Q and A about crude oil and gas prices

Q: Do you think governments are allowing oil fields to decline? What alternatives are there to the government’s action/inaction.

A: How would the government prevent oil fields from declining? The presence of oil is due to geological processes not political will.

Oil fields are not like tanks that can be easily emptied. They are more like sponges. (Picture using a straw to extract all the water from a sponge!) Extracting oil depends on pressure inside the field forcing the oil out. This works well enough at the start, but as pressure decreases, less oil comes out. Sometimes pressure can be maintained by injecting seawater or carbon dioxide. However, you can never extract all the oil from a field. There always comes a point when more effort is put into extracting the oil than is economically justifiable.

Q: Aren't we discovering more oil fields all the time?

A: Yes, but not enough to keep up with what we're using. Worldwide discovery peaked in 1964. Every year after that, we have discovered less than the year before. Right now we discover 1 barrel of oil for every five barrels of oil we use.

Q: What is per capita oil production and what significance does it have?
A: The amount of oil produced per person. Per capita oil production began declining in the late 1970s. If world population had remained constant, we would now have more oil available per person. But because the world population is rapidly increasing, there is less oil available per person than there was in the 1970s.

Q: The U.S. has 200 years of coal left, so why can't we just replace the oil with coal?

A: If coal were to replace oil then it would last closer to 50 years than 200. Also, while coal can be used for some applications that oil is currently used for, oil is the best fuel for transportation. It would be impractical to power cars with coal.

Where Do We Go From Here?

We are facing a future of persistently high gas prices as the global production of oil cannot keep up with the growing population and industrialization of the world. Where do we go from here?

Toyota President Planning for Peak Oil

Toyota is thinking ahead to a future of high gas prices driven by peak oil. That likely means they will be putting an emphasis on producing future models of cars that are very fuel efficient. This is a business model based on reality. On the other hand, here in the United States the big automakers are still having trouble breaking out of a business model based on extracting profits from big, expensive gas guzzlers. The US automakers already had a brush with death and were only saved by government intervention. It looks like they are less prepared for the future than Toyota and other competitors. Will Detroit go the way of the dinosaurs because it could not accept that saving on gas is a good thing?

Oil Production Trend Not Going Up

It is becoming more and more apparent that the era of ever increasing oil production is over. The world is in a now six year period of flat oil production. This failure to increase production occurs at a time when prices are at unprecedented highs. Here we have the clear signature of peak oil setting in ... it would appear that we are now very near the peak. Prognosis: in the near future global oil production will not be able to hold up, and will actually start to decline. This means we will be forced to save on gas whether we want to or not ... so we would be best off to start learning how to save on gas before we absolutely have to. Like the old saying goes, forewarned is forearmed.

What Is Peak Oil?

Oil is a limited resource. Although natural processes do create new oil, it takes millions of years. On human timescales, no new oil will be formed. So we have only the finite amount that is in the ground now. As we use it up, naturally the oil companies start with the easiest and cheapest oil to get. That means over time it gets harder and harder to extract a barrel. The result of this is that there will come a time when the rate of oil extraction begins to decline, even though there is still plenty of oil left. That is peak oil.

Peak Oil : Will we be Ready?

Peak oil, or the moment when the extraction rate of oil is at the highest value it will ever have, is likely right about now. That means in the future we will have less and less oil available every year, even though we are adding more and more people to the population. Less oil supply will mean higher oil prices. How will we adjust our society to high oil and gas prices? Can we do it? We have gotten to where we are today in part by depending on cheap gasoline.

Hirsch Speaking About Peak Oil

Robert Hirsch, the lead author for the report Peaking of World Oil Production: Impacts, Mitigation, and Risk Management commissioned by the Department of Energy speaks about some of the things the report found.

Peak Oil is Not About Running Out

This little video tries to reinforce the point that peak oil is not about "running out" of oil. It is about the production rate of oil not being able to match the demand ... people want to use more oil per day than can be produced in a day. Many people consider global oil supply to be like the gasoline in their cars. In your car, you drive along and there are no fuel problems until the tank runs dry. That is because the rate at which your engine can draw gas from the tank is constant ... it does not go down as the tank is used up.

But in the world of oil production, as the easy to discover and extract oil is used up, it must be replaced with difficult to get oil. So as the world supply of oil is used up, the rate at which we can get it also drops. Thus problems with oil supply show up long before the oil runs oil.

Oil Getting Harder To Get

All of the easy to drill oil fields on the planet are either in production or used up and dying. So in the endless search more oil to slake the growing thirst for it, oil companies have been turning to harder and harder to produce oil fields. This difficulty and cost of production means the oil companies must have a high oil price to make a profit. So as we are forced into oil patches that would have been considered worthless decades ago, we will have to pay more and more at the pump. The video below is an excerpt from a National Geographic special detailing the problem.

To get some perspective on the difficulty getting this marginal oil, consider this from the video. Chevron is producing the Kern River oil field by using a technique requiring the injection of steam to liquefy the thick petroleum enough to extract it. The amount of energy they use in the hot steam is enough to power all the air conditioners of the world. That is some tough oil to get!

Oil Depletion

Everybody knows gasoline comes from refining oil. So the amount and price of available gasoline will depend closely on the amount and price of oil. At the moment Russia is the world's largest producer of oil and Saudi Arabia is the world's largest exporter. Russia exports less although it produces more because it has a larger internal consumption than Saudi Arabia. Production trends in these two countries will drive global production trends.

The video below has a lecture explaining that it is quite likely these countries are going to be decreasing their production in the years ahead. As the video says, it is possible to look at the production history of these countries and come up with some "directional advice". It is not possible to say at what moment they might start dropping in production or at what rate of decline. But it looks very likely that the direction will switch to down somewhere near now.

World Map of Peak Oil Production

Many of the oil producing regions of the world are in decline. The moment at which their oil production was greatest was in the past. The video shows a presentation which includes a time sequence showing oil production versus time for the major oil zones of the world. The hollow part of the bar at the top is the amount of production less than the peak production. Looking at the video you can see a lot of bars with hollow space at the top. Not a good sign for the future. Better that we learn to save on gas now before too many more of those bars go hollow.

OIl Producing Countries in Decline

Gas comes from oil, and it looks like very soon the global production of oil will not be able to satisfy the demand for it. This simple idea is known as Peak Oil. The International Energy Agency (IEA) has warned us that the day of supply less than demand is coming. Here is data taken from the IEA Oil Market Report of September 2009 showing the declining output in some oil producing countries.

Oil Producing Countries With Declining Output

Country	Year (Million Barrels per Day)
	1998	2003	2008
Nigeria	2.11	2.15	1.95
Venezuela	3.12	2.36	2.35
United States	8.37	7.83	7.52
Mexico	3.50	3.79	3.16
United Kingdom	2.84	2.28	1.56
Norway	3.14	3.26	2.46
Australia	0.71	0.67	0.56
Indonesia	1.55	1.71	1.03
Argentina	0.90	0.83	0.75
Colombia	0.82	0.55	0.59
Oman	0.90	0.82	0.75
Yemen	0.40	0.45	0.31
Syria	0.57	0.53	0.39
Gabon	0.35	0.25	0.21
Egypt	0.87	0.71	0.65
Totals	30.15	28.19	24.23

Lower production of oil means less gasoline, which in turn means much higher gasoline prices. As each new country sees its production decline it will necessarily go looking for imports. The more importers there are in the market, the higher the oil price. These numbers are good motivation for starting to save on gas now!

Four Reasons to Save on Gas

Why go to the trouble of learning hypermiling culture and buying fuel efficient vehicles? Well, here are four reasons why you might do just that.

Number one is the money you can save. Saving on gas means you will be shoveling out less cash each time you fill up. Remember when the price of gas was at $4.00 per gallon? Well, that can come back. Just because right now today the price is under $3.00 per gallon does not mean it will stay there. And if the price of gas soars having a fuel efficient vehicle can put a lot of money back in your wallet.

Number two is you can reduce the dependence of the nation on imported oil. The US now spends something north of $400 billion dollars a year on oil imports. That makes the nation very vulnerable to oil market moves. An increase in fleet fuel efficiency nationwide of only 10% would keep $40 billion dollars in the US economy. That is a lot of money.

Number three is peak oil. Petroleum is a non renewable resource. One day soon it will no longer be possible to increase the extraction rate. However, the demand for oil will almost certainly keep growing as the global population rises and developed nations like China and India increase their standard of living. That means we will enter into an era of permanently high oil prices. The less gas we use now, the more prepared we will be.

Number four is climate change. Using less gas will dump less carbon dioxide into the atmosphere. And dumping less CO₂ certainly cannot hurt the climate.

So start introducing yourself to hypermiling culture. You can help yourself, the nation and the world.

World Without Oil

The World Without Oil is a website telling a story about what an oil crisis in the United States might be like. The story is told from the point of view that it is real, with blog posts and videos supposedly describing the daily situation. Sort of like the modern marketing campaigns for the television series Lost or the vampire series True Blood. The story covers a 32 week period over which the price of gasoline rises to $8 per gallon. There has been a lot of work put into this story. One problem is the format. Being spread out over simulated blog posts and news stories etc it feels somewhat incoherent. But if you want to instill hypermiling culture in the USA I guess writing stories like this one can only help. If you like disaster stories and are interested in saving on gas, you might be interested in World Without Oil.

Peak Oil Means the End of Production Growth

Back in the 150th anniversary of oil drilling and peak whiskey posts we talked about the problem of Peak Oil. The problem is that we are going to run out of growth in supply not that we will run out of oil. The graph above shows that ever since about 2005 the total oil output of the world has stayed more or less constant. It is a flatline with some fluctuations above and below. This flatline happened even though the price skyrocketed to almost $150. There are a lot of reasons to think this limit to production is geological and cannot be removed.

There is going to be absolutely no flatline in demand. The global population is still growing. The population of the United States is growing. The billions of people living in Brazil, India and China are experiencing rising standards of living and will want the vehicles that come with it. What happens when the supply stops growing and the demand grows and grows? Prices rise. A lot. Looking at the graph of global oil production lets us understand why.

The solution is that we have to find ways to save on gas. The focus for the future must be on reducing gallons used per hundred miles driven. If that means we have to settle for smaller less powerful vehicles, so be it. Those are all we will be able to afford anyway. Detroit should make gas mileage a top priority to stay alive and relevant in the decades ahead.

The Story of Peak Whiskey

The comment I got on yesterday's post about the 150th birthday of oil makes me think I have to talk about it one more time. The comment says the idea that the Earth will stop producing oil is nonsense. And the comment is right. The Earth will not stop producing oil. Except that is not the problem either.

Let me tell the story of peak whiskey. A hundred or so million years ago some guys set up a still that can make 1 barrel of whiskey per day. Then they build a giant glass to hold all this whiskey with a spigot down on the side to get it out. But something happens and it never gets used. Just stays locked up somewhere with the still on. Each day for a hundred million years that still pumps another barrel into the glass.

Until now. Now is when a down on his luck barkeep finds that giant glass of whiskey, holding billions of barrels of whiskey and that old still churning out another barrel every day. So he sets it up in the attic of his bar. When he opens the spigot just a little bit, a geyser of whiskey comes shooting out. Remember that the fuller a tank, the higher the pressure at the bottom and the more liquid will come out per second from a spigot.

So that old barkeep starts selling whiskey on the cheap. It is good whiskey but he has more supply than he can sell, so he sets the price low. People come and buy that whiskey up. Every year there are more and more people wanting that cheap whiskey. Now two things happen. As the demand goes up, the amount coming out the spigot per day is not enough. So the barkeep just cracks the spigot a bit wider and he meets the demand again. But over the decades as the whiskey glass starts to drain, the pressure at the bottom drops and the rate out the spigot drops too. But again the barkeep just cracks it a bit wider to compensate.

Decades go by. The pressure slowly drops more and more as the level in the glass goes down. The demand keeps going up and up. The spigot opens wider and wider. Until one day, the old barkeep goes to open it up a little more, and he can't. The spigot is already open all the way, far as it can go. The still up top is still pumping in a barrel a day. But the demand is now 80 million barrels a day, so the production rate is just too small to even notice. There is still lots of whiskey in the glass. It is about half full, so there are still billions of barrels of whiskey in there. It is just that he can't get it out faster than 85 million barrels a day.

His customers start wanting 90 million barrels a day. And every day the pressure is slowly going down. He has a bigger and bigger demand, and his supply per day is dropping. So what does he do? You got it. He raises the price. Because now he is not in a market where the supply is way more than the demand. Now there is more demand in the market than supply. Over the next decades, there is still whiskey to be had, millions and millions of barrels a year, but not enough to satisfy everybody. So the price just goes up and up and up.

Now the situation with oil is about the same. The Earth is still making oil as fast as ever, but that is only barrels a day. May as well be zero. We have billions and billions of barrels of oil still in the ground. But the rate we can get it out is flattening and will probably begin going slowly down. We will extract 80 million barrels a day for a good while still.

Now the idea is this: beginning about now, the supply of barrels per day is not going up any more. It will probably start going down. At the same time, China, India, Brazil and the rest of the world want to use more of it. A lot more. The result is going to be like with the whiskey: higher prices for oil and therefore gas. Even though the Earth will not stop making it and we still have billions of barrels of it. The shortage we are going to have is extraction rate.

These phases are common. Once you get a little older, you see that things come and go. A good example is with computer speed. Fifty years ago there were no computers. Then they invent them, and for about 30 years they got faster and faster. Remember in the 80's fast machines were a couple of Megahertz? That constant increase lasted a long time, but now it has stopped. Have you noticed how for about the last 5 years the speed hasn't gone much above 3 GigaHertz? That's because the engineers hit a wall ... making chips much faster than 3 GHz is not technically feasible right now.

But notice what happened. The computer industry changed course. When they couldn't make their chips faster, they made them smaller and put more than one together. Now you can buy quad core chips. Four chips, all at the same 3 GHz speed of five or six years ago. The lesson here for the auto industry is that times can change and they do change. The times of cheap oil and gas are on their way out. But that doesn't have to mean the end of the auto industry.

They have to adapt to the new course, like the computer industry did when chip speed stopped increasing. Any software company in the year 2000 that was developing a program that would only run on a 10 GHz single core chip would be out of business, because they were wedded to a course that stopped running. I think that is what is happening to Detroit. Detroit has always played by the rules that oil is cheap, and those rules are changing. If Detroit can't adapt to the new rules, they will vanish like the software company that needed 10 GHz single cores.

Happy 150th, Oil! So Long, and Thanks for Modern Civilization

August. 27, 1859 the first oil well in the world was sunk in Pennsylvania. Over the following 150 years, the energy provided by oil has allowed the development of cars, highways, plastics and and modern agricultural revolution. Now we are facing the end of that era. It looks like global oil production is now at an all time high - a phenomenon known as peak oil. From now on, the total oil produced every day will go down. Whether the decline is fast or slow remains to be seen, but down it will go. This means we will be forced to find a different path for the future. Either we must find new energy sources or learn to use less. In a time of concern over rising carbon dioxide levels we must make sure that any future change in energy sources is not a big CO2 producer.

I think the recently passed 150th birthday of oil is something we should all be aware of. The role that oil and modern fuels play in our lives is enormously important and despite that it is all to easy to not be aware of their impact. Better to at least know by name what you depend on!

IEA Economist Warns about World Oil Supply

Ever wondered if maybe oil prices and therefore gas prices will stay high forever? Today is not like 10 years ago: gas is expensive. The International Energy Association is warning us that gas may never be cheap again. In fact, it could get worse. This is due to a phenomenon known as peak oil. Due to the fact that all of the best oilfields are now used up, we have to get out oil from lower quality ones. The result is not that we are running out of oil, but that the rate we can get it up from the ground is going to go down. Imagine that you have a huge tank of water so there is no trouble with the amount. Now imagine that you can only get the water out through a pinhole. Although you have an unlimited supply, the tiny amount available per day will cause problems. The same thing might be about to happen with the world's oil. We will have huge, practically unlimited amounts of oil in the ground, but we will only be able to pump up a trickle each day.