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A couple of headlines:
Vast new gold reserves
discovered
Scientists have discovered new gold reserves containing 25 billion ounces ---
eight times as much gold as has been dug from the ground in all of recorded
history. . . . . .
Scientists find huge new source of hydrocarbons
Scientists have announced the discovery of a previously unexplored region
containing “hundreds of times more liquid hydrocarbons than all the known oil
and natural gas reserves”. . . . . .
The problem with the gold story is that the gold is in the world’s oceans
(sparsely distributed at 10 grams per cubic kilometre) and while some of it can
technically be recovered it cannot be recovered economically. The gold is
therefore a resource, not a reserve (an important distinction I have referred to
in previous correspondence). The problem with the hydrocarbons story is similar
----
the methane and ethane are on Hyperion, one of Saturn’s moons.
The point that I am trying to make with these hypothetical examples is that
merely discovering the physical location of hydrocarbon resources doesn’t
guarantee that they will be available for the use of humankind. It’s all about
flow rates, not just the flow rate of the hydrocarbon but also the flow rate of
capital. If you cannot raise enough capital to build your extraction and
transport facilities or if you cannot get the oil or gas to flow out at rates
sufficient to pay off your capital costs and running expenses then the reserves,
no matter how large, will become uneconomic. (Though, as we shall see, many US
shale gas companies are presently operating without making a profit.) The global
debt problem is making it increasingly difficult for many parts of the petroleum
industry to raise all the capital they need. And, as the links provided below
indicate, the initially high flow rates of many US shale gas wells tail off very
quickly, meaning that after only a very few years the amount of gas being
extracted is only a small fraction of the original flow rate.
Chris Nelder’s excellent article, “Why
Energy Journalism Is So Bad” is worth reading. Nelder also has a good
article explaining the
curious economics at work in the US shale gas industry.
As more data about these relatively young operations becomes available, it is
tending more toward the more lower estimates of the sceptics than the initial
estimates of the operators. For example, Berman’s analysis of wells in the
Haynesville Shale suggested that they would produce about 3 billion cubic feet
of gas on average, not the 6 to 10 bcf claimed by the operators — estimates
which were based on the high initial productivity of the wells, without taking
their lower, later output properly into account. Objective third-party research
from Louisiana State University has just confirmed Berman’s estimate. . . . . .
The uncomfortable truth is that, at this point, we simply don’t know how big our
shale gas resources are, how much of the gas can be technically or economically
produced, or how profitable producing the gas actually is. And that should give
us pause. Apart from the rancorous debate over the environmental impact of shale
gas fracing, we would do well to consider how much faith we’re placing in the
questionable economics of shale gas, and how much of our future we’re betting on
it
In case you think that it is only peak oil advocates who have a cautious
attitude towards much of the shale gas hype see this article in the
Oil
and Gas Financial Journal, a leading petroleum industry publication.
And, presumably, military analysts and organisations (usually regarded as pretty
conservative) cannot easily be dismissed as crackpot alarmists--- see the
long
list of military examinations of peak oil here
.(Since that list was compiled the Wehrmacht has issued a very comprehensive and
somewhat sombre
study on this topic.)
Another thing to keep in mind is that oil and gas are not fungible (exactly
interchangeable)---the range of products that can be derived from crude oil
differs in critical ways from that derived from gas (for example, there is no
bitumen for road making to be derived from natural gas----- and if you think
that is not important then consider the number of US rural counties who, because
of increased bitumen prices, cannot afford to maintain their sealed roads and
are now returning them to gravel. )
Or consider diesel oil:
During 2011 it became apparent that the demand for diesel is becoming a
worldwide problem. While the demand for gasoline has been falling, at least in
the OECD nations, the demand for diesel has been increasing. As electricity
production falters around the world mainly due to droughts, aging equipment, and
unaffordable fuel prices, the demand for diesel generated backup electric power
has surged. Vital uses for electricity such as in hospitals, public safety, and
water pumps will continue no matter what the cost. It should be noted that much
of the increase in "oil" production in recent years has been made up of natural
gas liquids and ethanol which are not commonly used to produce diesel, leaving
the quantity of feedstock for diesel production stagnant:
http://www.energybulletin.net/print/60425
Furthermore, the capital costs of converting machinery (including cars) from
petrol to gas (or electricity for that matter), are not trivial in terms of both
time and money.
Someone you should have a look at is Dave Summers (who blogs as “Heading Out”),
a recently retired professor of mining engineering who is also one of the
founders of the Oil Drum website (he lives in the US but was born in one of the
coalmining regions of the northern UK). He has his own personal website now
(Bit
Tooth Energy) where you can also see that he
writes intermittently on climate change. Summers is also interested in
volcanoes (he follows the activity of the one that blew up in Iceland a few
years ago). He is also doing some
interesting work on the actual historical temperature records of each of the US
States—very interesting stuff.
Dave Summers did a very sober
end of year review in which, while acknowledging that natural gas reserves are increasing around
the world, he did not deviate from his view that energy supplies continue to be
a problem:
However, as we come to the end of 2011, it seems as though there is a gloss, or
spin, being applied to stories about the state of global energy supply, which
implies that concerns about future energy supply are overstated. Instead the
impression is left that there will be, in the immediately foreseeable future, no
return to shortages. So this post will be a more general view of the topic, less
concerned with absolute numbers and references but rather seeking to suggest
that these perceived words of wisdom are, like the promises of a return to $30
oil that we heard only three or so years ago, likely to fade into oblivion once
they have served their immediate purpose. . . . .
The bent of the stories that have recently appeared seem to imply that the
United States is moving toward significantly greater crude oil production, and
thus a greater independence from foreign suppliers than will actually be the
case. Folks such as Dr Yergin are projecting production of oil from the shales
around the country as rising to some 2.9 mbd by 2020 and being sustained through
time – neither of which is likely since the Bakken in North Dakota may well
start declining and be significantly below 600 kbd within four years, and the
likelihood of new developments bringing in more than this on a sustained basis
are not great.
In Christopher Wren’s greatest work, St Pauls cathedral, there is the
inscription: si monumentum requiris, circumspice --- “If you seek his monument
look around you”. Similarly, if you seek evidence of peak cheap hydrocarbons
just look around at the state of the world economy since crude oil production
peaked a few years ago. Peak oil is principally an economic phenomenon
indicating that the easy-to-get cheap oil on which our affluence has been built
has gone for good.
As Chris Skrebowski, former Senior Analyst for the Saudi Oil
Ministry, defines it:
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 [which] 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.
There are many factors contributing to the current world debt crisis. Many of
them relate to the manifest failures of market mechanisms and inadequate
government regulation and monitoring. These were also significant factors that
led to the 1930s Great Depression, the last time we faced an economic crisis of
this magnitude. The difference this time is that during the 1930s we had
abundant reserves of cheap energy immediately to hand (mainly oil and coal) to
help us out of the Depression as soon as the financial system was ready to
resume growth. This time we do not. There are promises and expectations
concerning cheap energy supplies but that is not the same as “cheap energy
immediately to hand”.
Admittedly, Australia has been cushioned from the current energy and debt
crisis, mainly because of China’s appetite for our raw materials which has
pushed up the value of our dollar and thus shielding our consumers from the
significant rise in crude oil prices in recent years. The signs are, however,
that the Chinese economy is slowing, so it will not be surprising if ours slows
down too. And if the situation in Europe continues to deteriorate we could have
a world-wide recession, or even a depression. Australia should fare better than
most places, however.
Postscript
I have just discovered this recent (29 December 2011)
article by Chris Nelder which has some excellent graphics about shale gas.
I have also just come across this
interesting short interview with a former analyst for the International
Energy Agency.
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