HOUSTON (AP) - More than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy, the International Energy Agency said Wednesday.

The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments during one of the most severe economic downturns in a generation. The IEA stressed that it’s vital for the world’s energy companies to continue investing in new projects despite the current economic malaise. The total potential tab through 2030: $26.3 trillion.

“While the situation facing the world is critical, it is vital we keep our eye on the medium- to long-term target of a sustainable energy future,” IEA executive director Nobuo Tanaka told reporters at the release of its annual World Energy Outlook report in London.

There are growing fears the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.

“While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,” said former Secretary of Energy Spencer Abraham. “There was not enough production even when we were in triple-digit oil markets over the summer, and there’s going to be a lot of pressure on the system when economies recover.”

Tanaka said that state-run national oil companies — like those in Venezuela and Saudi Arabia — are projected to account for about 80 percent of the increase of both oil and natural gas production to 2030.

But he acknowledged it was “far from certain” those companies would be willing to make the necessary investment themselves or to attract sufficient capital to keep up the necessary pace of investment.

Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.

That type of uncertainty already is prompting companies to withhold billions of dollars of investment in new oilfield and refining projects, even though major oil companies have posted record profits this year thanks to triple-digit crude prices.

Producers and refiners, large and small, are delaying and even canceling some work as they adjust to oil prices that have fallen more than 60 percent since peaking in July above $147.

Many companies have slashed capital spending budgets for at least the coming year. Just last week, ConocoPhillips and the state-run Saudi Arabian Oil Co. said they’ve postponed construction of a multibillion-dollar refinery in Saudi Arabia because of the uncertain economy.

Royal Dutch Shell PLC, Europe’s largest oil company, said last month it was pushing back a decision on expanding an oil sands project in Canada.

Another huge obstacle for the multinational oil giants like Shell and Exxon Mobil Corp. is gaining access to potential new sources of fossil fuels. State-run oil companies control about 80 percent of global oil reserves and, for now, are keeping a tight grip on their assets.

“Even (in the United States) we’re limiting access,” said Mary Novak, an energy analyst at IHS Global Insight. “The $20 trillion figure sounds good, but who’s going to spend it and where are they going to spend it is the biggest problem.”

The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 — 10 million barrels per day less than projected last year.

The IEA is a policy adviser to 28 member countries, mostly industrialized oil consumers.

China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand center.

The agency said that these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit conditions could delay spending.

Last year, Platts, the energy information arm of McGraw-Hill Cos., said companies that produce, refine and transport oil and natural gas will need as much as $21.4 trillion in capital expenditures through 2030 to meet the world’s energy demands.

However, Platts also noted the industry already was falling behind the spending curve, in part from limited access to new potential reserves for the major multinational oil companies.

The Organization of the Petroleum Exporting Countries, which pumps around 40 percent of the world’s oil, cut output by 1.5 million barrels per day from Nov. 1 to counter a recent fall in the price of crude from a high of $147 in July to under $59 on Wednesday.

OPEC has also warned that crucial downstream investment — in refining and distribution — will be curtailed if the oil price is not maintained at a reasonable level.

Those curtailments are already happening. In addition to the postponement by ConocoPhillips and Saudi Aramco, North American refining giant Valero Energy Corp. has said it will curtail capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. said its delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

The IEA has nearly doubled its forecast for the price of oil over the next twenty years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies.

It hiked its forecast for the price of a barrel of oil in 2030 to just over $200 in nominal terms, compared to its forecast last year of $108 a barrel. Measured in constant dollars, it pegs oil at $120 a barrel in 2030, up from last year’s forecast of $62.

Over 2008 to 2015, it predicts the price to average $100.

The report also highlighted the expected rapid growth of renewable energy resources. It predicts that world renewables-based electricity generation — mostly hydro and wind power — will overtake gas to become the second-largest source of electricity, behind coal, before 2015.

____

Pickens: Oil prices heading back up
November 11, 2008 6:50 PM ET
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Associated PressAll Associated Press news

PHOENIX (AP) - When billionaire oilman and investor T. Boone Pickens launched his plan this summer to boost the use of wind and natural gas to ease American dependence on foreign oil, gasoline prices were at a record $4.11 a gallon and oil prices were at $147 a barrel.

Now oil prices are at a 20-month low, falling to $59.33 a barrel on Tuesday, and gasoline prices have plummeted to below $2 a gallon in many parts of the country.

“I think I’ve done a pretty good job,” he said, generating a laugh at the annual Edison Electric Institute convention of the nation’s power executives.

Pickens acknowledged later at a news conference that there is more than one factor for the collapse of oil prices, including the slowing economy that many analysts say has gone into a recession.

Now with oil prices down, Pickens has said he has reduced what he planned to spend on his campaign — trimming spending to $40 million to $50 million from his initial plan of about $60 million.

He also said the collapse in natural gas prices has forced him to put his wind farm project for Texas on hold.

Pickens has leased hundreds of thousands of acres for a giant wind farm in West Texas, where he plans to erect 2,700 turbines and produce energy for urban areas such as Dallas and Fort Worth.

Historically, there is much less talk about turning to renewables when energy prices get low.

But Pickens said not to worry, oil prices will be heading back up and soon.

“I don’t see any lower than it is today,” he said.

He said that oil will be back to $100 a barrel within a year and that all other commodities will jump back up as well — making his plan more viable.

“Oil is not going to save us,” he said of plans to increase drilling in the U.S.

Pickens’ plan focuses on using natural gas as a transportation fuel and then counting on wind and solar to take the place of natural gas as a source to generate electricity. Natural gas currently generates about 20 percent of the electricity in the U.S.

He also touted coal, solar and nuclear power to help generate more energy and then for a transmission system that will bring the power generated by wind from the Midwest to other parts of the country.

He said if his plan is implemented, oil imports can drop 30 percent to 40 percent within three to five years.

“I see myself very much as a pioneer,” he said. “I understand the problem and realize something has to be done.”

Like other investors, Pickens has been hit hard by the collapse of stock prices. He said his hedge fund is down 62 percent since July.

© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Peak oil primer and links

On this page:

1. Peak oil primer
2. Links and further information
3. What can be done?

1. Peak oil primer

What is peak oil?

Peak oil is the simplest label for the problem of energy resource depletion, or more specifically, the peak in global oil production. Oil is a finite, non-renewable resource, one that has powered phenomenal economic and population growth over the last century and a half. The rate of oil ‘production’, meaning extraction and refining (currently about 84 million barrels/day), has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production becomes ever more likely stop growing and begin a terminal decline, hence ‘peak’. The peak in oil production does not signify ‘running out of oil’, but it does mean the end of cheap oil, as we switch from a buyers’ to a sellers’ market. For economies leveraged on ever increasing quantities of cheap oil, the consequences may be dire. Without significant successful cultural reform, severe economic and social consequences seem inevitable.

Why does oil peak? Why doesn’t it suddenly run out?

Oil companies have, naturally enough, extracted the easier-to-reach, cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and ’sweet’ (meaning low sulfur content) and therefore easy to refine. The remaining oil is more likely to be off-shore, far from markets, in smaller fields and of lesser quality. It therefore takes ever more money and energy to extract, refine and transport. Under these conditions, the rate of production inevitably drops. Furthermore, all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless, no matter what the price of oil.

M. King Hubbert – the first to predict an oil peak

The Hubbert Curve is used to predict the rate of production from an oil producing region containing many individual wells. Source: aspoitalia.net

In the 1950s the well known U.S. geologist M. King Hubbert was working for Shell Oil. He noted that oil discoveries graphed over time tended to follow a bell shape curve. He supposed that the rate of oil production would follow a similar curve, now known as the Hubbert Curve (see figure). In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Despite efforts from his employer to pressure him into not making his projections public, the notoriously stubborn Hubbert did so anyway. In any case, most people inside and outside the industry quickly dismissed the predictions. As it happens, the US lower 48 oil production did peak in 1970/1. In that year, by definition, US oil producers had never produced as much oil, and Hubbert’s predictions were a fading memory. The peak was only acknowledged with the benefit of several years of hindsight.

No oil producing region fits the bell shaped curve exactly because production is dependent on various geological, economic and political factors, but the Hubbert Curve remains a powerful predictive tool.

In retrospect, the U.S. oil peak might be seen as the most significant geopolitical event of the mid to late 20th Century, creating the conditions for the energy crises of the 1970s, leading to far greater U.S. strategic emphasis on controlling foreign sources of oil, and spelling the beginning of the end of the status of the U.S. as the world’s major creditor nation. The U.S. of course, was able to import oil from elsewhere. Mounting debt has allowed life to continue in the U.S. with only minimal interruption. When global oil production peaks, the implications will be felt far more widely, and with much more force.

What does peak oil mean for our societies?

Our industrial societies and our financial systems were built on the assumption of continual growth – growth based on ever more readily available cheap fossil fuels. Oil in particular is the most convenient and multi-purposed of these fossil fuels. Oil currently accounts for about 43% of the world’s total fuel consumption [PDF], and 95% of global energy used for transportation [PDF]. Oil and gas are feedstocks for plastics, paints, pharmaceuticals, fertilizers, electronic components, tyres and much more. Oil is so important that the peak will have vast implications across the realms of war and geopolitics, medicine, culture, transport and trade, economic stability and food production. Significantly, for every one joule of food consumed in the United States, around 10 joules of fossil fuel energy have been used to produce it.

The ‘Hirsch Report’

A U.S. Dept. of Energy commissioned study “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” [PDF] was released in early 2005. Prepared by Science Applications International Corporation (SAIC), it is known commonly as the Hirsch Report after its primary author Robert L. Hirsch. For many months the report, although available on the website of a Californian High School, remained unacknowledged by the DOE. The executive summary of the report warns that:

as peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking. [Emphasis added.]

A later paper by Hirsch recommends the world urgently begin spending $1 trillion per year in crash programs for at least a decade, preferably two, before peaking. Obviously, nothing like the kind of efforts envisaged have yet begun. Hirsch was not asked to speculate on on when the peak was likely to occur.

So when will oil peak globally?

Later in life M. King Hubbert predicted a global oil peak between 1995 and 2000. He may have been close to the mark, except that the oil shocks of the 1970s slowed our use of oil.

As the following figure documents, global oil discovery peaked in the late 1960s. Since the mid-1980s, oil companies have been finding less oil than we have been consuming.

Of the 65 largest oil producing countries in the world, up to 54 have passed their peak of production and are now in decline, including the USA in 1970/1, Indonesia in 1997, Australia in 2000, the North Sea in 2001, and Mexico in 2004. Hubbert’s methods, as well as other methodologies, have been used to make various projections about the global oil peak, with results ranging from ‘already peaked’, to the very optimistic 2035. Many of the official sources of data used to model oil peak such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be frighteningly unreliable. Several notable scientists have attempted independent studies, most famously, Colin Campbell with the Association for the Study of Peak Oil and Gas (ASPO).

ASPO’s latest model suggests that regular conventional oil reached an all time peak in 2005. If heavy oil, deepwater, polar and natural gas liquids are considered (the ‘all-liquids’ category), the oil peak is projected for around 2010. Combined oil and gas are expected to also peak globally around 2010.

Other notable researchers such as Princeton University Professor Emeritus Kenneth Deffeyes, senior advisor to the Iranian National Oil Company A. M. Samsam Bakhtiari, UK Petroleum Review editor Chris Skrebowski, energy banker and former advisor to the president Matthew Simmons and the researchers at The Oil Drum, have all projected similar peaks using quite varied methodology. A recent survey suggests that their perspective has become the consensus among informed observers and industry insiders[PDF].

Already peaked? A study by the German Government sponsored Energy Watch Group, oil billionaire T. Boone Pickens, and the former head of exploration and production at Saudi Aramco, Sadad al-Huseini have all recently supported the view that global crude oil production has peaked. However, the previous long standing production peak from May 2005 was finally surpassed in February 2008. The Wikipedia Oil Megaprojects database, maintained by contributors from The Oil Drum, suggests that production could rise again until a peak in 2010.

Decline rates

Whether or not we’ve passed the peak, the most significant question may be: What will be the future rate of decline of oil production? Some form of co-ordinated adaptation might be possible if the annual drop in available oil was no more severe than 1-2% a year. Whereas 10% or more would soon implode the global economy. Most models project decline rates which reach 2-4%.

Exports

Nations dependent on imports are likely to find that their access to oil will fall at a far sharper rate than the global decline rate. Higher oil prices are stimulating the economy of exporting nations which increases their internal consumption. Combined with a national peak in oil production, exports from any particular nation can drop to zero disturbingly quickly.

Natural gas peak

The effects of natural gas peak are relatively localized. This is due to the enormous economic and energetic expense of liquefying and transporting natural gas as a compressed liquid. Both European and North American natural gas production have already peaked, so these regions are facing the extra severity of a dual energy crisis.

But it’s just oil and gas – there are other fossil fuels, other energy sources, right?

To evaluate other energy sources it helps to understand the concepts of Net Energy, or the Energy Returned On Energy Invested ratio (EROEI). One of the reasons our economies have grown so abundant so quickly over the last few generations is precisely because oil has had an unprecedentedly high EROEI ratio. In the early days of oil, for every barrel of oil used for exploration and drilling, up to 100 barrels of oil were found. More recently, as oil recovery becomes more difficult, the ratio has become significantly lower. Certain alternative energy ’sources’ may actually have EROEI ratios of less than one, such as many methods of industrially producing biodiesel and ethanol, or extracting oil from shale. That is, when all factors are considered, you probably need to invest more energy into the process than you get back.

Hydrogen, touted by many as a seamless solution, is actually an energy carrier, but not an energy source. Hydrogen must be produced using an energy source such as natural gas or nuclear power. Because of energy losses in transformation, the hydrogen will always contain less energy than was invested in it.

Some alternatives such as wind and hydro-power may have much better EROEI, however their potential expansion may be limited by various physical factors. Even in combination it may not be possible to gather from renewable sources of energy anything like the rate and quality of energy that industrial society is accustomed to. Peak oil author Richard Heinberg uses the metaphor that whereas fossil fuels are akin to a massive inheritance, one spent rather drunkenly, renewables are much more like a hard won energy wage.

For certain tasks, such as air travel, no other energy source can readily be substituted for oil. As noted by the Hirsch reports, alternative energy infrastructures require long periods of investment, on the scale of decades, to be widely implemented. We may be already leaving the period of cheap energy before we have begun seriously embarking on this task.

It’s worth noting briefly that any EROEI study is complex and different methods of accounting can come up with vastly different results, so any net energy study might be viewed with some suspicion. We may not know with total certainty the usefulness of any renewable energy technologies until the hidden fossil fuel energy subsidies are finally removed.

2. Further information

Deeper introductions:
Wolf at the Door: A Beginner’s Guide to Oil Depletion – available in French, Polish and English.
Life After The Oil Crash – Matt Savinar’s question and answer style peak oil blockbuster website.

Peak oil and climate change: If peak oil merely threatens industrial civilisation, climate change promises to destabilize the planetary biosphere. The two issues are integrally related, and solutions to peak oil can also address climate change. Consider how we might bridge peak oil and climate change activism. David Holmgren has begun integrating peak oil and climate change into a global scenario planning framework.

Peak coal: Recent studies suggest that we may reach ‘peak coal’ much sooner than previously thought. Chris Vernon rounds up five recent reports to that effect over at The Oil Drum: Europe.

Peak everything: Peak Everything is the name of a forthcoming book by peak oil author Richard Heinberg. Globally we have already passed peaks or are soon to be facing them in copper, phosphorous, fish catches, grain production, per capita fresh water and uranium to name but a few. This is no coincidence, we have been consuming the world’s resources at an unprecedented rate. The human population, which has risen in lockstep with fossil fuel production, will likely peak more or less in sync with these fuels.

Oil and food production: Essays The Oil We Eat by Richard Manning, and Eating Fossil Fuels by Dale Allen Pfeiffer both look at modern agricultures’ dependence on fossil fuels. Both are highly recommended.

Audio and video:
Global Public Media – essential interviews on peak oil and environmental issues
Peak Oil? – a 44 minute TV special from Four Corners (Australia), viewable online (July 2006)
The End of Suburbia and A Crude Awakening – two excellent peak oil documentaries purchasable on DVD.

Research and reference articles:
ASPO – original research from The Association for the Study of Peak Oil & Gas
ASPO Ireland – the Irish branch of ASPO through which Colin Campbell now publishes the ASPO monthly newsletter
ASPO-USA publishes about 3 good articles every week (many of which are republished here)
The Oil Depletion Analysis Centre (ODAC) has a good website that is frequently updated
The Oil Drum – the breaking edge of community peak oil research
DieOff.com – an alarming but scholarly archive of research. The original peak oil website.

News and commentary:
The Oil Drum the daily Drum Beat is a collation of news stories

Peak Energy Australian Big Gav’s aggregation and commentary on energy related news

Gristmill – environmental news and articles, with an increasing emphasis on energy, sustainability and climate

Resource Insights – Kurt Cobb publishes intelligent peak oil informed commentary on a broad range of issues.

Casaubon’s Book – several essays and how-to articles a week from author, mother and farmer Sharon Astyk

James Kunstler’s blog – peak oil commentary with a special focus on cultural decline. See both www.kunstler.com and jameshowardkunstler.typepad.com

Crisis Energética – peak oil news in Spanish

Mailing lists:
RunningOnEmpty3 – a group for peak oil beginners
EnergyResources – the original peak oil focused email list
RunningOnEmpty2 – a more solutions, self-sufficiency focused list
groups.yahoo.com/group/EnergyRoundTable – a group emphasizing discussion and politics

There are numerous local mailing lists too, many on yahoo can be found at this link:
groups.yahoo.com/search?query=peak%20oil&ss=1

More links, including books to read: An excellent list of links is maintained here:
www.dynamiclist.com/?worldview/peakoil

3. What can be done?

Many people are working on preparations for peak oil at various different levels, but there is probably no cluster of solutions which do not involve some major changes in lifestyles, especially for the global affluent. Peak oil presents the potential for quite catastrophic upheavals, but ultimately also some more hopeful possibilities: a chance to address many underlying societal problems, and the opportunity return to simpler, healthier and more community oriented lifestyles.

The Post Carbon Institute Outposts.The Post Carbon Institute is a think tank devoted to exploring the implications of, and preparing for, peak oil, focusing on relocalization. They write, “the most important initiative of the Post Carbon Institute is working with groups of concerned citizens to prepare their community for the Post Carbon Age. These groups are Outposts in the sense that they are community-based extensions of the Post Carbon Institute; they operate autonomously yet receive guidance and electronic infrastructure from the Institute. Outposts work cooperatively in their local community to put theory about living with less hydrocarbons into practice while sharing knowledge and experiences with the global network of outposts.”
www.postcarbon.org
www.relocalize.net

The Community Solution to Peak Oil. Many excellent resources are available through the website of this Ohio based organization “dedicated to the development, growth and enhancement of small local communities… that are sustainable, diverse and culturally sophisticated.” The Community Solution have hosted several recent grassroots peak oil conferences, and have developed an important film, The Power of Community: How Cuba Survived Peak Oil, documenting how this country has relatively successfully adapted to a political oil peak after the collapse of the Soviet Union.
www.communitysolution.org

Permaculture: Permaculture is a ‘design science’ which can allow us to live in relative abundance with minimal resource use. Permaculture principles and practice can be applied to functionally redesigning social systems, built environments, ecological and agricultural practices the post-peak era. David Holmgren’s 2001 book, Permaculture: Principles and Pathways Beyond Sustainability, deals explicitly with the global oil peak and proposes permaculture as the best set of strategies for dealing with what he terms ‘energy descent’.
www.permacultureactivist.net
www.permacultureinternational.org
www.holmgren.com.au

Transition Towns: Several communities around the world have begun their own preparations for peak oil, and are documenting the process. The Kinsale Energy Descent Action Plan out of rural Ireland is the world’s first local action plan for peak oil, dealing with broad issues relating to peak, including health, education, tourism and youth issues. The plan and its initiator Rob Hopkins have inspired the Transition Towns movement of peak oil preparing towns, focused in Europe. In the US, local organizers within the town of Willits, Califonia have begun work on the Willits Economic LocaLization Project (WELL). Many other communities around the world are embarking along similar paths.
www.transitionculture.org - Rob Hopkins’ blog
www.transitiontowns.org
www.willitseconomiclocalization.org

Oil Awareness Meet Ups is a grass roots awareness raising network helping people meet up and discuss peak oil. Join or start a meet-up in your neighborhood.
oilawareness.meetup.com

Local Currencies and Steady State Economics:
Local Currencies: Richard Douthwaite, a ‘recovering economist’, has proposed a number of alternative monetary systems to deal with energy decline and the associated monetary crises which might arise post-peak. Local currencies like LETS are in operation around the planet already (although LETS itself may be somewhat problematic). Experiment now with local currencies to help survive economic crises.
The Foundation for the Economics of Sustainability (FEASTA) has some of Richard Douthwaite’s publications available for free online, including entire books as well as masses of other excellent research and articles by other writers, relating not just to economics and local currencies, but to various aspects of sustainability.
See also: www.communitycurrency.org/resources.html

Intentional Communities: Intentional Community (IC) is an inclusive term for ecovillages, cohousing, residential land trusts, communes, student co-ops, urban housing cooperatives and other related projects and dreams… ICs represent one of the sanest ways of dealing with energy peak.
www.ic.org
gen.ecovillage.org
www.cohousing.org

The Oil Depletion Protocol: is a global framework for distributing the world’s remaining oil reserves more equitably than free market forces would allow, to avoid resource wars, profiteering and economic collapse. Help promote it:
How to avoid oil wars, terrorism, and economic collapse by Richard Heinberg
Oil Depletion Protocol website

Tradable Energy Quotas (TEQs) are a system for rationing fuel which includes everyone – individuals, industry and the Government – and which enables users to sell any rations they do not use.
www.teqs.net

Lobbying: Lobby governments to spend now on renewable energy and improving agricultural practices. Many facts are summarized in the following ‘convince sheet’ by Bruce Thomson: greatchange.org/ov-thomson,convince_sh

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