WORLD OIL SUPPLIES: AT THE TURNING POINT

1
WORLD OIL SUPPLIESAT THE TURNING POINT?
John Kaufmann Oregon Department of
Energy Pacific NW Waterways Assoc. 15 October,
2008
2
Oil and Gas at Record Highs

• Since 2002
• Crude oil 6X
• Gasoline/diesel 3X
• Natural gas 3X

www.energytechstocks.com
3
Price Higher Than Last Year 30 Price Drops Are
Common
Data Source EIA Jim Hansen, Investing in the
New Energy Economy Presented to the ASPO-USA
2008 Peak Oil Conference
4
US Payments for Foreign Oil

• Andrew Wiessman, Time to Stop Playing Russian
  Roulette With American Economy
• Proceedings, ASPO-USA 2008 Peak Oil Conference

5
Price Gouging? Manipulation? Speculation?

• Speculators profit from conditions they dont
  create them
• Price set in market
• Many buyers, sellers
• Fundamentals in place tight supplies

6
Long-Term Supply Leveling Off, Demand Outstrips
Production
7
Increased Demand China

• GNP growing 8-10/year
• 2nd largest user of oil

• Oil use up 7.5 annually
• Imports up 40 last year

8
Increased Demand U.S.

• More people
• Driving more miles
• In less efficient vehicles

9
Global Oil Production 2002-07
Source www.UrbanSurvival.com, 5-21-07 Data from
http//www.eia.doe.gov/emeu/international/contents
.html
10
World Discoveries Peaked in 1960s
11
Production Exceeds Discoveries Since 1983

David Hughes, Geological Survey of Canada From
Campbell, 2004
12
For Every Barrel We Find
?
We use 6 barrels
13
Production Follows Discovery
14
US Discoveries Peaked in 1930, Production in 1971
15
Already Peaked

• Indonesia
• Venezuela
• Iran
• Kuwait

• 2/3 of oil-producing nations, two major fields
• US
• Canada
• Mexico
• North Sea
• Nigeria?
• Russia?
• Saudi Arabia?

16
Indonesia Net Importer
UK 2006 Mexico?
www.TheOilDrum.com/node/3657 , Feb. 22,
2008 Sources Matt Mushalik, data from
http//tonto.eia.gov/country/index.cfm
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Mexico

• www.theoildrum.com.node/3381, 18-Dec-07

18
Net Exports of Top 20 Exporters
Mark Reyondols, Anawhata Associates, NSW
Australia Policies to Develop A Low Emissions
Transport Sector in Australia, 10 April
2008 From www.theoildrum.com/files/AnawhataGarnaut
.pdf
19
No Spare Productive Capacity

• The good news is, the Saudis dont control the
  price of oil any more
• The bad news is . . . No one does

20
Top-down Trend Analysis (Hubbert Methodology)
M. King Hubbert

• Trend analysis historical, statistical
• Predicted U.S. and other peaks
• Predicts world peak within next few years

21
Hubbert Method Applied to U.S. Production
Jeffrey Brown, In Defense of Hubbert
Linearization The Oil Drum, June 24, 2007
22
Bottom-up Analysis Geologic

• Field-by-field
• Current production
• production declines
• new fields
• advanced recovery
• Peak by 2011

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We Know More Than Ever About Where Oil is Found

• We understand conditions under which oil was
  formed
• Seismic imaging
• Millions of exploratory wells
• Computer mapping

Natural Gas
Oil
Robert Beriault,Peak Oil and the Fate of
Humanity. www.peakoilandhumanity.com
24
Drilling vs. Production U.S. Oil and Gas

• Nate Hagens, Charlie Hall How Much Oil and Gas
  Will Increased Drilling Provides
• www.theoildrum.com, 15-Aug-2008

25
US Natural Gas Production and Number of Producing
Wells
Jean Laherrere, interview with Luis de
Sousa The Oil Drum, 4 August 2007
26
New Discoveries are Smaller, Dont Reverse the
Trend
27
Effect of ANWR
Gail Tverberg, Peak Oil Overview-March 08,
www.TheOilDrum.com/node/3726 Strategic Energy
Institute, Georgia Institute of Technology
28
Brazils Recent Find

• Est. 33 billion barrels
• Premature based only on seismic imaging
• Early announcements often inflated
• 1/3 recoverable i.e., 4 months oil at current
  use
• 10 year lead time
• Expensive deepwater, salt formations

Photo Marcelo Sayao/EPA The Guardian, 5 April
2008
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Ease of ProductionPast and Present
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When Will Oil Production Peak?
0-5 yrs
5-10 yrs
10 yrs
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Dean of Wall Street

• Thru 2010 ? production flat falls short of
  demand
• Inventory drawdown
• 2012 ? conventional oil peak
• Inventories insufficient
• 2015 ? all liquids peak

Charles Maxwell Weeden Co.
32
Prospects Going Forward
North Sea, Mexico declining Canada oil sandslow
flow rate Russia peaking? Russia vs West in
Caspian Nigeria in crisis Iraq at pre-invasion
levels Nuclear Iran Kashagan, Khurais late New
fields smaller, more remote
33
New Finds Have Little Effect

• Ken Verosub, UC-Davis, Petroleum Geology 101
• Presented to ASPO-USA 2008 Peak Oil Conference

34
Geopolitics

• Invasion of Iraq
• Nuclear Iran
• Russia-Georgia
• Hugo Chavez
• Nigeria
• Pipeline terrorism

35
Geopolitics Hastens Peak

• Geological peaking is driving the geopolitical
  events.
• Jeff Vail

• Jeff Vail, The Geopolitics of Energy
• Proceedings, ASPO-USA 2008 Peak Oil Conference

36
Bumpy Plateau / Descent
Jeff Vail, Predator-Prey Dynamics in Demand
Destruction and Oil Prices www.theoildrum.com/nod
e/4448, 26-Aug-2008
37
U.S. Energy Mix
38
Oil Does Work for us

• In one year a person can perform the work of 8
  gallons of gasoline

39
Oil Packs Power
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Why Oil Matters

• Oil is unique in that it is so strategic in
  nature. We are not talking about soapflakes or
  leisurewear here. Energy is truly fundamental to
  the worlds economy. The Gulf War was a
  reflection of that reality.
• Dick Cheney
• Halliburton, 1999

41
1970s on Steroids Inflation, Recession,
Unemployment
42
Impacts Business Jobs

• Higher production, distribution costs
• Supply chain problems
• Reduced demand

Social Security Administration, Special
Collections http//www.elderweb.com/home/node/9633

43
Impacts Airlines First to Feel Impacts

• Fuel represents gt30 of their costs
• 70 of flights are discretionary

44
Impacts Trucking / Freight
45
Energy Returned on Energy Invested, i.e. Net
Energy
46
No Magic Bullets

• Drilling
• Nuclear
• Coal
• Oil Sands
• Biofuels
• Renewables
• Hydrogen

47
Natural Gas Also Nearing Peak Production
David Hughes, Geological Survey of Canada Data
from C.J. Campbell, 2005
48
Combined Oil/Gas Peak
David Hughes, Geological Survey of Canada Data
from C.J. Campbell, 2005
49
U.S. Natural Gas Production Already in Decline
David Hughes, Geological Survey of Canada Data
from USEIA
50
Location of Natural Gas
51
Domestic Natural Gas Replacement LNG

• Intense competition
• Expensive
• Best use?
• Heat existing homes?
• Heat new homes?
• New generation?
• Displace coal?
• Transport fuel (CNG)?
• Feedstock?
• Transition fuel?

52
Coal

• 3X 4X increase
• Runaway global warming
• Peak coal

53
Nuclear

• 10X increase
• Peak uranium

54
Oil Sands / Oil Shale

• CO2 emissions
• Land, water pollution
• Low energy return
• Low flow rates

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Hydrogen

• Net energy loser
• Bulky to store, transport
• 3 evaporation loss/day
• Doesnt use existing infrastructure

56
Biofuels

• Ties food price to fuel price
• Reduced ecosystem services
• Low energy return
• Small fraction of our needs

57
Renewables Wind and Solar

• Non-transportation only
• Less concentrated, more expensive
• Necessary
• but sufficient?

58
Find Alternatives
59
Plan for Higher Fuel Prices

• Scenarios
• Resiliency
• No regrets policy
• Viability, not cost-effectiveness

Andrew Wiessman, Time to Stop Playing Russian
Roulette With American Economy Proceedings,
ASPO-USA 2008 Peak Oil Conference
60
Think Carefully About Major Infrastructure
Investments

• Position yourself for the future
• Avoid major stranded investments
• Port facilities
• Ships
• Multi-modal connections

61
Evaluate Your Market

• Demand what do you ship?
• Discretionary or necessary?
• Distance?
• Competition?
• Will it still pay?
• Globalization?
• Has it peaked?

62
Begin Now . . .

• Hirsch Report
• Peak is inevitable
• Consequences are serious
• Massive effort
• 20 years lead time
• 1 trillion
• Need oil as bootstrap
• Cost of preparing too late will far exceed too
  soon

63
Destiny?
Contact Info John Kaufmann 503-378-2856 john.kauf
mann_at_state.or.us Best Resources www.energybulleti
n.net www.theoildrum.com www.postcarbon.org www.gl
obalpublicmedia.com
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Impacts Tourism Another Early Casualty?
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Impacts Food Agriculture

• Food sector 17 of energy
• Higher food prices
• Fertilizer Lower productivity
• Also
• Variety of food decreases
• Nutrition, esp. for low-income
• Shifts in food retailing
• More household food production, preservation,
  preparation

Time Magazine, April 9, 1973
www.timeinc.net/time/magazine.archives/cover/1973/
1101730409_400.jpg
68
Impacts Vulnerable Population Hit First /
Hardest

• Food?
• Medicine?
• Heat?
• Rent or mortgage?
• Transportation?

69
Impacts Public Social Services

• Demand for services up
• Revenues, charitable contributions down
• Stretches already stressed systems
• Fractured community networks

Fred. A. Hatfield, www.novanewsnow.com,
22-May-2007
70
Impacts Public Social Services

• Reduced health coverage
• Less preventive, more emergency care
• Public health concerns
• Housing, homelessness
• Hunger
• Substance abuse, domestic violence, property
  crimes

www.gothamist.com, 11-October-2007
71
Expand Energy Efficiency Programs

• (Dramatically) ramp up existing programs
• More and faster

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Low Impact Housing
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Encourage Efficient Renewable Transport Choices

• Get people out of their cars
• Ensure alternatives are safe, convenient
• Walk
• Bicycle
• Ride share
• Mass transit

Fuel Efficient Vehicles Now, www.fev-now.com
74
Change Land Use Patterns
from this
to this
Reduce transportation needs Promote
walkability Easy access to services and
transportation options
75
Transit Alternatives
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Preserve Local Food Production Capability

• Preserve nearby agricultural land
• Support local food processing industry
• Urban gardens
• Farmers markets
• Co-ops

www.oregonfarmersmarket.org
77
Preserve Safety Net, Protect Vulnerable
Populations

• Sense of community
• Health care
• Public health system
• Hunger relief
• Shelter

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Emergency Planning

• Fuel allocation
• Food
• Transportation

Armed Forces International www.armedforces-intcom/
categories/emergency-planning-and-management
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What Can You Do?

• Sign the Pledge Reduce your carbon footprint 5
  every year
• 50 in 14 years
• Encourage family, friends to pledge

5 Solution
www.OregonPeaceWorks.org
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How to Reduce Your Footprint

• Reduce your housing footprint
• Heating system, insulation and windows,
  appliances, water heating
• Reduce your transportation footprint
• Walk, bike, ride share, public transit
• Buy, consume less
• Things take energy to produce and distribute
• Eat local, organic, less-processed foods

New Yorker, July 2, 2007
81
Reinvigorate Rail
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Per Capita Oil Consumption
Ken Verosub, UC-Davis, Petroleum Geology
101 Presented to ASPO-USA 2008 Peak Oil
Conference