Shell chief: No magic peak oil bullet

Then the only option left is wars and more wars over what there is. No blood for oil? Fine. Freeze.

he expects to see $250 a barrel oil by 2009? That seems wack.

Then I'm wack. To my mind, oil is way undervalued today. $250 is fair right now.

The price of a resource with no easy replacement is a debatable thing. One has to project. Assumptions:

1) Saudi is hiding the fact their fields are draining. If one looks at their actions and production today (not their words), it is a good guess they are in trouble. They're scared.

2) Russia does not have enough cheap oil to meet the gap. It's telling that the Russians are already trying to prime us for higher prices.

3) Political trouble looms as the cheap oil gets short. Russia as swing producer? Please. Markets work on knowns. Unknowns scare the hell out of everyone, and demand a price cushion.

4) Most unconventional oil cannot be produced right now at $200/bbl. It needs to be a lot higher, minus some other trick we haven't found yet.

5) Environmental wackos who worship MMGW are going to make coal and nuke and hyrdo replacements very difficult to get started in order to offset oil production decline. It's oil or nothing.

6) We have a very good handle on what's left. There are no meaningful finds left that can close the gap in time. I know the technology and the industry, and this is my best guess.

Based on these, I think oil should be between $200 and $300 right now; not because of current production, but because as the peak looms, nations will start to withold the gold. I just think people don't quite get it yet. I said this when the price was $50/bbl, and I say it now.

It's a good be, however, the price will drop in the next year as stupid people simply can't grasp what's going on and focus on current production as we squeeze wells hard. They are looking at production today, not projecting ten years, where there's simply no easy oil.

I believe that if Saudi opened up their data, people would freak and oil would be near $300 today. And if you laugh at this, just remember how everyone missed this price explosion and used to laugh at peak oil. It's not current production that's to fear - it's production five and ten years from now. Field by field is peaking early worldwide, and we don't have the discoveries to replace them. It's not today that's so worrisome, it's the future based on the drilling we are doing today. Remember, there is no oil in the next few years that is not being drilled right now - we have no swing capacity left. Thus, I say $120/bbl is flat out giving oil away, and $250 right now would be a fair price.

I'm not optimistic about the Wendell-Berry-type utopia with the end of oil. I wrote in a recent comment that collapse might mean either survivalist-type collapse or just decline. This seems to me to make a big difference.

I was up on the north coast of Scotland recently. It's not really remote by N American standards - 80 miles from Inverness, with a population in the tens of thousands, and 280 miles from Glasgow, with a population over a million, but it's the most sparsely populated area in western Europe outside Scandinavia - 30 miles from one village to the next, 40 miles between roads - I guess it's roughly like parts of Maine or Appalachia, say.

If there is anywhere in W Europe where one could survive a total collapse, this is it. If you had a house off a road, with land, and plenty of ammunition, you could support yourself and defend yourself against any refugees who managed to get there. Also, there are vast herds of red deer (like your elk), due to the lack of wolves, and so many mackerel on the coast that you can catch them with a bucket, so one could probably live nomadically.

On the other hand, looking at the actual economy, it seems entirely based on either government money or tourism, both of which would fail quickly in a decline. There are government jobs (teachers, nurses, admin staff), and the farming (sheep and beef) and forestry are subsidised, and there are projects like fruit-growing in polytunnels that depend on EU regional development money. The area is only marginally touricised, but that supplies most of the other livelihoods - a few campsites and B&Bs, and guides for hunting and salmon-fishing.

The population of the area tends to follow the economy. Many people want to live there, because they like the outdoor life, or for religious reasons (it's the British Bible Belt), and in boomtimes such as recently, they find there are teaching jobs, or it's possible to make a living with a small hotel. The area would empty again if the economy failed.

Collapse and decline would have diametrically opposite effects on an area such as that, and, I am guessing, much of rural USA, outside the heavily agricultural areas, is roughly analogous.

5) Environmental wackos who worship MMGW are going to make coal and nuke and hyrdo replacements very difficult to get started in order to offset oil production decline. It's oil or nothing.
Posted by: mdavid | June 10, 2008 7:51 PM

When it becomes clear that oil prices aren't going down, the US will be building nuke plants with full support from the general public and will tell the anti-nuke folks to get stuffed.

gill, for Pete's sake, run the numbers.

1. ANWR has what, total estimated reserves equal to one or two years' US consumption?

2. Liquid fuels from coal are not competitive (or at least haven't been competitive) because the price of petroleum is too low. I gather the Fischer-Tropsch process, as used by WW2 Germany and by South Africa during the embargo, was equivalent to roughly $200/bbl oil in 1980s dollars. That's more like $300/bbl now.

3. My family's from NoDak. The oil fields there are declining; the oil boom in western NoDak is so last-century. Yes, the public school in Medora can have a well-funded K-8 program with 23 total pupils and ignore the state's order to consolidate outside the county; there's that much oil money there still. But it's not expanding, and I doubt there's new oil.

4. Remote ocean fields, as Mr. van der Veer points out, are not competitive at the sort of low oil prices (a mere $120/bbl) we're used to, because of infrastructure and transport costs. It's similar to the situation with tar sands and oil shales; one way or another, it costs more (money and energy) to get the oil out.

Some tar sands (and oil shales) will NEVER be a useful source of energy (as distinct from their use as chemical feedstocks) because it costs as much energy to extract the oil as the oil itself is worth. A bit like ethanol from corn.

I'm an organic chemist; I don't like seeing valuable chemical feedstocks go out your tailpipe. I take some consolation in the fact that supply and demand will run up the price of petroleum to the point where there will be plenty left for plastics and other materials, but nobody will be able to afford to burn it any more. And I look for that to happen within the next century.

Rod, enough of the peak oil nonsense. Its like environmentalism and evolution. A theory.

Ah yes, the "it's just a 'theory' " claim.

If oil is here we should be drilling every possible location.

gill, dry holes don't come free. You drill where there's a reasonable chance of significant oil reserves because you have to spread the cost of the dry holes between the productive ones. And the costs are not just monetary; ANWR is a case in point. Our elected representatives decided that the oil available there wasn't worth the candle. You may disagree about non-monetary costs... but even a Republican Congress under an oil-man President couldn't get a majority of Congressmen to change their minds.

I haven't run the financial numbers because I'm not an oil economist, nor do I play one on TV -- but if the ANWR reserves would last less than a decade, per the projections, would it pay to build the infrastructure to transport the oil out of there? Prudhoe Bay, remember, has been producing for three decades and is still going, so the Alaska Pipeline and Valdez oil terminals have paid for themselves, probably even including cleanup costs for the Exxon Valdez.

gill, actually I was unaware of the Bakken formation results, thanks! USGS pegs it at only 3-5 billion bbl (that's one or two years of current US consumption) as of April 2008, but it's in an area (NoDak and Montana) where the transportation and production infrastructure is already in place -- unlike ANWR.

The principle of peak oil isn't "just a theory," in the colloquial sense of "tentative hypothesis." It's reasonable economics, and also common sense. Eventually, there won't be any more oil to find. Period. The supply isn't infinite.

Sooner than that, the supply of oil that's cheap to extract will run out; it may have already peaked, and industry analysts such as Mr. van der Veer see the peak approaching rapidly. You can't hold prices down below the cost of production; as Nixon found, that leads to artificial shortages.

Eventually you will run up against the First Law of Thermodynamics, when it costs as much energy to extract and transport and refine the oil as you get out of it. Long before that, you'll find that extracting and transporting the oil is more expensive than converting coal to liquid fuels, or rebuilding our transportation infrastructure to run on electricity.

You seem to think that the point of Peak Oil is comfortably far in the future, but all your oil reserve estimates appear to be inflated. If the USGS under an oil-friendly administration disagrees with you about the Bakken fields by two orders of magnitude... Well, I'm not going to put too much confidence in your numbers.