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WORLD OIL SUPPLIES: AT THE TURNING POINT?

WORLD OIL SUPPLIES: AT THE TURNING POINT?. John Kaufmann Oregon Department of Energy Pacific NW Waterways Assoc. 15 October, 2008. Oil and Gas at Record Highs. Since 2002: Crude oil 6X Gasoline/diesel 3X Natural gas 3X. www.energytechstocks.com.

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WORLD OIL SUPPLIES: AT THE TURNING POINT?

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  1. WORLD OIL SUPPLIES:AT THE TURNING POINT? John Kaufmann Oregon Department of Energy Pacific NW Waterways Assoc. 15 October, 2008

  2. Oil and Gas at Record Highs Since 2002: • Crude oil 6X • Gasoline/diesel 3X • Natural gas 3X www.energytechstocks.com

  3. Price Higher Than Last Year; 30% Price Drops Are Common Data Source: EIA Jim Hansen, “Investing in the New Energy Economy” Presented to the ASPO-USA 2008 Peak Oil Conference

  4. US Payments for Foreign Oil Andrew Wiessman, “Time to Stop Playing Russian Roulette With American Economy” Proceedings, ASPO-USA 2008 Peak Oil Conference

  5. Price Gouging? Manipulation? Speculation? • Speculators profit from conditions – they don’t create them • Price set in market • Many buyers, sellers • Fundamentals in place – tight supplies

  6. Demand Prices rise; economic problems start here Supply Today Long-Term Supply Leveling Off, Demand Outstrips Production

  7. Increased Demand – China • GNP growing 8-10%/year • 2nd largest user of oil • Oil use up 7.5% annually • Imports up 40% last year

  8. Increased Demand – U.S. • More people • Driving more miles • In less efficient vehicles

  9. Global Oil Production 2002-07 Source: www.UrbanSurvival.com, 5-21-07 Data from http://www.eia.doe.gov/emeu/international/contents.html

  10. World Discoveries Peaked in 1960s

  11. Production Exceeds Discoveries Since 1983 David Hughes, Geological Survey of Canada From Campbell, 2004

  12. For Every Barrel We Find …  We use ~6 barrels

  13. Production Follows Discovery

  14. US Discoveries Peaked in 1930, Production in 1971

  15. Already Peaked • Indonesia • Venezuela • Iran • Kuwait • 2/3 of oil-producing nations, two major fields • US • Canada • Mexico • North Sea • Nigeria? • Russia? • Saudi Arabia?

  16. Exports Imports Indonesia – Net Importer UK – 2006 Mexico? www.TheOilDrum.com/node/3657 , Feb. 22, 2008 Sources: Matt Mushalik, data from http://tonto.eia.gov/country/index.cfm

  17. Mexico www.theoildrum.com.node/3381, 18-Dec-07

  18. Net Exports of Top 20 Exporters Mark Reyondols, Anawhata Associates, NSW Australia “Policies to Develop A Low Emissions Transport Sector in Australia,” 10 April 2008 From www.theoildrum.com/files/AnawhataGarnaut.pdf

  19. No Spare Productive Capacity • The good news is, the Saudis don’t control the price of oil any more • The bad news is . . . No one does

  20. Top-down: Trend Analysis (Hubbert Methodology) M. King Hubbert • Trend analysis – historical, statistical • Predicted U.S. and other peaks • Predicts world peak within next few years

  21. Hubbert Method Applied to U.S. Production Jeffrey Brown, “In Defense of Hubbert Linearization” The Oil Drum, June 24, 2007

  22. Bottom-up Analysis: Geologic • Field-by-field • Current production – production declines + new fields + advanced recovery • Peak by 2011

  23. We Know More Than Ever About Where Oil is Found • We understand conditions under which oil was formed • Seismic imaging • Millions of exploratory wells • Computer mapping Natural Gas Oil Robert Beriault,”Peak Oil and the Fate of Humanity.” www.peakoilandhumanity.com

  24. Drilling vs. Production – U.S. Oil and Gas Nate Hagens, “Charlie Hall: How Much Oil and Gas Will Increased Drilling Provides” www.theoildrum.com, 15-Aug-2008

  25. US Natural Gas Production and Number of Producing Wells Jean Laherrere, interview with Luis de Sousa The Oil Drum, 4 August 2007

  26. New Discoveries are Smaller, Don’t Reverse the Trend

  27. Alaska North Slope Lower 48 ANWR Effect of ANWR Gail Tverberg, “Peak Oil Overview-March ’08,” www.TheOilDrum.com/node/3726 Strategic Energy Institute, Georgia Institute of Technology

  28. Brazil’s Recent Find • Est. 33 billion barrels • Premature – based only on seismic imaging • Early announcements often inflated • 1/3 recoverable – i.e., 4 months oil at current use • 10 year lead time • Expensive – deepwater, salt formations Photo: Marcelo Sayao/EPA The Guardian, 5 April 2008

  29. Ease of Production:Past and Present

  30. When Will Oil Production Peak? 0-5 yrs 5-10 yrs 10+ yrs

  31. “Dean” of Wall Street • Thru 2010  production flat; falls short of demand • Inventory drawdown • 2012  conventional oil peak • Inventories insufficient • 2015  all liquids peak Charles Maxwell Weeden & Co.

  32. Prospects Going Forward North Sea, Mexico declining Canada oil sands–low flow rate Russia peaking? Russia vs West in Caspian Nigeria in crisis Iraq at pre-invasion levels Nuclear Iran Kashagan, Khurais late New fields smaller, more remote

  33. 2033 2024 - USGS P5 - USGS P50 New Finds Have Little Effect Ken Verosub, UC-Davis, “Petroleum Geology 101” Presented to ASPO-USA 2008 Peak Oil Conference

  34. Geopolitics Invasion of Iraq Nuclear Iran Russia-Georgia Hugo Chavez Nigeria Pipeline terrorism

  35. Geopolitics Hastens Peak “Geological peaking is driving the geopolitical events.” ~Jeff Vail Jeff Vail, ”The Geopolitics of Energy” Proceedings, ASPO-USA 2008 Peak Oil Conference

  36. Bumpy Plateau / Descent Price Production Jeff Vail, “Predator-Prey Dynamics in Demand Destruction and Oil Prices” www.theoildrum.com/node/4448, 26-Aug-2008

  37. Nat. Gas 25% Oil 40% Coal 23% Nuc. 8% Other 1% Hydro 3% U.S. Energy Mix

  38. Oil Does Work for us • In one year a person can perform the work of ~8 gallons of gasoline

  39. Oil Packs Power

  40. Why Oil Matters • “Oil is unique in that it is so strategic in nature. We are not talking about soapflakes or leisurewear here. Energy is truly fundamental to the world’s economy. The Gulf War was a reflection of that reality. ~ Dick Cheney Halliburton, 1999

  41. 1970s on Steroids: Inflation, Recession, Unemployment

  42. Impacts – Business & Jobs Higher production, distribution costs Supply chain problems Reduced demand • Tighter profit margins • Reduced benefits • Business failures • Unemployment Social Security Administration, Special Collections http://www.elderweb.com/home/node/9633

  43. Impacts – Airlines First to Feel Impacts Fuel represents >30% of their costs 70% of flights are discretionary

  44. Impacts – Trucking / Freight

  45. Energy Returned on Energy Invested, i.e. Net Energy

  46. No Magic Bullets • Drilling • Nuclear • Coal • Oil Sands • Biofuels • Renewables • Hydrogen

  47. Natural Gas Also Nearing Peak Production David Hughes, Geological Survey of Canada Data from C.J. Campbell, 2005

  48. Combined Oil/Gas Peak David Hughes, Geological Survey of Canada Data from C.J. Campbell, 2005

  49. U.S. Natural Gas Production Already in Decline David Hughes, Geological Survey of Canada Data from USEIA

  50. Location of Natural Gas

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