Peak Oil

U.S. the New Saudi Arabia? Peak Oilers Scoff

The U.S. is set to increase oil production so much that it will overtake Saudi Arabia and become the world’s biggest producer by around 2017, the International Energy Agency said today.

Businessweek,

12 November, 2012

The reaction from “peak oil” theorists? Not a chance. They continue to argue that the surge in U.S. production coming from shale oil and shale gas is a flash in the pan. Before long, they say, U.S. output will start falling again—as will global output. The price of oil will skyrocket and the industrial economy will be brought to its knees, they argue.

I first reached Kjell Aleklett in Sweden. He’s president of the Association for the Study of Peak Oil and a physics professor at Uppsala University. Aleklett acknowledged that peak oil theorists didn’t predict the U.S. output increase, but he said the jump doesn’t undermine their main case. “We were wrong that it was not possible for the U.S. [production] to swing back again. But we don’t know how high the swing will be,” Aleklett said.

“The shale production we are talking about now relies on thousands of wells drilled every year. If the drilling capacity should go down, or for some reason it becomes too expensive, then the production will go down very fast,” Aleklett said.

What’s more, he said, the U.S. success is not being duplicated in other countries. In densely populated Europe, Aleklett said, the best shale happens to be beneath the city of Paris, making it off-limits to production (unless the Eiffel Tower is converted into a production platform).

Aleklett also pointed out that the U.S. Energy Department’s own outlook contradicts that of the Paris-based International Energy Agency. In 2035, according to the U.S. Energy Information Administration, imports of crude oil, liquid fuels, and other petroleum, plus natural gas will still total about 24 quadrillion BTUs a year, nearly triple the level of exports.

Mark your calendar, by the way: Aleklett said the next meeting of the Association for the Study of Peak Oil is in Austin, Tex., on Nov. 30 and Dec. 1.

I then reached Jeremy Leggett, a British solar energy entrepreneur who is chairman of a company called Solarcentury and who writes about energy issues, including peak oil. His talking points were more polished than Aleklett’s, but he hit the same arguments. Like the Swede, he said he doesn’t think production from unconventional sources such as shale is sustainable for long.

“On the massive balance of probabilities, not withstanding the U.S. phenomenon, there’s going to be a descent of global production and much higher prices, by 2015 at the latest,” Leggett said.

I asked him if it’s harder for him to persuade people now than it was before the surprising resurgence in U.S. output. Yes, he said. “It’s a comfortable narrative, and people are desperate to believe comfortable narratives. It has set back the perception of the risk.” Dependence on oil and gas, said Leggett, “will blow up in our face.”

Great comment!

Twenty rats were in a barrel. One of them (a mathematician) plotted the

rise in population, and wisely pointed out that exponential growth rates are

unsustainable. The other rats laughed and scorned. “Nonsense!” they cried, “we’ll always find a way to sustain ourselves. The great rat in the sky put us here and commanded us to multiply and replenish the barrel!”

Time passed. Now there were 100 rats in the barrel.

Thanks to advances in rat science there were new discoveries in antibiotics and food production. Rat civil engineers had developed new ways to cram more and more rats into the remaining space. The rats prospered and

wrote magazine articles about how to increase production and consumption.

The mathematician was getting old, the rat population topped 1000. He warned them again: “exponential growth is not sustainable.” The rats

scoffed, and said “you have no credibility – we’ve been breading like rats and

we’re doing just fine. Go away, we don’t believe in your silly mathematics – we are smart, and can breed like rats, and nothing bad will ever happen.”

Now there were ten thousand rats. The infrastructure was wearing thin. All those rats in...

Shale Gas Will be the Next Bubble to Pop - An Interview with Arthur Berman

_{Oil Price,}

_{12 November, 2012}

_{The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.}

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: 

http://petroleumtruthreport.blogspot.com

In the interview Arthur talks about:

•            Why shale gas will be the next bubble to pop
•         Why Japan can’t afford to abandon nuclear power
•         Why the United States shouldn’t turn its back on Canada’s tar sands
•         Why renewables won’t make a meaningful impact for many years
•         Why the shale boom will not have a big impact on foreign policy
•         Why Romney and Obama know next to nothing about fossil fuel energy

Interview conducted by James Stafford of Oilprice.com

 

Oilprice.com: How do you see the shale boom impacting U.S. foreign policy?

Arthur Berman: Well, not very much is my simple answer.

A lot of investors from other parts of the world, particularly the oil-rich parts have been making somewhat high-risk investments in the United States for many years and, for a long time, those investments were in real estate.

Now these people have shifted their focus and are putting cash into shale. There are two important things going on here, one is that the capital isn't going to last forever, especially since shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.

The second thing that nobody thinks very much about is the decline rates shale reservoirs experience. Well, I've looked at this. The decline rates are incredibly high. In the Eagleford shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%.

They're going to have to drill hundreds, almost 1000 wells in the Eagleford shale, every year, to keep production flat. Just for one play, we're talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I'm saying?

Oilprice.com: You've been noted suggesting that shale gas will be the next bubble to collapse. How do you think this will occur and what will the effects be?

Arthur Berman: Well, it depends, as with all collapses, on how quickly the collapse occurs. I guess the worst-case scenario would be that several large companies find themselves in financial distress.

Chesapeake Energy recently had a very close call. They had to sell, I don't know how many, billions of dollars worth of assets just to maintain paying their obligations, and that's the kind of scenario I'm talking about. You may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away. That's the worst-case scenario.

Oilprice.com: Energy became a big part of the election race, but what did you make of the energy policies and promises that were being made by both candidates?

Arthur Berman: Mitt Romney, particularly, talked about how the United States would be able to achieve energy independence in five years. Well, that's garbage.

Relevant Article: High Risk Investing - The New Trend in Energy: Interview with Andrew McCarthy

Anybody who knows anything about oil, gas and coal, knows that that's absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn't know what he's talking about, or is making a big joke of it.

Obama didn’t talk so much . . . He's a hugely green agenda kind of president and I'm not opposed to that, but he's certainly not for the oil and gas business. It wasn't until he got serious about thinking about his re-election that he decided to take credit for what really happened.

Oilprice.com: Japan recently announced that they are going to be phasing out nuclear power. What are your views on nuclear? Are we in a position to abandon this energy source?

Arthur Berman: No. Japan is a special case. The disaster at Fukushima, the nuclear reactor, was right on top of a major fault. So, that was a dumb place to put it.

To wholesale abandon nuclear power because one reactor was incredibly stupidly planned, to me seems like a bit of a . . . well, I can't tell people how they should react, but if I were a Japanese citizen, and the truth was that we have no oil, we have no coal, we have no natural gas, the next question is, "Well, if we get rid of nuclear, what are we going to do?"

It's a really good question to ask. If you don't have anything of your own, how are you going to get what you need? The answer is that they have to import LNG and that's very expensive.

Right now, natural gas is selling in Japan for $17 per million BTUs. You can buy the same BTUs in Europe for $9 today, or in the US for $3.25

Oilprice.com: What about Germany’s decision to also phase out nuclear power?

Arthur Berman: For Germany to abandon nuclear… that decision is truly delusional because they haven't had any problems over there. Nor is Germany particularly earthquake prone or tsunami prone. They have forced themselves into a love relationship with Russia.

Oilprice.com: What are your views on Canada's tar sands? Are they a rich source of oil that the U.S. needs to exploit? Or do you think they're a carbon bomb, which could do irreparable damage to the climate?

Arthur Berman: Well, that's a very good question. I suppose they're both, as are virtually all things that burn. Right? They're a very rich source of oil. And they're dirty. It requires a lot of natural gas heating to convert them into some usable form, a lot of processing, but here's the thing, if the United States doesn't buy that oil from Canada, do you think Canada's just going to say, "Oh. Okay. Nevermind. We'll forget about all this."

No. They're going to sell it somewhere else. They'll probably sell it to Asia. So, the issue of the carbon bomb doesn't get resolved by the United States not taking the oil.

So, to me, that's off the table. Yes. I think it's an incredibly sensible play to get your oil from a neighbour, and a neighbour who you trust, and it doesn't require overseas transport and probably getting involved in periodic revolutions and civil uprisings.

Oilprice.com: Is there any technology, any development you see coming in the future that can help us get where we need to be? Is conservation really the only answer or do you have any hopes for some of the alternative energy technologies, such as solar or, even, some of these more advanced technologies such as Andrea Rossi’s E-cat machine?

Arthur Berman: Oh. I have all the enthusiasm for technology that you could ask for. I'm a scientist and I love technology but I heard a very good presentation several years ago on your exact question and the man who gave a talk said, "I'm going to give you a rule to live by. If it's not on the shelf today, then a solution is no sooner than ten years in the future." So, when you talk about E-cat and you talk about algae and all this kind of stuff, it's not on the shelf today. So, that means it's in some sort of pilot stage of testing.

Work harder guys. Work harder and faster because you've got a lot of work to do. So, yes, I'm enthusiastic. I think there are some great ideas out there but I don't see any of them helping us in the coming five to ten-year period.

Oilprice.com: Environmentalists talk about the evil of fossil fuels, but have they really done their research to see how vital it is to pretty much everything that we base our modern lives upon?

Arthur Berman: Well, that's exactly right. My oldest son and his family until recently lived in California, and in California people think electricity comes from the wall. They don't have any idea that most of their electricity comes from horrible coal-fired power plants in New Mexico and Arizona. As long as they don't have to see it, they don't have a problem.

But, in this world, and in this life, we're all connected and if you see something you don't like, there's a good possibility that whatever they're doing there has something to do with something you're using. So, this is an issue.

Oilprice.com: Arthur, thank you for taking the time to speak with us. For those readers who may be interested in contacting Arthur please take a moment to visit his website: http://petroleumtruthreport.blogspot.com/

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