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The FT's Martin Wolf does not believe in peak oil

by Jerome a Paris Wed Jul 5th, 2006 at 01:16:18 PM EST

In his new column on energy, The best hope for energy security, Martin Wolf, after his earlier column that noted the expected growth in world energy demand, takes a look at how supply can provide for such demand. He makes the explicit hypothesis in this article that he will not worry about global warming (promising to come back to the issue specifically in a future column), and looks at the availability of energy sources.

The conclusion is pretty explicit:

Remember that this argument ignores the question of climate change. It asks whether the Malthusians who argue that the world will soon run out of fossil fuels allow the Malthusians who worry about the damage to the atmosphere to cheer up. The answer is an unambiguous no. It will be perfectly possible to run a fossil fuel economy for many decades at prices that are likely to be substantially lower than those of recent times.

most analysts argue that reserves tell one little about available supplies, that higher prices and innovation generate greater extraction from existing fields, that discovery of new (if smaller) fields is continuing and, most important, that unconventional oil resources are still to be exploited (see chart). So even if production of conventional oil were to peak, the oil era would not be over. The question is rather one of price. The potential at a price of $70 a barrel seems huge. Many argue that the price needed to bring forward additional supply is much lower.

Nor does the end of oil mean the end of fossil fuels. Gas and, above all, coal are even more plentiful. Some would counter that petroleum is a unique source of high quality energy for transportation (which itself accounts for one-fifth of commercial energy use). But it is possible to convert coal and natural gas into “syngas” (synthesis gas) and then into liquid fuels. The question is one of cost. The answer is that this would be more expensive than conventional oil, but not prohibitively so.

He provides the following graph:

According to this, long term $40 oil will be enough to provide us with plentiful new sources of oil, like oil sands, ultra deep offshore, and improved recovery from existing fields. There are a number of reasons why this argument is suspect:

    as has been pointed out before, this relies exclusively on the numbers from BP or the IEA, numbers which are highly suspect in many ways. (see this diary - Official US energy statistics are full of shit) - about the latest EIA outlook - note that it's not the same organisation, but their publications - and biases - are similar in many ways. Similarly, BP's numbers rely exclusively on official government data from countries with zero transparency);

  • somehow, the cost threshhold for these new technologies always seems to be a few dollars off current prices. Back in 2001, when I first studied Canadian oil sands, their cost was evaluated to be in the $15-25 range - i.e. barely profitable at then prevailing prices. The same applies today: they would be barely profitable at the suggested medium term prices ($40/bl). This leads to think that these prices are consistently underestimated or, more likely, that they include a large chunk of energy- and commodity-linked inputs whose prices are themselves increasing... thus their actual net cost increases as energy prices increase.

    In a diary back last September, I noted that estimates of oil production costs were going up significantly, both for the average cost and the marginal cost (the most expensive barrel needed to fulfill demand, and the one ultimately driving minimum oil prices):

  • as noted yesterday, and as noted in reaction to his earlier article on energy demand, the implicit link between progress, GDP growth and energy demand is taken - wrongly - for granted, and little thought seems to ever be given to how to slow demand growth, and then reduce demand without damaging our standards of living. Instead, only the question of how to find the supply is asked. The conclusion that we can go on for "many decades", even if true, seems to suggest that the problem that need to be resolved is only what happens during our lifetime, and not what happens to our children and grandchildren.

The article contains the usual casual dismissal of renewable energy, which, as it cannot provide the whole solution, is immediately discounted as useless. Nuclear is put in the same sorry bag.

What role then might be played by nuclear and renewables in such a “business as usual” scenario? “Marginal” seems to be the answer. The big points are that renewable energy is expensive, nuclear energy is controversial and overall demand is set to grow substantially.

There are a number of depressing things to read here:

  • the stupid argument that renewable energy makes a small part of today's supply and therefore cannot become a big part
  • the even sillier argument that because it cannot solve everything, it can be ignored

  • the use of totally unrealistic price hypotheses to demonstrate that coal and gas are cheaper. $4/mbtu for gas is a price that has not been seen for a while (see below, from freecharts.com) and is absolutely unlikely to be for a long time, so it's pretty dishonest to base comparisons on such a price

  • more subtly, even if we accept not to take into account the costs of pollution and global warming into consideration, the choice of a high - market driven - discount rate for all technologies structurally favors those technology with lower investment costs and higher running costs, i.e. hydrocarbon burning plants. Imposing such financing "neutrality" on market rates rather than the lower rates a State-backed utility company could obtain is really an ideological choice that favors carbon burning on a massive scale. I can only refer again to this diary: The real cost of electricity - some numbers

So this story perpetuates all the feelgood stories that maintain the pretense that there is enough oil for the foreseable future, not to mention even more gas and coal, and that alternatives energies are unrealistic and unneeded - and thus that we do not need to do anything - and in particular we don't need to think about conservation and about demand.

I'll wait for his article on global warming to make too rash a conclusion, but this article is not reassuring, to say the least, that we're ever goping to get our elites to take energy issues seriously.

I may have read too much science fiction but if you want a high tech fix (at least for the next few thousand years) how about scooping up hydrocarbons from sources in the outer solar system. Once you produce a conveyor belt of hollowed out asteroids* serving as interplanetary tankers, you could burn all the fuel you like on Earth.

It would no doubt be expensive to set this up, but the ideas involved are pretty well understood and the technology is not so far beyond our current capacity.

* Transit times would be long for any individual cargo, but that will not matter so long as production and transport is constant. It does however give a political weapon to the people doing the mining on moons/scooping up atmosphere from gas giants/diverting comets and asteroids from the Asteroid Belt and the Oort Cloud. Oh well, I am sure their loyalty to the masses on Earth will always prevail over mere self interest (particularly after a few generations not living on Earth).

by Gary J on Wed Jul 5th, 2006 at 01:44:31 PM EST
You left out his prejudicial introduction:
Repent, for the end of the world is nigh. This is an element in many religious beliefs. Thomas Malthus, the early 19th century forefather of environmental doomsayers, brought it into the modern era with his remark that: "The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race." Malthus was wrong: the world's population has risen six-fold since his day, while life expectancy has doubled. So will contemporary Malthusians prove right about energy?

No, Malthus wasn't wrong, he made some bad assumptions. How sure are you that your assumptions are right, Mr Wolf?

by Colman (colman at eurotrib.com) on Wed Jul 5th, 2006 at 01:58:14 PM EST
Smith, Ricardo, and the Mills (James and John Stewart) all agreed with Malthus, by the way. They talked about the end-state of capitalism with the same feeling of doom as physicists of 50 years leter talked about the heat death of the universe.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Thu Jul 6th, 2006 at 06:06:33 AM EST
[ Parent ]
Well this seems to fit with the FT article on biofuels that you quoted two weeks ago, and that showed it would take 700% of EU farmland to cover current liquid fuel consumption!

Meanwhile, I'm reading, among other things, (this is from a recent report by the WorldWatch Institute, no time for a link, you don't want to read it anyway the match is beginning!):

Bioenergy's potential is enormous. Studies suggest that biomass could potentially
supply anywhere from 0 EJ to more than 1,000 EJ of energy by the year 2050. In the
most optimistic scenarios, bioenergy could provide for more than two times the
current global energy demand
, without competing with food production, forest
protection efforts, and biodiversity.

I get the feeling there a propaganda war on. And the oil boys have the ear of the FT?

(Which doesn't mean, btw, that I believe biofuels will fulfil "the most optimistic scenarios").

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jul 5th, 2006 at 03:03:58 PM EST
Latest news to back my suspicion the oil industry is rolling out a propaganda blitz:

Shell says biofuels from food crops "morally inappropriate"

 SINGAPORE, July 6 (Reuters) - Royal Dutch Shell, the world's top marketer of biofuels, considers using food crops to make biofuels "morally inappropriate" as long as there are people in the world who are starving, an executive said on Thursday.

Eric G Holthusen, Fuels Technology Manager Asia/Pacific, said the company's research unit, Shell Global Solutions, has developed alternative fuels from renewable resources that use wood chips and plant waste rather than food crops that are typically used to make the fuels.

Holthusen said his company's participation in marketing biofuels extracted from food was driven by economics or legislation.

This sounds cool, (give or take a ton or two of hypocrisy), except that the only biofuels currently available are first-generation (i.e. from food crops), and that second-generation, or ligno-cellulosic, biofuels (from wood chips or grass or waste) will yet take years to bring on line.

It seems to me that what they don't want (Shell and buddies) is a mandatory raising of the market share of biofuels (that are mixed in with petroleum-based liquid fuels). Looks like they don't like people beginning to believe in Peak Oil.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Jul 6th, 2006 at 10:06:22 AM EST
[ Parent ]
He is not right on conventional oils andnon-conventional oils.

Furthermore, he is probably not right on gas.. except for very specific areas or countries in the medium term (30-50 years).

Unfortunately, I think he is right on coal.

While, changing oil to gas, nuclear and renewables will be the first step and probably quite easy ( maybe there will be maybe some problems adapting the cars). Changing from gas (in the future) to all renewable and nuclear could be...well not necessary... there is plenty of coal to provide energy and fuels for at least another century...even if we consider that all present oil consumption is substituted by coal and then consumption grows at   2 % annual (estimations of 300 hundred years of coal at present consumption are probably quite conservative).

So....we can have a growing economy with fossil fuels.. mmmh sorry.. not fossil fuels... but fossil fuel.. one.. coal.

Secuestration (coal) or renewable-biofueld (plus nuclear). This is the dichotomy I see in the future. Otherwise...global warming...

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Jul 5th, 2006 at 06:58:33 PM EST
There was another good piece in the Dutch Handelsblad some weeks ago on competing zero-emission coal techniques, one of which under development by Shell for years. I still have the article, but it's too late now to run for it and spell it out. I believe the gist of the story that they were getting profitable compared to ordinary coal power plants. So that brings us to the point: how bad is bruning coal with zero emission techniques?

There still is the element of mining to consider which hardly ever was environmentally friendly for coal. The second element is this notion of syn-gas - which scares the beehives out of me. As stated before, as I currently understand it, transportation is the biggest contribution to anthropogenic GHG and the fastest growing sector in GHG production. It's not just the USA as Jerome recently diaried; this is for Europe... And what to think when China gets off the bicycle and into the car? Electric cars (or other) will have to come in at some point, and the possibility of stacking the cards on syn-gas is not the direction where I'd want the industry to go. Car industry will again not be largely motivated for innovative change as long as syn-gas allows upholding the misguided 19th century exhausting design.

So: Is coal acceptible when

  • it is burned only by zero-emission techniques
  • it is dominantly used to generate electricity
  • avoid tranforming it into syn-gas / synthetic fuels?

Alternatively, when is coal acceptible to you?
by Nomad on Wed Jul 5th, 2006 at 08:02:39 PM EST
[ Parent ]
You know, the early London underground trains ran on coal-fuelled stem engines and in order not to fill the tunnels with unbreathable and toxic gas and soot, they cooled down and liquefied the exhaust and stored it in a tank for later removal. [At least that's the 5-line blurb from the London Transport Museum exhibit: I believe Helen or DoDo might actually know something about this stuff]

I wonder what technologies we have available for carbon sequestration in the 21st century.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Thu Jul 6th, 2006 at 06:04:40 AM EST
[ Parent ]
The issue of the Canadian oil sands is interesting. The resource base is absolutely huge, hundreds of billions of barrels and hence production will continue essentially forever. The problem is that it can not be ramped up quickly enough. Even the most optimistic plans call for 5 (or was it 3?) millions of barrels a day production - in 2030. This means that the introduction of the oil sands won't offset the combined decline of conventional Canadian oil production and North Sea production. That is, even if we invest as much as possible in the oil sands, combined production from oil sands+ conventional Canadian oil+ North Sea oil can go in only one direction. Down.

Peak oil is still on.

Furthermore, there are nasty resource constraints when it comes to mining oil sands. It need lots and lots of water. And lots of natural gas. There isn't enough natural gas in North America to sustain oil sands production for long, so one will have to switch to burning bitumen (the oil sand itself). However, that will only be enough for a few decades, and if one wants to continue production in the long run, nuclear heat is the only solution.

The above reasoning is taken from a report written by a few people at my university.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Jul 6th, 2006 at 05:43:24 AM EST
Wolf's assumption is that we don't give a damn about environmental issues. I'm sort of hoping he comes out with a "but this will destroy the world" in the third part, but I'm not optimistic.
by Colman (colman at eurotrib.com) on Thu Jul 6th, 2006 at 05:47:05 AM EST
[ Parent ]
Furthermore, there are nasty resource constraints when it comes to mining oil sands. It need lots and lots of water. And lots of natural gas. There isn't enough natural gas in North America to sustain oil sands production for long, so one will have to switch to burning bitumen (the oil sand itself). However, that will only be enough for a few decades, and if one wants to continue production in the long run, nuclear heat is the only solution.

Jerome once flagged a report that Total was considering building a nuclear power plant to power their planned Canadian tar sands operations. Just saying.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Thu Jul 6th, 2006 at 06:01:17 AM EST
[ Parent ]
Big oil getting desperate: Making oil with nuclear energy, 22 September 2005 on Daily Kos

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Thu Jul 6th, 2006 at 06:39:34 AM EST
[ Parent ]

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