WORLD OIL SUPPLIES:AT THE TURNING POINT?

John KaufmannOregon Department of Energy

Pacific NW Waterways Assoc.15 October, 2008

Oil and Gas at Record Highs

Since 2002:

Crude oil 6X

Gasoline/diesel 3X

Natural gas 3X

www.energytechstocks.com

Price Higher Than Last Year; 30% Price Drops Are Common

Data Source: EIAJim Hansen, “Investing in the New Energy Economy”Presented to the ASPO-USA 2008 Peak Oil Conference

US Payments for Foreign Oil

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

Price Gouging? Manipulation? Speculation?

Speculators profit from conditions – they don’t create them

Price set in market

Many buyers, sellers

Fundamentals in place – tight supplies

Long-Term Supply Leveling Off, Demand Outstrips Production

Demand

Supply

Prices rise; economic problems start here

Today

Increased Demand – China

•Oil use up 7.5% annually

•Imports up 40% last year

•GNP growing 8-10%/year

•2nd largest user of oil

Increased Demand – U.S.

More people

Driving more miles

In less efficient vehicles

Global Oil Production 2002-07

Source: www.UrbanSurvival.com, 5-21-07Data from http://www.eia.doe.gov/emeu/international/contents.html

World Discoveries Peaked in 1960s

Production Exceeds Discoveries Since 1983

David Hughes, Geological Survey of CanadaFrom Campbell, 2004

For Every Barrel We Find …

We use ~6 barrels

Production Follows Discovery

US Discoveries Peaked in 1930, Production in 1971

Already Peaked 2/3 of oil-producing

nations, two major fieldsUSCanadaMexicoNorth Sea

Nigeria?Russia?Saudi Arabia?

IndonesiaVenezuela IranKuwait

Indonesia – Net Importer

www.TheOilDrum.com/node/3657 , Feb. 22, 2008Sources: Matt Mushalik, data from http://tonto.eia.gov/country/index.cfm

Exports

Imports

UK – 2006Mexico?

Mexico

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

Net Exports of Top 20 Exporters

Mark Reyondols, Anawhata Associates, NSW Australia“Policies to Develop A Low Emissions Transport Sector in Australia,” 10 April 2008From www.theoildrum.com/files/AnawhataGarnaut.pdf

No Spare Productive Capacity

The good news is, the Saudis don’t control the price of oil any more

The bad news is . . . No one does

Top-down: Trend Analysis (Hubbert Methodology)

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

years

M. King Hubbert

Hubbert Method Applied to U.S. Production

Jeffrey Brown, “In Defense of Hubbert Linearization”The Oil Drum, June 24, 2007

Bottom-up Analysis: Geologic

Field-by-field

Current production – production declines + new fields + advanced recovery

Peak by 2011

We Know More Than Ever About Where Oil is Found

Robert Beriault,”Peak Oil and the Fate of Humanity.” www.peakoilandhumanity.com

We understand conditions under which oil was formed

Seismic imaging

Millions of exploratory wells

Computer mapping

Oil

Natural Gas

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

US Natural Gas Production and Number of Producing Wells

Jean Laherrere, interview with Luis de SousaThe Oil Drum, 4 August 2007

New Discoveries are Smaller, Don’t Reverse the Trend

Effect of ANWR

ANWR

Alaska North Slope

Lower 48

Gail Tverberg, “Peak Oil Overview-March ’08,” www.TheOilDrum.com/node/3726 Strategic Energy Institute, Georgia Institute of Technology

Brazil’s 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 formationsPhoto: Marcelo Sayao/EPA

The Guardian, 5 April 2008

Ease of Production:Past and Present

When Will Oil Production Peak?2005 Deffeyes Oil Geologist, Princeton

2006-2007 Bakhtiari Former VP, Iranian National Oil Co.

2007-2009 Simmons Energy Investment Banker, Houston

Before 2010 Goodstein Physicist, CalTech

2010 Campbell Oil Geologist, Ireland

2010 Weng; Pang Xiongqi Chinese National Oil Co.

2010 +/- 2 Skrebowski Editor, “Petroleum Review”

After 2010 World Energy Council

2010-2012 Intl. Energy Agency (Supply, tightness; plateau)

2008-2018 Univ. of Uppsala Sweden

Before 2015 ASPO-USA U.S.

2016 Douglas-Westwood Oil & Gas Market Analysis

After 2014 Wood MacKenzie Energy/Scientific Consultant

2010-2020 Laherrere Oil Geologist, France

After 2025 Shell Oil Major Oil Company

After 2030 CERA Energy Economics Consulting firm

2037 EIA U.S. Govt.

0-5 yrs

5-10 yrs

10+ yrs

“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 MaxwellWeeden & Co.

Prospects Going ForwardNorth Sea, Mexico decliningCanada oil sands–low flow

rateRussia peaking? Russia vs West in CaspianNigeria in crisisIraq at pre-invasion levelsNuclear IranKashagan, Khurais lateNew fields smaller, more

remote

New Finds Have Little Effect

- USGS P5

- USGS P50

2033

2024

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

Geopolitics Invasion of Iraq

Nuclear Iran

Russia-Georgia

Hugo Chavez

Nigeria

Pipeline terrorism

Geopolitics Hastens Peak

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

“Geological peaking is driving the geopolitical events.”

~Jeff Vail

Bumpy Plateau / Descent

Price

Production

Jeff Vail, “Predator-Prey Dynamics in Demand Destruction and Oil Prices”www.theoildrum.com/node/4448, 26-Aug-2008

U.S. Energy Mix

Oil 40%

Other 1% Hydro

3%

Nuc. 8%

Coal 23%

Nat. Gas 25%

Oil Does Work for us

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

Oil Packs Power

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 world’s economy. The Gulf War was a reflection of that reality.

~ Dick Cheney Halliburton, 1999

1970s on Steroids: Inflation, Recession, Unemployment

Impacts – Business & Jobs Higher production,

distribution costs

Supply chain problems

Reduced demand

Social Security Administration, Special Collectionshttp://www.elderweb.com/home/node/9633

Tighter profit margins

Reduced benefits

Business failures

Unemployment

Impacts – Airlines First to Feel Impacts

Fuel represents >30% of their costs

70% of flights are discretionary

Impacts – Trucking / Freight

Energy Returned on Energy Invested, i.e. Net Energy

Old oil 100

Middle-East oil

30

Natural gas 20

Coal 10-20

Hydropower 10-40

Wind 5-10

Nuclear 5

Solar PV ~5

Oil Sands 3

Biodiesel 3

Shale Oil 1.5

Ethanol 1.3

No Magic Bullets Drilling

Nuclear

Coal

Oil Sands

Biofuels

Renewables

Hydrogen

Natural Gas Also Nearing Peak Production

David Hughes, Geological Survey of CanadaData from C.J. Campbell, 2005

Combined Oil/Gas Peak

David Hughes, Geological Survey of CanadaData from C.J. Campbell, 2005

U.S. Natural Gas Production Already in Decline

David Hughes, Geological Survey of CanadaData from USEIA

Location of Natural Gas

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?

Coal

3X – 4X increase

Runaway global warming

Peak coal

Nuclear

10X increase

Peak uranium

Oil Sands / Oil Shale

CO2 emissions

Land, water pollution

Low energy return

Low flow rates

Hydrogen

Net energy loser

Bulky to store, transport

3% evaporation loss/day

Doesn’t use existing infrastructure

Biofuels

Ties food price to fuel price

Reduced ecosystem services

Low energy return

Small fraction of our needs

Renewables: Wind and Solar

Non-transportation only

Less concentrated, more expensive

Necessary … but sufficient?

Find Alternatives

Plan for Higher Fuel Prices

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

Scenarios

Resiliency

No regrets policy

Viability, not cost-effectiveness

Think Carefully About Major Infrastructure Investments

Position yourself for the future

Avoid major stranded investments

Port facilities

Ships

Multi-modal connections

Evaluate Your Market

Demand – what do you ship? Discretionary or

necessary?

Distance? Competition? Will it still pay?

Globalization? Has it peaked?

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

Destiny?Contact Info:John Kaufmann503-378-2856

john.kaufmann@state.or.us

Best Resourceswww.energybulletin.net

www.theoildrum.comwww.postcarbon.org

www.globalpublicmedia.com

Impacts – Tourism … Another Early Casualty?

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

www.timeinc.net/time/magazine.archives/cover/1973/1101730409_400.jpg

Time Magazine, April 9, 1973

Impacts – Vulnerable Population Hit First / Hardest

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

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

Impacts – Public & Social Services

Reduced health coverageLess preventive, more

emergency carePublic health concerns

Housing, homelessness

Hunger

Substance abuse, domestic violence, property crimes

www.gothamist.com, 11-October-2007

Expand Energy Efficiency Programs

(Dramatically) ramp up existing programs

More and faster

Low Impact Housing

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

Change Land Use Patterns

Reduce transportation needsPromote walkabilityEasy access to services and

transportation options

from this … to this …

Transit Alternatives

Preserve Local Food Production Capability

Preserve nearby agricultural land

Support local food processing industry

Urban gardens

Farmer’s markets

Co-ops

www.oregonfarmersmarket.org

Preserve Safety Net, Protect Vulnerable Populations

Sense of community

Health care

Public health system

Hunger relief

Shelter

Emergency Planning

Fuel allocation

Food

Transportation

Armed Forces Internationalwww.armedforces-intcom/categories/emergency-planning-and-management

What Can You Do? Sign the Pledge:

Reduce your carbon footprint 5% every year

50% in 14 years

Encourage family, friends to pledge

Carbon Footprint: Annually Reduced 5%

0

5

10

15

20

25

2008 2013 2018 2023 2028 2033 2038 2043 2048

YearTo

ns C

O2

per y

ear

2022: 50%

2036: 75%

www.OregonPeaceWorks.org

5% Solution

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

Reinvigorate Rail

Per Capita Oil Consumption

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