The World Oil Industry’s Mad Gamble For Profits: Gaming Peak Oil, Denying Climate Change, Wrecking the Alternatives

For the world’s international oil companies, what does a combination of energy scarcity, political dominance, and captive consumers mean? Enormous profits.

And, for the rest of us, what does it mean? Increasing transportation costs, increasing risk of future economic shocks, and increasing damage due to human-caused climate change.

Since the mid 2000s, year after year, top oil companies have raked in over one hundred billion dollars in net earnings. This influx of cash to corporations sitting on dirty, dangerous and depleting resources, came as a result of a world transportation system dependent on liquid fuels of which oil composed more than 70% and on a resource, itself, that, since the mid 2000s, became far more difficult to extract. This combination of a peak in lease condensate supplies and a monopolization of that supply sent both oil company profits (along with power and influence) to heights previously unattainable.

It also has resulted in an industry entirely incentivized to ‘dance with the devil’ in order to extend and maintain that profitability. This devil’s dance includes begging the risk of increased economic shocks due to oil depletion, the active undermining of any viable alternative to oil as a transportation fuel, and a related and ongoing campaign to halt and/or delay action on human caused climate change. In such cases never before has an industry been so incentivized to profit from wanton destruction.

Playing Games With Peak Oil

Any time an oil supply crunch arises, the oil industry makes immense profits. These profits occur on many fronts. First, as world oil production peaks or struggles along a plateau, prices rise as captive consumers compete for the scarce commodity. The result is that all oil assets held by these companies suddenly become far more valuable. Profits soar, providing monies for additional investments into marginal, dirty, and destructive supplies like tar sands, fractured oil, deep water oil or polar oil. This massive additional investment extends the life of all oil supplies by pushing the plateau peak out for years or even decades.

So while oil companies make a profit on the economic shocks oil dependency causes to the system, the lifespan of these companies are extended through the use of more costly and polluting marginal supplies. This new access provides oil companies with a ‘smoke screen’ behind which they can publicly claim that peak oil and, more importantly, oil depletion does not exist. It provides fodder for their arguments and it sets up the world’s consumers for another fleecing as prices ramp higher or, even worse, when the next oil shock emerges.

This gamesmanship has been publicly visible over the past few years as industry supporting think-tanks, ‘experts,’ and media sources have published numerous articles declaring the end of peak oil and predicting world liquids supplies will exceed 120 million barrels per day by 2020. These claims, of course, are completely false. Lease condensate supplies have been on a plateau of around 75 million barrels per day since 2005. Total liquids production, which includes biofuels and natural gas liquids (which are less fungible as a transportation fuel), have only grown from 84 million barrels per day to 89 million barrels per day over the past 8 years. This anemic rate of growth would have to increase by nearly an order of magnitude to reach the amazing 120 million barrels per year predicted by 2020.

But, as with much information published by oil industry cheerleaders, the ‘data’ is less designed to be factual than to create the impression of abundance. Under such a smoke-screen, the oil industry can go about its work of manipulating public policy to suppress alternatives and efficiency increases so as to set consumers/the public up for more fleecing via a combination of over-consumption, scarcity and, in due course, during another oil shock.

Sooner or later, the next shock will come. Sooner if the oil industry is mostly successful in its dominance campaigns, and only more slowly if all they are able to achieve is a stale-mate. But, rest assured, the shock will come unless a wholesale pursuit of alternative fuels and transportation technologies emerge to shake the foundation of the world’s current energy supply structure. The depletion rates for most new oil sources are too high, the costs too great, and the resource intensity too high for more shocks not to emerge.

In the boardrooms, the above set of circumstances is probably what oil company execs are banking on. So we can take the false predictions of abundance, for what they are: industry fluff.

As an example, we can take into account a claim by oil industry cheerleader Daniel Yergin, in 2005, that world oil production would reach 101 million barrels per day by 2010-2012. Peak oilers, by contrast, thought world oil production would stall at around 84 million barrels per day. For my part, I made a prediction of around 90 million barrels per day by this time (link here).

Between the peak oilers and industry cheerleaders, who was more correct? In the end, Yergin’s prediction was off by a stunning 12 million barrels per day. Peak oilers, by contrast, were off by 5 million barrels per day. And, when it comes to lease condensate production, the peak oilers are still 100% correct.

Yet, because of its influence over media, the oil industry has managed to create the impression that peak oil theory is debunked. And, in doing so, it has also managed to reduce urgency to provide transitional technologies thereby making another oil crisis all but certain.

Climate Nightmares

There is, of course, an alternative scenario between the oil industry cheerleaders and the peak oilers. It lies along a middle ground of continuously struggling world oil supply based on increasingly expensive fuels. This middle ground jumps from oil and gasoline price increase to oil and gasoline price increase as new supplies are slowly, arduously tortured from the ground.

In truth, despite all the mad media frenzy about oil depletion and scarcity being a myth, this particular scenario represents the oil industry’s best, most realistic hope. Prices remain high enough for excessive profits, oil maintains its death-grip monopoly over transportation fuels, and slowly, ever-so-painfully, new unconventional sources allow for slowly increasing overall supplies.

The glaring problem with this scenario is it consigns the world to an ever-increasing contribution to world greenhouse gas emissions. All the new, unconventional sources pollute more than traditional oil. Fractured shale leaks methane into the atmosphere as part of its production process. Large volumes of the natural gas produced as part of the oil fracturing process is flared off into the atmosphere, greatly contributing to world CO2 emissions. And tar sands, cynically trotted out as a means for North America to achieve oil independence, is as polluting as coal even as its production requires a greater and greater burning of Canada’s natural gas supplies (currently 8% of Canada’s natural gas production is simply wasted in the production of dirty tar sands).

With unconventional fuels like the ones mentioned above composing an ever-greater portion of total world oil production, oil’s contribution to climate change increases even if net oil production remains level or even declines slightly. Even worse, unconventional fuels may allow for a slow increase in world oil production, while, possibly, more than doubling oil’s contribution to climate change.

For this reason, the world’s oil companies are heavily invested in climate change denial. They fund stealth campaigns via agencies like ALEC and the Heartland Institute to block any effect to establish solutions to climate change via feed in tariffs, renewable energy standards (that require an increasing portion of energy to come from renewables), vehicle efficiency standards, a carbon tax, or any other effective policy driving toward speeding or even facilitating a transition from fossil fuels to renewables. And in order to have any semblance of moral justification to pursue such an insane and harmful set of policies, these agencies must actively deny the likely, very harmful, effects of  human caused climate change.

The result is that an immensely powerful, wealthy, and politically connected industry is hell-bent on increasing the likelihood that Earth becomes hellish.

 

Blindness, Cynicism, and Greed

That the world’s oil companies, which in the 19th century brought light, mobility, and greater economic prospects to an ever-expanding number of people, have come to this pass is just one more example of the human tragedy the Greeks playwrights were so adept at portraying. Like many past tragic villains, the world’s oil companies have chosen blindness, cynical pride, and greed in their most recent groping for wealth and power. This tragedy, if it is allowed to play itself out, will result in the terrible downfall of many of the world’s most powerful energy companies. But, sadly, even as this happens, the economic and environmental shocks created will challenge the adaptive capacity of all human civilizations, perhaps even resulting in their end.

The reason for this is that despite oil company assurances, more economic shocks from oil depletion are on the way. At the same time, only a small window to start reducing world-wide fossil fuel consumption in order to prevent the worst shocks of climate change exists. Among scientists, the pessimists believe CO2 emissions must peak by 2015 to preserve a livable climate. The optimistic scientists believe this date is closer to 2028. Any average of these cases doesn’t give us much time and any continued burning of fossil fuels and increasing carbon emissions into the atmosphere comes at serious and terrible risk. In light of these two contexts, political and media sand bagging by the world’s oil (and related gas and coal) companies is very, very, very destructive.

A Call to Make A Stand On Keystone XL

It is for the above reasons that forcing the cancellation of Keystone XL is so important. Its cancellation will result in a slowed development of tar sands and, possibly, in reduced flows of tar sands to market. Such a cancellation will also require serious and rapid energy policy on the part of the United States to transition to much higher efficiency vehicles and vehicles based on alternate fuels — like electric vehicles and plug-in electric hybrids. It will also establish a strong precedent for beginning to reduce net carbon emissions — not just in the US, but worldwide. The reason is that by demonstrating the ability to turn away from tar sands, the US will have displayed leadership on a key issue of our time.

Keystone XL won’t be the only fossil fuel megaproject the US must turn its back on. But it would be the first. And setting a precedent now will make future contentious choices more easy to make.

It may seem a hard choice now. But, if we look at it rationally, it really is the only choice that includes a prosperous future.

Links:

Please be one of the one million public comments against the Keystone XL Pipeline

 

 

Global Warming Enhanced Drought Continues to Ravage US, Likely To Persist at Least ’til Spring

drmon_dec11

When greed’s involved, it’s very, very difficult to get people to pay attention to facts, much less do the right thing — even when it’s in their own long-term best interest. And so a massive climate-change induced drought continues unabated and with almost zero hint of pursuing the only realistic climate solution — reducing fossil fuel emissions — from the nation’s or the world’s major governing bodies.

As of Tuesday December 11, 2012, more than 62 percent of the continental US continued to suffer from a drought that emerged more than 10 months ago. This year’s summer crops were hard hit, causing rising prices in world grain markets and sparking growing concerns about world food prices. Now US winter crops are also under the gun with Plains States showing between 40 and 65 percent of their respective crops in poor or very poor condition.

Around the world, crops are also being influenced by extreme weather resulting from climate change. Serbia is suffering major crop damage from drought and 30% of UK croplands went unplanted as a result of severe weather. These added impacts come on the back of poor Russian harvests (drought-related) and crop disruptions in India due to irregularities in the monsoonal season.

Back in the US, conventional forecasts show wide-ranging drought persisting until at least March. The result is that US winter crops will almost certainly also suffer losses, further worsening the world’s already bad food situation.

droughtoutlook_Feb

The problem doesn’t fully resolve, though, until we take a look at the long-range climate models which show US drought conditions continuing to worsen as fossil fuel emissions ramp up and global warming feedbacks kick in throughout this coming century. In the end, the desert southwest gobbles up the breadbasket.

One would think a wholesale drying out of the nation’s heartland over the next few decades would be something that would spur a rush to reducing fossil fuel use. One would think this, especially, after a global warming enhanced Sandy ravaged the US East Coast about a month and a half ago. But this demonstration as prelude to how vulnerable our extremely valuable coastal cities have become to global warming induced sea rise and storms seems to have fallen on mostly deaf ears.

Though a few valiant democrats have repeated the call of this blog and others to observe the real threat — The Climate Cliff — and not posture over a contrived threat — The Fiscal Cliff — intransigence among the vast body of government and media remain. Just today, a ridiculous New York Times op-ed heralded a new age of US prosperity through increasing oil production. The article, entitled American Bull, describes how a new US National Intelligence Council (NIC) report shows the US will enter new age of prosperity by extracting more oil and gas. The article’s author, Roger Cohen, unfortunately fails to mention that the NIC report also showed an extreme risk for powerful climate change impacts. Neither Cohen nor the NIC report directly link fossil fuel emissions and ever-increasing damage to the climate. A somewhat vast oversight when your farmland is currently withering and when your cities are teetering at the brink of a rising and increasingly stormy ocean. Cohen, in his postulation for American prosperity in the face of such events may as well have entitled his piece American BS.

New oil and gas resources might be cause for some optimism if climate change were a non-issue (as oil special interests and people with their heads in the sand continue to pretend) and if the extraction of such resources weren’t so darn expensive. Marginal oil in the US is now 90 dollars per barrel and rising. Marginal gas is 5 dollars per unit. Huge numbers of drilling rigs are required to get at the Earth-baking stuff. Ten billion dollars in subsidy support in the US and more than 500 billion worldwide goes to ensuring that the hard to reach carbon keeps flowing out of the ground and into the atmosphere (In contrast, less than 90 billion dollars goes to funding solutions to climate change — wind, solar, energy storage and electric vehicles). Now, oil companies are calling for, multi-trillion dollar, geoengineering and climate change adaptation adventures to help defend against the increasing damage caused by global warming. How can anyone talk about prosperity in the face of these rising costs? When will someone wake up and realize that maintaining fossil fuel addiction is just too darn dangerous and expensive?

As these special interest mad hatters continue their Alice in Wonderland tea party at the brink of disaster, the heartland continues to dry, the northern ice cap continues to rapidly melt, the seas continue to rise at an increasing rate, the storms continue to intensify, and the world’s food situation grows worse. The simple solution is this: ignore the greedy, cut fossil fuel emissions, move to safer technologies. Stop being stupid.

Links:

http://droughtmonitor.unl.edu/

Climate Change, Resource Depletion Making Oil Dependence Economically Unsustainable

Over the past few months, we’ve been focusing primarily on climate change’s amplifying impacts and increasing damage to human societies. But with this month’s Department of Energy Short Term Energy Outlook (STEO) report, it is important to take a step back and examine again the powerful economic headwind that is resource depletion.

In context, oil, gas, and coal companies have, over the past few years, been fighting an epic political and public relations battle for the hearts and minds of the American people. We can hardly avoid the commercials. The endless repetitions of ‘we agree’ glossing over oil companies agendas on television again, and again, and again. We can hardly avoid the slanted news reports. The hit pieces that are put out on the Chevy Volt with almost weekly recurrence, the most recent one coming from Reuters. And we can certainly not avoid the massive political influence the fossil fuel companies have exerted on the political process this year in the Presidential, National, and State elections.

The energy future of the United States and our climate and economic health will, in many ways, depend on whether or not the fossil fuel companies, led by the oil companies, again gain dominance over both our energy and our political systems. In short, oil, gas, and coal have no future. And tieing our futures to those dirty, dangerous and depleting fuels is like grabbing hold of a 200 lb iron weight while struggling to tread water in a stormy ocean.

Why? Well, for starters, the oil companies aren’t any where near close to telling us the truth about the economic viability of their fuels.

The first set of misinformation is well established. The fossil fuel companies, much like the tobacco companies of a by-gone day, much like the south which depended on slave labor for their economic prosperity, aren’t telling us the whole story. In the case of climate change, they’ve actively waged numerous vicious public relations campaigns not only aimed at misinforming the public on the urgency of the climate crisis. They’ve also funded numerous attack campaigns leveled directly against the climate scientists themselves. Such a wide-spread war on science hasn’t been seen since the Renaissance. It has resulted in many scientists receiving death threats. But the broader damage is to society which is now facing the worst climate crisis ever in human history. The trouble fossil fuel emissions have brewed up in our atmosphere could easily be called Biblical. And whether or not we respond to this threat in a timely fashion is a matter of life and death for human civilization and for the human beings who depend upon it for survival.

Though the issue of climate change is pretty broadly understood, the second issue making oil non-viable as an economic resource is less well understood. And, though probably less harmful overall than climate change, its revelation gives lie to the assertion by oil companies that its fuels are a resource necessary for economic growth. To the contrary, the fuel is economically destructive. Why? Because it has depleted to the point that it is no longer economically viable to remove an increasing portion from the ground.

Just last week, reports from fracturing companies found that as oil prices dropped in June, July and early August a number of wells in the tight oil fields of North Dakota and Texas were idled. Why? Simply because these companies could not make a profit on oil costing less than $90 per barrel. This very high marginal cost of oil is bumping up against the level at which world economies suffer from recession. A range that the current economic malaise is proving is between $100-$150 dollars per barrel. The oil is just getting too darn expensive for a world economy to run on.

Then this month’s STEO report rolled in showing preliminary data that doesn’t bode well for the future of world oil production.

But before we go into this month’s STEO report, we should talk for a moment about the ridiculous papers being put out by the world’s oil establishment. Just last month, a former oil executive published a paper entitled “Oil the Next Revolution.” Just looking at the title brings up a little of a chuckle. Wasn’t oil last century’s revolution? Making such an extraordinary claim would require extraordinary evidence. But Leonardo Maugeri completely fails to deliver. First, he makes a highly spurious claim that world oil production will reach 110 million barrels per day by 2020. He does this by tinkering with the decline rates — he assumes a less than 2% decline rate for the world’s existing and future oil fields, the real rate is somewhere between 4 and 7 percent. Next, he makes extremely optimistic predictions about the world’s ability to economically produce tight oil like that in the Bakken. Finally, he conflates natural gas liquids with oil production. Unfortunately, natural gas liquids aren’t so easily fungible with oil, requiring highly specialized refineries to turn into diesel fuel. Maugeri claims a total of 49 million barrels per day of new oil conflated with natural gas liquids gets us to this 110 million barrels per day by 2020 in an environment of very low decline rates and very fungible natural gas liquids.

Maugeri is vastly wrong. He is wrong when it comes to the decline rate. He is wrong when it comes to the fungibility of natural gas liquids. And he is wrong on the ability of the world to economically add 49 million barrels per day of new supply. And this is where I return to the marginal price of fractured oil. $90 today. That’s what’s required to lift the new oil up out of the ground. What does Maugeri assume for his price of oil in 2020? Maugeri assumes oil will remain above $70 per barrel.

Maugeri already got the price wrong. We can’t maintain 89 million barrels per day at less than $90 per barrel.

Enter this month’s most recent STEO report. Now the first number we want to look at is consumption. Consumption is the best measure for world demand. Despite misinformation to the contrary, world demand has been very high since 2004. The only time in which the world experienced a reduction in demand was during the Great Recession in 2008 and the downturn that followed in 2009. At all other times during this period, demand was going up. Today, according to the STEO report, world oil consumption/demand is sitting at around 90.17 million barrels per day. Now just keep that number in your mind.

Now let’s look at the next number. World supply. That number is 88.41 million barrels per day. Immediately, we can do a little math and figure out that supply is less than demand by about 1.76 million barrels per day. This situation would tend to support a high price of oil. Well higher, in fact, than the marginal cost of producing a barrel of oil. And what was the average price? About $94 per barrel over the month of August just $4 per barrel above the supposed marginal cost of production. But let’s hold here on prices and talk a little bit more about supply.

In August, total world oil supply fell by 160,000 barrels per day from July. This isn’t too big of a deal at first blush. But it does follow a fall in oil supply of about 140,000 barrels per day from June, another fall of 130,000 barrels per day from May, and another fall of 120,000 barrels per day from April. This total of 550,000 barrels per day loss in production over the course of four months is not what one would expect to see if the world were on the verge of roaring to 110 million barrels per day within 8 years. In fact, we should see, on average, an 800,000 barrel per day increase over the same time period if that were the case.

But the overlying data isn’t what’s most disturbing. It’s where the losses come from. From July to August of 2012, US oil production fell by 300,000 barrels per day. Part of this loss is due to the fact that marginal, high cost, fields were idled due to the falling price of oil. In other words, these fields could not produce oil economically and were temporarily shut during a period when oil prices averaged at about $94 per barrel! Other losses likely came from ethanol production due to the fact that corn took a huge hit in this year’s climate-change induced drought (it is worth noting that, these days, ethanol counts as oil).

What brought down US oil production in the month of August can best be described as a combination of oil depletion and climate change.

But before we depart from the oil supply picture, let’s take a look at one other country — Russia. In the STEO report, Russia is listed as the Former Soviet Union. It includes all the oil producing states formerly part of the Soviet Union (FSU). Notably, August saw FSU production fall by 261,000 barrels per day to its lowest levels since August of 2009. This drop is an ominous sign for the prospects of world oil production. Russia relies on a number of very large depleting oil fields for the bulk of its production. Major efforts have been made to enhance production. But, according to the most recent reports, these efforts appear to be falling short.

Back to the larger picture, it appears that world oil production has stalled and fallen back into a slow decline. And there are troubling signs coming from both Russia and the United States.

Now, with these less than happy thoughts in mind, let’s go back to demand, supply, and price. Normally, in a natural environment, the price of oil would be allowed to rise so that new supply could come to market to meet demand. We have supply shortfall. We have marginal production waiting on the sidelines. So why isn’t price rising? What’s holding back price?

One need only look at the current world economic situation to see what’s keeping price in its gate. The world is, essentially, lurching about at the brink of another recession. Any bump in oil prices may kick the world back over the edge. So, in this event, high marginal prices of oil are bumping directly up against the world’s economic ability to sustain demand. And given the current leeching away of world oil supply, that ability is again placed in serious doubt.

Given these factors, it is increasingly clear that the world’s oil companies aren’t telling us the truth. Despite every economic contortion possible, oil is simply no longer a viable means to sustain and grow the world’s economies long-term. It is too expensive to extract. Its marginal prices are too high to bear. And the damage it inflicts on world economies through the ongoing and amplifying force of climate change creates an external insult that further reduces the abilities of economies to rationally function. Simply put, the oil is unsustainable and the faster we are able to both increase efficiencies, alternatives like the Volt, and the proportion of our renewable energy allotment, the better off we will be.

As for the oil companies endless re-assertions. We decidedly do not agree.

Links:

http://www.eia.gov/forecasts/steo/tables/?tableNumber=6#endcode=201312&periodtype=m&startcode=200901

http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf

Chevy Volt Breaks Monthly Sales Records Again

America’s most customer-loved automobile broke a new monthly sales record this August. According to GM, sales figures for the Chevy Volt exceeded 2,800 vehicles for August. The Volt’s previous best sales month was March at 2,289 vehicles.

So far this year, the Volt has sold over 13,000 automobiles in the US and is on track to sell nearly 20,000 by the end of this year. Worldwide, the Volt has already sold over 25,000 vehicles in 2012.

In 2011, the Volt was the highest-rated vehicle for customer satisfaction. This despite a wide-ranging political attack by republicans and oil-special interest sources to discredit the vehicle.

The Volt’s revolutionary engine system allows the vehicle to travel for 40 miles in an all-electric mode before switching to gasoline assisted driving. Many Volt drivers report making it more than 1,500 miles between fill-ups in day-to-day driving.

If large portions of the US vehicle fleet were made up of cars like the Volt, it would drastically reduce oil imports. Just a 30% market penetration of plug-in electric hybrids could cut US oil consumption by as much as 2.5 million barrels per day. That’s more than twice the domestic oil produced via Eagle Ford and Bakken combined.

In addition, the Volt emits far less in the way of greenhouse gasses. According to the EPA, the Volt emits 84 grams of carbon per mile averaged over its lifetime. In comparison, a similar-sized combustion engine sedan emits four to five times as much carbon over its lifetime. Considering that personal vehicle transport accounts for 20% of CO2 emissions, a world-wide adoption of vehicles like the Volt could cut total emissions by as much as 15%.

This beneficial reduced fuel demand, however, is likely to eat into oil company profits. Which is probably one reason why the Volt has drawn flack from certain media and political circles. Increasingly, these sources have towed the oil industry line in messaging, both denying global warming and simultaneously attacking any replacements for fossil fuel energy. This destructive attempt at market domination would result in vast harm to technological progress as well as call into question the future health and even continuance of civil society should the worst impacts of climate change emerge.

So one should take any such dissuasion with a grain of salt. These aspersions hold no value and result only in harm to US interests and world climate security.

%d bloggers like this: