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Countdown to 100$ oil (2) - the views of the elites on peak oil

by Jerome a Paris Fri Jun 24th, 2005 at 05:55:02 AM EST

With oil prices having finally breached the 60$/bl limit, another "countdown" diary is certainly warranted! But I'll take this from another angle, which is: how this is vievew by out "global elites" in the West.

hfiend pointed me out earlier this week to a new study by CERA, a well respected energy consultancy, about peak oil. I have no way to access that study, which is for customers only, but CERA has kindly promised a short summary here.

Interestingly, both the Financial Times and Le Monde, the two highest brow papers in the UK and France, have also published some highly visible articles on peak oil in recent days (in the FT's case, a text by Martin Wolf, their senior economic editor, and in the case of Le Monde, 3 articles with a front page headline).

So let's hear their views.

Let's start with the articles by the FT and Le Monde. Both read in a similar fashion, i.e. as introductions to the concept of peak oil to their readers and, it seems, to the writers of the articles themselves, and they follow similar premises:

  • oil is getting pretty expensive, at close to 60$/bl;

  • they describe in more or less detail the current market factors that generate this: strong demand growth, limited spare capacity today;

  • they flag the long term fact that reserves are finite and that there will be a peak at some point.

Here they diverge somewhat:

While Le Monde is more alarmist in its description of peak oil, providing worrying quotes from the boss of Shell and providing suggested dates for peak oil (Total, 2030, Jean Lahererre, 2015, Colin Campbell, 2006, these last two being the founders of ASPO), they end up on a more reassuring note, with the usual arguments that oil companies have significantly improved their recovery rates, and that they will start developing unconventional reserves (ultra deep offshore, artic, heavy oils and oil sands). Le Monde publishes a separate article discussing French major Total's plans in all these sectors, as well as an interview with Gerard Mestrallet, CEO of Suez, one of the largest European utilities, who concludes that nuclear is the only reasonable option in this context.

FT's Martin Wolf goes the other way round: he starts with the International Energy Agency's (still rosy) scenarios for 2030 and looks how realistic these are. His conclusions, for someone who writes explicitly that he knows little about the specific topic of oil reserves, are quite interesting:

Predictions are always dangerous. High oil prices could, once again, generate low prices a few years down the road, as adjustments work through supply and demand. Exactly this happened in the 1980s. Yet three conclusions seem plausible: first, the pressures of demand are bound to be strong as what Lady Thatcher once called "the great car economy" comes to Asia; second, the world will become increasingly dependent on Opec and, above all, on Gulf producers, which are sitting on 62 per cent of the world's proven reserves; and, finally, high oil prices could well be a feature of much of the next few decades.

Sustained high prices should themselves encourage investment in innovation. But governments can help by supporting research in alternatives. They could also do something to encourage responsible use of this valuable resource. The US is particularly wasteful in its use of energy and could usefully do much more to encourage both conservation and investment in new technologies.

Prometheus was not only the giver of fire. His name also means "forethought". If our descendants are to enjoy the gift of abundant energy, that is a virtue we also need to show. At the moment, however, it seems more remarkable for its absence.

He focuses on the right things:

  • a big chunk of the developing world is entering or about to enter the "age of the car", and everything indicates that people are willing to pay significant amounts to have the freedom associated with a car, and that their consumption is not very elastic to oil price increases. Thus, limiting demand will be really hard;

  • everything points to a non-OPEC peak very soon. Martin Wolf notes that OPEC production has to double in the next 25 years to catch up with expected demand; he also quotes a study which shows that OPEC will have little rational interest to do so;

  • his conclusion is therefore that, irrespective of how this actually unfolds, significantly higher prices are very likely ("high enough to choke off additional demand").

From these articles, we can note the following:

  • the concept of peak oil is steadily gaining mainstream acceptance, and you read more and more about it from very creditable sources. This is a good thing as awareness of the issue grows, which increases the chances of a more rational discussion on energy policy;

  • an acknowledgement that oil prices will remain high. At least high enough to allow for unconventional fuels and new technologies  to be developed and used, and possibly much higher;

I find Martin Wolf's piece particlarly striking in that he only uses very official sources (the International Energy Agency, the US Dept. of Energy, BP statitstics), and reaches pretty pessimistic conclusions. Remember that the guy is a highly renowned economic writer, he is generally a "market optimist", and his recent book "Why globalisation works" is the best defense of the phenomenon to have been written. Le Monde still sounds like they are in denial, despite providing much more specific information on peak oil.

Let's now turn to the CERA study. Again, the comments below come only from their press release, and not their detailed study.

Their vision is deliberately optimistic:

Despite current fears that oil will soon "run out," global oil production capacity is actually set to increase dramatically over the rest of this decade, according to a new report by Cambridge Energy Research Associates (CERA).  As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the  razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.

In a rigorous new field-by-field, bottom-up analysis of the world's capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010-- Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010 --  a 20 percent increase over the period.

This significant expansion in liquids productive capacity will  meet volatile and expanding demand later in this decade and beyond, according to the CERA report.

Actually, they do acknowledge that peak oil will happen, but they see it as an "undulating plateau":

The CERA analysis rejects the current fear that a near-term "peak" in world oil production and a coming exhaustion of supply are near.  The report indicates that the "inflexion" point will come in the third or fourth decade of this century.  Moreover, rather than a "peak," it will be an "undulating plateau" that will continue for several decades.

They focus on non-conventional oils to provide much of the supply growth:

Jackson and Esser argue that "unconventional" oil will play a much larger role in the growth of supply than is currently recognized.  These unconventional oils include condensates, natural gas liquids (NGLs), extra heavy oils (such as Canadian oil sands), and the ultra-deepwater (greater than 2,500 feet deep).  By 2020, they could be almost 35 percent of supply.

The interesting thing in the report is that they provide country by country analysis, but the press release only provides sketchy details (for instance that non-OPEC production will grow by 7.5 mb/d by 2010, most of that coming from Brazil, Angola, Canada, Russia and the Caspian, and that Saudi production will increase by 1.5 mb/d. The US would decline by only 5%.) It is hard to critique the se numbers without seeing the details, but these numbers seem very optimistic to me:

  • All news from Russia point to a stagnation of production in the coming years;

  • the decline in the US in 2004 alone was 5%;

  • both the Caspian and Angola are set to increase production by at most 1 mb/d each by 2010;

  • most of OPEC production increases would come from outside Saudi Arabia. Do they have Iraq in mind? Iran? Lybia? I don't have enough information but that sounds strange to me.

The focus on NGLs is a valid point, as most of the oil majors are now developing more gas reserves than oil reserves, and NGLs are a (valuable) by product of gas production. For instance, more than 90% of ExxonMobil's reserve additions in 2004 came from their shares in Qatari gas developments. The gas is commercialised in the form of LNG, but LNG production is accompanied by significant volumes of high quality oils that are extracted from the gas (See here about Qatar, for instance, which produces 700,000 b/d of NGLs, or two thirds of its liquids production, in parallel to its LNG. With LNG production set to more than triple by 2010 in that country, LPG production from Qatar could presumably grow by 2 mb/d - but they have the biggest LNG inverstment plans in the world by far and have access to the biggest and richest gas field on the planet, so there would not be so much coming from elsewhere).

Still, CERA expects unconventional oils to go from less than 20 mb/d now to more than 30 mb/d. I suppose that depends on the definition of unconventional, and especially where you draw the line offshore between conventional (not so deep) and unconventional (very deep). For instance, most of Angola's coming production will come from very deep offshore, as will most of Brazil's, and a lot of US production in the Gulf of Mexico. But an additional 10 mb/d? That sounds like a lot of oil to be coming on stream, that presumably the oil markets would know of...

The press releases makes no mention of the decline of existing fields, so it is hard to know what hypotheses they make about this (beyond their mention of a very small overall decline of US production)

On the pricing side, CERA is also resolutely optimistic:

The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside.  If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears.  If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.

While they implicitly acknowledge that high prices may remain for a couple of years, they thus see the trend being downwards, as all of that mooted supply comes on line.

This is not what the futures markets have in mind, with 2010 futures significantly above 40 and more now.

As I have said, and do believe, that they have a good reputation, it is hard to imagine them doing such an announcement without some hard data to back it up. They are certainly in a better position than me to comment on individual countries and fields, but I still remain doubtful of the numbers they have chosen to put forward In their press release. So, color me skeptical but not in a position to say much more.

So I will hide behind Martin Wolf to conclude that high prices are not only very likely, they are also very necessary...

For some silly reason, this got posted much earlier on dKos, so I am not front paging this here. I do intend to keep the full countdown series ongoing here!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jun 24th, 2005 at 05:56:47 AM EST
Until Markos gets the style sheets fixed for dKos, it's going to be a real pain reading diaries over there.  Everything keeps creeping into the margin.

What did you think of RedDan's comment on the physics of extraction?  I'd love to see a source on his numbers, but I remember an old economics prof of mine describing essetntially the same problem.
by Hoya90 (hoya90jmk-at-yahoo-dot-com) on Fri Jun 24th, 2005 at 06:21:34 AM EST
[ Parent ]
I replied over there. Should we copy both commetns down here? Go ahead (or I'll do it later)

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jun 24th, 2005 at 06:44:12 AM EST
[ Parent ]
by Hoya90 (hoya90jmk-at-yahoo-dot-com) on Fri Jun 24th, 2005 at 08:19:55 AM EST
[ Parent ]
Thank goodness, you finally posted your diary here. I tried to read it at dKos this morning and simply couldn't. I got an intense headache from the effort. I rely on your insights and have been clicking in all morning waiting to actually be able to read what you'd written.
by sjct on Fri Jun 24th, 2005 at 08:04:22 AM EST
[ Parent ]
So glad this is posted here, where it is easily readable!  

A practical question:  I am dreading what I see as the inevitable rise to $100/bbl because I have oil heat...should I be thinking about switching over to an electric heat pump?  Or will that be equally expensive in the long run?

Thoughts, anyone?

by CabinGirl on Fri Jun 24th, 2005 at 08:24:08 AM EST
[ Parent ]
I took a look at the summary of the CERA report, and I analyzed each of their main points to see how they compare with current reality.

OPEC Outlook - CERA says "Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity. "  

This is an increase of 8.8 mbd in the next six years - that's nearly as much as all of Saudi Arabia's current production.  Where can this production come from?  Well, let's be generous: 1.5 mbd from Saudi Arabia, 2 mbd from Qatari NGLs, 1 mbd from Libya.  That comes to 4.5 mbd, which leaves us more than 4 mbd short.  We could get to 4 mbd by doubling production in both Kuwait and Abu Dhabi, or by bringing another Iran online, but neither of those possibilities seems likely in the next six years.

Take a closer look at Natural Gas Liquid (NGL) production.  CERA claims it will be 18% of 45.6 mbd, or 8.2 mbd.  I can see 2 mbd from Qatar, and Algeria and Indonesia are both big NGL producers, but will it add up to 8.2 mbd?  I don't have access to good NGL statistics, maybe someone else can help me out on this.

Non-OPEC Outlook - CERA says "Non-OPEC capacity will expand rapidly for the balance of the decade, adding 7.5 mbd to reach 55.8 mbd by 2010, with the increase dominated by contributions from Russia, the Caspian, Brazil, Angola and Canada."  

Again, let's be generous in our estimates: 1 mbd each from Angola and the Caspian, 1 mbd from Canadian tar sands, and .5 mbd each from Russia and Brazil.  The total is 4 mbd, which is still 3.5 mbd short of CERA's estimate, and that's not even allowing for depletion.

It has been 30 years since the last oil crisis, and depletion has taken its toll on most of the big non-OPEC producers.  Over the next six years, crude oil production will decline in the USA (with current production of 5.4 mbd), Mexico (3.4 mbd), UK (1.8 mbd) and Norway (2.9 mbd).  Even though its in OPEC, production in Indonesia (1 mbd) is also declining.  These countires have a current production of 14.5 mbd, so a conservative depletion rate of 4% would yield a drop of more than 3 mbd after six years.  

Summary -

Adding it all up, we have a total gap of more than 10 mbd in 2010, even after very generous assumptions for new production and depletion.  That would decrease CERA's estimate for 2010 production from 101.5 mbd to 91 mbd.  Now look at demand for a moment - currently it is 84 mbd.  Lets assume a slow growth scenario of 2% per year.  That means that demand in 2010 will be 94.6 mbd, which is considerably less than our supply estimate of 91 mbd.  

Predicting the future is an inexact science, and its entirely possible that I could be wrong with these numbers.  But it seems likely that oil supply will be very tight over the next six years.  After that, even CERA isn't optimistic.

by corncam on Fri Jun 24th, 2005 at 09:22:46 AM EST
One approach to thinking about the future of oil is to consider the technical aspects of oil production. There's a lot of public literature on this, and some of it is even summarized in ways that can be read by non-technical people.

An example is on page 16 of the newsletter here.

A particularly interesting point is that CO2 is useful in increasing the extraction ratio from existing oil fields, but as an industrial chemical it is in short supply. By combining the desire for CO2 sequestering with the utility of CO2 in improving output, the result is a benefit in both dimensions.

Here's a brief extract.

"A recent research forum organized by the Society of Petroleum Engineers made it very clear that we no longer can accept the past industrial practice of leaving about two thirds of the hydrocarbons behind in a reservoir at the end of its economic life. Industry recognizes that recovery factors of 70 percent or even 80 percent are technologically achievable...

"CO2 is a resource that the world no longer can afford to waste by emitting it into the atmosphere. Business, government and the technology community need a change in mindset, where CO2 no longer is considered only an undesirable greenhouse gas (which it is) to be put away (sequestered) at huge costs both in dollars and added energy consumption, but the potential driver behind a "revolution" in the world's oil production scenarios."

by asdf on Fri Jun 24th, 2005 at 09:43:04 AM EST
These diaries are much appreciated, Jerome.

A couple of thoughts from the non-technical viewpoint:

Unconventional oil was supposed to be The Next Big Thing in the '70s but ran into market realities. I don't see that changing unless or until oil gets over $100/bbl.

LNG is also supposed to be wonderful, and indeed it is a good fuel, clean and efficient. It suffers from being Geographically Undesirable. It's tricky to transport, and dangerous.

Where I live, on the coast of Maine, there's been a concerted effort for a while now to get the OK to build an LNG terminal. Promises of jobs, jobs, the golden grail. Such talk carefully omits the information that only low-level local jobs will be created, and the few professional ones will be filled by imported talent.

So far, it's been rejected by at least three cities/towns that I recall (start at the southern coast of the state and work your way north and east on the map). Now, it's under intense discussion in Eastport, where the Passamoquoddy tribe has been enticed with promises of economic benefits.

However. If this terminal is built anywhere along this coast, which relies for income on various forms of deep-sea fishing and summer boating, certain things will happen: Under rules from the unfortunately named Department of Homeland Security, each time an LNG tanker comes in, all marine traffic in the area will cease. The harbor is closed. Period. And remains that way until the tanker unloads, reloads (if it does), and has cleared port again to open sea. 48 hours minimum.

Plus, the slightest accident could cause an explosion that would demolish a huge section of heavily populated coastline. Water pollution? How about flushing the bilges? And the list goes on.

Not surprisingly, there's a huge NIMBY (not in my backyard) reaction. Particularly since the LNG is intended for other markets than local.

The restrictions apply to any potential LNG port. Increased LNG shipments into a more populous area (Baltimore, say, or Boston, even Jacksonville) would cause huge disruptions.

So the question becomes one of how to get the stuff here. It's probably going to be an urgent question fairly soon, because a huge number of very large houses being built in the southern U.S. are being heated and cooled with natural gas.

Sorry for the length of this, but it's an issue that's been brewing for a while with very little public recognition.

by Mnemosyne on Fri Jun 24th, 2005 at 10:17:23 AM EST
are THE big thing in the energy world (and in my world as well, because LNG is one sector of the industry that uses the most external finance). There are more than 30 or 40 proposed locations for import terminals, and several of these are likely to be built, simply because there will otherwise be a shortage of natural gas in North America. (One solution is to build the terminals in Mxico or the Caribean and pipe the gas from there)

It should be noted that LNG (liquid natural gas) has physical properties that make it impossible to blow up or burn, so it's really stupid scaremongering to worry about these boats. Onshore, the terminals are really simple things (basically, you warm up the very cold liquid gas by bathing it in water), and the end product, natural gas, is indeed flammable and explosive, but not more so than in the other hundreds of industrial plants that use it. So basic safety measures as are already used elsewhere should be more than enough. The LNG industry has an exceptional security record in the past 40 years.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Jun 24th, 2005 at 01:14:48 PM EST
[ Parent ]
Jerome has a valid point...

Have you ever filled a propane tank? Or refilled a smaller portable tank from a propane tank? You get frost & ice all over everything. That is similar to what would happen with an LNG leak.

That is because when you transfer propane you are in effect 'boiling' the liquid in the larger tank to generate the gas pressure to fill smaller tank.  Same thing happens if you use those backpack camp stoves (not the liquid fuel but canned gas)... you get frost all over... especially as it funs out.

That frost is the result of moisture in the air condensing & freezing on the outside of the tank to provide the 'heat' to boil the propane, butane, whatever inside the tank. The 'latent heat' of the water vapor condensing & then freezing plus the temperature drop is transfered to the propane/butane/whatever to 'boil it'... overcoming the latent heat of the hydrocarbon so it turns from a liquid into a gas... basic heat transfer & thermodynamics problem.

The same thing would happen with LNG... to get a whole tanker to vaporize to explode would not only take a leak but also a whole lot of heat (equivalent to the latent heat of natural gas times the mass of the LNG)... A LOT. You spring a big leak in one of those tanks... and some LNG will vaporize immediately and will escape but as it does the temperature of the LNG remaining liquid will plunge... you will turn that tank into an iceberg pretty fast... and the resistance to heat transfer through the ice will dramticly slow the future release. It could still be a huge problem but it would not make a very good bomb.

Another reason for this is that for gases to be 'explosive' requires that the mixture be right... not too much gas in the mixture and not too little... but just right within some error bars which depends on the specific gases and pressures and such.

This is why those fuel air bombs are so tricky... they have to first disperse the combustibles out a long way over the target... mix them evenly and in the right concentrations... then ignite. Not easy to do even when the things are designed to do it... very difficult to do 'by accident'.

I'm not saying LNG is 100% safe or that something awful could never happen... just that it isn't more dangerous than other fuels and in some respects less so.

Hope this helps.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Fri Jun 24th, 2005 at 03:12:08 PM EST
[ Parent ]
Boiling liquid, expanding vapor explosions.

You might want to bone up on these things before assuming LNG ships are safe because you need some energy to vaporize the liquid.

Try Flixborough as a Google search if you want some idea of how bad one of these unconfined vapor cloud explosions can be.  I worked around refineries some.  People were very aware of how careful you had to be around propane/butane facilities.

If you had a shipping accident that split open an LNG ship you could put a lot of explosive material out pretty quickly.    Plenty of heat in the ocean to vaporize it too.

LNG is heavier than air and will form a low lying cloud near the surface.  Find an ignition source and away you go.

Do I think LNG terminals are too risky?  No.  But this assesment plays down the risks too much IMHO.

by HiD on Sat Jun 25th, 2005 at 07:43:45 PM EST
[ Parent ]
I didn't say I thought it was 100% safe - nothing is. But the hype you read is that LNG are the equivalent to 'floating nuclear bombs'... ready to take out a city like Long Beach or LA. Reality is they are probably safer than tankers full of gasoline - something we will need to think about should we start importing a lot more 'finished distillates' and less crude.

And I worked in the chem business too... ran distillation columns in alcohol processing plants 'splitting the azeotrope'... we had alcohol, benzene, gasoline and natural gas (boilers)... all of them like potential bombs about to go off all the time. LNG is a risk but not worse than others - probably less so due to the nature of the liquid gas and the way they transport it.

As long as the LNG is liquid - it is fairly safe. Once it goes gaseous then it isn't... and it needs a lot of heat to do that. But 'ya' if a whole tanker split open in a harbor and the liquid boiled out over the rapidly freezing ocean ... ya that would be bad. Eventually it would evaporate and disperse & dilute to a concentration able to support an explosion...  somewhere if not immediately at the accident site. On the other hand it is possible it might disperse too quickly to explode. The concentrations need to be right... enough gas, enough air... and of course the ignition source... It is far more likely to happen in a confined space like a building or city block then out on the ocean, in the open, wind rain and all.

But it would be just as bad if a tanker of distillate spilled open in the same heavily populated harbor... and spread out over the surface of the water, evaporating then if conditions get right BOOM...

The whole point is it isn't easy to make these things happen... make all the factors work in concert. Nd these LNG tankers aren't one big open cargo ship... they are a little more complex then the Exxon Valdez. They have many smaller high pressure tanks hooked up together but isolated from each other. They all aren't going to just 'split open'...  

I think there is plenty to worry about - but this isn't even close to the top of my list.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Sat Jun 25th, 2005 at 09:05:12 PM EST
[ Parent ]
nuclear bomb, no.  Seriously worse than gasoline, yes.  Mogas just isn't as volatile as LNG.  You don't get the big vapor cloud forming.  Typically mogas has a boiling range of 100F to 430 F.  You can get it to boil off, but over time rather than a rapid, BLEVEE situation. Otherwise we'd have pressurized mogas tanks in our cars.    Mogas tends to burn, LNG to go BANG.

Distillate -- no worries at all.  It vaporizes, but slowly.  Great for avoiding killing aquatic life, but little risk of an explosion.

I agree with you.  It's pretty hard to actually fuck up enough to cause the worst case scenario.  Unfortunatly, we humans seem to always find a way to do just that.  I wouldn't want to live 1000 yards from an LNG facility and wouldn't want to ask anyone else to do so either.  Whereever we put them, and we do need them, we need to maximize the distance to people.  Fear no, caution yes.

The Exxon Valdez also had many compartments.  All oil tankers do.  But like the Titanic, when a tanker hits a rock or another ship rams you at an angle, you tend to slide along it rupturing a number of tanks.  The product tankers I used to charter would hold 250 MB of liquid in usually 15-25 individual tanks.  Crude tankers not all that different in design.  You need a bunch of tanks for stability and to prevent the liquid from sloshing around in heavy seas.

by HiD on Sun Jun 26th, 2005 at 01:28:34 AM EST
[ Parent ]
The 1000 yds idea is a good one... but I wouldn't want to be 1000 yds from any facility including the plant I used to run... we had to 'evacuate' a couple thousand residents at least twice while I worked there... people in a large mobile home park down the street and a neighborhood just north. No incident but hairy.

Irony is many of the workers lived in those communities because of the convenience & low cost... saved money than bought nicer homes in a better part of the city much farther away.

And you remind me of another point - I do not believe the 'big release' will be the problem though that is what everyone is hyping ... my guess is it is going to be the same as it is with all natural gas processing - the maintenance of seals & valves. It will be the little leaks that will kill. And it will probably happen long after the product has been unloaded & revaporized.

And while maybe I underestimated the risk of LNG... I think maybe you underestimate the risk of the lighter distillates & gasoline... again depending on where it happens and how much. Out in open water - not a big deal... disperse & not explode even if lit up.

But in a harbor or river with dockage and confined pockets & jetties - very big deal. I've read of accidents on the Illinois River where relatively small amounts of gasoline spilled (1000s of gallons not whole tankers) and that still had the response teams paranoid as hell and evacuating as the spill worked down stream until it dispersed...

Even though the cloud isn't as large as LNG... the distillate liquid flows out over the surface, evaporating slowly... under bridges & culverts it traps and if the mixture is right... it blows as badly as any combustible gas. The thing that is especially dangerous is the fact the ignition source can be hundreds of yards away and ignite a small quantity of the liquid... run along the surface of the water like a fuse and then only  'blow' the trapped pockets under bridges, docks, etc. like isolated bombs.

When I heard the Saudis were planning on a massive increase in refining capacity and plan to sell us 'finished' product as opposed to crude... my first thought was... I wonder where they plan to unload it.  It better be well offshore.

"On the Internet, nobody knows you're a dog." - Peter Steiner

by dryfly (jjwhodat at hotmail dot com) on Sun Jun 26th, 2005 at 08:51:22 AM EST
[ Parent ]
for the enlightening discussion.

It does seem to make sense to put big plants that manipulate vast volumes of flammable or explosive materials away from inhabited areas...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 10:10:41 AM EST
[ Parent ]
can we have a quick discussion by Those Who Know, of the relationship between LNG, LPG, propane, and other petro gas nomenclature?  how many gaseous byproducts of petro distillation or extraction are compressed and used in liquid form?  the "flows like a liquid and can go Bang" risks being discussed here sound a lot like propane.

also, has anyone a reading on the amount of energy used to compress these gases into their liquid state for storage and transport?  how many BTU does it take to compress 1000 BTU of any of these liquid gases into their commercially usable form?  just curious about the EROEI as usual...

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Sun Jun 26th, 2005 at 12:59:48 PM EST
[ Parent ]


as to the EROEI, I'd say from rough memory that you get on the other side (i.e. after liquifeaction, transport and regasification) 90%+ of the natural gas you put in, so it's not too bad as a transport chain.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Jun 26th, 2005 at 03:06:38 PM EST
[ Parent ]
the US East coast already has enormous mogas imports via tanker.  Mogas has been moving into NY on 60-80 KT ships (500K+ bbls) from Mobil Yanbu (red sea side of Saudi) for 10 yrs+.  Not to mention Venz, brazil, Norway, and the rest of Europe.  

You might want to check out how large mogas imports already are.  And I'd guess 90% of it goes to the USAC from Virginia north.  Rest to USWC in summer.

by HiD on Mon Jun 27th, 2005 at 02:26:21 PM EST
[ Parent ]
The predictive power of these futurist scenarios seems weak to me in at least one aspect.  The "great car culture" of which Maggie Thatcher was so fond is ultimately a self-defeating technology:  except in rural regions of low-density population, when the ratio of cars to eligible drivers gets anywhere close to 1:1 (i.e. universal motorist status), the result is a vast inefficiency of transport with millions of person-hours and billions of dollars and I don't know how many BTUs of energy wasted annually on gridlock, car crashes and attendant injury and mortality, etc.

The national and provincial economy gets locked into an endless tailspin of "predict and provide" construction of highways, freeways, expressways, parking structures, etc -- all heavily subsidised by the tax payer and diverting funds from other social services (cf Hart and Spivak, The Elephant in the Bedroom, on the distorting effects of the subsidised private-auto culture on US municipalities and their tax revenues and outlays).  The automobile also tends to displace more efficient people-movers (already Beijing officialdom is talking about banning cyclists from major streets -- banning bikes, in China!), reducing the mobility options of the less affluent and creating an overclass/underclass transport hierarchy.  (Auto-induced gridlock paralyses bus and taxi services as well, etc.)   There's also a trend towards decay and underfunding of existing public transport, curtailment of services, etc. as car ownership decreases ridership, leaving those who cannot afford car ownership stranded.  The end result is, in much of the US, "mandatory car ownership" as people of limited means find it impossible to get to their jobs without an automobile -- even if the expenses of owning and operating one eat a disproportionate amount of their take home pay (it has been estimated at 20 percent for some income levels).

Dedication of urban surface area to automobile transport forces light and heavy rail underground -- another form of displacement -- vastly increasing construction costs for new rail spurs and warping the CBA for such projects. And we haven't even started talking about air quality, though with notoriously poor air quality in many third world urban areas, the issue would be further incremental degradation rather than a transition from clean to dirty air.

Less obvious, more distant side effects include the annexation of lower-cost rural land into luxury exurbs as the affluent classes use their automobiles to flee urban areas:  the resulting lengthy commutes are insanely energy-inefficient, but there are worse knock-on effects.  These include the accelerated paving-over of productive farmland, converted into carburbs -- loss of essential agricultural capacity;  the decimation of wildlife (roadkill is the leading cause of mortality for many feral species in the US) and the disruption of wildlife migration corridors -- loss of biodiversity and prey/predator balance;  the "affordability" of large sprawling residences (due to remote greenfields development) which then require enormous amounts of energy to heat in winter -- increased fossil fuel dependency;  and the coring-out and decay of what were once thriving cities.  These trends are self-reinforcing:  the decay of cities increases the motivation for urban flight, the number of people commuting enormous distances tends to grow, and the distances themselves tend to grow.  

The shopping patterns of the carburb economy for example are weirdly inverted from a rational/efficient model:  instead of a few heavy goods vehicles carrying merchandise to shops and markets in a dense urban core where individual shoppers make fuel-efficient pedestrian, bike, or PT trips to purchase, thousands of consumers drive private "heavy goods vehicles" long distances to load them up with goods and return to widely dispersed homes.  The delivery activity has been decentralised and displaced onto the consumer, considerably increasing the fuel consumption.  Fuel economy advances made in the US in the 70's were almost immediately consumed by increases in average miles driven per person per annum.

An economy with a cash surplus and spare productivity, such as the US was after the war, can tolerate and absorb these inefficiencies (for a while) -- particularly with a fairly low population density and abundant cheap fossil fuel.  But can the economies of "emerging nations" with high population densities, in an era of rising fossil fuel costs, afford the grotesque wastefulness of vulgarised private auto transport and the enormous State subsidies required to make it "affordable"?  With barely enough land to feed existing population, can China for example afford to permit the insane land use patterns that result from "car culture"?

The Chinese skipped a generation of phone technology as they modernised:  they saw the inefficiency, resource hoggery and enormous installation cost of copper landlines and moved directly to cell phone technology.  It would seem short-sighted in them or any other emerging national power to reproduce the inefficiencies of the late American automophiliac society -- a hangover from the 40's and 50's, increasingly dysfunctional today.  So I wonder whether the Third World -- despite the consumer trance induced by sexy auto industry ads and the undisputable appeal of owning one's very own 'flying carpet' -- can afford to, or will be stupid enough to, try to retrace the auto-based development path of the US/UK/Japan.  If they do, I doubt whether their economies, their medical/health systems, or their already-stressed agricultural resources will take the strain.

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Fri Jun 24th, 2005 at 01:34:27 PM EST
[ Parent ]
This is a thought-provoking post, but I don't think that the Chinese have an either - or choice.  Take Japan for instance,  they don't have a carburb culture by any means, but they still have a lot more cars than China does today.  Even modest car ownership in China will cause tremendous demand for oil.
by corncam on Fri Jun 24th, 2005 at 07:40:22 PM EST
[ Parent ]
Water pollution? How about flushing the bilges?

LNG would vaporize instantly at normal temps.  Most modern oil tankers have segregated ballast water tankage anyway.  LNG tankers are pretty special beasts.  I cannot imagine they ever allow salt water into the pressure/refrigerated tanks due to the materials and need to avoid corrosion.  Although you can have stowaway critters in ballast that is a problem for any and all ships.

LNG is some scary shit though if mishandled.  Those acetylene and propane tanks blowing off in St. Louis today would be like fireflys in comparison.

Still, those facilities can be operated safely same as nuke power plants.  I prefer to look at wind farms myself, but everything to do with energy has some tradeoff.

by HiD on Sat Jun 25th, 2005 at 02:04:04 AM EST
[ Parent ]
I know that the US has no plans to deal with this other then look for more oil and pretend it doesn't exist, but what are other governments doing?  Are they more proactive?

Sorry if you have covered this and I missed it.

by sgilman on Fri Jun 24th, 2005 at 08:22:43 PM EST
not really.  The Europeans put huge taxes on mogas/diesel to keep use as low as possible per unit of GDP but they're still hosed when the price finally jumps up for good.  Perhaps less so.
by HiD on Sat Jun 25th, 2005 at 02:05:26 AM EST
[ Parent ]
Yes, Europeans have dropped the ball as well. They stopped increasing taxes in the early 90s and cars have steadily gone bigger and heavier ever since. MPG used to be a selling argument for cars back then; now it has totally disappeared from marketing, proof that it's not an issue that motivates people and thus that taxes are not high enough to bite.

(The existing amont of taxes does buffer the oil price rises)

There are some efforts to impose road pricing for trucks, which may go Europe wide soon; and much better policies on the renewable power side, but that has little impact on the oil market.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jun 25th, 2005 at 02:50:13 AM EST
[ Parent ]
Futures markets in petroleum have finally reacted to this prompt price pressure, although I would argue that 2010 is beginning to be reasonably prompt in the crude markets.  Back in the dark ages when I sat on an energy derivs desk, the first 5 years of WTI were very liquid.  only about 1.5-2 years in products (if that).  

Anything further out was "interesting" from the standpoint of how to make a market.  Typically, there were sellers of crude out 5-15 years as the smaller oil producers that had to get bank financing to develop their projects were also required to hedge some of that production.  2 reasons.  First, the banks wanted to lay off some of the risk of the loan.  Second, the banks want to generate even more fees by acting as middlemen on the paper.

What was hard was finding buyers that far out.  Truckers, shipping co.s, and airlines would sometimes buy 2-3 years out.  And no forward bids from real mogas users.  What you had was us Wall Streeters making a market based on averages and front period hedges/options whatever.

My gut feel is that the hedge funds are beginning to stick their toes in the water on forward oil as bids.  These markets are thin.  It doesn't take a lot of money to bid them up.  Also forward sellers probably backing off as they are reading all these pessimistic oil price predictions and see no reason to hedge.  Dec 2010 at $55/bbl is pretty amazing price.

I've no real idea if CERA has done their homework or not, but the LNG projects are about to come on line all over the place.  Qatar, Aussie NWS, Nigeria etc.  There are huge deposits of light hydrocarbons that have been waiting for these higher prices to become economic.

by HiD on Sat Jun 25th, 2005 at 02:26:53 AM EST
Until fairly recently, the forward curve basically looked like a nice asymptote going from the best bet for prices one year away (a liquid market as you say) to the expected long term mean of 20$ or so. So there was no "market" as such, only an expectation of things "coming back to normal" from wherever they were in the short term.

The interesting thing today is that the forward market (or whoever is able to dominate it, if, as you say, it's a failry illiquid market) is telling us that they expect the long term mean to be above 40 or even more. Not enough people are currently willing to bet that it will "ever" come back below that level. This IS new information from the oil markets, right or wrong.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jun 25th, 2005 at 02:55:16 AM EST
[ Parent ]
Good news: a new oil field estimated at up to 1 billion barrels has been discovered in Utah. We can sleep soundly now!  :*)


"A little-known Michigan energy company has made a wildcat discovery that is setting the economically depressed region ablaze with gossip and hopes for a boom. Some estimates peg the oil resource at 1 billion barrels. At that size, it would be the biggest U.S. onshore discovery in 30 years."

by asdf on Sun Jun 26th, 2005 at 05:15:45 PM EST
1 billion barrels is better than nothing, but it is still less than 1/10th of Prudhoe Bay.  As a rough guess, this field might have a maximum production rate of 100,000 - 200,000 barrels per day.  For comparison, total US production is about 5.4 million barrels per day.
by corncam on Mon Jun 27th, 2005 at 04:18:02 AM EST
[ Parent ]
From today's Australian Broadcasting Corp:


The prices are going higher, and aren't coming down anytime sooner...(ouch)

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Mon Jun 27th, 2005 at 04:23:15 AM EST

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