There Is No Plan "B"

Five years ago, the idea that oil production would soon peak world-wide and then go into decline was limited to the margins--a web page here and there and a few old oil goeologists who had retired and didn't have to worry about what their employers thought.

A year or so ago, the idea started to make it into mainstream periodicals--but in a watered down form--something that might happen in 20 or 30 years.

Now the darker version is starting to show up in financial news sites. A recent piece on "Financial Sense Online" puts the situation in stark terms;

The oil crisis has arrived in the United States. This summer’s storm season exposed the Achilles heel of the U.S. economy: OIL. We have reached what system analysts refer to as ”a single point of failure.” It is the one item that if it breaks down, it brings the entire system down with it. Like it or not the U.S. economy runs on oil—cheap oil—and we are running out of it. Oil powers our economy in manufacturing, transportation, and agriculture. Without it, our economy would cease to function. There is no other commodity other than water that can have such an effect on how and what we do. Oil is the lifeblood of our economy.

For three decades the energy infrastructure in the U.S. has been neglected and allowed to decay. Now those chickens are coming home to roost. Politicians can bluster and pontificate all they want, but this will not solve the predicament that we now find ourselves in. The plain fact is we are running out of oil and natural gas. Oil production in the U.S. peaked in 1970. Since then, the United States has not been able to supply its own oil needs. As a result of this failure, it lost control in its ability to influence the world price of oil. This has led to a loss of control over an important part of its economic destiny.

The worldwide picture is equally stark.

Oil discoveries peaked in the 1960s and most of the oil we consume today comes from giant Middle Eastern oil fields that were discovered and put into production over 40 years ago. Most of the world’s key oil producers have already experienced peak oil. According to Richard Duncan, director of the Institute on Energy & Man, 25 out of the top 45 oil producers are past their peak. These 45 producers account for 98.7% of the world’s oil production. Another study done by Washington energy consultants, PFC Energy, found that 33 out of the 48 major oil-producing countries have either peaked or plateaued. Moreover many of today’s large oil producers such as Russia and Mexico have failed to replace their production over the last decade. Mexico’s oil production is expected to peak this year with the peaking of its largest oil field, Cantarell. Even worse, we find Saudi Arabia may also be close to peaking as Matt Simmons posits in his book “Twilight in the Desert.”

As this graph shows, non OPEC oil production has already peaked:



OPEC is producing very close to full capacity and has only limited ability to grow. Indonesia became a net oil importer last year and may drop out of OPEC altogether. Iraq's major fields may have been damaged by poor policies under Sadam and by constant sabotage since. In Russia, recent rapid growth came to a screaching halt when the government decided to take back the oil fields and throw a few oil tycoons in jail.

Now a million barrels a day of production from the Gulf has gone offline and is not coming back very quickly.

And the natural gas situation is even worse.

Oh, and a major rail line that transports coal from Wyoming washed out this summer causing some power plants to switch to natural gas due to a coal shortage.

But that was before Katrina and Rita.....

Hope it doesn't get too cold this winter.

Fueling The Future

Popular Mechanics has an extensive article about five new technologies that might replace or reduce our need for oil: a small-scale wind turbine upgraded with new technology developed by a team at the Department of Electrical and Computer Engineering at the University of Alberta that makes the turbine productive in low wind speeds; plug-in hybrids that combine extra batteries with a hybrid engine so that the car can drive the first 30 to 50 miles on the battery alone and then switch to the hybrid engine; the wave energy bouy that consist of a series of powerful magnets on a 12-ft.-long shaft that moves up and down through a copper coil and induces an electric current; fuel cells with carbon anodes in oxygenfree sludge that adheres to the anodes, which harvest electrons released by bacteria in the sludge to produce a current; and organic solar cells composed mainly of carbon, hydrogen and oxygen molecules that can be mass produced in cells that are so thin and light that they can be attached to any surface.

The article also discusses two long touted technologies, nuclear fusion and nuclear fission that never lived up to expectations.

A secret U.S. intelligence report has raised the possibility that Saudi Arabia is tapped out.

The U.S. has relied on the Saudi government to provide crisis management of oil supplies, and until recently the Saudis had been able to meet expectations. But U.S. intelligence now doubts that the Saudis can continue in this role. Saudi Arabia's capacity now stands at about 11 million barrels a day. The Saudis pump about 9.5 million barrels, leaving a cushion of about 1.5 million barrels, mostly of heavier grades not very usable in the West.

A senior intelligence official, who insisted on remaining anonymous because he was not permitted to speak publicly on the issue, said that the Saudi plans to increase production by nearly 14 percent in the next four years were not enough to meet global demand. Even the Energy Information Administration recently scaled back its expectations of how much more oil the Saudis could pump in 20 years.

Echoing Matt Simmon's book "Twilight In the Desert," which projects that Saudi reserves are running out, a report by the National Intelligence Council questioned the validity of the official estimates of Saudi reserves. Additionally, Edward O. Price Jr., the former head of exploration for Saudi Aramco and an adviser to the United States government on Persian Gulf oil during both Iraq wars, questioned future reliance on Saudi capacity in an article in The New York Times last year and wanted to know from his former colleagues how they reached their estimate of more than 150 billion barrels of extra oil. Twenty years ago, a detailed study by geologists from four large American oil companies then in partnership with Aramco found little in the way of undiscovered oil resources, he said.

Agriculture facing its own Katrina

Rising energy prices have created to most severe problems for American farmers since the Dust Bowl. Since Katrina and Rita, astronomical fuel prices, fertilizer and chemical costs combined with low commodity prices have made profits seem impossible next year. Banks are declining loans to farmers and as a consequence many will not be able to farm next year.

As one Central Texas farmer put it;

It's a lot easier to do nothin' for nothin' that somethin' for nothin.

Solar Cells Made from Plastics Could Reduce Cost

Researchers at the University of California, Los Angeles have developed a new solar cell made froma single layer of plastic sandwiched between two conductive electrodes. The materials are cheap and can be easily mass produced. So far, the percentage efficiencies are still in the single digits but recently researchers have seen gains, and they hope to double the efficiency in a short time, eventually shooting for 15 to 20 percent efficiency with a 15 to 20 year lifespan.

Simple Magenet Generator Creates Energy From Waves.

Hugh-Peter Kelly, the founder of Trident Energy, a small British company based in Southend-on-Sea has come up with a simple twist that may make propell wave energy into a major business. His invention uses the up and down motion of a floating buoy to move an electrical coil along a stack of magnets, which generates an alternating current in the coil--about as simple a generator as you can get.

"At a stroke you get rid of all the hydraulics that the rotary generators used by other wave power devices need," Kelly commented.

In July, Kelly tested a one-fifth scale model of the generator in a large wave tank at the New and Renewable Energy Centre in Blyth, Northumberland. Results show that each full-scale generator should supply up to 100 kilowatts of power.

Kelly calculates that a wave farm covering at most 1.5 square kilometres would generate about 100 megawatts of power: the equivalent of a small power station.

Coal supply disruption adds to energy woes.

Torrential rains in Kansas at the beginning of October washed away hundreds of feet of track on Union Pacific Corp.'s lines and damaged several rail bridges, disrupting coal supplies being shipped from Wyoming. Since Wyoming mines provide about a third of the nation's coal the disruption resulted in several utilities that depend on Wyoming coal to run dangerously low on supplies, sending prices to record highs.

Last week's track problems aren't the first of the year. Power plant owners across the Midwest, Great Plains, Southeast and Southwest have been receiving on average about 85 percent of expected coal deliveries since May, after heavy precipitation caused two trains to derail in Wyoming and started a massive maintenance program by the railroads to repair the track.

Since the May derailments, utilities have been relying more on power from natural gas-fired power plants and wholesale electricity purchases. But that was before Katrian and Rita tore through the natural gas fields in the Gulf, putting domestic supply of natural gas in question. As winter approaches and temperatures drop, utilities could come under intense pressure to produce enough energy to meet peak winter demand.

Air quality levels will suffer. Some utilities have turned to higher-sulfur eastern coals to replace missed shipments from the West, a move that requires them to buy more sulfur allowances to cover the extra pollution that will result.

Even so, an especially cold winter could push demand for energy past our ability to supply it.

This might be a good time to get one of those corn burning stoves and lay in a good supply of fuel before corn prices start rising too!

Venture capitalists are increasingly looking at the alternative energy market. In the last six months activity is way up; over the summer four solar-energy companies attracted $60 million in new financing, a showing impressive enough to spark the first talk of a "bubble."

Warren Weiss, general partner at Foundation Capital, says that alternative energy is

a very nascent market. It almost reminds you of looking at the Internet market 10 years before Netscape. You couldn't do it 10 years ago. We think the market is ready.

According to a recent survey, venture investments in alternative-energy companies jumped this year, although they remain a small slice of the overall business. Venture capitalists put $139.5 million into solar, wind and geothermal energy companies through the second quarter of the year, already surpassing the $95 million they spent in all of 2004, according to the National Venture Capital Association, Thomson Financial and PricewaterhouseCoopers.

Worldwatch Institute Tells Oil Executives and Energy Ministers That Fossil Fuels Set to Become Relics

''Energy markets are about to experience a seismic shift,'' Christopher Flavin, president of the Worldwatch Institute, told oil executives and energy ministers in Johannesburg, South Africa, site of the 18th World Petroleum Congress.

''The question for oil executives is whether you're in the oil business or the energy business.''

The conference's 5,000 participants included ExxonMobil President Rex Tillerson and Saudi Arabian Oil Minister Ali Al-Naimi.

Flavin cited the fact that oil production is falling in 33 of the 48 largest oil-producing countries. These include six of the 11 members of the Organization of Petroleum Exporting Countries.

At the same time, production of biofuels, wind power, and solar energy are all growing at rates of 20-30 percent per year.

These percentage growth rates are somewhat misleading, however, since renewable energy sources only account for 2 percent of world energy production.

The optimistic view also ignores the many other uses oil and natural gas are used for, from fertilizers to plastics.

Nonetheless, it was an important message for oil executives to hear.