The rains in the Southwest of Scotland, at the end of last week, had an unfortunate consequence relating to the use of a car, beyond Dumfries. With all respect to Alan, as one moves away from the population centers, up from London, past Newcastle and Carlisle and then up to Dumfries, one runs out of viable public transport, and thus a car becomes critical to go further, at least in this day and age. Time was when one could have relied on buses to penetrate into the Land of the Southern Upland Way but they no longer run with useful regularity. And so I shared my rented car (there not being enough to go around because of the rain) with a young lady now working just outside the village on the installation and operation of wind farms in these parts.

More under fold…
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Having noted on an earlier trip the local opposition to wind farms, I was a bit surprised to find the number that have already been installed. And talking to my aunt, who attended the start of the local enquiry in the village, most of the objection seems to come from those Sassenachs who don’t otherwise belong. Relying just on the hydro (pdf) is not a viable option, and with the dreams of Scottish independence now swallowed in Prime Minister Brown’s nationalization of the once great Scottish banks, this part of the world must have something. Nuclear power is apparently not an option.

I suppose that wind is an inevitable step, solar not being a real option this far north, where the weather patterns that have brought the rains (and concurrent clouds) of the last few days are not that uncommon, and where power is still vital. (Digging peat, as I did in my youth to help provide for the winter has, one gathers, become infra dig ).

The fates of small communities such as this are going to become more tenuous. Even in the best of times the tourism trade was barely sufficient to keep the two hotels in the village viable, one is already defunct and the other changed hands again this summer. We were one of two tables at the restaurant down the Ken at New Galloway for lunch, repeating a pattern of diminished customers that I had seen as we drove up to Maine, earlier this summer. Communities have become dependant on a tourist trade that may, for a while, have faded away. One wonders where the jobs may be. The folks that sold the village hotel moved to Florida to try over there, but I suspect that the only thing that will improve in their lives is the weather. Thus the arrival of a business, however small, that is likely to be around is a welcome sign.

Train travel in the UK, despite the higher prices since my last visit, is still very popular, and for short trips (from Dumfries to Carlisle for example) provide an easy public service. On the main line over the weekend it was almost impossible to find a seat, so popular have the trains become as a way of getting around. So even though it took most of the day to make a trip that wouldn’t have taken much more than an hour (foregoing getting there early, checking in, sitting around, and then getting everything together at the far end and travelling back into the center of town) it was much more relaxing to just sit, sip my coffee, and watch the world glide by. And one of the advantages of a train is that I have more than enough room to sit and type this on my laptop.

The Sunday papers were talking about the quiet merging of the energy folks with the environmentalists to form the Department of Energy and Climate Change – pitting those who worry most about global warming against those that worry as much about keeping the nation warm and with sufficient power to work in the same department. With rumors of this winter being colder than in recent years and, as Euan has remarked in the past, with the energy shortage in the UK likely to become more evident every year, one wonders how public the disputes in the new Department will become?

Which, of course, brings us back to the original topic. I did not go and visit the site of the new wind farms up around Dalry , though the web have travelers reports from the hikers on the Upland Way that show the turbines up (though not necessarily turning) and the new ones are in the 2 MW range (the 5 MW machines are offshore) so they are hard to miss (though unless you are close they will become easy to ignore). But by themselves they will not be enough to provide for the shortfall. (Note this is not the Dalry in Ayrshire that has its own windfarm.)

And this brings me back to one of my themes of the last post. We are still in the stage of global considerations of economy, The way in which the European banks have apparently started working together, and along the same path, to help resolve the current financial debacle is evidence of that. The trickier problem of the distribution of scarce resources is less likely to find such a solution. Thus the nations on the end of the line (Ireland and Greece come to mind) won’t be as able to call up help from those further up the pipeline and the arguments about “proper share” may become more nationalistic, particularly with the arrival of harder winters. Thus places such as Dalry will need to find these alternate sources of supply, which may, in the process, also slow the loss of young folk from the villages.

But to end on a positive note, I took the train back south, reliving my schoolday travels by train to the Royal Grammar School at Lancaster sadly, but typically, hidden in the mist as the train rolled by. And so on to Nottingham (for a conference that is decidedly off-topic for this site) where I found that not all its investments had disappeared into the Icelandic fjords, but rather that some 4 years ago they had put in a light rail system that has already carried over 38 million passengers. To show the impact there are some before and after pictures here. I will probably take it back to the station when I start my journey back to the States on Friday. Until then I am off learning about how oil rig tools might be used in surgery and in fire fighting and other fascinating stuff……

This is the post where I try and draw my own conclusions from the Conference. And not recognizing many of the papers in this does not mean that they weren’t important, but rather that from my own perspective that this is what I got most from.

The recurrent word that cropped up again and again, was Scale. It was an attempt by the speakers to try and convey to their audience the size of the problem that is coming at us, increasingly rapidly. That one word encapsulates the difference between those who talk of the world energy problem in Quads (quadrillion Btu’s), as opposed to those that talk of the solution in terms of kilowatts and Megawatts. (The handy Dashboard on my Mac tells me that a Megawatt is 56,869 Btus/min. A Quad is 1,000,000,000,000,000 Btu.) The current shortages of gasoline are largely brought about by a transient closure of refineries that affects around 1 mbd of oil supply. The time is not far distant when such shortages will become more regular as we compete for supply in a more competitive global market.

The tipping point that seemed still a comfortable distance away three years ago when the American ASPO meetings began in Denver, is now just about here. And the solutions that have been discussed do not approach, as yet, the millions of barrels a day (mbd) of fuel replacement that we may need before long. At the same time, to return to the theme of my own paper, we do not have the educated human resource that we need. Data from my Dean of Enrollment shows that ACT report high school student interest in engineering was at 14% in 1982. By 1992 it had dropped to 9%. By 2005 it was down to 5%, and has fallen below that since.
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(Ed note: In what follows I’m referencing presentations now, rather than folk, and the citations are pdf files.)

The net result is that we are heading into trouble. As Matt Simmons, I think, said “it will make what happened in the past week look like a picnic.” Glancing back through Richardson Gill’s The Great Maya Drought I found the section where he talks of the impact of famine, and how priorities switch from nation, to community, to family, to self. We’re still at the nation level, or even, some might say, still thinking globally, but one wonders how long that will last. Because the numbers are real, the decline in global production is coming, and it is going to be soon. And the decline curve will be greater than we anticipate.

In that regard I do have to tip my hat to the organizers for inviting Peter Wells to give what might be considered the cornucopian view. And he came and talked to a room full of cynics, so my hat is tipped again. But that being said, the CERA/IHS position and predictions have been proven wrong so consistently, that some of the value of the talk came from seeing how intelligent people can be led so far astray. Though to be fair, his predictions were less optimistic than those coming from CERA. And I appreciate his giving us the view “from the other side of the fence,” and the problems that the folk in the Middle East have in deciding what world demand will be so that they do not overproduce into a market in a way that will drive the price down.

Part of the problem comes from what is defined as a resource, rather than a reserve, recognizing that this changes with circumstance. For example the heavy oils that the Kingdom of Saudi Arabia, and Iran cannot produce and sell at the moment (e.g. Manifa) depend on the construction of new refineries, such as those at Yanbu and Jubail. The Jubail refinery is scheduled to come on line in in 2012, with a production of 400,000 bd. The Yanbu refinery that will take the other half of the Manifa production is scheduled to come on line in 2013. To count the Manifa oil as an immediate reserve, as KSA and Mr Wells apparently does, is thus, in my opinion, wrong. By the time that it comes into production that oil will be needed to match declines in production from the remaining fields in KSA, which by then will be in visible decline. The evidence for that was provided by Joules Burn.

Mr Wells predictions for exploration success are, I believe, likely to be found optimistic, and the chances of Saudi Aramco being able to achieve the levels of sustained production from Enhanced Oil Recovery techniques that he gave are very optimistic. As a result I don’t think that we will see a sustained KSA production that rises much above 11 mbd, if it reaches that high (he thinks more that 12 mbd and sustained). I also think that his projections for Iraq, at up to 7 mbd, are way above what is likely to be achieved, even if the political mess out there does get straightened out in the next ten years. But then, the nice/bad thing about making projections is that, after a while, you get to see whether they were true. And sadly, we will know soon enough, whether undue optimism was in fact warranted.

With crude oil supply in bad shape, finding that natural gas supplies were no better as Andy Weissman pointed out reinforced some opinions that I had already formed, and written about. But it leaves no other immediate choice, than a greater reliance on coal. It may not be popular, it may have lots of cost issues. (I cannot yet see a willingness to pay the power and financial costs for significant carbon capture and sequestration, nor the political will, when that cost is openly discussed) but there is little else.

On the liquid fuel alternatives, Robert Rapier was his usual excellent self in reviewing biodiesel. Though while I don’t completely disagree with his notion that “algal biodiesel” is still an R&D project, I do suspect that if the different parts of that complex puzzle are addressed simultaneously, rather than in order, then the impact can be sooner, and more promising, than he holds out (but then I’m biased). But that said, there is not yet enough promise in the biodiesel future to answer the need.

However I would like to close with recognizing the talk that Randy Udall gave. If it takes a little courage to come as a cornucopian to a peak oil conference, it takes a lot more to get up and tell folks not only that Peak Oil is more important than Climate Change, but also that there is an arrogance in the IPCC community, intolerant of outside information. He shared a note from them:

“We are all extraordinary skeptical of the “peak oil” stuff. We know of no reliable information that suggests that we’re going to be running significantly short of any fossil fuel in this century…It certainly won’t happen with any significant price on carbon.

“We’ve done a few 300-year scenarios that have some shortages in them, but even that may not be realistic. This is especially so with coal!”

“The Chinese say they have enough coal for centuries…The idea that we’re only going to reach 450 ppm is not defensible, especially when we’re already around 385 ppm. Do we really think there is only another 60 years of fossil fuel left? I don’t think so.”

With all the politicians now so earnestly lined up to parrot this opinion, it is going to take a significant shock to divert their, and the world’s attention.

Sadly I suspect we may see it, even before the next conference. (There were even those who wondered whether the situation would get bad enough in the next year that we might not have one.)

And so I came away a lot more apprehensive than on my arrival. Somehow having a lot of folk confirm my fears brought home that this is not a theoretical exercise in a way that, as an academic, I sometimes forget.

The talks were all information intensive, and I would highly recommend not only downloading the presentations, but also getting the DVD’s when they are issued. The Energy Challenge has already posted some information on where and when.

It seems as though I have inhabited two different worlds in the past 24 hours. I went from the relatively small (500 folk) meeting in Sacramento where Peak Oil is viewed as imminent, to the halls of the Convention Center in Las Vegas, where the Quadrennial MinExpo is showcasing the latest machines to over 41,000 folk involved in the Mining Industry. It overflows that very large (600,000 sq. ft) building and extends out into the parking lot. Here, with an industry in considerable profit, the displays were large and much more optimistic than I have seen them in previous years. The two meetings were, however, joined by a common complaint that the human resource, the engineers and scientists needed by both communities, are in critically short supply.

Wandering the booths, with only one day to catch all the new and different products, I did come across a couple of items that are, I believe, worth a brief comment before I write a concluding post to wrap ASPO-USA 4. In that post, I will give some of my own interpretation of the conference.
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One of the first things that I noted going into one of the halls was the display by Bucyrus, a company that I have long associated with making equipment that is used to mine coal and minerals at the surface. The display now includes a significant amount of equipment for underground mining, perhaps a recognition on their part of the changing future of the industry.

At the same time it was hard to miss the number of training simulators that dot the floor of the different halls. There is a lot of concern about training new employees and management, and the loss of the knowledge base of the industry, but in displays such as this, and the computer generated pictures of the ore in the deposit, there are some answers that technology can give to help.

However, more to the topic of this site I saw that Coal India Ltd (CIL) had a booth, and with all the emphasis that was placed on China at the ASPO Conference, it is perhaps useful to give some statistics, from their brochure, on the other country anticipating considerable increased coal use. India uses coal to meet around 55% of its industrial power needs, and has estimated reserves of 264 billion tons, with a proven reserve of 102 billion tons, 80 years at current rates of consumption. CIL mines 84% of India’s coal feeding 72 of the 75 thermal power stations in the country (64,285 MW) with the 380 million tons they mine. Their sales brought in $9.69 billion of which $1 billion went in tax.

Because of increasing total demand, which is expected to rise to 730 million tons by 2011-2012, CIL will increase its production to 520 million tons, rising to 664 million tons by 2016-2017. At present 84% of the coal is mined at the surface, though this may only last some 30 more years. They recognize that mining will thus have to focus more in the future on underground production. Indian coal needs to be cleaned to meet international standards at higher prices, and so the company will also invest in larger coal washeries. It has planted 69 million trees as part of land reclamation after mining. With 473 mines and 424,000 employees, CIL claims to be the largest coal producing company in the world.

Wandering around the rest of the exhibition, I discovered that EPA has a Coalbed Methane Outreach Program, which it uses to encourage mines to collect and use the methane that is found with the coal, rather than just venting it to atmosphere (the historic practice). Herewith are some facts from their material. In 2005, for example, some 388 million metric tons of CO2E of coal mine methane (CMM) was vented, with China leading at 34%, the US second at 13% and Russia, North Korea and Ukraine third at 7% each. This is about 6 – 10% of the methane generated by human activity. Methane is considered to be a much more powerful greenhouse gas than carbon dioxide (about 20 times by weight) in trapping heat. The Methane to Markets program is an international program to make use of this resource.

One illustrative example comes from the Jincheng Anthracite Mining Group in China, which started feeding methane to a 1.6 MW power plant in 1995, and a second plant, raising total power to 4 MW was added in 2002. A third unit bringing power produced up to 120 MW is planned for this year. A total of more than 166 million cu.m. of gas will then be used. It is worth noting that this is also the site of Chinese CTL plant. The methane capture program is part of an effort in China to clean up its air.

China has set a goal of reducing the emissions of major pollutants by 10 percent during this five-year period. As part of the second Strategic Economic Dialogue, the United States and China have agreed to develop up to 15 large-scale coal mine methane capture and utilization projects in China in the next five years.

One of the problems with the conventional capture of CMM is that it is released from the coal as it is mined, and becomes dangerous as air concentration increases (since it can ignite and cause a coal mine explosion). To stop this from happening, mines increase the ventilation current to keep the concentrations at safe and low levels. This makes it difficult to capture and then use the gas. It also vents large quantities into the atmosphere. To most effectively capture the gas requires that the coal bed be drained of methane before mining occurs. This can be done by either drilling horizontal holes from within the mine forward into the coal, or by drilling down from the surface into undeveloped sections of the mine (or even before the mining has occurred). This is known as degasification.

Methane also migrates into the broken rock over the mining operation and can again build up concentrations over time. By putting pipes or boreholes into these areas, methane can still be recovered from the abandoned regions of a mine, or even after the mine has closed.

The greatest volume of methane is, however, still emitted as part of the ventilation of the mine at about 46% of the volume, with only 25% being captured and used. It is thus an area where there is a continued need for research and results that will allow total capture of the resource. Looking at the brochure, however it is from 2002, more recent values (from the website) show the US CMM Emissions for 2006 (in billions of cubic ft):

By the way, and just to prove to those I told at ASPO that I was going to kick some tires that were a whole lot bigger than I, this is a snapshot of one of the haul trucks in the main hall. There were several parked, one beside the other down the room. They may each hold up to 400 tons of rock.

There was one final booth that I wanted to comment on and this was the EcoShale booth , describing plans for mining the Utah oil shale. However because of the details of the process, and the complexity of my discussion of it, I will put that off until another post.

For now I am taking my weary feet and heading back home, and will there try and put together a summary report for the week, to appear soon.

Day three of the ASPO-USA Conference in Sacramento was focused on where we go from here with fuels other than oil. It began with a session on coal and natural gas reserves and the potential of biofuels. There was considerable information on each of the slides that each of he presenters provided, and so I encourage you to go and look at the presentations which should be up soon on the ASPO site.

David Hughes had the first slot, and talked of the issues that are raised by coal consumption. David began by contrasting a quote by Emerson that

Coal is a portable climate. It carries the heat of the tropics to Labrador and the polar circle; and it is the means of transporting itself whithersoever it is wanted. Watt and Stephenson whispered in the ear of mankind their secret, that a half-ounce of coal will draw two tons a mile, and coal carries coal, by rail and by boat, to make Canada as warm as Calcutta, and with its comfort brings its industrial power.

with the more recent pronouncements of James Hansen that coal is the enemy of the human race.
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So much has changed in the past two decades and the fuel that was the kickoff fuel for the Industrial Revolution has become something that folk just wish would “go away.” This contrast, and the relative view of nations as to where they stand is epitomized by the examples of China and India, who are building coal plants as fast as they can, with the United States, where some 59 of 151 planned coal power plants are on hold, or cancelled, while only 28 are in construction and 66 are still in planning. As this doubt about future conditions has grown, so the price has doubled.

There has been a strong correlation between the amount of fossil fuel that is used and the size of the world population. Coal was the fuel that helped initiate the Industrial Revolution and is, at present the fastest growing fuel source, with natural gas second and oil third. There has been some misperception about the use of fuels in that when the dominant fuel changed from wood to coal, mankind did not stop using wood, rather while the amount of coal used grew, the amount of wood held steady. Similarly when oil began to be used as a source of fuel this built on the amount of coal being used, and that level was almost sustained so that with significant coal and wood being burned, the fuel use grew larger.

A turkey can sit in relative comfort anticipating based on history, a long, happy life, not being able to forecast Thanksgiving. So at present we look backwards, rather than looking at what the future is likely to bring for us, and think that all is well. Coal is about two-thirds of the fossil fuel that is left to us, but as the population increases, and the amount of energy used per capita also rises, we are burning though it at an increasing rate. The amount remaining is in question. A National Academy Report in 2007 noted that it is questionable that the United States has enough coal to last more than a hundred years. There have been two studies, one by the Energy Watch Group and one from Uppsala (pdf), both of which show that the peak will, however, more likely be sooner.

Dave Rutledge’s work at Caltech suggests that this earlier decline, and the drop in coal use, will mean that the amounts of carbon dioxide in the atmosphere will fall below the lowest prediction of the IPCC on GHG generation.

Looking at the power that would be required to sequester that gas, it would cost 27% of the energy generated by a coal powered station to gather and sequester these gases and if the technique was based on the IGCC model then the construction costs would be 32% higher. Ultra super critical combustion in current plants can run at 43% efficiency, and when this is combined with district heating (“cogeneration”) can raise the overall energy recovery to 70%, in contrast with the 51% figure for the IGCC.

His opinion is that it is best to concentrate more on conservation, since coal would be around for a long time. The Chinese will peak in population in 2030 at 1.3 billion people, but then India will pass them, and both nations want not just to sustain the energy use per capita but to increase it. Demand will thus continue to grow. But this is an exponential growth that is not sustainable. (The only folk that think otherwise are either mad or economists.) It is a problem we cannot win, we can only try not to lose. And the question becomes do we adapt and change, or do we reach a point of societal collapse.

The next talk was on Biofuels, and was given by Robert Rapier. In the talk he mentioned a number of the points that he has written about on TOD as well as on his own site. His message was not that we should abandon hope, but that there were both weak and strong contenders for success.

If there was a common thread to the speakers of the morning it was in their attempt to address the scale of the problem that we face. Robert pointed out that all the corn ethanol produced at present does not equate to more than the production of a single large oil refinery. Ethanol production from corn is subsidized, and without that subsidy, and a mandated market, would not survive. It is purported to be a bridge, but a bridge to nowhere (cellulosic ethanol), and so we should say “Thanks, but No.”

Were cellulosic ethanol to work it would require a forest of material feed stock a year per plant. The only viable way to make the process work economically, since the ethanol content is initially so low in the beer produced, is to go the gasification (syngas) route. Sugar cane to ethanol is, however, another story. The reason that it is effective comes from the use of the plant waste, the bagasse, as a fuel for the processing plant. (The ash is then mixed with a compost of other parts of the waste and then returned to the soil.)

Biodiesel is significantly different from petro-diesel. He feels that there are two possible contenders that may lead to a future solution. The first is the process being developed by the LS9 Company which is after the “Holy Grail” of biofuels, and which may reach it though there are many challenges technically, a major one being in the separation of water from the fuel.

This holds equally true for the other alternative, butanol, for which he has a soft spot, given his earlier work in the field. Not only is it difficult to remove the water from the product, but it is also very difficult to scale up to the volumes required to make a difference.

In a reality check, he noted that the main reason that Brazil is independent in Energy is because of their off-shore oil, and that ethanol plays a small part in that overall success. This cannot be compared with the needs of the United States. He pointed out a couple of cases where initial enthusiasm has led to diminishing hopes as the process was scrutinized. He is cautious about biodiesel from algae, since there have been some “Photoshop technology” presented to the public as well as some other shenanigans, and it has a long way to go. At the moment it is “an interesting R&D project.”

He suggested that, in the short term it does not help anyone for politicians to wage war on the oil companies, and we really need them to encourage behavior to reduce consumption.

Andy Weissman then returned to the podium, to give a talk on Natural Gas (NG) supplies and the risks associated with its use in generating electricity. The most risk is that the increased reliance on the fuel, in a time of shrinking supply, will lead to a cost that is at a premium relative to oil. The marginal supply for NG is liquefied NG (LNG) which is imported. While there is, at present, more than enough to go around, this will change by 2011. At that point demand will continue to rise against an inadequate supply and this will lead to as dangerous a situation as one might imagine. It could very well double or triple electricity costs.

The current price softening is transient, but will not discourage the building demand which can be expected to explode, just as supply tightens in the 2011 to 2012 period. In this regard he pointed out that the EIA had not even been close in their predictions of demand growth. Increased coal use in the short term will not happen, since the utilities are all installing NG plants, and this is not recognized. Thus we are flying blind on what the real demand will be. We paid a huge price the last time that we got this wrong, but have not learned the lesson.

We need to stress Energy Efficiency, since this has the most potential, but our record on this in the past has not been good. Providing the motivation has been difficult and we need targets to be set, and these should be aggressive. Attempts to date have been long ongoing but with little significant success.

In regard to the recent growth in gas, this is not sustainable. It came about through a combination of circumstances, particularly the technical breakthroughs in getting gas from the large shale deposits around the country. He fears that the production from the Barnett shale may peak next year. This is due to the ability of the industry to find the “sweet spots” early, but even there the individual wells decline at a very fast rate. At the same time imports from Canada could well drop rapidly. The supply of gas down the MacKenzie Pipeline requires that it first be built, and that is still not certain, given the resistance of some of the local Indian tribes along the route. It is troubling that there exist such a number of questions, even in the short-term future since an increasing percentage of the world is starting to rely on LNG as a supply source. And sadly there is no Plan B.

When one then considers what the future power source will be for electricity, nuclear is not likely to increase greatly in overall volume, wind though currently popular has no storage capacity, and is intermittent and does not often blow when it is most needed. And this leaves coal. But in his opinion we would be unlikely to increase coal use without a program of sequestration.

After a short break, the second session of the morning dealt with coal, carbon capture and Climate Change issues. Michael Webber led off the session by discussing the pro’s and con’s of coal-to-liquids plants. Coal-to-Liquid (CTL) plants are not new, and have provided fuel for over half a century, and so there is a considerable background of information on their use. Further since the USA has an abundant amount of coal and the US Air Force is concerned about the security of future supply, this is something that they have tested, and found to provide a product that is much to their liking. It is, however, expensive (oil price + $10) and he is not sure that it could be sustained without significant subsidy. Further there are the environmental costs of surface mining, and questions as to how long the supply will really last, since at present major coal production has switched to the lower energy, but lower sulfur, coal from the strip mines of Wyoming. There are 4.3 million acres under permit application for mining use.

Scale was again brought forward as an issue. If 1 Btu is the amount of energy in a single match head, consider that we use around 100 Quads (10 to the power 12) Btu’s of energy each year. Further, because it is difficult to put carbon capture devices on tailpipes, if we are to reduce carbon it must be done at the stationary sources, such as power plants. However not only is the greenhouse gas (GHG) generation of concern, but so also is the water use, and the processes required to scrub other gases from the flue gas emitted by the plants. Power plants are the greatest users of water.

And the ugly part of the situation is that the actual installation of CTL plants is politically and policy driven and so, at this time it is hard to predict whether we will see a 70% increase in production, or a 50% decrease, and so planning is somewhat haphazard. Yet, because of the scale of production one has to ask what might one replace it with? Further, in terms of growth, there is the concern as to how the coal is to be moved, since in many cases rail lines and mine car supply is maxed out. The hope at one time was that 50% of the Air Force need could be met from CTL by 2016. However Representative Henry Waxman has introduced legislation that effectively bans purchase of any CTL fuel except in that the wording is subject to some interpretation. And so the debate continues.

While it does, the problems do not go away, and we are faced with issues that relate to Resource Depletion, the Economics of supply, and the impact on the Environment. We need to either replace coal or fix its problems.

The second talk in the session was by Pamela Tomski of Entech Strategies LLC, who talked about carbon sequestration. In terms of scale she began by noting that to have any effect we need to remove about 1 gigaton of carbon per year from the atmosphere. She went through the history of carbon capture and sequestration (CCS) development. It is now a major topic for discussion in terms of climate change, and the impact that CCS might have. One such is the new acronym NUMBY (not UNDER my back yard). She reviewed the various strategies for capture that might be used, and stressed the high costs, both financial and in energy, to be successful. It will take between 20% and 40% of the power output from a plant to be diverted into CCS, and such integration, even when undertaken, will not be easy. And we only have two IGCC plants in the country.

To move carbon dioxide around may need a network of pipelines similar in size to that of existing oil supply lines. From Europe, there has been some suggestion that liquid CO2 could be shipped back to Saudi Arabia for enhanced oil recovery (EOR). Liquid carbon dioxide has been used in enhanced oil recovery for about 20 years, successfully. It has also been stored successfully (there are places where it is found trapped naturally and in these places it has been pumped out for use). EOR could thus see an increase in production, over time, of up to 48 billion bbl of oil. There are three major current projects, Sleipnir in Norway, Salah in Algeria, and at Weyburn in Canada.

On a reality check, there is really no concept of scale as yet in terms of the size of the problem that needs to be addressed. One should trust no cost estimates at this point. It could well lead to a 40% to 80% increase in the price of electricity. It is something that Greenpeace is opposed to. And while there are few regulations in place, this is being addressed at the State level. The problem in part comes in that there is not enough human capital available to work on the program. And when all is said and done the GHG produced by China and India will make the effort almost irrelevant.

The final speaker of the morning was Randy Udall who talked about the conflicts between peak oil and global warming. He began by noting that four million Chinese miners will go underground to work this week, and by the end of the week about a hundred will have died. We are mining and burning coal at an ever increasing rate, so that half of the world’s entire consumption has occurred since 1980. It is possible that fossil fuel energy production will peak in 2017, and this is not recognized by the IPCC. They plan as though there is a never ending supply of oil and coal, and this is reflected in their models. They are not amenable to correction, and there is only a small group within the IPCC that addresses the energy aspects of the situation. They assume that energy scarcity is a myth, that fuels are superabundant, there will always be free global trading of supplies, that coal can be made into almost anything, and that it will remain cheap for all of the next century. This attitude and fixation is dangerous, since the debate between those who press these opinions and those concerned about oil production pass each other by. But in both cases they foresee an increase in cost. But the actual increment is likely to be higher because of peak oil, rather than that incurred through CCS. In some ways he thinks that Peak Oil is a gift.

At the lunch that followed Rep. Terry Backer of Connecticut and Debbie Cook, Mayor of Huntington Beach, and candidate for the California’s 46th congressional district were both given awards for “Speaking Truth to Power.”

Sadly I had to leave at that point, and I may post on where I went later, and, as usual I will have a post on my conclusions as well. But for those who stayed, or heard different things, or who have other comments please help those who couldn’t be there by adding comments to this.

Thanks!

The one thing that those of you who haven’t been to one of these should realize is that the information density of any one of the talks we are give is immense. Thus any of the summaries that I present are just a shadow of the reality of the information that the talks contain, Please, therefore, after looking at these very brief summaries do visit the web site and download the presentations themselves, or perhaps better wait a short while and buy the DVDs.

Ed’s Note The intent of this thread is to combine two different discussion items:

1. A one-hour special on the oil situation, The Hunt for Black Gold. It features a discussion of peak oil, an interview with Sarah Palin, a closer look at oil company profits, and a discussion of alternatives. It was shown on CNBC yesterday, and will be shown again today, Thursday, Sept. 25 at 1 a.m. ET and on Sunday, Sept. 28 at 10 p.m. ET.

2. Heading Out’s discussion of Day 2 of the ASPO-USA conference, which can be found below the fold.
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Monday, September 22, was the first day of the formal meeting, following the Breakout sessions on Sunday. The meeting had over 500 attendees, so that all the seats were full as the meeting started, and there were soon folk standing at the back of the hall. Kjell Aleklett, President of ASPO-International, began with a brief review of world conditions before Sally Odland moderated the first session which was an introduction, or reminder, of the basics of oil generation and exploration. This was provided by Ken Verosub, a professor of geology at UC Davis. Starting with the basics of oil formation, he pointed out the combination of different geological events, and the resulting layers of rock that have to be formed in place in order to create, capture and then trap the rock, and the need for geological movement to then concentrate the supply so that it can be recovered.

He pointed out that the oil has to be ???cooked??? just the right amount to convert it to oil, which requires a certain depth of burial, at one stage in its history. He illustrated the events through the creation of oil traps around a salt dome. To find the traps, the methodology has had to get more refined. Originally, two-dimensional models of the subsurface were achieved by using exploding sound sources and a small array of geophones to pick up reflected sound waves and thus map the layers of rock beneath the surface. The systems today can use computer analysis to generate three-dimensional images which can be projected into rooms that allow the geologists a degree of exploration not available in earlier years.

He went on to explain how a ???Hubbert??? curve of depletion is formed for a given oil field, from the accumulation of production rise and decline of the individual wells in a field. He mentioned that the results of the combination of geological rocks that have to come together to provide a viable field restrict potential discoveries to relatively known places. (These do not include many of the places where the ???Drill here, Drill now??? message is enunciated). Finding where there is enough oil to justify a well is neither easy nor cheap. He then used some simplified math to show that the amount of oil that is left is already diminished to the point that, in the best circumstance, oil production will peak in the 2010 to 2015 time frame. This assumes a world max production of around 100 mbd (we???re at about 86 now).

Sally Odland works at the Lamont-Doherty Laboratory where just recently they have acquired an ex-industrial sesmic survey ship. Because of the recent cost increases in ship repair, and the fact that the industry kept hiring away the team members, restoring the boat took much longer and more funds than anticipated. The costs of fuel now mandate that the ship be rented out to industry for 5 months of the year, so that the School can afford to use it for the other 7 months.

Sadly Gil Mull one of those who helped drive the first exploration well in the North Slope of Alaska could not make the conference, but Sally went through the slides of his presentation, and these will be available at the ASPO website within a couple of days, and are well worth seeing.

Jeremy Gilbert tried to sound a Wake-up call. He noted that in many reports of the remaining reserves and production the only reliable numbers are often the page numbers. He now sees that the projections of the arrival of peak oil have been optimistic, and that the risks have got worse, as the peak point approaches. He noted that as world gas prices continue to rise, the Kingdom of Saudi Arabia (KSA) has just cut oil and gas prices (which increases domestic demand). He spoke disparagingly of previous IEA projections, but noted that the agency has recently undergone a change in heart and now sees three problem areas:

(1) the geological constraints on finding large fields of oil;
(2) the lack of investment able to exploit these increasingly difficult and expensive sites; and
(3) the much greater production problems that working in these more difficult environments bring.

He bemoaned the renewable energy mantra that ???solar, wind or something, UFO???s perhaps, will bring an answer to our crisis.???

The problem is that we are finding only smaller fields each year, and must thus find more of them to make up for depletion. Those who call for more drilling need to learn that this will take time (given that all the rigs available are already busy, and that permitting etc all takes time). And as for new technology, this is usually applied in harder-to-produce rock, where its implementation only brings overall recovery values up to what they were originally estimated to be. He noted that while we have doubled the number of drilling rigs (around 3,500) in recent years, overall production levels have remained the same. And since Russia likely peaked last year, we are now running on borrowed time.

In short, it is past time that we wake up to the crisis at our door. He recommended the Deutsche Bank Report ???From shale to shining shale??? which is a critical look at shale gas plays.

Morey Wolfson of ASPO (and the Colorado Governor???s office) then presented a truly impressive new addition to the ASPO web site, the new Google Earth Global Energy Infrastructure tour . The tour had been put onto a 20-min video that he ran. Having watched it, I really encourage you to check out the site. It shows all aspects of the energy issue, and finds and shows the places that are important to it. (You could count the tankers in the Malacca Straits).

The next speaker was Matt Simmons whom I have heard on numerous occasions, but who this time talked into a silence as intense as any I have heard. He scared the audience in a way I have not seen before, perhaps because we were all much more willing to believe this time, given his record from the past.

He noted at the beginning of his talk that there are 150 miles of unit trains leave Wyoming every day. (Ed note ??? a 1-mile unit train contains 110 rail cars of 100 tons of coal each.) He talked about the elements of risk that we have now forgotten how to apply. He noted that we have forgotten how savage a collapse can be, or how fast it can occur. (Enron unfolded in 7 days. The events of the last week showed how even faster collapse can come now). The delays in bringing oil production on line from the recent hurricanes will only underline this point.

As a result places are running out of gasoline (Ed note the two folk next to me at the table were from Atlanta and Tennessee and neither town had any gas stations left with fuel, as far as they knew). The South is going to have to cope with a growing shortage until more of the infrastructure comes back on line, and that may be weeks into the future. This will get worse if all motorists suddenly start topping up their tanks, since this will sensibly empty the floating reserve that is the volume moving through the system at the moment. This will, in turn, remove confidence in the system, which will make the situation worse. The heating oil situation for the North East is only going to get worse in this scenario. And there is no data on how close to a collapse we currently are. And the collapse could well be a disaster equivalent to that of Gustav/Ike squared.

He noted that contrary to the solutions for the financial world there is no insurance policy that can help with Peak Oil. The paradigm is changing and sadly the world is still Energy Illiterate.

He also commented, having talked with producers of the new gas wells being drilled in the various shale formations around the country, that this is close to, if not already at a point where the energy costs to sink the well are not returned by the gas recovered from it. Further in talking with Baker Hughes folk (the ones that track the wells that are drilled around the world), he found that those who thought depletion in old fields was less than 5% got no takers from his audience, 60% of the audience thought that depletion was between 6 and 8% and the remainder thought that it was in the range above 10%. (As noted earlier the assumed value is often taken as somewhere between 2 & 4% with TOD using around 4.5%). It was by far the most pessimistic that I have heard him give.

We then broke for lunch and I was confronted by the question as to whether the situation would be so bad that we would not be able to come to a meeting, if one is held next year. Then the annual M King Hubbert Awards were presented, and we will talk about them in a separate post.

Jim Buckee of Talisman gave the luncheon address, talking on the production company viewpoint. He differentiated between the volume available in a field, and the production rates that can be achieved at it. He said that Peak Oil is real, and illustrated this conclusion by discussing the decline in production rate from virtually all the major oilfields of the world. 90% of production comes from 10% of the fields and we know which they are. He then went through the list, which was dominated by the comment ???in terminal exponential decline.??? The depletion rate he quoted (after the 50% production point) was on average 10%.

In discussing the KSA fields he said that these also will follow these rules, as Abqaiq already is. Talk of increasing post peak production with Enhanced Oil Recovery Techniques does not spell out what these might be, and his opinion was that this was a likely myth. Recent Natural Gas Liquid (NGL) increases have hidden the likely peaking of crude oil, but this will only last a short interval more before it too will start to decline.

He did give a realistic reason why the major oil companies have not admitted to Peak Oil, pointing out that it will lead to reactions very similar to those that hit the financial community last week. Nevertheless with resource nationalism rising this makes further exploration tough; makes it difficult for industry to attract people; has doubled production costs over the last 3 years; and leads to a constant fight against field declines.

He pointed out that there is no opposite to a train wreck. Further nationalism just means that the state takes a larger slice of a pie of fixed size. The change in production from majors to IOCs to NOCs has led to increasingly smaller production levels at higher costs. He felt we would hold production at the current level of around 85 mbd for another decade, but only because we will soon see effective rationing of this supply.

I then took a short break and missed the first after-lunch talks so any input on those would be helpful. I came back as Hermann Franssen was taking about the role of the IEA, and its recognition that times have changed, and as a result that its predictions of the future supply are changing also. He tried to get the audience to understand the world from the KSA point of view. That they see a constant threat to the price of oil, and their income, and thus act very protectively to ensure that they can continue to make money selling their oil. But they are also conscious that they want to leave some oil for their offspring, and thus are very conservative in their production management. However Aramco is very compartmentalized, and thus only very few people really know the numbers and what is going on. And some of those that do are very pessimistic.

We must change things, and this requires successful ???suits??? going to Washington with a message. This message should include the need to fix the American transport system (against which are marshaled all those that have an interest in the highway system as it currently stands).

The world???s stock or cars will double in the next 17 years, but the Middle East is close to reaching an upper sustainable production level, and non-OPEC has peaked. Thus, the best we can hope for is in the 90 ??? 105 mbd range. He was nervous of the foreign policy of Gazprom. And while they are in the Middle East already, it must be remembered that America has zero credibility in this region.

Andy Weissman in the first of two talks, covered Electricity and Gas, noting that their crisis points are not yet here, though close. We could easily soon see natural gas (NG) prices that equate to $150/bbl of oil. The supplies of NG that have become so critical to powering the national power grid are going to decline in volume, and thus increase in price. LNG is the marginal production we will come to rely on, and this will impose an additional premium on price. He anticipates global shortages of LNG by 2012/2013, with devastating consequences. He sees 5 essential requirements to meeting our needs:

1. Greater sense of urgency needed
2. Replace the IEA
3. Deelop a national strategy to review energy use across the board
4. Maximize all cost effective domestic resources
5. Use the best expertise available to review the options.

Jim Puplava felt that the worst is yet to come. He relies on the Chicago Federal National Activity Index. When this falls below -0.7, then there will be recession (it???s close). He is recommending a Prius to help in the time when gas rationing arrives. We are at a point where we have maximized the rig count and yet production is not rising. He feels it is ludicrous not to expect a decline in non-OPEC production. We have an immediate crisis and need to take action. We are talking about the wrong set of solutions and need to change the mind set. The opinion of the experts has been shaken and the lack of good information does not help.

After the break John Theobald introduced the next session with the opening section of the film Soylent Green which, for those who have forgotten, is people. (See the movie).

He then introduced David Fridley who reviewed the recent growth and change in condition in China. It is an economy where coal dominates supply (at around 97% of the resource base) and with a reserve of around 238 billion tons, is likely to continue to do so into the future.

Biomass (rice hulls and similar debris) is used extensively in the hinterland as a fuel source for cooking and heating. Industry otherwise dominates consumption, while transport needs have been small. However, the coal consumption has out-stripped the capabilities of rail to carry it, and thus trucks are increasingly used. These increase the energy cost for delivery by a factor of 16, but China has few other options. China has been busy buying up resources all around the world; it must do so to meet its needs. It is looking at Coal to Liquid and Coal to Chemical plants with the first CTL going in to Shenhua in Inner Mongolia. But it will be a large consumer of water at around 10 tons for every ton of liquid produced, in an area that has little water to spare. Ethanol was not a success, so they now produce methanol and blend this into gasoline.

Diesel is dominant in transportation. There are very few private automobiles, compared to other countries.

Vince Matthews then talked about Peak everything else, and included China in this analysis which saw China seeking major volumes of many commodities and in the process driving up the price. There were many examples given in the slide show of these increases, over a range of minerals. Steel price for example has risen six-fold. Where prices have not yet risen dramatically it has been because of long-term contracts that control price until they expire.

We forget that much of our NG is imported from Canada, and as their needs rise and production falls their exports to us will decline. Thus even though the rig count has increased, we are still in trouble. 49 coal plants came off line last year, to be replaced by NG, but while the number of wells drilled increased from 9,000 to 30,180 over the past few years, production has not matched this increase. Production from the Rockies region is flattening out.

Many folk talk about our redemption coming through increased use of photovoltaics (PV) and solar energy, not recognizing that solar cells require rare earth elements that are largely falling under the control of China, and whose price continues to rocket upwards. China is searching diligently for mines and prospects to acquire (doesn???t really matter what the mineral) and is becoming much more successful than ourselves. (though he noted that Shell is buying up the water rights in Colorado around the oil shale area).

The days activity were summarized by Robert Hirsch, who again emphasized the magnitude of the problem ??? just matching 1% of global need requires 850,000 bd of oil equivalent. He looked at certain one-liner phrases that had cropped up over the day. ???Willful human blindness??? was one of the more memorable, as was ???Peak roads???.

And then we adjourned to network. As I mentioned in the earlier post there were many of our readers at the meeting, it was a great pleasure for us to meet and chat with many of those, particularly the ones who don???t often comment. And to those as other attendees, I do ask that you expand on my brief review, fill in the blanks and add your impressions.

Thanks.

The ASPO conference in Sacramento began here Sunday, September 21, just after lunch – with a set of three concurrent sessions. Unfortunately I could only be in one place, and that was tied by structure, so my report on this afternoon is thus a little constrained.

The first track dealt with Reporting the Oil Story, and while the speaker list was strong, including Rob Collier, Bart Anderson of the Energy Bulletin, and Neil King of the WSJ, in the first session – having to sneak through the back of a mass to get to the room may have limited attendance a little. The second part of that track included presentations by Stuart Leavenworth of the Sacramento Bee; Lisa Margonelli of the New America foundation; Tom Whipple, who gives us the Peak Oil Daily News, and Review.
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The largest room was set aside for the second track which dealt with Investing in the New Energy Economy. Jim Hansen; Atticus Lowe and Jim Puplava talked in the first session, while Brian Davidson; Dan Bednarz; Rep. Terry Backer; John Kaufmann and Dick Lawrence of ASPO, were in the second.

The “Oil Drum” track was the third, and upstairs in the hotel. While both sessions were full, by the second we were out of even standing room, but despite the crowding the sessions went well. Unfortunately there were some circumstances that led to a slight change in program, and thus instead of hiding in the back and quietly scribbling, I was out at the front to moderate the first “Analyses from the Oil Drum” session of track three.

Gail the Actuary led off the three presentations. Given the grim news out of Washington this past week, her talk on “Peak Oil and the Economy” was given in an attentive silence. Others have since commented on how cheerful she was presenting what had to be one of the more pessimistic of her presentations, beginning her presentation with her definition of an actuary as “an accountant without a sense of humor.” She noted that as oil supply drops, so will likely GDP, based on (among other things) an analysis of Robert Hirsch’s showing that there is approximately a one to one correlation between the change in oil supply and change in GDP. She went on to point out that our society is built around the concept of continuous growth and prosperity, so that we anticipate paying for our debts with money when we are older, and have a more prosperous condition. If oil supply is tight, the higher price of food and fuels robs families of their discretionary incomes and that prosperity. This in turn makes it more difficult to repay debt. Because of these forces, she considers that either a recession or depression is highly likely.

Once the economy levels off, or starts to decline, societal priorities change. One cannot pay off debts if one is laid off, and while oil prices may not be the total cause of current crises, certainly it is a contributor. Default rates of all kinds are likely to increase. This will lead to it becoming harder to borrow money (including for things such as new oil drilling rigs). Thus smaller oil and gas companies may be hurt, as the economy transitions. The drop in the value of the dollar will lead to a drop in the standard of living and a lower contribution from Social Security.

The gloom of Gail’s talk, was not relieved by Charles Watson who talked about how the contribution that he makes to the Oil Drum came about. His talk was on “The Vulnerability of the Oil and Gas Industry to Hurricanes and other Hazards.” He talked about the power of hurricanes, and that, through time, modeling of their behavior and damage potential has become more accurate. After having begun with the impact of Ivan, his work has concentrated on the impact on the oil infrastructure, with the loss of platforms that may not be replaced, because the return does not justify the investment.

Hurricanes may not come more frequently, but his models suggest that when they do come, they will be of greater intensity, and will not lose that strength as quickly as they have in the past. He noted that his results usually predict a little lower damage than those of the National Hurricane Center, but that this is due to a difference in mission. As a consequence his usually end up as being the more accurate.

Dave Summers then gave a talk on “The Other Resource Lack – Time and Technology,” in which he first explained why (due to well geometry changing), he is more pessimistic than many about current depletion rates, which he equated to around 5.2%. He then went on to talk about the problems of peaking and then falling supplies of oil and natural gas. He was a little skeptical of the Pickens Plan to allow a switch to natural gas for driving vehicles, due to a shortage of natural gas, and then slid into a discussion of in-situ combustion, where he showed a tool that could drill laterals out from vertical well bores, based on jet drilling. Pointing out that while there is a critical need for engineering as part of the solution to the growing oil shortage, he noted that there was a major drop in the interest in high school children in science and engineering, and that at the same time the number of faculty in fossil fuel industries were dropping with very few qualified people available to replace them. This will limit the ability to find new solutions and apply new technology if we don’t have the background or personnel to either generate the new ideas that are needed, or to implement it. He also mentioned the potentials for coal:water slurries to replace diesel fuel, and of growing algae underground as having advantages over the only surface economic growth plan, which involves using “racetracks.”

After the break Prof. Goose moderated the second Oil Drum session, with Robert Rapier freshly arrived from Europe, discussing the reliability of information from the major sources available. He talked of the credible and dubious parts of the information that is available from the EIA, the IEA and CERA. The EIA is where he goes first to get data, especially concentrating on This week in Petroleum. But he felt that the EIA was terrible at forecasting either the price of fuel, or the supply quantities that would be available at future times.

He goes to the IEA site second to get information on statistics, and for the most current information on oil supply.

And finally he commented on CERA and the BP Statistical Review.

Jeff Vail then talked about the geopolitical situation and the impact of societal and political events on production. Just as the easiest oil to extract was the first out, so also, he pointed out that this was in areas where the political climate was most stable. Pipelines, he felt, have become a step in inducing fixture into the fungibility of oil, and that the vulnerability of this infrastructure is increasingly being taken advantage of by agents of insurrection. Because of the global internet, knowledge of the vulnerability of the infrastructure is rapidly spreading and we are starting to see the global impact. The problem has arisen through the growth of feedback loops which inflate the effect of certain terrorist actions. He felt that we were passed the point where the rate of change in supply had turned negative, and that this is a flag showing the approach of peak oil.

The final speaker of the afternoon was Brian Maschhoff, our JoulesBurn, who wrote about the way in which he has been able, by tracking from satellite images, to work out the location and condition of oil and gas wells in the Kingdom of Saudi Arabia. This led to his own blog, and to us. He talked, with evidence, of the approaching collapse of the Northern section of Ghawar in the Kingdom of Saudi Arabia. As a result of his study he has some questions on future productivity of Haradh III.

After a reception the meeting then re-convened with Peter Wells giving a talk on why his view of the coming oil production rates was much higher than the estimates that we have come up with. He had used extensive data files available from IHS, but pointed out that these were not his only source of information. His predictions did not see a peak until out beyond 2020, and at that point the world would be at around 105 mbd. In making the assessment he divided the world into OPEC and non-OPEC groups, with the non-OPEC community having already peaked. Saudi Arabia, Iran and Iraq have not yet, and he was looking, in this time frame, to see perhaps 5 mbd from Iraq. He foresaw Saudi Arabia maintaining and increasing production with Enhanced Oil Recovery techniques being introduced before long. It was certainly a brave presentation–given the audience he was presenting it to-–and he faced the resulting questions with equanimity.

Oh, and if you want a different view of the conference you might drop in on one of Charles Hall’s students who is also blogging the conference and may have attended other sessions. And since I missed some of the sessions, and was involved in part of those described, please provide your own information and views in the comments. Thanks!

Gail’s recent post on the fragility of the US distribution system and the shortages that will be imposed by refinery outages, is a reminder of our dependence on pipelines for supply. The dependence is not just in the US, though the debate over the reality of a new gas pipeline from Alaska to the lower 48 rumbles along as a part of the election debate.

Most of Europe also depends on pipelines, particularly natural gas ones, and it is because of that that I am going to take a somewhat nervous stance and disagree with a recent article by Jerome. Some considerable time ago we swopped comments about the likelihood of different pipelines being laid to exploit the natural gas in Turkmenistan, and so from that point, this post is an admission that his opinion at the time (that many of these pipes wouldn’t happen) was correct. However part of the reason for this is the less than benevolent role that I see Russia is playing, and this is my disagreement with him.

My concern is emphasized by the difference in objectives of two recent trips around the periphery of Russia. First there was the trip by the Russian President, who, with Gazprom CEO Alexei Miller, toured oil and gas supplying countries such as Turkmenistan, Azerbaijan and Kazahkstan in July. Out of that came both an agreement for Russia to buy Turkmen gas but also for Gazprom to invest in the Turkmen gas infrastructure. (Quotes under fold)
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Moscow’s base purchasing price for Turkmen gas in 2009 is projected in the range of $340 to $350 per 1,000 cubic meters at the Turkmen border. Gazprom had first made this offer in March 2008 (see EDM, March 17), which would more than double the existing purchase price. Gazprom has already raised the purchase price from $130 per 1,000 cubic meters in the first six months of 2008 to $150 in the second half of this year. Moscow’s price offer for 2009 is supposed to raise Turkmenistan’s earnings closer to the European netback level (sale price minus transportation costs).

The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, “We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters.”

Which is interesting, given that the Chinese have, over the last year, been building a pipeline to carry gas from Eastern Turkmenistan to China.

The pipeline – China calls it Central Asia Gas Pipeline – will run some 7000 kilometers. It will have two branches, one going through Kazakhstan and the other through Uzbekistan.

Bagtyarlyk territory was leased to China in July this year. It contains some fields that are already productive such as Samandepe and Altyn Asyr. These two fields, after reconstruction, will provide 13 billion cubic meters per annum for the pipe. The remaining 17 billion cubic meters will come from development of new fields in the contract territory.

In addition to building the pipeline, the CNPC will provide financing and technical know-how for the gas processing and purification facilities, pumping and compression stations and boosters.

TurkmenGaz and CNPC have already signed gas sale-purchase agreement but the price has not been disclosed. Some reliable sources told that the price would be above US $ 100 per 1000 cubic meters.

The likelihood of any additional pipelines being undertaken, such as that to India or feed to the Nabucco pipeline becomes even less likely given the management control of the gas infrastructure that the deals with China and Russia have delivered. Current and projected pipelines are shown below in a map that I borrowed from East European Gas Analysis where a higher quality version, and similar maps can be found.

from East European Gas Analysis

Optimism does, however, remain in the EU, particularly following a recent meeting in Slovakia of the Presidents of Poland, the Czech Republic, Slovakia and Hungary. But these players may be too late to the table.

Contrast that with Vice President Chaney’s recent tour of Azerbaijan, Georgia and Ukraine, with his message of “keep a stiff upper lip, chaps,” as though that will have much realistic impact. And this is where I disagree with Jerome, in that I rather suspect that the same sort of “infrastructure failures” that have led to Russia denying oil to places such as Lithuania.

The Druzhba-1 pipeline, which also feeds other facilities in the Baltic region, was shut down in July last year (2006) after a section of the Soviet-era duct ruptured in western Russia.

The halt in oil supplies came just weeks after Polish oil group PKN Orlen sealed a deal with Russian oil group Yukos to buy the Mazeikiu complex, apparently to the annoyance of Moscow which wanted the Baltic oil facility to be sold to a Russian company.

Not to mention gas supplies to Georgia (from 2006).

Explosions in southern Russia early Sunday severed the country’s natural gas pipelines to Georgia, swiftly plunging Russia’s neighbor into heat and electricity shortages and causing a sharp diplomatic flare-up between the two nations.

Two more explosions hours later severed one of Russia’s main electricity cables to Georgia, increasing the electricity shortage even as the gas supply in Georgia dwindled.

Nor should we forget the intermittent arguments with Ukraine. (Not that they don’t have enough troubles of their own with their oil and gas company on the verge of going under). Shortages of gas threatened Italy at the time of the last Winter Olympics, and the EU recognizes that it needs to walk a little carefully .

Experts say the EU is also treading carefully on issues involving Russia, which supplies a quarter of Western Europe’s natural gas. At an EU summit on the Georgian crisis earlier this month, European leaders refrained from considering tough measures such as sanctions against Moscow for not fully withdrawing from Georgian territory.

This “fingers around the neck” position was a point that Vice President Chaney made in Italy before his return to the US. Unfortunately, in pointing out the problem he did not admit that there is really not a lot that he can do about the situation. Nor, alas, will he likely have much impact on current Gazprom moves into Africa.

Gazprom signed a Memorandum of Understanding with Nigeria to develop gas and oil projects there. Gazprom is already in talks with Lybia where it is seeking to develop a gas pipeline to Sicily, and it opened an office in Algeria where is hoping to sign a deal with Sonatrach.(….) Obviously if Gazprom is successful in these deals it would reduce the European Union’s leverage over Russia. It’d also change the balance of power between the US and Russia, since Europe would have to be more careful about provoking Russia with stupid offers of NATO membership for Georgia and Ukraine.

Thus, as the world comes to depend on a smaller number of suppliers, and the price that they are able to demand for their product, it becomes more critical that alternate sources and technologies be developed.

In that regard last Thursday Dr. Gene Whitney of the Energy section of the Congressional Research Service came to town to talk about Climate Change, Energy and Water issues. In his opening remarks he pointed out that the energy situation has become a real problem, rather than an issue, and stressed the fact that the time for implementation of new technologies is growing short. Basically he felt that the public was still unaware of the size of the problem, and of the speed with which it was approaching.

I took some of those comments and used them as a lead-in to a talk I gave at an algae workshop on Friday. There is an ongoing debate between a colleague and I as to whether it is better to justify investment in algal research as being a better way of helping solve the carbon dioxide problem, or as a source for bio-diesel. Encouraged by Dr. Whitney’s comments I took the energy need as my lead, but came away afterwards with the unwilling recognition that I had, at this time, probably made the wrong choice in emphasis. Given that there is some progress toward field trials of a system that will prototype that use, it is perhaps understandable. But the time we have left to develop the alternate use grows shorter, and I guess I will have to wait until “Panic” becomes a little more prevalent before I have a chance of winning that debate.

Although the days are still relatively hot and the sun high in the sky, this summer is coming to an end. The order has gone in for the wood that will help us heat the house this winter, and the students have arrived for a new semester. Which means, a little late as usual, it is time to dust off the lecture notes (which now-a-days come as Powerpoint presentations), and start the annual update.

One of the classes that I teach deals with power, both generation and use, and so I start the semester with a review of where I see that we currently stand as an overview before getting into more mundane details, such as the inner workings of a generator. The spacing of a year between using these particular slides also gives a little perspective on how things have changed, and updating individual slides emphasizes where the most significant changes have been, in my opinion. So let me show you the slides I am adding or changing, and explain, relatively briefly, why.
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The first change has been to alter the slide that used to show the general situation, from the ASPO curve on oil supply that I have used in the past, to that from the Megaprojects analysis, using the August 2008 projection. However, instead of the featured curve from that article, I replaced it with the one that comes near the bottom end of the comments.

In contrast with the earlier curve, Khebab plotted this with a decline rate of 5.2% rather than the 4.5% decline used in the derivation of the main plot, and given the reports of higher decline rates I am no longer comfortable using the lower number. My main reason for the change was to highlight the changing impact of an increase in decline rate, and so I contrasted this with the original predication that came at the top of Khebab’s post.

In order to justify my emphasis on the change I had then (in what turned out to be a back-to-the-blackboard moment) to explain the reasons for depletion, and the change in the rate brought about by the increased use of horizontal wells. To show the reality of the change and its impacts I used the example of Cantarell, but just changed the wording on the slide to note that though the field peaked at over 2 mbd in 2004, it is now (again from comments ) below 1 mbd (the July figure was 973,668 barrels/day). The decline curves for the North Sea also emphasise the higher rates, and I added to them this year the plot that Euan made of the coming decline in British fuel supplies.

To explain why there was going to be no salvation from the Middle East I combined another visit to the board (to explain water floods) and then added the aerial plots of wells that JoulesBurn has posted, as a supplement to the section through Abqaiq, as an illustration of my comment that I cannot see production from that area being sustained more than four years from now. The plots show that the most recent wells are concentrated along the crests of the anticlines.

Turning to natural gas, the most promising development of the year has been the increases in production due to the development of the Barnett, Utica, Haynesville and Marcellus shales. It has just been hailed by the NYT as possibly marking the start of a era in energy production. However, after a couple of slides showing their location and the advanced technology being used to get the gas out, I reverted to the pessimism of an earlier post where the very short life of those wells was discussed. (I will save a comment about the Pickens Plan and the projected use of natural gas supply that it calls for until next year.)

There was a short discussion of Barnett shale production, led by DownSouth, last week which led me to the Texas Railroad Commission reports and the transience of some of the well lives is illustrated by production numbers from different fields of the Barnett Shale. I chose the numbers from the Golden Corral field as illustrative for the class.

Pre-2003 . . . . 0
2003 . . . . . . . .13,010 mcf
2004 . . . . . . . . .1,708 mcf
2005 . . . . . . . . .0
2006 . . . . . . . . .129
2007 . . . . . . . . 8,869
2008 . . . . . . . . . .867

With U.S. gas production declining it was then worth adding a couple of pictures from Jerome , first showing the gas pipelines running from Russia into Europe.

And then, following the ongoing situation in Georgia, to show the pipeline map, to which Jerome has also referred.

Putting these two together, allowed me to wax pessimistic about the supplies of fuel from the Central Asian states, such as Turkmenistan and the overall problems of supply for the West as China acquires gas from a pipeline into the region. It also allowed a couple of remarks about the predatory nature of Gazprom and the recent problem that BP has encountered in working in Russia, as emphasis to the likely future of fuel supplies from that part of the world.

The lecture went on to talk about the problems of supply in the face of the growing domestic use by producers (the Export Land Model) and some concerns about the political power shifts that are now underway.

It concluded with some thoughts on possible solutions including some slides on the Oil Sands of Alberta, the heavy oil deposits in the United States and elsewhere, and the potential impacts of other fuels. Although the hydrogen caravan passed through town last week, I saved a comment on that technology to the following lecture in the section related to batteries (which also included pumped storage). The class ended, after repeating comments and slides that have appeared here before on both corn and cellulosic ethanol, with a short discussion on the use of fire underground for either in-situ combustion of coal, or for the THAI process in Alberta. Personal experiences in the difficulties in monitoring and controlling the flame front in such circumstances ended the class on the same pessimistic note as that on which it began.

And yet I had to request a larger classroom, since the additional students overfilled the original (albeit small) room. So perhaps there may be some ray of hope for the future, with the increasing number of students coming into the business – but alas it will take too long to train them and to find the necessary solutions for this to get us out of the problem years that we are now entering. And apropos a comment last year, where 4 students had worked in operations over the summer where they were asked to participate in load shedding, this year there was only one.

One of the benefits of running this site as long as we have is that it can now act as a diary through which, should you wish, you can go back and see how the story unfolded for the three hurricanes that created so much devastation in 2005.

We did not do a lot of reporting on Dennis which came to land in Florida on July 10th, 2005. Though it was this hurricane, the first of the three, that damaged the Thunder Horse drilling platform that has only just been brought back on site, just in time to meet Gustav.

There was a note on the impending threat on July 9 but Prof G hadn’t yet started putting together the resources that he did with Katrina and Rita. However there was a precursor of coming problems when in the post showing Thunder Horse damage it was noted that nine of the rigs damaged by Ivan the year before had not yet been repaired.

Prof G began Katrina coverage on August 26th and you can follow through the successive posts as the risk, and then the damage was described in successive posts. There had been, earlier that summer, a Fox TV movie called “The Oil Storm” in which a hurricane took out The LOOP the offshore oil port, and that was predicted to raise prices from $50 to $70 a barrel. What a difference three years make!

One problem that arose at the time was with the supplies of fuel into South Florida, which got its fuel by water from NOLA, and which for a while ran short. It is interesting to note the optimism that is quoted from the refinery folk about how soon they thought the refineries would be back on line. There were national gas shortages by August 31. As has since developed there is a lot more information in the comments than just in the original posts.

Rita first appears in a comment on September 18, with the main posts starting on September 19th , and the first assessment of damage on Sept 24 just after she came ashore.

All of these have been “teachable” moments. Just as I presume this one will be as well.

When I first went to talk to someone about investing in stocks, it was carefully explained to me that I should not be concerned over daily fluctuations but rather should look at longer-term outcomes of events. So it has been with the recent price fluctuations with fuel, in that I haven’t really been that concerned with the causes of daily, or even weekly ups and downs, since those moves were often in reaction to transient events, but have rather tried to pick out more long-term changes that will have more of a permanent impact. Thus it was just over a month ago that I wrote about a quote from the CEO of Gazprom, which is perhaps (given recent events) worth repeating:

Gazprom forecasts that Russian gas prices will reach 500 U.S. dollars per 1,000 cubic meters by the end of 2008. “If oil prices exceed in the future 250 dollars a barrel, then gas prices will grow to 1,000 dollars per 1,000 cubic meters,” Miller said.

I then went on to talk about the visit of the new Russian President to Turkmenistan, Azerbaijan and Kazahkstan to ensure that their supplies of natural gas and oil traveled to the west via Russian pipelines (with appropriate fees along the way) rather than being routed through alternate pipelines, where those fees and the concurrent flow-rate controls would not be available to Russia. If nothing else then, as Gail caught in Open Thread #4 the benefits of investing in alternate pipelines, such as Nabucco for which Turkmenistan gas must first cross the Caspian and then pass through Azerbaijan and Georgia in the Trans-Caspian Pipeline have suddenly become a whole lot less attractive.
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It must be born in mind that one does not have to own the initial fuel source itself, if instead one controls the only method by which that fuel can be supplied to the eager customer. This is a lesson that Gazprom has been teaching BP for over a year now. BP discovered, after developing the Kovykta Project that they could not transport the resulting product.

TNK-BP has been locked in conflict with Gazprom over the development of its two major gas projects in Russia as the state seeks to tighten its grip over the energy sector. TNK-BP cannot sell gas from its vast east Siberian Kovykta field or its smaller Rospan unit in western Siberia without Gazprom because of the Russian gas giant’s monopoly control over Russia’s pipeline network.

The two companies have failed to agree on terms despite numerous offers from TNK-BP for Gazprom to take a substantial stake in both projects. Gazprom has said it is not interested in Kovykta by itself. Russia raised the pressure over the issue last month by declaring TNK-BP to be in violation of its licence to develop Kovykta.

That was in March of last year, and by June 22 an agreement had been signed that brought Gazprom into the picture. However, if BP thought that this was the end of their troubles, they were sadly mistaken. Regulatory pressure and additional pressures from the government have continued

MOSCOW — In another sign of its deepening troubles in Russia, the British oil giant BP has reassigned engineers working at its TNK-BP joint venture to projects outside of Russia.

Most had already left, after police raids, labor inspections and visa complications. But the formal announcement represented another low for BP.

The company is fending off a corporate raid by its Russian partners that is backed by Russian regulatory authorities; part of the strategy has been to expel expatriate staff members from the joint venture.

It is becoming increasingly clear that the joint venture is not wanted in its present format, and that BP will have to renegotiate its dealings in Russia.

The point is made more bluntly by the denial by the Russian authorities of permission for the CEO of the company to work in Russia.

PARIS — The British oil giant, BP, suffered another setback Thursday with its troubled Russian joint venture after a Moscow court disqualified the venture’s chief executive from holding corporate office in Russia for two years.

The chief executive, Robert Dudley, was denied a Russian work visa last month and has been for some weeks in an undisclosed location outside of Russia from which he continues to operate as chief executive. On Thursday, a Russian labor court ruled that he could not work in Russia for two years.

The impact that this is likely to have on BP should not be disregarded.

The TNK-BP venture in the country’s western Siberian oil basin had accounted for nearly all of BP’s reserve growth in recent years, as supplies from Alaska and the North Sea dwindled. The loss of the joint venture would leave its long-term strategy, which had depended heavily on Russia, in tatters.

. . . . . “BP’s long-term strategy was to focus on Russia,” Ms. Tiscareno said. “All of a sudden, it’s like ‘Time for Plan B.’ ”

There is thus, as Mark Twain said, more than one way to skin a cat. However, putting these two together I would first not hurry to dispute Alexei Miller’s projection that oil prices may reach $250 a barrel, and secondly I am going to dust off Michael Klare’s Blood and Oil , although skimming through the section on the Caspian suggests that all that thinking and the policies behind it have suddenly become history.

And on a short anecdotal note, I have been off for three weeks, and at one point in this vacation two cars left Augusta, ME. The first headed down to the airport in Portland, while the second, twenty minutes later left and meandered through Winthrop, up to Canaan in VT (over the covered bridge) for lunch, and then down into Montreal (300-odd miles away). There, after an hour through rush-hour traffic, we reached the airport and waited another hour and a half, before the passengers from the first car arrived. We carried them another 70 miles north, where we attended my niece’s wedding. And, as another anecdote, the bridegroom arrived at the ceremony in a hand-paddled canoe (they had met doing work on coral reefs for some movie that involved Pirates and the Caribbean).

I hope your summer was as much fun as ours, sadly I cannot see that the future will be as promising.