The Oil Drum

The International Energy Agency expects coal production to nearly double by 2030 in their World Energy Outlook 2008 if no large scale governmental intervention occurs. In this post, I analyse the likelihood of this happening from the perspective of available coal reserves.

My conclusions are that if we look at a global level, taking coal reserve data at face value, the global IEA reference scenario for coal production to 2030 is possible. However, when focusing on China, the country that now produces 41% of all coal, the scenario is unlikely to occur because China possesses insufficient coal reserves to sustain production to 2030 at the level expected by the IEA. Only in a highly optimistic case, if China's coal reserves are more than double those currently known, will China be able to sustain coal production as expected in the IEA reference scenario.

Based on available coal reserve data and scenarios (EWG 2007; Tao and Li 2007), it is much more likely that China will reach a plateau in coal production somewhere between 2015 and 2025. The implications of this are significant, because it will be extremely difficult, if not impossible, to substitute other energy sources for coal on the vast scale needed for Chinese growth. The quality of reserve data is poor, however. Better reserve data is needed, particularly for China, to have certainty with respect to these findings.

In a follow up post, I will take a look at the short term prospects to 2015 for coal production, imports, exports, and prices in relation to the World Energy Outlook 2008.

The Peak Oil Crisis: July 2008 – A Month To Remember

Most students of the subject at first thought that world oil production was going to peak for geological reasons --- the inability to find and produce enough oil to keep our annual consumption of 30 billion barrels increasing. In recent years, "above ground" factors such as wars, nationalistic governments, and failure to invest have become the popular reasons for constraints on increasing world oil production among those who for one reason or another do not like the geologic (running out of reserves) argument.

While all these factors are contributing to the likelihood that from here on out less and less oil will be produced, it seems that the initial decline in production will come because the world economic situation has deteriorated so much that we simply don't need 87.9 million barrels a day (b/d) of oil anymore.

As I read through the 2008 International Energy Agency (IEA) World Energy Outlook, I had the distinct impression that I was reading contributions from people with completely opposite points of view. The pessimist warned that we are facing a supply crunch and much higher prices. The optimist in the report said that oil production won't peak before 2030.

This trend held in the section on renewable energy. The optimist noted that renewable energy is expected to "expand rapidly." The pessimist noted that biofuels are predicted to only supply 5% of our road transport fuel in 2030. And so the report goes, part rampant optimism and part rampant pessimism.

I guess the good news then is that there is something in there that will appeal to everyone, regardless of your outlook. The bad news? The claims that are directly opposed to your views will have you questioning the credibility of the report. And if you are like me--and note that between last year's report and this year's report they dropped their 2030 oil demand forecast by 10 million bpd--you are left wondering whether there is any credibility at all in forecasts that far out.

Oil becoming the realm of despots

Petroleum Intelligence Weekly's annual list of the world's Top 50 oil companies confirms an alarming trend: The world's petroleum riches are sliding further into the hands of state-owned oil companies, with Russian and Chinese companies making the biggest gains in the past year, while publicly traded Western oil companies are fighting for a shrinking pie.

Among the key findings released this week: For all the talk about Canada's huge oil sands reserves and their potential, only two Canadian companies, EnCana Corp. and Canadian Natural Resources Ltd., made the elite list, ranking 34th and 39th, respectively, behind even such government-owned lightweights as Colombia's Ecopetrol and Uzbekistan's Uzbekneftegas.

Two state-owned companies, Petroleos de Venezuela and China National Petroleum Corp., climbed to the No. 4 and No. 5 spots last year, pushing down BP PLC and Royal Dutch Shell PLC., according to the New York-based publication, which bases its rankings on a combination of oil companies' most meaningful operational data: oil and gas output, reserves, product sales, distillation capacity, revenues, profit, assets, employees.

Report authors: Luís de Sousa and Euan Mearns

Part 3 of IEA WEO 2008 analyzes the expected impact of fossil fuel combustion upon climate change.

Page 382: As emissions of greenhouse gases build up in the atmosphere faster than natural processes can remove them, their concentrations rise. The Reference Scenario puts us on a path to doubling the aggregate concentration in CO2 equivalent terms by the end of this century, entailing an eventual global average temperature increase up to 6 ºC.

Rather surprisingly, IEA WEO 2008 does not provide any data on fossil fuel reserves and production forecasts to 2100 to back up this claim. Instead, it chooses to rely upon fossil fuel reserve figures underlying the Intergovernmental Panel on Climate Change (IPCC) models. Furthermore, using MAGICC (climate temperature model), and the default climate sensitivity constants, we are unable to reproduce the outcome of as much as a 6 ºC increase.

Using a CO2 emissions scenario based on our 2008 Olduvai Assessment combined with MAGICC, we estimate that global average temperatures may peak at around 1.6ºC above 1990 values toward the end of this century. Other climate models may produce temperature outcomes higher or lower than this.

Oil at 3-1/2 year low: Below $47

NEW YORK (CNNMoney.com) -- Oil prices continued falling on Tuesday, tumbling to 3-1/2 year low, as concern about the floundering global economy and falling demand again took center stage.

U.S. crude for January 2009 delivery fell $2.32 to settle at $46.96 a barrel. It was the lowest closing price since May 20, 2005 when oil settled at $46.80 a barrel.

A day earlier, oil prices plummeted more than $5 a barrel in the wake of a spate of gloomy economic reports.

"People are worried about their jobs, about their ability to pay for Christmas," said Tom Orr, head of research for brokerage Weeden & Co.

In this analysis, Samuel Foucher (“Khebab”) and I (Tony Eriksen or “ace”) present an update of Wikipedia Megaprojects data. We also provide forecasts of future oil production, reflecting the Megaprojects data. The IEA uses megaprojects in its analysis and we reconcile our Megaprojects information to the data they provide in their report.

A wide variety of methods can be used to forecast future oil production. Each will provide different indications. Sam and I each make projections with megaprojects data, using somewhat different methods. Sam’s projections are shown in Figure 6. My forecasts are shown in Figures 8, 9, and 10. Despite our differing methods, the indications we produce are all substantially lower than the indications of the IEA.

Until quality data about production history, reserves and future development plans including capacities are obtained for fields in secretive OPEC countries, forecasts beyond 2012 are highly uncertain, regardless of the source. While quality data remain unavailable, the world's future energy security, in particular liquid fuels supply security, remains an extremely high risk.

This chart shows the IEA WEO 2008 forecast together with Sam's forecast derived from using Megaprojects sanctioned capacities and yet to be sanctioned capacities (including yet to find oil - YTF). By 2020, the IEA's forecast is significantly greater than Sam's forecast.

Fig 1 - Possible Future Supply Capacity Scenario for Crude Oil and NGL

I recently looked through news articles to see which energy sectors were being affected by the credit crisis. I was amazed at how widespread and how devastating the impact is.

There are really two closely related problems. One is reduced access to credit, making new borrowing difficult for nearly every business that requires debt. Prices for all commodities have been dropping as well. At least part of the reason for this price decline is the lack of availability of credit—many of the less credit-worth buyers drop out of the market. This leaves fewer buyers and almost the same number of sellers, so the price drops.

In this post, I examine how reduced access to credit and the concomitant decline in commodity prices is affecting energy companies.

A Shore Thing? Why Offshore Wind Power Will Likely Struggle

Offshore wind power is the Holy Grail of renewable energy: It’s clean, abundant, and out of sight. Now that energy security is meshing with environmental concerns inside the White House, is offshore wind power ready to come of age?

Probably not as fast as wind-power boosters would hope. If the economics of onshore wind are tricky enough to give T. Boone Pickens pause, the challenges facing offshore wind are even greater.

Take the new proposal for the world’s biggest wind farm by another Texas oil man, peak oil prophet Matt Simmons. His Ocean Energy Institute proposes building a 5,000 megawatt deepwater wind farm in the Gulf of Maine, blessed with some of the world’s strongest sustained winds.

The problem is that, as envisioned, the Maine offshore wind farm would be very expensive—and that vision includes some very optimistic assumptions.

Oil majors eye $5-billion ships to cut costs

London — Oil and gas companies are racing to develop a new type of vessel they hope will revolutionize offshore gas production but even if the untested technology works, its deployment could be blocked by resource holders who fear it will undermine development goals.

The industry hopes to build a fleet of ships or barges that can sail or be towed to offshore gas discoveries, extract gas, freeze it to liquefied natural gas (LNG) and offload the LNG to tankers for shipping to lucrative Western and Asian markets.