Fossilgate: The Biggest Cover-Up In History!

by Jay Hanson, 10/11/97

WHATEVER THE TWISTS AND TURNS in global politics, whatever the ebb of imperial power and the flow of national pride, one trend in the decades following World War II progressed in a straight and rapidly ascending line—the consumption of oil. If it can be said, in the abstract, that the sun energized the planet, it was oil that now powered its human population, both in its familiar forms as fuel and in the proliferation of new petrochemical products. Oil emerged triumphant, the undisputed King, a monarch garbed in a dazzling array of plastics. He was generous to his loyal subjects, sharing his wealth to, and even beyond, the point of waste. His reign was a time of confidence, of growth, of expansion, of astonishing economic performance. His largesse transformed his kingdom, ushering in a new drive-in civilization. It was the Age of Hydrocarbon Man.
Daniel Yergin,1992

It was thus becoming apparent that nature must, in the not far distant future, institute bankruptcy proceedings against industrial civilization, and perhaps against the standing crop of human flesh, just as nature had done many times to other detritus-consuming species following their exuberant expansion in response to the savings deposits their ecosystems had accumulated before they got the opportunity to begin the drawdown… Having become a species of superdetritovores, mankind was destined not merely for succession, but for crash.
William Catton, 1982

As long as we remain trapped by the ideology of competitive growth, there is no solution. We are reminded of the South Indian monkey trap, in which a hollowed-out coconut is fastened to a stake by a chain and filled with rice. There is a hole in the coconut just large enough for the monkey to put his extended hand through but not large enough to withdraw his fist full of rice. The monkey is trapped only by his inability to reorder his values, to recognize that freedom is worth more than a handful of rice.
Herman Daly, 1991

When will global oil production “peak”? Neither oil companies nor government officials will even mention the word. Indeed, “Fossilgate” is the biggest cover-up in history:

Running out of oil? Not in your lifetime nor your grandchildren’s. Though some doomsayers might have you think otherwise. … Although oil is a finite resource, supplies appear to be plentiful for a long time. Back in 1953 the world’s known reserves totaled nearly 25 years’ supply based on the rates of consumption at that time. Today the U.S. Geologic Survey (USGS) puts the world’s known reserves — those that can be profitably produced with existing technology — at nearly 1 trillion barrels, or about eight times the 1953 level. At current consumption rates, that’s enough oil to support our planet’s petroleum needs for about 45 years. [Mobil,1995]

Do the folks at Mobil expect “current consumption rates” to last for 45 years, and then oil production to suddenly stop as the last drop of oil is squezed from the ground? Gee, they aught to know …

In fact, oil consumption expected to increase at from 1.5 percent [WRI, 1996b] to over 3 percent [Campbell, 1997] per year. At 1.5% per year growth, the rate of oil consumption would double in about 45 years (35 years at 2 percent). And unbelievably, the amount of oil consumed in the next 45 years would be more than all the oil consumed in all of history thus far! [For a good discussion of exponential growth, see Hartley, 1993]

Why would Mobile lie? Could this be another one of Mobil’s disinformation campaigns?

The coal and oil companies are among the most powerful corporations on the planet. Many of them have annual sales larger than the annual value of the total goods and services produced by many countries. For example, Exxon ($103.5 billion) is larger than Finland ($93.9 billion) and larger than Israel ($69.8 billion). Mobil Oil ($57.4 billion) is larger than Ireland ($43.3 billion) and larger than New Zealand ($41.3 billion). Chevron Oil ($37.5 billion) is larger than Algeria ($35.7 billion), larger than Hungary ($35.2 billion), larger than Egypt ($33.6 billion), larger than Morocco ($28.4 billion), and larger than Peru ($22.1 billion).
While a few hundred scientists write about the dangers of global warming in journals with names like NATURE, and SCIENCE and THE LANCET –Mobil Oil places ads on the op-ed page of the NEW YORK TIMES simultaneously lobbying both the educated elite and, at the other end of the scale, the Congress, urging ‘no action’ on global warming. For example on February 25, 1993, a Mobil ad acknowledged that “if present trends continue, carbon dioxide levels will double over the next 50 to 100 years.” This is the IPCC’s position. But the ad goes on to say this may not have any effect whatsoever, or it may actually be beneficial.
As its source of scientific opinion, the Mobil ad quotes a book published by the Pacific Research Institute, a San Francisco think tank which describes itself (though not in the Mobil ad) as “a non-profit education organization that aims to foster individual liberty through free markets, protection of private property rights, and advocacy of limited government.” The Mobil ad quotes the book saying, “…the highly touted greenhouse disaster is most improbable.” Mobil then quotes S. Fred Singer.
For years, Singer was a professor at the University of Virginia where he was funded by energy companies to pump out glossy pamphlets pooh-poohing climate change. (See REHW 355.) Singer hasn’t published original research on climate change in 20 years, and is now an “independent” consultant, who spends his time writing letters to the editor, and testifying before Congress, claiming that ozone-depletion and global warming aren’t real problems. In the Mobil ad, Singer is quoted saying “the net impact [of a modest warming] may well be beneficial.” The Mobil ad sums up, “It would seem that the [global warming] phenomenon –and its impact on the economy –are important enough to warrant considerably more research before proposing actions we may later regret. Perhaps the sky isn’t falling, after all.”
This kind of corporate disinformation has its intended effect. … [Rachel, #467]

AND the folks at Mobil didn’t mention the word “peak” did they?

WHEN WILL GLOBAL OIL PRODUCTION PEAK?

We have now developed an assessment of how much conventional oil there is and how much remains to produce. The remaining oil does not occur in some vast underground cavern from which is could be quickly pumped, but it is held in the minute pore space of the reservoir rocks, in the same way as rising damp can flow through the walls of old stone buildings. It is easy to understand therefore why wells begin to decline as they have to draw on oil farther and farther from the wellbore. The production of an oilfield rises rapidly as new wells are added but then when all the wells are in place declines exponentially at a composite depletion rate. Depletion Rate is a given year’s production as a percentage of the remaining reserves at the end of the preceding year. So it is with a geological basin: production rises as new fields are found, and it is normal for the larger ones to be found first. Their depletion rate tends to mask the effects of small late stage additions. Lastly, it is the same for a country, with the larger basins usually being developed first. The natural pattern can of course be modified if production is deliberately held to a certain limit. Thus production of an offshore field may be held at a plateau constrained by the number of wells and the optimal off-take in relation to investments. Likewise, a country may arbitrarily manipulate production to maintain price in a practice known as prorationing, as practiced for example by the Texas Railroad Commission, and less successfully by OPEC with its quotas. In any event, the production of any field starts at zero, rises to a peak (or plateau if artificially constrained) and then falls to zero. [Campbel, 1996]

40 years ago, geologist M. King Hubbert developed a method for projecting future oil production and predicted that oil production in the lower-48 states would peak about 1970. This prediction has proved to be remarkably accurate. Both total and peak yields have risen slightly compared to Hubbert’s original estimate, but the timing of the peak and the general downward trend of production were correct.

Global oil production will begin to “peak” when approximately half of the “Estimated Ultimately Recoverable” oil has been recovered:

For many years geologists and oil companies have published estimates of the total amount of crude oil that will ultimately be recovered from the earth over all time. Remarkably, these assessments of Estimated Ultimately Recoverable (EUR) oil have varied little over the past half century. [WRI, 1996a]

Two important conclusions emerge from this discussion. First, if growth in world demand continues at a modest 2 percent per year, production could begin declining as soon as the year 2000. Second, even enormous (and unlikely) increases in EUR oil buy the world little more than another decade (from 2007 to 2018). In short, unless growth in world oil demand is sharply lower than generally projected, world oil production will probably begin its long-term decline soon—and certainly within the next two decades. [WRI, 1996b]
It is reluctantly concluded that there is strong evidence that the restricted Hubbert Curve for the world’s total EUR of oil may first peak about the year 2000, Fig. 4, after which it may fluctuate along a horizontal production line (restricted by Saudi Arabia/OPEC) before inevitable decline … [Ivanhoe, 1995]
At the time of writing in late 1996, there are still three more years to go until the end of the transition. [Campbell, 1997]

Petroconsultants

Petroconsultants is the world’s leading provider of data and analysis for petroleum exploration and production. With headquarters in Geneva, Switzerland, Petroconsultants maintains offices in London, Houston, Sydney and Singapore, supported by over 250 dedicated multilingual and multinational employees and a worldwide network of correspondents and associates.

A new report on world oil resources, World Oil Supply 1930-2050 (Campbell and Laherre, Petroconsultants Pty. Ltd., 1995), concludes that the planet’s oil supplies will be exhausted much sooner than previously thought.

The report, written for oil industry insiders and priced at $32,000 per copy, concludes that world oil production and supply probably will peak as soon as the year 2000 and will decline to half the peak level by 2025. Large and permanent increases in oil prices are predicted after the year 2000. [Trainer, 1997]

[Trainer, 1997]

Oil production will peak in a couple of years! Should we be alarmed? YES!

If present economic and oil industry trends continue, future price shocks appear likely as early as the year 2000, with the world facing permanent increases in the price of oil, two new studies have concluded. The first study, The World Oil Supply 1990-2030, which was completed in late 1995 by the prestigious Geneva, Switzerland- based group Petroconsultants, deals with the realities of the statistics, pointing out that the world is finding only about seven billion barrels of oil each year in a falling trend, while producing 23 billion barrels a year in answer to rising demand. The study describes this situation as a recipe for bankruptcy.

The second report, prepared by Oak Ridge National Laboratory for the Office of Transportation Technology of the U.S. Department of Energy and made public in mid-January, suggests that the OPEC (Organization of Petroleum Exporting Countries) nations, in control of two-thirds of the world’s reserves, will soon have the ability to regain monopoly power in world oil markets.

“Price shocks can be very profitable to oil producers, and consuming nations appear to have developed no adequate defense against them,” the report warns. [WEW, 1996]

ENERGY IS THE PRECONDITION FOR MODERN SOCIETY

There is no substitute for energy. Although the economy treats energy just like any other resource, it is not like any other resource. Energy is the precondition for all other resources and oil is the most important form of energy we use, making up about 38 percent of the world energy supply.

No other energy source equals oil’s intrinsic qualities of extractablility, transportability, versatility and cost. These are the qualities that enabled oil to take over from coal as the front-line energy source in the industrialized world in the middle of this century, and they are as relevant today as they were then.

[Flavin, 1994]

THERMODYNAMIC LIMITS TO GROWTH

Projections show that demand for energy is expected to rise sharply in the next ten years: “The Energy Information Administration (EIA), the agency of the U.S. Department of Energy that tracks energy statistics, predicted that world energy consumption will soar by 54% from 1995 levels by the year 2015. And the private Utility Data Institute (UDI) said May 20 that 685,000 MW of new electric generating capacity—an amount approximately equal to the total installed capacity in the U.S., the world’s largest economy—will be added around the world in just 10 years, from 1996 to 2005.” [WEW, 1997]

But global oil production will “peak” soon because oil recovery is limited by the “energy cost” of recovery. In other words, if it takes more energy to find and recover a barrel of oil than the amount of energy recovered, then that is makes no sense to use that oil for energy—no matter how high the money price of energy goes. Neither engineers nor economists can repeal the laws of thermodynamics: “Beyond 2005, the energy required to find and extract a barrel of oil will exceed the energy contained in the barrel”. [Trainer, 1997. Trainer’s comment refers to the average for domestic production, and it agrees with Gever et al., 1991]

[Gever et al., 1991]

We may provide energy “subsidies” to particular oil fields or between different types of energy (just as there are billions of dollars of money subsidies). For example, we now use ethanol for energy even though its use results in a net energy loss: “The total input to produce 1000 liters of ethanol is about 9.9 million kcal, nearly double the yield in ethanol of 5.1 million kcal.” [Pimentel et al., 1996] In other words, the use of ethanol for energy requires an energy subsidy that we can only afford while we have plenty of energy. When the energy crunch comes, ethanol will have to go.

THE END OF OIL MEANS THE END OF SOCIETY AS WE KNOW IT

[Ivanhoe, 1997]

Discovery of oil and gas peaked in the 1960s. Production is set to peak too, with five Middle East countries regaining control of world supply. The oil shocks of the 1970s were short-lived because there were then plenty of new oil and gas finds to bring onstream. This time there are virtually no new prolific basins to yield a crop of giant fields sufficient to have a global impact. The growing Middle East control of the market is likely to lead to a radical and permanent increase in the price of oil, before physical shortages begin to appear within the first decade of the next century.

The world’s economy has been driven by an abundant supply of cheap oil-based energy for the best part of this century. The coming oil crisis will accordingly be an economic and political discontinuity of historic proportions, as the world adjusts to a new energy environment. [Campbell, 1997]

“What, then, is the solution to our acute energy problem? There isn’t one.” [Trainer, 1997]

Optimists tend to assume that the “quality” (e.g., liquid vs. solid) of energy we use is not significant, that an infinite amount of social capital is available to search for and produce energy, and that an infinite flow of solar energy is available for human use. Realists know that none of these assumptions is true.

If one considers the last one hundred years of the U.S. experience, fuel use and economic output are highly correlated. An important measure of fuel efficiency is the ratio of energy use to the gross national product, E/GNP. The E/GNP ratio has fallen by about 42% since 1929. We find that the improvement in energy efficiency is due principally to three factors: (1) shifts to higher quality fuels such as petroleum and primary electricity; (2) shifts in energy use between households and other sectors; and (3) higher fuel prices. Energy quality is by far the dominant factor [Cleveland et al., 1984]

But there is a thermodynamic limit on how much we can pay for imported oil!

WILL THE AMERICAN DOLLAR BECOME WORTHLESS?

The global price of oil after the supply crunch should follow the simplest economic law of supply and demand: There will be a major increase in crude oil and all other fuels’ prices, accompanied by global hyperinflation, rationing, etc. After the associated economic implosion, many of the world’s developed societies may look like today’s Russia. The United States may be competing with China for every tanker of oil, with the Persian Gulf oil exporters preferring Chinese rockets to American paper dollars for their oil. [Ivanhoe, 1997]

[Gever et al., 1991]

As energy prices increase, we become less “energy efficient” with respect to imported oil. That is, we will have to burn more energy in order to make more goods and services (to make more money) to buy a barrel of oil. It’s a positive feedback loop. But there’s a thermodynamic limit on how much we can pay!

If as a country, we must spend two barrels of oil to produce enough goods and services to buy one barrel of oil, it is impossible for us to pay our overhead—it is impossible for us to continue. At that point, our economic machine is just plain “out of gas”.

Where could we possibly get oil?

It’s not even certain that we could seize energy by military force. I could only succeed if it burns less energy than the amount recovered. Remember the burning oil wells in Kuwait? A long, large military operation could burn more energy than it gained.

Japan and Germany can afford to spend more for energy than America because they are more “energy efficient”:

[Flavin, 1994]

WHAT ABOUT OTHER SOURCES OF ENERGY?

Since oil is used directly or indirectly in everything, decreasing energy profits will make everything less “energy efficient”—including other forms of energy. What’s more, increasing oil prices also increase the dollar cost everything—including other forms of energy. But even if the profit ratio for domestic coal continues to fall at the same rate as it has, it will thermodynamically “unrecoverable” by 2040.

[Gever et al., 1991]

One can’t run industry on wind power because it is intermittent.

Conventional nukes are no good because of the shortage of uranium. One would have to rely on the new “fast-breeders”:

Overall, uranium is relatively scarce in the earth’s crust, at about 4 parts per million on average. Therefore, a significant expansion of nuclear power—even the five-fold expansion widely canvassed before the incidents at Three Mile Island and (much more disturbing) at Chernobyl—would out-run readily accessible supplies. These supplies include both deposits previously exploited but mothballed due to lack of current demand, and known high concentration pockets that could be opened up quite quickly. Therefore, the expansion of nuclear would highlight the need to bring rapidly back on course the development of fast-breeder reactors and pursue fusion technology. [WEC, 1993]

But the “fast breeders” are dead:

TOKYO (October 1, 1997 11:39 a.m. EDT: http://www.nando.net) – Japan’s fast-breeder reactor program, a cornerstone of the nation’s energy program in the 21st century, has suffered a major setback, Japanese nuclear policy-makers said Wednesday.
A subgroup of the powerful Atomic Energy Commission said in a draft policy report it was too early to draw up a timetable for the program to move beyond the experimental stage.
In June, France said it would scrap the highly controversial Superphenix nuclear fast-breeder, saying it was too costly and of doubtful value.
Britain, the United States and Germany have already abandoned their programs for similar reasons.
That leaves Fusion! Are you kidding! Fusion is nothing more than science fiction! If the experts can’t even get the “fast-breeders” to work, they will never manage to make produce energy commercially with fusion!

As all energy prices increase, we must burn more energy to make more goods and services to buy more energy—a positive feedback loop that can only end total economic collapse—and perhaps war.

WHERE WILL IT END?

Finally investment cannot keep up with depreciation (this is physical investment and depreciation, not monetary). The economy cannot stop putting its capital into the agriculture and resource sectors; if it did the scarcity of food, materials, and fuels would restrict production still more. So the industrial capital plant begins to decline, taking with it the service and agricultural sectors, which have become dependent upon industrial inputs. For a short time the situation is especially serious, because the population keeps rising, due to the lags inherent in the age structure and in the process of social adjustment. Finally population too begins to decrease, as the death rate is driven upward by lack of food and health services. [Meadows et al., 1992]

POST-INDUSTRIAL ECONOMICS

In this curious society which seems to have bypassed Karl Marx in economics, there is one common value, apart from language, to which all Ik hold tenaciously. It is ngag, “food.” This is not a cynical quip—there is no room for cynicism with the Ik. It is clearly stated by the Ik themselves in their daily conversation, in their rationale for action and thought. It is the one standard by which they measure right and wrong, goodness and badness. The very word for ‘good,’ marang, is defined in terms of food. “Goodness,” marangik, is defined simply as “food,” or, if you press, this will be clarified as “the possession of food,” and still further clarified as “individual possession of food.” Then if you try the word as an adjective and attempt to discover what their concept is of a “good man,” iakw anamarang, hoping that the answer will be that a good man is a man who helps you fill your own stomach, you get the truly Icien answer: a good man is one who has a full stomach. There is goodness in being, but none in doing, at least not in doing to others.

So we should not be surprised when the mother throws her child out at three years old. She has breast-fed it, with some ill humor, and cared for it in some manner for three whole years, and now it is ready to make its own way. I imagine the child must be rather relieved to be thrown out, for in the process of being cared for he or she is carried about in a hide sling wherever the mother goes, and since the mother is not strong herself this is done grudgingly. Whenever the mother finds a spot in which to gather, or if she is at a water hole or in her fields, she loosens the sling and lets the baby to the ground none too slowly, and of course laughs if it is hurt. I have seen Bila and Matsui do this many a time. Then she goes about her business, leaving the child there, almost hoping that some predator will come along and carry it off. This happened once while I was there—once that I know of, anyway—and the mother was delighted. She was rid of the child and no longer had to carry it about and feed it, and still further this meant that a leopard was in the vicinity and would be sleeping the child off and thus be an easy kill. The men set off and found the leopard, which had consumed all of the child except part of the skull; they killed the leopard and cooked it and ate it, child and all. That is Icien economy, and it makes sense in its own way.[Turnbull, 1972]

“In the end,” says the Grand Inquisitor in Dostoevsky’s parable, “in the end they will lay their freedom at our feet and say to us,” ‘Make us your slaves, but feed us.'”

References:
Campbel, 1996:
Campbell, 1997:
Cleveland et al., 1984:
Flavin, 1994:
Gever et al., 1991
Hartley, 1993:
Ivanhoe, 1995:
Ivanhoe, 1997:
Meadows et al., 1991:
Mobil, 1995:
Pimentel et al., 1996:
Rachel, #467:
Trainer, 1997:
Turnbull, 1972: http://www.amazon.com/exec/obidos/ISBN=0671640984
WEC, 1993: ENERGY FOR TOMORROW’S WORLD; St. Martin’s Press, 1993
WEW, 1996: Dead Link
WEW, 1997: WIND ENERGY WEEKLY, Vol. 16, #750, 2 June 1997
WRI, 1996a: Dead Link
WRI, 1996b: Dead Link

U.S. CONVENTIONAL WISDOM
AND NATURAL GAS

by Joseph P. Riva, July, 1977

THE OLD CONVENTIONAL WISDOM

Domestic natural gas production peaked in 1973 at 22.6 trillion cubic feet (tcf), but then declined to 18.8 tcf only four years later, creating an atmosphere of extreme pessimism about future output. Supply shortages, particularly during the 1976-77 winter, were responsible for periodic curtailments of gas deliveries that caused considerable economic hardship to industrial and commercial users, and occasionally even to residential customers. In certain areas, new gas hookups were prohibited because of supply problems. At that time, the conventional wisdom that dominated energy policy considerations was the expectation of sustained gas shortages. Such projections were based on disturbing trends, such as declining finding rates for new gas fields and a continuing drop in proved gas reserves. The domestic natural gas resource base was considered mature, the largest gas fields having been discovered between 1910 and 1956. The extreme pessimism regarding the future of natural gas culminated in 1978 with the passage of the Power Plant and Industrial Fuel Use Act, which legally restrained the utilization of natural gas in industrial and electric utility plants.

THE NEW CONVENTIONAL WISDOM

Currently, there is a new and radically different conventional wisdom regarding the future of natural gas. Short-term production is in relative balance with demand, after a period of surplus capacity caused by a combination of energy conservation and industrial fuel switching away from gas. Natural gas is now a preferred fuel. It offers environmental advantages over other fossil fuels and, with the 1987 modifications of the Fuel Use Act, it is expected to play an increasingly important role in the future domestic energy mix. In its Annual Energy Outlook, the Energy Information Administration (EIA), in its reference case, projected that Lower-48 State gas production would increase from 18.07 tcf to 25.52 tcf in 20 years. The estimates of several other energy research institutions have been comparably optimistic.

While many of the models seem to be driven from the demand side, there is some good news on the supply side as well. Proved natural gas reserves are no longer in free fall. While down by 15 percent over the past 10 years, they have declined by only 2 percent since 1990, and even slightly increased in 1994 and 1995. However, new gas discoveries remain rare. In the 1990s, the amount of gas discovered in new fields amounted to less than eight percent of total domestic gas output. Little new gas is being added to reserves to back up production. More than 90 percent of proved gas reserve additions come from new reservoirs in, or extensions to, old fields, or from revisions and adjustments to previous reserve estimates.

Additional drilling obviously will be required to meet the EIA projection of a Lower-48 State output of 25.52 tcf of gas by 2015. Current average Lower-48 States annual per-well gas production is 60 million cubic feet(cf)from just over 294,000 wells. This can be compared to the peak gas production year of 1973, when about 124,200 wells averaged 182 million cf. If average annual per-well gas production remains at 60 million cf, some 425,300 producing gas wells would be needed in 2015 to meet the EIA projection. During the 1980s, about two wells had to be drilled for gas to net one additional gas producing well. At this rate, an average of about 13,100 wells would have to be drilled for gas each year for the next 20 years to achieve the EIA reference case. However, the average annual per-well gas output declined by 20 percent over the past dozen years. If it falls by the same percentage over the next 20 years, some 638,000 producing gas wells would be needed, requiring the drilling of about 31,900 wells per year.

In the 1980s, which included a drilling boom, an average of 17,940 wells were drilled annually for natural gas in the Lower-48 States. In the 1990s, the average fell to 12,090. While the drilling of an average of 13,100 gas wells should not present a significant difficulty, especially with rising gas prices, the drilling of 31,900 wells per-year will be virtually impossible. Also, of interest, was the effect of the early 1980s gas drilling boom on proved natural gas reserves. Many of the gas prospects drilled at the time were of marginal quality with unrealistic expectations of financial success. Thus, in spite of the large number of wells drilled, proved gas reserves increased very little.

However, aside from drilling, the major problem with projections of significantly increasing Lower-48 State gas production over the next 20 years is inadequate natural gas resources and reserves. To achieve the EIA reference case (a Lower-48 State gas production increase to 25.52 tcf in 20 years) requires increasing gas production each year. When each year’s output is added, the total amount of gas produced over the 20-year period is about 442 tcf (see Table 1). At the current R:P (reserves:production) ratio of 9:1, any increase in gas production must be accompanied by nine times as much gas added to proved reserves. The proved gas reserves necessary to support an output of 25.52 tcf is about 230 tcf. Thus the total proved gas reserves needed to support the EIA forecast is 672 tcf.

Is this much gas available? Current proved reserves are about 156 tcf (see Table 1). Also, perhaps it optimistically could be assumed that the currently producing gas fields will have experienced half of their maximum growth during the next 20 years (the USGS estimates 40 years). If achieved, an additional 145 tcf of reserve additions would be realized.

This leaves 371 tcf of gas reserves needed to meet the EIA projection. Most of this gas will have to come from new fields. EIA has estimated that about 4 tcf of 2015 gas production will come from continuous-type (unconventional) deposits. Since these are mostly known, 4 X 9 = 36 tcf of reserve additions may not be needed. Thus, some 335 tcf of proved reserve additions must be accounted for by finding new fields. However, over the past ten years a total of only 14.24 tcf of gas has been added to proved reserves from new field discoveries. At this rate, it would take 235 years to discover 335 tcf of gas! To find that volume of gas in 20 years (even considering the potential growth of the new fields), the past decade’s discovery rate would have to be increased by an order of magnitude, clearly a case of the triumph of hope over experience.

Conclusions

If Lower-48 State proved gas reserves are reported to EIA with reasonable accuracy, and inferred reserves (field growth) and undiscovered gas resources as assessed by the Department of the Interior prove generally reliable, it will not be possible to increase gas output to 25.52 tcf in 2015. It would require finding and converting all of the assessed (mean) undiscovered gas resources to proved reserves in 20 years, as well as experiencing half of total estimated field growth. It is probably over-optimistic even to project sustainable gas production for the next 20 years. However, OCS drilling offers a chance of finding large gas fields, with high recovery rates. Such large discoveries will be needed in all OCS regions or, by early in the next century, natural gas will have become more of an energy problem than an energy solution.

==============

Hubbert Center Newsletter # 97/3

M. King Hubbert Center
For Petroleum Supply Studies
Petroleum Engineering Department
Colorado School Of Mines
Golden CO 80401-1887

Re. US National Security Threatened

by a New Alliance of Muslim Petroleum Exporting Countries (“AMPEC”)

May 13, 1997

President William J. Clinton
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear President Clinton:

Re. US National Security Threatened by a New Alliance of Muslim Petroleum Exporting Countries (“AMPEC”)

As you know, we Americans now import more than 50% of the petroleum we use. In fact, in 1995 18% of our imports came from the Muslim Middle East alone, and 27% from all the Muslim exporting countries.

Moreover, in 1995 40% of Europe’s petroleum imports came from the Middle East, and 58% from the Muslim exporting countries. In Japan, 77% came from the Middle East, and 92% from the Muslim exporting countries.

The percentage of World petroleum exports from Muslim countries will, willy-nilly, continue to increase until (perhaps by 2010) the Muslim countries will control nearly 100% of the World’s petroleum exports. This situation was revealed in my study, “The World Petroleum Life-Cycle: Encircling the Production Peak,” presented on 9 May 1997 at Princeton University. See especially Figures 2-4 (to be published in the 1997 Space Studies Institute Conference Proceedings – Attachment #1).

Significantly, after reading my SSI paper — a French petroleum geologist called and requested a forecast of the year that the petroleum production of the World’s 19 Muslim countries will exceed the production of all 181 non-Muslim countries. Per my forecast, this ‘cross-over’ will occur in 1999 (Attachment #2).

At Princeton, I gave the following “Thought Experiment”:

What if tomorrow Palestinian leader Yasir Arafat met with representatives from each of the 19 Muslim petroleum exporting countries and proposed an entirely new organization called the “Alliance of Muslim Petroleum Exporting Nations” — “AMPEC” for short?

This proposal alone could cause World stock markets to fall 50% in one day. And crucially, it could ignite both (1) a World Petroleum War, and (2) a World Holy War (called a “Jihad” by Muslims). I view an “AMPEC shock” as looming likely because powerful Muslim forces are pushing Mr. Arafat (and others) further every day.

Please be advised.
Sincerely,

Richard C. Duncan, Ph.D.
Institute on Energy and Man

BEYOND OIL:
The Threat to Food and Fuel in the Coming Decades.

Third Edition (1991) ISBN 0-87081-242-4
John Gever, Robert Kaufmann, David Skole, Charles Vorosmarty.

Prologue To The Third Edition

Nearly ten years have passed since the last observations were made on which the conceptual and quantitative models in Beyond Oil are based. Much has happened during this period. Oil prices collapsed in 1986 and have fluctuated between $10 and $30 per barrel since. A telethon was held to rescue the most productive farmers in the world. The U.S. economy had the longest continuous economic expansion since the end of World War II. Nevertheless, for all of the changes that are implied by these events, we are proud to republish Beyond Oil in the same form as it first appeared in January 1986. We feel comfortable doing so because the basic premises on which the conceptual and theoretical models are based remain intact.

Beyond Oil concludes that the U.S. cannot increase its per capita material standard of living and its population ad infinitum. The belief that it can do so is a myth that arose from a century of economic success. Yes, the United States has increased its material wealth tremendously. But this wealth was created by the United States depleting its high-quality deposits of nonrenewable resources and degrading high-quality renewable resources. Yes, the technologies by which humans convert natural resources to economic wealth have changed at an amazing rate. But the strategy by which these technologies increased output remained the same: by using energy to increase the work that could be done by muscle power alone. Furthermore, our economic success has allowed us to ignore an underlying truth. The relation among resources, energy use, and economic activity is stronger than economists or politicians are willing to admit. Taken together, dependence on a depleting resource base implies that either the population or per capita-material standard of living must stabilize, or both.

The fragility of our economic success comes as a surprise to most people. After all, there were no news stories regarding resource depletion or a strong relation among resources, energy use, and economic activity. Just like the frog that doesn’t jump out of the cup as the water in which it sits is brought slowly to a boil, the average U.S. citizen cannot notice the resource depletion that is associated with each dollar of GNP generated. Every day, U.S. oil supplies dwindle with each rise and fall of the horsehead (the moving part of an oil well), and soil resources erode with each tractor pass. This slow, steady, and quiet depletion of natural resources is one of the main foci of our analysis.

There was no need to modify the text of Beyond Oil greatly because the depletion of natural resources has continued unabated since the book was first published. The behavior of the U.S. oil industry illustrates this ongoing depletion: the depletion of domestic oil resources appears in all stages of exploration and production. In Chapter 2 we describe research that indicates that the amount of oil discovered or added to proved reserves declined steadily between 1946 and 1978 (Figure 2-14). This conclusion now is strengthened by ten years of additional data and research. An analysis by Cleveland and Kaufmann (1991) indicates that the amount of oil discovered per foot of well drilled has declined exponentially from 1925 through 1988 without interruption (Figure P-1a). Oil prices and rates of drilling hide this decline at times, but these factors cannot alter the geological fact that the United States has discovered most of the fields from which it will produce economically significant quantities of oil. Similarly, an analysis by Cleveland and Pendleton (in press) finds that additions to proved reserves, which include revisions and extensions in addition to discoveries, declined exponentially from 1946 through 1988 (Figure P-1b). Again, drilling rates and other factors may hide this exponential decline at times, but these factors cannot alter the geological fact that the United States has drilled up most of its domestic oil supply.

The exponential decline in the rate at which the U.S. oil industry discovers oil and adds it to proved reserves sets the stage for the decline in U.S. oil production, which is described in Chapters 2 and 4. In these chapters we use Hubbert curves to explain the historical changes and to forecast rates of production for oil and natural gas, both domestically and worldwide (Figures 2-12; 2-13; 2-17). We use this technique because M.K. Hubbert was able to forecast the peak and general pattern for U.S. production more accurately than other analysts. The success of these curves is remarkable because a quick review of history indicates that movements in U.S. oil prices and production defy standard economic theory. Real oil prices declined slightly between 1947 and 1970, but production of oil nearly doubled. Real oil prices doubled between 1970 and 1986, but production declined 20 percent.

Further research explains the ability of the Hubbert curves to account for the contradictory movements between prices and production. Kaufmann (1991) extends the method used by Hubbert to include the effect of prices and political decisions by the Texas Railroad Commission. His analysis finds that changes in resource quality are responsible for the general pattern of production (Figure P-2). The oil industry was able to double production between 1947 and 1970 because the costs of production declined faster than the real price of oil. On the other hand, production declined between 1970 and 1985 because the cost of production rose faster than the real price of oil. Since 1986 production has declined sharply, but prices alone do not explain this drop. Production dropped sharply because the decline in price reinforced the negative effect of resource depletion. If prices do not recover soon—and there is little reason to expect that they will—the United States may import between two-thirds and three-quarters of its oil use by 2010 (Kaufmann 1988).

Oil is not the only resource that the United States is depleting. In Chapters 5 and 6 we describe how domestic agricultural practices degrade the agricultural resource base on which the United States depends for food and foreign exchange. In Chapter 6 we hypothesize that U.S. agriculture was ending a period of intensification, in which output grew in conjunction with inputs, and was entering a period of saturation, in which output grew less rapidly than inputs. The end of one era and the beginning of another was based on a comparison of energy use and gross farm product per acre between 1940 and 1979. Ten more years of data and research reinforce our claim that the United States has entered a period of saturation. Cleveland (in press) extends the data in Figure 5-7 to include yearly observations from 1910 through 1988. The extension of the data shows that saturation slows the rate at which increased use of energy is able to increase output (Figure P-3). These results indicate that the agricultural strategies that increased U.S. food supplies in the past cannot continue forever.

The declining quality of oil, agriculture, and other resources would pose little threat to the U .S. way of life if the relation between energy use and economic activity were weak, as claimed by most economists and politicians. But the relation between energy use and economic activity is stronger than most believe, and quantifying the strength of this relation is another foci of Beyond Oil. In Chapter 3 we describe three factors that determine the amount of output produced per unit of energy: the types of fuels used; the amount of energy consumed in the household sector; and the real price of energy. Quantitative analysis of these factors indicates that they account for 97 percent of the total variation in the amount of output produced per unit of energy in the United States between 1929 and 1983 (Figures P-3 to P-8).

The quantitative analysis of the amount of output produced per unit of energy is one of the most controversial aspects of Beyond Oil . When the book was first published, many analysts claimed that we underestimated the importance of energy conservation and technical change. Moreover, some claimed that the statistical results were spurious because the United States had access to an inexpensive supply of energy during much of the 1929-1983 period. They argued that the large increase in energy prices would loosen the relation between economic activity and energy use. Given sufficient time and incentive to adjust to higher prices, the pattern of U.S. energy use would resemble that of Europe and Japan.

Anticipating these charges, we explain clearly and strongly how assumptions built into the neoclassical economic model systematically underestimated the strength of the relation between economic activity and energy use. Furthermore, ten years of more data and research confirm our original claims. An analysis by Kaufmann (in review) finds that the same factors determine the amount of output produced per unit of energy in the other “big five” nations: France, Germany, Japan, and the United Kingdom. He finds that the amount of output produced per unit of energy in these nations can be accounted for by the same factors described in Chapter 3 (Figure P-4). The similarity of results is strong evidence that there are limits on the degree to which economic activity can grow without a corresponding increase in energy use.

The combination of resource depletion and a strong link between economic activity and energy use leads to the final conclusions of Beyond Oil, that the United States cannot continue to expand its per capita standard of living and its population. These limits are illustrated by a model of the U.S. economy in Chapter 4 and a model of U.S. agriculture in Chapter 6. The model of the U.S. economy forecasted that per capita GNP would rise through 2005, albeit at a rate slower than the postwar expansion, and decline slowly thereafter (Figure 4-7). Similarly, the model of U.S. agriculture forecasted that total crop production would rise through 2025, albeit at a rate slower than the USDA target (Figure 6-20). Although none of the models forecasted apocalyptic collapse, many claimed that the forecasts were too pessimistic because growth was slower than conventional wisdom. Data from the last ten years, however, indicate that the forecasts were not too pessimistic. Per capita GNP rose steadily during the last ten years but at a rate slower than the rapid postwar expansion (Figure P-5).

But even this economic growth probably overstates the increase in per capita standard of living. As described in Chapter 4, per capita GNP is a poor measure of the material standard of living.

Other indicators show that the U.S. material standard of living has stagnated or declined during the last ten years. The decline is most obvious when we examine the amount of output produced by each worker. The real GDP per worker has risen only slightly in the last fifteen years (Figure P6a). Similarly, the real hourly wage has declined steadily through the 1980s (Figure P6b). The danger decline in output per worker is described in Chapter 7. In a section titled High Productivity Versus Full Employment, we describe how the United States would face a trade-off between employing a small number of workers in highly productive, high-paying jobs, or employing a large number of workers in relatively low-productivity, low-paying jobs. Data from the last decade indicate that the United States has chosen the latter path.

The combination of resource depletion and a tight link between economic activity and energy use already has ended a century of rising per capita standards of living, population, and leisure time. The pinch is real, and many of the social changes that have swept through the United States over the past fifteen years are associated with the new “limits to growth.” The slow growth in labor productivity and wages have “convinced” husbands that it is socially acceptable for women to abandon their traditional role as housewives and to return en masse to the workplace. Similarly, the new limits on growth strained the willingness of taxpayers to foot the bill for the government services. Not willing to pay for them or do without them, voters elected Ronald Reagan and George Bush to maintain services, cut taxes, and balance the budget. Because such promises are impossible under the new limits to growth, the real U.S. government debt has skyrocketed (Figure P-7). Yet, even these social changes have failed to alleviate the new limits to growth. After rising steadily in the 1950s and 1960s, real family income stagnated in the late 1970s and 1980s (Figure P-8). In summary, the stagnation and eventual decline in the U.S. standard of living that is described in Beyond Oil is not pessimism, it is here.

Robert Kaufmann June 1991

Sources:

Cleveland, C.J. In press. Natural resource scarcity and economic growth revisited: Economic and biophysical perspectives. In Ecological Economics: The Science and Management of Sustainability. Robert Costanza, Ed. Columbia University Press, New York.

Cleveland, C.J. and R.K. Kaufmann. 1991. Forecasting ultimate oil recovery and its rate of production: Incorporating economic forces into the models of M. King Hubbert. The Energy Journal 12:17-46.

Cleveland, C.J. and Pendleton, V. In press. Are oil reserve additions declining? Yield per effort for oil exploration and development in the lower 48 US and Gulf of Mexico, 1946-1988. Am. Assoc. Pet. Geol. Bull.

Kaufmann, R.K. 1988. Higher oil prices: Can OPEC raise prices by cutting production? Ph.D. Dissertation. University of Pennsylvania.

Kaufmann, R.K. 1991. Oil production in the lower 48 states: Reconciling curve fitting and econometric models. Resources and Energy 13:111-127.

Kaufmann, R.K. In review. A biophysical analysis of the energy/real GDP ratio: Implications for substitution and technical change. Ecological Economics.