U.S. Oil Production In Process Of ... Peaking Brian Romanchuk

My base case view matches what is priced into the markets: the crude oil market is glutted and demand is falling off a cliff. Storage constraints are in sight, and I am not seeing an immediate catalyst for a demand rebound. The nearly inevitable outcome is that drilling drops dead, and capacity is shuttered. At some point, one will be able to take the chart of U.S. crude liquid products (conventional oil plus the products of fracking), stick a red line through the maximum value, and all other values on the chart will below that maximum. In common parlance, this behaviour is known as a "peak." As a long-suffering card-carrying Peak Oil believer, I will be flooding the internet with "I told ya so!" missives.

I accept that one can generate some scenarios where a peak does not occur near this point. Meanwhile, I am not saying that this will be a maximum for all time; this is a "local maximum." However, I am not incredibly optimistic that the U.S. will be able to take another run at the 20 million barrels per day level any time soon....

US oil production depends on the cartel to maintain prices above market price owing to the high production cost of US oil relative to other major producers. The US as swing producer was never going to happen.

The practical alternative is for the US to nationalize oil have the government eat the difference between market price and production cost. While this would be anti-capitalistic and seemingly would be rejected out of hand, nationalization would be justifiable based on national self-sufficiency in vital resources.

Bond Economics
U.S. Oil Production In Process Of ... Peaking
Brian Romanchuk

Brian Romanchuk — Peak Oil And The Cycle

One of the things that are often misunderstood about "Peak Oil" is that it is not a prediction that oil prices will rise up in a straight line. Recent events have definitely thrown cold water on that interpretation. I will make a brief explanation why "Peak Oil" is not proven incorrect by the latest price swoon, and some comments on the economic effect of cheaper oil..…

Bond Economics
Peak Oil And The Cycle
Brian Romanchuk

Nafeez Ahmed — Imminent peak oil could burst global economic bubble: study

A new multi-disciplinary study led by the University of Maryland calls for immediate action by government, private and commercial sectors to reduce vulnerability to the imminent threat of global peak oil, which could put the entire US economy and other major industrial economies at risk.

The peer-reviewed study contradicts the recent claims within the oil industry that peak oil has been indefinitely offset by shale gas and other unconventional oil and gas resources. A report by the World Energy Council (WEC) last month, for instance, stated that peak oil was unlikely to be realised within the next forty years at least. This is due to global reserves being 25 per cent higher than in 1993. According to the WEC report, 80% of global energy is currently produced by either oil, gas or coal, a situation which is likely to continue for the foreseeable future.

The new University of Maryland study, in contrast, conducts a review of the scientific literature on global oil production and argues that the bulk of independent, credible studies indicate that a “production peak for conventional oil [is] likely before 2030″, with a “significant risk” it could occur “before 2020.” Unconventional oil such as Canadian tar sands is “unlikely to expand enough to fill the gap”, and this also applies to “shale oil and gas.” Shale wells, the study argues, “reach their maximum production levels (peaks) much earlier than conventional ones and are therefore difficult to operate profitably.”

The Raw Story
Imminent peak oil could burst global economic bubble: study
Nafeez Ahmed, The Guardian

Parsing peak oil

So when is crunch time? According to a new report from the New Economics Foundation out last month, the arrival of 'economic peak oil' - when the costs of supply "exceeds the price economies can pay without significantly disrupting economic activity" - will be around 2014-15.

Truthout | Op-Ed
Rosy Forecast of Cheap Oil Abundance, Economic Boom a Myth
Dr. Nafeez Mosaddeq Ahmed | Executive Director of the Institute for Policy Research & Development and Chief Research Officer at Unitas Communications Ltd. His latest book is A User’s Guide to the Crisis of Civilization: And How to Save It (2010), which inspired the award-winning documentary feature film, The Crisis of Civilization (2011).
(h/t Kevin Fathi via email)

Peak Oil Warning From an IMF Expert : Interview with Michael Kumhof

Michael Kumhof is the deputy chief of the modeling division at the research department of the International Monetary Fund (IMF). Together with other researchers from IMF, this 50 years old German economist has published several papers focused of “peak oil”, sending warnings regarding the possible imminence of a decline of world oil production and its impacts.

Echos of these concerns about peak oil are nowhere to be found in the official policy line of IMF, nor has Michael Kumhof ever been asked to present his research to the political leadership of IMF. That does not make his work pointless…

Peak Oil
Peak Oil Warning From an IMF Expert : Interview with Michael Kumhof

Michael Kumhof interviewed by Matthieu Auzanneau, The Oil Man blog, Le Monde blogs

Peak Oil — German military analysis of peak oil now available

Complete English translation of German military analysis of peak oil now available.

Peak Oil
German military analysis of peak oil now available

Kurt Cobb — How changing the definition of oil has deceived both policymakers and the public

Everyone knows that world oil production has been running between 88 and 89 million barrels per day (mbpd) this year because government, industry and media sources tell us so. As it turns out, what everyone knows is wrong.

It's wrong not because the range quoted above can't be found in official sources. It's wrong because the numbers include things which are not oil such as natural gas plant liquids and biofuels. If you strip these other things out, then world oil production has been running around 75 mbpd this year. The main thing you need to know about the worldwide rate of production of crude oil alone is that it has been stuck between 71 and 75 mbpd since 2005 (calculated on a monthly basis). And, that has already had huge negative effects on the world economy and world society through high energy prices that are partly responsible for our current economic stagnation.

Read it at Energy Bulletin
How changing the definition of oil has deceived both policymakers and the public
by Kurt Cobb | Resource Insights

Izabella Kaminska — Scarcity amid plenty, oil edition

New post in Izzy's scarcity series

Read it at The Financial Times | FT Alphaville
Scarcity amid plenty, oil edition
by Izabella Kaminska

(h/t Andy Blatchford in the comments)

Peak Oil: Jeremy Rifkin - The Third Industrial Revolution

Peak Oil: Jeremy Rifkin - The Third Industrial Revolution (20:18)

Kevin Drum — Oil Prices are Down, and That's Very Bad News

Generally speaking, we're finally living in the world of peak oil. Or call it plateaued oil if you like, since we seem to have hit a rough plateau in oil production that's likely to continue for quite a while. This is the world of the vicious circle: when the economy gets better, demand for oil goes up and oil prices spike. This causes the economy to tank, which sends demand for oil down. Rinse and repeat. Add to that the effect of external events on oil prices (the Arab Spring, pipeline breakdowns, embargoes on Iran, etc. etc.) and world economic growth is likely to remain both sluggish and unstable for the foreseeable future, held hostage to OPEC oil production until we get serious about alternative energy. And since, in this brave new world, the price of oil gyrates frequently and erratically, it's hard to get people serious about this. If oil were, say, permanently above $200 per barrel or so, we'd be building wind farms and installing PV solar at breakneck speed. But whenever the price of Brent falls below $90 or so, everyone gets nervous and wonders if wind farms and solar arrays are really such a good investment after all.

The uncomfortable truth is that we'd probably all be better off if the federal government simply taxed oil variably at a rate that set the all-in price at $200 no matter what the market price was. That would be high enough to get everyone serious about more reliable energy sources and stable enough that investors would be falling all over themselves to fund alternative energy projects. And since it's oil price spikes that hurt the economy more than high oil prices per se, this probably wouldn't even have a major impact on growth.

Read it at Mother Jones
Oil Prices are Down, and That's Very Bad News
by Kevin Drum

Note that Drum assumes that the Saudis are the swing producers and control price.

Technology can unlock new fields, curb fears of peak oil

Technology has allowed the industry to cut the cost of production, increase the volume of fossil fuels captured, reduce environmental impacts and reach previously inaccessible deposits of oil and natural gas.

Global reserves of oil and natural gas have grown 130 percent since 1980 and more than 30 percent since 2000...

Read it at Peak Oil
Technology can unlock new fields, curb fears of peak oil

Not so sure that this it good news, given the negative externalities that are not priced it, i.e. socialized.

Lin Shi and Yuhan Zhang — Rethinking peak oil

Reconsidering peak oil hypothesis from the Chinese point of view.

Read it at The Oil Drum
Rethinking peak oil
by Lin Shi | teaching assistant at Columbia University and consultant to the World Bank and Yuhan Zhang | Randle International Fellow at Columbia University and former researcher at the Carnegie Endowment for International Peace.

Has Peak Oil Already Happened?

A new analysis concludes that easily extracted oil peaked in 2005, suggesting that dirtier fossil fuels will be burned and energy prices will rise

Read it at Peak Oil
Nature: Has Peak Oil Already Happened?

MIT says natural gas could hurt renewables

A study by the Massachusetts Institute of Technology said that the glut of natural gas, coming from newly-developed shale fields in the U.S., has the potential to damage development of renewable energy.

MIT News quotes Dr. Henry Jacoby, co-director emeritus on MIT’s joint program on the science “people speak of [natural] gas as a bridge to the future, but there had better be something at the other end of the bridge. ”

Read the rest at Peak Oil

MIT says natural gas could hurt renewables

Mish — Population: The Elephant in the Room

Read it at MISH'S Global Economic Trend Analysis
Population: The Elephant in the Room; Peak Oil Implications on Population Growth; What Level of Human Population is Sustainable?

by Mike "Mish" Shedlock

Hanging by a thread

The systems on which we rely for our financial transactions, food, fuel and livelihoods are so inter-dependent that they are better regarded as facets of a single global system. Maintaining and operating this global system requires a lot of energy and, because the fixed costs of operating it are high, it is only cost-effective if it is run at near full capacity. As a result, if its throughput falls because less energy is available, it does not contract in a gentle, controllable manner. Instead it is subject to catastrophic collapse.

Read the whole post, article really, at Fleeing Vesuvius, On the cusp of collapse: complexity, energy, and the globalised economy by David Korowicz

(h/t Clonal)

I would have subtitled the article, "Hanging by a thread." Civilization really does hang by just a few threads, and if any one of them is cut or breaks, the whole house of cards comes crashing down. This is systemic risk in the extreme.

Every engineer knows that redundancy is required in fragile system to ensure that if any key components fail, there is an adequate backup. That's why cars have emergency breaks, for example. There is little redundancy built into the modern global economy, whose purpose is to materially provision humanity, and few buffers are available for vital resources.

Peak oil bogus?

Kevin Fathi alerted me to this post at LifeItself, Peak oil? Nonsense! Says Daniel Yergin. It is a complement to the post on economics not being a science that I put up yesterday. It was written by Tadeusz (Tad) Patzek.

Tad is the Lois K. and Richard D. Folger Leadership Professor and Chairman of the Petroleum and Geosystems Engineering Department at The University of Texas at Austin. He also holds the Cockrell Regents Chair #11. Between 1990 and 2008, he was a Professor of Geoengineering at the University of California, Berkeley. Prior to joining Berkeley, he was a researcher at Shell Development, a research company managed for 20 years by M. King Hubbert of the Hubbert peaks. Patzek’s current research involves mathematical and numerical modeling of earth systems with emphasis on fluid flow in soils and rocks. He is working on the thermodynamics and ecology of human survival, and food and energy supply for humanity. His current emphasis is use of unconventional natural gas as a fuel bridge to the possible new energy supply schemes for the U.S. Currently, he teaches courses in petroleum engineering, hydrology, ecology and energy supply, computer science, and mathematical modeling of earth systems. Patzek is a coauthor of some 200 papers and reports, and is writing five books. URL: gaia.pge.utexas.edu/

Professor Patzek begins:

Dr. Daniel Yergin has just published "The Quest," "a magisterial masterpiece," according to an endorsement by Dr. Lawrence Summers, a well known economist and ex-President of Harvard University. Mr. Yergin received his B.A. from Yale University in 1968, and earned his Ph.D. in International Relations (1974) from Cambridge University.

The other endorsements came from: [none of whom are qualified in petroleum science or even any remotely related field]....

So how exactly, in Dr. Kissinger's words, "The Quest, by Daniel Yergin, one of world's most experienced and influential authorities on global energy, may well become the definitive work on the science, history and economics of this most complex and important subject"?

Excuse me, but aren't science and engineering qualifications still relevant in this post-1984 world? Who am I to say, a mere petroleum engineer, who has dabbled in the recovery of hydrocarbons by every conceivable method over the last 30 years?

I cannot say, because I am not fluent in the newspeak, do not practice real politik, and am not aroused by the slogan Ignorance is Strength, next to War is Peace and Freedom is Slavery. Thus, I will stick with what I know well: science and engineering.

Which brings me to the delicate subject of Dr. Marion King Hubbert, who is cavalierly dismissed by Mr. Yergin as "one of the most controversial" earth scientists of "his time." Being a skilled propagandist he is, Mr. Yergin must dispose of Dr. Hubbert since he wants to convert the readers to his deeply held faith in an infinite supply of crude oil (mixed with infinite amounts of gas condensate and biofuels).

In fairness to Mr. Yergin, he seems to be admitting between the lines that the Everlasting Oil Plateau party is over, especially when one considers the two biggest party poopers: China and India. One needs, however, do dig deeply, and into Mr. Yergin's earlier proclamations of the glorious future to get this message. In 2005, Mr. Yergin predicted a "large, unprecedented buildup of oil supply in the next few years." In 2011, he no longer was so ebullient.

But I digressed. For the record, Hubbert was a genius Ph.D. physicist from the University of Chicago, a geologist, and one of the two best American-born scientists ever. The second wasJosiah Willard Gibbs. Under Hubbert's leadership, Shell Development became the Bell Labs of the oil industry, a spectacular achievement not replicated ever since anywhere in the world. I am one of many grandchildren of King Hubbert. Academia is permeated with us: Professors George Hirasaki, Larry Lake, Lynn Orr, Gary Pope, Skip Scriven, and Harold Vinegar, all members of NAE, are but a sample.

The first-class scientific contributions of Dr. Hubbert are impossible to list in a short blog. Suffices it to say that starting from resource estimates and plate tectonics to migration paths of hydrocarbons, modern exploration, rock mechanics and rock physics, King Hubbert and Shell Development he managed for over 20 years created the modern approach to hydrocarbon recovery. They also brought us computer memory, seismic processing with signal stacking, and the first significant deep offshore discoveries and development. Forty years later, the oil and gas industry is still living off of the grand discoveries made in Shell Development...

Conclusion? More "professional" obfuscation and disinformation.

So here we are with two of the most important economic factors, money and energy, and widespread delusion and deception concerning them.

Brief Economic Explanation of Peak Oil

For a number of years there has been an arid debate between economists and geologists about Peak Oil. The geologists maintain that Peak Oil (maximal production) is a geological imperative imposed because reserves are finite even if their exact magnitude is not, and cannot be, known.

In contrast many economists maintain prices will resolve any sustained supply shortfalls by providing incentives to develop more expensive sources or substitutes. The more sanguine economists do concede that the adaptation may be slow, uncomfortable and economically disruptive.

The reality, I believe, is that both groups have part of the answer but that Peak Oil is, in fact, a complex but largely an economically driven phenomenon that is caused because the point is reached when: The cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time. While hard to definitively prove, there is considerable circumstantial evidence that there is an oil price economies cannot afford without severe negative impacts.

The current failure of most western economies to achieve anything more than minimal growth this year (2011) is most likely because oil prices are already at levels that severely inhibit growth. Indeed, research by energy consultants Douglas-Westwood concludes that oil price spikes of the magnitude seen this year correlate one-for-one with recessions.

The corollary is that if oil prices fall back to and sustain levels that do not inhibit growth, then economic growth will resume, with both recoveries and downturns lagging oil price changes by 1-6 months.

Read the rest at An brief economic explanation of Peak Oil

The post agrees with Warren Mosler's contention that the Saudis as the swing producers are the price setters: "As Saudi Arabia is the only oil producer with significant reported spare capacity, its policies effectively set the world selling price for oil."

This is a very provocative post. I recommend reading it all.

Why Do So Many People Believe in the Fantasy of Infinite Growth on a Finite Planet? Three Bogus Reasons

...Each day it becomes more apparent that we are on a misguided mission. Pursuit of perpetual economic growth is not a winning proposition for a lasting prosperity. Building a bigger economy can make sense in some circumstances, but always aiming to build a bigger economy means taking an ever-bigger chunk out of the earth’s ecosystems and the life-support services they provide. Why, then, do so many people believe in the fantasy of infinite growth on a finite planet? Is it because we can’t come up with a better idea? Is it because the rich and powerful have trapped the rest of us in their web of conspiracy? Is it because people are hopelessly greedy and materialistic?

At various times and places we might answer these questions affirmatively, but we can more commonly answer, “No, no, and no.” Putting aside conspiracy theories for the moment, there are three honest (but bogus) reasons why we pursue economic growth past the point of effectiveness and reason.

Bogus Reason #1: We think we have to have economic growth to create jobs....

Bogus Reason #2: Screwy corporate incentives require growth....

Bogus Reason #3: We refuse to pay attention to the downsides of economic growth....

Why Do So Many People Believe in the Fantasy of Infinite Growth on a Finite Planet? by Rob Dietz at The Daly News: Steady State Commentary and Related News.

Timeframe of systemic collapse — another free book

The same first chapter [of The Coming Chaos] also illustrates why a voluntary reduction in population cannot work. (For that matter, neither would a mandatory reduction in population, and for the same reason.) Again, it's simple arithmetic. Oil production will fall, over the next few decades, by about 3 percent annually, and if instead we say 2 percent or 4 percent the final result isn't much different. But even if every woman on earth stopped having children from this day forward, there would still not be a 3 or 2 or 4 percent annual reduction in population.

It can be seen, therefore, that the curve of estimated past and future global oil production is not merely one of a myriad of problems with which mankind will have to deal. It is the time scale with which most other problems can be measured, and it is the cause of most other problems.

But if anyone really needs a magic number, a good choice would be 2030. That's the date at which, with a 3 percent annual decline in oil production, the year's production will be half of that in the peak year. And half of peak oil means half of everything else in human society. A very important “half” will be population, because the other half will have died of famine. And that's the one item that very few people can mentally assimilate.

A Time Frame For Systemic Collapse by Peter Goodchild at CounterCurrents.

(Free download of The Coming Chaos (abridged) at the bottom of the page.)