Oil Ain’t What it Used To Be

So there I was, being bemused about why BBC radio has a programme called Archive on 4 and another called the Archive Hour, when I caught an episode called Driven on Archive on 4.

Whichever series it was, wasn’t, isn’t or might be, the episode was about driverless cars. Mainly the sociological aspect of driverless cars. Will we take to them? Will they change us? Can we cope with the idea of not being in control?

Not, you’ll notice, are driverless cars economically feasible? As in, how likely is it that a society that today can barely afford to fill potholes will tomorrow be able to maintain the level of complexity-investment needed to build and operate fleets of autonomous vehicles?

During the programme, a voice from archive-land intoned that there are (or were – it could have been an old voice) 5.5 trillion barrels of oil still out there. One assumes they brought this up to head off any carping from dreary sceptics wishing to know whether the BBC had thought about the laws of thermodynamics before editing-together 58 minutes of speculation about our glorious autonomous future.

Anyway. Oil. Not a problem. Billions of BTUs at our service.

Or not. There’s a school of thought that says that oil ain’t what it used to be. Yes, it’s basically the self-same stuff that comes in styles ranging from too-light-for-vehicles to too-heavy-for-anything. But what today’s oil will do for you just isn’t as good as what yesterday’s did.

Yesterday’s oil – think fields in pre-WWII Texas or the 1950s Middle East – virtually jumped into your lap and rubbed its head under your chin. It was wonderfully eager and absolutely able to turn itself into interstate highways, space programmes, suburbs, the Internet and everything else we’ve come to think of as the foundations of a dazzlingly bright future full of .… oh, I don’t know .… full of self-driving cars.

But today’s oil. Oh dear. Today’s oil is a curmudgeonly stick-in-the-sand. You have to pour so much money into getting it to come out to play that there’s barely enough money/energy left over to keep patching up the systems we’ve got, let alone put a Tesla in everyone’s cooking pot (or was that a chicken?).

The ‘fracking miracle’, for example, is all about it being a fracking miracle that outlets like the BBC never mention how the only folk making money out of tight oil are Wall Street bankers whose loans keep drillers afloat so they in turn can pan-handle for investors’ cash to spend on extracting for $55 dollars a barrel what they can sell for only $50.

Today’s oil is also a bit pants as a transport fuel. Fracked oil is too light. So, to ‘Goldilocks’ it, you have to mix it with stuff from elsewhere. More expense. Still-fewer net BTUs left over to keep the economy from resetting to a lower level of complexity. ‘Lower level of complexity’ being shorthand for most people being unable to afford a lifestyle where self-driving cars had either purpose or meaning.

There’s still a reasonable supply of conventional, Mark 1 civilisation-building goop left but that’s been getting less and less every year since 2005. Also, more and more of it stays in its country of origin. That means less energy for UK PLC and its autonomous dreams. And less income for the producing countries to spend on importing our war machinery – sorry, defence equipment.

What was that, Sooty? We could make the autonomous cars electric? Well we could, Sooty. But do you think the people promoting self-driving cars do much systems thinking?

What do they think about the likelihood that running Bitcoin, for example – an entirely digital phenomenon – already uses as much electricity as the whole of Ecuador?

If simply mining imaginary coins takes the same amount of juice as running the world’s 64th largest economy, how much will it take to run the control systems for tens of thousands of autonomous cars? And that’s merely powering the central software: you’ll still need to power all the roadside hardware, the plethora of cameras, sensors and processors in the cars, and all the rest of it. And we haven’t included building and running the cars yet.

No-one’s asking what the point is of doing all driving this. The best the BBC archive could manage was a bit of wishy washy guff about freedom to travel. The main point of mass motoring was to turn oil – basically a smelly, flammable substance with useful chemical applications – into food, housing, supermarkets, hospitals, universities, containerloads of plastic dreck from China and so on .… aka civilisation …. on a scale never before conceived let alone achieved.

Take away oil and you take away most of the point of having cars. I’ll bet that there are a thousand more-efficient ways of turning sunlight into civilisation than perpetuating the massively energy-hungry automobile system.

Tell you what, Sooty, maybe you could sprinkle some oofle dust on our policymakers to help them think more imaginatively. What’s that? You haven’t got any left because Elon Musk already took it all for his Mars programme?

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Scarcity and shortage

Several things make it hard to talk about Peak Oil these days. At the bright end of the Reasons To Be Cheerful About Oil spectrum, there are no zombies or Mad Max gangs on our streets. Some Peak Oilers were die-hard doomsters, so the absence of A-Grade harbingers of apocalypse surely proves that it has not, will not, indeed cannot happen.

Also, there are no shortages of fuel (or at least very few) to be seen. Commonsense decrees that Peak Oil and queues at petrol (gas) stations will go hand in hand.

But that’s just it. Scarcity and shortage are very two different phenomena. They exist at opposite ends of the supply chain.

Scarcity is when the supply of something is limited and no amount of money, technology or prayer will increase the flow rate.

Shortages happen when demand exceeds supply at the point of delivery. You might get a temporary shortage of fuel locally if a tanker driver oversleeps. Here in the UK, we’ve only had prolonged national shortages on two or three occasions since WW2: first back in the days of the OPEC oil embargoes and, more recently, when farmers and truckers blockaded refineries to protest high diesel prices in 2000.

Theory says that scarcity of crude oil shouldn’t lead to actual shortages. That’s because if the supply of crude gets tight, the markets send price signals up the delivery chain. So pump prices go up and in turn demand goes down. It’s that bloody Invisible Hand again.

Plateau

Except that right now, oil is getting scarcer. Conventional crude production is stuck on a plateau so that the short-lived gains from fracking in the US only make up for declines elsewhere. Total world liquids production keeps inching up but a lot of those liquids can’t do the same job as crude and you get the impression the IEA would count the coffee in the rigger’s flasks if it could in order to present an optimistic figure.

OK, what about demand? Well, the basic driver of demand – registered motor vehicles – is going up in leaps and bounds. Having taken 120 years to reach one billion combustion-engined road vehicles worldwide in 2010, we’re on track to reach two billion in under 10 years from now.

By rights, the price of oil should be ratcheting up rapidly so that all that demand will be satisfied without shortages arising at the point of delivery. Instead it is stuck sullenly around $50 a barrel. That’s barely enough to cover the cost of extracting a lot of the remaining conventional crude, let alone very high-cost resources like tight (fracked) oil or tar sand.

Sacrifices

The oil companies (and by extension everyone in the industrial world) are now caught between a rock and a hard place. The experiment with very high oil prices that lasted from 2011 to 2014 showed that consumers will cut back on fuel use rather than make sacrifices elsewhere in their budgets.

But without those high prices, oil producers can’t profitably extract what oil is available. They’re trapped. They can’t satisfy the all demand for $40 oil but if the price gets better from their point of view (i.e. higher) the demand goes away.

Conventional wisdom says that consumers will try to keep driving until their eyes bleed – partly because they have to to get to work and shop for essentials. But that’s no longer true.

People with sufficient money (which usually means capacity to take on debt) can upgrade to more fuel-efficient cars. Those who don’t have the means have to find ways to use less.

That is easier than people think. The average private car spends between 95% and 98% of its time unoccupied and stationary. Unless the vehicle is only used for essential trips – say commuting to work – there’s almost always a way to cut down on mileage. After all, the owner is only increasing their non-use of the vehicle by perhaps 1%.

But from the oil company’s angle, a 1% increase in vehicle non-use translates into a 20%-50% drop in that consumer’s demand for petroleum. You can see that in the 25%-30% falls in oil consumption in Greece and Italy, which have been at the sharp end of enforced conservation since the onset of the eurozone crisis in 2008.

Millennials

This has got huge potential to carry on for a long time. Certainly longer than most oil producers can live with. Millennials are generally happy to take their own sweet time getting a driving licence and even then it’s not a given that they’ll immediately enter the car market. Ride-sharing among commuters has barely got started and it could increase rapidly if real incomes keep falling and fuel costs rise.

Boiled down to brass tacks, the problem is this. Crude oil is scarce and it’s getting scarcer. The reason there are no queues at the pumps is that scarce crude creates a shortage of affordability. That is because the alternative ‘high tech’ petroleum sources, like tight oil, kill their producers unless the global oil price rises to the point of driving marginal consumers out of the demand pool.

Imagining that people will overcome their inability to afford cheap petroleum by switching to electric or hydrogen cars is on par with Marie Antoinette’s brainwave about getting the starving poor to eat cake instead of bread. (Yeah, yeah, I know that’s a mistranslation of cake. But that’s to say that even la Reine Marie was smarter than today’s economists and policymakers. And look what happened to her).

Finally, this is much, much bigger than something that’s just an awkward predicament for the automobile industry and its consumers. Oil is the master resource. It is essential for extracting other fuels and feeding the world. It built the bulk of today’s civilisation’s infrastructure (more than half of which didn’t exist yet when I was born in the mid 1950s).

Oil scarcity will heavily constrain humanity’s ability to unhook itself from oil dependency. For a detailed analysis of how that works in the macroeconomic context, read Oops! Low oil prices are related to a debt bubble on Gail Tverberg’s Our Finite World site.

And if you start seeing queues for fuel in more OECD countries, give a little smile. As bad as that will be, at least it will be a sign that the energy crisis has reached the point where people need to stop pretending and start dealing with it.

Taking the fracking Mickey

Fog, mist or hazy darkness. An energy system that has passed its sell-by date and is slowly evanescing into darkness.

You have to hand it to Dr Chris Cornelius. Calling his offshore fracking business Nebula Resources betrays a wry sense of humour if ever there was one.

Of Nebula’s plans to explore for tight gas in the Irish Sea, Dr Cornelius said:

“We’re very comfortable that the resource is there and the numbers are absolutely ginormous. Is any of that exploitable? That’s the billion dollar question and we won’t know that for many years.”

Quadranting has to assume that the resource being referred to is gas rather than the credulity of investors. After all, Wall Street has successfully strip-mined the latter in the US. Fortunes have been made in the shale gas business. But all too often it was from flipping leases and selling derivatives based on nebulous expectations, rather than selling gas at a profit.

Of course, a big rise in gas prices could easily turn tight offshore gas into a viable game for the frackers. Good for them. But, if you’re a customer, that’s the economics of ‘let them eat cake’.

In space, nebulae form when suns burn through virtually all their fuel. These stars finally eject their outer layers in a bright shell of gas, which lasts a few ten thousands of years before diffusing into the surrounding vastness. In another five billion years, it will happen to our own sun.

Right now, it’s a pretty close analogy to the experience of the oil and gas industry. As it burns through the last of the cheap reserves, fracking and arc tic exploration become the last, bright, hope of holding everything together.

But going after ever harder, deeper and more difficult resources is really just the final flourish of a burnt-out system. Dr Cornelius is clearly a smart guy. If he’d wanted to suggest that offshore fracking is really is hot stuff after all, he could easily have named his company Corona (after the superheated plasma surrounding the sun).

But as it’s called Nebula, I guess we’re being invited to draw our own conclusions.

Syria – the problem and the pretext

The on-going kerfuffle over Syria is as much about gas as about anything else. Not sarin or some other weaponised chemical cocktail. No, we are talking about good old natural gas.

Syria is the focal point of rival plans to pipe natural gas into Europe. Plan A would pipe gas from Russia via Iran. Plan B would pipe it from the Persian Gulf. Assuming that only one pipeline gets built, its backers can hold Europe to ransom over energy supplies for years to come.

The Gulf gas exporters need a stable, friendly Syria through which to pipe their gas. Should Syria remain pro-Russian, or break down into a collection of warring fiefdoms, the Gulf pipeline would be pretty much a non-starter. Without it, Qatar and the other regional exporters have to liquefy their gas and export it by tanker. That is expensive and vulnerable to Iran’s potential to disrupt shipping in the Straits of Hormuz.

For Russia, anything less than a West-backed military occupation of Syria is a win. Russia can still pipe gas directly across its Western border with Europe. Blocking the gulf routes would be a bonus, though. That would give it a near-monopoly on the European market. And, as extra icing on the cake the option of a Mediterranean outlet to the increasingly energy-desperate southern European periphery.

Hence the outbreak of brinksmanship over chemical weapons.

In today’s world, 100,000 deaths from explosive chemicals is a problem. 1,000 deaths from poisonous chemical gas is a pretext. Unexpectedly for the US administration, the thing the gas attack was supposed to be the pretext for – an escalating US-led military involvement in Syria – has not happened.

Putin’s assessment of public opinion in the West turned out to be very astute. Apart from France, which gets three-quarters of its electricity from nuclear energy and needs US support to secure its North African nuclear fuel supply route, no one in Europe had any appetite to go adventuring into another Middle Eastern military morass. Germany is trying to get off the fossil energy hook as fast as possible, while the UK Government has perhaps recognised that Royal Wootton Bassett was, in its understated way, a watershed for Britain’s electorate.

As for the US, the Big Lie that it is foisting on its citizenry, about fracking its way to energy independence, has backfired in this instance. Why go to war over a right of way for energy on the far side of the world if you are being told you have 100 years of bounty under your own soil?

Of course, this is not the end of the Syrian civil war, nor of the widening spider’s web of political, ethnic, economic and religious cracks across the Middle East, nor of the deepening energy predicament undermining Europe’s status quo.

The main change is that, after last week’s Russian-American manoeuvrings, Europe finds itself a choice of devils to sup with. The questions being: which one and how long a spoon will we need?

Fracking silly numbers for UK gas

It’s quite hard to overstate the sheer idiocy of the claims made by UK shale gas’s most ardent promoters.

They’ve been in a state of pantie-twisting excitement ever since the British Geological Survey came out with its highly questionable estimate of 1,300 trillion cubic feet of frackable gas ‘neath the ageless hills of the North.

The big claim is that just 10% of that resource would be enough to maintain Britain’s gas consumption at current rates for 40 years.

They don’t say how many wells would be needed – probably because they’ve not thought about it.

Well, according to the US Geological Survey (which is like the British one, only bigger and with actual hands-on experience of shale gas fields), the average fracked gas well in Marcellus Shale yields 0.8 billion cubic feet of gas over its lifetime.

One of the marvellous tricks you can do with Google Chrome is type “130 trillion divided by 0.8 billion” into the omnibox and get the answer without needing to check you’ve entered all the right noughts.

It even spells out the result: “one hundred sixty-two thousand five hundred.”

So IF there’s 1,300 trillion bcf of gas up there, and IF they can get 10% of it, and IF the production rates are as ‘good’ as the US average, the North West can look forward to around 160,000 separate doses of fracking to get it all out.

Fracking well being drilled

This times 160,000 anyone?

If all the gas was under Lancashire, that’d be 60 wells per square kilometre, assuming they opened up every inch of the county not already under roads or buildings. For comparison, rig density in real-world fracking in the US is more like three wells per sq km (or 80 acres per rig).

Even if the volumes that bubble up in gasmen’s pipe dreams really are there in Britain, it’s clear that there’s physically no way to get out more than a tiny fraction of them. Not even if they turn the North West into the world’s biggest pincushion.

As for the economics of shale gas, they don’t add up either. At least, not for anyone except the City and a few big landowners like the Church of England. But that’s another story for another day.