Some say Katrina's aftermath is glimpse of world's energy future

by Mella McEwen, Oil Editor
Midland Reporter Telegram

Soaring energy prices, long lines at the gasoline pump and supply shortages in the wake of Hurricane Katrina should serve as a wake-up call about the nation's energy situation.

"This is really the squall line in front of the big storm," said Jeffrey Brown, a Dallas-area independent geologist. He visited Midland recently to address the Forum for Exploration, Production and Acquisitions to discuss "Peak Oil: It's Impact on the Oil Patch Economy and on the U.S. and World Economies."

Brown, who is helping Matt Simmons and James Kuntsler prepare a presentation on the topic to be given in Dallas in November, believes the world is at, near or perhaps just past its peak of sustainable oil production.

It took, he noted, a coordinated effort of release from the nation's Strategic Petroleum Reserve and from the European Union to calm markets after the hurricane hit, an indication that capacity has been reached.

"I use Texas as a model for the future of the world's oil production," Brown said, noting that Texas production peaked in 1972 and has been falling at a rate of 2 percent a year since.

He took the formula devised by Dr. Kenneth Deffeyes, a retired professor from Princeton who has written two books on the prospects of falling oil production and its impact on world economies. Applying Deffeyes' method to Texas production, Brown said, was accurate to within one or two years. Deffeyes' methodology, Brown said, showed Saudi Arabian oil production at its peak and world oil production near its peak.

"Texas peaked when it had produced 54 percent of its estimated ultimate cumulative oil production. Saudi Arabia has produced 55 percent of its estimated ultimate cumulative oil production; they're at the same point Texas was at in 1972," he said.

This leaves oil and gas producers with two exploration models: Searching for small pockets of overlooked reserves in existing fields and 'mining' in areas such as the Spraberry, Barnett Shale and Canada's tar sands.

"You're not going to have many more billion-barrel oil fields left," he said. "You have to bring unconventional sources to the marketplace."

Brown figures that the world consumes the equivalent of 1 billion barrels of oil -- nuclear and fossil fuels combined -- every five days and every 30 days consumes the equivalent of the entire reserves of the East Texas oil field. Such consumption levels, he stressed, is utterly unsustainable.

"People need to realize we're about to enter a terminal decline in oil production," he said, resulting in painfully high energy prices. While oil producers will benefit, economies will be hard-hit by those high prices.

That is why, he said, investments must be made in other sources of energy, particularly wind energy, which Brown said is the best economic potential of renewable energy sources.

Americans must also downscale their way of life, he said.

"We've got a low-density lifestyle dependent on cheap energy," he said, where Americans drive $50,000 Hummers 50 miles to work and back to their $500,000 home. Instead, he said, the country should adopt the high-density style of some other countries, with commercial, retail and residential spaces in close proximity to each other. Of course, he said, that could result in less stress caused by traffic delays while less time spent community to and from work is more time spent with family.

"This spread-out suburban lifestyle we have is doomed," Brown declared. "In my opinion, everyone will have to start downscaling their expectations and their energy use."

This is, unfortunately, he said, reality. No one, Brown said, can honestly expect to have a continued compounded rate of growth in use of a finite resource.

It is even showing up at the supermarket, he noted, with the United States this year becoming a net importer of food. One reason, he explained, is that prime farm land is being paved over for development. Secondly, soaring natural gas prices have made it hard for farmers to lock in fertilizer prices for next year at affordable levels.

While he paints a dark picture of the future, he said it is bright for energy producers, who will benefit from high prices. That is why, he said, "we have a moral obligation to warn the rest of the country. They may not listen, but we will have at least tried."


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The Silent Oil Crisis

Published on Sunday, August 28, 2005 by PowerSwitch

The Silent Oil Crisis
By James Howard

In this article we look at how just because developed economies are not suffering like they did during the 1970s that the oil crisis has not already begun. The final oil crisis has begun, silent to us, but dangerously there.

Adjusted to modern day prices, the historical record price for oil was $80 as a result of the second 1970's oil crisis --- a crisis brought about by political circumstances, not geological realities. The 25th August 2005 saw the price for a barrel of oil pass $68, just $12 from that high. Lessons from history suggest that high oil prices mean bad news for the economy, thus our jobs and way of life.

Yet analysts feared the worst when oil hit $30, then $40, then $50, and then $60. Somehow strong Western economies have shrugged these prices off and we are left asking whether anything has really changed for the major industrial economies so dependent on cheap oil? At present we do not seem to be in the same dire straits that the 1970's oil crises brought upon the world.

Not that bad in the Western World

Apart from an increase in the cost of raw materials and in filling up the automobile, resulting in stronger inflationary pressures, making us (the Western World) a little less well off, it isn't that bad. We can still get all the food we want from the other side of the world, flights are still historically cheap, it isn't so bad that car drivers are sharing their daily commute, and economic growth has not gone into reverse - at least, not yet. The Boston Globe wrote recently:

"So far, expensive energy has not had much impact on the economic expansion. The US economy grew at a healthy 3.4 percent in the second quarter and most forecasters expect even stronger growth for the rest of 2005."

In the same article, Richard DeKaser, chief economist at National City Corp., a bank based in Cleveland, said that every $10 increase in the price of oil shaves roughly a half a percentage point off the economy's growth rate, and that higher oil prices would slow but not derail the economy. It might not be until a $100 barrel of oil emerges that a recession will be triggered. And a recession equals demand destruction.

I am not an economist but I suspect that if demand dropped off at 2 to 3% a year in line with an economic recession, and oil supply dropped off at a similar rate, then oil will stay at around $100 if we assume we pass the global peak in the rate of oil production. It doesn’t take Chevron to tell us that the era of cheap oil is over (although they do with their website and campaign willyoujoinus.com). (NOTE: go to this site... some very interesting topics being discussed)

Beginning of "The Great Decline"

"So maybe everything is fine until that $100 barrel mark. People talk of an oil crisis, but surely, since we are waiting for the $100 barrel, there is nothing to worry about. Right? Wrong. Around the world, silent to us, the oil crisis has truly begun. They are at the beginning of what some are calling ‘The Great Decline’.

Just as rising sea levels threaten to flood low-lying lands unable to protect themselves, rising oil prices threaten countries with weak (low-lying) economies. Rising oil prices are a rising tide, and there are many examples to look at. The countries that will be first affected by rising oil prices are those with a more youthful oil-dependent economy or those that do not have the economic strength – either as a nation, or as individuals, to cope with it.


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