Oil+Supply+Research+Notes

=** Focus Question: **=

How will human life be impacted once our world reaches peak oil?

 * Goals of Project: **

· How have we put ourselves on track to reaching peak oil? · What will happen when we reach peak oil? · Lifestyle before peak oil and lifestyle after peak oil.


 * Books (APA): **
 * #1. __Global Resources__ by Clare Hanrahan **

**// The Depletion of Oil Reserves is a Global Problem: //** · “The last great oil frontiers were found almost four decades ago.” – Matthew Simmons · Matthew Simmons, chairman of Simmons and Company International (an energy investment banking firm), argues a global energy crisis is likely to occur because of the world’s dependence on rapidly depleting fossil fuels · Large oil fields are drying up à their output has dropped significantly in recent years · Rising demand for oil and gas will eventually create shortages that could be disastrous for the world’s economy and increase tensions in already unstable parts of the globe

// How many giant oil fields are there in the world? //

// How many barrels of oil do prediction models estimate will be needed per day to satisfy global demands between 2020 and 2030? //

// In what year does the Association for the Study of Peak Oil predict a peak of sustainable supply? //

· For decades our conception of serious global economic threat has been limited to wars or financial disasters · Possibility of energy issues morphing into economic disruptions faded as the world enjoyed decades of low energy prices and ample supply · Energy worries that deeply concerned many public policy planners in 1973, and 1979 to 1981 became distant memories · Students trying to raise awareness were dismissed by most energy economists and labeled as pessimists, contrarians, or alarmists crying wolf · Fear never disappeared even as new oil sources were found · Last 3 decades à Risk of a severe energy crisis crept inexorably closer as demand for oil and gas steadily grew while the supply matured · New discoveries over past 4 decades were minute compared to past discoveries à were often from poor quality reservoirs · Growing percentage of world oil and gas supplies came from countries prone to political instability


 * // The Myth of Abundant Oil: //**

· Past 50 years the world has assumed that oil and gas supplies were abundant and inexpensive to produce · Belief that known Middle East oil reserves would last for 50-90 years · There was a comforting thought that most of the Middle East still hadn’t been explored and was virtually costless · There were 2 risks that worried energy observers: · à A glut of cheap Middle East oil would wipe out supplies from safer regions · à Geopolitical unrest would keep some supply from the market · No energy planner ever questioned this “Middle East Energy Abundance Theory” · à Data never confirmed this theory · Energy observers missed some basic info about the fragility of both Middle East oil and Middle East natural gas · à These were documented in hundreds of technical papers: not easy to read but not extremely difficult either · Fewer than 40 giant and super giant oil fields have ever been discovered in almost 100 years in Middle East · World has roughly 120 giant oil fields · à 14 largest account for 20% of all oil production · Middle East giant oil fields are located in the triangle along both sides of the Persian Gulf


 * // The End of “Easy” Oil Supplies: //**

· High quality light oil coming from some of the most productive reservoir rocks ever discovered is not rapidly being depleted · Other new sources of oil supply are from thin oil “streaks” or oil being produced from very tight rocks or a combination of both · “The Golden Age of abundant and cheap Middle East oil is long gone.” · “Middle East oil is not facing its Twilight Era.” · Saudi Arabia’s great oil reserves are increasingly scarce · Current rates of decline approximate 8% each year · Spare production capacity has dropped from more than 5million barrels per day in 2002 to less than 1 million in 2006 · Large percentage of world’s oil comes outside Middle East come from large fields now too oil and new fields that are too small · Technology developed to find and extract oil merely allowed small fields to be exploited and oil to be extracted at far faster rates · Technology did to a small extent enable the recovery of more oil, but it did so mainly by “managing the tail end of a field’s production”- allowing an almost depleted oil old oil field to continue to produce small volumes for an extended period


 * // Rising Demand for Oil: //**

· World’s energy consumers have assumed their energy use could grow exponentially · “No one warned them to curb their appetite.” · 40 years ago à World used half as much oil as now · à Global oil use was primarily confined to the USSR, Western Europe, the US, and Japan · By 2006 every country embraces vehicles and lifestyles once only enjoyed in the world’s wealthy countries · à Change created an inexhaustible growth in oil demand · Forecasting oil demand by 2020 to 2030 all end up showing a world needing between 115-130 million barrels a day of oil · Hopefully population growth will slow down, the global economy will become increasingly energy efficient, and developing countries like China and India will use far less oil and gas per capita by 2030 than a poor country like Mexico uses now. · Little chance that growth of any magnitude can occur · One rule that will never change: Energy use cannot exceed available supply · Risk is high that energy demand for oil and gas will soon surge ahead of available supply · à Will lead to energy shortages · à Shortages encourage energy consumers to hoard, which in turn sends demand surging even higher · People who argue that this scenario is far too pessimistic depend upon a general hunch that new technology and high energy prices will son yield vast new energy supplies · à No groundbreaking technology has been developed to improve extraction and expand reserves · Last great oil frontiers were found almost 4 decades ago


 * // The Peak of Oil Supplies is Imminent: //**

· Energy planners need to grasp the high risk that the world’s supply of both oil and gas is fast approaching its highest sustained peak supply


 * __#2. Life After Peak Oil__**


 * //Fears with Oil://**

· Increased demand · High prices · Prospect of eventual peak in oil production · à Fears Americans that rampant consumption of oil and coal is irreversibly warming the Earth and the dread that without cheap oil out affluent lifestyles will evaporate · “Can’t live without oil, can’t live without it.”


 * // Studies: //**

· Study of long economic history of the world suggests two things: · à Cheap fossil fuels actually explain little of how we got rich since the Industrial Revolution · à After initial period of painful adaptation, we can live happily, opulently, and indeed more healthily, in a world of permanent $100-a-barrel oil or even $500-a-barrel oil · Cheap energy explains only a modest portion of our current wealth · As a result of the Industrial Revolution we are now 12 times richer than the average person in the pre-industrial world · Modern economic growth has been accompanied by huge declines in energy costs from exploiting coal and oil · A worker today can buy a gallon of gas with his wages from 20 minutes at work · Before Industrial Revolution, to buy energy in a gallon of gas, the English worker of the 1760’s needed to work four hours

// As energy prices declined, consumption rose. // · Currently in U.S. we consume the equivalent in energy of six gallons of gas per person per day · In England in 1770, energy consumption (mainly coal) was equivalent to only 0.5 gallon per day · Since oil is so cheap, people are just using as much as they want · If oil was cheaper, people would be more cautious of the amount that they use


 * // Life without oil: //**

· Many people think that when oil and coal is gone, we will be back in the Stone Age · If we had no fossil energy, we would be forced to rely on an essentially unlimited amount of solar power. · ** Drawbacks: ** · 5 times current energy costs · With energy 5 times as expensive, we would take a substantial hit to incomes · Living standard would decline by about 11% · ** Positives: ** · Would be richer compared to the pre-industrial world · Income would still be above current living standards in Canada, Sweden or England · At current rates, we would gain back the income losses from having to convert to solar power in less than 6 years


 * Movies: **


 * #1. The History Channel- Black Gold, The Story of Oil **

· 1852- Canadian inventor names Abraham Gesner discovered how to make ceresin from crude petroleum · à Candles and whale oil provided the only light, it was a remarkable discovery · Found that ceresin burned longer and cleaner than whale oil · Ceresin was cheaper, whale oil was increasing in price · Petroleum was thought to be a good medicine (ex: arthritis) · à Since it was only used for a medicine, there wasn’t much reason for men to spend much time searching for it · A few hundred gallons each yeah was more than enough · The discovery of ceresin changed all of this · Within a year of Gesner’s discovery, his ceresin works was producing 5,000 gallons a day · à The need for more crude petroleum became critical · 1859 à 34 start up companies were producing 5 million dollars worth of ceresin annually · There was a rush to find crude oil for money
 * // Start of Oil: //**

· George Bissell à One of the fortune hunters · Heard that salt minors in western Pennsylvania were complaining that their digs were being contaminated by oil · à Bissell hired Edwin L. Drake to investigate and determine if the region held any potential for profit · Drake eventually made the most important oil strike in history · à When he got 69 feet underground he spotted the petroleum
 * // Greatest discovery of Petroleum: //**

· People rushed to area where oil was selling for $20/barrel · New town sprung up in oil field near Drake’s Well · Town named Pithole City · September 1865 à had 16,000 residents · Pithole grew very quickly (all of the excitement was there)
 * // News quickly spread: //**

· January of 1866 à wells began to dry up · Output fell form 6,000 barrels/day to 3,000/day · Within the year: Pithole was producing only 2,000/day · Following fall à flow of oil was only a drip · Fortunes that had been made over night vanished · Within a year à town was deserted · Piece of land that had sold for $2 million in 1865 was auctioned off for $4.37 · Edwin Drake died penniless in 1880
 * // Bad news for Pit hole: //**

**// Oil Continued: //** · America was still hooked on petroleum and the ceresin lamp · Anyone who could process oil cheaply and quickly was guaranteed great wealth

· Got into oil business as an afterthought · 19 years old: him and partner formed a produce shipping firm in Cleveland, OH · à Specialized in pork, salt, and wheat · During Civil War à high demand for these products · 1863: New railroad reached Cleveland · à Now Cleveland was linked to oil rich regions of Pennsylvania · Dozens of petroleum refineries sprang up along city’s rail line · 1864: John bought his first oil refinery · à Became convinced that his future lay in oil, not produce
 * // John Davidson Rockefeller: //**

· America’s economy become more industrialized · Demand for ceresin grew in rapidly expanding urban areas · John’s profits soared · 1866 à sales of John’s ceresin reached $2 million
 * // End of Civil War: //**

· Was afraid of fluctuating priced of oil · Wanted to stabilize oil industry · Thought it would be good for America · à Did this by buying own ships to transport ceresin from Cleveland to Midwest · Tanker cars to transport crude oil to refineries in NY · Purchased forest reserves of white oak timber to ensure the company had an adequate supply of barrels
 * // John’s Goal: //**

· Turned to friend (Flagler) for help in 1867 · Determined to protect the oil industry and themselves from the uncertainty of the oil industry · à Would have to take control away from the most powerful force in America, RAILROADS · Growth of America was dependent on rapid transportation of goods and supplies
 * // One more thing left for John to conquer: //**

· Flagler negotiated shipping rates with railroads · 1871- standard oil transported by rail over 1 million barrels of crude oil and ceresin · Threat of losing standard shipping business was more than the railroads wanted to risk · Flagler could dictate the price
 * // Their plan to gain control: //**


 * Websites: **
 * http://en.wikipedia.org/wiki/Peak_oil **

· The point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline · à Concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. · The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted. · This concept is derived from the Hubbert curve, and has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. · Peak oil is often confused with oil depletion; peak oil is the point of maximum production while depletion refers to a period of falling reserves and supply. · M. King Hubbert created and first used the models behind peak oil in 1956 to accurately predict that United States oil production would peak between 1965 and 1970. · His logistic model, now called Hubbert peak theory, and its variants have described with reasonable accuracy the peak and decline of production from oil wells, fields, regions, and countries, and has also proved useful in other limited-resource production-domains. · According to the Hubbert model, the production rate of a limited resource will follow a roughly symmetrical logistic distribution curve (sometimes incorrectly compared to a bell-shaped curve) based on the limits of exploitability and market pressures. · Some observers, such as petroleum industry experts Kenneth S. Deffeyes and Matthew Simmons, believe the high dependence of most modern industrial transport, agricultural, and industrial systems on the relative low cost and high availability of oil will cause the post-peak production decline and possible severe increases in the price of oil to have negative implications for the global economy. · Predictions for negative effects vary · Economic damage to importing countries will largely depend on how rapidly oil imports decline post-peak. · According to the Export Land Model, oil exports drop much more quickly than production drops due to domestic consumption increases in exporting countries. · Supply shortfalls would cause the price of oil to increase sharply, unless demand is mitigated with planned conservation measures and use of alternatives.
 * // Peak Oil: //**
 * // Predictions: //**

__**Bibliography:**__

Hanrahan, C. (2008). //Global Resources//. Detroit: Greenhaven Press.