Helping America Navigate a New Energy Reality

Americans Deserve the Truth about Potential Oil Crisis

By on 31 Oct 2011 in commentary

By Jim Baldauf and Jan Lars Mueller

Last week we and other representatives of the Association for the Study of Peak Oil & Gas USA (ASPO-USA) stood on the steps of the U.S. Department of Energy (DOE) to call for “Truth in Energy” concerning one of the most serious threats to our economy, national security, and environment: the prospect of an impending decline in world oil supply. The consequences of this milestone are far-reaching and potentially catastrophic. After a news conference at DOE, we delivered a letter to Energy Secretary Steven Chu summarizing our concerns and requesting answers to specific questions about DOE’s response to this monumental challenge.

The Energy Information Administration (EIA), a branch of DOE, has been providing to the public wildly optimistic projections that world oil supply will keep pace with rising global demand and prices will rise only moderately over the next two decades. This view of the future is misleading and fosters a dangerous complacency about the nation’s energy challenges. Such rosy forecasts are to be expected from industry sources; however, EIA is a public, taxpayer-funded body that, according to its mission statement, is supposed to be an “independent and unbiased source of information.”

Sadly, we believe EIA has failed to fulfill that mission in analyzing the future outlook for oil. EIA’s own data show that world oil production has not increased for the past seven years, despite rising demand and a dramatic jump in oil prices. How does DOE and EIA explain such an unprecedented trend, and does this trend signal a turning point in our long history with oil?

Potential constraints on world oil supply are downplayed in public information disseminated by DOE and EIA, in contrast to other prominent sources. The International Energy Agency (IEA), of which the United States is a cooperating member, indicates that global production from conventional oilfields has reached maximum levels and is entering a period of steady decline. A 2010 report by the Department of Defense’s Joint Forces Command identified a potential fall-off in world oil supply as a critical challenge for future military readiness. The Government Accountability Office conducted a study in 2007 that warned of oil supply constraints and recommended concrete actions for DOE to take. There is little evidence to date that DOE has responded to these recommendations.

Tad Patzek, professor and chair of the Department of Petroleum and Geosystems Engineering at the University of Texas, and a member of ASPO-USA’s advisory board, notes that EIA has been a preeminent source of historic energy information, but their future projections are not meeting the same standard. EIA predicts that natural gas liquids and unconventional sources of oil, such as Canadian tar sands, will offset declining supply from conventional oilfields. According to Patzek, however, this is like “comparing apples and oranges” given the great uncertainty about the rate and costs at which these unconventional sources can be developed on a global scale.

EIA forecasts for U.S. natural gas supply also fail to examine physical and economic factors that may limit future production, despite the current exuberance about shale gas development. EIA’s 2011 Annual Energy Outlook projects a continuation of low and stable prices for natural gas through 2035. Reports by the New York Times, however, suggest there is considerable uncertainty within EIA regarding the medium and long term potential for shale gas. Contractors with clients in the natural gas industry apparently helped develop the agency’s natural gas projections which raises additional doubts.

ASPO-USA is calling for DOE and EIA to openly and directly address the possibility of an impending oil supply crisis and persistent oil shortages. EIA also needs to provide much greater transparency regarding how its projections are developed. ASPO-USA is further calling for DOE to lead the development of a National Oil Emergency Response Plan, which would assess the consequences of declining world oil supplies and plan prudent responses. A National Plan would help Americans prepare for and adapt to an uncertain and rapidly-changing energy and economic future. DOE and EIA have a critical role to play in understanding and confronting this national challenge. They can start by providing reliable information.

Jim Baldauf is president and co-founder of ASPO-USA. Jan Lars Mueller is ASPO-USA’s executive director. ASPO-USA will be holding its 7th annual Peak Oil Conference in Washington DC, November 2-5, at the Capitol Hill Hyatt.

7 Comments

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  1. Bill says:

    You made a noble effort, but I fear that there is very little chance that any agency of the United States Government will ever make a public statement that would harm Wall Street. Imagine the economic (and political) impact of a report that predicted all the unpleasant results of peak oil appearing all over the Internet, the front page of most newspapers, and on the evening news. Any bureaucrat (I used to be an inconsequential one.) who would issue such a report would be replaced within days. Statements from the White House about why they were so wrong would soon follow. Remember the budget director who warned Reagan of the danger of the increasing Federal deficit, David Stockman? He got fired. You think he was right? Yep, but right doesn’t get in the way of short term profit on Wall Street, or re-election in Washington.
    The best we can hope for now is economic stagnation that might reduce the growth of petroleum demand, along with the sale of more electric vehicles as the oil price goes up. Hopefully, the rise will be gradual enough that the electric cars can have a chance to put enough of a dent in oil demand to keep the price from exploding and collapsing the economy.
    Also remember that Chu is a physicist, not an economist. You can’t look at oil in the vacuum of only supply. You need to consider how expensive oil will cripple the economy long before it becomes scarce. The scientists neglect the economics and only look at how they could cook oil out of shale, never thinking at what oil costing that much would do to the American consumer. The economist assumes that a rise in price will bring all the oil we need onto the market through a higher price. They think that too high a price will cause demand to fall and oil replacements to emerge. Then don’t appreciate the fact that there is no replacement for oil at any price humanity can begin to afford, and that the less oil you use beyond a certain point, the more the economy will contract. That is called a recession/depression, a condition with which our economic system is not designed to operate under for long.
    All of them will be enlightened sometime between 2015 and 2022, unless horizontal drilling can drain a lot more oil out of existing fields. That could flatten the top of the peak oil curve, where we are now resting, quite a bit. And Iraq and Venezuela have the potential to also keep production flat for as much as a decade with sufficient investment. I would bet on Iraq more than Venezuela, but sure wish it was possible to safely invest down there.

  2. yves75 says:

    Is there a video of the talk available somewhere ? Or will it be made available soon ?

  3. cameron conacher says:

    Oil in place is not the same as oil available at present technologies and economically recoverable. For conventional oils about 30% is recoverable (thru a variety of means to include horizontal drilling) of oil in place. For non conventional oils it is much tougher to recover oil as Economic/Energy return on investment (EEROI) comes into play. Result is typically much smaller oil production ensues for non conventional oils. As most oils are conventional depletion of, say 5%, can not, in the long term, be offset by non conventional developments unless very large sums of investment infrastructure are created to get the oil out of the ground. Current oil prices of 90+$ might work but impoverish most folks disposable incomes. For a big picture of 1800 Gigabarrels of conventional oil available about 1300Gb has been produced or 72%. Many fields with horizontal wells ‘top out production’ at 80% so in theory world conventional oil declines start in about (30Gb/year consumed) 4.6 years if every nation used horizontal wells and all oil was easy to get conventional. So we have about 4 years to put in place non conventional oil recover. With this administration concerns (for better or worse) with CO2 allowances, ecology, overseas risky oil recovery techniques, it seems unlikely unconventional oil recovery infrastructure will be build in time (the drill baby drill groups).

  4. Eddie Devere says:

    Production of oil and natural gas in the US has been increasing, and in addition, there has been an increase in proved natural gas reserves in the US every year since 1998.
    http://www.marcellus.psu.edu/resources/PDFs/EIA.pdf

    While I understand that the price of natural gas and oil might increase in the future, I don’t think that this implies an impending crisis. If the return on investment of oil and natural gas decreases (but stays well above 1.0), then this just means that a larger percentage of our population will need to work for the oil and natural gas industry. It just means less rock stars and comedians and more drillers. (Less Margaritaville Margarita-Making Machines and more drill pads)

    I suggest that the people who contribute to this blog should spend their time and their money developing new energy resources rather than spending their time and money worrying about and preparing for a crisis that will only come if they convince enough people to stop developing new energy resources.

    There’s plenty of potential energy sources (i.e. exergy) for us to grow our society. Peak oil will only come if we want it to come, not because this is some required future state of the world.
    http://gcep.stanford.edu/research/exergy/resourcechart.html

  5. john wegan says:

    If truth isn’t timely, it’s just as valuable as myth. It’s November 13 and yet the presentation slides from this year’s conference aren’t available yet. Hard to convince people of the urgency of the situation when there is such a delay.

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