This is the last in the series.
Despite the amount and sophistication of the data that is available in the oil industry there is still so much we don’t know. We have no idea of the consequences of Peak Oil and we appear to not even know how little we don’t know about the problem. I trust this makes sense. What data we do have from the Western oil companies is good but provides an incomplete picture. Our primary world producers of world oil—the Middle East—don’t provide good data—just assurances.
Some examples of this are that for many years scientists thought that if oil was present below a certain depth it would automatically be turned into gas. This would happen because the pressures are so high that the oil just gets baked into gas. Despite this ” knowledge” about 10 or 15 years ago scientists started investigating the possibility of deep water oil in the Gulf of Mexico. Apparently there are these enormous layers of salt spread throughout the area that are an indicator of potential oil deposits. Anyway they found oil.
There was a lot of hype in the summer of 2006 regarding the Jack discovery by Shell oil in the region. In typical fashion for the industry and media from this one discovery extrapolated that this deep water region contained up to 10 Prudhoe Bay’s. There are several problems with this analysis however as the water is very deep and they are unable to properly assess flow rates, as well as the fact that there is a shortage of drilling rigs, and the technology of developing and operating at a water depth of 25,000 feet does not yet exist.
Another fact that the optimists like to point out is the advent of technology in the oil industry and how it will lead to higher and higher production numbers. They refer to the US as leader in oil drilling technology. If this is so successful why is US production excluding Alaska and offshore oil down from 10 million barrels in 1970 to 2 million barrels today? Some of these optimists actually think that all we have to do is triple the rig count in Saudi Arabia in order to triple production. That does not explain how over the last 40 years or so the Saudis have been unable to find another large oil field that matches some of their aging giants.
The probable answer is that no large fields exist. To strengthen this argument there has been much talk of how the Saudis are moving offshore and drilling there. You would not go offshore unless you had exhausted all on shore possibilities because of the huge cost differentials. Look at the US as an example. Once the easier oil had been discovered they moved their drilling to the more inhospitable areas of the country such as northern Alaska and the Gulf of Mexico. You do not do that if “easy” oil is available.
Other points of interest concerning the proper analysis of oil price and how it affects the economy. Many thought when oil reached $30 per barrel the world would fall into a recession. When that didn’t happen they said $70 oil would do it— it didn’t. Then it was $100 oil and when that didn’t happen you watched as 125 to $140 oil pushed us into recession.
The latter was helped along by the failure of the financial industry however rising oil prices are closely linked to economic slowdown if you follow the trends.
We really need to realize that we have probably used up all of our easy oil—at dirt cheap prices–and now we will just have to accept the consequences of peak oil and try to live the best we can.
Do our leaders understand the problem—or are we in big trouble?
See Part 6:Matt Simmons on Peak Oil and Technology–Will it Save Us?
Did you ever wonder how oil is removed from the ground? What technology must be used to remove the oil from the ground and maximize output? You sort of have an inkling that it is probably under great pressure—after all that is what all the old Hollywood movies show. That is not the whole story though, in fact, oil shooting out of the ground is probably reflecting a very bad drilling technique.
Unfortunately that is how a lot of the early wells were depleted in the latter half of the 19th century and early 20th century until the technology improved. They say that the Spindletop oil field in Texas in 1901 lost over half of its producible oil in the gutters around Beaumont before they were able to get the pressure under control.
Essentially oil wells and proper drilling for oil is a game of depletion where you try to drill—horizontally or vertically —between the high pressure water below the oil and the non porous rock on top.Horizontal drilling and other technological breakthroughs are what is supposed to save our sorry asses from Peak Oil. Only time will tell but I suspect that it will be at best a deferment.
That is the easy oil between the water and the non porous rock and it is a race to make sure that you don’t bring up the water on the bottom as the pressure is released. Also, you want to release the pressure slowly (bleed it). He uses the analogy of releases the air slowly from a balloon rather than all at once in order to maximize the easy oil. Once this oil is gone then you’re job becomes harder. You have to start with horizontal drilling techniques where you essentially thread a needle between the non porous rock on top and the water on the bottom.
Once that is played out then you have to try fracturing the rock with tiny pellets that you fire underground and which holds the rock apart until it collapses. In the meantime the oil is released.
Is technology important in the fight against Peak Oil? Yes, of course–but we will have to wait and see if it is enough.
See Part 5: What Brazil Can Teach Us About Peak Oil
I have a friend from Brazil who has been in Canada for a little over 12 years. Loves the country despite the cold and she still holds fond memories of home—which she visits often.
I tell you the latter so that you can rest assured that she holds no animosity or unrealistic memories that sometimes comes from those ex-pats who never return to the country where they were born and raised.
She was raised in an upper-middle class household in Sao Paulo, with maids etc.–which was and is the norm for that economic group. She remembers how her family handled the various currency crises and other economic difficulties that the country experienced in her youth. She has mentioned that if you have means you can protect yourself from the worst ravages of money printing and the resulting inflation—but you never escape it entirely.
One habit that she developed in Brazil was evaluating each trip by car by how much gas you used. It was almost ingrained in her psyche. Basically, she was raised to not waste fuel.
If you recall Brazil was hit hard by the rise in oil prices and the oil shortages in the 1970’s. This combined with their experiences in WW2 with gasoline shortages and their requirement to buy imported oil with depreciating dollars means that a frugal mindset is ingrained with regard to transportation.
The onslaught of peak oil means that this mindset of weighing the pros and cons of each trip will have to be adopted by North American’s. One of Canada’s dirty little secrets is that out per capita oil consumption is higher then the US’s and most of the world. What is not widely understood is that while the Western provinces export oil—the Eastern provinces import oil from the world market. We don’t have any east-west pipeline.
Essentially, we consume more oil per person than the currently demonized US and we are reliant on imported oil—not a great place to be in an era of declining oil supplies.
This talk refers to one implication of Peak Oil. We will need to be more energy conscious in North America as to how we ship goods– floating barges versus trucking. A barge can move 340 truckloads worth of goods for 1/35th of the fuel versus 340 trucks—and it only takes 13 days to move that from California to Portland Maine through the Panama Canal. Rather than dropping goods off at Long Beach after they cross the Pacific and putting them on 350 trucks to the Northeast we put them on one barge that has one tugboat pushing the equivalent of 350 truckloads. We can possibly claim that certain goods are time sensitive—but that argument falls flat for most goods.
Conventional wisdom is that there is a decline rate. However, no one seems to believe that the Middle East will ever be on a decline curve as they provides no data–only assurances. The US decline rate excluding Alaska and offshore oil went from 10 Million barrels per day in 1970 to 6.5 Million barrels in 1981—it is now down to 2 million barrels per day. This simple fact close to home is missed by many commentators or is minimized like it doesn’t exist. The North Sea which was discovered relatively recently used more modern methods of extraction and peaked quickly at 6.1 million barrels in 1999. The UK is now at 1.1 and Norway is at 1.7 after 7 years. The decline curve is very steep—even steeper than the US decline curve.
If the world has a 5% decline rate overall with modest growth rates—we need to add 60 million barrels of new production in 10 years time in order to maintain supply. That is 10 new North Sea’s. The odds of that are virtually zero.
Price won’t take care of this problem they way it has in the past. Higher prices will not introduce new supply as it has in the past because all the “easy oil” has been found. New oil will have to be mined (Tar sands) or brought up from very deep water.
See Part 4: Peak Oil and the 3000 Mile Caesar Salad (Part 4)
See Part 6: Matt Simmons on Peak Oil and Technology–Will It Save Us
TSX Venture: TDC
VANCOUVER, Oct. 27 /CNW/ – Tyhee Development Corp. (TSX Venture, TDC) today announced trench results from the summer program at its Clan Lake Property, Yellowknife Gold Project, NWT, Canada.
Gold assays from trenching at Clan Lake have returned positive results including 13.12 gpt gold across 10.0m (including 48.88 gpt across 2m) and 0.99 gpt gold across 45.0m. The trenches were blasted into extensions of the Main Structure and reached out 200 to 660 metres east of the existing 254,000 ounce gold resource (NR S.10 R.2 January 22, 2009) calculated on the Clan Zone.
“The confirmation of large areas of gold enrichment together with significant segments of higher grade gold mineralization is very good news” reports Dr. D.R. Webb, President & CEO of Tyhee Development Corp. “The trench results demonstrate good grades over good widths at significant step-outs along strike from our existing resource; provide better definition of areas to be drilled in Tyhee’s program to commence after freeze-up this year, and will guide further work through 2010 and beyond.” Webb adds that “The Main Zone is the best defined zone but is only one of the seven zones at Clan Lake. In addition, earlier this month we reported new drillhole results which are being incorporated into our resource database to facilitate a revised resource calculation on the Main Zone before the end of this year.”
Elsewhere on our Yellowknife Gold Project, field work on the Preliminary Feasibility Study (PFS), being conducted on the Ormsby and Nicholas Lake Zones has been completed for 2009. Metallurgical samples have been shipped for processing and environmental studies.
Permitting work is being conducted in conjunction with the above mentioned PFS.
Tyhee Development Corp. is a gold exploration and development company focused on the historic Yellowknife Gold Camp, NWT, Canada. It is the largest property holder in this historic camp and has the largest exploration and development program underway in the region. Its principal asset is the Yellowknife Gold Project that includes the Nicholas Lake and Ormsby Gold Zones, the Goodwin Lake Property (13 km south of the Ormsby Zone), and the Clan Lake Property (27 km south of the Ormsby Zone). All are located on mineral claims and mining leases 70 to 90 km north of Yellowknife, NWT. (Note: only Nicholas Lake and Ormsby Zones have been included for permitting purposes).
Tyhee completed fire assays on samples using 30 gram aliquots with ICP-ES finish for gold analyses (Group 3B), prepared at Acme Analytical Laboratories Ltd. in Yellowknife, and finished at Acme Analytical Laboratories Ltd in Vancouver. A semi-quantitative multi-element analysis is run on 0.5 gm aliquot samples leached in a hot aqua regia solution and measured using ICP-ES techniques (Group 1D). Tyhee conducts a rigorous QA/QC program of inserting blanks and duplicates in the field and standards in the laboratory. The laboratory also conducted their own independent QA/QC program including inserting their own standards and rerunning samples from pulped material and reject material. These results were provided to Tyhee. All standards, duplicates, blanks and check assays returned acceptable results. Mr. V. Pratico, P.Geol., the designated QP within the meaning of NI 43-101, has reviewed this release and approves of its content.
Tyhee’s shares trade on the TSX Venture Exchange under the symbol “TDC”. For additional information, including a map showing the location of assays reported in this release, please visit the Company’s website, www.tyhee.com.
This news release contains forward-looking statements, which address future events and conditions, which are subject to various risks and uncertainties. The Company’s actual results, programs and financial position could differ materially from those anticipated in such forward-looking statements as a result of numerous factors, some of which may be beyond the Company’s control. These factors include: the availability of funds; the timing and content of work programs; results of exploration activities and development of mineral properties, the interpretation of drilling results and other geological data, the uncertainties of resource and reserve estimations, receipt and security of mineral property titles; project cost overruns or unanticipated costs and expenses, fluctuations in metal prices; currency fluctuations; and general market and industry conditions. Forward-looking statements are based on the expectations and opinions of the Company’s management on the date the statements are made. The assumptions used in the preparation of such statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
Results of trenching on Clan Lake, 2009
-------------------------------------------
Trench Length Gold Grade
(metres) (grams per tonne)
-------------------------------------------
C1 14.5 0.45
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W1 10.0 1.01
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W2 45.0 0.99
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incl 16.0 1.56
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incl 12.0 1.24
-------------------------------------------
W3 10.0 13.12
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incl 2.0 48.88
-------------------------------------------
W5 3.0 1.69
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HS1 1.0 0.68
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HS2 10.0 2.21
-------------------------------------------
E1 14.0 0.53
-------------------------------------------
Note: trench HS3 did not obtain any significant
gold values. Total meterage sampled is 184.5 m
For further information: Tyhee Development Corp. David Webb, President and CEO, Tel: (604) 681-2877, info@tyhee.com; Envoy Strategic Partners, Jay Bedard, Tel: (647) 344-1768, jay@envoystrategicpartners.com
Essentially there is not a lot that can be said of this video.
If Matt Simmons is correct then peak oil will hit us like a freight train. We would need the equivalent of the Manhattan Project and the Marshall plan in order to avoid the worst aspects of the problem. Research and development needs to start now and forget about measuring results or focusing on a particular new energy source. Fund them all! Choose the winners later and not before.
Part of the problem is that our leaders need to be educated. It appears that most just don’t see this coming— or are delusional.
Some of the things that will change are the way we transport our goods by truck— rail and ship and barge will replace that. The way we go to work— telecommuting and flex time will have to become more common. The 3000 mile salad will be history— instead we will enjoy locally produced products. With the latter the wonders of canning will come back into vogue.
It is funny how much the radical environmental movement with their underlying criticism and desire to destroy society are on the same page as the peak oil advocates.
Strange bedfellows indeed!
See Part 3: More on the Chaos of Peak Oil
See Part 5: What Brazil Can Teach Us About Peak Oil
What would happen if peak oil were true and we had gas lines and there was no rationing plan in place—again—what would happen and what chaos would ensue?
As Matt Simmons suggests everyone would likely just top off their tanks. Seems reasonable. You never know when you will have another chance to fill up or how long the lines will be. It was noted that during the gas lines of the 1970’s the average purchase was less than 8 gallons.
So everyone fills up. Not just passenger cars but all motorized vehicles. This includes fleet transportation (trucking), boats, and the gas stations themselves. What would be the problem you ask?
Unfortunately, the problem would be that there would be three months of no gasoline availability! It would take that long to fill up the gasoline infrastructure including tanks and pipelines. We would be living in interesting times. Grocery shelves would be empty when the transportation fleet was empty— our highways would be empty and most likely we would be living like our great-grandparents.
Why would this happen you ask? Refer to Part 2 of this series for a more complete answer but for our purposes you just need to know that if you suck too much out of the system, and empty it, it takes that long to fill back up again—no matter how hard you try.
Other Peak Oil Issues
What are proven reserves of oil?—and how accurate are they?
99% of proven reserves of oil have never had an audit. In the Middle East there was a race in the 1980’s when they were trying to set quota. The higher the proven reserves the higher your quota. Overnight Kuwait’s reserves went from 30 billion to 90 billion barrels of oil, the UAE reserves did the same, Iraq the same, Venezuela the same number, finally Saudi Arabia boosted their reserves in 1980 from 110 billion to 160 billion increased and then increased it again to 260 billion barrels of proven reserves.
These numbers have stayed static since that time frame despite continued production from these fields. What is interesting is that each of these coutries claims that they do enough drilling each year and discover enough new proven reserves to maintain these numbers—there are no audits.
You don’t think that an audit of proven reserves is important? Remember when that whistleblower from Shell oil sent a big document kit to the New York Times and the Wall Street Journal and their reserves subsequently dropped from 21 billion to 13 billion in less than one year? Once the auditors had a chance to analyze the proper data the reserves dropped 4 times.
It was called the Shell oil proven reserves scandal.
Matt Simmons has analyzed the data available from the Middle East fields and suspects that they have overstated reserves by one third. Proven reserves have been overstated by both national oil companies and Western oil companies. The former for political and quota purposes and the latter in order to lower their cost per barrel for ROI purposes. In the case of the Western Oil companies you can’t blame them because they know that in most cases it will be 80 years until they are proven wrong. They will be long dead by then.
The only reliable statistics we have in the world are in an North Sea and Cantrell. By the way—both are in steep decline. Saudi Arabia says they have 11.5 million barrels per day of productive capacity than why did they drop their production from 9.6 million barrels per day to 8.6 million barrels per day? They say they did it to support the price— but who knows?
Why don’t people want better data? Why don’t we have production data from the 200 biggest fields in the world? Since we don’t we have essentially built all our expectations on quicksand.
The five major oil companies spend about $150 billion per year on exploration and production. They must know more than they are telling us. I doubt they are stupid. Interesting to note that these five oil companies that have spent all this money on exploration and production have not increase their production. In fact most have declined.
Does it not make sense that perhaps there are no more big fields to be found?
As Matt suggests did oil peak in 2005?
See Part 2: Oil is the Glue That Holds Society Together—Chaos and Peak Oil
See Part 4: Peak Oil and the 3000 Mile Ceasar Salad
Without the economic slowdown that started at the end of 2008 world oil consumption would have reached a record level. There was a great danger that a gap would have been created between world oil produced and the amount of oil consumed per day. It could have widened to the point that the world would be drawing down on storage.
The projected difference was between daily consumption of 88 million barrels versus daily production of 85 million barrels per day. The production numbers include gas liquids etc.
This sounds like a small amount that could be narrowed with a price spike as the market is wont to do. Generally higher prices remove demand from the market as people make choices regarding marginal consumption. However, given the increasing demand worldwide and the appearance of Peak Oil there is evidence that countries would either have to cut back on consumption or draw down on existing inventory.
The only real problem in the US and most of the world is what is defined as inventory and what percentage of that number is useful.
The US gross inventory numbers are the highest they have ever been–including the strategic petroleum reserve. Given that demand is also at the highest this is probably a good thing.
Here’s the catch.
The US inventory numbers include the oil in tankers off US shores, the oil in pipelines, the oil around the storage containers—in other words a large percentage of these numbers are work in process inventory. It is not useable oil for the most part without great difficulty of pushing it out—very difficult to do if oil is not entering the opposite end of where the oil has to come out.
Consider the US gasoline pipelines if you will. The pipelines begin in the US Gulf region as multiple pipelines of gasoline leave the refineries and slowly snake their way north at about 5 miles per hour. The pipelines start branching off at various cities and regions on it’s journey to the US northeast where the gasoline exits from one remaining pipeline many weeks later. If there is a huge demand placed on this supply and the pipeline volume is depleted in a panic (remember the 1973 oil embargo) then no amount of new gasoline leaving the refineries in the Gulf of Mexico is going to speed up the refill of the pipeline. That could take weeks–if not longer. Imagine the panic.
To give you a recent example of this inventory in process situation—TransCanada pipelines is building a new heavy oil pipeline in Canada (Keystone Pipeline) that is 3,456 kilometers long and has a volume (when full) of 9 million barrels of heavy oil. When it is completed it will take 3 months to fill before any useable oil will exit. Just imagine you have all this oil in “inventory” and you have a shortage problem develop in the middle of summer– prices are rising but there is no supply because there is no way to effectively push the oil out of the end for processing. The politicians would have a field day.
Examples of Peak Oil are starting to emerge besides the obvious US example of the US production drop since 1970 that was referred to in part 1 of this series.
Mexico’s largest field Cantarell had a widely publicized Peak Oil Experience in May 2005. They had been using all sorts of modern drilling and recovery techniques with great success. Unfortunately all the modern techniques cannot recover oil that is not there—consequently they have had a very serious decline curve from that gigantic field. Somewhere in the neighborhood of 20% per year.
With some luck this production decline may level off to approximately 25% of their peak production with continued drilling and maintenance.
The problem here is that if the field declines further Mexico may not be able to export oil—and with some estimates that oil revenues account for 50% of Mexico’s social spending—you have a real problem. The political and crime situation in the country has been getting more prickly of late and declining social spending could aggravate an already delicate problem.
What could happen here?
If oil is the glue that holds society together then the situation could turn to chaos. Will it overflow into the US?
You can see the problem.
See Part 3–More on the Chaos of Peak Oil
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Peak oil is a misunderstood term that is widely believed to mean that we will run out of oil. This is actually not correct. What it actually means is that we have peaked in production of a particular field or basin. Mathew Simmons and others, such as China believe Peak Oil is probably here. China has not stated openly their opinion on Peak Oil however there actions indicate they perceive supply issues going forward. More on that later.
What should be understood about this phenomenon is that after a field peaks it will decline at an accelerated rate of 10 to 20% per year until it settles at roughly 25% of it’s peak production. With proper drilling and maintenance the field could sustain that reduced level for decades—perhaps up to 200 years. You apply this principal to an oil basin or even a region and you start to see the problem. The US used to produce 10 million barrels per day of oil and oil equivalents in 1970 from the lower 48 states. The US now produces 6 million barrels per day from the lower 48, Alaska and offshore in the Gulf of Mexico.
Conspiracy theories aside—why did this happen? The answer, just as R. King Hubbard predicted in the 1950’s is that the US surpassed peak production in the lower 48 in 1970 and is now producing about 25% of the peak production from that region.
Notice I said oil and oil equivalents in the second paragraph. That is something to be concerned about because 5 or so years before a field passes peak production it starts producing natural gas liquids which then leads to declining production.
We are starting to see this phenomenon in world production where world oil production is at 72 million per day and the difference between that number and consumption of 85 million barrels per day is made up of natural gas liquids, ethanol etc. and drawdowns.
You can draw your own conclusions as to what is happening but Matt Simmons is not the only expert predicting this.
Pay attention to China’s actions of late regarding with there dramatic increases in their petroleum reserves and the deals they are inking with Venezuela, Nigeria, Russia and others to guarantee future supplies.
This is obviously how China has chosen to deal with peak oil.
See Part 2: Oil is the Glue That Holds Society Together—Chaos and Peak Oil
Referring to my post of yesterday about the Chicago Mercantile Exchange (CME) allowing gold to be used as margin for commodity trades (Chicago Mercantile Exchange Accepts Gold as Collateral ).
I now think this has the potential to be a real wealth destroyer for gold. What happens when one of the inevitable pullbacks in commodities occur—and it is a simultaneous pull down that pulls everything down at once, including gold.
The exchange could find themselves in the uncomfortable position of issuing continuing margin calls when the commodities continue to drop and the margin (gold) drops as well.
I have observed that the margin clerks have been quick to sharpen their pencils in any decline—so we will just have to see how well gold holds up if this happens. Did management really evaluate this?
Interesting development this week as the Chicago Mercantile Exchange (CME) is accepting gold as collateral for margins. They already accept a wide range of collateral for deposit into trading accounts including US dollars, certain foreign currencies, US Treasuries, certain foreign debt, asset-backed securities, letters of credit and agency bonds.
The CME released a press release yesterday according to FastMarkets
Gold is the first commodity that can be used
for margins for CME trades, which range from
crude oil to copper or equities, effective
immediately, CME spokesman Jeremy Hughes
told FastMarkets. “It’s a way for holders of gold
to put their bullion to work a bit more efficiently,
rather than it costing them money to keep,” he
said. “It’s also cheaper than funding other
forms of collateral.”Initially, gold will have to be deposited with
JPMorgan Chase Bank in London but CME
“hopes” to add additional depositories at some
stage, CME Clearing, the exchange’s in-house
clearing house, said in an advisory notice to its
members on October 16.CME is imposing a strict gold collateral limit of
$200 million and a 15-percent asset haircut on
the market value of all gold deposits. Fees for
storage, insurance and handling of the gold
are estimated at 5 basis points of the value of
the collateral, according to the CME notice.The announcement follows CME’s discussions
with the London bullion market on cleared
over-the-counter (OTC) London gold forwards,
which traded for the first time late on Friday.
CME launched the clearing service on
September 20 in an effort to curb counterparty
risks that the credit crisis has exacerbated.
CME Clearing already accepts a wide range of
collateral for deposit into trading accounts,
including US dollars, select foreign currencies,
US Treasuries, select foreign sovereign debt,
asset-backed securities, letters of credit and
agency bonds, according to the exchange’s
website
My first thought is that this is a good development for gold as it is assuming it’s role of “real money” again. However, I can’t help thinking that a normal correction in the underlying commodities could have the CME margin clerks ruthlessly selling the gold in order to meet margin calls–which is their right.
Time and further reflection are required.