THE PERENNIAL PEAK OIL SCARE

An article from Britain's "The Economist". Note: In Britain, gasoline is called "petrol"

In 1894 Le Petit Journal of Paris organised the world's first endurance race for "vehicles without horses". The race was held on the 78-mile (125km) route from Paris to Rouen, and the purse was a juicy 5,000 francs. The rivals used all manner of fuels, ranging from steam to electricity to compressed air. The winner was a car powered by a strange new fuel that had previously been used chiefly in illumination, as a substitute for whale blubber: petrol derived from oil.

Despite the victory, petrol's future seemed uncertain back then. Internal-combustion vehicles were seen as noisy, smelly and dangerous. By 1900 the market was still split equally among steam, electricity and petrol-and even Henry Ford's Model T ran on both grain-alcohol and petrol. In the decades after that great race petrol came to dominate the world's transportation system. Oil left its rivals in the dust not only because internal-combustion engines proved more robust and powerful than their rivals, but also because oil reserves proved to be abundant.

Now comes what appears to be the most powerful threat to oil's supremacy in a century: growing fears that the black gold is running dry. For years a small group of geologists has been claiming that the world has started to grow short of oil, that alternatives cannot possibly replace it and that an imminent peak in production will lead to economic disaster. In recent months this view has gained wider acceptance on Wall Street and in the media. Recent books on oil have bewailed the threat. Every few weeks, it seems, "Out of Gas", "The Empty Tank" and "The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel", are joined by yet more gloomy titles. Oil companies, which once dismissed the depletion argument out of hand, are now part of the debate. Chevron's splashy advertisements strike an ominous tone: "It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30." Jeroen van der Veer, chief executive of Royal Dutch Shell, believes "the debate has changed in the last two years from 'Can we afford oil?' to 'Is the oil there?'"

But is the world really starting to run out of oil? And would hitting a global peak of production necessarily spell economic ruin? Both questions are arguable. Despite today's obsession with the idea of "peak oil", what really matters to the world economy is not when conventional oil production peaks, but whether we have enough affordable and convenient fuel from any source to power our current fleet of cars, buses and aeroplanes. With that in mind, the global oil industry is on the verge of a dramatic transformation from a risky exploration business into a technology-intensive manufacturing business. And the product that big oil companies will soon be manufacturing, argues Shell's Mr Van der Veer, is "greener fossil fuels".

The race is on to manufacture such fuels for blending into petrol and diesel today, thus extending the useful life of the world's remaining oil reserves. This shift in emphasis from discovery to manufacturing opens the door to firms outside the oil industry (such as America's General Electric, Britain's Virgin Fuels and South Africa's Sasol) that are keen on alternative energy. It may even result in a breakthrough that replaces oil altogether. To see how that might happen, consider the first question: is the world really running out of oil? Colin Campbell, an Irish geologist, has been saying since the 1990s that the peak of global oil production is imminent. Kenneth Deffeyes, a respected geologist at Princeton, thought that the peak would arrive late last year.

It did not. In fact, oil production capacity might actually grow sharply over the next few years. Cambridge Energy Research Associates (CERA), an energy consultancy, has scrutinised all of the oil projects now under way around the world. Though noting rising costs, the firm concludes that the world's oil-production capacity could increase by as much as 15m barrels per day (bpd) between 2005 and 2010-equivalent to almost 18% of today's output and the biggest surge in history. Since most of these projects are already budgeted and in development, there is no geological reason why this wave of supply will not become available (though politics or civil strife can always disrupt output).

Peak-oil advocates remain unconvinced. A sign of depletion, they argue, is that big Western oil firms are finding it increasingly difficult to replace the oil they produce, let alone build their reserves. Art Smith of Herold, a consultancy, points to rising "finding and development" costs at the big firms, and argues that the world is consuming two to three barrels of oil for every barrel of new oil found. Michael Rodgers of PFC Energy, another consultancy, says that the peak of new discoveries was long ago. "We're living off a lottery we won 30 years ago," he argues.

It is true that the big firms are struggling to replace reserves. But that does not mean the world is running out of oil, just that they do not have access to the vast deposits of cheap and easy oil that are left in Russia and members of the Organisation of Petroleum Exporting Countries (OPEC). And as the great fields of the North Sea and Alaska mature, non-OPEC oil production will probably peak by 2010 or 2015. That is soon-but it says nothing of what really matters, which is the global picture.

When the United States Geological Survey (USGS) studied the matter closely, it concluded that the world had around 3 trillion barrels of recoverable conventional oil in the ground. Of that, only one-third has been produced. That, argued the USGS, puts the global peak beyond 2025. And if "unconventional" hydrocarbons such as tar sands and shale oil (which can be converted with greater effort to petrol) are included, the resource base grows dramatically-and the peak recedes much further into the future.

After Ghawar

It is also true that oilmen will probably discover no more "super-giant" fields like Saudi Arabia's Ghawar (which alone produces 5m bpd). But there are even bigger resources available right under their noses. Technological breakthroughs such as multi-lateral drilling helped defy predictions of decline in Britain's North Sea that have been made since the 1980s: the region is only now peaking.

Globally, the oil industry recovers only about one-third of the oil that is known to exist in any given reservoir. New technologies like 4-D seismic analysis and electromagnetic "direct detection" of hydrocarbons are lifting that "recovery rate", and even a rise of a few percentage points would provide more oil to the market than another discovery on the scale of those in the Caspian or North Sea.

Further, just because there are no more Ghawars does not mean an end to discovery altogether. Using ever fancier technologies, the oil business is drilling in deeper waters, more difficult terrain and even in the Arctic (which, as global warming melts the polar ice cap, will perversely become the next great prize in oil). Large parts of Siberia, Iraq and Saudi Arabia have not even been explored with modern kit.

The petro-pessimists' most forceful argument is that the Persian Gulf, officially home to most of the world's oil reserves, is overrated. Matthew Simmons, an American energy investment banker, argues in his book, "Twilight in the Desert", that Saudi Arabia's oil fields are in trouble. In recent weeks a scandal has engulfed Kuwait, too. Petroleum Intelligence Weekly (PIW), a respected industry newsletter, got hold of government documents suggesting that Kuwait might have only half of the nearly 100 billion barrels in oil reserves that it claims (Saudi Arabia claims 260 billion barrels).

Tom Wallin, publisher of PIW, warns that "the lesson from Kuwait is that the reserves figures of national governments must be viewed with caution." But that still need not mean that a global peak is imminent. So vast are the remaining reserves, and so well distributed are today's producing areas, that a radical revision downwards-even in an OPEC country-does not mean a global peak is here.

For one thing, Kuwait's official numbers always looked dodgy. IHS Energy, an industry research outfit that constructs its reserve estimates from the bottom up rather than relying on official proclamations, had long been using a figure of 50 billion barrels for Kuwait. Ron Mobed, boss of IHS, sees no crisis today: "Even using our smaller number, Kuwait still has 50 years of production left at current rates." As for Saudi Arabia, most independent contractors and oil majors that have first-hand knowledge of its fields are convinced that the Saudis have all the oil they claim-and that more remains to be found.

Pessimists worry that Saudi Arabia's giant fields could decline rapidly before any new supply is brought online. In Jeremy Leggett's thoughtful, but gloomy, book, "The Empty Tank", Mr Simmons laments that "the only alternative right now is to shrink our economies." That poses a second big question: whenever the production peak comes, will it inevitably prompt a global economic crisis? The baleful thesis arises from concerns both that a cliff lies beyond any peak in production and that alternatives to oil will not be available. If the world oil supply peaked one day and then fell away sharply, prices would indeed rocket, shortages and panic buying would wreak havoc and a global recession would ensue. But there are good reasons to think that a global peak, whenever it comes, need not lead to a collapse in output.

For one thing, the nightmare scenario of Ghawar suddenly peaking is not as grim as it first seems. When it peaks, the whole "super-giant" will not drop from 5m bpd to zero, because it is actually a network of inter-linked fields, some old and some newer. Experts say a decline would probably be gentler and prolonged. That would allow, indeed encourage, the Saudis to develop new fields to replace lost output. Saudi Arabia's oil minister, Ali Naimi, points to an unexplored area on the Iraqi-Saudi border the size of California, and argues that such untapped resources could add 200 billion barrels to his country's tally. This contains worries of its own-Saudi Arabia's market share will grow dramatically as non-OPEC oil peaks, and with it the potential for mischief. But it helps to debunk claims of a sudden change. The notion of a sharp global peak in production does not withstand scrutiny, either. CERA's Peter Jackson points out that the price signals that would surely foreshadow any "peak" would encourage efficiency, promote new oil discoveries and speed investments in alternatives to oil. That, he reckons, means the metaphor of a peak is misleading: "The right picture is of an undulating plateau."

What of the notion that oil scarcity will lead to economic disaster? Jerry Taylor and Peter Van Doren of the Cato Institute, an American think-tank, insist the key is to avoid the price controls and monetary-policy blunders of the sort that turned the 1970s oil shocks into economic disasters. Kenneth Rogoff, a Harvard professor and the former chief economist of the IMF, thinks concerns about peak oil are greatly overblown: "The oil market is highly developed, with worldwide trading and long-dated futures going out five to seven years. As oil production slows, prices will rise up and down the futures curve, stimulating new technology and conservation. We might be running low on $20 oil, but for $60 we have adequate oil supplies for decades to come."

The other worry of pessimists is that alternatives to oil simply cannot be brought online fast enough to compensate for oil's imminent decline. If the peak were a cliff or if it arrived soon, this would certainly be true, since alternative fuels have only a tiny global market share today (though they are quite big in markets, such as ethanol-mad Brazil, that have favourable policies). But if the peak were to come after 2020 or 2030, as the International Energy Agency and other mainstream forecasters predict, then the rising tide of alternative fuels will help transform it into a plateau and ease the transition to life after oil.

The best reason to think so comes from the radical transformation now taking place among big oil firms. The global oil industry, argues Chevron, is changing from "an exploration business to a manufacturing business". To see what that means, consider the surprising outcome of another great motorcar race. In March, at the Sebring test track in Florida, a sleek Audi prototype R-10 became the first diesel-powered car to win an endurance race, pipping a field of petrol-powered rivals to the post. What makes this tale extraordinary is that the diesel used by the Audi was not made in the normal way, exclusively from petroleum. Instead, Shell blended conventional diesel with a super-clean and super-powerful new form of diesel made from natural gas (with the clunky name of gas-to-liquids, or GTL).

Several big GTL projects are under way in Qatar, where the North gas field is perhaps twice the size of even Ghawar when measured in terms of the energy it contains. Nigeria and others are also pursuing GTL. Since the world has far more natural gas left than oil-much of it outside the Middle East-making fuel in this way would greatly increase the world's remaining supplies of oil.

So, too, would blending petrol or diesel with ethanol and biodiesel made from agricultural crops, or with fuel made from Canada's "tar sands" or America's shale oil. Using technology invented in Nazi Germany and perfected by South Africa's Sasol when those countries were under oil embargoes, companies are now also investing furiously to convert not only natural gas but also coal into a liquid fuel. Daniel Yergin of CERA says "the very definition of oil is changing, since non-conventional oil becomes conventional over time."

Alternative fuels will not become common overnight, as one veteran oilman acknowledges: "Given the capital-intensity of manufacturing alternatives, it's now a race between hydrocarbon depletion and making fuel." But the recent rise in oil prices has given investors confidence. As Peter Robertson, vice-chairman of Chevron, puts it, "Price is our friend here, because it has encouraged investment in new hydrocarbons and also the alternatives." Unless the world sees another OPEC-engineered price collapse as it did in 1985 and 1998, GTL, tar sands, ethanol and other alternatives will become more economic by the day.

This is not to suggest that the big firms are retreating from their core business. They are pushing ahead with these investments mainly because they cannot get access to new oil in the Middle East: "We need all the molecules we can get our hands on," says one oilman. It cannot have escaped the attention of oilmen that blending alternative fuels into petrol and diesel will conveniently reinforce oil's grip on transport. But their work contains the risk that one of the upstart fuels could yet provide a radical breakthrough that sidelines oil altogether.

If you doubt the power of technology or the potential of unconventional fuels, visit the Kern River oil field near Bakersfield, California. This super-giant field is part of a cluster that has been pumping out oil for more than 100 years. It has already produced 2 billion barrels of oil, but has perhaps as much again left. The trouble is that it contains extremely heavy oil, which is very difficult and costly to extract. After other companies despaired of the field, Chevron brought Kern back from the brink. Applying a sophisticated steam-injection process, the firm has increased its output beyond the anticipated peak. Using a great deal of automation (each engineer looks after 1,000 small wells drilled into the reservoir), the firm has transformed a process of "flying blind" into one where wells "practically monitor themselves and call when they need help".

The good news is that this is not unique. China also has deposits of heavy oil that would benefit from such an advanced approach. America, Canada and Venezuela have deposits of heavy hydrocarbons that surpass even the Saudi oil reserves in size. The Saudis have invited Chevron to apply its steam-injection techniques to recover heavy oil in the neutral zone that the country shares with Kuwait. Mr Naimi, the oil minister, recently estimated that this new technology would lift the share of the reserve that could be recovered as useful oil from a pitiful 6% to above 40%.

All this explains why, in the words of Exxon Mobil, the oil production peak is unlikely "for decades to come". Governments may decide to shift away from petroleum because of its nasty geopolitics or its contribution to global warming. But it is wrong to imagine the world's addiction to oil will end soon, as a result of genuine scarcity. As Western oil companies seek to cope with being locked out of the Middle East, the new era of manufactured fuel will further delay the onset of peak production. The irony would be if manufactured fuel also did something far more dramatic-if it served as a bridge to whatever comes beyond the nexus of petrol and the internal combustion engine that for a century has held the world in its grip.

Source




CHINA IS TURNING THE CORNER ON THE ENVIRONMENT

It is the fashion these days to apply the overused phrase the "tipping point" to just about everything, especially when it comes to bad news for the environment. And nowhere is the pessimism greater than when it comes to China, whose spectacular economic growth and voracious appetite for natural resources is said to be leading the region and perhaps the world toward irreversible ecological catastrophe.

This story line, played out in countless media headlines over the past few years, has it backwards. China has indeed reached a tipping point on the environment - the point at which it begins to make environmental improvements.

It's about time. China has some of the worst pollution problems in the world. Nearly two-thirds of China's 343 major cities currently fail to meet the nation's air quality standards. The World Health Organization seven of the ten most polluted cities in the world are in China. Pollution levels in China's major cities are 10 to 50 times higher than the worst smoggy day in Los Angeles.

The story is much the same with water pollution. China is desperately short of potable water. Groundwater has been badly depleted, and surface water sources are equally overused. The Yellow River, for example, has run dry every year since 1985 because of diversions; in 1997, it failed to reach the ocean for 226 days. Severe water pollution has led to shutdowns of major urban water systems, such as occurred last year in the city of Harbin following a chemical spill in the Songhua River. The city of 3.8 million people was without running water for nearly a week.

These and other environmental trends are supposedly going to get worse as China continues its headlong drive to become a modern industrial nation. "China's Next Big Boom Could Be the Foul Air," the New York Times reported last October. Yet these predictions are already out of date. A look at the data shows that China is on the curve that other modern industrialized nations followed in the mid-20th century, whereby pollution starts to fall even as the economy continues to grow. Sulfur dioxide and particulate levels have actually fallen in Beijing and other major cities over the last decade, at the same time as the number of motor vehicles China nearly quadrupled and total energy consumption increased by one-third.

China is slowly turning the corner on the environment for the same reason the U.S. and other advanced economies reversed course a generation ago - economic growth provides the means to implement better technology to reduce pollution. China has been enacting environmental laws that resemble the landmark legislation the U.S. and Europe enacted in the 1970s, and China's State Environmental Protection Administration (SEPA) reports that spending for environmental projects is increasing about 15 percent a year. China has adopted the European Union's automobile tailpipe standards, for example, and has even begun to emulate our Environmental Impact Review process for major construction projects.

China is working at breakneck speed to reverse its water pollution and supply problems as well. Industrial discharge of petroleum-related pollutants and heavy metals into rivers and oceans has been cut in half over the last decade. Wastewater treatment facilities are quickly being built; between 2000 and 2005, total wastewater capacity doubled. China's reforestation program appears to be taking flight; SEPA reports that 4.8 million hectares of forestland were planted in 2004, and that forestland has been growing at slightly more than 1 percent a year over the last decade.

China today is roughly where the United States was in 1950 terms of environmental performance. In those days the U.S. still poured raw sewage and chemicals directly into rivers and lakes and the ocean, and had little along the lines of air pollution controls. Like the U.S. 50 years ago, China has a long way to go. Some of the environmental news out of China is going to get worse before it gets better. The central point remains, however, that China's environmental news is going to start improving a lot sooner and a lot faster than people expect.

The most intriguing possibility from this story is how environmental reform might contribute to political reform and liberalization. Many of the changes in China's environmental performance are coming in response to large public protests - and frequent riots - over pollution. The environment, often an anti-democratic force in American governance, might prove to be a tipping point toward democracy in China.

National Review Online, 21 April 2006







COMMON SENSE MUST TOP THE GREEN AGENDA

An Editorial from "The Scotsman", 23 April 2006

The most bizarre sight of last week was that of David Cameron driving a team of huskies across the Norwegian snows. If it is hard to imagine how the ruddy-cheeked Tory leader could more blatantly illustrate his commitment to the environment, it was also difficult to take the scene entirely seriously.

The same cannot be said about the green agenda, however. Concern about the environment is no longer a minority preoccupation: it engages people across the whole spectrum of society, of all political opinions. To that extent, Cameron is right to address the issue. But it is an issue that needs to be examined closely, scientifically and dispassionately, not fuelled by hysteria. Apocalyptic alarmism from green activists has become the secular equivalent of those religious cults that regularly assemble on mountain tops in expectation of the imminent end of the world.

What are the facts about global warming? The only honest answer is: we do not know. Nor is our knowledge advanced by scientists who are not climatic experts issuing sensational pronouncements. Detailed temperature records date only from 1860. These show that between then and 1915 there was no change in the northern hemisphere. Between 1915 and 1945 there was a rise of 0.4C, countered in the following 20 years by a fall of 0.2C. During the remainder of the 20th century there was a rise of 0.4C, making an overall increase of 0.6C over the century.

That is hardly grounds for panic in the streets, especially when we recall that Britain had almost tropical temperatures in the Roman period and was at least as hot as today in the Middle Ages.

What casts further confusion on the issue is the supposition that our curbing sulphur dioxide emissions (which have a cooling effect) from 1965 allowed carbon dioxide full rein to heat up the planet. In that case, might China's planned 562 new coal-fired power stations, while emitting twice as much warming carbon dioxide as gas-fired stations, also restore cooling sulphur dioxide emissions to pre-1965 levels? The equation is unreadable.

The other major environmental issue is the sustainability of oil supplies. Is the oil supply about to dry up? Yes, in about a century from now - by which time science, advancing exponentially, will certainly have provided an alternative energy source. We already have such man-made fuels as ethanol, derived from plants, and diesel based on coal and gas. Greener fossil fuels are in the pipeline, with Britain's Virgin Fuels prominent in this development.

Meanwhile, it has been estimated by Cambridge Energy Research Associates that the world's oil-production capacity could increase by up to 15 million barrels per day. The United States Geological Survey has concluded that the world has about three trillion barrels of recoverable conventional oil underground, of which only one-third has been produced. The oilfields that look most likely to fail are in Saudi Arabia and Kuwait. Otherwise, there is no shortage.

Whatever the answer to environmental concerns may be, it most emphatically is not Kyoto - a cynical exercise in gesture politics. It is characteristic that the first country to sign the protocol was Romania, whose toxic emissions can be seen from outer space. America is vilified for having refused to endorse Kyoto (by a telling 95-0 vote in the Senate). But it has devoted $20bn to serious exploration of environmentally friendly alternative energy.

Science and the market are the twin pillars on which environmental recovery will be supported. Instead of fining firms for carbon emissions, they should be offered tax breaks to clean up their act. Incentive rather than coercion should be the motor of environmental improvement. If there is an urgent need for something, the market can react by producing it. We do not know the scale of the risk. But we must allow for the possibility that the more pessimistic forecasts are right. We need an insurance policy; but we should shop around discriminatingly and calmly. We are not a' doomed; but we need to research, to plan and to invest in a sensibly green future.






Australia: New dams at last

It looks like the water shortage in Queensland has finally trumped the dam-hating Greenies

The $1 billion the Queensland government expects to earn from the sale of its power retailers will be used to build two new dams and set up a special infrastructure fund. Premier Peter Beattie said today his government would sell the retail arms of its power suppliers Energex and Ergon Energy, in a trade sale expected to earn more than $1 billion. The sale will take place in several tranches before the end of the year, ensuring the state market is ready for full retail contestability from July 1 next year.

Deputy Premier and Treasurer Anna Bligh said the sale would not influence the government's Budget, which was in good shape and expected to deliver a "very healthy surplus" when brought down on June 6. Instead, the expected $1 billion windfall would be ploughed into a Queensland Future Growth Fund, to be managed by Treasury, with legislation ensuring proceeds are spent solely on infrastructure needs. The fund's first projects include financing two new dams, located along the Mary and Logan rivers in south-east Queensland, to be built by 2011.

The Mary River dam, north of Brisbane, will service Gympie and the Sunshine Coast - it will rival the size of Brisbane's Wivenhoe Dam. A second dam would also be built along the upper reaches of the Logan River, either at the already-proposed Wyaralong Dam site or at Tilleys Bridge, near Rathdowney, providing water to western areas including Ipswich, Springfield and Beenleigh. Two new weirs will also be built in central Queensland and $300 million invested in clean coal technology.

Opposition leader Lawrence Springborg said while he approved of the decision in principle, the government's move was a "fire sale" to cover up black holes in its next budget

Source

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Many people would like to be kind to others so Leftists exploit that with their nonsense about equality. Most people want a clean, green environment so Greenies exploit that by inventing all sorts of far-fetched threats to the environment. But for both, the real motive is to promote themselves as wiser and better than everyone else, truth regardless.

Global warming has taken the place of Communism as an absurdity that "liberals" will defend to the death regardless of the evidence showing its folly. Evidence never has mattered to real Leftists

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