OIl and Natural Gas Depletion

By Bob Gragson

As I walked to school, I would pass several lots along the way that had an oil pump pulling oil from the ground and sending what it extracted into pipelines, some of which also ran along the surface of the property upon which my school sat. At home, our trash went into a recycled 55-gallon oil barrel that my father had converted into a trash can.

Bartlesville was home to the first oil well in the state and at the time had the largest employer in the state, Phillips Petroleum Company. My father was a research chemist with the company. He worked at developing the characteristics of motor oil. He began teaching me chemistry when I was 10.

In college in the early 1970s, I clearly remember the long lines at the gas pump, the alternating days based upon license plates that limited when I could buy gas, and then the reduction of the freeway speed limit to 55 MPH. There was a fear, a buzz of uncertainty in the air.

When Mike Bowlin, Chairman of ARCO, said in 1999 that "We've embarked on the beginning of the last days of the age of oil," I took notice. At that time, he was voicing a truth that many others in the petroleum industry knew but dared not mention. Over the past few years, evidence has mounted that global oil production is nearing its historic peak. I, like many of you, grew up during that peak, and will also live the later years of my life experiencing the decline from that peak. It's truly an historic time in which we live.

So what is peak oil and why is it important?

All oil production follows a bell curve, whether in an individual field or on the planet as a whole. On the upslope of the curve, production costs are significantly lower than on the downslope when extra effort and expense are required to extract oil from reservoirs that are emptying out. The peak of the curve coincides with the point at which the world's endowment of oil has been approximately 50% depleted. "Peak oil" is the industry term for the top of the curve. Once the peak is passed, oil production begins to go down while cost begins to go up.

In practical and simplified terms, this means that if 2000 was the year of Peak Oil, worldwide oil production in the year 2020 will be the same as it was in 1980. However, the world's population in 2020 will be about twice what it was in 1980 and much more industrialized than it was in 1980. Consequently, worldwide demand for oil will outpace worldwide production of oil by a significant margin.

The more demand for oil exceeds production of oil, the higher the price goes. Ultimately, the question is not "When will we run out of oil?" but rather, "When will we run out of cheap oil?"

Matt Simmons, a respected investment banker, an adviser on the National Petroleum Council and a member of the 2001 Bush Energy Transition Team, has acknowledged that "The situation is desperate. This is the world's biggest serious question." In an August 2003 interview, Mr. Simmons said when asked if there is a solution:

"I don't think there is one. The solution is to pray. Under the best of circumstances, if all prayers are answered there will be no crisis for maybe two years. After that it's a certainty."

It's not just Simmons sounding the alarm however. It's folks like Secretary of Energy Spencer Abraham, Vice President Dick Cheney, and many petroleum geologists: Colin J. Campbell, retired petroleum geologist at Texaco and Amoco; Jean Laherrere of Total Fina Elf; Kenneth Deffeyes, author of Hubbert's Peak: The Impending World Oil Shortage; L. F. Ivanhoe, founder of the M. King Hubbert Center for Petroleum Studies at the Colorado School of Mines; Walter Youngquist, retired Professor of Geology at the University of Oregon; L. B. Magoon, a geologist with the U. S. Geological Survey; and more.

In a growth-based economy such as ours, a 1-5% shortfall in oil supply will likely cause a recession. We experienced this shortly after we reached peak oil here in the United States in the early 1970s. Larger shortfalls in oil supply obviously can have a more significant impact on the economy. Unlike the oil shortage in the U.S. in 1973, with peak world oil production, there are no other sources of oil to acquire.

Additionally, world population growth in the last 150 years has mirrored the increase in world oil production. You can see this in graphs from petroleum geologist Colin J. Campbell on pages 2 and 3 in the handout I've distributed to you from Richard Heinberg's book, The Party's Over: Oil, War and the Fate of Industrial Societies. Richard Heinberg is a member of our Advisory Board at the Solar Living Institute.

Because of the low cost of oil for many years, there are no alternatives to oil that can come close to making up for such a severe shortfall in oil supply. Oil really doesn't have an equivalent substitute. Even if such alternatives did exist, infrastructure for those alternatives are not in place and thus the oil shortages are going to hit us hard.

Oil will cease to be viable as a fuel - hardly an encouraging scenario in a world where oil currently provides 40% of all energy and nearly 90% of all transportation fuel.

With all due respect to most environmentalists, dreams of a society powered by renewable energy are based more in myth and fantasy than science and reality. It is physically and economically impossible for renewable energy to replace oil. That is not to say that renewable energy is worthless, because it's not. It and conservation -- simply not using energy as we do now -- are critical to cushioning the impact of Peak Oil. My point is, however, that we will feel the effects of Peak Oil and what we experience will be significant.

Only in the last 150 years has the human population experienced energy as cheap and plentiful as oil. Oil has had an Energy Profit Ratio as high as 100 to 1. This means it took one unit of energy to discover 100 units of oil.

NONE of the alternatives to oil, however, have Energy Profit Ratio's that even approach that of oil. In fact, some of the alternatives, such as Hydrogen, are energy losers - they require more energy to produce than they carry.

Furthermore, many advocates of alternative energy fail to realize two absolutely key points:

1. It takes a tremendous amount of oil to build alternatives to oil such as solar panels, windmills, and nuclear power plants. The construction of an average solar panel system, for instance, consumes about as much energy as the construction of a brand new SUV.

2. It would take even more oil to retrofit our multi-billion dollar, fossil fuel based infrastructure to run on these alternative sources of energy.

The power of the sun, the wind, and the atom cannot be harnessed without tremendous and continuous investments in fossil fuels.

What makes the situation even worse is the fact that we probably won't get motivated to aggressively pursue these (modest) alternatives until the oil shocks start to hit hard. At that point, however, it will be too late - we will be in the midst of an economic downturn. Under such conditions, it will be extremely difficult to implement significant renewable energy programs.

Without an abundant supply of cheap oil, we will have no way to power a transition to something other than oil. This is important to understand.

One of the most disconcerting aspects of Peak Oil is that the individuals most concerned about it are some of the most respected, experienced, and highest paid geologists, petroleum engineers, physicists and investment bankers in the world. This is not the usual "sky-is-falling" crowd.

Oil has been the cheapest and most convenient energy resource ever discovered. During the past two centuries, those of us in industrial nations have accustomed ourselves to a regime in which more fossil-fuel energy was available each year, and the global population grew quickly to take advantage of this energy windfall. Industrial nations also came to rely on an economic system built on the assumption that growth is normal and necessary, and that it can go on forever. However, we all know this isn't possible. When oil production peaks, that false assumption of unending growth will come crashing down with a vengeance.

As we move from a historic interval of energy growth to one of energy decline, we are entering uncharted territory. It takes some effort to adjust one's mental frame of reference to this new reality.

Try the following thought experiment. Go to the center of your city and find a comfortable place to sit. Look around and ask yourself: Where and how is energy being used? What forms of energy are being consumed and what work is it that energy is doing? Notice the details of buildings, cars, buses, streetlights, and so on; notice also the details of activities of the people around you. What kinds of occupations do these people have, and how do they use energy in their work? Try to follow some of the strands of the web of relationships between energy, jobs, water, food, heating, construction, goods distribution, transportation, and maintenance that together keep the city thriving.

After you have spent at least 20 minutes appreciating energy's role in the life of this city, imagine what the scene would look like if there were 10% less energy available. What substitutions would be necessary? What work would not get done? Now imagine the scene with 25% less energy available; with 50% less; with 75% less.

Assuming that the peak in global oil production occurs in the period from 2005 to 2010 as an increasing number of petroleum geologists are saying and that there is an average two percent decline in energy available to industrial societies each year afterward, in your imagination you will have taken a trip into the future.

But how can we be sure that oil will become less abundant?

Oil discovery in the U.S. peaked in the 1930s; oil production peaked roughly forty years later. Since 1970, the U.S. has had to import more oil nearly every year to make up for its shortfall from domestic production.

Global discovery of oil peaked in the 1960s. Since production curves must eventually mirror discovery curves, global oil production will doubtless peak at some point in the foreseeable future. Maybe it already has. Certainly 24 of 44 oil-producing nations have already passed peak production.

When the global peak in oil production is reached, there will still be plenty of petroleum in the ground as much as has been extracted up to present, or roughly one trillion barrels. But every year from then on it will be difficult or impossible to pump as much as the year before. And developing countries like China and India will continue to demand ever-increasing amounts of energy as they grow, during the period when oil supply will be declining.

Clearly, we will need to find substitutes for oil. But an analysis of the current energy alternatives is not reassuring. Solar and wind are renewable, but we now get a small fraction of one percent of our national energy budget from them; rapid growth will be necessary if they are to replace even a significant fraction of the energy shortfall from post-peak oil. Nuclear power is dogged by the unsolved problem of radioactive waste disposal. Hydrogen is not an energy source at all, but an energy carrier: it takes more energy to produce a given quantity of hydrogen than the hydrogen itself will yield. Moreover, nearly all commercially produced hydrogen now comes from natural gas, the production of which will peak only a few years after oil begins its historic decline.

Unconventional petroleum resources -- heavy oil, oil sands, and shale oil -- are plentiful but extremely costly to extract, a fact no technical innovation is likely to change. And, they require significant amounts of natural gas to extract. Natural gas is a fuel soon to peak in North America.

In the U.S., natural gas is used to make about 20% of all electricity. In the future, the U.S. government, and governments worldwide expect gas usage to rise dramatically. During the last four years, almost 95% of the new electricity-generating plants built in the U.S. have been fueled by natural gas, which means that either gas usage will rise to meet the demand or many operators will go bankrupt when the supply becomes too costly. Additionally, a shortage of natural gas will have an effect on food production. One of the most vital, and presently irreplaceable feedstocks of fertilizer is natural gas, which makes natural gas possibly the single most critical ingredient in the diet of many human beings.

Most North Americans HAVE NO IDEA that there is a serious energy problem at their door. Although worldwide oil will decline before gas, because of the transport difficulties, it will be natural gas shortages that will most likely hit North America first.

To be sure, we should be investing in alternatives and converting our industrial infrastructure to use them. If there is any solution to industrial societies' approaching energy crises, renewable energy plus conservation will provide it. Yet to achieve a smooth transition from non-renewables to renewables, decades will be needed, and we do not have decades before the peaks in the extraction rates of oil and natural gas occur. We missed the easier transition from non-renewables to renewables by not rapidly moving ahead with this transition during the oil crisis of the early 1970s. Moreover, even in the best case, the transition will require the massive shifting of investment from other sectors of the economy toward energy research and conservation. And the available alternatives will likely be unable to support the kinds of transportation, food, and dwelling infrastructure we now have; thus the transition WILL ENTAIL AN ALMOST COMPLETE REDESIGN OF INDUSTRIAL SOCIETIES.

The likely economic consequences of the energy downturn are enormous. All human activities require energy -- defined as the capacity to do work. With less energy available, less work can be done unless the efficiency of the process of converting energy to work is raised at the same rate as energy availability declines. It will therefore be essential, over the next few decades, for all economic processes to be made more energy-efficient.

There are things that we can do to prepare for the energy crunch. Anything that promotes individual self-reliance (gardening, energy conservation, and voluntary simplicity) will help. True individual and family security will come only with community solidarity and interdependence. Living in a community that is weathering the downslope well will enhance personal chances of prospering far more than will individual efforts at stockpiling tools or growing food.

Meanwhile, nations must adopt radical energy conservation measures, invest in renewable energy research, support sustainable local food systems instead of giant biotech agribusiness, adopt no-growth economic and population policies, and strive for international resource cooperation agreements.

These suggestions describe a fundamental change of direction for industrial societies from the larger, faster, and more centralized, to the smaller, slower, and more locally-based; from competition to cooperation; and from boundless growth to self-limitation.

There are many hopeful indications that a shift toward sustainability is beginning. But there are also discouraging signs that large political and economic institutions will resist change in that direction. Therefore, much depends upon the public coming to understand the situation, taking personal steps, and demanding action from corporations and local and national governments.

Let's all go forth and continue to make a difference for ourselves, for our children, and for the Earth.

For more information, visit http://www.gragson.com.