Sunday 14 October 2007

Peak Oil?

The growth of industry in general and the nonwoven industry in particular has been driven by the availability of cheap energy and cheap polymers derived from oil. For absorbent hygiene products polypropylene, polyethylene and sodium polyacrylate are the key polymers and it is now clear that these products will not be cheap in future. When oil production peaks polymer prices will fluctuate wildly about an upward price trend and the need for lower cost alternatives will become urgent. When is world oil supply likely to peak and what will be the effect on prices when it does? This is a big debate with a wide variety of facts and learned opinions being available. Here are some of the latest.
  • The normal production curve of a non-renewable resource was described by Hubbert (1962) to explain trends in crude oil production in the United States. Hubbert’s curve worked for the USA and it is reasonable to suppose that Global production of crude will also follow a similar normal curve.
  • Much of the present debate on this subject focuses on when exactly the global production peak is expected to occur. Most estimates have placed the peak within the first decade of the 21st century, i.e we might already be there. When it happens oil price will rise steeply and remain volatile at a higher level as replacements take over, even though ~50% of the oil is still in the ground.
  • The point is illustrated by a retrospective analysis of the oil boom of the 19th century. Source: Price trends over a complete Hubbert Cycle: the case of the US whaling industry in the 19th Cy - Association of Peak Oil
Compare the 1835 to 1855 price curve above with the last 20 years of Brent Crude below:
Despite oil price being high for several years, oil discoveries now run at only 9 billion barrels/year compared with 55 billion barrels/year in 1965.
  • With discoveries at 9 billion barrels/year, consumption is at 30 billion and rising.
  • North Sea oil production is 40% down on 1999, while oil prices have increased 7-fold – so no evidence here of previously non-economic fields being exploited now that prices are high.
  • The International Energy Agency, optimistic last year, now predicts oil production will suffer a supply crunch in 2012 because above-ground geopolitical factors are restricting output now, and if/when these are resolved the below-ground geological reality will follow.
  • Non-OPEC oil will peak in 2010, and the geopolitical problems of the OPEC regions mean that they cannot be relied on to make up the shortfall. (Exxon CEO – 2007)
  • “Oil nationalism” will hinder the exploitation of the reserves in Venzuela and Russia.
  • New oil detecting techniques remain to be applied and when they are, the known reserves will increase substantially. But, when you build in optimistic reserve growth and optimistic technological forecasts for their exploitation you can only delay peak oil to 2020.
  • The Chairman of Total Oil is assuming Peak Oil by 2020 and is asking governments to reduce energy use to delay this further.
It is not always clear whether these predictions include the unconventional oil sources such as tar sands, and increasing use of bio-ethanol and bio-diesel may also delay peak oil further. That said, if we think of these fuels making up a shortfall in transportation demand - the largest single oil usage – then we should consider these opinions recently published:
  • Production of oil from coal and/or tar-sands will not grow fast enough to compensate for falling conventional oil production and rising demand.
  • Production of liquid fuel from coal and/or tar-sands is energy and water intensive, and the resulting fuel is less efficient than conventional gasoline.
  • Carbon dioxide emissions from the production and use of this liquid fuel is significantly higher than for oil so its use will impact global warming more than conventional oil.
  • 20% of US corn now goes to ethanol for blending with gasoline. But:
    • $1.30/gallon of subsidies for ethanol blenders distort the economics.
    • Ethanol only provides 85% of the power of gasoline.
    • On an energy yield basis and excluding all subsidies and tax breaks, ethanol is now costing $7/gallon compared with $3/gallon for gasoline.
  • Should food acreage be used to power vehicles? No problem in the USA now, and in future yields will increase due to GM. But for the world as a whole this would be unacceptable.
  • Bio fuel from US corn is a self delusion: current yields are heavily based on petrochemotherapy (oil-based fertilisers and pesticides) and massive irrigation – and can not be extrapolated into a major energy source.
  • George Bush is now supporting ethanol from wood chips, grasses and agriwaste – i.e. from cellulose.
  • Cellulose ethanol would be a better option than corn even with oil at $40 barrel.
All the above opinions are related to the next 20 years. Further out, everyone seems to agree that the world will be switching from conventional oil to other energy sources at an ever increasing rate. It’s just the nature of those sources that remains obscure to us and the precise timing of the changeover.

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