Questions remain about Saudi oil

Econbrowser: Questions remain about Saudi oil:

It’s also interesting to note that these drops in Saudi production have coincided with a huge increase in Saudi drilling efforts. The graph below, taken from the Oil Drum, shows estimates of Saudi production from the U.S. Energy Information Administration (green line) and International Energy Agency (purple) along with the number of oil rigs in operation (blue). The Saudi explanation is that they are aggressively trying to develop more excess capacity, though, if that’s their intention, why not use existing capacity to prevent the price from rising to $75? One can’t help but wonder that, when Saudi production peaks, the graphs and official statements might be quite similar to what we’re seeing right here. That possibility is conceivably one of the factors driving those investment funds to keep on buying oil futures.

Oil production and megaprojects

Stuart Staniford of The Oil Drum discusses the Petroleum Review’s rather optimistic projections of future oil production based on new megaprojects coming on line over the next few years.

The executive summary is that while I think this report

  • was a good deal of work and is a considerable service to the public
  • has some improvements from prior “bottom-up” reports

nonetheless, to no-one’s surprise perhaps,

  • I don’t think this methodology is reliable at this time.
  • I disagree with the conclusions of the report.

Staniford presents a graph of daily oil production:

Daily Oil Production 2002-2006

Average daily oil production, by month, EIA and IEA (corrected) estimate averaged. Also a nine month centered moving average of the monthly series. Click to enlarge. Believed to be all liquids. Graph is not zero-scaled. Source: IEA, and EIA.

My basic view is that we are in a bumpy plateau until we hit a big oil shock because one of the various simmering problems around the global oil supply system boils over and sharply cuts supply for a while. Or in the alternative, we are in a bumpy plateau until the housing-bubble/crazy-hedge-fund-credit-derivative/global-trade-imbalance situation blows up and cuts demand for a while (eg see Mish for a primer). My wild-ass-guess probability of one of those things happening is about 0.2-0.4 per year. Which means we won’t have to wait too many years.

All this via James Hamilton’s piece at Econobrowser on the consequences for oil prices.

Stuart Staniford … argues that the free-market economies such as the U.S., Canada, and Europe, in which consumers have not been protected from the price increases, are the places we have seen reductions in the quantity of oil consumed so far, whereas the growth in demand is strongest where the price remains subsidized.

That is a very interesting observation, and I agree that the oil producing countries with their growing incomes may make an important contribution to global petroleum demand in the years to come. But I would hesitate to dismiss the role of the incentive to conserve even in those consuming countries where the governments currently appear inclined to pretend none of this is really happening. Even if consumers don’t have an incentive to respond, the governments themselves, however unenlightened as they may be, are surely going to notice the effect of trying to maintain a subsidy on their own budgets, and eventually will find themselves without the resources to keep their fingers in the dike.

In sum, oil prices are volatile, oil production is hard to predict, and regardless of what happens, someone is going to be able to say, “I told you so.”

‘No quick fix’ from nuclear power

The BBC reports:

Building new nuclear plants is not the answer to tackling climate change or securing Britain’s energy supply, a government advisory panel has reported. The Sustainable Development Commission (SDC) report says doubling nuclear capacity would make only a small impact on reducing carbon emissions by 2035.

The body, which advises the government on the environment, says this must be set against the potential risks.

The government is currently undertaking a review of Britain’s energy needs.


Revisiting ethanol

A group of researchers from UC Berkeley have published a paper that tries to reconcile conflicting studies on the energy efficiency of using ethanol as a transportation fuel. From the press release:

The analysis, appearing in this week’s issue of Science, attempts to settle the ongoing debate over whether ethanol is a good substitute for gasoline and thus can help lessen the country’s reliance on foreign oil and support farmers in the bargain. The UC Berkeley study weighs these arguments against other studies claiming that it takes more energy to grow the corn to make ethanol than we get out of ethanol when we burn it.

The report concludes that ethanol from corn has a slightly positive energy return (that is, somewhat less fossil fuel is used to produce it than is produced), and conjectures that cellulosic ethanol would be a much bigger win.

The study neglects important costs such as displacement of food-crop land and erosion.

Additional environmental metrics are now being developed for biofuels, and a few have been applied to ethanol production, but several key issues remain unquantified, such as soil erosion and the conversion of forest to agriculture

The paper’s abstract:

To study the potential effects of increased biofuel use, we evaluated six representative analyses of fuel ethanol. Studies that reported negative net energy incorrectly ignored coproducts and used some obsolete data. All studies indicated that current corn ethanol technologies are much less petroleum-intensive than gasoline but have greenhouse gas emissions similar to those of gasoline. However, many important environmental effects of biofuel production are poorly understood. New metrics that measure specific resource inputs are developed, but further research into environmental metrics is needed. Nonetheless, it is already clear that large-scale use of ethanol for fuel will almost certainly require cellulosic technology.

Elsewhere, Gary Jones is unhappy about the paper:

Water use, biodiversity reduction, soil CO2 and methane emissions from cultivation and a host of other considerations are also glossed over, mainly by pointing to a future when the cellulose rather than just the starch component of plants can be used in a multi-step process that uses microorganisms to first turn the cellulose into starch so that other microorganism can turn the starch into ethanol. It is assumed that the ethanol yield will then be so great that any environmental or production costs will be insignificant in comparison. They also fail to consider other competing uses for the biomass or the resources consumed in its production, and switch back and forth between static views of present behaviors and dynamic futures when it favors their arguments. For example they say that there are “a billion tons of currently unused waste available for ethanol production”, but fail to note that these “unused wastes” are resources rapidly being discovered as their value rises. They aren’t wastes, they are resources that have had low values though that is changing.

The full paper is available on Science Magazine’s website (subscription required).

Related post: Corn-fed pork

Monbiot: Nuclear energy

“Every dollar invested in nuclear expansion will worsen climate change by buying less solution per dollar.”

While the context of George Monbiot’s article on nuclear energy is British politics, it’s directly relevant to the US as well.

Ten cents of investment, he shows, will buy either 1 kilowatt-hour of nuclear electricity; 1.2-1.7 of windpower; 2.2-6.5 of small-scale cogeneration; or up to 10 of energy efficiency. “Its higher cost than competitors, per unit of net CO2 displaced, means that every dollar invested in nuclear expansion will worsen climate change by buying less solution per dollar.” And, because nuclear power stations take so long to build, it would be spent later. “Expanding nuclear power would both reduce and retard the desired decrease in CO2 emissions.”

It’s certainly a good idea, as people like Sir David recommend, to have a “diversified energy portfolio”. But, as Lovins points out, “this does not mean … that every option merits a place in the portfolio purely for the sake of diversity, any more than a financial portfolio should include bad investments just because they’re on the market.” Building new nuclear power stations in the United Kingdom would be a political decision, not a scientific one.

Public policy and climate change

John Quiggin argues that a dramatic reduction in (carbon-based) fuel use can be accomplished via an accumulation of small reductions through a combination of price responsiveness and public policy.

Adding all of these modest changes together would yield a reduction in fuel use of more than 50 per cent Some of these changes would be imperceptible, others would require marginal adjustments over a couple of decades. Taken all together, they would be barely noticeable relative to the changes in lifestyle that most people experience over such a period.


Oil: Caveat Empty

Exxon Mobil sees an oil peak.

In the May/June issue of the Bulletin of the Atomic Scientists, Alfred J. Cavallo writes,

Without any press conferences, grand announcements, or hyperbolic advertising campaigns, the Exxon Mobil Corporation, one of the world’s largest publicly owned petroleum companies, has quietly joined the ranks of those who are predicting an impending plateau in non-OPEC oil production. Their report, The Outlook for Energy: A 2030 View, forecasts a peak in just five years.

Granted, that’s a “non-OPEC” peak; Exxon Mobil makes some rather optimistic (and, as Cavallo points out, unrealistic) assumptions about OPEC picking up the slack.

The Exxon Mobil report is online.