/* Added by TWP, 10/12/2012 */ /* End of addition */

One of the live oaks that bless my home

Wednesday, November 21, 2012

The Global Oil Peak or a Plateau?

I am about to cover a very serious subject, so please forgive my somewhat formal and unduly precise language.  Since I am talking here about the future of our crude oil-powered civilization, I do not feel too guilty. Besides, you can always stop reading...

The six categories of liquid and solid hydrocarbons in Figure 1 are lumped together into three different combinations in the reports of global liquid fuel production maintained by the Energy Information Administration (EIA).
Figure 1: Click on the image above to see its full screen version. All liquid and solid hydrocarbons and alcohols are grouped into six categories that exhaust the classification of liquids used by the U.S. DOE Energy Information Administration (EIA) in their reports of global fossil fuel production. Note that depending whether heavy oil flows or not at the initial reservoir conditions, it is classified as either a transitional crude or unconventional crude. Solid tar sand bitumen is mined and liquified in surface plants. Kerogen in oil shale is a solid that is either mined and liquified in surface reactors, or liquified in situ using heat.  This figure was drafted by Mr. Erik Zumalt of UT Austin.
These combinations are:
  1. Natural gas plant liquids (NGPLs). NGPLs are those hydrocarbons in natural gas that are separated as liquids at natural gas processing plants, fractionating and cycling plants, and in some instances, field facilities. Lease condensate is excluded. Products obtained include liquefied petroleum gases (ethane, propane, and butanes), pentanes plus, and isopentane.
  2. Lease condensate and crude oil. Lease condensate is a mixture consisting primarily of hydrocarbons heavier than pentanes that is recovered as a liquid from natural gas in lease separation facilities. Lease condensate is lumped together with several types of crude oil that are also classified as Easy Oils, Transitional Oils, and Unconventional Oils. Starting from the second column on the left, these crude oils are the light conventional crude oils, heavy oils, ultra-deep water oils, Arctic oils, tight mudstone ("shale'') oils, ultra-heavy oils, as well as tar sand bitumens and kerogen from oil shales. The ultra-heavy oils are recovered in situ by heat injection, mostly as steam. The bitumens and kerogen must be liquified either at upgraders/refineries or in situ. All of these liquids together make the "Crude oil + lease condensate" curves in Figures 2 and 3.
  3. Other liquids. These liquids lump gas-to-liquids (GTLs), coal-to-liquids (CTLs), ethanol from corn and sugarcane, biodiesel from palm oil and soybeans, and any other liquids that might be used as fuel, i.e., methanol, butanol, etc.
The classification of liquid and solid hydrocarbons is shown in Figure 1, and their production rates are plotted in Figures 2 (by volume) and 3 (by mass translated into energy). Note that if liquid hydrocarbons are reported by mass (the only correct reporting), refinery gains disappear, because they only add volume by decreasing the liquid product density, but they do not change the product mass. 
Figure 2: The rate of global production of liquid fuels by volume in millions of barrels per day. The natural gas plant liquids (NGPLs) plus "other liquids'' (CTL, GTL, biodiesel, methanol, etc., but mostly ethanol from corn and sugarcane) are on top of the crude oil and lease condensate curve. The "Crude oil and lease condensate'' term includes all naturally occurring liquid and solid hydrocarbons shown in Figure 1. Note that the average NGPL density is at most 65% of the average density of 0.84 g/cc of the crudes produced around the world. Thus, volume-based plots are misleading when it comes to the specific energy content of a fuel (energy per unit mass). Simply put, a gallon of one liquid fuel has a different energy content than a gallon of another fuel. All other factors being equal, only the specific energy counts when it comes to driving. Refinery gains of up to two million barrels per day are not shown, because they are a volumetric illusion that does not contribute to fuel energy, see Figure 3. Note that the rate of global production of crude oil and lease condensate has remained unchanged since 2004. Depending on your favorite time scale (years vs. decades) this constant production rate is either a "plateau" of crude oil and lease condensate production or an "oil peak,'' or -- more accurately -- a "crude oil and lease condensate peak.'' Volume data source: EIA's database, accessed on 11/18/2012.
Figure 3: The mass rate (volume rate x density) of global production of liquid fuels, converted into an equivalent energy rate in exajoules (EJ) per year. 1 EJ = 10^18 joules ≈ 10^15 BTUs or quads. The higher heating values (HHVs) of all fuels were used for the conversion from mass rate to energy rate. The natural gas plant liquids (NGPL) and "other liquids'' are now equivalent to the crude oil and lease condensate, because all volume rates have been converted to mass rates and, subsequently, energy rates. The refinery gains disappear altogether, because they do not add energy by mass, but only volume. In fact, refinery gains cost external energy dissipated by thermal cracking and hydrogenation and, thus, diminish the total energy available as fuels. Volume data source: EIA's database, accessed on 11/18/2012. The liquid densities and HHVs are from several sources.
In contrast to the EIA classification described above, both the International Energy Agency (IEA) and BP report different combinations of the liquids and solids classified in Figure 1. In particular, IEA splits all natural hydrocarbon mixtures into conventional and unconventional oils using their own definitions, and BP lumps all natural liquid fuels together, see Figure 4. These different classifications, plus general ignorance of the public and popular media, lead to endless problems and differing interpretations of the same data. Even the names of the respective agencies (EIA vs IEA) are confused and used interchangeably.
Figure 4: The BP oil production data were downloaded from BP's statistics website, as millions of metric tons of oil equivalent (toe, accessed on 11/21/2012). This mass rate of global production was converted into HHV by multiplying it by 41.868 x 10^9 GJ/toe x 1.07 to convert from the standard lower heating value of 1 toe to its HHV, because only HHV can be used to compare fuels with different hydrogen contents. The EIA curve represents lease condensate plus crude oil plus NGPLs, all converted from volumes to HHV using the procedure described in the caption of Figure 3. Notice excellent agreement between these two curves. The IEA data could be purchased for a lot of money, but were not.
If one recognizes that the U.S. EIA's "crude oil and lease condensate'' curve lumps literally every natural hydrocarbon that is not natural gas plant liquids nor synthetic fuels or biofuels, one must conclude that the global production rate of natural hydrocarbons has stalled at the level seen already in 2004, or 8 years ago. Daniel Yergin and IHS CERA call this phenomenon an "undulating plateau of production rate'' others call it an "oil peak.'' The two sides enter into endless debates about whose interpretation is better, but the empirical fact remains: The global rate of liquid and solid hydrocarbon production has stopped growing since 2004. Call this empirical observation by whatever name that better suits your taste, but first please look at Figure 5.
Figure 5: I set up this model of global oil production probably in 1995, or so, and never changed its parameters.  I have only updated the blue data curve, which is a superposition of the old historic data from a variety of sources and the EIA data. By a lucky coincidence, or the Central Limit Theorem, or both, the world production of crude oil and lease condensate has been quite predictable for the last 17 years or so.  I want to point out that there will be future small Hubbert curves for the new Iraqi oil, GOM oil, the Arctic oil, etc., but the fundamentals will not change, just as they are unchanged for the Norwegian sector of the North Sea shown in my earlier post. At the time scale of this chart, the global oil production plateau surely looks like a peak.

Interestingly, to meet global oil demand between 2010 and 2035, IEA reported in 2011 that $10 trillion would be needed, with the upstream sector accounting for 85% of this amount.  IHS CERA reported in 2012, that the upstream costs more than doubled in 2011, relative to the year 2000.  This trend is expected to continue because higher demand for raw materials, equipment, and specialized labor will create shortages.  Most importantly, the global oil and gas industry is moving away from the easy oil to the transitional and unconventional oils, and this means a continuous increase of cost and complexity of the future upstream operations.  In human language, we will have to run ever faster to stand still.  This is yet another definition of peak capacity to maintain oil production at the current level.  In their 2012 Energy Outlook, IEA predicts that in the year 2035, global petroleum production will be 4,000 Mtoe (mega tons of oil equivalent) vs. 3,600 Mtoe produced in 2010.  The global peak oil plateau, anyone?

Friday, November 16, 2012

Delusions of Grandeur

In the last few days, two top newspapers in the U.S., The New York times on the left and The Wall Street Journal on the right, have come up with unusual predictions of the future oil might of our fair United States of America.  I tried to link to the "Report Predicts U.S. as No. 1 Oil Producer in a Few Years," by Elisabeth Rosenthal, published on page B1 of The New York Times on 11/13/2012, but this link did not exist. I guess, Ms. Rosenthal's article belongs to the category of All News Fit to Sweep Under the Rug. The unsigned agitprop piece in The Wall Street Journal: "Saudi America - The U.S. will be the world's leading energy producer, if we allow it,"  dated 11/12/2012, still adorns the Web.

At best, the authors of these two articles have shown a lack of rudimentary understanding of what is needed to increase oil production in the U.S. to the short-term levels implied by their narratives. At worst, they purposefully misled readers. Even the already biased sources both these journalists quoted were misunderstood and misquoted.

I do not mean to suggest here that reasonable and thoughtful journalists do not report on crude oil-related issues. They do, as you can see here, for example.  In another example, Leonardo Maugeri's unfortunate "Harvard Report," twice parroted by the New York Times, was nicely picked apart by Mr. Olivier Rech, an experienced analyst. Based on my own calculations, I agree with Mr. Rech; so does the Deutsche Bank.

Why so much wishful thinking pouring out with such intensity? The reasons could be many, one more bizarre and counter-productive than another. My previous blog sheds some light on the empty idols driving this delusional behavior. The sad part is that I had to endure dozens of emails from excellent but disoriented specialists, who desperately tried to make sense out of this nonsense and could not.

And what about the generally clueless, but misled-again public? They might get really upset when the price of gasoline reaches new highs. After all, that's all the U.S. public cares about, forget the subtleties of supply and demand, global markets, local gasoline markets, imperial propaganda, and the environment.

P.S. The unusually opportunistic and servile (I know it from the insiders) journal, Nature, just published an interesting commentary by Jeremy Grantham, who is the co-founder and chief investment strategist for GMO, a company richly invested in oil and gas ventures.  The commentary and the readers' comments nicely dovetail with this post. If Nature can think independently, so can you.

Saturday, November 10, 2012

Sir Francis Bacon's Warnings

In 1620, in his Novum Organum,  Sir Francis Bacon classified the intellectual fallacies of the human kind as idols of the Tribe,  the Cave,  the Marketplace and  the Theater. An idol is a mental image which receives veneration but is devoid of substance. Bacon did not regard idols as symbols, but rather as human fixations.  His model of human perceptions is as true today as it was in the 17th century. Some things never change but - because of the mindless and loud media drumbeat - consequences of the common human fallacies are far more damaging today. 

Idols of the Tribe are deceptive beliefs inherent in the minds of all humans. They are abstractions of error arising from common human tendencies of exaggeration, distortion, and disproportion. Thus people gazing at the production of crude oil over the last century perceive endless growth, and are not content merely to contemplate or record that which is seen. They extend their opinions, investing oil fields with innumerable imaginary qualities. In a short time these imaginings gain dignity and are mingled with the facts until the truth and fiction become inseparable. This statement would describe much of the current public debate about energy.

Idols of the Cave are those which arise within the mind of an individual. Man's mind is symbolically a cavern. The thoughts of the individual roam about in this dark cave and are modified by temperament, education, habit, environment and accident. Thus an individual who dedicates his mind to some particular branch of learning becomes possessed by his own peculiar interest, and interprets all other learning according to the colors of his own devotion. The chemist sees chemistry in all things and the businessman sees profits where there aren't any. 

Idols of the Marketplace are errors arising from the false significance bestowed upon words. People mold their thoughts into words in order to communicate with others. The words carelessly used without attention to their true meaning condition our understanding and breed fallacies. Thus, refinery gains and corn ethanol become crude oil. Words often betray their own purpose, obscuring the very thoughts they are designed to express.

Idols of the Theater are those which follow from the paradigm of the moment and false learning. These idols are built up in theology, philosophy, social sciences, and natural science. They are defended by learned groups and accepted without question by the masses. When false philosophies have been cultivated and gained wide dominance in the world of the intellect they are no longer questioned. False superstructures are raised on false foundations, and in the end systems barren of merit parade their grandeur on the stage of the world. This statement might describe most of the current popular beliefs about energy production and sources, or climate change, or healthcare, or education, or agriculture, or so many other important but misunderstood issues that will punish us, clueless Earthlings, with vengeance.
Parts of this text were adapted  by Tad Patzek from 4 Idols by Manly P. Hall and from Encyclopedia Britannica.

P.S.  The Dallas Times Herald clipping below was sent to me by Roger Baker, my ASPO friend. He found this clipping in an old book on micropaleontology loaned to him by a son of Bob Schroeder, a Shell Oil geologist aware of peak oil. This 1980 warning was issued by none other than Sheik Ahmed Zaki Yamani, the Saudi Oil Minister, also famous for saying 20 years later: "The Stone Age did not come to an end because we had a lack of stones, and the oil age will not come to an end because we have a lack of oil."
Click on the image to see it in full size.  Source: Roger Baker's ASPO email, 11/10/2012.
P.S.P.S. An opposing view is presented by The New York Times, where a journalist repeats that the world is awash in oil, quoting an expert from Harvard.

Sunday, November 4, 2012

Peak, What Peak?

Before I discuss the logic behind negating a peak of production of anything, let me sum up where we are in the U.S. in terms of crude oil production.  According to the Energy Information Administration (EIA):
The United States consumed 18.8 million barrels per day (MMbd) of petroleum products during 2011, making us the world's largest petroleum consumer. The United States was third in crude oil production at 5.7 MMbd. But crude oil alone does not constitute all U.S. petroleum supplies. Significant gains occur, because crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and we have other sources of liquid fuel, including biofuels. These additional supplies totaled 4.6 MMbd in 2011.
Let me parse this quote.  First, let's look at the history of oil production in the U.S., shown in the chart below.  The vertical axis is scaled with a unit of power, exajoules (EJ) per year, very close to quadrillion BTUs (quads) per year.  To convert from EJ/year to millions of barrels of crude oil per day (MMbopd), divide the vertical axis by roughly two, so 20 EJ/year is roughly equal to 10 MMbopd.
Historic production of crude oil and lease condensate in the U.S. is resolved into several Hubbert curves.  The tallest one is the original Hubbert curve published in 1956.  The smaller curves starting from 1960 were generated by producing shallow, deep and ultra-deep Gulf of Mexico, Alaska (mostly Prudhoe Bay), and then everything else that was not in the original curve: large waterflood projects, thermal and carbon dioxide enhanced oil recovery (EOR) projects, horizontal wells, hydrofractured wells, etc.  The broad curve peaking in 2002 was introduced in late 2002, and the model represented fairly well the U.S. crude oil production until 2010.  The last small green curve on the right was introduced last month to describe the Bakken and Eagle Ford shales, as well as the increased production of crude oil from the Permian Basin near Midland, TX.  The right-most black curve depicts a hypothetical production of 7 billion barrels of oil from the Arctic Natural Wildlife Refuge (ANWR) in Alaska.  The last point on the blue step-line represents 5.7 MMbopd produced in the U.S. in 2011. This rate is predicted by EIA to grow to over 6 MMbopd in 2012.

Now, let's look at the refinery gains in the second chart. These gains arise because petroleum products are usually less dense than the crudes they are made from. Therefore, refinery gains are not really a replacement of imported crude oil, and demonstrate only that since 1993, the U.S. refining has been moving towards heavier crude oil feedstocks.
Oil refinery gains reported by EIA since 1993 hover around 1 million barrels of all petroleum products per day.  These gains arise because the densities of petroleum products (gasoline, kerosene, diesel fuel, jet fuel, heating oil, etc.) are less than the density of crude oil they were made from.  It is like making a low calorie butter or cheese from a normal butter or cheese by puffing them up with bubbles of air.  Through refinery gains, we have not created new energy. Instead, we have just puffed up the crude oil feedstock by cracking heavier hydrocarbons and hydrogenation, both requiring considerable energy inputs. Thus, refinery gains do not really count as a new source of energy, but only as a source of an increased volume of petroleum products.

Corn ethanol comes next.  I described the ethanol story completely in 2004, in my most popular paper ever. There was nothing new I would add in the intervening 8 years. Basically, ethanol is obtained from burning methane, coal, diesel fuel, gasoline, corn kernels, soil and the environment. We destroy perhaps as many as 7 units of free energy in the environment and human economy to produce 1 unit of free energy as corn ethanol, and make a few clueless environmentalists happier and a few super rich corporations richer. The story is even worse for switchgrass ethanol. Finally, your mileage would drop by 33% if you were to use pure ethanol as a fuel for your car.
Production of corn ethanol in the U.S.  Because ethanol has a lower heating value, its volume would be much lower when converted to equivalent crude oil. 
Production of soybean biodiesel in the U.S. is too low to get excited.
Production of soybean biodiesel in the U.S. is almost irrelevant, but also highly environmentally damaging. Since most of the obliteration of the irreplaceable biota occurs in the tropics, in Brazil, Argentina, Africa, and Asia Pacific, we really don't care.  Either way, the rate of biodiesel production in the U.S. is too low to write home about it.

In summary, of the 4.6 million barrels of the other "oil"  produced in 2011, 1.1 MMbopd were refinery gains, and another 0.6 MMbopd was the equivalent volume of oil corresponding to the production of roughly 0.9 MMbpd of ethanol.  Biodiesel production was in the noise. I fear that EIA simply added volumes of the various fuels without converting them to oil equivalents based on a common oil density and heating value. The rest of the other "oil", 2.9 or 2.6 million barrels of oil equivalent (again I do not know how EIA made their conversions) were natural gas plant liquids.  All of these liquids are significantly less dense than crude oil, and a proper conversion lowers their volume contribution by 35 percent.

Needless to say, refinery gains do not inject new energy into the U.S. economy, just add volume. Also, propane and butane are not crude oil, and ethanol is not a hydrocarbon. The only hard number here, 5.7 MMbopd of crude oil production is something to write home about.  This level of production requires an incredible amount of new technology and technical skills that are available only in the U.S. My department graduates each year about 150 petroleum engineers of all levels, who make this huge effort such a smashing success. Their starting salaries are in excess of three-four times the national average for college graduates. And they all have jobs.

In conclusion, Russia is using similar technology to increase their rate of crude oil production to over 11 MMbopd, and Saudi Arabia is barely hanging in at 9-10 MMbopd.  Both these countries also produce large volumes of lease condensates and natural gas plant liquids. The rate of U.S. crude oil production is a little more than 1/2 of either of these two rates, and we are no Russia or Saudi Arabia when it comes to producing oil per unit time. But this is just fine, so let's stop deluding ourselves with such tenacity.

In the next blog, I will talk about the various techniques of denying existence of peak oil (or climate change, or anything else we fear or do not like).

P.S.  So, did I miss anything in my discussion of the EIA quote at the top of this blog?  Think carefully... Yes, I did.

In 2011, we consumed 18.8 MMbpd of petroleum products, less by 1.6 MMbpd than our consumption of petroleum products in 2005.  With less cash in pocket, less driving, and more efficient cars, we have destroyed demand for almost as much of real crude oil as all other imaginary "oils" quoted by EIA and dutifully propagated through the clueless mediadom.

Why isn't this achievement front-page news?  We finally use less crude oil!  We are more efficient! This incredible news is evidently not as sexy as making up imaginary "oil" to be on par with the Saudis. Have we gone mad?!  I take it back: Have we stumbled even deeper into the destructive imperial madness that has infected us for the last 11 years?

And, you, corn ethanol lovers, read this and fear the future.

P.S.P.S.  Five years after my well-researched plea to the EU Ministers of Environment and Transportation, EU is considering limiting use of biofuels:

The European Commission intends to limit the use of biofuels derived from food crops to 5% for transport fuel. This would be a substantial change to its present biofuels policy. According to the EU’s climate-change and energy commissioners, Europe wants to cap the share of energy in the transport sector from food crop-based biofuels at current levels. The proposal, a draft of which was reported by Dow Jones Newswires, clashes with the target of having 10% of the energy used in transport coming from renewable sources by 2020. This goal was set by the EU three years ago because food crop-based biofuels account for most biofuels available in volumes at the moment. New types of alternative fuels are being developed, but they are mostly at the laboratory stage. At the same time, biofuels are expected to be the main renewable energy source used in transport in 2020.
Despite the obvious insanity of the last sentence, I say: Better late than never, dear Europe, and much better than the U.S.A., which seems to have a policy of accepting campaign donations from mega agricultural companies and all kinds of other companies, rather than having an energy policy.

(P.S.)-cubed on 11/13/2012. The Wall Street Journal insists on an alternative reality view of EIA reporting, by stating in a Review&Outlook piece, "Saudi America," that:
The U.S. will increase its production to about 23 million barrels a day in 10 years from about 18 million barrels a day now, the IEA predicts.
I have no idea what IEA predicts, but I surely know that this number is incorrect, if it implies current production of liquid hydrocarbons in the U.S.A.