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Thread: UK Industry Taskforce sounds alarm on Peak Oil

  1. #1
    Elite Member Fluffy's Avatar
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    Arrow UK Industry Taskforce sounds alarm on Peak Oil

    UK Industry Taskforce Sounds Alarm on Peak Oil

    by Chris Vernon on November 6, 2008 - 8:20am

    On Wednesday 29th October 2008 I attended a press conference at the London Stock Exchange. The meeting was convened by the "Industry Taskforce on Peak Oil & Energy Security" (www.peakoiltaskforce.net) to introduce a new report: The Oil Crunch, securing the UK’s energy future. September last year, former US Energy Secretary Dr James Schlesinger addressed the ASPO6 conference in Cork, Ireland with these words:
    The peakists have won ... to the peakists I say, you can declare victory. You are no longer the beleaguered small minority of voices crying in the wilderness. You are now mainstream. You must learn to take yes for an answer and be gracious in victory.
    The taskforce behind this report formed around 18 months ago.
    Click to download .pdf

    Wednesday's meeting proved Schlesinger right. A group of serious, respectable organisations, had just published a serious and respectable report, in a serious and respectable venue stating:
    The effects of peak oil will be felt in the next five years.The risks to UK society from peak oil are far greater than those that tend to occupy the Government's risk-thinking, including terrorism.

    The UK Government needs to re-prioritise peak oil – as the impacts are more likely to arrive first – before climate change.
    The Taskforce

    "no longer the beleaguered small minority of voices crying in the wilderness".

    FirstGroup plc
    – the world’s leading transport company. Annual revenue of over $5bn, 137,000 employees and carry more than 2.5bn passengers per year.
    Scottish and Southern Energy (SSE) – one of the UK’s big six electricity companies.
    Solarcentury – one of Europe's leading solar energy companies, specialising in design and supply of building integrated solar thermal and electric technology.
    Stagecoach Group – public transport group operating bus, coach, rail and tram services. Employs around 30,000 people with extensive operations in UK, US and Canada.
    Virgin – a leading branded venture capital organisation, has created more than 250 branded companies, employs approximately 50,000 people in 29 countries. 2007 revenue exceeded $22bn.
    Arup – a global firm of designers, engineers and business consultants with over 10,000 staff working in 37 countries.
    Foster + Partners – an international studio for architecture, planning and design.
    Yahoo - a leading Internet services company.

    These companies have come together in this taskforce with the commonly held belief that the threats to energy security are not receiving the attention they merit. Where have we heard that before? The aim of this report is to engage government on the peak oil threat and to alert other businesses and the public to the problem.

    I note the involvement of public transport and the absence of the private transport sector. This might say more about the state of the UK car industry than the sector's position on peak oil. Virgin's interest seems to stem from aviation and train businesses however the taskforce's chair is Will Whitehone president of Virgin Galactic, the company trying to create the world's first commercial spaceline. He did a very good job at the press conference presenting the report however (and I now regret not asking him) it eludes me as to how space travel sits with peak oil occurring within the next 5 years.

    The Context


    The context of the report was explained by Will Whitehorn. This was not just a response to this summer's extreme price rises but the result of a broad range of companies recognising something was up in the oil market. The unacceptable uncertainty in the future oil supply/demand spurned this research. The taskforce concluded that we are going to reach peak in the early part of the next decade and that this represents a serious threat. That conclusion is not new to regular Oil Drum readers. What is new is that a man like Will Whitehorn is saying it – with the support of those companies. The report is downloadable from the companies websites.

    Jeremy Leggett made an analogy between the credit-crunch and the coming oil crunch:
    If you could have imagined five years ago, eight companies across a big spectrum of British industry warning the government that five years hence – now – there would be a thing called a credit crunch because the financial institutions had been irrationally exuberant about their ability to manage really complex financial instruments ... had that happened, had they listened and exercised [proactively] the kind of leadership they now have exercised retroactively ... could we have softened the blow? The difference with the oil crunch is that, if our analysis is correct, there are three to five years where we could try and engineer a soft landing, begin the restructuring ahead of time.
    Risk

    The main body of the report consists to two risk assessments – two essays on the "Risk from Oil Depletion". The first from Chris Skrebowski making the case for oil supplies peaking within the early part of the next decade and encouragingly the second essay or risk assessment was provided by Royal Dutch Shell, authored by Jeremy Benrham, Vice-President Global Business Environment. Whilst not part of the taskforce Shell were willing to engage constructively. Shell's position is not as cornucopian as it could have been. They criticise the language of "peak oil", preferring to talk of sustained plateaus and muddy the waters somewhat by only referring to oil and gas production (around 135mbpd oil equivalent). However Shell also talks of: an "easy oil" supply gap, and say that by 2015 growth in supplies of easy oil and gas will no longer match the pace with which demand is growing.

    Perhaps the most interesting inclusion is Shell's criticism of the IEA World Energy Outlook 2007. The IEA's reference scenario calls for oil supply to increase at 1.3% per year to 2030. Shell suggest that this may appear reasonable as for the last 25 years supply has grown at 1% per year but go on to point out that non-OPEC growth provided more of this past growth than OPEC did. With non-OPEC production "levelling off the IEA seems to assume a growth rate of OPEC production that is double or more the rate we saw in the last 25 years. This is not likely to happen".

    It is a refreshing change to see an oil major publicly criticising IEA forecasts in this way.

    Skrebowski's analysis behind this report, whilst predicting a peak within five years is likely conservative. The IEA World Energy Outlook 2008 report due to be released Nov 12th but seen last week by the Financial Times prompted them to write:
    Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times. The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed.

    The IEA, the oil watchdog, forecasts that China, India and other developing countries' demand will require investments of $360bn (£230bn) each year until 2030. The agency says even with investment, the annual rate of output decline is 6.4 per cent.
    This 6.4-9.1% decline is more aggressive than the 4.0-4.5% decline rate used in the Taskforce's report.

    Scenarios

    The report distinguishes four qualitative global oil supply scenarios; growth, plateau, descent and collapse. Growth represents the position of ExxonMobil and Cambridge Energy Research Associates (CERA) which see production growing well beyond 100mbpd. Plateau represents Shell’s position, a plateau starting around 2015 and continuing into the 2020s. Descent represents the position of Skrebowski with a decline setting in within five years and collapse represents steep decline as some - possibly many - aged supergiant fields collapse.

    These scenarios are then mapped onto the UK with the required "Annual rates of oil replacement" calculated – and compared with the climate change scenario of achieving an 80% cut in CO2 by 2050. Critically both descent and collapse, the two scenarios thought most likely (descent more so than collapse), call for faster "replacement" than climate change. I presume it is this result that led to the taskforce to call on Government to "re-prioritise peak oil – as the impacts are more likely to arrive first – before climate change."

    Conclusion


    In conclusion, this is a ground breaking report, not so much for its content as for the companies behind it. Shell's inclusion is a very positive development. These are not a "beleaguered small minority of voices" but billion dollar, international companies, employing tens of thousands of people sounding the alarm bell.

    The Oil Drum: Europe | UK Industry Taskforce Sounds Alarm on Peak Oil

  2. #2
    Elite Member MohandasKGanja's Avatar
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    Oil demand has dropped pretty dramatically, though. Leading OPEC countries to scramble to cut production. We might have been at peak oil production a few months ago, though. Not now.

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    Elite Member Fluffy's Avatar
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    Most believe oil production peaked either in 2005 or Feb 2008.

    But anyway...
    Tuesday, Nov. 18, 2008 04:00 PST
    The perils of cheap oil

    My kids and I drove to Southern California (from Berkeley) and back this past weekend to visit my grandmother. Three tanks of gas in total -- averaging roughly $2.35 a gallon. At 16 gallons a tank, the cost of gasoline for the whole trip came to about $113.

    But if I'd made that trip in July, it would have gouged twice as much out of my wallet. Gas prices in California are half what they were five months ago. And like every American who has gone for a drive in the last couple of months, I'm grateful for that. When layoffs mount and stock portfolios crash, every penny seems to count just a bit more than in flusher days. Bloomberg News reported on Monday that in October, the U.S. cost-of-living recorded its sharpest drop, month-to-month, in 60 years. I witnessed that, loud and clear, on California freeways this past weekend.

    On Sunday, "60 Minutes'" Steve Kroft asked President-elect Barack Obama if the astonishing drop in gas and oil prices made dealing with energy issues "less important." Obama responded forcefully: "It makes it more important." He observed that there is a cycle of "shock and trance" in American attitudes toward energy. When gas prices go up, there's a "flurry" of activity, but when they go back down, well, never mind.

    That's exactly what I want to hear from my president, because the truth is that the current low gas and oil prices are engendering a false sense of security. We are being set up for an even more painful energy crisis in the very near future.

    Support for this thesis comes from the recently released World Energy Outlook from the International Energy Agency. The rate of production decline in existing fields is accelerating, to the point "that by 2030 the world needs to find and produce 45 million [new] barrels of oil a day."

    You don't have to be a believer in peak oil to recognize that developing that much new production will be a huge and expensive task. But at the moment, investment in new oil production capacity is getting hammered by the double whammy of low oil prices (which makes existing facilities offshore and in, for example, the Alberta oil sands, uneconomic) and the unforgiving credit environment, which is making it very hard to get the financing necessary to undertake new projects.

    James Herron, writing for Dow Jones Newswires, has a great look at how these factors are imperiling the prospect of squeezing new oil production out of the waning North Sea oil fields. Scores of smaller oil companies are finding that their business plans do not work in the current climate. The mere lack of action could even result in additional production declines.
    But one danger specific to the U.K. North Sea is that a prolonged trough in the oil price could lead to aging pipelines and platforms needed to tap new fields being dismantled early. "Existing infrastructure is very important for companies to sweep up the remaining reserves," said Wood Mackenzie's Thomas. "There is a danger that as companies review capital expenditure and budgets and look to control their costs, they reduce investment. If that's sustained over a long period of time it could cause long-term damage to infrastructure."
    OPEC, of course, has an obvious incentive for higher oil prices, but the same basic story comes through in the comments of Chakib Khelil, Algeria's energy minister and the current president of OPEC, as reported by the Financial Times.
    "Our objective is to reach a price of $70-$90... Because it's the price of the marginal cost for new developments, whether that's Canadian bituminous sands, the Brazilian deep offshore or even Venezuelan heavy crude. If we don't have $70-$90 in the next few years then eventually we'll go much higher [in price] because we will have no production from these deep reserves, from the bituminous sands or from the kind of reserves that need $70."
    Bloomberg News, also reporting on OPEC, notes that the drop in global demand for oil will likely result in a drop in global supply:
    "The current financial situation has pressured companies to cut their planned capital expenditure, which has sharply influenced the supply forecast," the group said. "All regions contributed to the downward revision," according to OPEC, with the biggest contribution from former Soviet countries.
    So where does that leave us? When economic growth resumes across the globe, demand for oil will surge once again. Only this time around, given the constraints presented by declining oil fields and the current apparent freeze in investment in new oil production capacity, the supply-demand equation will likely send oil prices shooting back up, perhaps even further than before.

    Which is why now is the time, more than ever, for government leadership that promotes conservation, energy efficiency, fuel economy, and increased production of renewable energy. Waiting until the economy recovers before tackling energy would be a huge, huge mistake.
    ― Andrew Leonard

    The perils of cheap oil - How the World Works - Salon.com

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    Elite Member MohandasKGanja's Avatar
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    I agree that this would be an excellent time to retrench and continue to explore other types of energy, as well as increasing efficiency. Big Oil, hasn't, and won't, play ball, though. Especially if statements by guys like the CEO of Exxon are any indication.

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    ^Well, they'd basically be admitting that their industry was in the process of becoming obsolete and that their shareholders should dump them.

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