Welcome to the age of diminishing returns

Monday, October 20, 2014

Oil prices keep going down, but this is not good news

Originally published in Italian in "Greenreport" [14 October 2014]

Ugo Bardi


There is plenty of movement in the oil world: after five years of relatively stable prices, the legendary "barrel" is coming down from over $ 100 to under 90, and it looks like it will keep falling. What's happening? Has anyone found new resources? Or is it Saudi Arabia using the "oil weapon" to bring down Russia, the heir of the old "evil empire"?

In reality, it is nothing like that. There are no major new discoveries of oil in the world and the Saudi oil weapon is much less fearsome than it is normally described in the media. But, then, why are prices going down? There are good reasons, but we need to understand them and, more importantly, to explain why the likely future drop in oil prices would NOT be a good thing; indeed it could be a planetary disaster.

First of all, we should take into account that oil is a finite resource, but also that it is subject to the laws of supply and demand; it cannot escape the control of the entity we call "the market". So, we are seeing two contrasting trends in the oil market. One is the gradual depletion of the so-called "conventional" oil; that is liquid oil extracted at relatively low cost from wells. As a consequence, the production of conventional oil is static or declining almost everywhere. The other trend is the increase in the production of "unconventional" oil, that is combustible liquids which are obtained, for example, by treating oil sands, or biofuels, or "oil shale," the kind you obtain by means of the "fracking" process. 

Up to now, the rapid development of the production of unconventional oil - especially shale oil in the United States - has compensated ​​the worldwide decline in the production of conventional oil; it has, in fact, allowed production to keep growing. At the same time, many of the major economies are in recession and are reducing their energy demand. Italy, for example, has lost 25% of its oil consumption over the last five years, and the descent continues. Other economies, such as in Germany, are in trouble, even if not yet in recession. This causes a decrease in the world demand. 

So, the two factors - increase in supply and decrease in demand - go in the same direction: the market wants the price of oil lowered, and it goes down. We should also take into account that these phenomena are often heavily influenced by the perceptions of financial operators: if everyone thinks that the price of oil should fall, then it will fall. In practice, we risk to see not just a drop in oil prices, but also a true meltdown of the oil market, like that witnessed in 2008-2009.  

Many people would be tempted to believe that lower oil prices are a good thing, but it is not so. If we will see a repetition of the scenario of 2008-2009, the result can only be a disaster (as it was at that time). The problem is that oil resources are not all the same: to produce certain types of oil is very expensive. Extracting from tar sands or from oil shales, for example, is more expensive than extracting from traditional wells. So what happens if prices go down? It happens that extracting and marketing certain types of oil does not generate a revenue anymore. Then, those types of oil are not produced any more. Who would ever want to produce at a loss?  

In practice, if prices decrease, the world's oil production decreases: have you ever eard of "peak oil"? It is just this phenomenon: "peaking" does not mean running out of oil; absolutely not. It means that producing more oil is not as convenient as it was before, hence less is produced. Therefore, we see a peak in the production curve. That's peak oil.

And that's exactly what may happen in the near future. Oil at over $ 100 a barrel allowed the industry to maintain a fairly constant production - actually even to increase it slightly over the past few years. Oil at significantly lower prices does not allow it anymore, and it forces the industry to reduce production. This leads, among other things, to the closing of many refineries, as is happening in Italy.

In the end, it is perfectly possible that oil will cost less in the future, but also that we won't have the money to pay for it. There is nothing to do about that: it is the market, baby! But above all, the troubles come from our attitude that continues to make us believe that oil will last forever. It is not possible. Let's start thinking about that!

Thursday, October 16, 2014

The oil drama

Oil prices: data up to Oct 06 from EIA, updated to Oct 15 according to www.oil-price.net/

Are we going to see a repeat of the 2008 oil price collapse? It is still too early to tell, but, clearly, something is moving in in the oil market: something big; as I discussed in a previous post.

If prices really collapse, the consequences could be devastating for the profits of marginal producers, especially for "non conventional" resources such as shale oil, tar sands, heavy oil, deepwater and the like. Unless the dip were to be very short lived (as it was in 2008), it would necessarily result in a fall in the production levels. That would be, of course, a disaster for the world's economy.

The oil drama is playing in front of us: we can only watch as it unfolds.

Sunday, October 12, 2014

Peak oil is here: the view from Barbastro

Antonio Turiel, well known for his blog "the oil crash", speaks at the international meeting "Beyond Peak Oil" organized in Barbastro by UNED. It looks like we are staring straight at the peak's ugly face.

When I started working on peak oil, around 2001, it was an intellectual game that I played with others interested in the same subject. We listed resources and reserves, we made models, we plotted curves, we extrapolated data, and more of that. But the peak was always in the future. Some models had it in a few years, others in a decade or more. True, it never was a remote future, but it was not the present, either. We knew that the peak would bring a lot of problems, but we couldn't really visualize them.

Then, we discovered that oil was not the only resource destined to peak. We discovered that the peaking mechanism is very general and affects everything that can be overexploited. There was peak gas, peak coil, peak uranium and - in time - "peak minerals", which was the origin of my book "Extracted". Somehow, peak oil receded to just one of the many peaks expected in the future; still important, but not really so fundamental as we had thought at the beginning. I never lost interest in peak oil, but it sort of moved from a central position to the background of my interests.

But things change, and change fast. Two days of conference in Barbastro were a hard reminder that oil is still the most important resource in the world. At the conference, a number of impressive speakers lined up to show their data and their models on peak oil. Antonio Turiel, Kjell Aleklett, David Hughes, Gail Tverberg, Michael Hook, Pedro Prieto. From what they said, it is clear that the future it is not any more a question of arguing about resources and reserves, lining up barrels of oil as if they were pieces to be played on a giant chessboard. It is not any more a question of plotting curves and extrapolating data. No: it is more a question of money. We are not running out of oil, we are running out of the financial resources needed to extract it.

During the past years, the oil industry has spent enormous amounts of money to make an immense effort in developing new resources. Up to now, these resources, especially shale oil and shale gas, have done the trick, growing fast enough to compensate for the decline of conventional resources. But this success has been hugely expensive and it can only be short lived. As Arthur Berman said, "Production from shale is not a revolution; it’s a retirement party." Now, there is nothing on the horizon that could repeat the small miracle of shale oil and gas, which managed to postpone the peak for a few years. The party may well be over.

What gives the game away are the data showing that capital expenditures ("capex") in new projects are falling and that the industry is pulling out of the most expensive projects. It is a no-win game: the more you extract, the more you need money to keep extracting. But the more money you need, the lower are your profits. And when the mighty financial market realizes that profits are falling, then it is the end of the game: no money, no oil.

So, peak oil is here, in front of us. It may be this year or next year; or maybe even a little later. But it is not any more an abstract intellectual game: it is directly affecting our life. Look at the world around us: don't you think that there is something deeply wrong with the very fabric of what we call, sometimes, "civilization"? That something could very well be peak oil.

We started working on peak oil thinking that if we could have alerted the world of the danger ahead, something would have been done to solve the problem. We didn't succeed: something has been done, but too little and too late. Now we are going through the peak and looking at the other side. What we are seeing is not pretty; we can just hope that it won't be even worse than it seems to be.

I would like to thank David Lafarga Santorroman and the whole staff of UNED for their enthusiasm and dedication in organizing this second meeting on peak oil in Barbastro. For a detailed description of the meeting, see this post by Antonio Turiel (in Spanish)


Monday, October 6, 2014

Unleashing the oil weapon against Russia: how to destroy a great empire

The Pythoness of the Oracle of Delphi told to King Croesus that if he were to attack Persia "a great empire will be destroyed." Croesus did just that, but the great empire which fell was not the Persian one, but his own. 

Do you remember the old Soviet Union? Dubbed as "The Evil Empire" by Ronald Reagan in 1983, it disappeared in a puff of smoke in 1991, crushed under a mountain of debts. The origins of the financial collapse of the Soviet Union are rather well known: it was related to the fall of the oil prices which, in 1985, went down from the equivalent of more than 100 (today's) dollars per barrel in 1980 to about 30 (today's) dollars and stayed low for more than a decade. The Soviet Union was relying on oil exports for its economy and, in addition, it was burdened with huge military expenses. It just couldn't take a drop of more than a factor of three in its oil revenues. 

There exists a persistent legend that says that the downfall of the Soviet Union was engineered by a secret agreement of the Western Powers with the Saudi government who agreed to open the spigots of their oil fields in order to bring down oil prices. This is, indeed, nothing more than a legend. Not only we have no proof that such a secret agreement ever existed, but it is not even true that the Saudis played the role attributed to them. In the 1980s, Saudi Arabia, actually, tried hard to avoid the downfall in oil prices by reducing (rather than increasing) its oil output; without much success. (Image on the right from Wikipedia)

It is true, however, that after the first great oil crisis of the 1970s, the world's oil production restarted its growth around 1985.  The reasons for the recovery can't be attributed to the work of a group of conspirators sitting in a smoke filled room. Rather, it was the result of a number of new oil fields starting their production phase, mainly in Alaska and in the North Sea. This was the origin of the drop in oil prices and, indirectly, of the fall of the Soviet Union. (Image on the left from Wikipedia)

Today, Russia's oil production has recovered from the downfall of Soviet times and the Russian economy is highly dependent on oil exports, much like the old USSR was. So, a drop in oil prices could do a lot of damage to Russia. Given the political situation with the Ukraine crisis, there are speculations that the West is trying to bring down Russia by repeating the same trick that seemed to be so successful in bringing down the old "Evil Empire". Indeed, we are seeing oil prices dropping below $90 per barrel after years of stability around $100. Is it a fluctuation or a trend? Hard to say, but it is being interpreted as the unleashing of the "oil weapon" against Russia on the part of Saudi Arabia. 

However, the world of today is not the world of the 1980s. One problem is that Saudi Arabia has shown several times to be able to throttle production down, but never to raise it significantly higher than the present levels; one could even question whether they will be able to maintain them in the future. Then, there is nothing today which could play the role that Alaska and the North Sea fields played in the 1980s. It had been said many times that we would need a "new Saudi Arabia" (or more than one) to offset the decline of the world's oil fields, but we never found it.

Yet, there are good reasons to think that we could see a drop in oil prices in the near future. One factor is the downturn of several of the world's major economies (e.g. Italy). That could lead to a fall of the demand for oil and, consequently, to lower prices (something similar took place with the financial crisis of 2008). Another factor could be the rapidly growing production unconventional oil (largely in the form of "shale oil") is the U.S. This oil is not being exported in large amounts, but it has reduced the US demand of oil in the world's market. Coupling these two factors, we might well see a considerable drop in oil prices in the near future, although hardly a sustained one. So, would that be the "oil weapon" that will bring Russia to its knees? Maybe, but, as with all weapons, there are side effects to consider.

As we said, unconventional oil is playing a major role in maintaining the world's production. The problem is that unconventional oil is often an expensive resource. Then, in the case of shale oil, the decline rate of wells is very fast: the lifetime of a well is of just a few years. So, the shale oil industry needs a continuous influx of new investments to keep producing and it is very sensitive to oil prices. Its recent rise was the result of high prices; low prices might cause its demise. In contrast, conventional oil fields have a lifetime of decades and are relatively immune to short term variations of oil prices. If we see the situation in these terms, we might legitimately ask against whom the oil weapon is aimed. The US unconventional oil industry might well be its first victim.

History, as we all know, never repeats itself, but it does rhyme. King Croesus, at his times, believed the Delphic Oracle when he was told that he could bring down a great empire if he would attack Persia. He didn't realize that he was going to destroy his own empire. Something similar may be in store for us in the coming years: a drop in oil prices might well bring down a great empire. Which one, however, is all to be seen.

Monday, September 29, 2014

A Spaceship called Eschatology

This article appeared on "Virgin.com" on Aug 12, 2014.

Image from NASA

“Eschatology” is a Greek word meaning “the science of the end.” In ancient times, it used to be popular with theologians, but today it seems to have picked up interest to describe various kinds of catastrophes which could happen in the future. Things like giant asteroids falling on the Earth or, in the far future, the sun becoming so bright that it will cause the oceans to evaporate and wipe out all life.
Now, if eschatology means big, rapid and irreversible changes, you could argue that we’re going through a full-fledged eschatological event right now. It is a mineral eschatology caused by humans. Gigantic amounts of minerals have been extracted, processed, and dispersed in the atmosphere, in the oceans, and in the ground. It took hundreds of millions of years to create the ores we have destroyed in a few centuries. Hundreds of millions of years will be needed to recreate them – if indeed that will ever happen. The Earth is not any more what it used to be when humans first appeared on it, and it will never be the same again.

It looks like we’ve built a spaceship called eschatology that’s transporting us to an alien planet on a one-way trip. A planet hotter than the one we are used to living on because of the greenhouse gases generated by the mining and the burning of fossil carbon. A planet with many characteristics we might find very unpleasant: from the flooding caused by the melting of land glaciers, to the persistent pollution caused by the heavy metals and radioactive minerals we’ve dispersed everywhere. But perhaps the greatest difference is that in this new planet we won't find any more of the rich mineral ores which have provided us with energy and resources we used to build our industrial civilization.

We may be able to adapt to a hotter planet, although that could mean enormous suffering for humankind. Within limits, we can also clean up the pollution we have generated. But how to live in a planet without cheap mineral resources?
It is true that minerals are never destroyed – so they will still be there and, in part, could be recovered from industrial waste. But, in the long run, in order to keep mining we would need to mine the undifferentiated crust, and that would be unthinkably expensive in term of the energy required. To say nothing of the disaster it would be in terms of pollution. The essence of the eschatological event we are living in is that the time of mining is almost over, at least in the form we have known it for centuries. That is, from miners with their picks and helmets in deep underground tunnels.

But if eschatology means the end of something, it may also mean the beginning of something else. If mining is heading to an end, we can still have minerals if we are willing to change the wasteful and inefficient ways we’ve been using to get them. We must close the exploitation cycle, and completely recycle what we use. It is possible, but it needs energy – much more than we needed to mine pristine ores. This energy cannot come from fossil carbon: that would simply accelerate depletion and worsen the climate problem. We need clean and inexhaustible energy: mainly sun and wind.

It is unlikely that this energy will ever be so cheap and abundant as the energy that was provided by fossil fuels at the beginning of their exploitation cycle; so, we'll need to use it wisely. We'll need to be much more efficient than we are today: we'll need to create more durable industrial products, use energy carefully and substitute rare minerals with ones more common in the Earth's crust.

Clean energy, recycling, and efficiency. This set of strategies is our ticket for survival in this interplanetary trip. In the end, spaceship Eschatology could give us a chance to abandon the ever-growing and never happy civilization of today and create a new civilization which could have enough wisdom to live and prosper on what is available and no more.

– Ugo Bardi is Professor of Physical Chemistry at the University of Florence and author of Extracted: How the Quest for Mineral Wealth is Plundering the Planet (Chelsea Green Publishing, 2014). 

Thursday, September 25, 2014

A Cli-Fi Short Story: "the Human Eradication Plan."

With this post, I am continuing the exploration of the narrative approach to understanding the future, in particular about the effects of climate change (see here, and here). Here, I am reproposing a complete Cli-Fi short story that was originally published on this blog in 2012.

(originally published in 2012 on "Resource Crisis")

From: Earth Orbital Outpost
To: Galactic Central Command

Progress report: Human eradication plan
(note: time spans in this report are measured in Earth orbital revolutions. One Earth orbital revolution corresponds to 4e-10 Galactic years)

- Strategic Summary

The Earth Orbital Outpost is pleased to report to Galactic Command that the eradication of the creatures termed "humans" inhabiting the planet known as "Earth" is proceeding according to plans. The rapid warming of the planet obtained by the injection of large amounts of greenhouse gases in the atmosphere is expected to wipe out most large vertebrates within 40-50 planetary revolutions around the parent star. The planet will be ready for colonization by our species in a few thousand years; when the ecosystem will have been restored.

- The original (1st level) plan

Planet Earth was the object of several preliminary explorations before being selected as suitable for colonization. Upon reaching this decision, the Earth Orbital Outpost was set up with the purpose of facilitating the colonization task. The Outpost proceeded to study the planet, finding that it is dominated by a species, known as "humans", which has appropriated most of the planetary ecosystem productivity. Individually, humans turned out to be highly intelligent and it was soon clear that the species poses an important obstacle to colonization. A necessary step for colonization was therefore their eradication. The decision was reached also upon the consideration that, if left to themselves, humans were likely to reach a technological level sufficiently high to become a nuisance at the Galactic scale.

Several plans were developed to carry out the eradication program. It soon became clear that sterilization with neutron beams, carried out by the Galactic star fleet, was possible but expensive and, besides, humans were rapidly reaching a technological level sufficient to produce a significant opposition. Instead, it was found that humans could be eradicated at a much lower cost by warming the planet at temperatures high enough to make their survival impossible. That could be accomplished by exploiting the human habit of burning fossil carbon materials in order to obtain energy. According to initial observations carried out about a hundred revolutions ago, just letting humans to themselves would lead them to inject in the atmosphere sufficient amounts of greenhouse gases to cause a warming intense enough to destroy most large vertebrates.

In previous reports, we were pleased to describe that the plan was working. 50 revolutions ago, the concentration of greenhouse gases in the Earth's atmosphere had already picked up a trend of rapid growth and it was calculated that it would lead to the collapse of the ecosystem in less than a hundred revolutions. However, as mentioned earlier on, humans turned out to be remarkably intelligent and the brightest of them were able to identify and understand the ongoing process (that they usually referred to as "global warming.") Humans built up a sophisticated planetary monitoring system and created theoretical models of the atmosphere. At that point, they embarked in a planet-wide effort to stop global warming by curbing fossil carbon burning and deploying non-carbon based energy sources.

Having observed this development, it was necessary to alter the original plan and intervene more directly in the eradication task, although still doing an effort to avoid the enormous costs involved in deploying the Galactic fleet.

-  The 2nd level plan

Stopping humans from taking measures to avoid destroying themselves turned out to require a quite modest effort - completely within the resources available to the Earth Orbital Outpost. This result may be surprising and, indeed, some members of the Galactic Command had expressed doubt on being able to convince humans - individually very intelligent - to continue actting in ways that were leading to their destruction. Nevertheless, we succeeded in accomplishing this task.

The key element of our action has been the study and the exploitation of the human information network, that they call "the Web." It is a sophisticated planet-wide information system that has been fundamental for humans in developing their understanding of climate and diffusing this knowledge with their decision makers. However, we found fundamental flaws in the functioning of this network.

In particular, we found that the network is dominated by "super-nodes" which show a higher level of connectivity than most nodes. These super-nodes are called by humans "media" and sometimes "mainstream media". Surprisingly, we found that the supernodes are managed by humans who are quite unable to understand the basic elements of the functioning of the Earth's ecosphere. Even more surprisingly, we found that the humans in charge of these media nodes make no effort whatsoever to check that the information they diffuse corresponds to physical reality.

We also found that the humans in charge of managing the media supernodes are easily influenced by other groups of humans which are called "lobbies," whose role is not easily understood by us. We believe it has something to do with the abnormal interest of humans in a virtual entity that they have created and that they refer to as "money". Although the characteristics of this entity are obscure to us, it seems that humans (especially males) care about being associated with large amounts of this virtual entity and this, in turn, seems to have something to do with the behavior of human females. In any case, we were able to penetrate the human computing centers which produce this "money" and appropriate large amounts of it for our purposes.

In practice, it was sufficient for the Earth Orbital Outpost to take control of a small numbers of leading human individuals; whom we refer to as "avatars." This task was accomplished mainly by our control of large amounts of the above mentioned "money" entity. Using money, the takeover of these minds turned out to be extremely easy: we found little resistence on their part and no evidence that our operation was detected by other humans. Our avatars carried out several tasks, mainly providing the media super-nodes with fake data that contradicted the results of the previous scientific investigation on the degradation of the ecosystem.

A special operation that turned out to be extremely successful was to break into the database of one of their best scientific organizations (called by humans "climate research unit") and diffusing internal data exchanges all over the network. This operation generated considerable confusion among humans as it highlighted several uncertainties in the research; something typical of scientific investigation but that, apparently, most of them are not familiar with.

Assessment of the present situation

The takeover of the human information system (the "Web") by our human avatars was completely successful and we have been able to turn it into an instrument for our purposes. We are pleased to report that most human leaders have been turned into avatars under our direct control or are completely confused about the issue of global warming. It has been possible to relegate the discussion on this theme to only some minor clusters of the information network. All attempts carried out by humans to diffuse it outside these clusters are met by aggressive denial (humans turn out to be extremely aggressive for reasons that to us appear futile).

As a consequence of our takeover of the information network, all attempts of humans to stop the ecosystem destruction have been halted and appear unlikely to be restarted any time soon. The amount of greenhouse gases being emitted in the Earth's atmosphere keeps increasing. That is creating a rapid rise of temperatures, as confirmed by the recent observation of the near complete melting of the North Pole ice cap, a planetary feature that had been existing for several million years of planetary history.

It is clear that the Earth's system is heading towards a tipping point where rising temperatures will trigger a series of phenomena which will lead to runaway warming and to the total collapse of the ecosystem, even without further human generation of greenhouse gases. We have been monitoring the system evolution using climate modeling programs developed by humans, which turned out to be very sophisticated. According to these models, the tipping point could have been already reached or, in any case, will be reached within a few planetary revolutions. Therefore, we expect that the eradication of the human species could be fully accomplished within a few tens of revolutions.

Recent developments and recommendations for the future

Even though the Earth's climate tipping point is likely to have been reached, humans could still, theoretically, react with various countermeasures, such as restarting with the phasing out of fossil carbon burning, deploying non carbon energy sources, shielding the Earth from solar radiation, and so forth. In order to succeed, however, humans need first to regain control of the planetary information system. Our avatars on the planet report ongoing human efforts in this sense, perhaps triggered by the observation of the melting of the North Pole ice cap.

Given these recent developments, the coming planetary revolutions will be critical for the success of the human eradication plan. The Earth Orbital Outpost will keep the situation under strict and continuous monitoring. We do expect difficulties, in particular with our avatars. Their physical integrity cannot be guaranteed if their role in the eradication plan is discovered by humans not under our control. Nevertheless, they have done their job and their loss will not change the rapid evolution of the Earth's climate system.

Assuming that things continue to move according to plans, planet Earth will soon be free of humans and of most large vertebrates that could be a nuisance for colonization. We shall therefore proceed with the second part of the plan, which consists in cooling down the planet by deploying space mirrors. Subsequently, natural processes will re-absorb greenhouse gases and restore the planetary ecosystem in about one thousand planetary revolutions. At this point, the planet will be ready for colonization by our species. Ships with colonists are expected to arrive in about ten thousand revolutions from now. Then, a new planet will be added to our Galactic civilization!

End Report - The Earth Orbital Outpost 

(note: this storyt was inspired by Isaac Asimov's story "The Gentle Vultures" - 1957)