Oilfield Daily News

A classic interview. Former energy industry investment banker, Matt Simmons, gives us the facts on Peak Oil.

If all goes according to plan, the tandem of the tighter cap and the tankers could keep all the oil from polluting the fragile Gulf as soon as Monday.

But it would be only a temporary solution to the catastrophe unleashed by a drilling rig explosion nearly 12 weeks ago. It won’t plug the busted well and it remains uncertain that it will succeed.

When the cap is removed, oil will flow mostly unabated into the water for about 48 hours — long enough for as much as 5 million gallons to gush out — until the new cap is installed.

The hope for a permanent solution remains with two relief wells intended to plug it completely far beneath the seafloor.

“I use the word ‘contained,’” said retired Coast Guard Adm. Thad Allen. “‘Stop’ is when we put the plug in down below.”

If all goes well, it could still be a week before they really know if the cap is containing most of the spill, Coast Guard Capt. James McPherson said Saturday. Testing has to be done on the new cap if and when it’s in place to make sure it can withstand the pressure of the gushing oil.

Crews using remote-controlled submarines plan to swap out the cap over the weekend, taking advantage of a window of good weather following weeks of delays caused by choppy seas.

The cap now in use was installed June 4, but because it had to be fitted over a jagged cut in the well pipe, it allows some crude to escape. The new cap — dubbed “Top Hat Number 10″ — follows 80 days of failures to contain or plug the leak.

BP PLC first tried a huge containment box also referred to as a top hat, but icelike crystals quickly clogged the contraption in the cold depths. The oil giant then tried to shoot heavy drilling mud into the hole to hold down the flow so it could then insert a cement plug. After the so-called “top kill,” engineers tried a “junk shot” — using the undersea robots to try and stuff carefully selected golf balls and other debris to plug the leak. That also met failure.

Meanwhile Friday, BP worked to hook up another containment ship called the Helix Producer to a different part of the leaking well. The ship, which will be capable of sucking up more than 1 million gallons a day when it is fully operating, should be working by Sunday, Allen said.

The government estimates 1.5 million to 2.5 million gallons of oil a day are spewing from the well, and the existing cap is collecting about 1 million gallons of that. With the new cap and the new containment vessel, the system will be capable of capturing 2.5 million to 3.4 million gallons — essentially all the leaking oil, officials said.

The plan had originally been to hook up the Helix Producer and install the new cap separately, but the favorable weather convinced officials the time was right for both operations.

“Everybody agrees we got the weather to do what we need,” Allen said. He said the calm weather is expected to last seven to 10 days.

In a response late Friday to Allen’s request for detailed plans about the new cap, the Helix Producer and the relief wells, BP managing director Bob Dudley confirmed that the leak could be contained by Monday.

But Dudley included plans for another scenario, which includes possible problems and missteps for the installation of the cap that would push the work back until Thursday.

And the latest effort is far from a sure thing, warned Louisiana State University environmental sciences professor Ed Overton.

“Everything done at that site is very much harder than anyone expects,” he said. Overton said putting on the new cap carries risks: “Is replacing the cap going to do more damage than leaving it in place, or are you going to cause problems that you can’t take care of?”

Containing the leak will not end the crisis that began when the Deepwater Horizon drilling platform exploded April 20, killing 11 workers. The relief wells are still being drilled so they can inject heavy mud and cement into the leaking well to stop the flow, which is expected to be done by mid-August. Then a monumental cleanup and restoration project lies ahead.

Yahoo AP

I found it a bit surprising that only 4 gallons, or approximately 11 %, from every barrel of oil is typically produced as aviation fuel.

As Dave Jackson noted in another recent article:

“A-1 jet fuel, a high grade, moisture free kerosene, competes directly with the production of diesel. A refiner has a certain amount of leeway when extracting fuels from each barrel of crude oil. By and large, however, a choice must be made between kerosene or diesel.”

Jackson then asked pretty much the same question I have: What happens when there isn’t enough crude oil to satisfy the full demands of freight transportation and the airline industry? Can’t satisfy them both once oil production begins its continual decline, so what happens? As it stands now and if my math is correct, airlines use somewhere in the neighborhood of two billion barrels of oil each year. That cannot continue in the face of Peak Oil.

What decisions are the various transportation industries—freight and aviation in particular—going to be faced with when the worldwide supply of oil cannot ever match demand again? Who decides which of those two will have priority? It’s unlikely that only one industry will have all of its demand met, so that means both industries will suffer reductions in what is available to them. Then what?

As other writers have duly noted, once Peak Oil’s impact is being felt immediately and daily by the transportation industry, the foods and goods and services we’ve grown accustomed to having on hand 24/7/365 … won’t be. We’re going to have to start making do without some of those products and services we like to enjoy or use whenever the mood strikes, and if we’re being deprived, somewhere along the supply and distribution chain there will be employment and production cutbacks. We all now know what happens when people start losing their jobs and industries stop making or supplying goods and services.

A broader question as it affects aviation: what happens to air travel in general? Once Peak Oil is in full swing, we clearly cannot assume that that same eleven percent of each barrel of oil will still be devoted to producing aviation fuel. What then?

One obvious outcome is that the then more restricted air travel will become more expensive. I’m no economics whiz, but when supply decreases and demand remains steady, prices increase. So get ready for more expensive air travel as well as higher crude oil prices. For many, that means no more air travel. Then what? I’m fairly confident that airlines aren’t going to survive if their increasing costs for fuel lead to fewer passengers (who are obliged to pay much higher fares), and on and on the dominoes tumble.

When the price of a barrel of oil shot up to nearly $150.00 two short years ago, Brad Plumer—in a terrific New Republic article well worth reading—noted that nearly 25 airlines bit the dust just in 2008, almost four times the average. Should we expect anything different the next go-‘round?

On a more personal note, what will families do? As the parent of two daughters currently in college, I recognize first-hand the concerns any parent has when their graduating children decide to take jobs far from home. The emotional pull of wanting the best for your child while nonetheless wanting them close by has a powerful influence on our well-being. What happens if my daughter accepts a job in Portland, Oregon and in the not-too-distant future, the several dozen reasonably priced daily flights currently available out of Boston’s Logan Airport are reduced to just a handful, and the acceptable $550 flight through Dallas suddenly become a $1700 flight with multiple connecting stops en route, and an 8 hour trip is suddenly a two day adventure?

I am well aware that my daughter’s employment and location choices won’t depend one iota on what dear-old-Dad would prefer, but if my daughter does make the choice to live in a locale that is now an airplane ride away and a few years down the road I no longer have that as a feasible option to see her, dear-old-Dad is not going to be a happy camper. (I will let my daughter speak for herself on this subject!)

What happens to business meetings, to governmental business, to international negotiations, to sports travel, to family visits, and a host of other lifestyle and industry needs when we have less aviation fuel competing for our business and personal demands? What happens then?

Who decides which of the limited and now much more expensive flights have priority? Are your business meetings in Chicago more important than the Boston Red Sox seven-game road trip, or a fact-finding mission by several U.S. Congressional leaders, or seeing your parents? We cannot possibly hope to sustain the same level of air service when aviation fuel has doubled or tripled in price, and when perhaps only 4% or 5% of each barrel of a smaller supply of oil is now produced as aviation fuel because somewhere along the line, someone will have decreed that that is the most we can expect from each barrel because of countless other priorities.

To its great credit, Britain recently turned down construction of a 3rd runway at Heathrow Airport in favor of committing that same amount of funding to high speed rail, as noted here. Perhaps more insightful than most, the decision-makers likely recognized the pointlessness of committing billions to a service that will likely exist in a greatly-diminished capacity a few short years from now.

As Brad Plumer also noted in his 2008 essay:

“Small towns will be especially vulnerable to losing scheduled air service. That’s already happened to nearly 30 U.S. cities in the past year, from Wilmington, Delaware (population 72,000) to Boulder City, Nevada (14,000). Hagerstown, Maryland, lost all commercial air service recently, rendering its new $61.8 million, 7,000-foot runway useless.”

It won’t end there. What are the ripple effects to communities and regions when airports shut down, or flights are offered on a greatly restricted or reduced basis? What of the people accustomed to relying on those services? What happens then?

Technology is not close to finding adequate alternatives sufficient to meet current and projected demand increases, so what happens? And biofuels, for all their promise, are not close to being deemed an appropriate substitute.

So we can either start making plans, considering alternative forms of transportation, making a greater commitment to seeking alternative sources of energy, or try to come up with last-minute solutions to deal with the problems Peak Oil is going to force upon us.

Hint: That strategy is not likely to work

Peak Oil Matters

Gas producers maintain that the use of horizontal drills to extract gas from under neighboring plots means drillers require less land for well pads and equipment. They argue that chemicals pumped into the ground are benign, aquifers are protected by steel and concrete, drilling requires less water than nuclear power or a coal-fired power plant, and companies can dispose of salt water without poisoning streams.

The hotbed of environmental protest about the potential impact of drilling is in New York, where the source of New York City’s drinking water is the Catskill Mountains and Delaware River watershed on the eastern edge of the Marcellus Shale. The water supply is fed by underground aquifers and the area’s rivers and streams, and the water is pristine enough to flow unfiltered through a system of aqueducts to 9 million New York residents.

In January, New York City Mayor Michael Bloomberg urged Gov. David Paterson (D) to put the water supply ahead of the economic benefits to a state $7 billion in the red.

New York Times

Now that the divorce is final between Matt Simmons and the boutique investment bank he took public in 1974, the outspoken energy guru is free to pursue his latest passion — offshore wind.

Simmons officially parted ways with Simmons & Co. International in mid-June, after several years serving in a reduced capacity.

Simmons created the Ocean Energy Institute in Rockland, Maine, three years ago, but for all intents and purposes, 2010 is the first year of actually doing business, and it was aided by the split from his previous career.

His exit from Simmons & Co. followed a prediction published in Fortune that by mid-July BP Plc would realize the severity of the Gulf of Mexico disaster and the associated clean-up costs, panic and file for Chapter 11.

Houston Business Journal

There is one thing on which almost all pundits, industry veterans, forecasting agencies and members of the public seem to agree. Energy, particularly hydrocarbons, is going to get ever scarcer and more expensive. The “age of easy oil” is over.

Former Shell CEO Jeroen van der Veer opined in April 2008 that, “Easy oil and easy gas…is simply depleted” and that December, his unlikely soul-mate, Russian Prime Minister Vladimir Putin, concurred: “The era of cheap energy, including cheap gas, is coming to an end”.
Oil prices remain high by historic levels, and the continuing Macondo disaster in the Gulf of
Mexico seems to confirm the belief that the oil industry is venturing into ever more-challenging frontiers.

Business plans and economic projections are founded on the belief in the end of easy oil. It predicts a rosy future for the Middle East and Russia, drives growth in renewable energy and alternative vehicles, and leads many to worry about “peak oil”, resource wars and a collapse of industrial civilization.
But what if this belief is wrong?

Resources in the ground are clearly abundant. Canadian Association of Petroleum Producers Vice President Greg Stringham, pointing to the 175 billion barrels recoverable from the Canadian oil sands, says, “It won’t be a lack of resources that causes a shift away from oil. There’s lots of oil.” The United States Geological Survey recently updated their estimates for recoverable oil from Venezuela‟s Orinoco Belt to 513 billion bbl. Compare this to BP‟s estimate of some 1200 billion bbl of global conventional oil reserves.
Some shale formations, such as the US‟s Bakken and Eagle Ford, contain substantial amounts of oil and natural
gas liquids too, a form of unconventional oil which has emerged from nowhere in the past few years.

Traditional onshore light crude, though often inaccessible to the international oil companies, remains plentiful too. We might be skeptical of Iraq‟s plans to reach some 12 million barrels per day output by 2015, despite the assistance of Shell, Total, ExxonMobil, CNPC and others. The political, security and logistical challenges are clearly huge. But most industry observers agree that, in the longer term, the technical potential is there. Iraq‟s reserves are likely to increase substantially once the super majors start work, not to mention the almost unbroken string of discoveries in the Kurdistan region.

Next door, despite sanctions and mismanagement, exploration successes in Iran suggest substantial remaining potential: at least 21 billion bbl found since 1998 in four fields near the Iraqi border. Saudi Arabia has substantial spare capacity, while Kuwait and Abu Dhabi recently updated ambitious plans for production gains.

Non-OPEC is not slacking either. Despite high taxation, maturing fields, often outdated technology and a capricious legal environment, Russian production continues to creep up. Kazakhstan‟s long-delayed Kashagan field will finally come onstream around 2013 and yield more than 1 million bbl per day. Brazil‟s enormous pre-salt play continues to deliver new discoveries and is now moving into early production. At the same time, frontier exploration is finally yielding fruit, with major finds in Ghana and Uganda, and promising signs in areas such as Mozambique, the Falklands Islands and Greenland.

And we should not forget the potential of old fields. Global average recovery factors hover around 33%, but 50- 60% is often achieved in the North Sea and onshore USA, indicating a vast, low-risk prize for better reservoir management and more systematic use of enhanced oil recovery. Mature areas such as Colombia, Egypt and Oman are rebounding impressively from some years of decline.

Instead of fears that non-OPEC production had peaked, the IEA now sees output broadly flat to 2015. Admittedly, action following the Macondo blowout may hamper US deepwater production, but elsewhere in the world, higher safety standards are to be welcomed, and probably mean only moderately higher costs.

During the decade to 2009, stimulated by high oil prices, reserves increased in every region and by 23% overall, even excluding the undeveloped portions of the Canadian oil sands. Production growth, running at 1.1% annually during the 1990s, accelerated under the stimulus of Asian demand to 1.4% per year from 2000 up to the onset of the economic crisis.

As for gas, the success of US shales has demonstrated that fears earlier this decade of a shortage were wildly pessimistic. Led by technology, the industry was able to respond to high prices, and demonstrate that

www.oilcouncil.com

In contrast with the former rosy outlook of politicians and economists, a recent survey of 21 predictions (from national governments, oil producers, energy analyst firms and retired oil geologists and oil engineers) shows global decline beginning anytime up to 2020. Of these 21 predictions, the mean statistical date is 2013, just three years from now.

Global production of cheap oil (the easy-to-get conventional oil) peaked in 2005 and has flatlined ever since. Irreversible decline is imminent.

There will still be oil, but it won’t be cheap as producers are increasingly resorting to expensive oil (the hard-to-get unconventional stuff).

Yes, there are alternative energies, but they and their prerequisite infrastructures won’t be ready in time for cheap oil’s decline, preparations needing to have been started 20 years ago.

First, it will be hugely expensive because we’ll have to use unconventional oil to create new energy and energy infrastructures. Secondly, as Canadian energy analyst Vaclav Smil writes, “because of the requisite technical and infrastructural imperatives and because of numerous (and often unforeseen) socio-economic adjustments, energy transitions in large economies on a global scale are inherently protracted affairs.”

As an example, commercial oil took decades after the 1860s to capture 25 per cent of the global energy market. Says Smil again: “Analogical spans for natural gas are almost identical: approximately 50 or 40 years.”

In the early 1980s, some advocates of alternative energy predicted the U.S. would draw 30 to 50 per cent of its energy from solar power, wind power and biofuels by the first decade of the 21st century. The reality, however, is 1.7 per cent.

What will be the impacts of oil’s decline? We’ve already felt the first impacts when oil prices spiked in the spring of 2008. The world sank into recession. (Most recessions in the past 60 years have been related to expensive energy.) Whichever comes next, another spike or a permanent, irreversible yearly decline in production, the result will be a deeper recession and finally a depression on a par with the Great Depression of 1929.

The impacts of even a small drop in production can be devastating. For instance, during the 1970s oil shocks, shortfalls in production as small as 5 per cent caused oil prices to nearly quadruple. The same thing happened in California a few years ago with natural gas. A production drop of less than 5 per cent caused prices to skyrocket by 400 per cent. What, then, can we expect when the annual decline rate, beginning soon, falls into the presently predicted range of 4 to 10 per cent?

Every sector of the economy will be affected, but the initial lack will be felt in terms of food. In this regard, Cuba’s experience has relevance for us.

When the Soviet Union disintegrated in 1989, oil subsidies to Cuba ceased, and Cubans entered a three-year “Special Period.” All of the nation’s cattle and even cats and dogs were killed for food. This happened because crops could no longer be transported from Cuba’s centralized growing areas to its many localities. Gradually, agriculture needed to be relocalized. Get to know a Cuban and see if the memory of those days doesn’t bring tears to his or her eyes.

The Cuban experience will become our own unless we learn from it and prepare.

Because most of our food comes to us from distant places by plane and truck, we are highly vulnerable. Grocery store shelves can empty in as few as two or three days without uninterrupted air and ground transport.

This is why I believe our mayor and council should be preserving each and every acre of Hamilton’s greenfields, even those currently dedicated to some other purpose, but as of yet undeveloped, for the growing of food crops during the inevitable years of energy decline.

Yes, that includes Aerotropolis. After all, that property has already been designated as prime agricultural land, not business and light industrial lands. If employment and economic growth matter, the employment grounds can be relocated to greenfields of a lesser designation and accomplish the same purpose.

If it’s the nearness of air transport that matters, there will probably be as many flights taking off from the lesser lands as the present airport.

Food matters first.

TheSpec

China, the world’s second-biggest fuel user, is seeking overseas partners to help build fourth- generation nuclear reactors to meet rising clean-energy demand.

China National Nuclear Corp. has started an “experimental program for the fast-reactor technology for commercial use,” Liu Jing, the deputy director of nuclear power at the state-run company, said in an interview in Beijing before a conference. China plans to master the technology by 2020, he said today.

The world’s fastest-growing major economy is developing nuclear energy to help cut reliance on more polluting coal and oil and to meet surging electricity demand. Fourth-generation technology reactors produce minimal radioactive waste and are fuel efficient.

Business Week

There is absolutely no reason why prices of crude oil and gasoline should be moving in opposite directions this much for this long. If anything, economic trends should be bringing these two prices closer together.

For one thing, supplies are plentiful. According to The Wall Street Journal, crude inventories have hit a record high at Cushing, Okla., where barrels traded on the Nymex are delivered.

The oil market is apparently counting on a robust recovery both here in the U.S. as well as globally to use up some of the surplus crude and fuel put in storage during the downturn, adds the WSJ. So far its hopes have not been fulfilled, hence the decline in crude.

The demand for oil and gas is clearly failing to live up to expectations.

While the nation’s factories have shown some signs of life lately, demand for oil for industrial purposes remains weak. Naturally, the need for diesel fuel, which is used mainly in trucks, is off as well.

MarketWatch

Sadly, President Obama seems intent on squandering his environmental 9/11 with a Bush-level failure of imagination. So far, the Obama policy is: “Think small and carry a big stick.” He is rightly hammering the oil company executives. But he is offering no big strategy to end our oil addiction. Senators John Kerry and Joe Lieberman have unveiled their new energy bill, which the president has endorsed but only in a very tepid way. Why tepid? Because Kerry-Lieberman embraces vitally important fees on carbon emissions that the White House is afraid will be exploited by Republicans in the midterm elections. The G.O.P., they fear, will scream carbon “tax” at every Democrat who would support this bill, and Obama, having already asked Democrats to make a hard vote on health care, feels he can’t ask them for another.

I don’t buy it. In the wake of this historic oil spill, the right policy — a bill to help end our addiction to oil — is also the right politics. The people are ahead of their politicians. So is the U.S. military. There are many conservatives who would embrace a carbon tax or gasoline tax if it was offset by a cut in payroll taxes or corporate taxes, so we could foster new jobs and clean air at the same time. If Republicans label Democrats “gas taxers” then Democrats should label them “Conservatives for OPEC” or “Friends of BP.” Shill, baby, shill.

NYTimes