Saturday, February 11, 2006

8 Years? 8 Years??!!

Lots of bad news in the energy world this week. First off, when a Republican former US Secretary of Commerce basically says oil production has peaked, the argument should be winding down. From Hardball:
EVANS: The world is producing oil, the Middle East, every country at its full capacity and it's very unlikely that we're going to be able to see supply in the world grow from the levels where we are right now. There's a debate about that. I'm one that falls in the camp that says it's going to be very, very hard to do that. But what I do know is China needs to continue to grow, India needs to continue to grow, America needs to continue to grow. So what that simply says is we've got to develop new forms of energy for the United States and the world.
Second, the Wall Street Journal (not usually prone to hysterical paranoia) is saying that Cantarell (one of the biggest fields in the world) is not only in decline, but "precipitous" decline. Ouch:
LONDON (AFX) - Mexico's huge state-owned oil company, Petroleos Mexicanos, or Pemex, may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices, the online edition of the Wall Street Journal reported.

The potential decline faced by Pemex, also could undermine US efforts to reduce dependence on Middle East oil, and complicate Mexican politics and financial stability...

Currently, Cantarell produces 2 mln barrels of oil a day, or six of every 10 barrels produced by Mexico, and is the world's second-biggest-producing field after Saudi Arabia's Ghawar
And, as if that weren't enough, the problems with natural gas supply in North America are getting worse, not better:
For natural gas, North America is now on what Hughes calls an "exploration treadmill," meaning that the number of wells drilled must be continually increased in order to hold production steady.

The published numbers from the Canadian Association of Petroleum Producers (CAPP) concerning Natural Gas production in Canada confirms his statement. Look at the number of wells drilled by year, followed by production for that year:

1997: 4,842-15.7 Bcf/d
1998: 4,991-16.1
1999: 7,018-16.6
2000: 9,078-17.1
2001: 10,757-17.4
2002: 9,061-17.4
2003: 12,951-16.9
2004: 15,126-17.0

North America peaked in terms of conventional natural gas production in 2001–2002. Notable examples of the effects of this peak are the dramatic increase in prices for natural gas and natural gas-dependent products, such as fertilizers and plastics, leaving North America’s largest natural gas producer, Encana, publicly stating that the company focus is now on “unconventional” resource plays....

Consumption trends and patterns were also explored. In every case, the phenomenal growth rates in our economy show a complete disconnect with the reality of the resources currently supporting them. Canada, for example, has 8.1 years left in natural gas reserves.
Want an explanation for why the US is rapdily becoming a net food importer? Because places where NG is still cheap can make cheap fertilizer, while the US has to import it from elsewhere.

To get an idea of the trouble we're in, consider for a moment what the next 4 years will look like. Farm incomes are plummeting due to low prices for food but spiralling costs for fuel and fertilizer. Commuters and homeowners are going to keep suffering from high heating and gasoline costs. Summers are going to be ruinously expensive for either a) electric ratepayers, or b) the government which subsidize them. And this is just if we manage to keep the status quo. If things actually keep getting worse, my bet is we'll see even anti-government Conservatives start endorsing some pretty harsh measures to keep a lid on things. Price controls, anyone?


Mark Francis said...

And... guess what id used in the oil sands to extract the oil? Very hot water. And how do they heat the water? Natural gas.

The oil sands produceo il at the expense of natural gas. Natural gas is what many of us use to heat our homes. If we run out of gas, we'll tend to use oil or electricity. We don't have much of either.

Now is the time to radically change how we do things, not later when we're in a crisis.

Clearcut Blogging said...

Price controls just encourage faster depletion of the resources. Once gas and oil becomes prohibitively expensive, then solar and wind power will start looking really cheap.

Choppy waters ahead.

john said...

I agree that it's bad policy, but it has the (dis)advantage of being politically palatable, especially in an unstable government.

Chris Vernon said...

Here's some more information on Mexico: Mexico’s Pemex Press Release