20 July 2011

A Pandemic of Malthusian Illiteracy?

Global economy optimists however say that "Malthusian illiteracy" lurks behind remaining adherents of Peak Oil theory - which basically says conventional oil production will stagnate and fall but demand will go on growing. _MarketOracle
As knowledgeable analysts come to understand that oil demand, rather than oil supply, is currently in the driver's seat, some of the impetus behind the peak oil panic has subsided. And yet the "Malthusian Impulse" continues to drive many observers, against their more rational proclivities. Still, global hydrocarban reserves continue to grow, year after year, and oil demand is slated to decrease in time.

New sources for transport fuels are likely to come from many directions, including new gas-to-liquids (GTL) technologies. Oxford Catalyst's microchannel GTL technology is very much in demand, as are other new varieties of GTL technologies. The market for GTL fuels may be more than 20 million barrels per day! Imagine the impact of that huge new supply on the global oil market. (Note that approximately between 5 and 10 million barrels per day could be produced via GTL from currently flared gas alone. Stranded gas could double that number.) More information at this PDF white paper download from Velocys, creator of the Oxford Catalysts microchannel technology.

A more conventional source for GTL transport fuels is the large scale technology championed by Shell.
In 2011, Shell began shipments from its Pearl GTL project in Qatar...The project is able to produce 140,000 b/d of fuel and 120,000 b/d of ethane and condensates... _Petroleum Economist

And that is just the beginning. As long as the huge price spread between the cost of natural gas and the cost of crude oil remains, more and more GTL projects will kick in to take advantage of this "easy money."

Second and third generation biofuels from biomass technologies are beginning to come on line, slowly (consult Al Fin Energy blog for updated news on this topic). Advanced biofuels technologies are not likely to take an appreciable bite out of crude oil demand for another 5 or 10 years. As long as natural gas prices stay this low, only the most efficient biofuels projects will be able to compete in the liquid fuels markets without government subsidies. But by the year 2030 if the technology continues to develop, the writing will be on the wall. This is a biological world, after all.

Advanced nuclear power technologies are likely to aid the development of new fuels technologies of all kinds, supplying safe and abundant power and heat for a multitude of energy development projects from oil sands to oil shales to biomass and aquaculture projects in cold climates, irrigation and desalination of saltwater in arid climates etc etc.

Other factors leading to a decreased demand for crude oil includes the increasing use of both natural gas and biomass as feedstock for the vast chemicals industry -- an industrial sector previously dependent upon petroleum for feedstock. (see Al Fin Energy blog for much more)

The ongoing global economic downturn and demand destruction extends from Europe to Japan to the US, and is beginning to put stress on the Chinese and Indian economies -- despite all the rah! rah! hype about the coming age of the Chindian global economy. Many nations which have maintained hefty consumer subsidies for transport fuels are being forced to reduce the subisidies. More downward pressure on demand.

Malthusian theories are appealing for their simplicity. And yet the never-ending and never-fulfilled Malthusian predictions of doom ignore the most salient and disruptive human technology of all -- the goal-oriented innovativeness of the human mind.

Despite the best efforts of energy-starvationists in the Obama administration, in the EU bureaucracy, in national bureaucracies of EU nations and advanced nations around the globe -- the prospects for abundant energy and fuels in the future are quite good, as long as the clowns in power do not destroy the economies they oversee.

If you have abundant clean energy and fuels, everything else is doable.

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Blogger kurt9 said...

The Malthusian impulse was very strong during the 1970's. It clouded the perspective of many business people and resulted in several spectacular business failues in the early and mid 80's when oil prices crashed.

Remember Penn Square Bank of Oklahoma? Also, the great Texas oil crash of 1986?

SeaFirst, the largest bank in the Pacific Northwest, got sucked into the Malthusian impulse and invested lots of money in Penn Square's oil plays in the expectation that oil prices would continue to increase. They did not and SeaFirst would have collapsed had they not been bought out (for a song) by Bank of America.

McDonnell Douglas can be considered a casualty of the Malthusian impulse as well. Their MD-11 jet was more fuel efficient than the 747-400, but with other performance trade-offs. The 747-400 outsold the MD-11 and McDonnell Douglas cratered.

I expect oil prices to decline, starting in '13 or '14. We will see a repeat of these kinds of bankruptcies.

Wednesday, 20 July, 2011  
Blogger Alastair Sweeny said...

These figures are just "conventional oil." Canada has at least one trillion barrels of oilsands that can be tapped, mostly by underground steaming.

Wednesday, 20 July, 2011  
Blogger al fin said...

Thanks for comments, Kurt and Alastair.

New graphic will reflect unconventionals.


Thursday, 21 July, 2011  
Blogger Randall Parker said...

The price of oil has been high by historical standards for most of the last 10 years. Yet production is not surging. Why hasn't the market responded with more supply if demand is in the driver's seat? Why are we still on the bumpy plateau of production near where we've been since late 2004?

Oil demand has already decreased due to high prices. Demand is responding to limits in supply.

Saturday, 23 July, 2011  
Blogger al fin said...

Randall, the way your question is phrased suggests that you are not as aware as you might be of the long history of boom-bust in the oil industry, and the havoc that has played over oil companies and investors. The oil companies and investors themselves are quite aware of how easily the price of oil can crash -- and how often it has done so historically.

The price of oil has not been so very high until around 2007, taking into account the decline in value of the US dollar. And from late 2008 well into 2009, the price of oil plunged steeply, killing many oil development projects.

The shift in control of global oil production from the international oilcos to the national oilcos has had a detrimental effect on production.

Several nations -- the ones with the largest, most easily accessible reserves -- benefit from holding back production so as to maintain high oil prices. Russia, KSA, Iran, Venezuela, Kuwait, UAE, etc.

Besides willfully holding back oil production, lax maintenance practises and the use of obsolete technology further reduces production by these third world oil dictatorships.

The international oilcos are producing oil where they can find it -- as long as the Obamas of the world do not prohibit or deny licensing for drilling and exploration, as in the GOM, the Arctic, etc etc etc.

Political peak oil can look like the real thing to those who do not look deeply enough.

Demand in the developed world is responding to higher prices. Demand in the undeveloped and emerging world is often subsidised and takes longer to respond to rising prices.

Oil prices crashed in 2008/2009, and can do so again. If one is invested in oil futures it is best not to become too invested in faith-based notions of monotonic increases of oil prices -- for whatever reason (demand, supply, political factors, natural disaster, etc).

Sunday, 24 July, 2011  
Blogger Randall Parker said...

al fin, I am well aware of the history of oil prices and booms and busts. But the price of oil, when it crashed in 2009, bottomed at a price higher than 2004. Only 1981 compares to day and the forces that lowered prices in the 1980s are not present today. We can't move from shallow offshore to deep offshore because we are already deep offshore. The Saudi fields are much older and no discoveries of today rival the discoveries of the super fields of the 1940s and 1950s.

Sunday, 24 July, 2011  
Blogger Randall Parker said...

al fin, The 2009 average oil price in the US was still over $55 per barrel. The drop down below $40 per barrel was pretty brief. The price rise starting in 2003 has still not been responded to with a surge in supply. The producers are being offered much higher prices and yet we are still well below the historical trend for increased oil production. We've been on a bumpy oil production plateau since 2004.

Sunday, 24 July, 2011  
Blogger al fin said...

As I pointed out in my previous comment, response to higher prices by producers can be restricted when market forces are constrained by political forces, which is the case in spades when it comes to oil production.

Give the international oilcos free access without threat of terrorism or nationalisation to the oil fields of KSA, Russia, Iran, Iraq, etc. and you would see a different level of production than is currently seen. That will never happen, politically.

It may seem odd to you, Randall, but Saudi Arabia, Russia, Iran, Venezuela, etc. are scared to death of another oil price crash.

Russia needs oil prices above $125 a barrel to balance its budget. Probably much more than that is needed, considering all the money that gets sent to Swiss accounts every year by government insiders. Iran and KSA are similarly squeezed by political considerations.

Sunday, 24 July, 2011  
Blogger Randall Parker said...

al fin, What has changed to make oil producers not grow production where they used to grow total production in the last up until 2004? I say there's not enough oil left to grow production. That's obvious by drilling rates not only in the US but also in Saudi.

You can assert political factors are behind the lack of production growth. But look at hard numbers. OPEC drilling is up about 50% since 2004. Going back even further the Saudis had 20 rigs active in the 1990s and quintupled those numbers and more. Even in 2009 Saudi cutbacks still left over 100 rigs active. So their lower drilling rate in response to lower prices was about 5 times the 1990s level. They are trying much harder to extract oil. They are going offshore. That's not a sign they have lots left onshore.

Since the US invasion of Iraq there's also been a big surge in drilling in Iraq. We have far more deep water rigs in the Gulf of Mexico, off Brazil, and off west Africa. Read the financial reports of Transocean and other deep water drillers. The levels of activity are high.

Sunday, 24 July, 2011  
Blogger al fin said...

Compare how many exploratory wells have been drilled in the US vs. Saudi Arabia. Over 1000 to 1. No comparison. Amazing, too, considering how much more in reserves KSA has than the US. They are in no hurry to produce their oil, as long as the price is right.

Obama's policies are driving the deep sea rigs out of the Gulf of Mexico, off to wherever they can find a country that will allow them to drill. Political peak oil.

Iraqi oil and gas production continues to be at the mercy of corrupt and potentially violent tribal chiefs, warlords, clerics, and gangs. Political peak oil.

National oil companies tend to be stingy, sloppy, corrupt, and lazy. Some are better than others, but in general they waste a lot of oil and gas, and equipment, through neglect and poor practises. Why not, it's good enough for government work!

There are many oilfields just offshore in the Persian Gulf, which are relatively easy to access, produce, and pipe to a shipping terminal, compared with unexplored oil fields deep in the harsh vast empty quarter. Don't assume that drilling offshore is a sign the Saudis are running out of onshore oil.

Peak oil is true in a number of trivial ways. For example, there is only so much oil that can be produced at any given time, given current technologies and number of rigs and personnel. If demand takes you beyond that point, prices will rise and some people will claim that oil production has peaked "for all time." Not likely, unless demand has peaked for all time.

It is not trivial to invest in new equipment, personnel, and projects. If a national oil company is happy with how prices are compared to national income needs, production can be maintained at lower than maximum levels for a long time. Particularly when the danger of an oil price bust is always present. Always. Deny that at your peril if you are invested in oil.

Sunday, 24 July, 2011  
Blogger Randall Parker said...

al fin, Yes, the US drills many more holes than the Saudis. But like the Saudis the amount of oil per hole has declined. This in spite of advances in imaging and computing to model petroleum geology. Also, with the development of horizontal drilling the amount of drilling increase in both the US and Saudi is much greater than trends in drilling rig count alone indicate.

Onshore drilling is much cheaper than offshore drilling. In spite of the Bush Administration opening up lots of offshore leases the overall trend in US offshore drilling was clearly down since 2001 even before the Macondo accident.

If the Saudis had lots of easy-to-acess oil then they wouldn't be setting a new record for their country with a well of over 32 thousand feet deep. That's a sign the easy oil is mostly gone. As for national oil company competence: The Saudis have long used contractor companies to design and build rigs, operate rigs, and do other work in their country. See that link and you'll see a Canadian company drilled over 32 thousand feet. Companies like Halliburton and Schlumberger do big business in Saudi supplying services and doing field work. Halliburton does lots of work on Manifa and also on Ghawar with big contracts.

Sunday, 24 July, 2011  
Blogger al fin said...

The Manifa well is in shallow water -- essentially an onshore well since drilling is based on an artificial island. Drilling a 32,000 ft onshore well is not that great a challenge for world class operations, although for the Saudis I suppose it was something to celebrate.

This well is almost 40,000 feet deep. And this well has a total length of 40,502 feet.

Of course the Saudis use contractors. That's the only way they would ever get anything done, built, or maintained. But the contractors do not make the decisions regarding how much oil to produce. That is decided by the oil ministry and OPEC in an attempt to maximise income.

With an average population IQ of 85, a country has to have either a high IQ minority (such as the Chinese in Indonesia) or hire outsiders to do most technical work.

But they do like the wealth that comes from oil, so they do what has to be done to get the experts who can obtain the oil and the wealth. But contractors cannot make up for what lies beneath, they can only work at the surface layers -- which isn't enough.

When the government forbids offshore drilling or makes it impossible to pursue it, of course the trend in offshore drilling will be down. Political peak oil again.

Current high prices of oil have a lot to do with politics across the middle east. Political peak oil.

Scratch the surface of a problem and you will find a politician, a lawyer, or a true believer of some type.

Sunday, 24 July, 2011  
Blogger Randall Parker said...

But my point is that if an oil company drills 6 miles down then that means it can't find enough oil by drilling only 1, 2, 3, 4, 5 miles down. Where, how, and how much they drill is a sign of how much oil they've got left. Their cost of extraction is obviously rising.

Sunday, 24 July, 2011  
Blogger al fin said...

Yes. The oil is where it is. Even the Saudis know enough not to cry about having to pay the cost of doing business, when the payoff is so large.

One of the biggest sources of future oil is going to be old oil wells that people thought were exhausted. Because most of the oil is still there, waiting for a smarter breed of oilman to come and get it.

Geologically speaking, 6 miles is not very deep, by the way. Oil geology is still a very young science, with a great deal to learn. It is a bit early to declare the exhaustion of the Earth's hydrocarbon resource.

Sunday, 24 July, 2011  
Blogger Randall Parker said...

Actually, in one of his peak oil books, Hubbert's Peak, Princeton petroleum geologist Ken Deffeyes makes the point that geologists understand very well where to expect to find oil. It is a mature field. There aren't big surprises any more. King Hubbert and others of Shell Oil made major contributions to oil geology back in the 1950s and 1960s. They figured out why oil fields formed and what geological features made the survival of oil underground possible.

Deffeyes also makes the point that the vast majority of enhanced recovery techniques are not of recent vintage. We are not experiencing a big revolution in oil extraction technology. Stuff like SAGD has small impact as compared to techniques developed decades ago. The main thing that changes is the price of oil making more use of enhanced recovery competitive. Deffeyes is unusual among academic geologists that he started out in industry and has considerable industry experience. I found his book a useful read.

I would also recommend A Thousand Barrels A Second by Peter Tertzakian. It has a great section on previous energy transitions, how long they took, and what drove them.

Sunday, 24 July, 2011  
Blogger al fin said...

It is interesting to see some of the places where intelligent believers are coming from, thanks for your sources. Apparently you have not settled on a succinct summation of all that you have read, as of yet.

Keep working on it. When you have some predictions of your own to make, please feel free.

Monday, 25 July, 2011  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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