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Energy & GHG

Jul 24, 2012


Country-by-country projected evolution of (gross) oil production capacity to 2020 (first 23 countries)

Ken Parish at Club Troppo draws attention to a new report that confounds the conventional wisdom on peak oil and, if correct, has important implications for cities.

It’s published by Harvard University’s Belfer Centre for Science and International Affairs. It concludes that oil supply capacity is growing worldwide at such an unprecedented level, it might outpace consumption, potentially leading to a glut of overproduction and a steep dip in oil prices.

Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.

It’s estimated known projects could theoretically produce an additional 49 mbd by 2020, equivalent to about half existing world capacity. Taking into account various risk factors and depletion rates of existing fields, this could increase capacity by a net 17.6 mbd. If so, it would constitute the largest increase in any decade since the 1980s.

A key assumption underlying the analysis is oil remains above $70 a barrel out to 2020. Oil prices plunged this year but are still well above this level. Crude oil for September delivery is now $88.14 a barrel and Brent oil is $103.30.

The author of the report, former oil industry executive Leonardo Maugheri, told Reuters production capacity is expected to grow the most in Iraq, the United States, Canada, Brazil and Venezuela. It could decline in Norway, the United Kingdom, Mexico and Iran. He said much of the surge in U.S. capacity is due to the boom in shale oil.

It might be tempting to imagine this is some sort of dastardly con perpetrated by vested interests. But Guardian columnist and environmental activist George Monbiot has read the report and concludes – regretfully – that it provides compelling evidence a new oil boom has begun.

Peak oil hasn’t happened, and it’s unlikely to happen for a very long time.…The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that….There is enough oil in the ground to deep-fry the lot of us, and no obvious means to prevail upon governments and industry to leave it in the ground.

The idea the peak oil might recede shouldn’t be a surprise. Higher prices encourage consumers to reduce demand and switch to substitutes like renewables and shale oil. They also encourage further exploration and make previously marginal reserves viable.

The era of really “cheap oil” that prevailed in the post-war period up to around 2000 is probably behind us, according to the report. But “it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.”

The reason George Monbiot is regretful is lower-than-feared oil supply could mean we’ll continue our profligate ways and set back progress on addressing climate change. As Ken Parish says, we can no longer expect that peak oil will “soon intervene and compel drastic reductions in human CO2 emissions through huge price increases driven by increasing resource shortage.”

That possibility is troubling given this new research by James Hansen and colleagues. It warns of the emergence of extreme weather events with temperatures more than three standard deviations above historical norms.

So far as cities are concerned, transport is a key area where peak oil is expected by many to have a dramatic effect, especially on petrol/diesel availability and fuel prices. I’ve long  taken the view that, like it or not, cars will be with us for a long time yet.

If the report is right (and it has its critics), it reinforces that probability. The price of petrol might very well rise further in real terms but it now appears it probably won’t go permanently stratospheric. In the absence of an exogenous driver like peak oil, reducing transport-related emissions will require deliberate policy intervention.

But the report might not be right. Apart from what the critics say, there’s a range of factors acknowledged in the report that could complicate and undermine the projections. I’ve put a list of key points taken from the report under the fold:

  • Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability.
  • Other things equal, any significant setback to additional production in Iraq, the United States, and Canada would have a strong impact on the global oil market, considering the contribution of these countries to the future growth of oil supply.
  • The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation over the next decades that might bear surprising results – given the fact that most shale/tight oil resources in the world are still unknown and untapped. What’s more, the application of shale extraction key-technologies (horizontal drilling and hydraulic fracturing) to conventional oilfield could dramatically increase world’s oil production.
  • In the aggregate, conventional oil production is also growing throughout the world at an unexpected rate, although some areas of the world (Canada, the United States, the North Sea) are witnessing an apparently irreversible decline of the conventional production.
  • The age of “cheap oil is probably behind us, but it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.
  • The oil market will remain highly volatile until 2015 and prone to extreme movements in opposite directions, thus representing a major challenge for investors, in spite of its short and long term opportunities. After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade.
  • A revolution in environmental and emission-curbing technologies is required to sustain the development of most unconventional oils – along with strong enforcement of existing rules. Without such a revolution, a continuous clash between the industry and environmental groups will force the governments to delay or constrain the development of new projects.
  • Some of the major geopolitical consequences of the oil revolution include Asia becoming the reference market for the bulk of the Middle East oil, and China becoming a new protagonist in the political affairs of the whole region.
  • At the same time, the Western Hemisphere could return to a pre-World War II status of theoretical oil self-sufficiency, and the United States could dramatically reduce its oil import needs.
  • However, quasi oil self-sufficiency will neither insulate the United States from the rest of the global oil market (and world oil prices), nor diminish the critical importance of the Middle East to its foreign policy. At the same time, countries such as Canada, Venezuela and Brazil may decide to export their oil and gas production to markets other than the U.S. for purely commercial reasons, making the notion of Western Hemisphere self-sufficiency irrelevant.
  • It’s also true, however, that over the next decades, the growing role of unconventional oils will make the Western hemisphere the new center of gravity of oil exploration and production.


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35 thoughts on “Is peak oil a non-event?

  1. Last name First name

    Parker Alan * OAM

    No one doubts that it is technically possible to make oil products from shale, tar sands, very heavy oils or coal. What is unsound is the the assumption that unproved technology can and will be developed in time to cope with the decline of World and Australian oil production. Oil discovery Peaked around 2007 nearly all the good oil- that is the light sweet crude that is easy and cheap to find extract and refine- will be gone. The remaining oil will be heavier and sour, and cost a lot more find, extract from difficult locations in the Arctic regions or in very deep water and to refine out all the pollutants, all of which will produce a huge increase in carbon dioxide emissions.

    This change is already underway in Canada which has huge reserves of tar sands and is planning, to sell oil to China and Japan. Even so two thirds of the energy in a barrel of synthetic crude oil is required to produce it, making it a major emitter of greenhouse gases. Indeed the French oil giant Total SA, amid rising oil and natural-gas prices, is considering building a nuclear power plant -which will take at least ten years to design and build – to extract ultra heavy oil from the vast oil-sand fields. At the same time, the price of natural gas — which oil-sands producers have relied on to produce the steam and electricity needed to separate the oil from the sand — have risen 45% and then dropped in 2010/11 years.

    The US also has large shale gas/oil reserves but large scale commercial production is unknown because of emerging environment problems. The synthesis of oil from shale gas , brown and black coal will become marginally economic in some countries. But not so in the US, even so in time all the low hanging fruit will be picked and once that happens there will be a massive increase in carbon dioxide emissions. The initial positive reaction to Shale gas potential in the US has been dampened as each new technical report on the environmental consequences appears.

    When economists say that there is lots of oil left in the world that is an ecologically obscene distortion of the truth . Most of what’s left is not the good oil, but the bad oil that will increase global warming to such an extent that it will destroy the world economy, food production and billions of people will starve. Especially if fuels for vehicles is distilled from food crops of corn, sugar or wheat, which is planned in many countries. The only moral choice it to conserve our own oil and bear the pain of much higher petrol prices..

  2. Hamis Hill

    And to controversially introduce religion into the argument a certain deity promises in scripture to “bring to ruin those ruining the Earth”( identified above as “Conservatives”).
    Being those individuals who ignore the injunction of the Old Testament Prophet Moses against “Usury”.
    Getting back to “peak oil”, certain Middle Eastern oil producers claim to follow in their religion the injunction against usury, meaning they are not committed to living “idly” on the proceeds of usury. But where is their committment to sustainablity?
    Are they using their oil wealth to save the planet from destruction?

  3. Hamis Hill

    Perhaps, in order to reduce oil consumption altogether, we should consider Dick Smith’s arguments about the deliterious effects of a global commitment to economic growth.
    There may be two prongs; poor people in developing countries must resort to destroying their local environments simply in order to survive. Economic growth, it is argued, will deliver them the western lifestyle, typicaly enjoyed by Australians, but with a high dependency upon fossil fuels and environmental plunder.
    The western standards depend upon massive levels of debt with “growth” being the only means by which the interest on this debt can be serviced.( and by environmental plunder)
    The “Idle Rich” who live off these growth generated interest payments have a reason then to resist “sustainablity” alternatives which threaten their income.
    Peak oil might be averted and the planet “saved” were the Third world masses and the developed world masses to both approach a technology enhanced, low consumption and growth free (ie debt free) sustainable life style. Bio Fuels, derived regionally are part of this, With ecological sustainablity.
    But the present system has too many dependent and influential beneficiaries who do not want change. I think they are called “Conservatives”.
    Economic and social injustice is their game.

  4. lindsayb

    @ Michael
    I believe mallee trees are under investigation for their biofuel potential, and are ideal as they can be grown sustainably in very marginal cropping country

  5. Jonathan Maddox

    Replying to comments now —

    @Liamj and Captain Planet — you seem to be on top of the facts. “Oil shale” and “shale oil” used to refer to the same thing … ie. the Green River Shale deposit which geologically speaking is not shale at all but rather marlstone, hyped as a massive energy resource since the first world war, never competitively exploited. Oil from the Bakken Shale and other tight oil fields is NOT from “oil shale” nor is it what used to be called “shale oil”; rather it is conventional liquid oil in a tight field that happens to be made from shale rock. It’s called “shale oil” now I think primarily to encourage confusion about the size of the resource.

    @Limited News : Excellent points, but a lot of “peak oilers” have fallen into the trap of insisting that there are strict geological constraints to oil production that have no economic relevance (due to the assumption you mention, that demand will always match physical supply). The demand destruction due to high prices and recession, mentioned by David R above, is very real, very much an economic and not a geological consideration, and it is mitigated by other factors, not least the available of competing energy sources such as coal, nuclear and renewables. Hubbert’s deduction of a near-symmetrical production curve was based on observations of oil fields whose production peaked during economic competition with cheaper oil fields elsewhere, which has been borne out perfectly as long as that condition holds (eg. Mexico in competition with Texas, then Mexico going into free-fall while Saudi oil was still very cheap). In the absence of cheaper competing oil fields, the geological constraints do indeed come more strongly into play, but so does demand destruction (much cheaper to shed a few jobs than spend $150/bbl on oil for business as usual) and competing non-oil energy industries.

    @Hamis Hill : “second order” biodiesel technically exists (I once had great hopes for it) but has serious technological flaws which will likely render it unable to scale effectively without large and consistent subsidies:


    While the technical potential of biofuels is enormous, there is little or no reason to expect promoting biofuel to have much more mitigating effect on peak oil than it already does in the limited form of ethanol and vegetable oil. It may provide “sustainable” liquid fuels at a rate comparable to current biofuel production rates (300 k bbl/d globally) for a long time, but it won’t keep industrial civilisation going single-handedly.

    @Scott : High prices did not create the fracking process, nor horizontal drilling. These technologies have existed since the 1970s and earlier, and have often been used wherever it makes economic sense. High prices made it possible to sell the most expensive marginal production of tight oil and tight gas using these technologies — at the peak of a credit boom. The US companies which rely on continuing exploitation of new tight gas and oil wells are becoming victims of the credit collapse as their shareholders wise up (check Chesapeake).

    Most of the oil produced today is *still* good old conventional cheap oil from big free-flowing fields discovered before 1960. You might think that the current high price supports current production, but what consumers spend is largely profits to conventional producers who tend to re-spend it back into the wider global economy and supports the high price and the marginal high-cost producers! When the big fields decline, there will be nothing to replace them at a comparable cost, so that spending will disappear altogether. Recession, a falling price, and tumbling production (as low prices can’t support expensive producers) is to be expected. The only thing that can save us from that is actively moving demand off liquid fuels — as a matter of foresight and planning ahead, not last-minute supply/demand economics reacting in real-time to price signals alone.

  6. michael r james

    Although it is going to be difficult for anything to compete with fossil fuels, perhaps even solid-to-liquids, without a carbon price, biofuels are certainly a high likelihood for sustainable aero-fuels.

    Obviously not from food crops or from crop lands. Australia could find a useful and profitable niche here if only we put some serious effort in. I am thinking mostly of the concepts of creating biofuels from non-crops on marginal land, whether that be salt-bush or switchgrass (in US). In fact in Australia our ethanol biofuel is derived from the waste from sugar refineries (not from the sugar itself) though I would admit this could not support a large enough industry if we wanted to go the way of Brazil.

    The thing is that all the leafy and woody parts of plants consist of carbohydrates (sugar in one form or another) except it is in tough polymer form which are incredibly difficult to reduce back to monosaccharides. This is where most of the energy captured by photosynthesis resides–as is obvious when you burn these plants. It is the cellulose and lignin etc.

    Only ruminants eat such stuff because they have developed an elaborate digestion system (multiple stomachs, pre-digestion cud-chewing with cellulases to begin the breakdown of leafy matter) to break it down (and as you can see by inspecting cow pats, still pretty inefficiently). The insects (termites etc) have developed the most efficient methods of breaking this stuff down to get at the energy and there are efforts to harness their enzymes (cellulases etc) so we can industrialize it. This might be by making bacteria that can do it (ie. GM organisms with these super-enzymes) or it might be just the enzymes themselves (though again probably from GM-bugs cooked up in a biofermenter).

    There are even ideas for modifying the plants themselves so that the celluloses and lignins etc contain some modified sugars that can then be almost magically dissolved (to break the giant polymers down into more digestible bits) by perhaps a chemical process, or an in-vivo process (also GM’d into the plants) upon some kind of induction.

    This might sound all a bit scifi but actually there is absolutely no reason to think it will not happen if we keep up the R&D. By definition these potential feedstocks for biofuels will NOT be food (if they had more available saccharides they would already be food, like corn, wheat etc) and they have the great advantage of growing on poor land, minimal water and without fertilizer or other artificial inputs.

  7. Jonathan Maddox

    Each one of the “facts” in the report is correct on the face of it, but this doesn’t make “peak oil” an invalid theory or any such thing. Some “peak oilers” had a habit of crying “world economic collapse” as crude oil production began to decline, but this was never realistic.

    * Peak oil is defined as the point at which production of crude oil is at its all-time maximum.
    * Production of what we used to know as crude oil really did peak 5-7 years ago. New discoveries of oil fields declined long, long ago — new discoveries, including “tight oil” fields like the Bakken Shale, are but a tiny trickle by comparison with the big discoveries which were all pre-1960.
    * The Canadian “tar sands” have been reclassified as crude oil, but the analogy is quite imperfect as this is a mining and industrial operation an order of magnitude more capital- and energy-intensive than traditional oil exploration.
    * Other “liquid fuel” production includes transformation from non-oil raw products, such as biofuels and synthetic liquids derived from natural gas (Malaysia, Qatar) and coal (South Africa).
    * It is “all liquids” production that hasn’t peaked yet. However the vast majority of “all liquids” is still conventional crude oil.
    * All oil wells and oil fields eventually peak and decline in production rates. The world’s one truly massive oil field, Saudi Arabia’s Ghawar, has not peaked yet but it will, and there is not enough capital in the world to compensate for the decline of Ghawar from mining tar sands or shale beds, once that happens.
    * The bottom line is, liquid fuel production WILL begin to decline when the really big oil fields do.
    * The only way for the world’s energy economy to continue to function with declining liquid fuel production is to reduce liquid fuel demand, fast.
    * The world *is* reducing liquid fuel demand per unit of economic activity, and even reducing absolute demand in some countries, but nowhere near fast enough to compensate for rapid economic growth in developing countries.
    * We will adapt faster, or the economy will collapse.

    None of this addresses global warming concerns, which are intimately related but not identical because *coal* use has been rising much faster in recent years than oil use. That’s not a successful model for sustainability.

  8. Wiz Aus

    “So burning all fossil fuels would return the carbon dioxide to the atmosphere, but could not result in a certain runaway devastating climate change. ”

    Cool, is this the latest argument from the denialists? The absurdity of it rather speaks for itself, but I have to say it’s stooping to new lows.

    Aside from the responses already made, I’m not even convinced the assumption is even correct – do we have any idea of what the maximum percentage of all the CO2 locked up in fossil fuels currently was ever in the atmosphere? I certainly wouldn’t think it was ever near 100% – last I time I checked, fossil fuels don’t form via compression of CO2 in the atmosphere.

  9. Captain Planet

    Hello Dudley,

    Surely you are aware that the anticipated problem is the rate of the restoration of all that CO2 to the atmosphere, and the resultant rate of temperature rise.

    I would agree, that if all of the CO2 which was sequestered into oil and coal were to be released at the same rate at which it was originally sequestered, then your comments would have some validity.

    Restoring a few billion years worth of CO2 sequestration to the atmosphere over a few hundred years, on the other hand, is proving to be way to rapid a rate of change for the earth’s ecosystems, and the species who have evolved to live in this climate, to handle.

    Think of the world’s temperature anomaly, as impacted by CO2, as being like driving up or down a mountain.

    If you drive up or down slowly (sequester CO2 gradually) all is well. go back down the mountain in an uncontrolled manner, and you have big problems. The rate of adjustment in altitude is somewhat difficult to handle 🙂

    Now, our car is parked at the top of Mt. Everest, on the edge of a cliff. We are sawing away at the handbrake cable and we are about to go off the edge (Extremely, extremely fast restoration of CO2 to the atmosphere).

    It’s true, the car will only go back down as far as the bottom of the mountain. Can’t go any further. Likewise, CO2 emissions can only go back to the levels they were at billions of years ago, can’t go any higher.

    Would you suggest that the “runaway car” theory is a fallacy, because it will eventually achieve terminal speed at around a thousand miles an hour, and can’t go any lower than base camp?

    The “Crunch” of the car coming to an abrupt stop, will be the extinction of more than half of the species on the planet, from unprecedented ecosystem collapse due to the inability of the species presently inhabiting the earth to mutate and evolve fast enough to live in balance in the new environment.

  10. lin

    @ dudley
    back when the oil and coal were made, the biggest mammals were the size of mice.
    Runaway devastating climate change will not kill the earth, but don’t assume humans would survive the change.

  11. Dudley Horscroft

    @ Captain Planet. You may perhaps remember that when Dr Diesel invented his engine his intent was to fuel it with dynamite pellets. Proved somewhat explosive and unreliable so he turned to the more controllable gas or liquid fuels. (Think it was Dr Diesel, could have been Herr Benz or Herr Otto?)

    Now you say:
    “Such technologies, if implemented on a worldwide scale as a solution to peak oil (which may already be past, or may be at an indeterminate point in the future, depending on who is telling the story, but IS inevitable) could have two resounding effects:-

    1. Peak oil would be a thing of the past as the world transitions to a coal – to – liquids economy:-

    2. Runaway devastating climate change would go from a probability to a certainty, and the likely consequences would become so severe they do not bear consideration.”

    I am glad you used “could” and not the climate alarmists’ “will”. Reflect for a moment that all coal and all oil was produced by plants of some sort or other, and to produce it they had to take carbon dioxide from the atmosphere. So burning all fossil fuels would return the carbon dioxide to the atmosphere, but could not result in a certain runaway devastating climate change. And you might also consider the masses of chalk, marble and limestone rock which is almost entirely calcium carbonate, the shells of tiny animals which extracted carbon dioxide from the air via solution in water.

    Temperature rise is plausible (and livable with – the plants and animals survived climates with massive amounts of carbon dioxide in the air). A runaway greenhouse effect is not.

  12. lindsayb

    @ scott
    WRT GM crops, you are thinking like an economist, not a scientist.
    GM has made some corporations huge amounts of money, as they capture the seed market, and sell more chemicals to farmers.
    For the farmers, animals, humans and the environment – not so good. If you are interested in the topic, check this out.

  13. Hamis Hill

    Shell has been running a gas to liquid plant in Malaysia since 1998, producing transport fuel.
    A Qld company director has driven to WA and back on coal to liquid diesel and flown a jet there and back using coal to liquid kerosene. Certainly fossil fuels so problem remains.
    Secondary Bio-diesel does not use food stocks and probably uses the same scalable technology as the above coal to liquid plant in QLD.
    Eucalypt forests are a problem solved by cold season firestick farming by the First Peoples. Now the “Wilderness” still needs to be managed, in the unfortunate absence of its original managers. So a secondary biodiesel industry at the regional level could be sustainable. And secondary biodiesel is “green” in so far as being a clear, colourless liquid with fewer emissions and as such was mandated for use during the Athens Olympics to clear that city of smog, and did so. And it is, ultimately about markets, as far as alterantives to peak oil is concerned. That is the bottle neck.

  14. Scott

    @LiamJ – Takes time for investment to turn into output. Same as mining. Watch this space.
    US oil imports have been dropping since 2005.

  15. Scott

    @Captain Planet

    You are thinking like a scientist, not an economist. Economics is all about the management of scarce resources.
    Think about it…
    Since the development of modern economic thought and free markets, have we ever run out of anything that is a legal product, has a commerical value and is traded freely in the market? There have been shortages, sure, but either new sources are found, or replacements discovered.
    Look at power. First it was wood, then coal, then oil/gas/uranium etc.
    Food…wheat was under the pump, then Borlaug came along and suddenly, no food shortages (don’t bring up the third world…their problem is distribution.) GM will further help with this, as long as the anti-GM lobby is kept in check.
    What about housing and land? Apartment blocks replace houses, better farming practices means yields per square meter improve. Fresh water shortages? Resulted in desalination. The list goes on and on.
    In fact, the irony is that the actions of Green political parties, with their ignorance of economics and hatred of capitalism, are the most likely to result in extinguishment of resources. Their constant need to intervene in the market with price controls/restrictions of economic profits will prevent the price signals that encourage investment to resolve short term shortages, instead making them chronic.

  16. Liamj

    @ Scott July 25, 2012 at 3:18 pm – I’m glad you find the report so convincing, would you like a copy of my one on the tremendous investment opportunity offered by lunar realestate? I think its a better bet than that the US in 2020 will be producing an extra >40mbd, double Saudi Arabia’s + Russia’s current production.. you seriously believe that?! You do know that US oil prod. peaked in ’71?
    Reminder on my original question: can you provide a mainstream economics explanation for the last decade of stagnant oil supply despite rising prices? Or another one, why the US continues to be such a major oil importer, record imports even i believe, despite fracking since 1947? Hope i don’t offend by casting you in the economists role, it seemed your thing.

  17. Captain Planet

    @ Hamis,

    Bio Diesel is less promising. Most biodiesel today is sourced from food crops such as corn or sugarcane, and biodiesel plantations were largely responsible for the pre – GFC spike in food prices and subsequent food riots throughout the third world, due to displacement of food crops from arable land.

    Utilisation of biodiesel for Agricultural machinery and other primary industries, where highly mobile equipment must be utilised which cannot realistically use electrical motive power as a substitute, would be something I could support. This specific set of circumstances would be unlikely to occur outside of broadacre agriculture, i would think. Almost all mining applications can be delivered by electric power, and almost all mass transport applications to support mining and other industries can be thus delivered also.

    Utilising native forest biomass to produce biodiesel would be an unmitigated environmental disaster. The dead leaves and sticks lying around on the forest floor are not just an annoying fire hazard, that is an ecosystem, without which soil regeneration and the maintenance of biodiversity and the other systems which support life on earth, would grind to a halt. I don’t recommend this course of action.

    Almost all forms of biofuels are hideously costly in terms of the monopolisation of arable land which is sorely needed for food crops, worldwide. This is why, when looking at energy solutions for the world’s future, we keep on coming back to the same, inevitable, conclusion – the future is renewable, or there is no future.

  18. Captain Planet

    @ Hamis Hill,

    In this case, you allude to a good point.

    Direct Injection Coal Engines (D.I.C.E.) have been under development by the CSIRO for quite some time.

    This is quite different to the pioneering work undertaken by the Nazis in the 1930’s utilising the Fischer – Tropsche process for converting coal to liquids, or the Bergius process for converting gas to liquids, both of which were extensively flirted with by the United States after they pinched all of the Nazi scientists in Operation Paperclip following WWII.

    Both processes, but particularly the Fischer – Tropsche process, were subsequently adopted by the Apartheid South African Regime in the 1950’s, which proved to be a good move once sanctions were imposed later in the 20th Century.

    The lessons from this, from an economics perspective, are that both of these technologies are commercially viable when faced with a drastic impediment to the supply of much cheaper conventional oil.

    To the best of my knowledge, neither of these “Synthesized” oil technologies has yet developed to the point where it would be commercially competitive with conventional (or unconventional, such as shale) oil. It is worthy of note that neither is really “synthetic” as both use fossil fuel hydrocarbons as their feedstock.

    Both processes also require large amounts of heat and pressure, which tends to mean burning quite a bit of the feedstock (coal or gas) to produce the end product. This is not dissimilar to the reducing Return on Energy Invested which is typically being seen throughout the conventional and unconventional oil industries, where more and more of the end product is being consumed in the extraction and refining process.

    On the other hand, although the CSIRO are researching coal – to – liquids technologies utilising heat and pressure, which I take to mean that they are attempting to find greater efficiencies within the rather inefficient and expensive Fischer – Tropsche process, the CSIRO are also involved with something you will hear rather less about: D.I.C.E. or Direct Injection Coal Engines. This basically involves drying coal, crushing it into a fine powder, mixing it with water, and injecting it directly into a diesel engine.

    As I understand it, most research to date involves reciprocating engines due to their higher efficiencies, but I see no realistic impediment to utilising this fuel in gas turbines.

    There are still large question marks around developers’ claims to reduced emissions from power generation using this fuel, due to the energy intensive nature of the production process.

    In all cases with coal (and gas) to liquids technology, it really is barking up the wrong tree as far as the long term sustainable solution to energy demand. All of these technologies essentially amount to burning coal to replace oil, with (arguably) greater or lesser efficiencies and associated greater or lesser greenhouse gas emissions. We are not talking about improvements of orders of magnitude here.

    Such technologies, if implemented on a worldwide scale as a solution to peak oil (which may already be past, or may be at an indeterminate point in the future, depending on who is telling the story, but IS inevitable) could have two resounding effects:-

    1. Peak oil would be a thing of the past as the world transitions to a coal – to – liquids economy:-

    2. Runaway devastating climate change would go from a probability to a certainty, and the likely consequences would become so severe they do not bear consideration.

  19. Hamis Hill

    Secondary bio-diesel, sourced from non-food bio-mass, essentially a storage of solar energy, might sustain the transport fuel needs of primary industry such as agriculture and mining while urban transport goes electric.
    Two kilos of newspaper produce one litre of diesel, any effect on peak oil?
    or cardboard boxes, grass clippings etc should the print media disappear?
    All something to do with a sustainable future, no comments?
    The four tonnes/hectare of fuel on the eucalypt forest floor, just waiting to go up in flame, remember Caringbah, an incendiary suburb. No secondary benefits from a harvest for secondary bio fuels? No? Irrelevant? Alright then, just go back to bickering.

  20. David R

    I think you misunderstand a few key points about peak oil. Some points to note in response to your article are:

    1. Increase in global oil production is coming from non-conventional sources. These have a higher marginal cost of production and higher EROEI.
    2. Peak oil won’t lead to extremely high oil prices. It is now understood that once oil prices reach a certain level the global economy will go into recession. This subsequently reduces the demand for oil and leads to a fall in oil prices.
    3. Peak oil doesn’t mean the world will run out of oil, merely that extracting it will become more difficult and expensive.
    4. The world has probably passed or is near to the global peak in production of conventional oil. Exactly what will happen on the downside of the peak is uncertain, but it is very unlikely to be business as usual.

    David R: Don’t see how you read into the article that I “misunderstand” those points, but thanks for them anyway. AD

  21. Captain Planet

    @ Scott,

    Peak oil was always a fallacy, as the theory makes certain incorrect assumptions (like no efficiencies/substitutes/increase in technology), focusses primarily on the increase in the demand curve (without the response of the supply curve) and ignores the effects of investment decisions made by suppliers.
    Economics tells the story as it has for every other commodity
    Price goes up due to increased demand/reduced supply, Suppliers, attracted to superior profits, invest in new sources of previously un-economic supply, develop efficiencies or find substitutes which increase supply. Supply increases. Price comes down due to increased supply/reduced demand and the merry go round continues.
    The only way peak oil would happen would be if governments put price ceilings on the price of oil, thus reducing the incentives for suppliers to invest. With a floating price, we will always be fine.

    “with a floating price, we will always be fine”.

    Interesting concept, Scott.

    Surely you are not asserting that there is enough oil on the planet to supply our demand, no matter how it fluctuates, for ever and ever?

    It is a finite resource. I understand your points about efficiencies and economy and so on, but these will only work to stretch out the peak oil point, not to prevent it from ever occurring.

    Efficiency can only go so far. Sooner or later you run out of efficiency gains, when you run up against the laws of physics. Even if we were to develop some form of engine capable of 100 % thermal efficiency (converting 100 % of the chemical energy in hydrocarbons into usable energy such as kinetic energy for cars or electrical energy for power – and the laws of thermodynamics prevent this, but we can get close, let’s say 95 %), even then, although I grant that this would be a major efficiency and would extend peak oil out a few more years or decades, even then, we would eventually hit peak oil, demand would outstrip supply, and we’re in a lot of trouble…. if we haven’t made the changes which will eventually be forced upon us anyway.

    To assert that there is no end in sight to the availability of ever increasing quantities of oil, forever and ever, amen (I take it that’s what “we will always be fine” was intended to mean, please correct me if this is not your meaning) is highly Ostrich – like behaviour.

    No finite resource will last forever.

    Efficiency gains can only take us so far.

    Peak oil is not a fallacy. Only the timing is in doubt. The outcome is as certain as death and taxes.

  22. Scott

    Remember your mate Hubbert worked for an oil company. Just because it’s industry doesn’t make it bad.

  23. Limited News

    Interesting that on the acknowledgements page the report’s author thanks BP profusely for its support. BP’s Statistical Review has been a major propaganda weapon against Peak Oil over the years. I hardly think BP is going to fund someone working against their party line.

    Limited News: Chris Nelder made the same point in his critical article I linked to in the post. A pertinent point that should be taken into account, but not “game over”. If it were, a lot of research in health in this country would be rejected because so much of it’s funded directly and indirectly by NFPs and commercial orgns with barrows to push. Finding truly dispassionate researchers these days is very hard. AD

  24. Limited News

    @Scott you have misunderstood or are misrepresenting the report. You say “by 2020, oil production will grow by 49 million barrels per day, a 50% increase on the 93 mbd produced at the moment”. If you just read the excerpt of the executive summary you will see the actual likelihood is that after depletion of current fields, production could be 17.6 mbd higher than present, a 20% gain, not 50%.

    I will read the report with interest but doubt that it has anything to say that hasn’t already been debunked.

  25. Hamis Hill

    The underground gasification of stranded coal measures and the turning of the resulting “Syngas” into synthetic alternatives for oil derived transport fuels such as diesel and kerosene. Where does this fit into the peak oil story? The Australian producer claims a 30c/litre production cost.

  26. Scott

    Liamj….you haven’t read the report have you.

    The quadrupling of oil price has basically created the “fracking” process that was pioneered in the US. Due to this technological advancement resulting in the extraction of shale oil, the report suggests that by 2020, oil production will grow by 49 million barrels per day, a 50% increase on the 93 mbd produced at the moment (with more to come after 2020 due to the long lead times required from investment to fully develop the fields)

    As for the new oil costing more money and energy to produce, who cares. Efficiencies and technological advancement will reduce the amount of money/energy required to extract eventually. We are talking about supply here. Investors will invest as long as they make their economic returns. If the price is high enough to offset the costs they will get the oil to market and hence increase supply. The increased supply will bring done the price over the medium run, which results in more efficiencies etc.

  27. Liamj

    @ Scott – According to mainstream economics, the quadrupling of oil price in last decade should have seen abundant new supply. Where is it? Shale/tight oil & tar sands together amount to < 4mbd (agree?), only a few % of global demand, less than the declines in production in North Sea & Indonesia in same period. And this new oil costs more money and, much more significantly, energy to produce. Care to explain?

  28. Limited News

    @Scott Peak Oil is a theory concerning the production of oil, an increase in efficiencies and substitutes for oil will not improve oil production. Peak Oil is not primarily concerned with the demand curve, oil being such great stuff, it pretty much assumed demand would grow to match supply (Hubbert predicted a peak around 2000, but the Middle East oil embargo put the peak off). The current oil-induced global depression has dampened demand, but that will just make the bumpy plateau we are on longer-lasting, but not increase the global maximum production rate. Investment decisions by suppliers are constrained by the maximum rate of extraction in each field, summed over the globe as fields come in and out of use, this leads to a roughly bell-shaped curve. We have used one trillion barrels, and there are about another trillion left of harder-to-get oil with miserably low ratios of Energy Return on Energy Invested. The rise of tight oil is the beginnings of this quest for the dregs. Peak Oil critics unfortunately can’t see the forest for the trees.

  29. Douglas Evan

    Someone pointed out elsewhere that I had missed a crucial bit of your post and that we seemed to be in ‘violent agreement’. On re-reading I discover to my embarrassment that he is right. The most important bit I missed was: “In the absence of an exogenous driver like peak oil, reducing transport-related emissions will require deliberate policy intervention.” We agree. I’m sorry for my hasty comment.

    Douglas: Thanks, no problem. AD

  30. Scott

    Peak oil was always a fallacy, as the theory makes certain incorrect assumptions (like no efficiencies/substitutes/increase in technology), focusses primarily on the increase in the demand curve (without the response of the supply curve) and ignores the effects of investment decisions made by suppliers.
    Economics tells the story as it has for every other commodity
    Price goes up due to increased demand/reduced supply, Suppliers, attracted to superior profits, invest in new sources of previously un-economic supply, develop efficiencies or find substitutes which increase supply. Supply increases. Price comes down due to increased supply/reduced demand and the merry go round continues.
    The only way peak oil would happen would be if governments put price ceilings on the price of oil, thus reducing the incentives for suppliers to invest. With a floating price, we will always be fine.

  31. Douglas Evan

    What do you see as the important implications for cities? You don’t mention any and I don’t see any. Surely you don’t suggest that the availability of huge quantities of unconventional oil justifies the oil based super low density urban experiment that Australia exemplifies? The availability or not of massive quantities of ‘unconventional’ oil is irrelevant to the future of our cities. If it’s available we must not burn it. If it’s not available we can’t burn it. The impact of fossil fuel combustion on climate is the immutable, irresistible driver of change in urban form. Either we radically reorganize our cities and transport infrastructure to massively reduce their reliance on fossil fuel combustion or we face the increasingly severe environmental consequences for the health, prosperity and material well being of urban dwellers. I don’t read this blog very often. This post reminds me why.

    Douglas: Were it to happen, the availability of massive quantities of oil would not be “irrelevant to the future of our cities”. If it were available and cheap, the reality is it would be consumed and would make sustainable alternatives less competitive. That means the problems of our cities associated with global warming would be exacerbated e.g. rising sea levels, high car use. Governments wouldn’t be able to wait for peak oil to ‘do the work’ – if oil were cheaper than anticipated, Governments would need to be proactive in managing demand e.g. via higher fuel taxes. AD

  32. Liamj

    My bad, i missed the difference between oil shale & shale oil in my prev. comment to author (http://en.wikipedia.org/wiki/Oil_shale), apologies, lulz on me. Regardless, no change in conventional oil peak, no 2nd wind for hyperconsumption.

    True, shale oil production in US has increased enough to supply maybe 5% of US consumption, but this is not new wonder technology, it is old technology being applied to marginal deposits thanks to 100/now $80 oil. Can the US economy afford $80 oil? Doesn’t look like it. Do the production profiles of fracked tight oil wells ensure Return On Investment, or do they drop off a cliff within a few years? Oops.

  33. Liamj

    Asking an oil co exec about natural limits is like asking a priest about sexuality – its their paypacket to not understand. Conventional oil ‘production’/extraction peaked in 05 (hence price spike & GFC in 08), the very dirty and polluting tar sands & fracking & deep water are the desperate measures of an industry that knows its ‘reserve replacements’ are a fraud.
    And just for the authors info, oil shale is not significant to supply and never will be, cos the oil in shale ain’t oil, its mere kerogen.

  34. Wiz Aus

    I’d certainly agree any real peak in oil production is a lot further off than it looked like it might be 3 or 4 years ago. And indeed if it is 20 or 30 years off, there’s a reasonable chance that new technologies will be reasonably widely adopted by then that will significantly reduce our dependence on it. But I’d still argue Australia is foolish to remain as dependent as it will be on foreign oil imports in the coming decades.

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