Peak Oil, A Primer

Peak Oil, A Primer

By Warren Walborn

It is a near certainty that within the next few years, the world's energy resources will fail to keep pace with the needs of the world's consumers. Energy, and particularly petroleum, is foundational to the health and structure of our economy. The ways we as energy professionals and American consumers will use, procure, and even think about energy is ready to change dramatically.

In what year did the US produce the most oil from oil wells on US soil? Many think that since oil demand has increased every year steadily, that it would have been last year since we would have just extracted what we needed. Wrong. In 1970, the US produced oil at a rate of 11 million barrels per day. This was the “Peak” and US production has declined ever since. In 2008, we were only able to produce at a rate of 6 million bpd. (See graph below.) Why is this?

Peak Oil Defined

Peak oil is the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production enters terminal decline. The concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production.

The world will peak at some point in the near future. We will not know when the peak is reached until we have passed it and can see it in hindsight. Some say the peak will occur before 2010, and some believe it will not occur for another five to ten years. Some even estimate later dates, but whenever it happens, the impact on the world economy will be significant.

Along with the US, 53 other oil producing countries have “Peaked” and the only countries that have not peaked are in the middle east, though some of those are believed to have peaked already. Two out of the three largest oil fields in the world went into permanent decline in 2007, and Saudia Arabia’s oil production, the world’s largest, declined 700,000 barrels per day in the last 18 months.

Why is this a problem?

"The International Energy Agency calculates that the world will need to add a whopping 64 million barrels per day (mbpd) of new capacity between 2007 and 2030 in order to meet an anticipated demand growing at 1.6% per year. That's like adding six new Saudi Arabias." IEA Oil Report: "Time is Running Out" By Chris Nelder, Thursday, November 13th, 2008

Fossil fuels have also provided unprecedented mobility, incredible advances in medicine and communication, and unimaginable wealth. For most in political, social, and economic development circles, growth is so ingrained as to have become both natural and desirable.

Fossil fuels – coal, oil, and natural gas – are non-renewable and limited. Once you’ve consumed about half your endowment of any one of them (or for that matter, any resource), your production trend stops rising and peaks, and then declines inexorably forever. This is absolute and inarguable, as inevitable as the morning sunrise.

Oil in particular is the densest, most convenient and transportable energy source ever exploited, and our dependence upon it is possibly greater than that of any resource in the history of mankind.

We are not in trouble when we “run out,” (in fact we will never run out entirely) but much sooner, when we pass peak, because at that point we won’t have as much as we need and our economic system reacts poorly, often tragically, to shortages.

But as with any “good”, a shortage in supply will reach equilibrium because the price will rise – dramatically. Imagine gasoline at $16.00 per gallon – this is not fiction, but an inevitability that some predict will occur before the end of an Obama presidency. At $16 gas, most industries will cease to function as we know today.

Opportunity

Since all changes in the business environment produce winners and losers, Hawken is positioned to be one of the winners from this inevitable change. Oil prices are low now, but this is being explained as a temporary and short-lived market dump of available resources by oil producing countries to get past the US presidential election, and to allow the US auto industry some time to recover.

"Low oil prices are temporary as OPEC prepares to cut production." - SGC Research, November 24, 2008

The market is beginning to realize the expected impact of Peak Oil. The title of a recently published book tells it all: Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century .

Why Wood as an Alternative Energy?

The use of wood and other biomass as a heating fuel has many advantages that are beginning to gain wider recognition in the market:

1. Wood has been safely used as a fuel since the beginning of recorded history – longer than any other fuel. Fossil fuels have only been used for heating since the early 1900s. Prior to this, wood had been the primary fuel for as long as Planet Earth had been inhabited by man.

2. Wood is a renewable fuel. One of the reasons wood is such a perfect fuel is because it is renewable. This means that it can be “restored and replenished by nature in a period of time that is compatible with our human use”. The heat released from wood is actually stored energy from the sun--released when consumed in a wood burning device. Wood is an abundant resource in this country that is easily sustained. Provided they are cared for and managed properly, our forests can be a perpetual source of fuel, unlike gas, oil, and coal, which are being depleted at a rate that is astonishingly faster than the millions of years it took Nature to make them.

3. Wood burning is completely safe in terms of “Greenhouse Gasses” - All fuels produce carbon dioxide, the primary greenhouse gas, when they burn. When the atmospheric concentration of greenhouse gasses increases, they cause the average global temperature to rise.

Wood differs from the fossil fuels coal, oil and gas, because it is part of the natural carbon/carbon dioxide cycle. As a tree grows, it absorbs carbon dioxide from the air and stores it in the wood as carbon, which makes up about half of the weight of wood. When the wood is burned, carbon dioxide is released back into the atmosphere. No additional carbon is released because the same amount of carbon dioxide would be released if the tree died and were left to rot on the forest floor. The carbon in coal, oil and gas, by contrast, are taken from underground stores, usually from overseas, where they were deposited by Nature, and released into the air without means for equal reabsorption.

When trees are used for energy, a part of the forest's annual growth is diverted from the natural decay and forest fire cycle into our homes to heat them. Firewood is a natural energy product from the forest. Burning wood actually helps reduce greenhouse gas emissions by displacing the use of oil, gas and coal.¹

The US Government states clearly that wood burning is not harmful to the environment in terms of Greenhouse Gasses: “Under international greenhouse gas accounting methods developed by the Intergovernmental Panel on Climate Change, biogenic carbon is part of the natural carbon balance and it will not add to atmospheric concentrations of carbon dioxide. Reporters may wish to use an emission factor of zero for wood, wood waste, and other biomass fuels in which the carbon is entirely biogenic.”²

4. There is an Over-Abundance of Wood! Burning waste wood also benefits the environment because it reduces wood waste that would otherwise take space in landfills. "In the US, wood and paper thrown away each year is enough to heat 5 million homes for 200 years."³ Think about it – five million homes for 200 years. And that was ten years ago.⁴

5. Per Btu, wood is much less expensive than fossil fuels – at current prices, natural gas is three times the cost of wood, propane is five times the cost of wood, and electricity is seven times the cost of wood.⁶

6. Though the use of any resource has an environmental impact, the use of wood as a fuel is much more in keeping with the natural cycles of ecosystem Earth. The heat produced by burning firewood is actually the warmth of the sun, stored in trees through the process of photosynthesis. When the sun abandons us during the cold dark days of winter, we liberate the sun’s heat through the “reverse photosynthesis” of burning. Like every other cycle in Nature, every process has its opposite.

7. What fuel will be used when the world runs out of oil – which is expected to happen within 50 years? The world is running out of fossil fuels. In a few years, the world’s inhabitants will have consumed one-half of the known fossil fuel reserves. Once this happens, fuel prices will skyrocket as fears of “running out” will become more of a reality.

“The volume of the world's petroleum reserves is important because of the fear that the oil will run out. This fear should be expected, because the estimated remaining one trillion barrels of crude oil is only enough to supply the world for about 50 years. This prediction is based on the present world consumption; however, world consumption is expected to increase.”⁷

8. Within 10 years, experts project the world oil demand will exceed production capacity by 20 million barrels per day. This will result in astronomical fuel prices to level the supply/demand curve. Homeowners will be forced to find and pursue alternative heating methods.

9. Though heating with wood may sound old fashioned, modern wood-burning appliances are anything but. Existing technology enables the use emissions control devices to almost entirely eliminate smoke emissions - this allows wood to give up to 75 percent seasonal efficiency while emitting 90 percent less smoke than before.⁸ Certain models currently available further reduce emissions by “gasifying” wood and then burning the gasses at extremely high temperatures, thus almost completely eliminating emissions.

10. Wood is a reliable fuel. In the midst of a winter storm when the power goes out or during an energy crisis rolling blackout, homeowners can still heat with wood. It gives both heat and comfort during times of emergency. Wood also gives freedom. Having the ability to burn wood for heat in a home gives more freedom and options for fuel. Many homeowners live away from natural gas pipelines and are forced to purchase much more costly fuels such as propane or fuel oil. Wood fuel allows a homeowner to no longer be dependent on large energy utilities that may or may not be able to supply energy.

11. Foreign fossil fuel suppliers simply don't like wood burning advocates. These foreign energy companies likely have lobbyists who aggressively support antiwood burning efforts. They try to tell us that wood smoke is bad for us, while offering only one solution: “Pay us for our fuel!” They do not mention that their fuel can never be replaced. They say “Go ahead, take our fossil fuels out of the earth. By the time your grandkids get old enough to need it, you'll be dead anyway, so why should you care?” This short-sighted view of the greedy billion dollar fossil fuel companies (who only care about their profits) should not be permitted to be a factor in your decision-making process.

12. Outdoor wood boilers take combustion outdoors. Households and businesses can reduce their insurance costs by using outdoor furnaces since outdoor combustion eliminates many risks of fire damage.

Some arguments against wood burning state that “Problems are aggravated if an outdoor wood boiler is…not operated according to manufacturer’s recommendations.” Most people are smart enough to realize that any piece of equipment will cause problems if not operated according to manufacturer’s recommendations. Furthermore, please consider the ramifications of a homeowner installing a conventional furnace in his basement and not operating it according to its manufacturer’s recommendations – his house could burn to the ground and possibly cause the death of the homeowner and his family. (An outdoor wood boiler located 50 feet away from a home would never cause a fire because it simply sends warm water into the house.) Almost any product not used in compliance with its manufacturer’s recommendations are dangerous, but an outdoor wood boiler is least among them.

13. The harvesting and burning of wood is an important economic factor in any community. It reduces a community’s dependence on foreign energy companies and it supports the local economy. There is no billion dollar wood fuel utility that will profit from wood burning or multinational corporations involved in the wood heat business. Most businesses that supply furnaces are small manufacturers and retailers. Local workers who chop firewood and chimney sweeps who service wood-heating systems get the benefit of local dollars.

Source: Richard Heinberg (2003). The Party's Over: Oil, War, and the Fate of Industrial Societies. New Society Publishers. ISBN 0-86571-482-7.

Crude Oil Production May Start to Decline in 10 Years, WEC Says

By Eduard Gismatullin

Sept. 19 (Bloomberg) -- Crude oil production may start to decline within the next two decades when half of the world's reserves have been extracted, the World Energy Council said.

Global proved recoverable oil reserves totaled 1,215 billion barrels (160 billion tons) at the end of 2005, or 11 percent more than the end of 2002, the WEC said today in its 2007 Survey of Energy Resources.

About 625 billion barrels of additional recoverable crude resources are available, the WEC said, citing estimates from a German geological institute. The depletion mid-point will be reached in the next 10 to 20 years, according to the research group.

``Once this point is reached, the decline of conventional oil production is described as inevitable,'' it said in the report.

The world is running out of ``cheap oil'' because demand is rising in Asia and companies are having a hard time tapping new deposits or maintaining extraction, Ronald Oxburgh, the former chairman of Shell Transport & Trading Plc, said two days ago. Crude oil in New York touched $82.38 yesterday, the highest intraday price since the contract was introduced in 1983.

The World Energy Council was established in 1923. It has member committees in 94 countries, according to the organization's Web site.

In its survey, WEC used estimates from the Federal Institute for Geosciences and Natural Resources, which is based in Germany.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

Last Updated: September 19, 2007 09:00 EDT

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