Southern Limits

From Dictionary.com:

Pol·ly·an·na

noun

1. an excessively or blindly optimistic person.

adjective

2. (often lowercase) Also, Pol·ly·an·na·ish. unreasonably or illogically optimistic: some pollyanna notions about world peace.

This is the first in a series of posts that address the phenomenon seen over the past few years of the proliferation of articles arguing that peak oil is dead and that we are in a new era of liquid fuel abundance. I have already addressed this issue in general with my previous post Seven Myths Deniers Use To 'Debunk' Peak Oil, Debunked. But with more articles coming out like this weekly I have decided to take on the authors of these overly optimistic puff pieces and explain paragraph by paragraph exactly why these people are so wrong.

First up in this series is Roger Harrabin. Harrabin is certainly no slouch  broadcasting on environmental and energy issues since the 1980s and winning a number of broadcasting awards. He currently works as the BBC’s environmental analyst and is one of their senior journalists on environmental and energy issues. So it came as a surprise when I came across Harrabin’s article this week entitled Shortages: Is ‘peak oil’ idea dead?. He managed to invoke a number of straw man arguments and bizzare claims and concludes that the end of the Oil Age is so far off that it’s not worth worrying about. Let’s take a look at the specifics below.

Harrabin: “Bouts of anxiety are periodic. In the seventies a Shell geoscientist, M King Hubbert, sounded an alarm that supplies would peak by 1995 "if current trends continue."

They didn't peak. Fear is a powerful motivator and forecasting a shortage can be a good way of avoiding one.

Instead of seeing the 1970s oil crisis end in a long-term shortage, we responded by developing more fuel-efficient cars and burning less oil for heating. And what's more, oil production continued to grow.”

The qualifier above is “if current trends continue”. What Harrabin fails to mention is what Hubbert says in the Youtube video from 1976 that he links to.

Hubbert: “OPEC countries are tampering with this curve right now, they’re actually curtailing production somewhat and so it’s conceivable that this peak up here might be shifted over to the back side a little bit. We might cut off this rate of growth and stabilise. If we did that would extend this middle 80% by some 19 years maybe. But is doesn’t alter the basic thing that I’m saying significantly.”

We can see from this statement that Hubbert was intently aware that his model was simply that: a model. Market adjustments by OPEC or some other unknown could potentially move the peak into the future by 20 years at the most (2015 based on Hubbert’s original 1995 calculation). However Hubbert’s underlying theory would still ring true even if the peak was extended. What Hubbert didn’t specifically predict was the 1979 Iranian Revolution that caused oil prices to skyrocket, destroying demand and reducing global oil consumption by 7 percent between 1980 and 1983. High oil prices during this time also saw a shift to natural gas and electricity for home heating and increasingly fuel efficient cars that also impacted on global oil consumption. 

While oil production didn’t peak in 1995 as Hubbert originally predicted, Gail Tverberg recently showed in a brilliant post using EIA data that world crude oil production from conventional sources peaked  in 2005. Since then crude oil production has risen only 0.5 percent. Total oil supplies grew only 3.0 percent between 2005 and 2010, far lower than the 10.2 percent growth estimated from similar periods before 2005. This is a far cry from reaching a new era of energy production with oil from unconventional sources taking up the slack left by conventional sources.

Chart from: http://ourfiniteworld.com/2012/04/09/what-the-new-2011-eia-oil-supply-data-shows/

Moving on:

Harrabin: “But the reflexive response we saw in the 70s has repeated itself. Thanks to government rules and fear of rising oil prices, new cars are using much less fuel.”

This is true up to a point. New engine technology uses fuel much more efficiently than old cars. But does this make any difference to the fleet as a whole? Not according to the Australian Public Transport Users Association (PTUA). It has been documented that as fuel efficiency increases that engine size tends to increase shortly after due to consumer demand:

“....Hybrid technology, it seems, is being used in much the same way as earlier under-the-hood innovations that increased gasoline efficiency: to satisfy the American appetite for acceleration and bulk....Consumer Reports, in an article published in May, found that in actual on-the-road conditions the Accord hybrid averaged 25 (miles per gallon), versus 24 mpg for the 4-cylinder model and 23 mpg for the nonhybrid V-6....If every car in the country were converted to a hybrid with that improved mileage, the gain would be swallowed up in three to four years by growth in driving demand.”
-“Hybrid Cars Burning Gas in the Drive for Power”, New York Times, 17 July 2005

“At the launch of the new-generation Toyota Prius in Sydney yesterday, chief engineer Akihiko Otsuka admitted the company had opted for a bigger, more powerful engine because customers had demanded it...."With a different approach, we could have done even better. However, customers told us they wanted more performance. In response, we selected a larger engine.””
-“Prius a paler shade of green”, The Age, 7 July 2009

Data from the Australian Bureau of Statistics shows that between 1995 and 2007 fuel economy of the average passenger vehicle has remained relatively unchanged.

Transport researcher Patrick Moriarty has argued that improvements in engine efficiency over the past few decades have been offset by trends towards larger vehicles such as SUVs, increased use of air conditioning, electronic components demanding greater weight and power input, aging of the car fleet and comprises required to reduce air pollution. 

The PTUA also reports that according to Tom McCarthy in his book Auto Mania,  while the 1970 oil shocks resulted in short term fuel efficiency gains, once oil prices stabilised in the 1980s drivers reacted with such fervor that any long term benefits were wiped out. Fuel economy became associated with sacrifice and poverty, two notions which had no place in the new age of materialistic pursuit.

Harrabin: “And what do you know? In 2008 we reached a new production high of 73.71 million barrels a day according to the IEA, thanks largely to new technologies for getting the stuff out of the ground.

Oil comes from fragments of vegetable matter laid down amongst particles of rock. Even by 1980 we could only recover about 22% of the oil from a typical well. Technology has now driven that figure to 35%. Same oil wells, more oil.

Supply has been boosted by unconventional oil extracted from rocks which were previously uneconomic to exploit - like oil shales and tar sands. It takes much more energy and water to separate the oil from these rocks than conventional oil drilling so it's much worse for the environment.”

This is all true. But how much difference does this new technology and oil from unconventional sources really make? As we can see from Gail Tverberg’s chart above, not much. Sure it keeps the overall growth in global oil production on an upward trend but it comes at a huge cost not only environmentally but also economically. Chris Nelder has done a great job outlining the new base cost of oil. Nelder quotes veteran petroleum economist Chris Skrebowski’s research that in order for oil companies to turn a profit and invest in future infrastructure oil prices must be at least between $80 to $110 per barrel. This is incredibly bad news for the global economy which runs on cheap energy. When the price of that energy rises too high the economy gets speed wobbles and crashes as Jeff Rubin has shown convincingly. It is especially worrying given Skrebowski’s data showing figures from Barclays Capital that operators’ budget assumptions have risen to $87 per barrel of oil, literally the maximum carrying capacity of the US (and probably European) economies.     

Graph from: http://www.odac-info.org/newsletter/2011/09/16

Harrabin: “Fears over "peak oil" haven't evaporated, but the advent of unconventional oils has driven the peak further into the distance.”

Harrabin doesn’t state just how far into the distance the peak has been driven but given his nonchalance I assume that that he thinks peak oil won’t be a problem in his lifetime. Personally I tend to side with Robert Hirsch who anticipates world oil production (all sources) will go into decline in one to four years. Hirsch also makes the point that there is $50 to $100 trillion worth of equipment on the planet that runs on liquid fuels and electrification of this infrastructure will take a long time to come online. 

Harrabin: “There's also a boom in unconventional gas production that's made the Americans relax about energy security. Gas can be turned into diesel - at a cost - pushing peak oil further into the distance. If things get really bad we can also turn coal into diesel.”

This is where Harrabin completely loses touch with reality. Natural gas in itself is four times less energy dense than oil. In practical terms that means a fuel tank four times larger than is currently used. Say goodbye to your back seats of your car. Robert Rapier has shown that replacing all U.S. gasoline consumption with natural gas would require a total usage of 39.4 trillion scf per year, an increase in natural gas consumption of 71% over present usage, hardly a likely scenario.

To be fair Harrabin is talking here about gas to liquids (GTL) conversion which doesn’t require any changes on the combustion engine side of things but is still highly dubious if it is economically sustainable. The first large scale gas to liquids plant built in Qatar by Shell ballooned to $18 billion, almost four times the original estimate.  That is over 70% of Shell’s intended capital expenditure from 2011. Last year Shell projected the plant would generate $6 billion a year in profit assuming oil prices at $70 a barrel. Shell is hoping it has learnt from its mistakes in Qatar and is considering building another similar sized plant in Louisiana at a cost of $10 billion with Shell.

Capital costs for GTL plants range from $25,000 to $45,000 per barrel of daily capacity, depending on production scale and site selection. By comparison, the cost of a conventional petroleum refinery is around $15,000 per barrel per day. GTL is profitable when crude oil prices exceed $25 per barrel and natural gas prices are in the range of $0.50 to $1.00 per million Btu. The economics of GTL are extremely sensitive to the cost of natural gas feedstocks. At the time of writing U.S. spot prices for natural gas were sitting around the $2.50 per million Btu mark which is historically extremely cheap and below operating cost and Brent was sitting around $91 a barrel.  According to Platts as recently as this time last year it was still more profitable to turn natural gas into LNG rather than GTL.

As for coal to liquids (CTL) it has currently only been carried out on a laboratory scale and no large scale CTL plants exist. The IEA estimates that the capital investment will be absolutely massive, between $70 and $80,000 per barrel of daily capacity or 2-3 times more expensive than a GTL plant. 

Harrabin: “The Stone Age didn't end because we ran out of stones…”

Harrabin is of course exactly right here. The Stone Age ended because human beings discovered how to smelt first copper and then bronze which could be fashioned into more efficient tools and weapons. Likewise in energy circles wood was the most important fuel up until the 1880s when it gave way to coal and then natural gas and oil. For a brief period a number of commentators believed nuclear was the next logical step in the energy progression. But for a number of reasons: safety, transportability, inhibitive cost etc nuclear never made the impact that was once promised of it. So we stuck with oil, the single most energy dense and transportable substance ever discovered on our planet.

For Harrabin to compare the Stone Age to the Age of Oil however is to catastrophically misunderstand the issue. There is no alternative to oil that can be as easily extracted, transported, stored and used as oil.  There is no alternative to oil that will let us continue our lifestyles unaffected. To misunderstand this critical point is to misunderstand the predicament that peak oil puts humanity in entirely.

We are not going to run out of oil cold turkey. Instead we are facing a long descent that will see times of relative prosperity followed by depressions and recessions as the world economy adjusts to its new low energy diet.  Articles such as Harrabin’s do a great disservice to humanity by advocating a business as usual approach to the peak oil predicament. Change is coming and the sooner we ready ourselves for it the smoother the descent will be.