Peak Oil Point/Counterpoint

Haven't heard as much from Raytheon as we have from some of the other large integrators, but that may change soon. Recently you got a dose on this blog of Peak Oil skepticism from Michael Lynch, now here's Raytheon's rank Prautsch with a bit of a rebuttal. Citing stats from 2006's "Black Gold - The New Frontier in Oil for Investors" written by energy reporter George Orwel (not the famous British author - there are 2 l's in his last name as you recall), Prautsch recommends the book for its evaluation of the consequences of an "oil peak", the introduction of alternative fuels, oil price dynamics, and where oil investors are heading in the future. Here's more from Prautsch:

Shell geologist Marion Hubbert mathematically calculated a US Oil peak in production in 1969. He collected data on how much oil had been discovered and produced in the lower 48 states  from 1901 until 1956. His data showed that US oil reserves had risen rapidly from 1901-1930 and then slowed with an oil production drop at a rate of approximately 2 percent per year after 1969. The truth of the matter is that he was right.

More recently geologists and economists have been debating over predictions on a global scale using Hubbert's Curve. World-scale data spreads a complex series of  factors and  opinions that are based on founded and unfounded reserves, OPEC leverage or manipulation, new technologies to optimize production, alternative and nuclear fuel offsets, systematic overbooking of reserves to inflate valuation, and speculative demand from developing nations. Based upon interviews with numerous oil companies,Orwel concludes that we have a best case of 30 years. This best case is driven by economic drivers prevailing in the above factors. Some worst case predictions (geologically) passed us last year as the possible peak.

My personal conclusion is that we have a finite oil capacity on this planet and that the appetites of India, China and other developing nations are going to knock us off of our predictive optimism, making a peak of 2021-2026 actually look good. Even with electric propulsion, renewables, biofuels, and all the other energy sources in play, we are still going to come up shallow on crude oil.

OK, I'm going to leave this topic for now. Oil seems have settled into a bit of a groove lately near $70/barrel as the world waits to see how much of a global recovery we're going to have how soon. Feels like we're a million miles away from last summer's $147/barrel price peak and the steep descent to $30/barrel after that. It's not quite "Remember the Alamo," but you should definitely remember the volatility.

Peak Oil, Shmeak Oil says Woods

I subscribe to Peak Oil theory, which says there's a finite amount of oil in the ground and that we're approaching the time when the amount we extract is going to begin to decline. But because it's complicated and hard to prove, I could be wrong, and you need to see this.

Thanks to Thomas Barnett (whose blog I read daily) for posting this piece. Highlighting energy consultant Michael Lynch's recent case that Peak Oil theorists are wrong and that there's plenty of global Texas Tea for the foreseeable future, Barnett knows is going incite a (not necessarily quiet) riot. Regardless, we need input on all sides of this most central of debates.

Holiday Energy Security Reading List for 2008

Howdy all. I haven't even had my first sip of eggnog as I've found myself knee deep (or more accurately, up to my neck) in research for a forthcoming white paper on fully aligning the Pentagon with the incoming administration on energy security. Here are a few additional docs I've stumbled upon in the process ... all from 2008 and all of which are worth a read if you can spare a few minutes:

• "Remodeling the US Government for Energy Security" by Sharon Burke and Christine Parthemore of the Center for a New American Security (CNAS) (PDF here)
• Another CNAS piece: "Peak Oil: A Survey of Security Concerns" by Neil King Jr (PDF here)
  
• "The Fuel Gauge of National Security" by Navy Commander Jeffrey Eggers in the Armed Force Journal
• By James Russell and Daniel Moran: "The Militarization of Energy Security"

Good luck with this assignment. I'll see you on the other side of New Years Day.   

The World According to Oil

Here's another post coming out of the recent NDU Admiral Moorer Military Energy Conference. This is a different way of looking at the world, wouln't you say? And it's worthwhile noting that while 85% of reserves were available to the major International Oil Companies (IOCs like ExxonMobil, BP, Shell, etc.) as recently as the 1970's, widespread nationalization of oil assets since that time now means the IOCs are left to fight over less than 10% of the world's oil.

All that to say, next time gas prices go up, you can blame the big oil co's you're familiar with, but they will not be the primary cause of the pain. Not by a long shot. In fact, other than Saudi Aramco, they are the only orgs with the technology to get increasingly hard-to-reach oil out of the ground. Without them having access, a lot of that oil is going to remain right where it is.

Map Courtesy of US Congressman Roscoe Bartlett

Wanted: 4 Saudi Arabias

In the same article yesterday that cited oil dipping to $54 a barrel, the lead economist at the International Energy Agency (IEA) noted production is declining worldwide. Looks like economic activity is falling faster than production so the price is still dropping. But here's the cruel and ironic part: 

Recent oil project delays announced by several companies could spark a supply crunch by 2010, Birol warned.

So the same economic conditions that are keeping price down today are also scuttling exploration and development projects that could increase supply in the future. And even accounting for the current global economic slowdown, expected increases in demand mean a shortfall is looming:

The IEA ... forecast that extra oil production of 45 million barrels per day was needed by 2030 to offset declining oilfield output. That [is] more than four times the current capacity of Saudi Arabia, which is the world’s biggest oil producer.

Personally, I feel that one Saudi Arabia is more than enough, and that there's very little chance of us finding the equivalent of one more, let alone four. So we better get used to doing more with less, or figure out a way to make new fuel fast. Enjoy the low prices today ... the days of inexpensive oil are certainly numbered.

DOD's Oil Clock is Ticking

I'm not exagerating when I tell you Dr. Sohbet Karbuz's "Can the U.S. military move to renewable fuels?" in last month's Bulletin of Atomic Scientists is perhaps the best, most consice summation of the militay's fuel concerns in 2008. Informed by a career of research and monitoring of global energy issues for the International Energy Agency (IEA), Karbuz writes from a consistently constructive point of view, and has been paying particular attention to the DOD for years. Compared with me, he's a true expert, and yet my own observations are almost completely in sync with his.

From speaking with senior leadership, and watching where they've put the bulk of their recent energy efforts, it seems DOD is more interested in boasting about its big electricity projects, like a very large solar installation at Nellis AFB, or wind turbines a Guantanemo, than in treating the fuel issue like the institutional life and death issue that it is.

Karbuz himself cannot help but draw discouraging conclusions from the current state of DOD energy activities which seem focused on the lesser of its great challenges:

It is a pity that most of the Pentagon's efforts are concentrated on generating electricity, which accounts for less than 12 percent of military energy consumption, and not on oil, which accounts for more than 75 percent.

Hopefully with the advent of the fully burdened cost of fuel (FBCF) initiative in the 2009 NDAA, we'll start to see a change. But it's got to come fast, to an institution that's often averse to change. It will be decades before the the systems designed today are fielded. Do you the next planes and ships are being designed with fuel efficiency or new fuels in mind?

DNI Mike McConnell Sees Global Trouble Ahead ...

... and oil is right in the middle of it. Iraq and Afghanistan have been no walk in the park, and both will demand serious attention and consume substantial DOD resources for years. But if DNI is correct, things may only get busier for DOD in the coming two decades:

Territorial expansion and military rivalries are not likely, but cannot be ruled out, and the perception that oil is scarce could trigger conflicts between states.

I think he's being overly conservative using the term "the perception." In the 20th century we saw oil play a strategic role in economic and military success. In the 21st century there are already clear sigals that oil and gas price and availability are key leverage points for Russia and OPEC.  The pressure will come not just from the supply side, but from countries jockeying for what they see as their rightful part of the supply. As we move further into this century, McConnell sees that:

By 2025, China is likely to have the world's second largest economy and to have emerged as a major military power, the largest importer of natural resources and the largest contributor to world pollution.

It's all about energy security: the more we can move DOD and the rest of the economy off the oil standard, the less vulnerabile the US will be to the turmoil McConnell and many others see coming. Those working the problem today know it's a tough, tough problem. They need all the help we can give them.

Image courtesy of Wikimedia Commons

Energy Decision Makers' Dilemma: How Much Will Oil Cost Next Year? In 5 Years? In 20?

Let's say you run DOD. Today you observed that when congress voted down the Wall Street bail-out plan the stock market fell 700 points. And as it fell, it took the price of oil with it, over $10, so a barrel of oil is once again priced at less than $100. Feels almost like a bargain. When economists forecast a slowing economy, they also forecast lower demand for energy. But given all the efforts you've set in motion recently to add energy efficiency and conservation to policy, do you consider today's events to be good news or bad news for the department?

If you'd read Simmons' 2005 book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," your take on oil price fluctuations is informed by a more powerful basic trend. Simmons spent years studying peak oil scenarios, paying particular attention to what the Saudi's said they have in reserve, versus what the hard data shows. And he's quite convinced there's a heck of a lot less in Saudi oil fields than the Saudis (and the big oil execs) are claiming is there. A question haunting you today, then, even as oil settles below $100 per barrel, might be: "am I doing enough to make sure DOD can fulfill its missions when oil is $200 per barrel ... and maybe much more than $200?" See this.

WSJ Calls Out Oil Supply Yo-Yo Effect

As mentioned here previously, oil price movement in the era of Peak Oil (or geopolitical Peak Oil) works like a yo-yo, or if you prefer a bit more drama, like the kind of slip knot that gets tighter the more one struggles to break free of it ... heading higher or lower.

So while rising prices reduce demand, they also increase the incentive for the creation of more supply, and raise the bar on which kinds of projects can be considered affordable. However, the converse is that as price falls, and improves the fortunes of individuals, companies, and even the mighty US balance of payments, falling prices reduce the incentives for new development, and make nonsense out of previously sensible projects. Meaning, lower supply in the future and ... here we go again !!! Neil King of the Journal gives a good summation today here.

As Oil Prices Fall ... No Sleeping This Time

The price of oil goes up and down (see previous post on oil price yo-yo), we've seen it all before. Now, with a monster storm named Ike barreling its way through the Gulf of Mexico threatening a significant percentage of US refining capacity, oil's current downward trends are hardly affected by the risk.

Yet as this article points out, this would be a particularly bad time to get complacent on energy security. Many humans seem to prefer reactive vs. proactive thinking. Me, I always prefer making tough decisions when I'm not in crisis mode, and oil dropping back to and through $100, from a late 2008 point of view, seems to be a gift. An unexpected bit of breathing room. Highly recommend DOD not waste it. Peak oil means we'll be back to $150 oil and beyond before we know it.

Peak Oil Chart of EIA

Fuel Price Yo-Yo & DOD Implications

I'm not the first to put it like this. There's an oil price yo-yo going on right now: price goes up, use goes down. Use goes down, price goes down. Price goes down, use goes up, etc. It could be like this for quite a while. However, some people are aiming to give this yo-yo a jerk.

Former SAP VP Shai Agassi has a plan to get the world's cars off oil. I wrote about him here in January when gas was hitting $3 a gallon, and Wired just did a cover story on him here with gas in the US pulling back below $4.

Well, there are a heck of a lot of folks working on this problem and he's just one guy, relatively young, and with very little energy or transportation experience. So he's probably not going to do much, right? But what if he's even partially successful?

Fewer combustion engine cars will mean lower oil demand. Look what's happened to US demand and gas prices in the last few weeks. If entire countries get off oil, demand will plummet and prices will drop. Perhaps this means the Air Force and the air industry will get a a longer runway to develop alternative fuels and approaches as jet fuel remains more affordable, longer?

As a friend if mine said, though, the yo-yo effect doesn't go on forever. At some point further along the Peak Oil curve, use goes down and prices still go up. Well before then it will be good if the Air Force has transitioned fully to the synthetic fuels its aggressively pursing today. F-15s just hit mach 2 on synth fuels !!!