22 July 2005

Peak Oil (1)

Peak oil theory (sometimes called Hubbert Peak Oil, after Dr. M. King Hubbert) is the proposition that there is an de facto limit at any time to the rate at which oil can be pumped from available fields; and this limit tends to follow a normal curve over time. An addition point of the proposition is that we are very close in time to this peak, after which the rate will fall off regardless of increased demand. Oil industry executives insist that there have been new reserves of oil being identified over the years, and provable reserves are greater now than they were [thought to have been] at the time of the 1973 Arab oil embargo. Peak oil theory holds that we are fast approaching the point where further increases in the volume of oil will be economically unsustainable.

For decades we've been warned of the end of cheap oil. Oil is exceptionally difficult to replace—most of the proposed substitutes are not substitutes at all. Advocates of a hydrogen-based economy, for example, tend to ignore the fact that hydrogen must be separated from other chemicals to create a gas, and that separation process requires more energy. Likewise, photovoltaic cells require large amounts of electric power to produce—they're essentially semiconductors. Biodiesel has attracted some attention in recent years, but of course biodiesel works for a small cohort of people who can gather used cooking oil and using it in their vehicles. It's an incidental use of a material which itself requires a lot of energy inputs. Ethanol is a more direct route—it's an alternative fuel made from organic products like grain or corn, but cultivation of ethanol consumes more energy than it generates. It is, however, heavily subsidized.

Electric-powered vehicles require generation of electricity to recharge batteries; much of electricity in the USA is generated by the burning of oil and natural gas (half is from coal, which contributes heavily to global warming). And atomic fission has its proponents, but created a huge environmental burden in the future as nuclear wastes pile up. As it happens, the US atomic power industry was a dismal managerial failure, and the regulatory environment is dreadful; it's just as well, because atomic fission is a faustian bargain; European nations are addicted to it, albeit less destructively than the USA is addicted to fossil fuels and coal.

Atomic fusion has enjoyed massive subsidies in multiple countries; in 1996, the US withdrew from the International Thermonuclear Experimental Reactor (ITER; BBC) project, but rejoined in Feb 2003. In addition, there is a ten-year project ($1 billion) to build a coal-powered generating plant which captures [90% of] its own emissions. This, like the freedom car and the aforementioned ITER re-entry, strike this writer as a fig leaf for otherwise blatantly shortsighted disregard for the approaching energy crisis. If ITER is to solve the world energy crisis depicted in peak oil theory, then the commitment required would be on the order of tens of billions per year; the development of an entire fusion-based economy would be required, such as power-storage and transmission, or longer-range technologies such as small fusion facilities. Needless to say, no such project was announced.

So I think it is worthwhile to return to the concepts of peak oil theory. First, I want to introduce some vocabulary (courtesy of Van Nostrand's Scientific Encyclopedia, Fifth Ed., 1976):
produced: misnomer for recovery of crude oil/natural gas; "recovery" suited to getting oil out of the ground, while "production" applicable to end-user products like aviation fuel, gasoline, kerosene, fuel oil, and diesel. provable reserves of crude oil: estimated quantities of all liquids statistically defined as crude oil, which geological and engineering data demonstrate to be recoverable from known reservoirs under existing economic and operating conditions. A major improvement in recovery technology, or favorable changes in the price structure for petroleum products, can increase proved reserves. Proved resources are calculated using conservative benchmarks; if there is no fluid contact (for example, no wellheads in a margin of the reservoir), then the lowest figure for oil content is given, based on geological structures.

The term "proved" used to apply to the above category of oil reserves. However, marginal sections of a reservoir with no fluid contact are now excluded from the definition of "proved." Readers with direct knowledge of the oil industry are requested to advise if my scientific encyclopedia is actually mistaken or merely out of date. The distinction is quite important. ExxonMobil, the biggest US oil firm, has 22bn barrels of proved reserves, but another 50bn barrels of "provable" (BBC).

probable reserves: same as above, except that mean probable estimate (rather than structural minimum) of recoverable reserves are used. By definition, a reservoir's "probable reserves" will be greater than its "provable reserves," and both will be greater than "proved" reserves.
oil in place: includes all oil estimated to exist in a reservoir, regardless of technological constraints.

crude oil: a mixture of carbon-based molecules, mostly of comparatively high molecular weight. Organic compounds like methane (CH4), ethane (C2H6),..., propane (C5H16) are gases at ordinary temperatures and pressures, and are a separate product; natural gas is about 95% methane, 1% ethane, and 4% nitrogen. In contrast to NG, crude is extremely complex chemically, and its place of origin can be determined based on its chemical composition. Crude oil, when recovered, can be dark, clear, golden, or greenish.

gravity, degrees API: API stands for "American Petroleum Institute"; the designation works backwards. "Specific gravity" is a general term representing the unit density of a substance, so water at ordinary heat and temperature has a specific gravity of about one gram per cubic centimeter. For high quality grades of crude, this is typically about 0.7 g/cm3. API assigns 10.0 to water, and moves upward as the fluid gets lighter. Since the most commercially desired products, like aviation fuel and gasoline, are very light (60% as heavy as water), the highest grades of crude are 35-40° API. The poorest grades are found in Wyoming and California, and reaches as low as 13° API. Typically, higher degree crudes are recovered first; the API rating declines as a field is drained.

Another attribute of oil is the sulfur content. Sulfur must be refined out of oil; if there is very little, as in West Texas or Iran, then it is called "sweet"; high levels of sulfur and other undesirable chemicals are "sour."

oil reservoir: more precisely, a proven oil reservoir includes area delineated by drilling, plus neighboring areas deduced from geological analysis, from which oil can be recovered economically.

refining crude: the main part of this procedure is boiling the crude at different levels. East Texas light crude, for example, boils at 125° F (51° C), an unusually low temperature; 5% boils off before 191° (88.3°) is reached. By volume, 29% of this grade is gasoline; 10% is kerosene; 18% is diesel. What is left behind boils at temperatures of almost 800° (426°), and forms asphalt. In addition, there are trace compounds of salt and sulfur, nickle and vanadium. This process is called "distilling." The middle distillates (gasoline, diesel) are then subjected to cracking (which breaks large hydrocarbon molecules into smaller ones), alkylation, catalytic reforming, polymerization, isomerization, and other processes. Then they are blended. About now, the oil companies are required to add ethanol as an oxidizer; because ethanol blended with gasoline is not stable, it must be blended in the tanker trucks before being delivered to the service station.

Refineries and the capitalization of their costs account for about half the cost of gasoline at the pump in most US states. Motorists share that cost with airline passengers, homeowners and utilities customers, and users of products like plastics, fertilizers, and other petrochemicals.
When researchers attempt to calculate proved oil reserves, they lump all grades together although the utility of those grades vary as well.

For example, recently estimates of Canada's reserves were drastically increased, pushing Canada from well below the USA in terms of total proved reserves to far above it. The reason is that 175 billion barrels of bitumen held in the oil sands of Alberta, Canada, were suddenly included in the total. Suddenly Canada is believed to have more oil than Iran and Venezuela combined. Yet bitumen requires extraordinary processing before it can be refined. I was surprised to learn that Alberta already produces massive volumes of gasoline and diesel from oil sands (a third of Canada's total output is from oil sands).

Conventional economic analysis of oil reserves would lead one to believe that, as the commercial value of productive reserves declines, the cost of products (like gasoline) will go up. If the price of gasoline rises to $4/gallon all the time, then marginal oil fields will go online. Refineries will become more sophisticated; new procedures will be introduced. Airlines will shift to airplanes with 100-250 passengers rather than the gas-guzzling jumbos (which burn more fuel per passenger), then to turboprop airliners (which are the most efficient planes of all). SUVs, created by massive government subsidies, will disappear as prices climb above $6/gallon, while new industrial processes phase out petrochemicals. Eventually the pressures gradually push the developed world into developing post-petroleum energy systems, and the problem goes away.

Under peak oil theory (POT), this doesn't happen because, when oil rises above $80 a barrel and stays there, the world economy implodes. Refineries may require twenty years before the bulk of capacity incorporates major new equipment optimized for $80-crude, simply because of the risks associated. In the meantime, economies like that of China require massive new infusions of petroleum. Exactly what happens then is a matter of intense debate. Here is a casual listing of speculative analyses by extreme pessimists. The listing is handy because it gives names, titles, and summaries.

While it's true that there is a physical limit to the volume of oil that can be pumped per day—it's about 80 million barrels per day, of which 20 million is consumed in the USA—it seems likely that we would simply revisit 1978. That was the year that the real price of oil was driven to a record high by a shortfall, then created by OPEC. The effect of '78 was to send a huge lump of global income to the banking system of the West, as petrodollars flowed into OPEC coffers, then back to New York and London. The dollar soared relative to the rupee (Indian and Pakistani) and other non-OPEC third world nations. Then latter had a debt crisis and capital flows to those countries dried up. When they revived, the damage was done; countries like India or Brazil had permanently exploitive terms of trade with OECD countries. This damaged the bargaining position of American workers relative to management, and soon after 1980, the real outsourcing revolution began. The maquiladoras opened up along the border with Mexico, median wages stagnated, and the lines of debate in the USA moved relentlessly to the right. Certain liberal measures like legal abortion and civil rights survived because they benefited many income categories; and Europe was spared the decline in wages because of a sound industrial policy.

A repetition of '78 could simply make everything more extreme. American society could fall apart, placing extreme pressures on European society, then on Japan. China could suffer a depression, while Latin America explodes into revolution. Or it could cause the reverse: it could create a crisis felt disproportionately by American elites, reversing the decades-long growth in inequality. Or, of course, I could be in denial, and the POT could explain why the world will end and we will be plunged into the stone ages.

Additional Reading:

Oil Depletion Analysis Centre (ODAC), London, UK;

Inventory of US & global reserves of oil and energy situation overview for all countries (Department of Energy);

Exxon Mobile report on energy trends : an analysis of growth in demand for various types of energy. According to the report, global oil consumption is expected to double by 2020; 80% will be in developing countries.

Chevron’s Pascagoula Refinery Home Page: guided tour of a modern facility with simple explanations of processes involved

(Part 2)

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