I lived in Berkeley for sixteen years before getting around to stashing my five gallons of water and twenty cans of fruit cocktail. I’m as ready as can be for the big earthquake we’re all waiting for. But what I’m not prepared for—what no Californian save the odd self-reliant homesteader is prepared for, is the other Big One—peak oil.

Like it or not, oil fuels the engines of industrialized economies. In California, we burn through nearly 20 billion gallons of the stuff each year just driving around. Then there’s the oil we use to grow and transport food and pump water, the oil that fuels planes, trains and cargo ships, and the oil that is embedded in every computer, every inch of asphalt and every bit of plastic. Oil is everywhere; so imagine my surprise when I learned last year that it is running out–and that the federal government is doing nothing to prepare for this eventuality.

Speculation regarding the human impact of oil shortages runs the gamut from a deep recession to a second Great Depression to widespread famine and social disintegration. As an urban dweller with two kids, a forty-square foot yard and little ability to keep houseplants alive, much less grow my own food, words like “famine” and websites like “dieoff.org” tend to send waves of panic crashing against my brain stem.

So began my peak oil odyssey in search of an answer to one simple but gargantuan quandary: Is California prepared for peak oil?

Going going gone

There is no consensus among geologists as to how much oil is left in the ground and how much of it can be brought to the surface; on the contrary, energy market forecasters are embroiled in a bare-knuckles debate over who’s right and who’s crazy. On one side are those who say that we will never produce more oil than we do right now and should expect supplies to start dwindling rapidly by 2015 at the latest, at which point we are in deep trouble. Shell Oil recently joined their ranks: In January, its CEO called on the government to initiate a man-on-the-moon intensity project to prepare for the supply-demand gap Shell sees coming after 2015. The alternative, he warned, would be a cutthroat scramble for each country to secure limited oil and gas supplies for itself.

Not to worry, say peak oil skeptics at Cambridge Energy Research Associates (CERA)—we have plenty of time to come up with alternative fuels before demand outstrips supply, a tipping point they don’t see occurring before 2030. They accuse proponents of peak oil of being ill-informed alarmists, though they agree that the sooner we make the switch the better.

The so-called alarmists, namely the Association for the Study of Peak Oil and Gas (ASPO), counter that CERA analysts must be on “petroleum Prozac” to be capable of spinning bleak facts about rapidly declining oil fields into Pollyanish reassurances. ASPO co-founder Steve Andrews argues CERA’s track record is poor—for example, it predicted $60 a barrel oil prices for the beginning of 2008, only to see the price hover in the $90s before zooming to $143 in June.

One point of agreement: Global demand for oil is rising at the rate of one to two percent a year. With Americans devouring twenty million barrels a day and industrializing nations like China rapidly catching up, there is no doubt that, at some point soon, demand will outstrip supply. Even if Congress allows drilling offshore and in ANWR, the amount that could be produced in these areas wouldn’t come close to filling the supply-demand gap. Sixty percent of voters reeling from pump price shock are in favor of offshore drilling, a desperate measure Lake Superior State University professor Robert Blanchard likens to “burning the furniture to keep the house warm in mid-January.”

As the third largest refiner of crude oil in the United States and home to 206 oil fields, California has more petrol than most states; but we’re also the third largest consumer of transportation fuels in the world, just behind the United States and China, and we import 45% of it from abroad.

Petroleum isn’t the only fossil fuel that is approaching retirement. Domestic production of natural gas, which provides 42% of California’s electricity, has been flat since 1990. California imports 86% of its natural gas from other states and Canada. With more states turning to natural gas as a cleaner alternative to coal, the California Energy Commission warns that demand is rising faster than producers can keep pace and that a shortage by the year 2017, along with a doubling of prices, is likely.

Energy forecasting is a tricky business. We already feel the effects of a tight oil and gas market when we fill up our tanks and pay our PG&E bills. But it’s hard to predict when exactly the supply crunch will really start mangling the economy. I propose heeding the advice of a team of risk management analysts who wrote a 2005 report on peak oil for the U.S. Department of Energy (the “Hirsch Report”) warning of “extremely damaging” economic impacts if we do not have a Plan B in place ten to twenty years before the peak. The Hirsch Report concluded that, because the timing of the peak is uncertain, the only way to avoid major economic upheaval is to undertake a “crash mobilization” as soon as possible. Since authoring the report, Robert Hirsch has gone on to state his opinion more starkly: In an interview with Global Public Media in November, 2005, he said, “The more you think about and the more you look at the numbers, the more uneasy any observer gets…The risks to our economies and our civilization are enormous…This is an incredibly difficult and incredibly severe problem.” Hirsch’s message is clear: Peak oil will happen soon enough that we should be worried, very worried, about how the end of easy oil will impact life as we know it.

Feast or famine

The biggest oil and gas guzzler in the Golden State may surprise you—it’s the food we eat. California’s eleven million acres of cropland produce more food than any other state—half of the nation’s fruits, vegetables and nuts originate here, as do one out of every five glasses of milk. But the $32 billion a year agricultural industry is heavily dependent on fossil fuels, a fact that is just beginning to weigh on the minds of thrifty farmers alarmed by recent spikes in the price of petroleum-based pesticides, fertilizers and diesel fuel. In a recent issue of Ag Alert, the state Farm Bureau’s weekly newsletter, farmers bemoaned record high prices for diesel and said they are looking to shift to crops that require less tillage. The article quoted several growers who claim to have done just about everything they can to reduce their energy inputs.

They ought to talk to Russ Lester, an organic walnut farmer in Winters who has committed to becoming energy self-sufficient by 2012. Lester gasifies his 820,000 pounds of walnut shells in the futuristic-sounding “BioMax 50” machine, which converts this agricultural waste into $40,000 worth of electricity.

With enough BioMaxes, California could, theoretically, grow enough food to feed itself—if it stopped exporting its products all over the map, transitioned entirely to organics (currently a mere five percent of our harvest), converted its cow manure into bio-gas and stopped allowing sub-divisions to be built on prime farmland. Those are big ifs and they’re not even the biggest problem–how to get the food from the Central Valley to the distant population centers.

Russel Efird, president of the Fresno County Farm Bureau, is concerned about the skyrocketing costs of pesticides and fertilizers and fears that a shortage of any single input that lasts for longer than a week could devastate crops. He’s also worried about transport. “If I can’t get my harvest shipped to Los Angeles, it rots,” Efird notes. Nonetheless, he scoffs at the notion that California would ever move toward a self-reliant agricultural system. Consumers want their year-round fresh produce, he says. And some states, like Nevada, are almost entirely dependent on California for food–we can’t just cut them off.

Despite the threat to our food supply, the issue of peak oil and gas is not on the radar screen of most agricultural policy analysts in Sacramento. My inquiries to the Department of Food and Agriculture, the Senate Agriculture Committee, the Assembly Agriculture Committee, and the Future of Farming Select Committee yielded variations on the standard response of “huh?”. Nor did the Western Growers Association have anything to say on the subject.

Just when I was beginning to wonder if Sacramento existed in a parallel universe not subject to geological realities, I came into contact with Steve Schaffer, director of the Office of Agriculture and Environmental Stewardship of the Department of Food and Agriculture. Schaffer is my kind of bureaucrat: When I mention a statistic I read in Michael Pollan’s The Omnivore’s Dilemma, Schaffer whisks his copy off the shelf, looks up the citation and reads the entire page, with feeling.

Schaffer agrees that peak oil is a critical issue and dredges up an old (but still valid) study showing that the agricultural sector gobbles five percent of all oil, natural gas and electricity. And that’s just the energy needed to grow the food and ship it to first-line processors; it doesn’t count the many miles that food will still travel to packagers, distributors, supermarkets and, finally, to homes, a journey that averages 1500 miles. When you add up all those detours, you’re looking at an industry that Cornell professor David Pimentel estimates requires 400 gallons of gas to feed just one of us for a year.

I did a little calculation using Pimental’s 400 gallon figure: How much would we Californians, who drive our 20 mpg-vehicles an average 11,000 miles a year, have to reduce our driving in order to free up enough oil to keep us fed? Answer: Three-quarters. Got bike?

In a pinch, the State of California has the authority to seize control of in-state petroleum stocks and allocate them for emergency services and agricultural production. That makes me feel a little better. But ultimately, the state cannot allocate what it does not have. Meanwhile, the federal government’s 727 million barrel strategic petroleum reserve, if drawn down at the rate of a million barrels a day (which would meet a scant five percent of national demand), would last for a year and a half—barely enough time for suburbanites with big yards to get their Victory Gardens sprouting.

This year, the State Board of Food and Agriculture is embarking on a long-range sustainability planning process that will look at how to reduce farmers’ reliance on fossil fuels and bolster regional food economies. That sounds nice, but the Board is an advisory body with no regulatory authority. And with most agricultural spending for the next five years already spoken for by the 2007 Farm Bill, it is unclear where the resources for bold new initiatives will come from. (Note to self: Buy a farm).

Get weaned fast

California’s passage of the Global Warming Solutions Act of 2006 puts us in the forefront of conservation programs and technological initiatives to find less carbon-producing alternatives to fossil fuels. But will it all be too little, too late? The timeframes for reducing our carbon footprint are measured in decades, not years, yet oil and gas shortages may be just around the corner. And the alternative fuels being touted as planet cooling elixirs will not be ready for wide-scale commercial development soon enough, if at all, given the hefty land and water requirements for growing bio-fuel feedstock.

According to Steve Schaffer, an acre of oil seed crops will produce between 60 and 120 gallons of biofuel. Algae does a lot better: 1000 to 1500 gallons per acre of everyone’s favorite green slime. Still, no matter what the feedstock, it takes an awful lot of energy to grow and distill it; this energy-in, energy-out tradeoff is a dilemma that can only be minimized, not overcome, according to an unfortunate little principle known as the first law of thermodynamics which, to make a long story short, says that you don’t get something for nothing.

Still, Schaffer is optimistic that biofuels and other high-tech innovations will come to the rescue in time. David Fridley is not. Fridley, a scientist in the Environmental Energy Technologies Division of Lawrence Berkeley Labs, says our planet simply does not have enough vegetation to generate more than a small fraction of our energy needs. And he fears that that a desperate rush to maximize biofuels will result in food shortages, soil erosion and the clearing of carbon-trapping forests. Fridley’s opinion was corroborated by a pair of studies published in the journal Science in February that concluded that growing corn for ethanol or clearing rainforests for other biofuel crops would result in even more global warming than continuing to burn gasoline.

But Fridley and other skeptics are getting drowned out by biofuel enthusiasts. California passed a law in 2005 that calls for an in increase alternative transportation fuel use to nine percent by 2012 and more in future years. Even if we meet that goal, that still means we need eighteen billion gallons of petrol a year in 2012—where will it come from?

California, like most states, has invested much less in mass transit than in its 170,000 miles of roadways. Recognition of the need for vastly improved mass transit is dawning, but the money just isn’t available, and this year’s $15 billion deficit doesn’t bode well for new transportation investments. If voters pass a $10 billion bond measure in November, we’ll be well on our way to having a high-speed rail system that connects Los Angeles, the Central Valley and the Bay Area, but not for another ten years. And the rail system is designed to carry passengers, not freight, for which we will remain dependent on diesel-fueled trains and trucks.

As for natural gas, the state’s Renewables Portfolio Standard requires a 20% increase in energy production from renewable resources by 2010. But according to the Energy Commission, the state is not on target to meet this goal, meaning ongoing reliance on natural gas. And, as the Energy Commission points out in its 2007 Integrated Energy Policy Report, all of our current electricity conservation measures will eventually be erased by the growth of the population from 37 million today to 54 million by 2040. More people driving bigger vehicles to bigger homes located further from urban centers—even a Hummer-driving McMansion owner would have to admit that the trend is unsustainable, and all the compact fluorescent bulbs in the world aren’t going to alter the equation.

“Sleepwalking into the future”

Part of the reason California is moving slowly to wean itself from fossil fuels is that officials, to the extent they are even aware of the peak oil and gas dilemma, seem to think we have far more time than we actually do. The California Transportation Plan 2025 puts peak oil at mid-century and sets forth a gradual transition toward oil independence. State planners rely on energy forecasts provided by the U.S. Energy Information Administration (EIA), forecasts that have, according to ASPO, proven overly optimistic time and again. “The EIA assumes that the world will supply it if we need it,” says Dave Cohen, a columnist on ASPO-USA’s website. As far as the EIA is concerned, Americans in 2030 will be guzzling 25 million barrels of oil a day, a forecast that seems quite divorced from reality.

The one very important fuel conservation measure California has tried to implement—raising fuel efficiency standards above federal standards—is still being blocked by the EPA. If the state’s lawsuit against the EPA is successful, we will save almost four billion gallons a year by 2020. That sounds like a big number, but in fact it’s only a fifth of our current petrol use. And if we’re going to stay ahead of the peak oil curve, we’ll need to wean ourselves long before 2020.

Astonishingly, oil conservation no-brainers like lowering the speed limit are non-starters politically. One senate energy committee staffer actually laughed aloud when I asked him if restoring the 55 mph speed limit was on the table. Meanwhile, the current fiscal year budget redirects $1.3 billion in dedicated transit funding to non-transit purposes. For all the increased awareness galvanized by the threat of climate change, there is still resistance to plucking the low-hanging fruit, let alone making the truly difficult changes that will eventually be forced upon us. Analysts at the Energy Commission have made clear in their reports that the only path to energy security entails high-density, mixed-use neighborhoods connected by reliable mass transit and widespread implementation of stringent building, appliance and vehicular energy efficiency standards. But few in the legislature or the governor’s mansion seem to be listening.

Think globally, buy locally

So is anyone trying to spare us a peak oil meltdown? Local peak oil task forces are springing up all over the state, studying their community’s vulnerability to energy constraints and recommending ways to soften the blow. The Oakland Oil Independence by 2020 Task Force is pushing for the city to electrify its transit system with power provided by a Community Choice Aggregation (CCA) system run jointly with neighboring Berkeley and Emeryville. The CCA would purchase power independently (though it would still be transmitted to customers by PG&E) and would be tasked with ensuring that 50% of its electricity is from renewable resources by the year 2017. San Francisco and Marin counties are already moving forward with their own CCAs, and the idea is being floated in several other counties, including San Diego, Santa Barbara and Mendocino.

The Oakland task force is also recommending a “back to the future” approach to urban redesign—essentially, the transition to a network of densely populated, streetcar-interconnected neighborhoods in which people live, work and shop, thereby reducing or even eliminating the need for private vehicles. Oakland task force member Dave Room says, “Oakland residents are egregiously dependent on trucks bringing the things we need on a daily basis.” Room believes that the days of supply chains that stretch 6000 miles from Hong Kong to the Ukiah Wal-Mart are numbered. That means most of the things we need—food, clothing, building materials—will have to be made right here with regionally available raw materials.

Meanwhile, across the bay, the San Francisco peak oil task force is entertaining similar notions—how to keep the economy afloat, the lights on and the food coming in once we’re on the downside of the peak oil curve. Task force chair Jeanne Rosenmeier says San Francisco is in reasonably good shape with its mass transit, most of which is already electric. She says the task force will focus on transportation, food, urban infrastructure and the economy, and will try to assess potential impacts on tourism, an industry that employs 17% of residents and generates $473 million in taxes. (Statewide, the tourism industry is the fourth largest employer and generates $5.6 billion in state and local tax revenues).

San Francisco Supervisor Ross Mirkarimi, who authored the peak oil resolution and the ordinance banning plastic bags, wants to see San Francicso working with other Bay Area municipalities and transportation authorities on a regional strategy for preparing for peak oil. Mirkarimi fears our society is “sleepwalking into the future” and that local government must lead the way in reducing our reliance on fossil fuels.

In addition to the official task forces in San Francisco and Oakland, activists from Los Angeles to Humboldt have formed citizen groups that are educating local leaders and residents about peak oil and promoting backyard and community gardens as a first step toward local food security. And Marin County is already in the process of implementing its “Fossil Free by ’33?” sustainability blueprint (note the telling question mark that punctuates the title).

Even the notoriously car-centric southern half of the state seems to be stirring from its slumber: In its Draft 2008 Regional Transportation Plan, the Southern California Association of Regional Governments cites “energy uncertainty” as a key driver behind its call for land use strategies that reduce the need for private vehicles and an investment of a staggering $34 billion in mass transit improvements and $18 billion for an alternative technology-based goods movement system.

“They get it,” says Huntington Beach Mayor Debbie Cook, who has made it her business to spread the gospel of peak oil to elected officials and urban planners across the nation. Cook is troubled by the disconnect between what planners know we need to do and what is feasible politically. “It’s such an incredible challenge, yet it’s so under the radar screen,” Cook says. “How could the government not be screaming from the mountaintops?”

Indeed, few in positions of authority are whimpering, much less screaming, from any mountaintops. The Hirsch Report and a similarly dire analysis in 2007 by the Government Accountability Office (GAO) have been ignored by all but a handful of mavericks who formed the Congressional Peak Oil Caucus. Caucus co-chair Roscoe Bartlett (R-Md.) says the information contained in the GAO report is “not well appreciated or well understood” and believes it will take presidential leadership to get this issue on Congress’ radar screen. For her part, Senator Diane Feinstein sent a letter to Energy Secretary Bodman in February asking him what, if anything, his agency has done in response to the GAO report. As this article goes to press, Bodman has not replied. (TK)

In any event, cities that have awakened to the reality of peak oil are not waiting around for the federal government to act. Sebastopol, a town that relies on electricity to pump water from deep wells, is converting to a solar-powered system, running its diesel fleet on bio-diesel and developing a training program to be self-reliant in the event of a natural disaster. Sebastopol residents will also soon have access to a small fleet of hybrid plug-in electric pick-up trucks, courtesy of the Post Carbon Institute’s “solar car share” initiative. Julian Darley, president of the Post Carbon Institute, hopes to roll out a national solar car share, a move he believes can help drivers conserve as much as 90% of the gas they currently use in their private vehicles.

Ninety miles north, in the town of Willits, you can’t walk two feet down the main drag without seeing a “Shop local” sign in a storefront, though most of the goods inside the store were not made anywhere near Willits. Willits is also home to the one-acre Brookside Farm, another Post Carbon Institute project that grows, with minimal energy inputs, seasonal food for local consumption. At a recent meeting of the Willits Economic Localization (WELLS) group, the talk was of wheat—as in, growing it locally—and bicycles—as in, how to ride down Highway 101, which goes straight through the center of town, without getting killed.

WELLS members anticipate a day will come when semis no longer deliver food to their Safeway. Its founder, Jason Bradford, has gone so far as to calculate the number of acres of cropland in Mendocino County and calculate whether it is enough to support the entire population. His conclusion: Barely, and only if little to no meat is consumed. Bradford points out that, with only .43 acres per person, Mendocino has slightly less arable land per capita than Rwanda, a nation whose horrific recent history can be traced to the inadequate amount of land for subsistence farmers.

In San Francisco, Jason Mark is heading up the task force’s food sub-committee. Mark’s initial take is that there is enough cropland within a hundred or so mile radius of the city to feed everyone in it, though he will be examining the issue in more depth in the months ahead. I hope he’s right. I’m pinning my hopes on the odds that this man is right and that we Californians will choose to adapt rather than starve. As the climate change scientists keep warning us, there is very little time.

Sidebar: The oil in your water

Peak oil adds a new twist to an old resource allocation problem: The state uses 88 million gallons of diesel and vast sums of natural gas pumping water across long distances. And a growing number of water districts are eyeing desalination of sea water to supplement the dwindling Sierra snowmelt. The problem: Desalination requires massive amounts of electricity.

Sidebar: Victory Gardens Redux (photo op)

During World War II, Americans grew up to 40% of their own vegetables in backyard “victory gardens.” On July 1, urban gardeners broke ground on the San Francisco Victory Garden in front of City Hall. The garden won’t feed more than a handful of low-income residents, but its prominent location is symbolic of the Bay Area’s growing commitment to local food sovereignty.

Sidebar: Find your local peak oil group

www.lapostcarbon.org

www.sfbayoil.org

www.relocalize.net/groups/oilindependentberkeley

To locate other groups, check www.relocalize.net/groups

Erica Etelson is a journalist and peak oil activist who lives in 6694-acre Berkeley.

A shorter version of this article was published by the SF Chronicle on July 20, 2008.

The San Francisco Peak Oil Preparedness Task Force is committed to educating the people of San Francisco about oil depletion and how they can prepare.

We have teamed up with the Presidio School of Management (home of a well-regarded sustainability MBA) to host a series of six town hall meetings this August.

The town hall meetings are open to anyone but have been designed specially for the people of San Francisco.

The meetings will take place entirely online.

You will need a computer connected to the Internet and a telephone that can call a conference call service (long distance will apply but is otherwise free). For inexpensive long distance calls, consider www.skype.com, www.jajah.com or www.gizmo.com.

Here are the topics:

• August 4 — What’s Happening With Oil?
• August 6 — Growing Food in an Urban Environment
• August 11 — Creating Communities and Local Economies
• August 13 —Transportation in a Post Peak World
• August 18 — Personal Preparation for Peak Oil
• August 20 — Keeping Healthy in a Post Peak World

There are two presentations each day, which are identical to each other. Choose the one that works best for your schedule:

• 12 noon until 1pm  (Pacific)
• 7 pm until 8pm  (Pacific)

The series is designed to help answer the question, “Where do I start?” Each meeting incudes about 20 minutes of content followed by 30 minutes of Q&A. You can register here:

Wednesday, 16 July 2008
It ain’t over ’til the fat lady sings
— anonymous

The fat lady is warming up
— anonymous

I now believe that the hypothesis of a near or medium-term peak in the world’s oil supply is confirmed beyond any reasonable doubt. A shift in emphasis that speaks to reducing our demand for oil and examining alternatives to oil is now required. I will be taking that road in the future, leaving specific concerns about the oil supply behind.

Today’s story briefly summarizes why I believe “peak oil” is a done deal. The forecast¹ below reflects my own view. This analysis does not necessarily reflect the view of ASPO-USA.

Global oil (crude + condensate) production will peak at 76.5 ± 0.5 million barrels per day (b/d) in 2011, ± 1 year, with a probability of 80%. There is a 20% likelihood that output will peak at another level—not 76-77 million b/d—between 2009 and 2013.

This estimate intentionally says nothing about the shape of the production curve after the peak. I stand by this forecast and will not be revising it in the future. A “peak oil” forecast examines the supply-side of the oil market, but reality dictates that high prices will affect demand. My estimate can thus be viewed as a “low price” or “reference” case that ignores the effects of rising prices. See the Summary for a brief discussion.

Saudi Aramco Update

Business Week published Saudi Oil: A Crude Awakening on Supply? on July 10, 2008. Steve LeVine’s story should leave us with no doubt about what to expect from the Kingdom in coming years. Mysteriously, this story was not Front Page News in every media outlet all over the world.

Business Week received a  “detailed document obtained from a person with access to Saudi oil officials.” The new information simply confirms what I already knew, but independent confirmation helps us reach firm conclusions. PFC’s Roger Diwan, a respected oil analyst, vetted the Business Week document.

The data describes Saudi maximum sustainable capacity (table above). Capacity remains around 12 million barrels per day (b/d) for the next 5 years. An important shift occurs which should give us all pause.

One dramatic part of the data concerns a site called Ghawar, which has been the kingdom’s workhorse field for decades. It shows the field producing 5.4 million barrels a day next year, but the volume then falling off rapidly, to 4.475 million daily barrels in 2013. “That’s why Khurais is so important—to make up for that decrease,” said the oil industry executive who released the data.

The long anticipated decline (“twilight”) of Ghawar, the world’s largest oil field, is reflected in the Saudi Light data (blue circle). If these numbers are accurate, Ghawar output declines 17% between 2009 and 2013. This works out to about 4%/year for each of the next 5 years. Production of “good oil”—not Manifa heavy sour oil (gray circle)—to offset these declines is supposed to come from Shaybah.

Though 2014 is not included in the data, one of the fields listed—Shaybah—is to have a volume increase to 1 million barrels a day that year, from 750,000 barrels a day from 2009 to 2013, according to the oil executive.

Simple arithmetic tells us that additions from Shaybah after 2013 will not offset Ghawar declines for more than one year. Business Week’s source indicates that 10.4 million b/d is Saudi Arabia’s maximum sustainable production level between 2009-2013.  This number confirms what I wrote in The Saudis Are Blowing Smoke Again (ASPO-USA, March 12, 2008). Whether the Kingdom will actually produce at their maximum sustainable capacity is another question. See Sleepwalking Toward the Oil Precipice to learn about setting correct expectations about OPEC production in the coming decade (ASPO-USA, April 30, 2008). This passage is from Blowing Smoke—

Khurais and Manifa are very likely the last large (≅ 1 million b/d) increments that Saudi Arabia will be able to put on-stream—ever.  A “paradigm shift” means the Kingdom is not going to knock itself out raising crude oil production to (best case) levels beyond 10.5 million b/d in the medium term out to 2012 or so, and will likely not be able to do so thereafter—Ghawar will not last forever, despite what Mr. al-Naimi or CERA think. Investment in additional capacity available after 2011 would have to be on the drawing board now, but there is no indication that Saudi Arabia has thought that far ahead.

[I should add now that Khurais and Manifa must meet capacity expectations for the Business Week scenario to come true. Also, most Manifa oil will likely be refined in Saudi Arabia, not exported. The Saudis will export refined products beyond what they use themselves.]

The Saudi peak is now in sight. Saudi Arabia is the only OPEC member that can raise production by any significant amount in the medium-term to 2013. The longstanding argument about the Saudis is over.

The Non-OPEC Peak Is Assured

Oil supply growth outside of OPEC has slowed considerably in recent years despite a long list of new projects. Unfortunately, the amount of new oil coming on-stream looks better on paper than it does in actuality.

In February of this year, the EIA released its Outlook For Non-OPEC Oil Supply Growth in 2008-2009. The forecast boldly stated that the oil supply coming from outside the OPEC cartel would be 2.4 million b/d. The EIA has now revised their forecast as shown below (STEO, June 8, 2008). The revised numbers are shown in red.

In my now inaptly titled These Are The Good Years, I shaved 1 million b/d off the EIA’s numbers (ASPO-USA, February 20. 2008). Even this downward revision was insufficient. The EIA now puts growth at 1.06 million b/d for both years combined. Apparently I was overly impressed with paper barrels. It is not a mistake I intend to repeat. Predictably, the EIA has pushed most of the growth into next year. They are still playing the pollyanna game.

In my Good Years column, I reviewed all the reasons why the EIA and other analysts have been overly optimistic about non-OPEC output. Delays are one factor, but the main reason for lowering forecasts is the overall non-OPEC production decline rate, and underlying rates for particular countries like Brazil or Norway. Now comes news that the International Energy Agency (IEA) has recalculated the global decline rate.

Project delays averaging 12 months, coupled with global average decline of 5.2% – up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated [Nobuo Tanaka, IEA Executive Director].

It is crucial to understand that the decline rate outside of OPEC is higher than that within the cartel because non-OPEC oil includes the United States, the North Sea, Mexico, and other countries on the downslope of their production curves.  Thus, the IEA revision can only mean one thing: non-OPEC declines are accelerating. This is the main reason behind the EIA revision.

I am now going to switch gears and look at some data from the IEA’s 2008 medium-term report covering the years 2008-2013.

You can plainly see in the IEA’s data why I called my review of the EIA’s forecast These Are The Good Years (click to enlarge, look left). The data also reflect the peak of Russian oil production, for no “key non-OPEC increment” is listed for the world’s largest producer outside Saudi Arabia. I also believe the addition from the Canadian tar sands (ASPO-USA, January 2, 2008) has been overstated—it is the largest addition! A significant part of Brazil’s large contribution comes from increased sugarcane ethanol production.

I am going to revise the IEA’s forecast. First, I’m going to toss out their prediction for 2013. If we can’t estimate next year’s non-OPEC additions, how can we make a specific forecast for 5 years from now? Taking a closer look at the data, we see that OECD declines are minimal in 2009 and 2013. The 2009 estimate is understandable in light of the fact that both Atlantis and Thunder Horse are now on-stream in the Gulf of Mexico. Both fields will hit their maximum capacity (450,000 b/d combined) later this year or next year.

The 2013 estimate can not be trusted, however. Even if there are scheduled additions in the Gulf of Mexico in that year that compensate for OECD declines, we should keep in mind that both Atlantis and Thunder Horse were subject to 3-year delays beyond their initial start-up dates. The 2013 addition is suspect, and does not affect my peak estimate in any case.

Second, I am talking about crude + condensate, so I will toss out the ethanol, natural gas liquids (NGL) and refinery processing gains included by the IEA.

After revisions, I believe the net addition is approximately 500,000 b/d for the medium-term. If 2008-2009 are not the good years, and apparently they are not, then no amount of highly profitable light sweet crude from places like Ghana will save us. The non-OPEC crude + condensate peak in 2010 is all but assured.

The Rest of OPEC

We have figured out what to expect from the non-OPEC countries, and we know what to expect from Saudi Arabia. It is now a simple matter to figure out what the contribution from the rest of OPEC will be, add up all the increments, and make our “peak oil” prediction.

The next graphic shows the IEA’s take on OPEC growth in the medium-term (below, click to enlarge).

The IEA’s data shows that OPEC capacity rises 2.5 million b/d in 2008-2013, but we must revise that number based on the new Saudi data. In its June Oil Market Report, the IEA puts Saudi capacity at 10.65 million b/d. If we add 1.78 million b/d to this number (graph above), we get 12.43 million b/d. But we know that Saudi capacity never exceeds 12 million b/d in the medium-term, so the IEA has overstated that capacity addition by 0.43 million b/d. If the total OPEC addition is 2.5 million b/d, then the revised number is now 2.07 million b/d and the Saudi addition is 1.35 million b/d.

Regardless of the Saudi contribution, the “rest of OPEC” contributes 0.72 million b/d of new production capacity in 2008-2013. In the IEA’s pie chart (graph above, right), the numbers do not add up to the supposed total addition of 2.5 million b/d. This “miscalculation” is understandable in view of the impossibility of assessing future additions from Iraq or Nigeria.

Now is not the time to get into a heated argument about whether “peace will break out” in Iraq or Nigeria allowing some production increases. I am going to accept the IEA’s number of an addition of 0.72 million b/d outside of Saudi Arabia.

In Summary…

I am now in a position to add up the production numbers arrived at above, but first I need to establish a baseline. I will use the EIA’s data (here and here) for May, 2008. The EIA’s 4-month average for 2008 is 74.325 million b/d. Saudi production in May was 9.4 million b/d, up 300,000 b/d from April. I will add those barrels to the 4-month average to obtain a baseline of 74.625 million b/d.

We can now add our additions to the baseline. The non-OPEC increment is 0.5 million b/d, the Saudi increment is 1 million b/d, and the rest of OPEC increment is 0.72 million b/d. Together, these yield 2.22 million b/d. Adding this to the baseline, we get 76.845 million b/d. If you look back at both of the IEA charts, you will see that OPEC capacity additions fall off considerably in 2011, while non-OPEC additions drop after 2009. My view is that after 2011, we will never surpass production levels achieved that year.

The oil price is rising quickly. The higher prices preceding the peak are now dampening demand in the United States and elsewhere in the OECD. However, subsidized consumption growth outside the OECD (China, etc.) is still soaking up demand reductions elsewhere. I can not predict future oil prices with any certainty, and I can not predict future oil demand with any certainty, although I have discussed these subjects at length in other columns.

Obviously, I can not predict the exact shape of the world oil production curve in the next 5 years. What I can do, however, is establish a ceiling for world oil production should demand remain strong going forward. That ceiling, now and forever, is likely to occur in 2011 somewhere between 76 and 77 million b/d.

We are so close to the peak now that quibbles about the numbers cited here do not matter. My familiarity with the oil industry justifies many of the “hidden assumptions” I’ve made and did not have time to discuss. If you remain unconvinced that a peak of world crude oil production is not almost upon us, nothing I could say further will persuade you in any case.

As I said at the top, this is my official forecast and I will not revise it in the future. I will note for the historical record that in July of 2008 few Americans have come to grips with the implications of a permanent peak in the world’s oil supply despite the strong price signal we’ve seen for several years now. I have done all I could over the last few years to warn everyone about what’s coming. My conscience is clear even as my concern remains high.

For me, the time has come to examine measures we might take in the post-peak world.

Contact the author at dave.aspo@gmail.com

This advertisement, sponsored by Shell and CNN’s Principal Voices Series, appeared in Time and Fortune over Easter and was written by Jeremy Leggett, the climate change and peak oil activist.

“The bad news is that no combination of technologies can plug the energy gap if the peakists are correct. There will be a third, and last, global energy crisis. It will dwarf previous crises. Profound economic dislocation will result. The challenge for human civilization will be how we rebuild post-peak.”

It would seem so, given the CEO’s comments at the World Economic Forum in Davos earlier this year:

http://indpress.wordpress.com/2008/02/05/shell-ceo-admits-peak-oil-could-be-here-in-7-years

“Regardless of which route we choose, the world’s current predicament limits our maneuvering room. We are experiencing a step-change in the growth rate of energy demand due to population growth and economic development, and Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.”

He went on to criticize the sluggish response by policymakers to the coming energy crisis:

“Taking the path of least resistance, policymakers pay little attention to curbing energy consumption – until supplies run short. Likewise, despite much rhetoric, greenhouse gas emissions are not seriously addressed until major shocks trigger political reactions. Since these responses are overdue, they are severe and lead to energy price spikes and volatility.”

The effects of peaking are going to be felt long before 2015 (they’ve already begun) and if you wait to prepare, you will not have the options you do now.

If you aren’t preparing for peak oil, what’s stopping you?

Does Iraq have anything to do with the price of gasoline? Diesel fuel? Heating oil? Propane? Let’s examine what Hillary and Barack don’t want you to know and John is reluctant to reveal.

Let’s start with a statistic. At least 42 percent of the accessible conventional oil we humans need is located in one relatively small region on our planet. The Middle East. And the people who run this region do not seem to be in any hurry to send it our way. Get used to it. These people will produce their oil on their schedule. They are not going to produce their oil on our schedule. Existing drilling programs guarantee demand will exceed supply. Sometime between 2010 and 2017. Perhaps sooner. And they really don’t care if we do not like the price of gasoline.

Get the picture?

Let’s digress for a moment.

Natural gas. Heat in winter. Fertilizers to grow food. Electricity. Do you think heat and food and electricity are important?

Approximately 40 percent of the world’s known accessible natural gas is in the Middle East. The big players are Iran (38% of identified Middle Eastern natural gas) and Qatar (34% of identified Middle Eastern natural gas). The other big player in the world market is Russia with over 70 percent of the accessible EurAsian natural gas. In fact, between them, Russia and Iran control over 41% of the world’s known reserves of accessible natural gas. These people have made it very clear. They will produce their natural gas on their schedule. They are not going to produce their natural gas on our schedule. If we do not like the price we have to pay for natural gas – too bad!

Do you believe Putin really cares how cold it gets in European homes?

Reality check

Every nation needs a stable supply of oil and natural gas. Most nations want to increase their consumption of these fuels in order to grow their economies. Germany. France. England. America. Australia. Japan. China. India. We are competing for the same barrel of oil or cubic foot of natural gas. That is reality. As a result, we are in the midst of a brutal international competition for commodities that can not be easily replaced from available resources. That means higher prices for every fuel you purchase: gasoline, diesel, propane, kerosene, heating oil, propane, and natural gas. Ever higher prices will drive weaker buyers out of the market. Low income consumers will drive less or not at all. They will be cold in the winter. This is not some dreary prediction of the future. It is already happening!

Has Barack Obama been willing to discuss these issues? Why not?

Motivation.

Putin – the guy who runs Russia – wants to restore Russia’s position as a world military and economic power. He is using Russia’s oil and natural gas reserves as a tool to achieve his goals. He has already told the European Union – we have natural gas – and you don’t. So. If you want our natural gas, then support the Russian political agenda. That little reality is altering the international geopolitical balance of power. Putin is also courting Iran. Being very nice. Why? Because between them, Russia and Iran control a big chunk of the world’s oil and natural gas production.

Should we be concerned about Iran? Shia Iran. Muslim theology. The church is the state. And vice versa. Spiritual and political power are inseparable. Iran’s leaders have a vision. Shia Iraq marching in lockstep with Shia Iran. Backed by guns and money. Iran would like to control the Middle East. And its oil. And its natural gas.

Will you hear this from Hillary Clinton? No. She doesn’t want you to know.

China is being nice to Iran and Iraq. Why? China needs copious quantities of oil and natural gas to support its economic growth. China envisions itself as a world power. That adds to China’s thirst for fossil fuels. If China’s growth falters, there will be internal rebellion. So China is – and has to be – a very assertive consumer in world oil and natural gas markets. The Middle East is an obvious target for China’s aggressive diplomatic and military agenda. China has already signed agreements to acquire large quantities of Iranian oil. China is squabbling with Japan over access to Russian natural gas.

The European Union does not have enough oil or natural gas. It must acquire a growing percentage of its oil from the Middle East. Russia, Iran and Qatar are resources for natural gas. Iran, Iraq, Kuwait and Saudi Arabia are primary resources for oil. The EU can not survive unless it has strong consumer relationships with Russia and the nations of the Middle East. That reality is having a seminal impact on the EU’s diplomatic options.

The United States does not have enough oil or natural gas. Imports account for a growing percentage of the fuels we use each year. Although the United States has diversified its oil imports away from the Middle East, a growing percentage of future imports will have to come from this region. Like the European Union, the United States needs closer ties with Russia and the Middle East. That little reality has been ignored by all three candidates for President.

Consumer nations are in a precarious position. We are competing for the same reserves of oil and natural gas.

Shouldn’t we be hearing this news from John McCain? Why is he silent?

Iraq

Now. What happens if the United States fails to control the outcome in Iraq? We seem all too anxious to ignore the consequences. When we invaded Iraq, we took on a moral obligation to keep the peace as best we can while the people of Iraq develop the institutions they needs for self-governance. The military personnel who went into Iraq from multiple nations recognized that challenge from the start. Fashioning a working government out of the ashes of a fallen dictatorship would take courage, willpower and patience.

Both Hillary and Barack have suggested America walk away from Iraq. Bring the troops home. Give up. But – what happens next? Chaos. Civil war that leaves many thousands dead. As we have already witnessed, it will be Shia against Shia. Shia against Sunni. Shia Iran will link up with Iraq’s Shia population. Iran has enough military power to dominate Iraq and its vast reserves of conventional oil. It is only a matter of time before an Iran led coalition sweeps into the oil fields of Kuwait. Between them, Russia and Iran will then control over 41% of the world’s known accessible natural gas and over 29% of the world’s known accessible conventional oil. Can you guess what would happen to the price and availability of oil and natural gas? Would Iran be tempted to sweep on through the oil and natural gas fields of the Persian Gulf? The Russian Iranian coalition would then control 55% of our planet’s identified natural gas and 40% of its identified accessible conventional oil.

Will China send an army of 500,000 men into the Middle East to defend its interests? Neither NATO nor the United States have the military resources, or the fuel, to block the resulting military chaos and carnage. And we can expect Russia to warn the EU: don’t mess with the Middle East or we will shut off your natural gas.

Brutal. Isn’t it. Reality.

Fuel shortages are highly likely if war disrupts Middle Eastern production. That means long lines at the gas pump. You can expect to pay a lot more for natural gas, gasoline, diesel, propane, kerosene and heating oil fuels. And you will pay more for electricity. Expect to be colder in the winter and hotter in the summer. The price of everything you buy will go up. And you may be unemployed.

Yes. I know. This is a terribly pessimistic scenario. And none of the alternatives are much good either. And we can whine forever about how we got into this mess. But here we are. What do we do next? We need truth. A reality check. A frank discussion of our situation.

Will they evade these issues?

Probably. This is bad news and politicians do not like to talk about bad news. It makes voters nervous. Then they ask questions like: Why did you let this happen to us?

Our intellectual leaders are terribly misguided, be they from Europe, Australia, New Zealand, the United States or elsewhere on our planet. Members of the international elitist political clique are especially clueless. They worship the theology of misguided beliefs. Truth does not matter. Facts do not matter. Rational thought is rejected. Smug insider conviction rules.

Get out of Iraq. Ignore the consequences. Blame the Bush Administration, Republicans, Conservatives, America, corporations, and the rich (which pretty much means anyone who actually works for a living). Ignore oil depletion. It does not exist. Stop building coal power plants (except in China). Our reserves of natural gas will last forever. Shortages are a greedy corporate conspiracy. Ignore the reality of a resurgent Russia and a bellicose Iran. Placate Islamic extremists. Ignore the cultural changes now happening within the Muslim world. The list of obtuse intellectual reasoning goes on and on.

Hillary is singing the hymns of this philosophy because it is politically correct to do so. Barack has decided it is politically expedient to dodge these issues. And John dare not tell us the truth, least he be castrated by the media.

If you have read this far, you are probably very upset. These are unpopular concepts. But our political leaders appear to be reluctant to even discuss the consequences of our actions in the Middle East. That failure is incredibly irresponsible. We must work together. We must control the outcome. Because if we fail, we risk economic destitution and human carnage on a scale greater than we humans have ever experienced.

Let’s all ask Hillary, Barack and John to tell us how they plan to deal with the issues raised by this little essay.

Ron

PS: What would I do? My recommendations are outlined in two books – “Oil, Jihad and Destiny” which provides a detailed discussion of oil and energy, and “Detensive Nation”, a book that describes the kind of government we will need to deal with the challenges that lie ahead. Both books are available at Amazon. I place an emphasis on a realistic assessment of our options and a robust program of international cooperation.

Isn’t that better than killing each other to control our planet’s remaining oil and natural gas?

My peak oil interview is now up on Living Green.

In it, I discuss:
* when peak oil is likely to occur
* what specifically people should do to prepare
* what I’m calling “The New Game for Humanity”
* the role business can play in a post-peak economy
* the Relocalize and Transition Towns Movements
* and more…

You’ll find the interview at http://www.livinggreenshow.com. Scroll down until you see “Latest Podcast Episodes” and click on Listen Now beside #32.

The only thing I would change is that at one point I say that oil is running out, which technically is true (that started the day we began to use it) but the more important concept is that production is about to decline. Oh, well.

I hope you get value out of the podcast.

-Andre’
——————————

In a wide-ranging speech on March 13, 2008, James Schlesinger starts out with:

“We face a challenge, an immense challenge, both foreign and domestic.

The question is our ability to respond effectively to that challenge and that remains a bit problematic. In his study of history, a 12-volume study of history, Arnold Toynbee examined I think it was 27 civilizations and why some of them had failed, why they had collapsed and it was in response to a challenge that they could not handle, some specific challenge. And a question about which we might brood is whether the combination of energy and environmental challenges will be ones that we can handle, handle with severe damage or fail to handle.”
— James Schlesinger’s Speech at The National Academies Summit on America’s Energy Future – The Geopolitical Context of America’s Energy Future; Day 1, Part 3, March 13, 2008

He later points out:

“The National Petroleum Council, in its recent study…said that we will not be able to produce any more conventional oil after 2022, 2023, some 15 years out. Unlike the peakists, they do not attribute this to the limitation on resource but they attribute it to the limitation on access. But whatever the reason, bear in mind, we face a painful transition to the future in which we hit a limitation, a plateau as you were in the ability to produce crude oil and we might begin effectively to start making adjustments to that transition now rather than later.
Think of it in the large. We are producing 86 million barrels a day. We have a present decline curve of 5 per cent, 4.5 per cent. If you look out to 2030 and if you assume, as the EIA does, that conventional oil will rise to about 105 million barrels a day, that means that we must find or develop, given the decline curve and the higher aspirations, the equivalent of nine Saudi Arabias. I think the probability of being that successful is very low.”

I recommend that everyone listen to the whole speech (45 min).

Also, see an excellent 10-minute clip of Sadad Al-Husseini, former VP Exploration of Saudi Aramco discuss oil yesterday on CNBC.

At around 5:50:
Husseini: “Conservation is probably the best solution in the short term.”
CNBC: “Kind of hard to get there though before prices get to an elevated level where there is a motive, correct?”
Husseni: “There should be a motive right now and if it’s not being felt yet, it will be felt probably soon, in the summer or later in the year.”

Sadad Al Husseni on CNBC Video

Finally, Russia has begun its decline:

“Now we’re saying the production rate is falling this year. This is not a bogeyman, unfortunately, this is real,” says Yuri Trutnev, Russia’s Natural Resources Minister.

From a candlestick, the last four weeks are three advancing soldiers plus two which presages more strength.

As shown in the Daily chart on the left, oil continues in a upward channel (shown by the yellow straight lines) and ends up between the Upper Bollinger and the 5 day moving average. The last candlestick was almost a long legged doji with the upper and lower shadows both longer than the body. Resistance is $105.97 and $106.54. Support is at $103.91 to $103.95. Next support is at $102.49.

From a candlestick, the last four weeks are three advancing soldiers plus one which presages more strength.

As shown in the Daily chart on the left, oil has been riding just below the Upper Bollinger for four weeks. It is now below the Upper Bollinger but right above the 5 day moving average. Resistance is $103.05. Support is at $101.25. Next support is at $100.09.