The End of the Oil

L™URRENT CIVILIZATION is founded upon an abundance of cheap energy derived from hydrocarbons. Hydrocarbons not only run our transportation; they provide the power for all of our technology. Take a moment to think about your immediate home environment. Not only do hydrocarbons take you to work and to the grocery store; they are used for virtually everything around you. Your home and your furniture were built using the energy of hydrocarbons. If your chair has a metal frame, that metal was forged with hydrocarbons. Your carpet and your polyester clothing are products of hydrocarbons. All of the plastics around you are derived from hydrocarbons. Even this book was printed and delivered using hydrocarbons. The very value of the money in your wallet is pegged to oil. We have seen in previous chapters how dependent modern agriculture is upon oil and natural gas.

Before the industrial revolution, all civilizations were built on the energy of slave labor. Even the United States required the sweat of slaves during its early years. The industrial revolution rendered slavery, and all other forms of servitude, obsolete. First it was coal that supplied the power to run our furnaces. But eventually coal was replaced by oil, with its far superior caloric content. It was the late 1800s when we began to seriously exploit oil resources. This abundance of cheap, high-content energy gave rise to the technological revolution of the last hundred years. There are various estimates of the "slave equivalents" of cheap hydrocarbon-based energy, but there is no doubt that every one of us is served by a multitude of hydrocarbon slaves.

Earlier in this book, we discussed how oil was formed by a combination of biological and geological processes, dependent upon special environmental circumstances that no longer exist. Through this bio-geological process, solar energy was stored and converted into hydrocarbons over millions of years.

Now enter the humans. Here is an exploration team fortunate enough to discover a sizable oil reserve. Wells are drilled to tap into the oil. Now oil in the ground flows at about the same rate as damp in a stone foundation, the one major difference being that the oil is held at much higher pressure. When a new well is drilled, the open hole gives free passage to the pressurized oil immediately around it, which then surges to the surface. The effect is the classic gusher featured in so many films. However, once the pressure has been equalized in the immediate vicinity of the drill hole, it takes more and more energy to pump the oil through the rock or sediment to the well. Eventually you will reach a point where you must invest as much energy to pump the oil as you will get out of it. When this point is reached, production ends and the well is capped forever.

If you draw a graph of oil production over time, it will resemble a classic bell curve. The production curve will start from nothing, ascend to a peak production rate, and then begin to descend. The descending side of the curve means that you are investing more energy to produce the oil, which makes the oil more expensive. During the 1950s and 1960s a petroleum geologist named M. King Hubbert developed a methodology for combining the profiles of oil wells in a field to draw a production curve for the entire field. From there, he went on to develop production curves for regions and even countries. Using industry data, Dr. Hubbert was able to tie his production curves to the discovery rate with a lag time of about thirty years.

Using this methodology, Dr. Hubbert predicted that oil production in the United States would peak in 19'0. M. King Hubbert was ridiculed and condemned for his prediction. The conven tional wisdom, as espoused by the US Geological Survey (USGS), was that oil production would continue to rise for many years to come. Unfortunately for us, Hubbert was correct. Oil production in the United States peaked in the early 1970s and has been declining ever since. Right now we are importing over half of our oil needs. The US production peak of the early 1970s set the stage for the oil shocks of that decade and the rise of OPEC. However, at that time we were able to increase imports to make up the difference between domestic production and demand. Alaskan and North Sea oil were brought online soon enough to defang OPEC, and the US became the oil protector of the world by forcing OPEC to accept the dollar as the currency for oil sales.

A number of predictions were made over the years following the US peak regarding the global oil production peak. Many people now look back on these false predictions and use them to condemn the current scientific consensus. However, none of these early predictions were actually made by oil geologists with access to the database of the oil industry. Over the years the methodology has been improved and the database has been augmented.

In the 1990s, oil geologists finally felt confident enough in the data to draw up graphs for world oil production. Two leaders in this effort are Colin J. Campbell and Jean H. Laherrere, petroleum geologists working for Petroconsultants. Petroconsultants holds one of the most complete databases in the industry. In 1997, Petro-consultants' annual report on the state of the oil industry (which costs a whopping $10,000 per copy) dealt strictly with the topic of peak production and predicted that world production would peak in the first decade of the new century and begin its irreversible decline sometime around 2010.

There have been several other independent assessments since then, and most agree on the timeframe. The most notable dissenting voice is the 2000 USGS report which stated that world oil production would not peak until 2020 at the earliest. However, it has been shown that the USGS study is deeply flawed.1 It accepted as valid oil reserves any reserve with a ten percent or greater chance of being discovered. The realistic benchmark is 50 percent. In the few years since publication, the USGS report has already proven unreliable in comparison with actual production and discovery rates.

There are a lot of problems with oil production data. The industry has a tendency to underreport initial discoveries so that they can add them on later to give the impression of a steady discovery rate. A steady discovery rate looks more appealing to investors. OPEC countries, on the other hand, have a marked tendency to inflate their oil reserves when it comes time to adjust quotas under OPEC. And politically, nobody wants to let the general population know that the party is almost over. The US Energy Information Administration (EIA) has publicly stated — although in a roundabout manner — that they first project future energy demand and then they come up with reserve and production figures to meet their projected demand.' Making sense of the data requires a lot of detective work, but a scientific consensus has been achieved.

This is the standard espoused by Campbell and Laherrere. According to their scenario, we are at peak production right now. Currently, we are engaged in a tango between world oil production and the global economy. Rising oil prices lead to economic stagnation and a decrease in demand, which then leads to lower production and a softening in oil prices, until economic rebound results in demand once again rising above production. Of course, this is a simplified model. It would take much more space to add in all the other economic and oil-related factors, not to mention the effects of oil wars.

However, the major oil companies have started making coded announcements indicating that they know the future of the oil business will not match its past. Instead of investing in production and discovery, all of the majors have been shedding exploration staff and consolidating their holdings. None of this bespeaks a growing industry. And insiders know that there is very little excess capacity to be found anywhere.

There was considerable hope prior to the Afghan War that the Caspian Sea held oil reserves that would match — if not dwarf— the Middle East. However, exploration has produced disappointing results. The Caspian region does not hold nearly as much oil

Oil and Gas Production Profiles 2004 Base Case

1930 19C 193D I960 19TO 19B0 1900 2000 2D10 220 2030 2040 2050 • FfegJarC [lHeavyefc M CeepwEtr • ROar • NGL OGas CNonConGas as was at first supposed, and the cil that has been found is highly tainted by sulfur. As a result, the cil majors have been scaling back their involvement in the Caspian region.

Some point to Russia as a rival to Saudi Arabia. This ignores the reality that Russia is simply resuming a production capacity that faltered following the collapse of the Soviet Union. Russian production peaked in 1987.3 This is illustrated in the following graph, showing the peak of Russian oil production in the late 198Cs, followed by a sharp drop in large part due to the collapse of the former Soviet Union. This is then followed by a sharp rise in production through the 1990s and up to the present time. Production has risen so sharply because of the revival of the Russian oil industry and the implementation of aggressive production techniques. This aggressive Russian production will be paid for by a quicker peak and a steeper decline. The Moscow News has reported that Yuri Shafranik, the head of the Russian Union of Oil and Gas Producers, stated on November 9, 2CC4, that Russia has almost reached its maximum production and the decline will start within two years. Mr. Shafranik referred to experts from the International Energy Agency.4



Richard Duncan and Walter Youngquist developed a system in the late 1990s to model world oil production. As they ran simulations with this model, they attempted adding on additional units of oil, each unit equivalent to a reserve the size of the North Sea. Additional units brought into production after the peak had no effect on peak production. But they found that several additional units brought into production before the peak could delay the peak by a year or two. This would be the equivalent of several new North Sea discoveries.5 Yet oil exploration geologists warn that all we will find from now on are small isolated pockets. All that our knowledge and technological advancement have managed to show us is where oil does not exist.

Still, there are economists who will tell you that it is only a matter of money. If we throw enough money into exploration and development, we will increase production. This seems to belie actual experience. Over the last thirty years increased investment and technological advances have led to only marginal gains in discovery and production. Were it otherwise, the industries would not be scaling back.

Others say that we will abandon hydrocarbons for better energy sources. This ignores the fact that there is no other energy resource capable of delivering as much energy as hydrocarbons

— not renewables, not unconventional resources such as tar sands, not even coal. The only thing which comes close is nuclear, and this has too many other problems.

There are many true believers — including former Secretary of Energy Spencer Abraham — who point to a world run by fuel cells. What fuel cell proponents won't tell you is that hydrogen fuel cells are not an energy source. They are more properly a form of energy storage. In the natural world there is no such thing as free hydrogen. Hydrogen must be produced from a feeder material. Nor is it mentioned that it takes more energy to break a hydrogen bond than can be gained through the forging of a hydrogen bond. This is basic chemistry, as implied in the Second Law of Thermodynamics. As a result, hydrogen fuel cells will always have a net energy loss. Nor are they as clean as claimed. The pollution is simply removed from the individual vehicles to the plant where free hydrogen is generated. It is most likely that the hydrogen fuel cell myth is being promoted simply to keep the public — and investors — from panicking.

The truth is that peak oil has already had an impact on all of the major events of this young century. And it will have a major impact on all of our lives at a most personal level in the years to come. This impact will be felt not only at the gas pumps. The impact of fossil fuel depletion will be felt in higher food prices and, if nothing is done to completely revamp our food system, sooner or later in food shortages and massive starvation. The public needs to be informed. Our civilization is about to undergo a radical change unparalleled in history. And those we are allowing to call the shots are more concerned with their own personal gain than with the general welfare.

The Natural Gas Cliff

Natural gas is every bit as important for agriculture as is oil, perhaps even more so. All artificial fertilizers are derived from natural gas. What we call natural gas is actually a mixture of hydrocarbon gases. Methane is one of the main components. Fertilizer production converts methane to ammonia, which is then used to produce ammonia-based fertilizers. Natural gas is also used to power some irrigation systems, and for indoor heating of meat factories.

The situation for natural gas production differs from the situation for oil, but it is not any brighter. While pumping oil from the ground is somewhat like straining molasses through a sand sieve, pumping natural gas is more like poking a hole in a car tire. This is due to the fact that oil is a liquid and natural gas is a gas. When you poke a hole in a car tire the air will escape for some time, flowing freely outward until pressure is equalized between the outside atmosphere and the interior of the tire. To extract the remaining air from the tire, you must attach it to a vacuum pump, or squeeze the inner tube.

Tapping into a body of natural gas is generally less costly than tapping into an oil field. Once the wells are drilled, you simply have to hook them to a pipeline. Natural gas production increases rapidly from the time a field is first put into production, rising until the field is fully covered with producing wells. Then production flattens out and continues at that level for an unpredictable length of time. Once the production of a field has flattened out, it is difficult to increase it further. If you wish to increase production, you must find another field. At some unknown point, production in the field will fall into a marked decline. The decline rate for natural gas fields is much higher than the decline rate for oil fields; somewhere in the neighborhood of five to ten percent, compared to oil's two or three percent. Because the decline is so steep, it is known as the natural gas cliff. There is little warning of the cliff in the field's production. The last square foot of gas to be extracted from a field before production falls off the cliff will require no more effort than the first square foot extracted from it.

Because we are dealing with a gas here, measurements are different than those we use for oil. Oil is measured in barrels or metric tonnes. Natural gas is measured in cubic feet, most commonly in billions of cubic feet (Bcf), or trillions of cubic feet (Tcf). A trillion cubic feet may sound like a lot, but we must remember that gas is less dense than oil so it holds less energy. US demand for natural gas is expected to rise to 30 Tcf per year by

2010. At one time, it was believed that most of this would come from the Gulf of Mexico, but the US Minerals Management Service now expects Gulf production to begin declining in 2005, from a peak of 6.1 Tcf per year, by at least 5 to 7 percent.1'

Overall, the North American outlook for natural gas production is not good. Mexican production flattened out in 2002. Mexico stopped exporting natural gas to the US in 2000, and has been a net importer of natural gas ever since.7 US production has been at a plateau for some time. All the big finds have been tapped and are in decline. US production history shows that new wells are being depleted more quickly all the time; the current decline rate is 28 percent. While this is partially due to growing demand, it is also due to the fact that the large deposits of natural gas are all aging and are in terminal decline. Newer deposits tend to be smaller and are produced (and depleted) quickly in the effort to maintain overall production levels.8

The United States turns to Canada to make up the difference between its own flattened production and rising demand. Canada currently supplies at least 13 percent of the US gas demand. Yet Canada's large fields have also flattened out in production, and it is likely that Canadian production will fall off the cliff within the next several years.'

Worldwide, natural gas production will not begin to decline for at least another decade, and by some estimates not for 20 to 30 years. However, because we are talking about a gas, world production is not as important as regional production. We must look to North American natural gas production to meet the lion's share of our needs. Natural gas is most easily transported in pipelines; it is very difficult to transport overseas. The only effective way to ship it is to liquefy it, transport it in specially designed refrigerated tankers, and then unload it at specially designed facilities that will thaw it back to the gaseous state. All of this is done at an estimated 15 to 30 percent energy loss.

Currently, there are only four liquid natural gas (LNG) offloading facilities in the US, located in Louisiana, Georgia, Maryland, and Massachusetts. In 2003, we imported an average of 1.5 Bcf per day (Bcf/day). This amounted to 2 percent of our natural gas demand of 67 Bcf/day. By the end of 2006, we are hoping to add another three Bcf/day of LNG imports. But by the end of the decade, demand is expected to rise to 77 Bcf/day.10

Today the global fleet of LNG tankers numbers 140, with a capacity of 14.5 Bcf/day. By the end of the decade, the US will require this entire fleet just to service our needs. LNG tankers cost an average of $155 million per ship to build. So the tanker fleet alone will require an investment of $13 billion. Add to this, the expense of building over30 new LNG projects and the associated pipelines,and the necessary investment quickly climbs over $ 100 billion. Considering our current budget deficit and the precarious state of the US economy, on top of the fact that world natural gas production will peak in another 10 to 30 years, this sort of investment is unlikely."

This is why politicians and the corporations who pay them are clamoring to open currently restricted areas of Alaska, the Canadian Arctic, the US Rocky Mountains, and the deep ocean to natural gas development. Yet the eventual investment in pipelines and drilling rigs to tap these sources would be even higher than the cost of LNG development: an estimated $120 billion in infrastructure. And from the time construction begins on this infrastructure, it will take five to seven years before any of this gas begins to flow. In total, we are talking about less than a decade's worth of natural gas here, even at our current rate of demand.12

As natural gas becomes more expensive and harder to acquire, we must find some substitute to serve as fertilizer. If substitutes cannot be provided in the same proportion, then we cannot expect to grow enough crops in our depleted soils. It just so happens that there is an abundant, natural fertilizer that is currently going to waste: manure. Later in this book, we will talk about the necessity of closing the nutrient cycle by recycling animal and human manure. But this effort will require a major investment in infrastructure — particularly in processing facilities to compost the manure and purge it of harmful pathogens and pollutants.

The North American natural gas cliff is the other side of the approaching energy crisis. Our economy, and our very lifestyle, is caught between the gas cliff and the oil peak. Between them, they are going to make life very difficult in the years to come.

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