Peaking of World Oil Production: Impacts, Mitigation and Risk Management

Waiting until world conventional oil production peaks before implementing crash program mitigation leaves the world with a significant liquid fuel deficit for two decades or longer," according to a report prepared for the Department of Energy's National Energy Technology Laboratory (NETL) by Science Applications International Coporation (SAIC).

Here is a link to the full 91 page report and the executive summary from the report. Inquiring minds want to know, where is MSM on this subject? Who's looking out for me?

EXECUTIVE SUMMARY

The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.

In 2003, the world consumed just under 80 million barrels per day (MM bpd) of oil. U.S. consumption was almost 20 MM bpd, two-thirds of which was in the transportation sector. The U.S. has a fleet of about 210 million automobiles and light trucks (vans, pick-ups, and SUVs). The average age of U.S. automobiles is nine years. Under normal conditions, replacement of only half the automobile fleet will require 10-15 years. The average age of light trucks is seven years. Under normal conditions, replacement of one-half of the stock of light trucks will require 9-14 years. While significant improvements in fuel efficiency are possible in automobiles and light trucks, any affordable approach to upgrading will be inherently time-consuming, requiring more than a decade to achieve significant overall fuel efficiency improvement.

Besides further oil exploration, there are commercial options for increasing world oil supply and for the production of substitute liquid fuels: 1) Improved Oil Recovery (IOR) can marginally increase production from existing reservoirs; one of the largest of the IOR opportunities is Enhanced Oil Recovery (EOR), which can help moderate oil production declines from reservoirs that are past their peak production: 2) Heavy oil / oil sands represents a large resource of lower grade oils, now primarily produced in Canada and Venezuela; those resources are capable of significant production increases;. 3) Coal liquefaction is a well-established technique for producing clean substitute fuels from the world’s abundant coal reserves; and finally, 4) Clean substitute fuels can be produced from remotely located natural gas, but exploitation must compete with the world’s growing demand for liquefied natural gas. However, world-scale contributions from these options will require 10-20 years of accelerated effort.

Dealing with world oil production peaking will be extremely complex, involve literally trillions of dollars and require many years of intense effort. To explore these complexities, three alternative mitigation scenarios were analyzed:

• Scenario I assumed that action is not initiated until peaking occurs.
• Scenario II assumed that action is initiated 10 years before peaking.
• Scenario III assumed action is initiated 20 years before peaking.

For this analysis estimates of the possible contributions of each mitigation option were developed, based on an assumed crash program rate of implementation. Our approach was simplified in order to provide transparency and promote understanding. Our estimates are approximate, but the mitigation envelope that results is believed to be directionally indicative of the realities of such an enormous undertaking. The inescapable conclusion is that more than a decade will be required for the collective contributions to produce results that significantly impact world supply and demand for liquid fuels.

Important observations and conclusions from this study are as follows:

1. When world oil peaking will occur is not known with certainty. A fundamental problem in predicting oil peaking is the poor quality of and possible political biases in world oil reserves data. Some experts believe peaking may occur soon. This study indicates that “soon” is within 20 years.

2. The problems associated with world oil production peaking will not be temporary, and past “energy crisis” experience will provide relatively little guidance. The challenge of oil peaking deserves immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis.

3. Oil peaking will create a severe liquid fuels problem for the transportation sector, not an “energy crisis” in the usual sense that term has been used.

4. Peaking will result in dramatically higher oil prices, which will cause protracted economic hardship in the United States and the world. However, the problems are not insoluble. Timely, aggressive mitigation initiatives addressing both the supply and the demand sides of the issue will be required.

5. In the developed nations, the problems will be especially serious. In the developing nations peaking problems have the potential to be much worse.

6. Mitigation will require a minimum of a decade of intense, expensive effort, because the scale of liquid fuels mitigation is inherently extremely large.

7. While greater end-use efficiency is essential, increased efficiency alone will be neither sufficient nor timely enough to solve the problem. Production of large amounts of substitute liquid fuels will be required. A number of commercial or near-commercial substitute fuel production technologies are currently available for deployment, so the production of vast amounts of substitute liquid fuels is feasible with existing technology.

8. Intervention by governments will be required, because the economic and social implications of oil peaking would otherwise be chaotic. The experiences of the 1970s and 1980s offer important guides as to government actions that are desirable and those that are undesirable, but the process will not be easy.

Mitigating the peaking of world conventional oil production presents a classic risk management problem:

• Mitigation initiated earlier than required may turn out to be premature, if peaking is long delayed.

• If peaking is imminent, failure to initiate timely mitigation could be extremely damaging.

Prudent risk management requires the planning and implementation of mitigation well before peaking. Early mitigation will almost certainly be less expensive than delayed mitigation. A unique aspect of the world oil peaking problem is that its timing is uncertain, because of inadequate and potentially biased reserves data from elsewhere around the world. In addition, the onset of peaking may be obscured by the volatile nature of oil prices. Since the potential economic impact of peaking is immense and the uncertainties relating to all facets of the problem are large, detailed quantitative studies to address the uncertainties and to explore mitigation strategies are a critical need.

The purpose of this analysis was to identify the critical issues surrounding the occurrence and mitigation of world oil production peaking. We simplified many of the complexities in an effort to provide a transparent analysis. Nevertheless, our study is neither simple nor brief. We recognize that when oil prices escalate dramatically, there will be demand and economic impacts that will alter our simplified assumptions. Consideration of those feedbacks will be a daunting task but one that should be undertaken.

Our study required that we make a number of assumptions and estimates. We well recognize that in-depth analyses may yield different numbers. Nevertheless, this analysis clearly demonstrates that the key to mitigation of world oil production peaking will be the construction a large number of substitute fuel production facilities, coupled to significant increases in transportation fuel efficiency. The time required to mitigate world oil production peaking is measured on a decade time-scale. Related production facility size is large and capital intensive. How and when governments decide to address these challenges is yet to be determined.

Our focus on existing commercial and near-commercial mitigation technologies illustrates that a number of technologies are currently ready for immediate and extensive implementation. Our analysis was not meant to be limiting. We believe that future research will provide additional mitigation options, some possibly superior to those we considered. Indeed, it would be appropriate to greatly accelerate public and private oil peaking mitigation research. However, the reader must recognize that doing the research required to bring new technologies to commercial readiness takes time under the best of circumstances. Thereafter, more than a decade of intense implementation will be required for world scale impact, because of the inherently large scale of world oil consumption.

In summary, the problem of the peaking of world conventional oil production is unlike any yet faced by modern industrial society. The challenges and uncertainties need to be much better understood. Technologies exist to mitigate the problem. Timely, aggressive risk management will be essential.

Comments

[Temple3]

given the above, do you have a sense of what approach should be taken on the continent and the caribbean, etc. with respect to transitioning out...for example, can linkages be made with deep water advocates/scientists/firms to accelerate agricultural development and spur independence from tethers of west??

[cnulan]

Incremental local steps please..,

The end of food stamps will provoke a food security crisis and crisis is perfect for change, so the urban agricultural education and proliferation will be greatly facilitated.

Education concerning the limits of discretionary energy use come next. Provisioning of gear for low energy consumption in housing and transport will be a key growth area. To the extent some folks get ahead of the curve on that market opportunity, those folks will thrive as the market grows.

[Temple3]

"take human bites." - that was the line in an ad for an NYC play - i guess it was during the 70's...vague recollection, but it's in there.

i feel you...thanks.

[cnulan]

Do you have a feel for how much of current black american energy consumption is "discretionary"? To me, this is one of the larger missing pieces of thejigsaw: just how much energy consumption can we shed and still jog along?

We have to get a feel for what's feasible, and what's unduly pessimistic. If black people are going to understand the big picture, we must understand three systems and how they relate to each other:

#1. Net energy (which we presently do not collectively understand).

#2. Human nature (which - from the endless culturo-political discussions - I assume we DO NOT understand).

#3. Realpolitik (which I know we DO NOT understand). Liberal economics and conservative economics are in fact "political systems".

We must go further and faster in adapting to the reality just around the signpost up ahead, and, we must exemplify a tangible civilizing alternative to the overshot American civilization that is about to experience radical destabilization.

I'm going to let you in on a key to the enigmas of the world, but only to the extent that you Work with me here to articulate it.

"Discretionary" energy consumption triggers dopamine production in our brains. Any attempt in the US to eliminate "discretionary" energy consumption, will cause Americans to be "unhappy"
because they have become accustomed to these very high levels of discretionary energy consumption and dopamine production. The sudden withdrawal of brain dopamine will cause the same social conditions in America that led to Hitler's Germany. This is not ideology or speculation, it's simple applied psychology.

Black folks have become addicted to HIGH levels of energy consumption/dopamine production too. Our volitional and intentional reductions will lead to some unhappiness - but we're better able to accomplish this adaptive development.

Americans have become addicted to still HIGHER levels of energy consumption/dopamine addiction and reduction in the general populace will cause unhappiness and political instability here. In other words, for the American status quo, there is no "discretionary" energy consumption --energy consumption is intrinsic to the collective psychology and political system of Americaness.