Beyond Peak Oil
A Survey Based on Primary Statistics

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While we still struggle to learn about and understand the magnitude of human tragedy inflicted on the Southern US by Hurricane Katrina, especially around New Orleans, it now becomes clear that the world is facing a double whammy: climate change and peak oil happening at the same time.

In a recent issue of the New Scientist evidence was presented by Utrecht University that glaciers had reached a peak sometime in the early 19th century, long before industrialization, and have been in retreat since then. We seem to be looking, therefore, at a combination of a rebound from the little ice age and human-induced greenhouse gas effects compounding each other.

The physical laws of nature are all non-linear -– very often meaning that a small change in one parameter, like temperature, can lead to a big change in weather events and ultimately climate change.

United States’ oil production peaked in 1970, with a second, lower peak in the mid 80s resulting from the Alaska oil discoveries. In the meantime, as depletion in US on-shore fields continues unabated – despite the application of the most modern technology – the focus of oil production has shifted to off-shore fields in the Gulf of Mexico. Thirty per cent of US production is now highly vulnerable to hurricanes, and that at a time of year when global seasonal demand surges by 2 million barrels/day. According to the US Energy Information Administration (here), Hurricane Katrina reduced Gulf of Mexico production by 1.3 million barrels/day or 90 per cent of the total. In other words, we can expect these events to occur frequently, probably annually.

As spare capacity will remain tight until the world reaches peak oil in the next years, it is quite likely that this peaking will occur in the fourth quarter of the peak year. In April this year, Chris Skrebowski, member of the London based Oil Depletion Analysis Centre and editor of the professional oil and gas journal Petroleum Review, published a list of new oilfield projects coming on-stream up to 2012, an update of his earlier mega projects study which started in early 2004. According to this list, by 2008, 780 Kb/day in new capacity is expected to come from the Gulf of Mexico – oil urgently needed to offset rampant decline in many oil provinces around the world. There can be no doubt that these new projects are now being delayed. A new platform, Thunderhorse, (200 Kb/day), for example, was already listing after the season’s first hurricane passed over it. This will worsen the situation resulting from the damage to existing facilities. The US Coast Guard reports that 20 oil rigs and platforms are missing after Katrina.

Gulf of Mexico hurricanes will therefore result in an earlier peak year around a bumpy oil production plateau, possibly with multiple peaks. The situation will be very confusing. It will be even more difficult now to detect the absolute peak than was described in Matthew R. Simmons’ recent book Twilight in the Desert – the coming Saudi Oil Shock and the World Economy, in which he warned that Saudi Arabia might have reached the end of secondary oil recovery, to be followed by a slow, costly, tertiary phase in which oil left behind in the two previous oil production phases will have to be pumped out – in ever declining quantities – as has been happening in the US for three decades.

In the meantime, the Australian Government continues business as usual and is in full denial mode over coming oil shortages and increasing oil prices. In a recent presentation of a working paper entitled Is the world running out of oil, a review of the debate by the Bureau of Transport and Regional Economics (BTRE) in Canberra, the classic view of economists prevailed: market forces will result in higher prices which will bring about increasing oil production. The bureau ignores what is happening around us. Higher oil prices have now brought two Australian companies – highly dependent on oil prices – to decrease staff levels: Qantas, to compensate for rising fuel costs and Holden, to cut production of their fuel inefficient cars. The job cuts confirm what Simmons said about suppliers: “if they cannot make money, they quit”.

Now, politicians are quitting, too. We urgently need a set of responsible leaders to bring us through the coming crisis … and an electorate that forces the twin issues of peak oil and climate change to the top of the agenda.

 

 

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