reported by these countries are not audited by independent experts. In 2006, the notorious Petroleum Intelligence Weekly said it had access to confidential Kuwaiti reports which stated that reserves were half the official numbers.

The question of oil reserves is most relevant. As oil exporting countries have less oil in their ground, Peak Oil will arrive faster. Oil optimists who argue Peak Oil is still decades away rely on these same erroneous data.

In addition, if importing countries assume oil reserves are abundant as they do, the crisis will be unexpected, unprepared and misunderstood; in one word: overwhelming. Similarly, once oil shortages occur, oil importing countries may assume that exporting countries are deliberately reducing their oil exports to harm their national interests.

Such a flawed assumption from oil importing countries is likely to have serious repercussions, and eventually lead to new oil wars.

The Imminent Decline of Global Oil Production

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD… The implications for future conflict are ominous...

At this pace, global oil production could decline by 50% from its current level, as soon as 2030.

A Contested Reality: By Whom and Why?

For many years, Peak Oil was ignored by officials from oil companies and governmental agencies such as the IEA. They negligently repeated that production was not at risk.

Any Viable Alternative Energy?

There is no easy, present, solution to the crisis. Alternatives to oil are still far from being a feasible replacement; hydrogen for example would require 30 to 50 years to replace oil economies.

Meanwhile, the automobile industry is now planning to develop electric cars in the near future. While the first electric cars are expected to come on line in 2010-12, in order to replace 50% of the car fleet, the world would need between 10 to 20 years.

Besides, as manufacturing a single car requires at least 20 barrels of oil, once oil production starts to decline, in 2011-2013, it will increasingly become difficult to develop the electric car on a massive scale.

In fact, the closer we get to Peak Oil, the more difficult a massive and costly emergency plan to develop alternative energies will become.

The Industrial Civilisation at a Turning Point

A former director at the IEA, who used to be the superior of Dr. Fatih Birol, told me during a discussion that,

The current (economic) crisis was caused by the insufficiency of (oil) supply from 2007 onwards, an avatar of Peak Oil.

This extract from the Energy Watch Group study on oil production provides useful additional information:

The world is at the beginning of a structural change of its economic system. This change will be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily life... The now beginning transition period probably has its own rules which are valid only during this phase. Things might happen which we never experienced before and which we may never experience again once this transition period has ended.

Temporary Recession or the End of Growth?

This is a guest post on The Oil Drum by Richard Heinberg. Richard is a Senior Fellow of the Post Carbon Institute and author of five books on resource depletion and societal responses to the energy problem. He can be found on the web at www.richardheinberg.com and www.postcarbon.org. Here is a short overview of his new post:

Everyone agrees: our economy is sick. The inescapable symptoms include declines in consumer spending and consumer confidence, together with a contraction of international trade and available credit. Add a collapse in real estate values and carnage in the automotive and airline industries and the picture looks grim indeed.

But why are both the U.S. economy and the larger global economy ailing? Among the mainstream media, world leaders there is near-unanimity of opinion: these recent troubles are primarily due to a combination of bad real estate loans and poor regulation of financial derivatives.

This is the Conventional Diagnosis. But what if this diagnosis is fundamentally flawed? The metaphor needs no belaboring: we all know that tragedy can result from a doctor’s misreading of symptoms, mistaking one disease for another.

In short, I am suggesting an Alternative Diagnosis. This explanation for the economic crisis is not for the faint of heart because, if correct, it implies that the patient is far sicker than even the most pessimistic economists are telling us. But if it is correct, then by ignoring it we risk even greater peril.

Economic Growth, The Financial Crisis, and Peak Oil

For several years, a swelling subculture of commentators has been forecasting a financial crash, basing this prognosis on the assessment that global oil production was about to peak.

Continual increases in population and consumption cannot continue forever on a finite planet. The unfairly maligned Limits to Growth studies, published first in 1972 with periodic updates since, have attempted to answer the question with analysis of resource availability and depletion, and multiple scenarios for future population growth and consumption rates.

Energy is the ultimate enabler of growth. Industrialism has been inextricably tied to the availability and consumption of cheap energy from coal and oil (and more recently, natural gas).

About 85 percent of our current energy is derived from three primary sources—oil, natural gas, and coal—that are non-renewable, whose price is likely to trend sharply higher over the next years and decades leading to severe shortages, and whose environmental impacts are unacceptable. While these sources historically have had very high economic value, we cannot rely on them in the future; indeed, the longer the transition to alternative energy sources is delayed, the more difficult that transition will be unless some practical mix of alternative energy systems can be identified that will have superior economic and environmental characteristics.

My conclusion from a careful survey of energy alternatives, then, is that there is little likelihood that either conventional fossil fuels or alternative energy sources can be counted on to provide the amount and quality of energy that will be needed to sustain economic growth—or even current levels of economic activity—during the remainder of this century.

In essence, humanity faces an entirely predictable peril: our population has been growing dramatically for the past 200 years (expanding from under one billion to nearly seven billion), while our per-capita consumption of resources has also grown. And yet all of this has taken place in the context of a finite planet with fixed stores of non-renewable resources (fossil fuels and minerals), a limited ability to regenerate renewable resources (forests, fish, fresh water, and topsoil), and a limited ability to absorb industrial wastes (including carbon dioxide). If we step back and look at the industrial period from a broad historical perspective that is informed by an appreciation of ecological limits, it is hard to avoid the conclusion that we are today living at the end of a relatively brief pulse—a 200-year rapid expansionary phase enabled by a temporary energy subsidy (in the form of cheap fossil fuels) that will inevitably be followed by an even more rapid and dramatic contraction as those fuels deplete.

If humanity has indeed embarked upon the contraction phase of the industrial pulse, we should assume that ahead of us lie much lower average income levels (for nearly everyone in the wealthy nations, and for high wage earners in poorer nations); different employment opportunities (fewer jobs in sales, marketing, and finance; more in basic production); and more costly energy, transport, and food. Further, we should assume that key aspects of our economic system that are inextricably tied to the need for future growth will cease to work in this new context.

Is it too late to begin a managed transition to a post-fossil fuel society? Perhaps. But we will not know unless we try. And if we are to make that effort, we must begin by acknowledging one simple, stark reality: growth as we have known it can no longer be our goal.

Resources

Richard Heinberg is the author of the following books about the energy crash and resource depletion:

• Blackout
• Peak Everything: Waking Up to the Century of Declines
• Powerdown: Options and Actions for a Post-Carbon World

Energy Efficiency Investment Report by McKinsey & Company

In this report, McKinsey & Company offers a detailed analysis of the magnitude of the efficiency potential in non-transportation uses of energy, a thorough assessment of the barriers that impede the capture of greater efficiency, and an outline of the practical solutions available to unlock the potential.

The research shows that the U.S. economy has the potential to reduce annual non-transportation energy consumption by roughly 23 percent by 2020, eliminating more than $1.2 trillion in waste – well beyond the $520 billion upfront investment (not including program costs) that would be required. The reduction in energy use would also result in the abatement of 1.1 gigatons of greenhouse gas emissions annually – the equivalent of taking the entire U.S. fleet of passenger vehicles and light trucks off the roads.

Such energy savings will be possible, however, only if the United States can overcome significant sets of barriers. These barriers are widespread and persistent, and will require an integrated set of solutions to overcome them – including information and education, incentives and financing, codes and standards, and deployment resources well beyond current levels.

In addition to the above central conclusion, five observations will be relevant to a national debate about how best to pursue energy efficiency opportunities of the magnitude identified and within the timeframe considered in this report. Specifically, an overarching strategy would need to:

• Recognize energy efficiency as an important energy resource that can help meet future energy needs while the nation concurrently develops new no- and low-carbon energy sources
• Formulate and launch at both national and regional levels an integrated portfolio of proven, piloted, and emerging approaches to unlock the full potential of energy efficiency
• Identify methods to provide the significant upfront funding required by any plan to capture energy efficiency
• Forge greater alignment between utilities, regulators, government agencies, manufacturers, and energy consumers
• Foster innovation in the development and deployment of next-generation energy efficiency technologies to ensure ongoing productivity gains.

Oil Price vs. Supply / Demand

The above figure by Euan Mearns on The Oil Drum Europe shows monthly oil production data and monthly average oil price data from economagic fit Phil Hart's simple model. The return path since July 2008 is shown in light blue. Marks at one month intervals.

A reduction in global oil production capacity will mean that higher future oil price will be attained at a lower level of demand than in 2008. Is another oil price spike on the way? Will oil trade well above $100 in 2012 as suggested by the following scenario?


Check out the full post on future oil price.

Biggest Economic Opportunity of the 21st Century

John Doerr, Silicon Valley's legendary moneyman, is afraid of eco-apocalypse. After building his reputation (and a considerable fortune) investing in high-tech successes, he's turning his focus toward green technologies, and hoping it isn't too late.



Why you should listen to his TED Talk?

"I don't think we're going to make it," John Doerr proclaims, in an emotional talk about climate change and investment. Spurred on by his daughter, who demanded he fix the mess the world is heading for, he and his partners.

John Doerr, a partner in famed VC firm Kleiner Perkins Caufield & Byers, made upwards of $1 billion picking dot-com stars like Amazon, Google, Compaq and Netscape. (He also picked some flops, like Go Corporation and the scandal-ridden MyCFO.com.) He was famously quoted saying, "The Internet is the greatest legal creation of wealth in history," right before the dot-com crash.

But now he's back, warning that carbon-dioxide-sputtering, gas-powered capitalism will destroy us all, and that going green may be the "biggest economic opportunity of the 21st century." So Kleiner Perkins has invested $200 million in so-called greentech, a combination of startups that are pioneering alternative energy, waste remediation and other schemes to prevent the coming environmental calamity. But Doerr is afraid that it might be too little, too late.

"[John Doerr] is, by all accounts, the most influential venture capitalist of his generation."

Fast Company

Energy & Capital - Practical Investment Analysis

Energy is such a pervasive resource that it affects every single human endeavor.

Energy has become fundamental to the very basic functions of contemporary civilization. And it is imperative to the future growth, prosperity, social stability and security of nations around the world. Without energy, everything comes to a grinding halt.

Today energy is at a crossroads. Like a lit fuse, a catastrophe of immeasurable proportion is looming.

Even though the energy crisis is beginning to make its way into the media limelight, very few people are aware of the true scope and magnitude of this crisis. With today's seemingly abundant energy supply, it can be difficult for us to imagine an energy-limited world. Nevertheless, the impending energy crisis is coming.

And like the ancient phoenix, a great opportunity will rise from the ashes of this crisis. Energy and Capital aims to provide foresight and vision to exploit the commercial opportunities of a post-oil economy. Its goal is to do practical investment analysis in the New Energy Economy. Check out the site and the newsletter.